The author makes a case against “corporate giganticism” being a cause and blames a “government agency” namely The Fed. It’s hard to take anything the article says seriously if they can’t recognize that The Fed isn’t a government agency and is what many people hold to be the epitome of “corporate giganticism”.
The author seems very confused between the structure of the Treasury Dept and The Fed
It's hardly the either/or the author makes it out to be, and the writer tried way too hard to wrap it up with "damned poor people, it's always their fault, innit?". Without doubt, yes, policy decisions contributed heavily to the collapse. That does not absolve the finance industry of creating instruments such as CDOs, and the tom-foolery that followed. In the end, there are few clean hands in a system built on greed top-to-bottom, from the home buyers buying more house than they can afford, to the banks that lend to them, and ending with a finance industry creating financial instruments in search of a greater fool.
It seems to me that this recent book got it mostly right. The root of the credit collapse was improper or missing underwriting of mortgages resulting from heavy pressure by Congress and activist organizations to expand home ownership. The financial sector then did what it's good at, laying off risk through repackaging of mortgages into structured bonds and marketing them around the world.
There was also a good deal of greed involved including manipulation of the markets and the regulatory organizations by the likes of Hank Paulson. And yet few were punished. The fines imposed were small compared to the profits extracted. People in government who were responsible for the debacle were conveniently put in charge of the clean up.
Lehman should not have been allowed to fail. That failure destroyed confidence in the system and triggered the panic.
There have been a number of excellent books written over the years describing the complex events from different perspectives. Enough time has elapsed to produce an even-handed re-evaluation.
The book makes the point that Dodd-Frank has made the financial sector more brittle than it was before by removing flexibility.
"Future crises are inevitable, says Ball, but “under these rules, future Fed leaders may be helpless to counter runs on financial institutions,” even when rescues can be backed by collateral."
As I originally heard it the Fed or HUD(?) started moving towards guaranteeing subprime mortgages, and the AAA rating idea took off from that. The Fed issues bonds that are risk-free, so brokers extrapolated government buying of a few subprime mortgages to low risk for all of them.
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[ 3.0 ms ] story [ 26.2 ms ] threadThe author seems very confused between the structure of the Treasury Dept and The Fed
There was also a good deal of greed involved including manipulation of the markets and the regulatory organizations by the likes of Hank Paulson. And yet few were punished. The fines imposed were small compared to the profits extracted. People in government who were responsible for the debacle were conveniently put in charge of the clean up.
Lehman should not have been allowed to fail. That failure destroyed confidence in the system and triggered the panic.
There have been a number of excellent books written over the years describing the complex events from different perspectives. Enough time has elapsed to produce an even-handed re-evaluation.
The book makes the point that Dodd-Frank has made the financial sector more brittle than it was before by removing flexibility.
"Future crises are inevitable, says Ball, but “under these rules, future Fed leaders may be helpless to counter runs on financial institutions,” even when rescues can be backed by collateral."