If you want to get really scared/mad about our current financial mess, take an hour and listen to last Friday's version of Chicago Public Radio's This American Experience, titled Another Frightening Show About the Economy.
Act One: The Day the Market DiedA few quick notes:
Act Two: Out of the Hedges and into the Woods
Act Three: Swap Cops
Act Four: What's Next
Act One helps us better understand how the very boring arena of Commercial Paper recently caught the attention of high government officials when the arena suddenly dried up, threatening businesses small and large, state governments, and more.
Act two delves deep into Credit Default Swaps and might be subtitled: How 'Insurance' morphed into 'Speculation' on a massive, unprecendented scale. If you want to get a good feel for these arcane instruments, listen closely. A Snip: "If bad mortgages got the financial system sick, [Credit Default Swaps] helped spread the sickness into an epidemic."
Act Three helps us better understand Regulation (or the lack of it). For example, Why were CDSs not regulated, say, way back in 1998 when Michael Greenberger, then with the U.S. Commodities Futures Trading Division, and others tried to get such regulation? Many in the Clinton Administration and Congress argued, according to Greenburger, "These products are entered into by very sophisticated financial institutions … you and I couldn't buy them … and these people are very, very smart and it is a mistake to let government get in the way." In Dec. 2000, Congress passed a law — as a little-discussed 262 page rider to an Omnibus Appropriations Bill — that credit default swaps and things like them could not be regulated. So it went! So it goes… Nobody was even trying to restrain the investors, turned 'speculators.'
Greenburger concludes, "… The idea that you can have $60 Trillion in a financial market which is more than all the stock sold anywhere in the world and not have any oversight whatsoever is self-evidently absurd, and we are seeing the end result of that today."
Act Four give us some insight into the Bailout Bill as it was, and as it transformed into Law.
And if that whets your appetite, listen/read to Michael Greenberger's Sept. 17 Was Adult Supervision Needed on Wall Street?, also from NPR.
HT: Calculated Risk
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