Monday, July 19, 2010

The cause of the crash! Government.

From City Journal, read the whole piece to understand the origins of the crash. Government and human greed. Too big to fail means bank took ever greater risks.

Over the two decades leading up to 2008, financial markets were anything but free. The nuts-and-bolts government infrastructure that free markets require to thrive—healthy fear of failure, respect for the rule of law, and fair rules for everyone—was crumbling.
In 1975, the City of New York looked close to defaulting on its municipal bonds, as Charles Gasparino, now a Fox Business reporter, recalls in The Sellout: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System. But a young bond salesman named Jimmy Cayne—the pot-smoking, bridge-playing future CEO of Bear Stearns—didn’t think his city would walk away from its debt. Cayne bought tens of millions of dollars’ worth of New York’s bonds from panicked investors, who were selling them for pennies on the dollar. When the state and the feds came through with a rescue, Cayne had made a “small fortune” for his firm. It was a great trade. But Gasparino fails to mention the most fateful part of the tale: Cayne undoubtedly absorbed the lesson that the federal government, fearful of the disruptive consequences, would not let big borrowers default. He was among the first to bet on bailouts.

4 comments:

Anonymous said...

Greed is the key word - for power and money. Its coveting which goes beyond wanting.

Making a fortune at the expense of tax payers? He's not the first and while it may look flashy its really just trashy.

Anonymous said...

At least the UK has admitted that unsustainable Labour borrowing to pay benefits, pensions, and the NHS are the real cause of the problem

That's why Cameron has asked all deparments to prepare for spending cuts of up to 40%.

Now - NZ is even worse on in terms of nett foreign debt per capita as a fraction of income - we're worst in the world really in out inability to pay off our overseas debt! -

what's Do-Nothing-Key doing about this?

NOTHING

FAIRFACTS MEDIA said...

We should remeber the role of political correctness in all this.
Government forcing banks to make loans to riskier poor and brown people.
This is something Adolf and I covered regulalrly here.
Yes, the Community organiser and his works for ACORN played a role too!

sagenz said...

FFM - agreed. That was the natural progression from the state deciding some banks were too big to fail and is mentioned in the article