The causes and culprits behind the financial crisis of 2008

Part 1, publishedBaltimore, MD They took greed and incompetence to all-new levels It really was the whole system. In short, this Act was designed to encourage FDIC insured commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.

The causes and culprits behind the financial crisis of 2008

No act of God.

The Bailout And Who Should Pay

The report is weak and inconclusive, with no clear root causes. So other than making for a nice history of the worst financial crash since the Great Depression, the report will have little impact. I skimmed all three versions, and frankly they all contain truths.

The criticism of the majority report that it is more a list of problems than a report on root causes is fair. Relying on judgment rather than an exhaustive investigation, let me try my best to suggest root causes and implied solutions. To identify root causes, it is essential to take a systems approach to the problem, which assumes human frailties, be they hubris, greed, or incompetence.

It is of little use to say the crisis happened because human beings, bankers and regulators, were not perfect. It is the height of folly to suggest that a solution rests in improving human decision-making next time. Only systemic change will generate a different outcome.

Excess leverage is at the center of all banking crises, by definition. Leverage goes beyond balance sheets. Leverage is embedded in off-balance-sheet instruments such as derivatives. And dangerous hidden leverage is embedded in structured securities.


We have no transparent accounting for leverage, so limiting it is complex and beyond the skill of legislators to efficiently write into law, and beyond the ability of regulators to manage as we have learned.

The only solution is to impose radically higher capital requirements, intentional overkill, recognizing and accepting the consequences, which are far less harmful than the financial crisis we have just experienced. Then let the industry figure out how to improve accounting and transparency that will enable more efficient, yet still adequate, capital requirements.

Invite such an industry and FASB joint initiative, but until robust solutions are developed, follow the precautionary principle. The bankers and certain highly leveraged hedge funds will squeal, reported profits will fall, volume of transactions will slow, the financial sector will shrink, and bonuses will follow.

Similar to leverage, liquidity mismatches lending long, borrowing short must be dramatically curtailed. That Lehman was funding real estate holdings in the Repo and commercial paper markets was sheer folly, apparently understood as a joke even inside the firm. There is no reason for an investment bank to be speculating on buildings with the implicit backing of taxpayers.

The Basel III liquidity ratios are an important battle to watch.

The causes and culprits behind the financial crisis of 2008

Why there have been no fraud prosecutions at Lehman and other firms who mislead investors about their true liquidity position via accounting gimmicks as now well documented, away from the FCIC process, is impossible to understand.i am keen reader of financial crisis really affected the market financila crisis have been repeating since many years but the crisis was the worst,however there is no guarantee that it wont happen again.

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This book provides a critique of the neoclassical explanations of the financial collapse, of the ensuing long recession and of the . Elected governments are false fronts coordinated by a global shadow government.

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