Fluke? Credit crisis was a heist by James Jubak
Of course, just because the plan blew up on the looters, taking off a financial finger here and a portfolio hand there, you shouldn’t have any illusion that they’ve retired. In fact, in the “solutions” now being proposed — by Congress — to fix the global and U.S. financial systems, you can see the looters at work as hard as ever.
He is exactly right.
Answer: Because the federal government had forced them to back off. An aggressive interpretation of the definition of insurance could have let state insurance agencies regulate the derivatives contracts that AIG’s financial-products group was writing out of London. These were, in fact, insurance policies that guaranteed the companies taking them out (banks, other insurance companies, investment banks and the like) against losses on securities in their portfolios.
But Congress had made it very clear in the Commodity Futures Modernization Act — supported by then-Federal Reserve Chairman Alan Greenspan, steered through Congress by then-Sen. Phil Gramm, R-Texas, and signed into law by President Bill Clinton in December 2000 — that most over-the-counter derivatives contracts were outside the regulatory purview of all federal agencies, even the Commodity Futures Trading Commission.
With the new law on the books, the market for credit default swaps exploded from $632 billion outstanding in the first half of 2001, according to the International Swaps and Derivatives Association, to $62 trillion in the second half of 2007.
Question: Wasn’t anybody worried about the risk to the financial system posed by a market that dwarfed the assets of the sellers of this insurance?
Answer: Worry about leverage? You’ve got to be kidding.
In 2004, the Securities and Exchange Commission, after hard lobbying by Wall Street, reversed its 1975 rule limiting investment banks to leverage of 15-to-1. The new limit could be as high as 40-to-1 if the investment banks’ own computer models said it was safe.
Understanding the people paid lots of money to politicians and then (after they got lots of money) those politicians enacted laws that endangered the economy to favor those giving them lots of money. Now maybe these politicians just like letting exceptionally wealthy people endanger the economy for personal gain. Maybe they think that is a good idea. I tend to think instead they do what those they give them lots of money want. But maybe I am wrong on that.
I also figure they were too ignorant to know the amount of risk to the economy that the favors for their donors resulted in. Also it has nothing to do with the parties in my opinion. Both parties due the bidding of those that pay them lots of money. It is a shame how willing both are to sell out the country to provide favors to their donors but the evidence is just overwhelming that they are more concerned with favors than what is in the best interest of the country. But we keep electing them so it is our fault.
One extremely disheartening note for any patriot:
I have long said James Jubak is one of the people investors should read. Once again he shows that he should be read. Read this column. And if you don’t understand it, read more and educate yourself and come back and read this every 6 months. Until you do understand it. You can disagree, just understand the points he is making and be able to explain what you agree with and disagree with.
Related: Looting: Bankruptcy for Profit – Predatory Lenders’ Partner in Crime (Federal government stopping states from fighting predatory lending) – Executives Plundering Corporate Coffers – Don’t Excuse Immoral Looters – Executive pay “excesses are so great now they will either force companies to take huge risks to justify such pay and then go bankrupt when such risks fail” – General Air Travel Taxes Subsidizing Private Plane Airports – Why Pay Taxes or be Honest – Bad Behavior