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From Denny: Wall Street recklessness, detailed in a report released today, outrages every American - and the world that trusted them. The Financial Crisis Inquiry Commission, that delivered this scathing 633-page report, warns us about this current level of regulatory negligence from our government could create a similar scenario as what happened in the 2008 financial crisis.
The hefty 633-page report
This report is no fly weight. This commission got serious and immersed themselves in a mountain of literally millions of e-mails, testimony transcripts and more documents from which they drew their conclusion. Officials at regulatory agencies, The Securities and Exchange Commission in particular, investment banks, credit rating companies and mortgage lenders were all investigated and given no quarter for their outrageous negligence and actions, or worse, inactions.
From the commission's chairman, Phil Angelides, said of the report's conclusions: "Some on Wall Street and Washington, with a stake in the status quo, may be tempted to wipe from memory this crisis or to suggest again that no one could have seen or prevented it."
"Our mission and the central question we addressed was this: How did it come to pass in 2008 that our nation was forced to choose between two stark and painful alternatives - either risk the total collapse of our financial system and economy or inject trillions of taxpayer dollars into private companies - even as millions of Americans still lost their jobs, their savings and their homes?" Angelides said as he called "the financial crisis a preventable disaster. We believe that it was the result of human action and inaction."
Talk about a substantive work. The commission is so fighting mad they are backing up their report with 1,200 supporting documents on its Web site. If that isn't enough to impress us they also plan to post another 700 documents. To that they will add about 300 transcripts of audio interviews. When all that is accomplished the commission will call its work finished as of Feb. 13.
"We believe there is still much to learn, much to investigate, and much to fix," Commission chairman Angelides said.
Who the commission found to be at fault
The commission laid the largest part of fault-finding on the doorstep of the Federal Reserve while wagging their stern fingers at most of the "regulators" who definitely failed America. The Fed failed to act on a 2004 law. What was that law? The law directed the agency to enact mortgage lending standards. Had the Fed bothered to put those standards in place it could have prevented the flow of toxic mortgages into the financial system.
From commissioner, John W. Thompson: "The Federal Reserve was clearly the steward of lending standards in this country. They chose not to act. The Federal Reserve Bank of New York clearly could have reined in some of the large money-centered banks in New York. On and on, regulators either chose not to act or turned a blind eye to what was going on. It’s less about a particular individual than a systemic sense of deregulation and inaction by those in power."
Nor did the commission tread lightly with former Fed chairman, Alan Greenspan. He received a harsh rebuke, even though he retired in 2006, after all he has actively counseled and suggested strongly ever since his retirement. Greenspan's successor, Ben S. Bernanke, was strongly criticized. So, too, in line for stern condemnation was Timothy F. Geithner, former president of the New York Fed during the crisis. Geithner is currently serving as controversial Treasury Secretary to President Obama.
Greenspan, Bernanke and Geithner are not offering comment on the report. The Fed claims they have overhauled financial supervision. The New York Fed is playing wimpy weasel, whining how they were not the primary regulator of companies like Citigroup and Lehman Brothers. Oh, come on, Old Cronies Club. New York is THE financial district of the country. You all know each other and are in bed with each other. Try another story line.
What about that Dodd-Frank regulatory overhaul Obama signed last July?
With all the hoopla about financial reform, the reality is today's financial system is "really not very different from what it looked like before the crisis," according to Nevada lawyer Byron S. Georgiou.
"In fact," says Georgiou, "the concentration of financial assets in the largest commercial and investment banks is really significantly higher today than it was in the run-up to the crisis, as a result of the evisceration of some of the institutions, and the consolidation and merger of others into larger institutions."
How did the housing bubble burst in 2006 - 2007 - that happened just before the crisis - figure into the financial crisis?
The commission argues that this housing crisis did not have to happen in the first place. The report noted how Wall Street continued its greedy game of pumping risky assets into the financial system. They knew full well that the credit rating agencies were dutifully rating - inaccurately - these assets as safe when it was clear they were not. It was one big collusion to deceive - for greedy profit by the billions - even when the housing market had clearly peaked.
With the housing prices in obvious decline in the third quarter of 2006, Wall Street foolishly kept creating $1.7 trillion in mortgatge-backed securities and collateralized debt obligations. In December of 2006, even Goldman was starting to get concerned about their exposure in the subprime market. For them it was getting "too close to home." That's the code phrase for "Quick! Sell off the inventory before we hang ourselves because the house of cards is on the way down!"
You would think that Goldman reducing its risk would be a good business decision. These guys just couldn't stand it. They had to jump back into the greed machine. Their next gambit was to create new mortgage products and sell them to clients so they could bring in those juicy hefty fees. How much did Goldman make from this latest financial gain game? Try $25.4 billion on collateralized debt obligations from December 2006 to 2007. These guys are out of control, taking two bites at the same apple.
From the report: Goldman has been criticized — and sued — for selling its subprime mortgage securities to clients while simultaneously betting against those securities."
From Sylvain Raynes, a structured finance expert at R & R Consulting in New York: She called Goldman’s practice “the most cynical use of credit information that I have ever seen,” comparing it to “buying fire insurance on someone else’s house and then committing arson.”
Goldman weakly denies they didn't bet against their own clients during the financial crisis. Uh, yeah, you did.
From Pierre-Olivier Gourinchas, economist at the University of California, Berkeley: "We all argued that the crisis was multi-causal."
"We emphasized in particular the absence of effective regulation, the increase in leverage, the emergence of shadow banking, the mismanagement of risk by many financial institutions, and the strong external demand for U.S. Treasuries and similar assets as important factors,” he said. “We also concluded that monetary policy per se — narrowly interpreted as the low interest rate policy of the Fed after 2001 — was not likely a major factor.”
Summary of the mess
* absence of effective regulation by regulators asleep at the switch
* increase in leverage (which means you don't have enough money to cover losses if your investment goes south)
* emergence of shadow banking (like illegal practices but yet not technically illegal because the laws have yet to be written fast enough to keep up with the flurry of newly created shady products they are selling)
* mismanagement of risk by financial institutions
* strong external demand for U.S. Treasuries and other assets
Just how big are those crooks who were running Goldman during the 2008 crisis - and still in charge?
Try this on for size. In 2008, Goldman made about $29 billion in profit. They gave out $16 billion in bonuses. They only declared about $13.2 billion in profit.
Oh, by the way, when the government bailout came to give money to AIG to keep them afloat, it was Goldman who said they would act as the unofficial middleman. Goldman basically skimmed $3 billion off the top, taking taxpayer money, and awarded it to themselves - even though that was not part of the government deal. They just took it - because no one stopped them.
And that's how business is done in America. No one goes to jail. The President approves this corruption by standing on the sidelines saying, "Give me money for my 2012 reelection campaign."
Depraved indifference. Is this just how far America has dropped down the rabbit hole of amorality?
* * * Check out this post: Gordon Brown Book: 9 Big Banks Manipulating World Economy
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