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.
