It’s mid-September 2013, and we’re celebrating the financial crisis of September 2008 that nearly collapsed the whole economy. Maybe “celebrating” isn’t quite the right word. Maybe it’s the wrong word. Actually, it’s probably a grotesquely inappropriate word.
Anyway, it seems an appropriate time to re-post this diary I posted half a year after the financial collapse, in which I sought to dispel the notion that you, assuming you are not a financial professional, are perfectly capable of understanding the mysterious terminology and how these terms combined to create the crisis. You can’t understand the risks though, which I feel quite confident in saying because it turned out the supposed “masters of the universe” couldn’t understand the risks. They thought they did, and they were very, very wrong. Maybe they could have understood the risks, but you know, they were making gobs of money, so…
Since the following was first posted, there have been some changes. The banks are even bigger and their collapse would be even worse — yippee. Breaking up the “too big to fail” banks wasn’t taken seriously inside either Wall Street of the DC Beltway. It would be bigger than the typical FDIC breakup of a failing small or medium bank, but should hardly be impossible. The big banks grew significantly by mergers, so break them back into their businesses. Bank of America owns the commercial bank Bank of America and the investment bank Merrill Lynch, so make them two separate corporations again — risk reduced. No charge for the idea.
This diary was posted a year before Dodd-Frank passed, which addressed some of the problems. The big banks have bigger capital requirements (how much cash they have on hand, just in case they collapse again), and they’re supposed to have “living wills” to wind them down if they go under. The Volcker Rule, that banks can’t risk customers’ money in propriety trading, (trades made for the bank itself rather than on behalf of a customer), is now law. The Consumer Financial Protection Bureau (CFPB) is now fully up and running, and should prevent much of the predatory lending that helped cause the crisis. Republicans are mad as hell that the CFPB exists and that predatory lenders might be restrained from selling crud and lying to customers, so the CFPB must be a really good thing. Actually, that’s not a bad standard for the whole Dodd-Frank law: Wall Street is still hopping mad, screechingly outraged, so if you’re wondering if the law did any good — apparently.
On the other hand, the lobbyists have managed to game the rules-making process so most of the law isn’t in the form of regulations yet, including the Volcker Rule. Derivatives still are mostly unregulated. They’re what caused the crisis, so no need to frickin’ hurry.