Exposing “The System”
By Nick Hodge
I Googled “financial scandal.”
see also 2012-030 The Cause of the Financial Crash
There were over 100,000,000 results.
That’s a shame, because these are likely the institutions you rely on for your financial well-being.
You shouldn’t be relying on them. You shouldn’t be reliant on anyone. We’ll help you get there.
Why were there so many scandals? What were they? And how were they affecting you?
A Short Story
It was 2008. The Dow had reached an all-time high above 14,000 in 2007. But it was quickly falling to 13,000… 10,000 — make that 8,000 by October (it would go below 7,000 in early 2009).
People wanted their money out. They wanted it in their hands. And who could blame them?
It was then we learned the banks were not prepared to give clients their money. They had leveraged up. When Bear Stearns was on the brink of collapse, it had 32 times more debt on its balance sheet than equity. Merrill Lynch and Lehman weren’t far behind.
2008 Bank Leverage Ratio
The U.S. Senate concluded the crisis was the result of “high risk, complex financial products, undisclosed conflicts of interest, and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.”
That’s the polite way of saying banks invented lending products that allowed people to get loans they couldn’t afford, and then invented investment products based on those loans predicated on the fact that home values would always rise — without oversight.
In other words, Wall Street had become the Wild West. This almost undeniably began with the repeal of the Glass-Steagall Act in 1999, an action that removed the separation between investment banks and depository banks, creating too-big-to-fail institutions. In addition, the Commodity Futures Modernization Act of 2000, which ensured the deregulation of financial products known as over-the-counter derivatives, also shares some of the blame.
The government — under then President Clinton — gave the banks permission to do the things that led to the 2008 financial collapse. The government — under then President Bush — condoned these activities and bailed out banks with the Troubled Asset Relief Program (T.A.R.P.) when their behavior led to the worst financial crisis since the Great Depression.
Both parties and the banks are to blame. As always, none of the three have your best interests in mind.
Five years later, banks are back to posting record profits while the median net worth of American families is still down 40% from 2007, and a search for “financial scandal 2012” will yield over 100 million results.
Some things will never change…