Madoff Stanford and FBI has 2300 more investigations to do.
Posted on 02/19/2009 4:29:12 PM PST by Ernest_at_the_Beach
In the long run, when we are all dead, historians will be debating the root causes behind the global financial meltdown of 2008. They will join up multiple dots, just as they did after the September 11 terror attacks. Among the precipitating factors, toxic mortgage debt securities grossly inflated banks’ balance sheets and investors’ portfolios. Credit rating agencies blessed those assets’ illusory values. Real estate tumbled in a vicious downward spiral, while steep oil prices helped reverse the business cycle.
Inadequate regulation, in America and elsewhere, clearly exacerbated all the other drivers. Specifically, when regulators permitted major American investment banks to take on more leverage, they “made the dollar amounts larger and the margin of safety less,” describes Barry Ritholtz, director of Equity Research at Fusion IQ. Imagine climbing up the outside of a building. The leverage lets you climb higher, and also takes away the safety equipment.
(Excerpt) Read more at realclearmarkets.com ...
Madoff Stanford and FBI has 2300 more investigations to do.
I bet a lot get away with it due to the FBI not being able to get to them all.
Not this crap again.
Oh there's way more where that came from. This piece is chocked full of it.
But instead of reading this ode to Socialism check out this comment someone posted (check out the money quote at the end!):
There is so much wrong with this article, I hardly know where to begin.
First of all, where did the investment banks get the money to leverage with in the first place? From the Federal Reserve, which pumped out dollars like there was no tomorrow from 2001-2004. There is your root cause. You cannot leverage that which does not exist. If the Fed had not been recklessly pumping out fiat currency, there would have been no need to expand the financial infrastructure--and when the Fed pumps out dollars, there *is* a need to expand the financial infrastructure. This crisis is one gigantic argument for a free monetary system backed by a gold standard.
Second, Basel II is restrictive in nature, not freewheeling. It is laughable to claim that the investment banks were given some sort of free hand. William Isaac warned you guys about Basel II, but you shills for statism were in denial, and now all of a sudden, you decide to scapegoat laissez-faire for Basel II. Basel II is *your* baby.
Third, increasing leverage is neither intrinsically right or wrong, neither intrinsically rational or irrational. Whether it is right or rational depends on the context. Where the economy is productive enough to back it up, then increased leverage can be merited. The question is, why wasn't the economy really productive? And why were financial operations and other start-ups being expanded so heavily overseas and not in the U.S.? If you do-gooders hadn't decided to impose Sarbanes-Oxley on the private sector, we wouldn't be in this jam right now. SOX decreased productivity, sent activity overseas, and was the legal basis for the mark-to-market rule (which William Isaac also warned you about). More about mark-to-market in a second.
You blame inadequate regulation for this crisis. First of all, the nonexistence of regulation or enforcement is a non-entity. Therefore, it cannot cause anything. If it exists, it can act as a check on growth or activity. Where it doesn't exist, it cannot "cause" anything; only existents can cause something, and I think you know where I am going with this...Sub-point number 2: How is it that you describe the SEC as understaffed and inadequate when they could find the time and effort to start enforcing a slew of accounting rules on the private sector, and continue to do so? They could spare the manpower and effort to implement, hold numerous hearings and roundtables on, and research and report on the benignity of the fair value accounting rules, but they are understaffed to regulate the market? How do you figure? I seem to recall that the SEC was warned by more than one party that Madoff was operating a scam, and one of the parties even brought mathematical proof. I submit to you that lack of regulation or manpower at the SEC is not one of our country's problems.
Which brings me to another point. You seem to have this worldview that freedom is inherently self-destructive, and that regulation and freedom must be balanced precariously in some sort of inauspicious universe in order for there to be growth. Wrong! What is your evidence for such a ridiculous position?
Which brings me to my next point. There is no "theological faith" on the part of the laissez-faire thinkers. We *know* that freedom works because we can look around and *empirically* determine that when markets are freed, they explode in growth, and when they are regulated, they stagnate. The only ones operating on faith here are the advocates of increased statism, who believe but have no evidence that regulations are necessary. (Only the enforcement of objective laws against fraud and force are necessary). You seem to believe that regulations prevent parties from going irrational or crooked and destroying the system, but you offer no evidence that the market in general was irrational or crooked. You assert it as fact, but it is not fact. They respond to the hostile conditions the government/Federal Reserve complex give them. If you think that there is an inordinate number of market scams going on today, then you should ask yourself why there aren't enough legitimate opportunities to make money and re-read my fourth paragraph.
Your shill for statism gleefully states, "We can only imagine there must be high levels of cognitive dissonance among libertarians right now." Well, you got that right--it is *only* in your imagination. If anyone is actually feeling cognitive dissonance right now, it is you statists. I am feeling very cognitively comfortable. Where is your analysis of the role of the GSEs, the CRA, the FHA, the credit rating rules, the accounting rules, the government's endless home-ownership incentives? Where is your analysis of the role of unfree money in all this? I could go on. You have a lot of 'splaining to do.
You statists OWN this crisis. It is literally all your fault, and eventually, the world will know it.
These decisions were not made randomly or by the market, but politically and by politicians. If there were zero government regulation we would be very cautious. Instead we suppose the cop and the criminal are on opposite sides. Sadly, we are duped every time.
Why is Barry R presumed smart? Because he can post graphs or because he swears like a pretend urban tough guy? If he were so smart he'd be on vacation more and posting less. He's another broken clock, captain obvious, I told you so Wall Street Democrat. Did you dance with Obama at the Inauguration, Barry?
“Not this crap again.”
Frankly, I think the author may be right. I also think that laissez faire, internationalist capitalism, as practiced with increasing frenzy since the Reagan years, is as dead as a dodo bird for the foreseeable future, at least in the West. Its high priests and most committed devotees killed it off. The only remaining question is whether the people will allow it a relatively quite death or whether they will mutilate the corpse with some sort of a revolution.
Barry, Barry...crickets.
There, it's fixed now.
“There is no “theological faith” on the part of the laissez-faire thinkers.”
Really? Just about the only time I get confused as to whether or not I’m on a religion or news thread hereabouts is when laissez faire capitalism and “free markets” are being discussed.
You think what we’ve tried is Laissez-Faire capitalism? You think we would have a mortgage crisis if it wasn’t for the Feds?
Damn. That is a money quote. Thanks!
I heard a story on the radio that all of this happened because of the business school mentality of Wall Street types. They believe in their models but have no real-world experience, therefore no judgment.
Of course, there are plenty of ordinary people out there who mortgaged themselves to the hilt and are now totally under water.
Must be a cultural thing.
Bravo!
“You think we would have a mortgage crisis if it wasn’t for the Feds?”
Absolutely. I sat in my office and watched it happen, not with small local banks or credit unions, but with “mortgage brokers” and “mortgage companies”. It was all, every bit of it, driven by fraud, mostly in the area of appraisals, greed to a level I found astounding and a sense that people “deserved” their huge houses with the granite counter tops at 29 years old. Everybody was getting a cut along the way to the big banks, HSBC and Deutsche Bank spring to mind, but BOA and Chase and Citi were there too, which then packed these lousy loans up into trusts and sold off units as investments, mostly to each other. The Feds were off napping while it was going. Its simply untrue that those Clinton era regs which all but forced banks to make loans to “minorities” who otherwise wouldn’t qualify caused this. There weren’t enough of them, A. And now, in order to salvage something for the bankers and their stockholders, you and I, people who never missed a mortgage payment over decades, will get handed the bill for the bailout of the imprudent debtors (who will get the ultimate in sweet heart mortgage rates; I know, I reviewed papaers for one such workout yesterday) and the greedy lenders.
There was none of laissez faire present in this crisis. Instead, we had Democratic overreaching regulations like CRA (Community Reinvestment Act by Carter and Clinton), GSEs (Fannie Mae / Freddie Mac "public-private" Third Way institutions), SOX (Sarbanes-Oxley act that is chocking inflow and speeding up outflow of capital from US), FASB Rule 157 ("fair value" / "mark to market" that renders solvent institutions insolvent and prevents mergers, along with many other stupid FASB rules), a myriad of do-gooder "discrimination" litigations, along with resistance of Democrats in Congress to any reasonable limitations on these regulations and institutions, including intentional sabotage of the economy by Messrs Dodd, Frank and Schumer, among other things that led to this crisis.
Far, far from laissez faire...
The Bush administration let these thieves run wild and now the taxpayers are on the hook for this debacle
“The Bush administration let these thieves run wild and now the taxpayers are on the hook for this debacle.”
Yes, the Bush Administration did precisely that, but the problem and the blame goes back to Reagan and was shared by GHWB and Clinton.
This started before the Bush Administration....
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