Wednesday, March 17, 2010

The Best Way to Steal

Where we are, and how we got there. Economists do not have the f-word called fraud in their vocabulary. According to Bill Black 80% of mortgage fraud is committed by lenders, 20% by borrowers. Which group is the FBI focusing its efforts? Is it the mortgage lenders? No, it's the borrowers. This financial crisis is very similar to the S&L Crisis of the 1980s, but on a much more massive scale. The thieves are the management. Everyone else gets robbed. The bad guys walk away without any fear of going to jail. The cops are either asleep or enabling the robbers because the cops believe that the robbers are good people trying to make a honest buck because the crooks wouldn't lie to them.

Markets are efficient and self-regulating. Markets do not tolerate fraud and abuse. This was what Greenspan believed. The chairman of the Federal Reserve Board, the head regulator, believed that nonsense. Bernanke. his successor, did nothing to stop the crisis. Geithner, the President of the FRBNY, did nothing to stop the crisis even though they had multiple and timely warnings that Lehman was failing. The SEC allowed excessive leverage because Hank Paulson petitioned them to relax the rule restricting leveraging limits. This crash could have been averted if one of the regulators had said stop or done their jobs. But the regulators whose job it was to protect the country from a financial, man-made calamity failed to do their jobs. Yet, all we hear is that regulations are a burden to free markets and consumer protection, and financial crises are like natural disasters that happen every 5-7 years. No, regulations are there to protect the people who also happen to be producers and consumers. My bank does not care about me. They care about my money and the FDIC guarantee attached to it because it is one of their insurance policies. What other business gets to have their money guaranteed against loss?

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