You Make The Call

When you read and listen to much of what is being said about the current financial crisis by the so-called experts in and out of office and on the Street, and you realize that much of what is being said is being covered up in words like “melt down” and other colorful descriptions that do not quite get to the nitty gritty of the issues, then Moneythoughts gets a little disgusted.

We are now reading that the former chairman of the Fed, Alan Greenspan, is speaking out about the current crisis to The Times of London. On Monday March 17, 2008, the following quotes were given.

Let Moneythoughts quote a few lines from “Chance” Greenspan.

“Particularly hard hit will be much of today’s financial risk-valuation system, significant parts of which failed under stress.”

Failed under stress? What stress? A bridge fails under stress, a risk-valuation system does not fail under stress, it fails because it is poorly crafted and because it was intimidated by the brokerage houses that pay their fees. Let us call it for what it is. Stress? There was no stress. Greed! It failed because of greed, that is the bottom line. “Chance” you will have to do better than that. The system needs to be changed because if it is not changed another fresh set of eyes will be dealing with the same exact problem several years from now. Because you did not have the guts or the intelligence to deal with the problem of the rating agencies and no one else did either, does not mean an attempt to correct the weakest link in the financial market system should not be looked at and reinforced with some steel bars. The present crisis is not even nearly over and the experts are warning of too much regulation. You have got to love it.

“Chance” Greenspan is quoted again.

“Thus it is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulation not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition.”

Why throw structure of markets and regulation together? No one wants to destroy market structure, or as you put it “structure of markets”. That is not the problem. Regulations or the lack there of is the problem. The hands off approach does not work, regardless of what they write in nice little books. In the real world we need umpires, referees and official oversight. Even with all that, those committed to breaking the rules will find a way. The problem becomes acute when the rules are broken for a sustained period of time, then you have hell to pay as the financial markets are now paying today. No one is saying a word about restricting open competition or flexibility. This is more of the same BS we hear every time the markets have a crisis. Do not regulate, do not legislate, because if you do, all hell will break lose. Well, tell Moneythoughts what we have now if not all hell breaking lose. Bernanke is already being criticized for crafting the bond swap of non-marketable mortgage bonds from the banks and investment houses. Thank goodness we have a Fed chairman that has a brain and not a bunch of outdated ideology to guide him. Moneythoughts gives Chairman Ben Bernanke high marks for crafting a rescue package that is sorely needed.

Many people and institutions were sand bagged by the pitiful job done by the rating agencies. This was not the only problem out there, but it was the most crucial, in Moneythought's opinion, because had the charade stopped there, the crisis of confidence would have been averted. If the bond issues had been given the correct rating grade in the beginning, much of the present disaster may have never happen. The credit crisis extends to all asset-backed bonds, and there are many kinds. To name a few besides the mortgage-backed, there are manufactured housing, auto loans, credit card debt and the list goes on. Now, perhaps you can understand why the word melt down is being used so often. Stay tuned.