Too few derivatives?

Discussion in 'Politics' started by toomuchtime_, Feb 11, 2009.

  1. toomuchtime_
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    toomuchtime_ Gold Member

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    Yep, that's what Geithner says got us into this recession. From the Fact Sheet the Treasury Department released in conjunction with Geithner's Financial Stability Plan speech yesterday.

    http://www.financialstability.gov/docs/fact-sheet.pdf

    So Geithner appears to be saying that the derivatives were not the instruments of our destruction, as many of the most outspoken critics of the banking industry have claimed, but we got into this mess because the banks did not create and sell enough of them. In effect, Geithner is saying the creation and sale of these derivatives did not only provide a positive service to our economy, but an essential service. But if Geithner is correct about this, how can it be that the deregulation bills passed in 1999 and 2000 that allowed these derivatives to be created and sold were the root cause of the financial crisis as so many have told us? If we are to believe Geithner, I guess we have to conclude these deregulation bills were the right thing to do.

    Well, I just have to ask him, "Look here, Tim, if the derivatives were essential to our economy and the bankers who created them were performing an essential service to our economy and the deregulation bills were necessary, then how in the hell did we get into this mess? Who's to blame for all this?"

    I feel like he was speaking just to me when he said:

    TG-18: Secretary Geithner Introduces Financial Stability Plan

    "You mean everyone's to blame?" (Except, of course, the House and Senate banking committees he will have to crawl before to ask for money.) "Where's the fun in that? Come on, Tim, give us one banker to blame, one really evil derivative, one outrageous deregulation."

    I'm waiting, Tim.

    I'm waiting.

    Don't let me down here.
     
  2. Toro
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    Toro Diamond Member

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    I interpret what Geithner is saying is that derivatives are positive but were taken to an extreme and people did not understand the instruments in which they were invested.

    Derivatives, used positively, are very beneficial. However, people made incorrect assumptions about how the securitized assets would behave, and levered up too much debt on their balance sheets. There was also no transparency.
     

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