Arnold
Tash Jayasinghe
CibbuanoWho is responsible for the U.S. housing crisis?
September 21st 2008 01:04
Simon Jenkins, writing in the Guardian, was incensed last week, howling for blood.
Rightfully so - he's old enough to remember more than one financial crisis, and each time, in perfect 20/20 hindsight, the government identifies the cause of the problems and chuckles in the morning papers.
"Never again, dear voters.... we've nipped this one real good..."
Jenkins was dumbfounded at the short-sightedness of the financial institutions to borrow recklessly to purchase shady investments:
"Who are they? Where are they now? They said it could not happen again. They said they were masters of the universe. They had conquered history itself and had that wily monster quivering at their feet. There would be no more crashes, no more recessions, no more booms and busts, just moonbeams and rainbows and jam for tea."
We should be angered - these investment banks have pulled the rest of the economy into the gutter, filling our heads with dreams of giant houses increasing in value, big stacks of bonds and chests filled with pirate treasure.
"Underpinning financial credit is an absolute function of government and one that has not changed since the birth of capital. It clearly needs constant redefinition. When this saga is through there should be a tribunal of inquiry. Then we can be told what needs mending, and whom to take out and shoot."
Well, The Big Picture has an interesting article blaming the entire thing on the SEC.
And they make a compelling case.
" the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.
Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1."
Which five firms?
" Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley. "
Yes, I think that's a good argument, and one that allows us to see the disease in the system, when 3 out of the 5 firms allowed to go 40:1 have gone bust.
*this image is from ADPSR
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