Financial Crisis: The Greatest Hits
by Morgan Housel - The Motley Fool
"We conclude this financial crisis was avoidable," says the official report from the Financial Crisis Inquiry Commission, released yesterday. "The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire."
The committee's report, two years in the making, is a 623-page tome of everything you could ever want to know about the financial crisis. Most of it is dry repetition of standard stuff reported ad nauseum over the past three years: Housing prices went up. Banks were idiots. The bubble popped. Hell broke loose.
But a few quotes caught my attention. Hopefully they will catch yours, too.
On regulation: We do not accept the view that regulators lacked the power to protect the financial system. They had ample power in many arenas and they chose not to use it. To give just three examples: the Securities and Exchange Commission could have required more capital and halted risky practices at the big investment banks. It did not. The Federal Reserve Bank of New York and other regulators could have clamped down on Citigroup's excesses in the run-up to the crisis. They did not. Policy makers and regulators could have stopped the runaway mortgage securitization train. They did not.
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On Goldman Sachs (NYSE: GS) riding the AIG (NYSE: AIG) bailout train: Goldman also produced documents to the FCIC that showed it received $3.4 billion from AIG related to credit default swaps on CDOs that were not part of Maiden Lane III. Of that $3.4 billion, $1.9 billion was received after, and thus made possible by, the federal bailout of AIG. And most -- $2.9 billion -- of the total was for proprietary trades (that is, trades made solely for Goldman's benefit rather than on behalf of a client) largely relating to Goldman's Abacus CDOs. Thus, unlike the $14 billion received from AIG on trades in which Goldman owed the money to its own counterparties, this $2.9 billion was retained by Goldman.
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