At the beginning of the year, there were five investment banks. Now we’re down to two. Wall Street is reeling, and it looks like the treasury, and thus “we,” are going to have to pick up the pieces. But what happened and who is to blame? I thought I’d put the question to T-Nation’ers and see what you all think.
The Politico had an interesting piece this morning that inspired this thread, here are some excerpts:
[i] McCain has called for a commission to study the investment industry and recommend changes, including consolidating the various institutions charged with regulating them.
Like McCain, Obama is calling for streamlining the bureaucracy that overseas the business. But Obama also wants greater disclosure for investors and a broader definition of which businesses get regulated.
The game begins with the bankers who made bad mortgage loans, the so-called subprime loans to buyers who sometimes put no money down and underwent no background checks.
The next finger points at those who converted those loans into securities and sold them on Wall Street without correctly valuing or disclosing the risk inherent in them.
With the housing market hot, hot, hot, investment houses gobbled up them up without a worry about risk. After all, the bubble would never burst, and the money was pouring in.
As the transactions morphed and raced through the financial system, Washington was left largely in the dark.
Congress had been warned for years that Fannie Mae and Freddie Mac, the two quasi-private home lenders, were on shaky ground. But lawmakers who had long been coddled and feted by Fannie and Freddie refused to tighten oversight of them.
If they had, a tough regulator might have spied the inherent risks in the subprime market and required them to increase their cash cushion to counter future losses. And such a move would have sent a signal to Wall Street to take greater care, said an investment industry insider.
Others argue that the Federal Reserve Board should take some blame for keeping interest rates too low for too long and not seeing the threat of the subprime loan industry. [/i]
IMO this shows a distinct need for more market regulation. What do you all think?