That anyone thought lack of regulation was possibly a good idea was never true. Many thought that certain changes were acceptable and the change makers were simply not smart enough to actually do it. We could call it a dumbing down driven by the honest competition for better returns on the capital deployed.
Recall that the profitability of S&L’s was low and made the industry a slow growth sector that found it difficult to attract new capital and management. The Canadian banking industry had the same rap.
The only way to juice earnings in the financial industry or in any industry with a mature business model is by fraud. That means using confidence to support the finance of lousy investments until the confidence evaporates. If you are the first to play and deftly pass the train wreck of to the most greedy of you successors, you can walk away very rich.
This economist is right. It was fraud and what is more, they all knew it was a pending disaster. The only ones who could be excused would be the salesmen who trusted their bosses and partners. You do not manufacture a package of crap mortgages and then get it ranked AAA and not know that you are constructing a fraud and that everyone is going wink - wink as this is peddled of to the hedge funds desperate for returns.
It is fitting that these fools were forced to pack so much in inventory, but that is likely a result of the last desperate moves to retain confidence. The players are all dead and all their competitors are very much in business since the clique could hardly let them play since they would have asked all the right questions.
As I have previously posted, all participants should be put on notice of a full investigation and asked to turn in their passports. And the crime is also treason because these greedy men put their interests ahead of their institutions and thir country's interest.
Economist: US collapse driven by 'fraud,' Geithner covering up bank insolvency
In an explosive interview on PBS' Bill Moyers Journal, William K. Black, a professor of economics and law with the University of Missouri, alleged that American banks and credit agencies conspired to create a system in which so-called "liars loans" could receive AAA ratings and zero oversight, amounting to a massive "fraud" at the epicenter of US finance.
But worse still, said Black, Timothy Geithner, President Barack Obama's Secretary of the Treasury, is currently engaged in a cover-up to keep the truth of America's financial insolvency from its citizens.
The interview, which aired Friday night, is carried on the Bill Moyers Journal Web site.Black's most recent published work, "The Best Way to Rob a Bank is to Own One," released in 2005, was hailed by Nobel-winning economist George A. Akerlof as "extraordinary.""There is no one else in the whole world who understands so well exactly how these lootings occurred in all their details and how the changes in government regulations and in statutes in the early 1980s caused this spate of looting," he wrote. "This book will be a classic."But that book only covers the fallout from the 1980s Savings & Loan crisis; Black's later first-hand involvement in that scandal being the ensuing liquidation of bad banks."
A single bank, IndyMac, lost more money than the entire Savings and Loan Crisis," reported PBS. "The difference between now and then, explains Black, is a drastic reduction in regulation and oversight, 'We now know what happens when you destroy regulation. You get the biggest financial calamity of anybody under the age of 80.'"That financial calamity, he explained, was brought about not by mishap or accident, but only after a concerted effort to undermine and remove all regulations, allowing a creditor free-for-all that hinged on fraudulent risk ratings for bad loans.
"[T]he way that you do it is to make really bad loans, because they pay better," he told Moyers. "Then you grow extremely rapidly, in other words, you're a Ponzi-like scheme. And the third thing you do is we call it leverage. That just means borrowing a lot of money, and the combination creates a situation where you have guaranteed record profits in the early years. That makes you rich, through the bonuses that modern executive compensation has produced.
It also makes it inevitable that there's going to be a disaster down the road."...This stuff, the exotic stuff that you're talking about was created out of things like liars' loans, that were known to be extraordinarily bad," he continued. "And now it was getting triple-A ratings.
Now a triple-A rating is supposed to mean there is zero credit risk. So you take something that not only has significant, it has crushing risk. That's why it's toxic. And you create this fiction that it has zero risk. That itself, of course, is a fraudulent exercise. And again, there was nobody looking, during the Bush years.
So finally, only a year ago, we started to have a Congressional investigation of some of these rating agencies, and it's scandalous what came out. What we know now is that the rating agencies never looked at a single loan file. When they finally did look, after the markets had completely collapsed, they found, and I'm quoting Fitch, the smallest of the rating agencies, "the results were disconcerting, in that there was the appearance of fraud in nearly every file we examined."He equated the entire US financial system to a giant "ponzi scheme" and charged Treasury Secretary Timothy Geithner, like Secretary Henry Paulson before him, of "covering up" the truth.
"Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?" asked Moyers.
"Absolutely, because they are scared to death," he said. "All right? They're scared to death of a collapse.
They're afraid that if they admit the truth, that many of the large banks are insolvent. They think Americans are a bunch of cowards, and that we'll run screaming to the exits.
And we won't rely on deposit insurance. And, by the way, you can rely on deposit insurance. And it's foolishness. All right? Now, it may be worse than that. You can impute more cynical motives.
But I think they are sincerely just panicked about, 'We just can't let the big banks fail.' That's wrong."Ultimately, said Black, the financial downfall of the United States in the wake of the Bush years is due to "the most elite institutions in America engaging in or facilitating fraud."
"When will Americans wake up and hold the real criminals - Banksters - accountable for their actions, and pressure the government to enact systemic changes to prevent future abuses?" asked Huffington Post blogger Mike Garibaldi-Frick.