JOE NOCERA

The Tea Party, having had little success at the polls, tended to pick one element of government with most members and friends bashing that element blindly, like the blind-folded children at a Piñata Party. In this case it was the Export Import Bank that enabled over 250,000 jobs last year. The Tea Party which is always complaining about government spending, surprised most observers when they attacked the Export-Import Bank. It is one of the very few government agencies that costs the taxpayer nothing. As a matter of fact, it actually produces a profit for the taxpayer and reduces the deficit. See {640781}.

This quotation is classic as it digested the major reasons for the worst financial crises since the Great Depression into one paragraph that captured the essence of the problem. The great dispute has been ever since, who let this happen, who was supposed to stop it from happening, and who did what to correct the problem afterwards so that it would not happen again? In this situation, the Wall Street Houses had paid securities rating firms to give these bonds an AAA rating even though they were backed by very risky mortgages none of which had AAA ratings.

Actually, even with higher capital requirements, the banks could take more risk but then they would have to risk their own money rather than their depositors’ funds. The depositors funds are at risk but if the risk pays off, only the bank and their executives profit. The depositors get nothing. If the bank loses their risky gamble, the major loss will be covered by the Government via a bail out and/or Federal Deposit Insurance money that protects most depositors. For the Banks, its “heads we win; tails the government loses”.

This quotation is classic as it digested the major reasons for the worst financial crises since the Great Depression into one paragraph that captured the essence of the problem. The great dispute has been ever since, who let this happen, who was supposed to stop it from happening, and who did what to correct the problem afterwards so that it would not happen again? In this situation, the Wall Street Houses had paid securities rating firms to give these bonds an AAA rating even though they were backed by very risky mortgages none of which had AAA ratings.

Actually, even with higher capital requirements, the banks could take more risk but then they would have to risk their own money rather than their depositors’ funds. The depositors funds are at risk but if the risk pays off, only the bank and their executives profit. The depositors get nothing. If the bank loses their risky gamble, the major loss will be covered by the Government via a bail out and/or Federal Deposit Insurance money that protects most depositors. For the Banks, its “heads we win; tails the government loses”.

The Tea Party, having had little success at the polls, tended to pick one element of government with most members and friends bashing that element blindly, like the blind-folded children at a Piñata Party. In this case it was the Export Import Bank that enabled over 250,000 jobs last year. The Tea Party which is always complaining about government spending, surprised most observers when they attacked the Export-Import Bank. It is one of the very few government agencies that costs the taxpayer nothing. As a matter of fact, it actually produces a profit for the taxpayer and reduces the deficit. See {640781}.