Email of the Day
A C&Ler named mc sent in this very good e-mail about the causes of the financial meltdown we've just witnessed and the people who helped cause it.
I have almost 40 years of experience as a retail banker and financial services provider. I opened, managed and served as country head in Spain, Korea, Canada and the US. I would like to contribute comments and blogs.
It is not so difficult to find the people who should be held accountable for the financial meltdown of 2009. It seems, however, from 2001 until the present day nobody tries to find anyone responsible for anything.
There are 2 people in government that bear the bulk of the responsibility for our financial meltdown as well as the presidents of all banks that participated in the approval of mortgages with substandard credit criteria and the packaging and selling of such mortgages as asset backed securities. Additionally, all of these banks had, or should have had, senior risk asset management committees who were equally responsible. In each case they understood the risks and didn’t care as long they increased compensation for themselves and their company
As for the politicians, 2 of them bear the primary responsibility of these bankrupting financial policies. We need look no further than John McCain’s financial advisor Phil Gramm. Gramm, on Dec. 15, 2000, snuck into a congressional bill an act which prevents the government from regulating investment banks’ credit swaps. Gramm is the one who called Americans whiners and told us that the crisis was in our heads. McCain considered him for the position of Secretary of the Treasury.
Equally responsible for our economic crises was the SEC chairman (Christopher Cox), who changed a key regulation in 2004. Under pressure from those who wanted to please their campaign contributing Wall Street buddies the SEC approved a measure that let investment banks lend out 30 times the amount of capital they had backing up their loans. Before 2004 they could only lend out 12 times the amount of capital.
A solution to the banking meltdown that would prevent it from happening again would be:
1) Reinstate the regulation of CDSs and CDOs by the SEC (assumes increasing head count & improving the quality of staff).
2) Reinstate the 12 to 1 leverage ratio.
3) Require increased capital by product where the riskier assets require more capital reserves
4) Create a regulation that requires each sale of packaged assets by a bank or investment broker to provide some percentage of recourse to the purchaser.
5) Make the board of directors have fiduciary responsibly to stock holders and face fines and civil charges
There are others that share a lot of the blame too, like Bernanke, and no doubt he could name them too. But this is right on: The conservative mania for deregulation -- they like to call it "small government" -- is the root cause of our economic meltdown.
And Sarah and the Tea Partiers are still trying to sell us on the idea that more of the same is what we need. Because, you know, a nice PCB cocktail topped off with a cigar is just what you need to cure cancer.
I am here to tell you that the Democrats will not fix what is wrong because the are already bought and paid for by the Wall Street Mafia.
But the Mob doesn't like being called Fat Cats, even though they have nothing to fear from the regulations being proposed (Volcker Rule et al) which are too weak to do the job but too strong to pass the Senate.
The article in the NYT here explains everything you need to know about the political situation.
Obama talks a good talk but he doesn't deliver.
That means for him and the country a lose-lose situation.
And: Bernanke (credit bubble, what credit bubble?) was reappointed by Obama, and reconfirmed by the Senate, in case it escaped anyone's attention.
statusquObama, change you can only pretend in
doesn't write legislation. Congress does and it will be up to them to put in proper regulation. The situation is not as grim, as far as getting proper regulation goes, as you might think. Wall Street will naturally be trying to desperately influence this in both the near term and in the next election cycle. The latest SCOTUS ruling may tempt them to pour money at this issue but I think that will backfire massively on them. I know I wouldn't want to be standing for election with a pile of bank and bank lobbyist PAC money on my fund raising reports. I'm not sure if you've noticed but Wall Street bankers aren't terribly popular right now, not even with the teabaggers and a few public reminders that the banks are using TARP money only for bonuses and lobbying against regulation should make for an interesting time for the right wingers.
Hasa Diga Eebowai
The Fed Chief has considerable power.
From PBS The Long Demise of Glass-Steagall
Alan Greenspan:
The Long Demise of Glass Steagal, Jesse here
From the letter to the NYT editors March 1995 here
It was a long time plan in fruition. They hacked away one stage at a time.
It was Clinton, Greenspan and Rubin.
Bernanke came in late, he had an opportunity for corrective measures but he didn't act.
statusquObama, change you can only pretend in
that this was any sort of conspiracy involving politicians like Clinton. I doubt that very many politicians have the slightest idea how Wall Street works. Clearly lots of people who work there don't. I think they were sold a bill of goods. The Wall Street crowd may have planned to make a pile but they didn't plan to destroy the economy. I'm quite certain Greenspan was honestly convinced that self-interest was all the intervention the market required. He was completely wrong, true, but that doesn't mean he didn't believe it. It will be interesting to see where Greenspan comes down on the side of regulating default swaps. Don't be surprised if he comes down on the side of the angels. Guys like Greenspan hate being wrong more than anything in the world.
Hasa Diga Eebowai
You use the word conspiracy.
I use the word: free market.
The Fat Cats want to run amuck and they want to be bailed out after the crap hits the fan.
The want control.
Read the articles.
Watch this interview with Janet Tavakoli on CSPAN (she is an engineer and now a financial wizard) here.
statusquObama, change you can only pretend in
Foisting $4 trillion of fraudulently contrived and fraudulently rated securities into the world market is something that deserves investigation and prosecution.
statusquObama, change you can only pretend in
Just willful ignorance.
The Chicago school preaching that the Great Depression never happened (or, at least, could never happen again) is simply moronic.
One should be required to learn the lessons of the Great Depression (now we have two case studies!) before being anywhere near the head of the fed or the SEC.
failed to factor in greed?
He just thought that greed would drive their long term interest instead of their short term interest. Seeing as most people have a hard time looking beyond this week's agenda I can only speculate as to why this is so. I think he had more faith in human greed as a productive force than I'll ever have.
Hasa Diga Eebowai
You are what? Canadian?
Please do research.
The Financial Services Modernization Act of 1999 which was the final nail in the coffin of Glass-Steagall and the Commodities Futures Modernization of 2000, which prevented States from enforcing EXISTING Bucket Shop (anti gambling) legislation are well if not widely know as the legislative denouement that set us up for what followed.
statusquObama, change you can only pretend in
And who signed that into law...Smiling all the way??
Oh yeah...Bubba.
"I can't keep doing this on my own with these...people."
And like all of the other politicians and most of the bankers didn't have clue what the real consequences would be.
Hasa Diga Eebowai
Watch the Tavakoli video, you will understand more.
Foisting $4 trillion of fraudulent securities takes considerable understanding of what would happen when they failed.
They are BASED on LIAR LOANS.
That is the industry term.
What more would one need to understand that there is FRAUD afoot.
These guys are crooks.
It is crime scene.
statusquObama, change you can only pretend in
Yes, Clinton deserves some of the blame, but that Republican Congress was the biggest bunch of criminals ever assembled. Why isn't Tom Delay in jail yet?
That CFMA was snuck into an omnibus spending bill. It wasn't within budget rules to pull that shit.
Soon, he will pull something like this: A man who murdered his wife asked the court to show him mercy because he was a widow. And in Texas, that might work. DeLay will make a motion to dismiss the charges against him because he was denied a speedy trial, as is his constitutional right. His motion will gloss over the fact that HE is the one who stalled, and not the prosecution. He'll probably be successful. There is hardly any justice in this country, so all the prisons should release the inmates. The rule should be all or none.
to imply that I'm some sort of ignorant northern hick. Alice. Alice. I thought you didn't like ad hominem argument? I am fully aware of the legislation involved. In fact I think I can honestly claim to have a clearer understanding of American issues than most Americans. I wonder if you could claim a similar understanding of mine.
Hasa Diga Eebowai
The Canadian reference is that you should mind your own business.
I have spent considerable time in Canada (I am in Detroit) but I don't enter into your affairs.
statusquObama, change you can only pretend in
For Americans only. Sure you haven't got a little Stalinist tucked away in your portfolio of philosophies Alice? It may come as a shock to you Alice but what happens in the US has a profound influence on what happens up here in Canuckistan. Hence my fascination.
Hasa Diga Eebowai
I am providing you with considerable information that you should avail yourself of.
The American economy does impact you rather dramatically.
Witness the
TarOil sands of Alberta, and the travesty that is happening there.statusquObama, change you can only pretend in
Feel free to criticize your neighbors. It's not like their aren't enough things to target. I would be happy to give you the guided tour. We have a dysfunctional national police force, political corruption, regional tensions, aboriginal issues, an unacceptable level of child poverty.. you name it. An outside view would be refreshing but sadly few Americans are interested in anything north of the 49th parallel.
Hasa Diga Eebowai
I think there is a little bit of Minnesota that goes up that high. And I'm fascinated by some of the green things from BC that make their way down here.
we are justifiably proud.
Hasa Diga Eebowai
just don't bring up the goddamn Olympics!
I am genuinely interested, if I thought I could get across the border I would go to Toronto.
I use to like to go there. I still would.
Your problems, as serious as they seem to you are miniscule.
You are not spending $1 trillion per year on a perpetual war machine.
WE ARE.
You are not spending half of your GDP bailing out Wall Street crooks.
WE ARE.
We will collapse.
statusquObama, change you can only pretend in
Unworthy of you.
Then you make your own comment about the Tar Sands.
I could say, none of your business. But that would be stupid.
The Tar Sands is our business, literally.
The pipeline is projected and approved to go to Superior Wisconsin.
You are being had so we can drive our SUVs for a few more days until the collapse.
statusquObama, change you can only pretend in
are a a provincial resource and part of those regional tensions I mentioned before and over which the vast majority of Canadians have no say. Such are constitutions. There, I snuck in some Canadian content.
Hasa Diga Eebowai
You Canadians with your skunky beers and pretty money. I bet all you guys do is eat moose and watch curling.
Seriously, though, Alice, WTF?
Peter is talking about the banking industry - which even among marxists has to function - and you are telling him to mind his own business simply because he refuses to accept your overly simplified rhetoric? Get over yourself.
Peter, I welcome your input. Despite your obvious expertise in finance (which for some reason is a negative) you seem to have good intentions.
Among Marxists there is no Banking System.
I am providing considerable information.
Peter G is way too gentle a fellow, given his Canadian background, to tough it up with the Wall Street Mafia.
statusquObama, change you can only pretend in
Communication is a two way street. I appreciate the link to the video, but even Ms. Tavakoli would recognize the value in some of the things Peter is writing. Nobody needs to be tough on the intertubes right now.
Dude?!
Peter G and I have been tossing insults for some time.
statusquObama, change you can only pretend in
They aren't much different from Canadians. My American girl friend wouldn't like it much either if I didn't and she has very little trouble making her views known. (Quite refreshing that.) And the truth is I like Alice althoug I give her a needle from time to time. She never brings a knife to a gunfight. She does sometimes bring a Library. I'll go a little passive/aggressive here and say: I sure wish she'd give me more of her own analysis and less links to chase down. I try to use what I learn to form my own opinion and that is all I want to offer here. I'm not here to educate the masses but I love a debate.
Hasa Diga Eebowai
I am giving you my analysis, which is contrary to yours.
Wall Street and the Financial Services Sector is a crime scene.
statusquObama, change you can only pretend in
If there'd been any laws.
Hasa Diga Eebowai
There is more than ample latitude in statutes of fraud and misrepresentation, put most simply.
Lawsuits are in process.
My house outside of Detroit has lost 75% of its peak value, which because of the depressed Detroit situation was never above the fifty year trend line.
My pension fund is on the critical list.
These bastards knew what would happen.
If you read nothing else read the 1995 letter to the NYT.
statusquObama, change you can only pretend in
is much lower than that of criminal prosecutions. Good for us.
I imagine they'll be enough tort issues to keep the Wall Street legal firms in the chips for the rest of this century. But black letter law? Not so much. If Wall Street bonuses were paid in units of blame why they'd all be setting bonus records. We all have our favorite scumbags don't we? I particularly admire how the bond rating agencies turned turds into diamonds. Water into wine? That's nothing. Those Wall Street boys fed a decade long banquet and got someone else to pick up the check. Now that's innovation.
Hasa Diga Eebowai
Blah, blah, blah.
So we're to believe the Republicans, who held the White House for 8 of the last none years and a majority in Congress for 12 of the last 14 years...have no links to Wall Street? The investment houses? The banks?
What are you drinking?
You didn't read any of the links, you should.
The Democrats are in control NOW, they are bought and paid for and will not do what needs to be done.
The Financial Services Sector is a CRIME SCENE.
If the Republicans come back to power it will be because they are bought and paid for.
Do some research.
statusquObama, change you can only pretend in
And the Repubs are any better, NOT! It's the whole system not any one party. The US government bought and paid for by Wall Street.
Rep. John Murtha of Pa. dies at 77
http://news.yahoo.com/s/ap/20100208/ap_on_go_...
for the voice of rationality and fiscal responsibility! It's frickin' about time that those efftards in charge realize they haven't got a clue when it comes to doing what they get paid for well... paid for from a salary standpoint, not graft.
but none of this would have happened if Obama had not failed to respond to the demand that all these people be put in jail.
His promises to put the torturers in jail, from Bush on down, won him the nomination. His promises to incarcerate Wall Street after the fall melt down won him his mandate. Our cold cells cry out for these deserving occupants.
BTW, his failure to either put single payer on the table or enact a "robust" public option is another symptom of just how eaily duped we progressives are by hypnotic words like Hope and Change. The statute of limitations should not be allowed to run on this perfidy either.
“Why would anyone with a functioning brain believe this guy?”
Some guy with an eating disorder
A lot of that is simply projection, Ricky. As much as both of us may have wanted Obama to be even a little more progressive than Hillary "Bomb Iran for Israel" Clinton, he's never been a progressive. Some of us bought the National Review BS that he was the most liberal Senator - he never has been. Remember, he doesn't support gay marriage. He wasn't pushing for single payer. He never said he would seek prosecutions of the war criminals. He never said he would end the war on Afghanistan. He never even said he would nationalize Fannie and Freddie or break up AIG or prosecute the assholes on Wall Street responsible for this shit.
never mind. If you see Phil Gramm just wrestle him to the ground.
Don't do anything till I get there.
“Why would anyone with a functioning brain believe this guy?”
Some guy with an eating disorder
What we need is Dennis Kucinich in an Obama suit.
And blew it.
AND from the lessons of 1929...return the our banking system to almost 70 years of stability (and sanity).
6) Reinstate The Banking Act of 1933
http://en.wikipedia.org/wiki/Glass-Steagall_Act
And Libertarian Alan Greenspan was there, watching it all happen. As the poet said, "None dare call it treason..."
We require las vegas casinos to be able to back every chip in play on their tables with it's full value. Meaning if they have 12 million in chips, they best have 12 million in their cages to back it.
Why the hell should we allow banks to get away with a 12 to 1 ratio, meaning if they have a million bucks they can loan out 12 million let alone a crazy ratio like 30 to one.
What the hell did Phil Gramm think was going to happen?
I swear no matter how unhappy I am with Obama, I am completely happy with my vote against John 'Keating Five' McCain* and Cindy Lou Moosepuncher**
* he himself said in his book that 'keating five' should be carved on his tombstone.
** and no, I do not have any respect at all a woman who couldn't even get through a full term as governor without abusing her power or spending the likes of which would make Reagan blush. She had no business being President, Vice President or anything in between.
"Why the hell should we allow banks to get away with a 12 to 1 ratio, meaning if they have a million bucks they can loan out 12 million let alone a crazy ratio like 30 to one." Because if they did what you suggest and made the ratio one to one it would create a liquidity crisis that would make the depression seem like a mild passing discomfort.
Hasa Diga Eebowai
But we are in a Depression, and everyone I know is feeling a lot of discomfort.
If I were a psychopath, I would join the republican party, and get in on the gravy train taking the Teabircher morons to the cleaners.
But a 1 to 1 ratio for investment banks is not feasible.
We currently do not have a real liquidity problem currently compared to the issue of solvency. The latter of which still has a long way to go to completely unwind, partly due to the bailouts. These large banks should have been taken into receivership and the bulk of the board dumped out on the streets of Lower Manhattan. But that's another story..
Correct on all counts.
12 to 1 is quite conservative.
The April 2004 SEC meeting which Hank Paulson (later to be Secretary of the Treasury) attended as Chief of Goldman Sachs effectively took ANY lid off.
Bear Stearns, Merrill, Lehmann were all well over thirty to one when they imploded.
statusquObama, change you can only pretend in
of endless government support the Japanese financial institutions kept up to those ratios (30:1) for the better part of a decade. It's all in how you count your dead chickens (non-performing assets). They're just resting!
Hasa Diga Eebowai
How important the 5 rules in that email are.
I know not everyone follows the coming and going of financial markets and such, but what he suggests or something coming VERY close to that has to happen.
I suggest writing to your congress person and senators with this very list. Keep it simple. Like they are.
We have no control over our wealth when we hold our present currency. It is not backed by anything real, it is only a promise of value by the bankers we don't trust, and by a government ruled by representatives who use all their votes to get re-elected and richer. READ: Bribery works, especially in the US.
Thanks for the extra wrinkle on the SEC relaxing leverage ratio rules in 2004. Aside from that, we knew all of this in October of 2008. Krugman was saying it. Salon was saying it. Thom Hartmann was saying it. Rachel Maddow was saying it. Jeff Merkley, Russ Feingold, Chris Dodd all said as much. These solutions could have been in TARP, but "the best Congress that money can buy" said, well, first let's bail them out, then we'll get some regulation through - knowing that they could gut the regulation by the time it came around.
Solutions:
First thing, go back and find anything that Phil Gramm has ever touched and get rid of it. Gramm-Leach-Bliley, Commodities Futures "Modernization" Act, all of it.
Second, incarcerate the SEC. They knew all of these risks - I'm a biologist, not a financial analyst, and I knew these risks back in 2001.
Third, incarcerate the board of AIG. They were selling insurance (CDS's) with no backing. By the end of 2007, they had some 45$ trillion in CDS's with less than 400 billion in backing capital. That is not "Futures Modernization", that is fraud. We've already bought AIG three times over. Split them up into "not too big to fail" and sell them off. Oh, and start regulating CDS's.
Fourth, incarcerate the predatory lenders who lied about mortgages as they got people to sign. And outlaw mortgage brokers. Banks will care a little more about your ability to repay a mortgage if they are left holding the bag if you default.
Fifth, none of these will happen as long as our Congress-people are essentially wearing NASCAR suits with corporate logos all over themselves. The SCOTUS ruled that corporations can buy speech, but that just makes it harder to prove a quid pro quo. They are still there, and they are still illegal.
Leech in the bill seem so appropriate.
mortgage applications. Fact. Not just opinion.
When it comes to flat-out good old fashioned in your face bribery, the U.S. is number one! U.S.A.......U.S.A.......U.S.A........
If I were a psychopath, I would join the republican party, and get in on the gravy train taking the Teabircher morons to the cleaners.
Canada's banks are widely regarded as the best in the world. There was no credit crisis here, and no bailout of any financial institution (aside from one transaction in which the government bought some mortgages from a bank to shore up its capital - the mortgages were not in default, and the government made a profit on the trade).
Since 1923, there have been 17,000 bank failures in the US. In Canada there have been 2.
Not only does Canada have strong regulations, but the culture of banking is very different from that of US banks. Managements are risk-averse and do not relax lending standards to kick up short-term profit and CEO compensation.
Here's an article from the Globe & Mail this past Saturday:
http://www.theglobeandmail.com/report-on-busi...
The big Canadian banks have actually asked the government to increase regulation of the mortgage market and raise the required down payment, in order to prevent a possible housing bubble.
Exactly the opposite of what's happening in the US.
You still can't pronounce "about", Mr. Fancy-Pants Maple Leaf Underwear.
when it comes into contact with waist band elastic?
“Why would anyone with a functioning brain believe this guy?”
Some guy with an eating disorder
a very palpable hit! Awight!
Hasa Diga Eebowai
I mean, great for Canadians, but we are fully aware of how our politicians were bought out. No need to rub our noses in it.
Many of us know that it is the Republican/Conservative failed ideology of 'small government' and 'no new taxes' (privatization would cost 100 times more than a affordable tax) is the cause of our financial misery. The Republican/Conservative religious and political Bigotry is also the cause of our moral and civil misery.
And Fox News is the biggest offender, polluting millions of minds every second of every day...
We need to get the truth out better!
And as for the politicians who deserve blame - start with every President since Carter. Gramm was/is a free-market zealot but is often scape-goated.
Here is a newspaper article that signals the U.S.'s full-fledged embracing of Randian economics as policy.
Everyone mentioned in this piece deserves scorn and condemnation for this ongoing financial disaster.
I think we understand that the fish rots from the head down.
With the help of a manipulated/bought and paid for media.
We are many they are few.
Maybe we can kick some @ss and take some names!
Any other ideas?
Thanks for all the links and info.
Can we have a name-like - Peasants 4 Change..
: -)
LuLu
I'm not sure that enforcing fiduciary responsibility to stock holders would be any kind of answer for those of us who don't play the stupid game to start with... especially given the fact that large institutional stockholder groups and funds have been the primary movers and shakers behind Wall Street's current attempt to take over the country and there seems to be a concurrent effort to freeze small and individual shareholders out of any of the major benefits of the war on the middle class... but I suppose it would be a start.
Maybe enforcing some kind of fiduciary responsibility to the American taxpayers would be more in order now that precedent allows the major players to play the game with our money as well as and/or instead of their own.
shareholders. It does not require a specific amount.
That Dixiecrat Carter Glass, may be well known for the act that shares his name, but the following Bank Holding Company Act of 1956 & RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994 seem to be often overlooked as to their relationship to the issue.
The Federal Reserve Board of Governors, OCC, FDIC and all the players... I didn't see that coming :-/
As of 2009, Gramm is employed by UBS AG as a Vice Chairman of the Investment Bank division. UBS.com states that a Vice Chairman of a UBS division is "...appointed to support the business in their relationships with key clients.
PS. Clinton... plays a good game, and you can take DADT 2 the bank ;)
Study the symptoms not the virus...
Wall Street’s Rip Off Business Model http://www.youtube.com/watch?v=OO1A3XEAIVM
HOW the US Constitution Subverts our Freedom: http://www.youtube.com/watch?v=wPsS9ZFAEbg
HOW Slavery is Still Legal under US Constitution: http://www.youtube.com/watch?v=xvCDnaFvo5c
When are "We the People" going to start "EXERCISING our RIGHT to CONSENT" instead of whining, complaining & petitioning? www.RIGHTtoCONSENT.com
I would make MC your official banking guy. He makes a complex issue pretty simple to understand.
Please
Give this guy a daily column.
And go get Bill Black, the old OTS chief, now at U of Texas at Austin (put lots of bad brokers and bankers in jail during the S&L meltdown).
Your commercial banking guy and Bill.
Wow.
Wow.
That would be a monstrous duet of righteous truth.
MC's got a big part of the story from the originating banks to wall street and to the rest of the big finance houses of the world.
But the pipeline from Main Street was incredibly corrupted over the years, as well, and Bill LIVED that story.
Clean up both levels and you get back to some semblence of normal.
Oh, man, things are so insane that getting back to normal looks like a radical concept.
Call Bill and get this guy MC a tall tea and let him do some story telling.
.
TOO BIG TO FAIL...
... Then why did they?
.
Starve the WAR Beast...
... Save the World.
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