Thursday, September 18, 2008

All those free market fanatics who think...

...big business should just be allowed to "do business" unfettered - ie pillage and burn at will - need a bit of a reality check.

The Big Picture - macro perspective on the capital markets
How SEC Regulatory Exemptions Helped Lead to Collapse
Thursday, September 18, 2008 | 06:00 AM

The losses incurred by Bear Stearns and other large broker-dealers were not caused by "rumors" or a "crisis of confidence," but rather by inadequate net capital and the lack of constraints on the incurring of debt.

--Lee Pickard, former director, SEC trading and markets division.

Is Financial Innovation just another word for excessive and reckless leverage?

Apparently so.

...the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.

Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1.

Who were the five that received this special exemption? You won't be surprised to learn that they were Goldman-Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns, and Morgan Stanley...

...The SEC allowed five firms — the three that have collapsed plus Goldman Sachs and Morgan Stanley — to more than double the leverage they were allowed to keep on their balance sheets and remove discounts that had been applied to the assets they had been required to keep to protect them from defaults...


Yes, class - you read that correctly. The five firms that were exempted from those "excessive" and "burdensome" government regulations are the ones crashing and burning right now - and taking down their business partners, for good measure.

Gee, maybe "interfering" with the "free market" isn't so bad, after all.

And don't forget, class - these same "top" investment bankors and economists who let your manufacturing job disappear because "that's just free market capitalism at work" are begging hat in hand for "loans" and other taxpayer props for their failed businesses.

That's right - they called you red communist scum for wanting your job protected. "Union patsies," they said. So what does that make them, class?

Hypocrites, at the very least. Lying slimeballs, more likely.

- I say, Let 'em crash! (Airplane!)

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