In this case, I hate to say I told you so but I did and I’m not the only one. Rob at Fact-esque points to an FDL post that harkens back to a GAO report that laid it all out 14 years ago when the derivatives market was invented. Under Clinton. Who also had little interest in regulating the financial sector that provided him mucho campaign dinero. Despite the heavyweights who are denying all knowledge that anything was amiss.
Alan Greenspan was forced to admit he had “put too much faith” in the power of an unrestricted market, which is a bit like a Japanese filmmaker saying he put too much faith in Godzilla. “Too Much” belief in a cartoon of the real world is not exactly a forgivable, legitimate reason for allowing the planetary economy to self-destruct because, after all, your rich friends got a whole lot richer for a while there for as long as they could maintain the myth. “Sorry, I didn’t realize stomping on your head with hobnail boots was going to crunch your skull” a) doesn’t do me much good when I’m dead and b) isn’t credible since everyone who has ever seen a boot or a skull and isn’t a MORON would be able to tell what would be likely to happen when they met.
Well, the system had to implode – again – but all of a sudden even the bankers are paying attention. They get it.
It was an old-fashioned bank run that forced Bear Stearns to turn to the government for salvation on Friday. The difference is that Bear Stearns is not a commercial bank, and is therefore not eligible for the protections those banks received 75 years ago when Franklin D. Roosevelt halted bank runs with government guarantees.
Bear was, instead, emblematic of a financial system that grew up over the last two decades, one that largely marginalized traditional banking and that enabled lenders to evade much of the regulatory framework that had also begun during the Roosevelt administration.
The new system enabled loans to be made by almost any financial institution with the money coming from the sale of increasingly complicated securities backed by the loans.
Regulators believed that the new system spread out the risk. Alan Greenspan, a former chairman of the Federal Reserve, said the system had transferred risk from banks — which he called “highly leveraged institutions” — to “stable American and international institutions.”
It turned out he was wrong. Much of the risk had remained with commercial banks, but packaged in such a way that they were required to put aside fewer reserves to protect against losses. Much of the rest of the risk ended up with financial institutions that relied on their ability to borrow at low rates whenever they needed it.
“A sizable fraction of long-term assets — assets with exposure to different forms of credit risk—ended up in vehicles financed with very short-term liabilities,” Timothy F. Geithner, the president of the Federal Reserve Bank of New York, said last week in a speech. “As is often the case during periods of rapid change, more significant concentrations of risk were present than was apparent at the time.”
Speak for yourself, Forked-Tongue Tim. It was apparent to me when I was arguing against it in the 80’s. You didn’t see it because you didn’t want to see it. It was perfectly obvious to everyone else.
Greed makes you go blind, Tim. Didn’t your Ma ever tell you that? Or were you stealing change from her purse at the time and not listening?