Nofsdad
Joined: 06 Jul 2003
Posts: 8380
Location: Central CA
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Posted: Mon Feb 08, 2010 10:10 pm Post subject: Letter From A Former Investment Banker
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C&LO printed the following email from a former investment banker detailing where the major portion of the blame lies for the financial meltdown. Those that continue to try to blame the individual homeowners for much or most of it, take notice of some of the machinations the banking industry went through in order to be able to offer their brand of "creative financing" and then tell me once again that Joe Sixp[ack is the one to blame for what happened.
Take special note of the role Calapso's old buddy, Phil Gramm in the sorry mess. (Just joking Calapso, I'm pretty sure you and I share an opinion of Gramm and the crap he pulled. To think that McCain was considering him for Treasury Secretary is even scarier than the little prick Obama picked.
Dictators... here's Chris Cox's ugly mug being shoved into the picture again... theis was the guy that was supposed to be regulating Wall Street when the majority of this crap went down. Is anybody surprised?
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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 |
I'm not sure that enforcing fiduciary responsibility to stock holders would be any answer for those of us who don't play the stupid game to start with... especially given the fact that large institutional stockholder groups and funds have been the primary movers and shakers behind Wall Street's current attempt to take over the country and there seems to be a concurrent effort to freeze small and individual shareholders out of any of the major benefits of the war on the middle class... but I suppose it would be a start.
Maybe enforcing some kind of fiduciary responsibility to the American taxpayers would be more in order now that precedent allows the major players to play the game with our money instead of their own.
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Calapso
Joined: 26 Aug 2008
Posts: 306
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Posted: Tue Feb 09, 2010 9:01 am Post subject:
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The crazy thing is that I work in banking and trying telling people this stuff over and over, but somehow the right insists on blaming government meddling, when in fact in was specifically government getting out of the meddling business that allowed these morons to flush our economy.
You can put the facts right in front of people's face, and they still won't see it. I hear it's Fannie Mae and Freddie Mac's fault and the government forcing them into backing bad loans. We'll, everyone always somehow forgets they are both investor owned and they ignore the raw numbers. Fannie Mae and Freddie Mac back about 50% of all home loans, yet out of those 50%, they only backed about 3% of all sub-prime mortgages.
They want to blame the government's FHA program, yet ignoring once again that FHA loans make up only 3% of all mortgages.
THe CRA is a popular target, yet again, if you look at the raw numbers, less than 20% of all defaulted mortgages even fall under the CRA, and these mortgages weren't chased to meet any type of government quota, they were chased because they were able to repackage, sell, insure, and obtain a favorable rating for these shaky loans strickly because they were a cash cow.
Ive even seen people trying to blame HUD. Oye.
He hit on a real good point about investment bank levergage ratios. FDIC insured banks had to keep a 5-1 ratio to be considered healthy (it's now 10-1) yet these non FDIC mortgage companies and investment houses were able to play with money they didn't have, running negative ratios.
Gramm's 2 acts he got passed, the aforementioned Commodities act as the poster points to, and the Gramm-Leach-Bliley act that allowed the AIG's of the word to even be.
Most of these investmentment banks and houses (Lehman, Countrywide, Merril Lynch, on and on) didn't even fall under FDIC regulation, let alone weak SEC regulation.
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