Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Financial Reform Fades While The Need Escalates

Stock-Markets / Market Regulation Apr 12, 2010 - 09:32 AM GMT

By: Sy_Harding

Stock-Markets Best Financial Markets Analysis ArticleThe need for reform and re-regulation of the financial industry increases, while the odds of meaningful reform fade with every action and statement by those involved.


There have already been more than a year of Congressional investigations, with the result that it’s more than clear what happened. Excessive greed and risk-taking, aided and abetted by extreme low interest rates, and regulatory powers spread across too many entities to be effective, resulted in a housing bubble. The record levels of risk undertaken by financial institutions, home-buyers, and investors, particularly in sub-prime mortgages and other forms of ‘creative’ financing, made for a collapse of crisis proportions when the bubble burst.

That has already been determined, as have the parts played by the major participants.

Yet this week, another committee, the Financial Crisis Inquiry Commission, which was actually formed last summer, finally began its investigation.

So we have had the spectacle of present and former bank executives, Federal Reserve governors, and even former Fed Chairman Alan Greenspan, being asked yet again to explain what happened, the extent of their part in it, and what can be done to prevent a recurrence.

All we have learned from the new inquiry so far is that they’re all sorry the financial collapse took place, and apologize for any role they or their firms inadvertently played in either the build-up of the bubbles or the bursting thereof. But it wasn’t deliberate, and they don’t know how or why it happened. All they know is that it sure wasn’t their fault.

Several top bank executives even testified that they had no idea the leveraged collateralized debt obligations (CDO’s) they were dealing in were high-risk. One said it was his impression the CDOs “held virtually no risk”. Another testified he was not even aware until late 2007, after the massive loss write-offs had been underway for several months, that his bank had retained $43 billion in CDOs on its own books. He apparently thought they had all been sold off to investors.

While all this meaningless chatter is going on, it becomes ever more clear how little will be changed. At worst the financial industry will only have to find loopholes and other ways of carrying on as before, and their intentions to do so have also been made clear.

For instance, the Securities & Exchange Commission reports that ‘dark pools’ now account for 8% of stock trades. What is a dark pool? It’s a system that allows institutions like major banks, brokerage firms, and hedge funds to trade large blocks of stocks ‘over the counter’ among themselves, out of public view, ostensibly “to prevent their buying or selling from spooking the market”. What is the SEC doing about it? It says it is investigating to determine if dark pool activity detracts from the quality of publicly quoted prices of the stocks involved. Pray tell, how could it not? Meanwhile, the stated purpose of the SEC mandate is “Not to protect public investors from risk or their own mistakes, but to assure that all information available to institutions is also available to public investors and at the same time, so their decisions can be informed decisions.” Thus the insider trader laws, the release of corporate financial statements and economic reports simultaneously to the public and institutions, and so on. But the SEC wonders if it wouldn’t be alright for 8% of stock trades to take place off the exchanges to hide them from the public? Ah yes, reform is on the way.

The SEC has also announced it is proposing a rule that will force Wall Street firms that package and sell asset-backed securities like CDOs, to keep 5% of those packaged loans on their own books, so they will share the risk with those they sell the investments to. The SEC says that should ensure that the firms will be more careful in screening the borrowers who take out the mortgages, car loans, and credit card debt that make up the packages. Wow! That is such a tough new rule, sure to reform that major problem of the past. Except that the loopholes are far too obvious. My 8-year old grandson could devise a plan to carefully screen 5% of loan applicants to make sure they’re good for the loans, and keep those loans as the 5% they must keep on their own books and not sell to investors.

And how about the report in the Wall Street Journal on Friday based on data from the Federal Reserve Bank of New York. That data shows that for the past five quarters 18 major banks, including Goldman Sachs (GS), Morgan Stanley (MS), Bank of America (BAC), and Citigroup (C), understated the debt levels they used to fund their securities trading in each of those quarters, and by an average of a whopping 42%. The report says they dropped the debt level at the end of each quarter for their quarterly statements, and then increased the debt back to where it was as the next quarter was underway, repeating the process each quarter.

And that is for the last five quarters, after their taxpayer rescue, after hiding of the risks they were taking before has been singled out as a major cause of their collapses, and when they are supposedly under closer scrutiny by reinvigorated regulators.

Ah yes, we’re making progress toward bringing the financial industry under control so they cannot create another financial and economic collapse down the road. Meanwhile, the financial industry is also clearly demonstrating its remorse, and intentions to reform on its own - not.

Sy Harding is president of Asset Management Research Corp, publishers of the financial website www.StreetSmartReport.com, and the free daily market blog, www.SyHardingblog.com.

© 2010 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules