Wednesday, September 2, 2009
NYTimes Sept 1st Sheila Bair OP-ED, reality check
"The Case Against a Super-Regulator" OP-ED by Sheila Bair, chairman of FDIC is a strange view of reality because Bair has argued that, "the creation of a single regulator...would endanger a thriving 150-year old banking system..." With the number of failing banks climbing and the trillions spent on bailout her thriving contention is ludicrous. She did say she was for reform, and pointed out that, "The principal enablers of our current difficulties were institutions that took on enormous risk by exploiting regulatory gaps between banks and the non-bank shadow financial system, and by using unregulated over-the -counter derivative contracts to develop volatile and potentially dangerous products." Which is another way to say that it was not really the fault of regualtors. And worse overlooks the fact that although Glass-Steagall and the 1956 Bank Holding Company Act were overturned at the end of 1999 - which was a tear down of the firewalls between greed and most of my fellow Americans (who may be regarded as victims) - there were still regulations which if the Fed and the SEC had enforced would still have prevented the sale of so many securities that were "too complex to explain." Furthermore these securities did not have any collateral that would have satisfied any of the banks flipping all the so-called Complex Collateralized Debt - actually there was no real collateral, which constitutes fraud in the opinion of 2 prominent Cleveland securities attorneys!
So gaps were not the problem - except gaps in the attention spans of the regulators. And my book makes all of this crystal clear; which could lead to the conclusion, based on existing regulations which have the force of law behind them, that it was a tragic violation of law to have sold these "complex innovative" financial instruments. Bair did conclude that, "We may never have a better opportunity to address root causes of this crises - and prevent it from happening again." And she is right about now is the time to address root causes, however it is essential to go far deeper into all the significant underlying factors to understand the real truth of what happened. It is necessary to understand the key role of Financial Darwinism. It is critical to reject her excuse about gaps, which sounds like denial and aviodance to me. In my opinion - based on 40 years of personal experience and 7 months of research to verify the accuracy of the observations and conclusions I share with readers in my new book - her OP-ED is self-serving and designed to protect her turf, notwithstanding her protestation to the contrary.
A Super-Regulator, or any regulator without wisdom, common sense and a great detective's concern for right and wrong is as worthless as all the regulators who failed to stop all the violations of the regs years before there was a crisis. Regulators have praised themselves for how they have performed in this crisis, but isn't it so much more important to examine what was done to prevent the crisis? No regulators cried out against tearing down the barriers against greed which worked for 50 years in the aftermath of the Great Depression. And it ought to be apparent that our regulators failed miserably to enforce existing regs. Greenspan, leader of the FED was a cheerleader for "deregulation" and did nothing to enforce existing regs; there are 1500 pages of FED bank holding company regs!The best way to understand how to plug regulatory gaps and stop this from happening again would be to read How We Got Swindled as well as to stop asking culprits for their opinions and stop listening to all the excuses and false conclusions.
Finally - ask yourself if you saw a stealth bomber sneaking across the sky at an altitude of 500 feet would you see it - just like the absolute lack of collateral was easily visable to bankers who expect infinitely better collateral from us than what they claimed was in place behind the complex financial debt instruments they were the issuers of and sold to the public - us. Banks and their regulators had to know that CDOs and CMOs were "collaterialized" by worse than junk bond debt, or absolutely worthless credit default swaps. Every banker I have known would have laughed at me if I had tried to use a trench of crappy debt or worthless swaps as collateral to obtain a loan. If my financial statement, when applying for a loan, had the speculative and imprudent leverage of so many banks, (which Bair was responsible to control) I would have been kicked out, all of us would have been. And now Bair is concerned about banks having more capital - duh. For the real truth help me get out Swindled. 216-831-6388