April 18, 2011

*****Government (NOT Wall Street) Financial Innovation Caused 2008 Financial Crisis*****

Market Skeptics
written by Eric deCarbonnel
April 4, 2011

The two videos above show how the federal government (not wall street) caused 2008 Financial Crisis.

Video 1 shows that it was the government who:

1) Bundled toxic (subprime) loans into securities

2) Used financial alchemy to make risk “disappear”

3) Designed complex financial structures to hide the fraud

4) Developed insanely optimistic evaluation models to inflate ratings on toxic securities

5) Marketing these toxic securities to an unsuspecting public

Video 2 shows that it was the government who:

1) Created the entire infrastructure necessary for the subprime market to function

2) Decimated state authority to regulate the financial sector

3) Shielded subprime lenders from prosecution

4) Encouraged banks to buy toxic CDOs and to get rid of safer assets

“As to new financial instruments, experience establishes a firm rule … that financial operations do not lend themselves to innovation. What is recurrently so described and celebrated is, without exception, a small variation on an established design, one that owes its distinctive character to the aforementioned brevity of the financial memory. The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version. All financial innovation involves, in one form or another the creation of debt secured in greater or lesser adequacy by real assets, that, in one fashion or another, has become dangerously out of scale in relation to the underlying means of payment”
- John Kenneth Galbraith, A Short History of Financial Euphoria

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