Given the opaqueness of the contracts, it become impossible for auditors to say more than "their lawyers say it's good" and audits are worth less than the paper they are written on.
The Economy was a mess when this guy was in charge. I couldn’t get passed his name in the article.
We also need to address “too big to fail”. In this case, anti-trust regulation makes sense. If a private firm - any private firm - is so big that it has to be rescued when it gets into trouble to avoid taking the entire economy down with it, then it is too big. Divide the assets and liabilities of such firms into two or three new companies and let them compete.
If the firms that were overleveraged with risky derivative trading had been allowed to fail in 2008, with investors taking the losses and top executives held accountable, the market would have limited derivative trading on its own. Instead, irresponsible management was largely rewarded.
“We simply should not countenance a residential mortgage market, the largest part of our capital market, dominated by so-called government-sponsored enterprises,” Mr. Volcker said in his speech. “The financial breakdown was in fact triggered by extremely lax, government-tolerated underwriting standards, an important ingredient in the housing bubble.”
The only way to stop major economic debacles like this one is to get the government out of the economic planning business.
Mr. Volker was one of Obama’s economic advisors. He signed on to Obama’s spending binge. Any credibility he had as a voice of reason went out the window when he supported one of the most liberal senators for president.
“The banking lawyers and other bureaucrats strongly oppose making derivatives more transparent “
Investment banks, not commercial banks. They lobbied hard to make sure that derivatives remained unregulated.
Derivatives need to be on something like an exchange so that they aren’t hidden from view.
Gretchen Morgenson is one of the few reasons to read the NY Times.
The problem with Moody's, S&P, etc. starts with an oligopoly market with little to lose when they "err." When the assets at risk WILDLY exceed the assets of the rating agency, there is every temptation to take the money for a bogus rating and either stiff the market (as we saw) or fold if it blows up. OTOH, a rating agency that insures itself for error by whatever degree has a financial stake in accuracy because its track record will inflect the cost of coverage and therefore the cost of its services in a competitive market. Thus, the real problems are market structure and socialized risk, as we have seen.
As with so many other national problems, the lack of regulations , is really NOT the issue.
The absence of reliable, predictable and honest enforcement is the real issue....IOW...Federal employees NOT doing, or refusing to do there jobs. The Federal Government size simply exceeds Congress’ capacity to provide appropriate oversight.
http://abcnews.go.com/GMA/sec-pornography-employees-spent-hours-surfing-porn-sites/story?id=10452544
For what its worth, the Founders insisted upon 1:30000 Congressional apportionment in 1783...which should give an idea of the expected oversight Congress was expected to provide by the Founders. That would equal a Congress of about 10000 representatives today.
Instead we’re almost at 1:500000 today.