Saturday, August 08, 2009

Deconstructing the Financial Crises

On his way back from the Far East, Clameur de Haro passed a good deal of time reading arguably one of the best books yet to be published on the causes of the 2007-08 credit crunch and the subsequent banking crisis, Gillan Tett's book "Fool's Gold".
In an excellent read, Tett comprehensively charts the genesis and development of the ever more exotic, opaque, and risky off-balance-sheet financial instruments and structures that played such a pivotal part in creating the 2007 credit and liquidity crunches, and the ensuing banking meltdown.
Refreshingly however, she also shows that the anti-capitalist left who gleefully parrot the unthinking, intellectually lazy, but - for them - politically expedient mantra of "blame the bankers and blame free markets", disregard the myriad other relevant contributing factors, including those to be laid at the door of governments.
Prominent among these was the 1990’s Clinton administrations’ forcing mortgage providers, on the threat of prosecution and legal sanction under their own misconceived, mal-administered, political correctness-driven equality legislation, to lend to fundamentally uncreditworthy borrowers, with the consequent ratcheting up of the risk of defaults.
Equally significant were the inadequacy of government-conceived regulatory structures whose mandates explicitly excluded the credit derivatives markets and the parallel banking sector, and the lax monetary and interest-rate policies pursued for too long by central banks, at the behest of governments more concerned with creating a short-term feel-good factor for base political purposes, rather than pursuing policies ensuring medium-term financial stability.
Definitely a must-read for those who want to know, and for those who wrongly just assume that they do.
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