Banking With Fools

It must be said as a proof to the political acumen of FDR after the Great Depression, the United States had 40 years of economic growth,without a single financial crisis. The financial industry was tightly regulated. Most regular banks were local businesses, and they were prohibited from speculating with depositors’ savings. Investment banks, which handled stock and bond trading, were small, private partnerships.
“In the traditional, uh, investment-banking-partnership model, the
partners put the money up. And obviously, the partners watched that money very carefully. They wanted to live well, but they didn’t want to bet the ranch on anything.”Samuel Hayes Prof.emeritus of investment banking Harvard Business School.
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In the 1980s, the financial industry exploded. The investment banks went
public, giving them huge amounts of stockholder money. People on Wall Street started getting rich. In 1981, President Ronald Reagan chose as Treasury secretary the CEO
of the investment bank Merrill Lynch, Donald Regan (1981-85).
The Reagan administration, supported by economists and financial lobbyists, started a 30-year period of financial deregulation.
In 1982, the Reagan administration deregulated savings and loan companies, allowing them to make risky investments with their depositors’ money. By the end of the decade, hundreds of savings and loan companies had failed.
(This crisis cost taxpayers 124 billion dollars, and cost many people their life savings. Perhaps one of the biggest bank heist in our history came out of the nexus between Reagan and Donald Regan (not related). You see the entire Wall Street was behind the Presidnt to a man. This was a dry run for the economic downturn of 2008 and would affect globally millions as a result.( Only the villains and fools had to strut on the stage and do their pieces.)

Law catches up with crooks sooner or later. Thousands of savings and loan executives went to jail for looting their companies. One of the most extreme cases was Charles Keating.
You got to say Keating, a smart Alec that he was, hired an economist named Alan Greenspan. His hand was so steeped in the heist that he did go to jail but luck smiled on Greenspan. President Reagan appointed him chairman of America’s central bank, the Federal
Reserve. Greenspan was reappointed by presidents Clinton and George W. Bush.
During the Clinton administration, deregulation continued under Greenspan and Treasury secretaries Robert Rubin — the former CEO of the investment bank Goldman Sachs — and Larry Summers, a Harvard economics professor. By the late 1990s, the financial sector had consolidated into a few gigantic firms, each of them so large that their failure could threaten the whole system; and the Clinton administration helped them grow even larger.
In 1998, Citicorp and Travelers merged, to form Citigroup, the largest financial services company in the world. The merger violated the Glass-Steagall Act, a law passed after the Great Depression, which prevented banks with consumer deposits from engaging in
risky investment banking activities. Here we see a President’s lack of attention to detail or long range conseqnces was writing the scenario for disaster.
Reagan and Clinton:
By the way Reagan stepping out from the entertainment business wanted to entertain and his policies all as can be seen were motivated by wowing them and leave them in stiches. He had style but never did acquire susbstance as FDR has had. (It seems he never as a President wanted his aides to brief him with memos more than a paragraph.Was it his short attention span or the Alzcheimer was in incipient stage?) Clinton the Great Communicator also failed but for different reasons. Mnica Lewinsky scandal was a distraction.
The nation was banking with fools and under the watch of men of straw. The events will run their course and in 2008 blow in the faces of the nation.(ack: Inside Job-sony Pictures,2010)
benny

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Enron Scandal

Smartest Crooks Know Law is on Their Side

Enron scandal did not happen by itself. It was made to happen by some crooks with lots of help from other agencies. For example Arthur Andersen one of the largest audit and accountancy partnership went out of business by playing along. Where did Enron get such a clout so suddenly and so authoritatively? It could not have been coincidence that natural gases were deregulated in 1985 and also marked the founding of Enron. How much politicians in office or outside (but with power to help the company along the way) shall be a debatable point. Remember the company’s television commercial of not so long ago, ending with the reverberating phrase, “Ask why, why, why?” That question we may phrase it as Ask Who,who,who,who?

Enron was formed in 1985 by Kenneth Lay after merging Houston Natural gas and InterNorth. With the coming of Jeffrey Skilling it was time to set special purpose entities, and it took care of accounting loopholes to hide billions in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives were able to mislead Enron’s board of directors and audit committee as well as pressurize Andersen from looking closely at high-risk accounting issues.

Stock prices of Enron at US$90 per share in mid-2000 caused shareholders to lose nearly $11 billion when it plummeted to less than $1 by the end of Nov.2001.On Dec.2 2001 Enron filed for bankruptcy. It was the largest corporate bankruptcy in U.S. History and also largest auditing failure. Employees and shareholders received limited returns in lawsuits, despite losing billions in pensions and stock prices. As a consequence of the scandal, new regulations and legislation were enacted to expand the reliability of financial reporting for public companies.

On looking back what was really the compelling reason for the United States Congress to pass legislation deregulating the sale of natural gas? It was all too plain that it was to give traders such as Enron to sell energy at higher prices, allowing them to thrive. After producers and local governments decried the resultant price volatility and pushed for increased regulation, strong lobbying on the part of Enron and others, was able to keep thefree market system in place.

McLean and Elkid in their book The Smartest Guys in the Room, “The Enron scandal grew out of a steady accumulation of habits and values and actions that began years before and finally spiraled out of control.”Risk takers ought to be awarded for their guts. It is an American quality’ In the end it proved crooks jumped and the spectator applauded bravely watching their motions calculated to deceive there was no hoop to begin with. When some express outrage at government controls think of Enron. It was fraud perpetrated on unsuspecting nation by people who were responsible to set checks and balances and defend the man on the street who voted them to office.(ack:wikipedia)

Free market shall allow such entities as Enron to exploit the public with the same ease as raising prices in commodities artificially by vested interests. In the case of state intervening there can be failures as mentioned in Gulf Oil Spill.

Pity that democracy is earmarked for humans withtheir faults:poor judgment greed, malice and lack of opportunites in their youth or neglected.

benny

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