Courtesy of Larry Doyle.
Every now and then I come across a document or statement that simply stops me in my tracks. In the process of pondering the weight and importance of the embedded message, I am typically left totally aghast.
Today I had one of those experiences as I continued to review the treasure trove of material in the recently released documents from the Clinton Presidential Library. From a document covering the work of the Council of Economic Advisers, I almost spilled my coffee when I read the following:
There is a case for a lender of last resort in catastrophic cases (Greenspan.)
Uncle Alan effectively acknowledges the ‘too big to fail’ problem all the way back in 1998 when we experienced the meltdown of the hedge fund Long Term Capital Management.
Improved capital standards–Capital standards are seriously broken. We need to improve measurement of risk and capital so that banks have adequate capital against the risks they run.
Be mindful that at this point in time Wall Street firms were supposed to be able to leverage themselves at a maximum of 12 to 1. Even by that standard, this document is highlighting that the President’s advisers felt that capital standards were not sufficient. Fast forward 6 years and those capital standards were eroded so Wall Street firms could triple their leverage.
You can’t make this stuff up.
They then asked themselves the following:
. . . should we address leverage in the system?
If I were not reading a document from a presidential library, I may have been confused to think I was reading a script from an Abbott and Costello skit when I see how the advisers answered this question regarding leverage:
We should not address leverage per se, because it is too difficult to define given derivatives and is not the proper measure of the problem. We should control excessive exposure to risk.
Let’s see here. Leverage is too difficult to define given the unknown risks lurking within the derivatives markets, but there is a need to control excessive exposures to risk.
Huh? What? “Who’s on first??”
Is it any wonder that the big money interests on Wall Street were able to ply their trade and fill the coffers of those in Washington to relax the net capital standards and triple their leverage in the process? We still pay the price for that “rigging” of the system and so much more.
What do you think?
As far as I am concerned, in assessing who is minding our national interests in Washington, “Who’s” still on first. “What’s” still on second. “I dunno’s” still on third.
Navigate accordingly.
