Tuesday, April 20, 2010

What could have (re)possessed them?

Since the beginning of the Catastrophe, BobOnARoll asserted that the root of the problem---and its ultimate resolution and correction---lies within the details of the shady financial transactions, accounting statements, and ignored risk analyses that enabled the house of cards. These fundamental problems exist to this day, although we are told that pending bills before the House and Senate are designed to increase transparency and regulate the worst practices. Good luck with that one, Congresspeople !

The chart above, reprinted from a recent NY Times DealBook column, demonstrates the complexity of one of the financial instruments---a Repo 105 (repurchase agreements) that enabled financial firms to hide significant portions of balance sheet (hence, liquidity) risk on their quarterly published financial statements. BobOnARoll will donate $100 to the charity of your choice if you can summarize the chart in two sentences or less.

OK, let's face it: in a complex world of global trade and finance, old fashioned financial instruments just won't do, especially when US financial institutions now compete with big players in the UK, France, Japan, and elsewhere. So, the competitive spirit of capitalism which, at its best, yields a wonderful standard of living in the developed world, can also be its undoing. No matter how smart the regulators, I fear that there will always be accountants, lawyers, and financial geniuses who will be one (perhaps a dozen) steps ahead of them. For every prosecution of allegedly criminal behavior at Goldman Sachs, there are dozens and dozens, perhaps hundreds, of questionable transaction and accounting practices at Goldman and many other banks that do not rise to the level of SEC prosecution.

Am I too cynical or do you agree with me that when the glare of pre-election season publicity directed at these banks eventually shifts elsewhere, the gnomes of Wall Street will go back to business as usual, moving and repackaging money instead of listening to their mothers and doing something productive with their lives.....

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