Posted by Stamper_WI on 2/28/08 9:50pm
Msg #237594

Food for thought

I read this on Bnet. Makes you think:

By William J. Holstein

"It seems to me that a very important message in getting the lost in the shuffle of “Will the Fed lower rates or not?” and “How bad will the recession be?”

The important message is that we need deep structural reform in our financial sector. In some ways, what we’re living through is structural in nature, not just cyclical.

Consider:

The burst of subprime mortgages getting chopped up and syndicated off around the world is another demonstration that our regulatory structure is out of date. Major elements of the Federal Reserve, Office of the Comptroller and the Securities and Exchange Commission (there are at least six agencies involved) need to be consolidated. The sheer scale and sophistication of financial activity is outstripping the ability of regulators to exercise prudent, sensible oversight.
The role of the rating agencies needs to be revisited. Standard & Poors, Moody’s and Fitch all attached very high ratings to the flood of shoddy debt that the banks were peddling. These same agencies missed Enron. The structural problem is that the investment banks are paying the rating agencies to rate their instruments. It’s an inherent conflict of interest. Of course, S&P is going to attach a high rating to a CDO from Merrill Lynch because tens of millons of dollars are at stake.
The corporate governance of the largest financial institutions still hasn’t been fixed. Yes, Citigroup dumped Chuck Prince and Merrill got rid of Stanley O’Neal, but I’m not convinced that a really effective check and balance system has been created between the new CEOs and their boards. In John Thain, we have just another great man who will intimidate his board.
Lastly, we need to resolve the moral hazard issue. Banks and other financial institutions took insane risks because they knew they were too big to fail. The feds would have to bail them out. So they were free to go after big profits, which they could keep, and if they failed, so what? They would be bailed out. This is a form of socialism, my friends, in which wealth is transferred, not to the needy, but to the already rich."

Reply by JanetK_CA on 2/29/08 2:08am
Msg #237606

Does make you think....

And it makes a lot of sense to me! We have seen one scandal or financial debacle after another and no one seems to be paying attention. We have the foxes guarding the henhouse... I heard something on the radio today to the same effect. They were basically saying that a bailout (not of individuals so much as big institutions) would be irresponsible because it did not provide any incentive to correct the problems.

Reply by Lee/AR on 2/29/08 6:56am
Msg #237610

Not surprising...

that corporate responsibility has gone the same way that personal responsibility for our own decisions/actions has. Do something stupid and then cry "victim". Don't get me started...

Reply by nsa/fl on 2/29/08 8:04am
Msg #237618

Re: Does make you think....

The reason they want to bail out the institutions is because the Feds made the institutions come up with the sub-prime loans in the 90's for low income and the poor in the first place, or risk being shut down and being put out of business. The financial institutions warned the Feds that their decision would eventually ruin the economy in the housing sector if they complied. But the only thing that the politicians in Washington cared about was their popularity and getting re-elected. Now they don't want the banks to reveal the truth behind the sub-prime mortgage bust and the politicians are offering the bail out. The system worked fine until the politicians decided to force the banks and lending institutions into setting the rules aside.