Posted April 2011
“There’s none so blind as those who don’t want to see.”
So no one saw it coming – the
big financial meltdown of 2008, when America suffered a
devastating economic collapse, when once valuable securities
lost most or all of their value, debt markets froze, stock
markets plunged, and big financial firms went under; when
millions of Americans lost their jobs, millions of families lost
their homes and good businesses shut down.
Worse still, no one involved
in creating the world’s greatest Ponzi scheme seemed to know
what they were doing: not the poor homeowners, who got mortgages
on basically no income; not the financial institutions, which
created doubtful mortgage bonds on these subprime loans; not the
ratings agencies, which were persuaded to rate these crappy
bonds triple-A; and not the institutional investors, who thought
these triple-A bonds were a safe long-term investment.
Could it really be true that
no one had a clue? That fat-cat bankers, notorious for their
inflated bonuses, big egos, crass manners, and foul language did
not understand risk? And lacked plain common-sense?
Did they fall for their own
spin, which termed subprime mortgage bonds, along with bonds
backed by credit card loans, car loans and other whacky
collateral, “asset-backed” securities?
Or didn’t they care to know
what was in those arcane, artificial securities based on piles
of doubtful mortgages because the machine (pay as little for
home loans and charge as much as possible for mortgage bonds)
made them rich?
On 13 April 2011 the U.S.
Senate Permanent Subcommittee on Investigations into the origins
of the 2008 financial crisis published its report which has been
two years in the making.
The 650-page-tome provides the
clearest picture yet of what took place inside the walls of some
of the financial institutions and regulatory agencies that
contributed to the crisis.
“The investigation found that
the crisis was not a natural disaster, but the result of high
risk, complex financial products; undisclosed conflicts of
interest; and the failure of regulators, the credit rating
agencies, and the market itself to rein in the excesses of Wall
Street.” These are the report’s words, not mine.
The report makes depressing reading. Especially
as concerns the role of banks.
Rather than acting on their
clients’ behalf, “most major U.S. financial institutions began
devoting increasing resources to so-called “proprietary
trading,” in which the firm’s personnel used the firm’s capital
to gain investment returns for the firm itself,” the report
says.
Traditionally, U.S. banks,
broker dealers, and investment banks had offered investment
advice and services to their clients, and did well when their
clients did well.
“Over the last ten years,
however, some firms began referring to their clients, not as
customers, but as counterparties. In addition, some firms at
times developed and used financial products in transactions in
which the firm did well only when its clients, or
counterparties, lost money,” the report flatly states.
Read that last sentence again:
the banks made a fortune only when their clients lost money.
Did the banks and everybody else in this scam
really think this could go on and on? That they were all too big
to fail?
Perhaps, in a more sinister
scenario they knew that when the whole edifice would come
crashing down, governments (aka taxpayers like you and I) would
bail the banks out to prevent a collapse of the world’s economy.
Which is what happened.
It may be small consolation to
people who lost money and jobs because of the crisis that the
Senate investigators will refer their evidence about Wall Street
institutions including Goldman Sachs and Deutsche Bank to the
U.S. Justice Department for possible criminal investigations,
officials said on 13 April 2011.
Will anything come of it? Oh,
sure, some could be fined and get their knuckles rapped. But
ultimately, little else. Cynics say that it can happen again.
Because if you want to know
who should be blamed, just look into the mirror. People from all
walks fell into the trap of easy money. They took out second and
third mortgages, they had multiple credit cards and they shopped
around for risky investments which promised huge pay-backs. Who,
for a second, stopped to ponder: “Shish, this could be damn
risky?”
People like to live beyond
their means. And, by the way, so do governments because they say
there is “no alternative”.
The U.S. Senate report,
entitled “Wall Street and the Financial Crisis: Anatomy of a
Financial Collapse” can be downloaded at
http://hsgac.senate.gov/public/_files/Financial_Crisis/FinancialCrisisReport.pdf
Alternatively you could read
Michael Lewis’ “The Big Short: Inside the Doomsday Machine”
(2010), available from amazon.com
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