Hindsight it’s easy to point fingers of Blame at just about everybody but yourself !
But just review this historical evidence in USA of the excessive and irrational liberalisation in the Financial Sector by the Regulators and make your own judgement
1996: The US Fed Chairman at the Time,Alan Greenspan warns of “Irrational Exuberance”
1998 : Long Term Capital Management,headed by Nobel Laureate Economists and a Board of Who’s Who in the the Finance Sector ,lost billions of dollars in Derivative Plays…betting more than House Capital in Complex Derivative Products in which their Financial Model showed there could be just 1% chance of an unfavourable scenario unfolding…It did… LTCM,with Fed support, had to be bailed out by Fresh Private Infusement of Funds….It should have been allowed to collapse…..Fund Managers would have been suitably warned and would not so easily have been inclined to excessive and irrational overleverage in chasing high profits
1999 : The Glass -Steagall Act was repealed by the Financial Services Modernisation Act.This set into Motion a scenario where the Operating Walls of Commercial Banking,Investment Banking and even Insurance became blurred….Financial Powerhouses began playing multiple roles and assuming higher Risks
2000 : The Commodities Futures Modernisation Act created a category of “excluded commodities” to include Financial Commodities like Interest Rates,Currencies and Stock Indices.These were allowed to trade off Futures Exchanges with very little supervision by the Commodity Futures Trading Commission.Other Regulators,like the SEC and the FDIC not monitoring the writing of the credit default swaps trades by Hedge Funds,Insurance Companies and Investment Banks
2001-2003 : FDIC reduced the Fed rate to just 1 %…and it remained so for more than a year,flooding the market with liquidity and forcing Bond managers to take higher Risks in searching for Higher Yields.Alan Greenspan forgot his own doctrine of “Irrational Exuberance”…Asset Prices began inflating,especially Houses…Greenspan even declared to the Influential Finance Committee of the Senate in 2003 that the mortgage default risk was very low and Surging House Prices should not cause any worries ! How wrong was he !?…This was disclosed last week by the Committee Member, the Republican Senator,Richard Shelby during a Debate to recommend the controversial US $ 700 billion bail-out Plan of the Government for the Financial Sector. Shelby opposes this plan.
2003 onwards: Buoyed by this Liberal stance by the Fed,Banks began lending to all and sundry without a thorough check of the Borrowers background and ability to repay…Sub-Prime Lending reached obscene levels ….most was for House Mortgages
2004 : Excessive Lobbying by the Big Five Investment Bankers (Goldman Sachs,Morgan Stanley,Bear Stearns,Lehman Brothers and Merill Lynch) with the SEC resulted in them being allowed to exceed the leverage cap of 12 to 1 of Debt to Own Funds…..These Five Investment Banks began dangerously leveraging to higher levels of 20 to 1 and often even 40 to 1…creating Securities as they sought money for jam in Derivative and Lending Products…some of these Securities were evn labelled Triple A by Rating Agencies !
Seeing a Boom in Business Unfolding,Many House Appraisers connived with Banks to inflate House Prices to enable and facilitate Higher Lending at Higher Rates…creating a Housing Price Bubble which on deflation has created the Critical Mortgage Default Problem with Loan Values far above House Values Now…even those Borrowers who can afford to pay are preferring not to and walking away from the House,forcing Lenders to possess the House…this is raising Moral issues too…..when Honest Appraisers had brought this dangerous and manipulative trade practise of Inflating House Prices to the attention of the Congress and the Regulators,the latter took no action