How the Lack of Regulation Contributed to the Crisis

Discussion in 'Economy' started by Toro, Nov 28, 2009.

  1. Toro
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    Toro Diamond Member

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    Wall Street paid lobbyists mountains of money to ensure that they weren't regulated in the derivatives market, which ultimately collapsed, and to allow them to increase leverage.


    Greenspan Slept as Off-Books Debt Escaped Scrutiny (Update1) - Bloomberg.com
     
  2. dilloduck
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    dilloduck Diamond Member

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    making people believe you have assets is more important than actually having them. Pay no attention to the accountants behind the curtain.
     
  3. The Rabbi
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    The Rabbi Diamond Member

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    Except the derivatives market actually functioned just fine. It was the regulated parts of the economy, the banks, that were the problem.
     
  4. Toro
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    When Lehman collapsed, all sorts of markets began to freeze. The reason why the government moved in as they did thereafter primarily was to ensure that contracts in the derivatives markets would be honored and not tied up in courts. The securitization markets and the shadow banking system - outside of the regulatory system - has essentially collapsed. The problems in the banks in the regulatory system were in those areas whereby not enough capital was set aside, i.e. outside of the regulatory system. Citigroup et. al. did not set aside enough capital because they believed the super-senior derivatives structures they kept on their balance sheets did not need any capital. It is those derivative structures that the banks believed were AAA and thus not requiring a capital haircut which has imploded the financial systems.
     
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  5. Oddball
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    Oddball BANNED Supporting Member

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    The derivatives market most likely wouldn't have collapsed if they were trading in "A" paper, rather than undercollateralized "D" paper issued as "A" paper.
     
  6. Toro
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    Toro Diamond Member

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    Probably. The models failed.
     
  7. Toronado3800
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    I spent an excellent hour one day listening to a radio show concerning how "D" paper gets an "A" grade. Think it was NPR... Would love to find a link..
     

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