Alan Greenspan stated it most eloquently:
“If Fannie and Freddie continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing systemic risk down the road... We are placing the total financial system of the future at a substantial risk.''
Surprisingly, in 2005 the Senate Banking Committee actually listened, passing a reform bill that would have created a “world class regulator” that would have required the Bobbsey Twins to eliminate many of their investments in risky assets. Unfortunately, our pandering politicians decided to “party on,” and never even allowed the bill to come up for a vote. The rest, as they say, is history.
And here they go again: Last week, many of these same politicians attempted to kill the Treasury’s rescue plan, begging the question, “Tell me Congressman, how many accounting classes have you had, how many years did you sit on a credit derivatives desk, - or, for that matter, explain to me how a Credit Default Swap works?”
Indeed, it's a disgrace that NO professional economist was even invited to speak at last week’s Congressional hearings on the rescue plan. To be sure, the pending plan was “reactively” conceived, but the politicians, as well as the public, have no idea how close the financial system came to seizing-up just 2 short weeks ago.
Clearly, we looked into the abyss when certain money market funds stop withdrawals and/or redeemed deposits at less than 100 cents on the dollar.
And that, ladies and gentlemen, is what caused the illuminati to spring into action with a reactive $700 billion bailout plan, rather than a proactive, thoughtfully conceived one. Actually, it’s not really a “bailout plan,” it’s more of a “buyout plan” - but that's a discussion for another time.
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