Why the Crisis of 2008 is Bound To Happen Again
I crack up when I hear all those supposed Wall Street experts talking about a Dow of 20,000 and that all is hanky panky and on the road to complete recovery.
Either these people are totally incompetent and in a state of denial or they are so many slaves to their Wall Street employers that they would say anything to save their pathetic jobs.
Well, let me tell you one thing … The crisis that brought the world to the brink of financial collapse five years ago will without a doubt be repeated.
Simply because we haven’t learned anything.
1. The so-called Volcker Rule has yet to see the light of day.
2. The banks’ balance sheets are better than they were five years ago. The banks have raised lots of capital and written off many bad loans. (Their risk-weighted capital ratio is now about 60 percent higher than before the crisis.) …. But they’re back to too many of their old habits.
3. Millions of Americans are still suffering the consequences of the Street’s excesses. Yet the Street’s top guns and fat cats are still treating the economy as their own private casino, and raking in even more than before.
The fact is, the giant Wall Street banks are ungovernable – too big to fail, too big to jail, too big to curtail. They should be split up, and their size capped. There’s no need to wait for Congress to do it; the nation’s antitrust laws are adequate to the job. There is ample precedent. In 1911 we split up Standard Oil. In 1982 we split up Ma Bell. The Federal Reserve has authority to do it on its own in any event. (Would Larry Summers take such an initiative? Highly doubt it….besides the guy is always asleep)
The legislation is needed to resurrect the Glass-Steagall Act that once separated commercial banking from casino capitalism….. But don’t hold your breath.
Reasons why another major crisis bigger than the one in 2008 is pretty much a certainty?
1. First, mortgage finance behemoths Freddie Mac and Fannie Mae remain government entities and it’s politically problematic for the government to shrink them to a manageable size since they’re making considerable money.
2. The shadow banking system is still a problem and “more needs to be done” to fix repo securitized lending.
3. There are too many financial regulators and they tend to engage in “dysfunctional” competition, which is s huge problem.
4. Congress has tied the hands of the Federal Reserve and the Treasury Department in dealing with a future crisis. As an example, Paulson’s Treasury in 2008 used its exchange stabilization fund to guarantee the assets of money market mutual funds, “a measure that prevented a run on those funds that would have crippled the financial system.” The Treasury would not be permitted to do that today.
5. I can pretty much guarantee a wide scale War in the Middle East and a major disruption of the stock, bond, credit and commodities markets worldwide and the kissing of any US recovery goodbye.
Even if I am proven wrong and Syria’s chemical weapons are wiped out as part of the process we put together with the Russians, I think WMD proliferation is now more likely than ever given we are giving the thug all the time he wants to comply … Besides, Assad is now seen by many in the West, including in the US, as a pragmatic player “to do business with” and Putin as the ultimate Middle East “powerbroker”. I am afraid our problems are just starting there.
Anyway… As long as we have markets, as long as we have banks, no matter what the regulatory system is, there will be flawed government policies. Those policies will create bubbles. They will manifest themselves in a financial system no matter how it’s structured and how it’s regulated. But the key thing is to have the tools and the political will to act forcefully to limit a crisis….and we have neither firmly in place as of today.
Besides, I am not a believer at all in the Ben Bernanke stimulus programs that followed and I believe the President’s choice of Larry Summers to head the Fed is much more political than it should be. It shouldn’t be – especially in times like today – as it ‘s too important a job.
Happy fifth anniversary, Wall Street… For those who haven’t yet read my book at Amazon… maybe it is time to wake up and read it… as I warned you of all then.Share: