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View Diary: Wall Street's moral hazard (128 comments)

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  •  I read a little about Born (0+ / 0-)

    on wikipedia.
    I was shocked to read that Arthur Levitt opposed her ideas for more transparency on derivatives.

    Wow what an incredible history of courage her life has been.

    •  Levitt didn't understand derivatives. (2+ / 0-)
      Recommended by:
      eve, BeeDeeS

      He's probably the least indictable of the four of them.  There was a good "Frontline" documentary on this a few years ago.  I think it was called "Warning" or something close to that.

      When Greenspan appeared before Waxman's committee, he admitted that he had 'errored'.  That his economic theory had a 'flaw'.  He never admitted what the error was.

      I suspect that he never believed that so many firms would act in a manner that was so threatening to their long-term financial interests.  Said another way, he never believed that all large firms would overdose on corruption.

      Imho, the main problem was that young mathematicians created models that no one really understood, executive management didn't understand the math or the underlying instruments, and no one contemplated that the derivatives market would grow into trillions of dollars in less than a decade.

      Born understood that the derivatives market had decoupled from the underlying collateral.  Spreads on derivatives, ultimately, had nothing to do with mortgaged assets. And, since there was no visibility by regulators on the trading volume, no one knew that it was a trillion-plus market.

      I've discussed this with a retired Chicago economist and he tends to agree.

      Markets aren't free when they are hidden.

      We need to do what Roosevelt did:  Fire the boards and executive management of the involved banks.  They should never be allowed to work for a publicly traded firm again.

      Get off the lawn.

      by Boris49 on Mon Aug 29, 2011 at 09:11:57 AM PDT

      [ Parent ]

      •  re: (0+ / 0-)
        I suspect that he never believed that so many firms would act in a manner that was so threatening to their long-term financial interests.

        well, as with all these situations, if there is not a level playing field of responsible regulation, the supposedly "good" corporate citizens will, by default, lose out financially compared to those who do not act in good faith and Greenspan, given his responsibilities as fed Chairman, should have been well aware of this dynamic.

        another example of this kind of thing happens when the petrochemical industry is left to regulate itself.
        the "good" corporate citizen loses when they buy the scrubbers that keep them from polluting the air while the bad ones pollute with impunity and make more profits at the expense of everyone.
        Only by enforcing regulations on good and bad corporate citizens to maintain high air quality standards, does the "good" corporate citizen get an even playing field on which to compete, IMO.

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