15 May 2008

Financial Relativism: Fraud by Any Other Name....

Let's speak plainly for once, Chairman Bernanke.

The US financial system degenerated under the collateralized debt origination model in which super-compensated bankers and brokers used unreliable mathematical models to create complex and opaque packages of dubious quality debt which they sold to most of the major institutions in the world.

Our words to be sure, but a paraphrase of Paul Volcker's testimony to Congress yesterday, as he deviated from his prepared text.'

More simply put, it is a Ponzi scheme.

Now that the game is collapsing, the bankers that gained enormous, fantastic wealth while it was running are now looking for their shareholders, the public, and in many cases their victims to bear the losses and repair the financial system and the banks themselves while they safely hold their personal gains.

All up and down the line, from the loan originators to the bankers who created the bundles to the broker salespeople to the regulators and the Fed, everyone turned a 'blind eye' to the fraud as it occurred. Time and the justice system may sort out the degrees of guilt. We will see the spectacle of highly paid very experienced businessmen claiming utter ignorance of their own companies as we did with the role model for the neo-capitalists - Enron.

The banks were central to the scheme from the inception as they spent years and many hundreds of millions of dollars to overturn Glass-Steagall to allow this coup de grâce to be delivered to all holders of US dollars. PBS Frontline: The Long Demise of Glass-Steagal