As a McClatchy report over the weekend reveals, Goldman Sachs bet that a slew of mortgages would fail, marketed and peddled them to more customers, and are making billions off of their scheme: 'Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.
"The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion," said Laurence Kotlikoff, a Boston University economics professor who's proposed a massive overhaul of the nation's banks. "This is fraud and should be prosecuted."'
Here's an article from Kristina Rizga (who covered ANWF back in April). Latvia's economic bubble burst in late 2008 and Kristina has been working on explaining what happened and what new hope there is to rebuild their country. It's an interesting parallel to what is happening here, as consumer spending fueled the bubble that was also financed by private debt. A quote from the article applies to what we need in this country as well.
"In the current situation, we have definitive proof that you can't let the markets run completely free. The state has to be involved to assure fair rules for everyone and provide safety nets for the most vulnerable."
Tell Congress
New laws should be put in place that minimize the risk of companies becoming “too big to fail.”
Read the blog
Don't see your city? Start your group
Have an event in your city
Tell your friends to sign up.
Join the FaceBook Fan page
Follow on Twitter @wayfwd - hashtag #anwf
Not a member of any groups.
1)Lawrence Goodwyn’s “The Populist Moment: A Short History of the Agrarian Revolt in America,” one of the truly great works of American history and how to build a foundation for 20th century American political economy.
2)William Greider’s “Secrets of the Temple: How the Federal Reserve Runs the Country,” picks up where Goodwyn’s left off. An essential read in understanding money, banking and finance in the 20th century.
3)Kevin Phillips’ “Bad
Money: Reckless Finance, Failed Politics, and the Global Crisis of
American Capitalism,”
|
MELTDOWN CAUSES: Articles and Interviews 1. Finger of blame points to shadow banking’s implosion -Financial Times "FINANCIAL INNOVATIONS" 1. Genesis of the Debt Disaster -Financial Times WHAT TO DO ABOUT THE BIG BANKS THAT FAIL? 1. Willem Buiter -FT ANTITRUST 1. Breaking up the Banks -Zephyr Teachout REGULATION 1. Regulatory Capture -Thomas Frank WHAT'S IT MEAN FOR THE ECONOMY? 1. Evolution or Revolution -Bill Gross Blogs |
By Michael McKee and Scott Lanman
Oct. 15 (Bloomberg) -- U.S. regulators should consider breaking up large financial institutions considered “too big to fail,” former Federal Reserve Chairman Alan Greenspan said.
Those banks have an implicit subsidy allowing them to borrow at lower cost because lenders believe the government will always step in to guarantee their obligations. That squeezes out competition and creates a danger to the financial system, Greenspan told the Council on Foreign Relations in New York.
“If they’re too big to fail, they’re too big,” Greenspan said today. “In 1911 we broke up Standard Oil -- so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.”
At one point, no bank was considered too big to fail, Greenspan said. That changed after the Treasury Department under then-Secretary Hank Paulson effectively nationalized Fannie Mae and Freddie Mac, and the Treasury and Fed bailed out Bear Stearns Cos. and American International Group Inc.
“It’s going to be very difficult to repair their credibility on that because when push came to shove, they didn’t stand up,” Greenspan said.
Fed officials have suggested imposing a tax or requiring higher capital ratios on larger banks to ensure the firms’ safety and reduce some of the competitive advantage from the implied subsidy. Greenspan said that won’t work.
“I don’t think merely raising the fees or capital on large institutions or taxing them is enough,” Greenspan said. “I think they’ll absorb that, they’ll work with that, and it’s totally inefficient and they’ll still be using the savings.”
‘Really Arbitrarily’
The former Fed chairman said while “just really arbitrarily breaking down organizations into various different sizes” goes against his philosophical leanings, something must be done to solve the too-big-to-fail issue.
“If you don’t neutralize that, you’re going to get a moribund group of obsolescent institutions which will be a big drain on the savings of the society,” he said.
“Failure is an integral part, a necessary part of a market system,” he said. “If you start focusing on those who should be shrinking, it undermines growing standards of living and can even bring them down.”
To contact the reporter on this story: Michael McKee in New York at mmckee@bloomberg.net; Scott Lanman in Washington at slanman@bloomberg.net
