Failed System Fueled Collapse

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By Benny Nardino | September 29, 2008

In nine meagre years the US economy has seen several unprecedented cracks. Opportunities afforded the system-gatekeeper to make amends but none taken. Could these be the cracks that bring the collapse to the entire system yet no one took heed? Were those assigned as gatekeeper fit enough to fend off greedy saboteur?

These are questions that will echo in the minds of every American for years to come especially with when generations unborn start asking questions.

The last few months has seen tumultuous times. This brought with it credit crunch, soaring mortgage repayments, foods and fuel crises and many more. But none could rival the current financial turmoil brought about by the third largest investment bank – Lehman Brothers. With the markets already at rock bottom, and had no end in sight, the Bush administration was force to concede system failings while appealing to congress last week that there was economy chaos.

True to form, after days of political wrangling and negotiations a deal was reached (for the $700 billion bailout as I write ) while the world stand at watch as American tries to untangle the economic mess she gave to the world.

For many years the writings have been on the wall. Strangely enough, the only people who were not seeing it were those who ought to have been paying heed. The Congress and SEC stood by as Wall Street investment Banks and fund managers played roulette games with other people’s money yet they did nothing. Was it coincidental that it came this? Certainly not.

Last week, the Securities and Exchange Commission, SEC chairman admitted to some of its failings. In a powerful indictment of the SEC’s lapses the NY Times wrote this week highlighting the series of flaws. Citing the SEC chairman,

“The last six months have made it abundantly clear that voluntary regulation does not work,” he said in a statement. The program “was fundamentally flawed from the beginning, because investment banks could opt in or out of supervision voluntarily. The fact that investment bank holding companies could withdraw from this voluntary supervision at their discretion diminished the perceived mandate” of the program, and “weakened its effectiveness,” he added.

Mr. Cox and other regulators, including Ben S. Bernanke, the Federal Reserve chairman, and Henry M. Paulson Jr., the Treasury secretary, have acknowledged general regulatory failures over the last year. Mr. Cox’s statement on Friday, however, went beyond that by blaming a specific program for the financial crisis — and then ending it.

The past eight years alone, have seen the collapse of “Dot Com” empire as it crashed and burnt in 2000. But today it has now forgotten issue. In 2002 we saw another disastrous news of Enron and Worldcom go down the tube. Bear Stearns in March this year and Lehman Brothers this month. AIG rescued and many more yet untold. How could it have gotten so bad if those elected to oversee the economy were working hard to see to it? With the landscape changing, the commission’s decision to end the self-regulatory program was somewhat immaterial, because the five biggest Wall Street offending firms have all disappeared.

In my opinion, the notion that the main Wall Street investment banks were going to be self-regulating was without doubt immature financial suicide. With Henry Paulson part of the Investment club before becoming Treasury secretary it is hard to exonerate him out of this mess.

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