The world is at the beginning of a financial meltdown and millions of people are feeling the effects of a global economic slowdown that is unprecedented and has no clear bottom in sight.
Presidents, Premiers, Treasury Secretaries, CEO’s, Investors, Wall Streeters and Main Streeters are all hoping for a turnaround; praying for signs of stabilization and a bottom to the falling financial markets.
But, unfortunately, we may be only nearer the beginning than the end. There will be more pain for everyone before things get better. We could have another considerable downward slide before hitting a ‘real’ bottom. This whole greedy financial fiasco has to play out globally before we can start to climb out of the abyss.
Could anything have been done to stop or ease the discomfort of some and despair of others? Could this financial meltdown of global economies have been avoided? Absolutely, and maybe not.
That sounds awfully ambiguous, but we find ourselves in a time of unparalleled ambiguity.
It is a time when Bankers, on Thursday, espouse the health and stability of their institution while the CFO prepares to release a quarterly report that shows a loss of $6.8 billion on Monday. Home builders report increasing new home sales and a median home price of $300 thousand without disclosing giving away $50 thousand in incentives and upgrades, including a $3,000 vacation. The Mortgage Bankers Association reports increasing mortgage applications but doesn’t include along with the headline that 45% of the applications were for distressed or foreclosed sales. And they don’t report the number of applications cancelled or declined, or how many multiple apps were filed.
Those are but a few examples of the misinformation that permeates the financial world. No wonder supposedly knowledgeable people are surprised when things get worse. Despite the current ambiguous nature in the financial market, we should not be distracted from the things that those in charge could have done to prevent this financial morass.
So, what should they have done?
Lots, but hindsight is 20/20 and the ‘real’ solutions would have required vision. There were numerous signs of problems, but many of them were ignored or kicked down the road for the next CEO, the next Congress, the next administration, or the next set of regulators. Meanwhile the downward spiral picked up momentum. And the more momentum it gained the more difficult it became to stop it.
Sub-prime loans were blamed for our financial problems and surely those loans and the securitization of them are part of the nightmare. A look at the history of these loans in the early 90’s would have exposed the need to more closely regulate them. But no one seemed interested in looking back. Historical bad news was of no concern if the markets were to keep moving forward.
And a lack of oversight and action from regulatory agencies were also causes for the failure to slow the damaging momentum. So inept were the regulators that there is an air of complicity; an impotence that is so appalling that we should investigate and possibly hold some of them criminally responsible for this financial catastrophe.
Had someone come forward early, someone with vision; a Senator or Representative from the Banking or Financial Services Committees, a CEO, board member, CFO or accounting firm, to blow-the-whistle or accept responsibility and bring an awareness to the growing danger, we may have avoided the massive financial pain we’re feeling and going to feel.
But, the most obvious and most important step that could have been implemented, as early as the middle of 2007, or at least early 2008, was the reinstatement of the Glass-Stegall Act or similar legislation that would have restored sanity to the banks.
It was evident by early 2008 that passage of Gramm/Leach/Bliley had opened the door to unfettered greed and predatory capitalism the likes of which we hadn’t seen since the late 1920’s. In 1999 Congress passed the bill that repealed the Glass-Steagall Act. That bill, signed into law by Bill Clinton on November 12th, stripped away the protections of Glass-Steagall: a statute that had protected American citizens for 68 years from the irresponsible banking practices that caused the Great Depression.
Congress could have retaken control of the problems created when commercial banks are allowed to participate with investment banks in wide-open, unrestricted, and uncontrolled investment activities. If Congress had exercised any oversight they could have monitored and foreseen the destruction the repeal of Glass-Steagall was causing, and moved swiftly to correct it.
So what does Treasury Secretary Henry Paulson do? He, with Congress’s tacit approval, allowed big banks and investment firms to become even bigger; the same corpulent financial institutions whose greed created the crisis.
JP Morgan Chase, who will soon be in trouble because of commercial and consumer defaults, and credit card defaults created by their usurious interest rates, was allowed to purchase Bear Stearns at bargain basement prices. Bank of America was allowed to take over Merrill Lynch, which will end up, along with Countrywide Financial, being the nail in their coffin. Goldman Sachs, Morgan Stanley, American Express, and GMAC were given bank status making them eligible for TARP money. Allowing them to become banks was a bad move and a huge mistake.
The Wells Fargo situation is even more enigmatic. Wells swept in to beat CitiGroup in a bid to take over Wachovia. Wachovia may still have over $100 billion in toxic and sub-prime loans remaining on its books. And Wells Fargo may pay a huge price for their apparent victory; their effort to become even bigger may be their eventual downfall.
So where does this leave us? Is there any chance remaining to make up for the government’s largesse toward these behemoth banks?
To date, no legislation has been enacted that would truly protect the taxpayer. Several hearings have been held by Congress to figure out what comprehensive legislation could be enacted to prevent this devastation from ever happening again.
But, none of these actions protects the American taxpayers from the trillions of dollars already promised to the big banks, both now and as protection from future failures.
When we should have been castrating these banks Congress pumps them up with Viagra and Lavitra. When we should have been making these ‘Too Big to Fail banks’ smaller through appropriate legislation, our government allows them to become bigger. And bigger isn’t better, just more dangerous.
The second opinion piece addresses the things Congress should have done to help stave off this depressionesque financial crisis in which we find ourselves. It has also been submitted to the New York Times, April 1, 2009.