Long live capitalism

La Fourmi

Too much of the commentary on this issue is ignorant: reflexive attacks on bonuses, greedy fat cats and the rest and the inevitable demand for more regulation. It's not that FSA regulation is "light touch" - I suggest you look at the Handbook before making such statements but that it was done by people who are simply not sufficiently knowledgeable about the industry they are regulating and so are unable to distinguish trees from wood. (Incidentally, Lehmans was one of the firms where staff owned a large proportion of the stock and paid a significant part of their bonuses in shares - a model always held up as a model - and a fat lot of good it did them.)

In addition to the villains mentioned here, you fail to include all those people who chose - yes, chose (they were not forced) - to borrow more than they could afford or without thinking how they would pay it back. People need to take responsibility for their actions and not just now present themselves as victims Everyone who borrowed too much is now having to pay the money back, just as governments which borrow too much will have to cut spending or raise taxes to pay back their debt. And the banks will have to learn to take risk management seriously and to lend more sensibly and responsibly. The real victims are those who will lose their jobs through no fault of their own, those whose savings and pensions have been ravaged by those who were paid to take care of their money and those who, having acted responsibly, will be taxed more to pay for the idiocies of others.

Alexander

"To see some of the world’s wealthiest financial institutions now doing the same is galling. British heavy industry during the postwar period at least had one excuse: that government diktats, and tired infrastructure from years of war production, made management difficult. Lehman Brothers and AIG have no such excuse: they have enjoyed years of free-trading conditions in which they were left alone to innovate."

One needs to add a caveat to this claim. Spitzer, the "crusading" attorney general of New York, and then briefly governor before his spectacular fall, forced AIG to accept his cronies on the board. Refusal would have meant indictment. Indictment would have meant the collapse of the firm. (There is strong reason to suspect that a prosecution would eventually have failed, since ex-CEO Hank Greenberg has managed to successfully defend himself against the same charges.)

Since it was under the guidance of Spitzer's board that AIG took on an enormous amount of risk, and stopped holding senior executives (many of whom were also Spitzer cronies), accountable, AIG really serves as a model of the dangers of crony capitalism, and the dangerous way in which corrupt politicians like Spitzer managed to corrupt some of America’s largest corporations.

Pat Costa

For root causes of the crisis, you ignore the impact of the CRA (Community Reinvestment Act 1977 US Congress) which forced banks to lend to high risk communities that including minorites, the poor and undocumented aliens.
Fannie and Freddie were then encouraged by the government to buy the resulting bad loans, thus buffering the original lending banks. In other words, the main cause of this crises is government regulation and meddling in an otherwise free enterprise.
Wikipedia on CRA provides the relevant history.
Certainly many financial insitutions,having been encouraged to make bad business decisions, and having the risk of same reduced or eliminated by the government to serve social policy, then predictably packaged and resold the poison with sophisticated high tech instruments to maximize their profit thus contaminating much of the global finance world.
We should beware all the remedies being prescribed that kill the goose in order to "save" her.