Comments from a private posting....
Re: "I saw you post...I had no idea that had happened."
Yeah. Funny, isn't it? The public's attention span is so short these days that they can't even remember what went on just five years ago.
Losses like we are seeing in the financial system --- that all comes down to WAY TOO MUCH LIQUIDITY. (Driving a Ponzi-like scheme, a lot like Musical Chairs....)
And the vast excess of liquidity are CREATED (remember: in our system BANKS create money with their lending...) by LEVERAGE.
No wonder we've come a'cropper just five short years later.
The Investment banks were SPECIFICALLY PERMITTED to expand their leverage from the previous regulatory maximum of 12 to 1 up to the newly allowed peaks of 30, 40 to 1!
No wonder they then blew-up at the slightest down-turn.
It's an old, old story --- normal business cycles enhanced to manic extremes, blowing financial bubbles... and done in by EXCESSIVE LEVERAGE.
(It's always the leverage that kills you....)
The same sad story of governmental/regulatory ignorance played out with the quasi-governmental companies of Fannie and Freddie.
SEPARATE authorizing legislation specifically permitted *them* to expand their LEVERAGE up to near 70 to 1 lending to reserve ratios... (because "house prices could never decline", right?)
Re: "Holy S**t....How was that decision reached? And by whom?"
The 'usual gang' of industry-captive politicians....
(Remember: If they call it "financial innovation" or "deregulation" it's ALL GOOD, ALL THE TIME! Those are not synonyms for "the public's pockets are going to get picked"....)
So... now that the huge PRIVATE PROFITS that were enabled by these regulatory changes are long gone, it's time for the other half of the old cycle: the PUBLIC LOSSES.
That as best I can determine, is how our curious Capitalist/Socialist hybrid economic system works now: the profits are for the elites, (who often sing the virtues of what they call 'free markets'), but when the system cranks-out huge losses, those are reserved for the general public. that is "Socialized Losses / Private Profits" model. :-( |
