The Ultimate Wall Street Nightmare

[OP_Carl]

Originally Posted by Ferd

This might be fun. Can either of you tell me exactly what deregulations GWB and crew did that led to this failure in the banking industry?

Sure.
Here is where President Bush urged disastrous policy: Goerge Bush speech at HUD in 2002

One of the things that we've got to do is to address problems straight on and deal with them in a way that helps us meet goals. And so I want to talk about a couple of goals and -- one goal and a problem.

The goal is, everybody who wants to own a home has got a shot at doing so. The problem is we have what we call a homeownership gap in America. Three-quarters of Anglos own their homes, and yet less than 50 percent of African Americans and Hispanics own homes. That ownership gap signals that something might be wrong in the land of plenty. And we need to do something about it.

We are here in Washington, D.C. to address problems. So I've set this goal for the country. We want 5.5 million more homeowners by 2010 -- million more minority homeowners by 2010. (Applause.) Five-and-a-half million families by 2010 will own a home. That is our goal. It is a realistic goal. But it's going to mean we're going to have to work hard to achieve the goal, all of us. And by all of us, I mean not only the federal government, but the private sector, as well.

And so I want to, one, encourage you to do everything you can to work in a realistic, smart way to get this done. I repeat, we're here for a reason. And part of the reason is to make this dream extend everywhere.

I'm going to do my part by setting the goal, by reminding people of the goal, by heralding the goal, and by calling people into action, both the federal level, state level, local level, and in the private sector. (Applause.)

And so what are the barriers that we can deal with here in Washington? Well, probably the single barrier to first-time homeownership is high down payments. People take a look at the down payment, they say that's too high, I'm not buying. They may have the desire to buy, but they don't have the wherewithal to handle the down payment. We can deal with that. And so I've asked Congress to fully fund an American Dream down payment fund which will help a low-income family to qualify to buy, to buy. (Applause.)

We believe when this fund is fully funded and properly administered, which it will be under the Bush administration, that over 40,000 families a year -- 40,000 families a year -- will be able to realize the dream we want them to be able to realize, and that's owning their own home. (Applause.)

Aquila furnished the data about the deregulation, sponsored by Gramm, that President Bush signed into law (not many vetos from this big-government "conservative," huh?)

Check this out, too:
Economics editor of UK Times explains how Treasury Secretary Paulson's moves will end foreign investment in U.S. banks

By deciding essentially to wipe out shareholders in Fannie Mae and Freddie Mac and acting even more harshly to the shareholders of Lehman Brothers this weekend, Mr Paulson has sent the clearest possible message to investors around the world: do not buy shares in any bank or insurance company that could, under any conceivable circumstances, run short of capital and need to ask for government help; if this happens, the shareholders will be obliterated and will not be allowed to participate in any potential gains should the bank later recover.

This punitive policy towards the shareholders in Fannie, Freddie and Lehman, who had put more than $20billion of capital into these companies in the hope of keeping them alive, means that no US bank or insurance company can hope to raise any extra capital in the foreseeable future.

This is true of both domestic investors and the Middle Eastern and Asian sovereign wealth funds, whose trillions of dollars of assets were, until a month ago, viewed as an ultimate safety net for the Western financial system.

Both groups have been so badly burnt by Mr Paulson that they are unlikely to support any refinancing by an American bank. And because governments and central bankers elesewhere, particularly in Britain, have loudly praised Mr Paulson's punitive treatment of shareholders, investors would presumably reach similar conclusions about the folly of helping any British bank.

The upshot is that any US or British bank that suffers unexpected losses or is subject to a powerful speculative attack by stock market short-sellers has nowhere to turn. And that in turn means that the total liquidation of a large financial institution in America, Britain or Europe is now seriously conceivable for the first time.

What makes the situation even more alarming is the perversity of the hardline approach taken by the US and British authorities. The investors who were “punished” by the loss of shareholder wealth in Fannie Mae, Freddie Mac and Lehman were not the speculators who encouraged and financed their reckless lending in 2004-06. They were value-orientated investors betting on a long-term recovery in the US economy and whose willingness to invest on the basis of such recovery could have prevented these companies' collapse.

By wiping out these investors - and instead rewarding the speculators who were trying to drive the share prices of these companies down to zero and thereby put them out of business - Mr Paulson has tilted the balance of power in the financial markets to a point where it is impossible to say for certain that any financial institution will survive.

In short, Mr Paulson has created an open season for speculators to attack financial companies around the world. These attacks are likely to continue and grow in ferocity until the point when governments start supporting not just the deposits and bonds, but also the shares of financial institutions whose survival is essential to keeping their economies running.

But surely it is impossible to suggest such a misunderstanding of basic finance from Mr Paulson, a former chairman of Goldman Sachs? Perhaps.

But then it is worth recalling that Andrew Mellon, the US Treasury Secretary under Herbert Hoover in 1929, was also considered the leading financier of his generation, It is also worth recalling that Donald Rumsfeld was supposed to know something about military strategy and President Bush, a former governor of Texas, about emergency flood control.