The Credit Crisis

Finally, the saga of what happened and why appears to be complete.  The primary culprits are Wall Street “masters of the universe” investment bankers who created a “monster” called mortgage-backed securities that were not based on sound economics but rather on “sizzle” and flawed assumptions.  The credit bomb eventually exploded because greed by the bankers and borrowing citizens created a “bubble” which burst and froze the credit system.  To a lesser extent the federal regulators and federal politicans are also at fault for not reigning in this abuse but quite frankly it is hard to blame them too much since their culpability arises only with 20/20 hindsight.

The only thing I still don’t understand is why the “toxic assets” as these securities are called apparently still have no value or stated another way can’t be valued.  Certainly all of the mortgages supporting these securities are not bad.  Why can’t someone value the instruments and figure out what the real loss is?  I have not heard a good answer or explanation on that.

I know we are now going to expand the regulatory powers of various agencies and the Federal Reserve to hopefully prevent this from happening again.  For my money (pardon the pun) I think the problem is that banks have been allowed to merge and merge and merge and become far too large.  Too big to fail is what caused this mess.  If we had more but smaller banks and investment houses then it is still possible that all of them will make the same mistakes but I doubt that.  I think we should look at “busting up” these large private institutions and change if need be the anti-trust laws to prevent market concentration in the financial services area.

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