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Showing posts from 2010

Smart Women during the Financial Crisis

In 1997, Brooksley Born, now retired, directed a small federal office, the Commodity Futures Trading Commission, the federal agency which oversees the futures and commodity options markets. However, she was blocked from overseeing off-exchange markets for derivatives.(Derivatives are so-named because they derive their value from something else, such as currency or bond rates.)

She wanted to release a “concept paper” — essentially a set of questions — that explored whether there should be regulation of over-the-counter derivatives. President Clinton’s economic advisors were furious with her.
CFTC regulation was strenuously opposed by Federal Reserve chairman Alan Greenspan, Treasury Secretaries Robert Rubin and Lawrence Summers.

Simon Johnson and James Kwak in their new book, 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, stated: ” Larry Summers, Deputy Treasury Secretary for President Clinton called her and said: ‘I have thirteen bankers in my office, and…

The Demise of Glass Steagall

“Oh, yes, we have class warfare in America. My class is winning.”
                                                                           Warren Buffet

In our current financial crisis, the activity of significant lending by banks to those who wanted to own a home was followed by those banks selling off the mortgage loans to investors. This had two consequences: the banks no longer were responsible for their loans (the loans were not on their balance sheets); thus, the banks became incredibly irresponsible about whom they would loan money; and two, once the mortgages were sold, the investors bundled those loans, and, thus, no one was able to keep track of who’s got what and to whom. This bundling is called securitization.

Of course we can change this. We can regulate the banks. We used to do that . It was called the the 1933 Glass-Steagall Act and it prevented banks from being so irresponsible that they could sell mortgages. Over time the Glass-Steagall Act’s powers were …