Published: Sunday, Sept. 15 2013 12:00 a.m. MDT
Once again, I'm left wondering if I'm reading the Deseret News. An
article one can agree with.
It's intriguing to read an op-ed about the financial crash that manages to
not mention in any way the extraordinary malfeasance of the financial sector.
David Smick, author of The World Is Curved, argued:“Instead of
engaging in risk management, the traditional role of bankers, the new bankers
engaged in risk dispersion, thinking they had discovered “riskless
risk” with the added benefit of enormous profits."And:"Securitization contributes one other huge weakness to today’s
financial system: The bankers who engage in lending are no longer tied to the
risk of the borrower. The lender no longer has the incentive to avoid dangerous
risk at all costs because the risk, when cut up into pieces, is quickly shoved
out the lender’s door to be packaged with pieces of other risk and to be
sold as investment to the unknowing global financial community."Regulators didn't reign in the financial monster, but blaming regulators
without also blaming the banking industry is like blaming the fire department
for not saving your house while ignoring the arsonist who set the fire.
Fascinating straw-man argument by the Heritage Foundation, that bastion of
economic wisdom. I followed the meltdown of our financial system in 2008 very
closely. I don't recall ever hearing that the government's decision to
not bail out Lehman Brothers precipitated the crisis. It seemed rather clear at
the time that Wall Street's reckless investment in speculative financial
instruments called derivatives is what led to the mess. Unfortunately, the
derivatives market is still largely unregulated and trading is not transparent
at all. This market, by some accounts, is as large as $1.4 quadrillion. The
notional value is pegged at about $700 trillion, or ten times the size of the
world economy, much larger than it was in 2008. Apparently we didn't learn
anything from past mistakes. Because of this, Forbes magazine is predicting
another meltdown.As a side note, the conservative history rewrite
that claims the bailout of Wall Street was not necessary is a fairy tale.
Necessary, yes. Savory, no. Sort of like taking nasty-tasting medicine. You
gotta do what you gotta do. But it's better than letting the patient slip
into physical collapse.
The total failure of the financial system and the end of liquidity caused by the
banks gambling and hedge fund leveraging, would not have been a good thing. This
is revisionist spinning hoping to ignore the facts and reality. We do need to
break up the financial institutions and regulate the risky gambling now to
prevent this catastrophe from happening again. The Feds policy is correct and
that is why the gold bubble burst.
More conservative drivel trying to cast blame for the mess away from the
conservatives who caused it.
Roger Terry has it right.Any way you look at it, the failure of
Lehman was a seminal event. It may less have been the government's
decision not to save it than the fact that a second big investment house (after
Bear Sterns) was in deep trouble. I recall the mood was very dark when the news
about Lehman broke.It highlighted exactly how risky the derivative
markets were and how little the quants at these firms actually understood. We
were just beginning to understand that unwinding this mess would be huge and
complex. The question on everyone's mind was "how deep might this
problem go"?Effective regulation was not present in the
derivatives markets. Those in charge thought that the markets would take care
of themselves. They did. Markets are self-regulating. Left to their own
devices they will punish the "bad" and reward the "good". But
there is no limit on the amount of collateral damage.Regulation
inherently makes markets less efficient and skews profits. But it also can rein
in excess and prevent some of the worst problems.Effective
regulation would have allowed us to avoid much of this mess.
I'm not sure where Lehman Brothers and Bear Stearns fits in but this is how
I remember it.Government debt going up because of the Bush tax cuts
and two unfunded wars.Gasoline prices went sky high that summer and
hurt a lot of people.Real estate values going sky high, people
getting second and third mortgages, buying lots of stuff they didn't need
(me included) and then boom, the real estate bubble burst and homes were 1/2 or
2/3 the value almost instantly. People had personal debt that was sky high but
could no longer use their house to refinance this debt. Freddie and Fannie and
a lot of banks making loans to people they knew couldn't afford the loans
if things went south.Predictably the stock market crashed hurting
investors of all levels.Over time property values went way down
causing local governments to suffer anything from bankruptcy, to budget cuts to
stagnate wages for their employees.The government and businesses
retracted just making things worse. Bush tax cuts continued, along with more
stimulus and more debt.Many people weren't individually
prepared for this downturn.
Re: ". . . the main driver behind the whole financial crisis: investing an
enormous sum of borrowed money in worthless securities."Which
is, of course, tied directly to liberal-directed government intervention in the
marketplace, in the form of a "thumb on the scale" in favor of deranged
borrowing practices, intended to buy off greedy constituencies on both sides of
the lending-borrowing merry-go-round.That the US economy, which is
so closely tied to the well-being of real people is so dependent on this
ponzi-like liberal scam is scary, indeed.
"Lehman's failure was caused by the main driver behind the whole
financial crisis: investing an enormous sum of borrowed money in worthless
securities."All well and good... but the real question is, how
did those worthless securities get to be worthless? We know the answer...
Worthless securities arose from the issuing of sub-prime mortgages to people who
couldn't afford, and didn't intend, to continue to make monthly
mortgage payments. And of course, the banks issuing sub-primes weren't a
bit concerned because they calculated that the asset held as security for the
sub-prime would increase in value forever and could be disposed of at a profit.
Well, they miscalculated. The Wall Street and finance quants weren't as
smart as they thought they were.Then the question comes... who is
responsible for allowing sub-primes in the first place... And the answer...
Senate Finance Committee Chair, Chris Dodd, and in the House Finance Chair
Barney frank. Notice they have both quit their positions in the Senate and
The real reason for the 2008 financial collapse?A: George Walker
@LDS Liberal:"The real reason for the 2008 financial collapse? A:
George Walker Bush."True. Bush is responsible for every bad
thing that has happened to this country. He's even responsible for the
wars in Iraq and Afghanistan continuing for the last five years while Obama was
lounging in the White House with his feet on the Resolute Desk. And, of course,
he is responsible for raising the national debt by almost $7 trillion over the
last five years... a debt increase that exceeds all the increases by all the
former presidents combined.
Thanks to Twin Lights and Roger Terry for their sensible responses to this
@LDS Liberal,If the only reason for the 2008 financial collapse was George
Walker Bush... why didn't the markets collapse when he took office, or
after 9/11, or after Iraq, or when he was re-elected?Why did the
market wait till he was a year from leaving office (and it was obvious that
Democrats were going to take over)?These are some important
questions to answer IF your theory that Bush was the only reason for the
collapse is right.I think the lenders gave mortgages to people who
couldn't pay, AND the people who took mortgages they knew they
couldn't afford, need to take SOME responsibility for it (not just
Bush).But blaming it all on one man (Bush) is classic behavior for a
politico like you.
Let us be clear than neither Bush nor Obama are the principal cause of the
crash. Nor are Senators Frank or Dodd.This new market mechanism
built up over time. It was ignored by successive administrations on the theory
that the markets would take care of themselves.It is an outgrowth of
the laissez-faire banking and financial market concepts endorsed by Reagan, Bush
I, Clinton, Bush II, and Obama.Plenty of blame for everyone -
Democrat or Republican. No need to try to hoard it for one party or the other .
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