Wednesday, February 25, 2009

The fig leaf of "regulation"

In his recent address to a joint session of Congress, one of the things President Obama pointed to as causing our current financial crisis was "the gutting of regulations". That's a nice generalization and it conveniently gets everyone off the hook, as it implies that everyone responsible was operating within the law.

In fact the catalyst for this crisis was what has become known as "toxic assets". That is, complicated derivatives based on very risky loans made to high risk individuals. Evidently these investment products, which were largely purchased by major financial institutions, were so complicated that even the buyers weren't and aren't sure how they work or what they're really worth.

Who designed these derivatives? I mean, specifically, what are their names? Who marketed them? What about the "best and brightest" CEO's and execs in the banking industry that bought them without knowing what they were buying? Who made these purchase decisions? What are their names and how do they explain their actions? Where was Congressional and federal oversight when these derivatives were being created and sold? How do you get approval to market an investment vehicle nobody understands?

I submit there are players who knew full well this thing was going to blow up, but laundered the make up of the derivatives and stroked their politicians so well they were able to successfully dupe the whole country out of trillions of dollars. Who knew what and when did they know it?

We may never know the answers to these questions because the Bush administration and then the Obama administration as well as Congress called for trillions of taxpayer dollars to bury the problem rather than a full investigation to unmask it. The federal government could have allowed the major banks to fail (creating a huge opportunity for others), let the consequences play out and expose and hold accountable the individuals who, over decades, concocted this Ponzi scheme. Instead, they took the cowards' way out. They criticize entire classes of people and industries because a true search for the truth might leave them fully exposed. They generically call for "stricter regulations" because they don't want an investigation. They hope to pass this off as a natural consequence of capitalism and "too free" markets rather than a continuing deception. If they get away with it, and they probably will, it will happen again, and again, and again.

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