Felix Rohatyn Quotes
Financial hydrogen bombs built on personal computers by 26-year-olds with MBAs.
Rohatyn, Felix. Quoted in Partnoy, Frank. F.I.A.S.C.O.: Blood in the Water on Wall Street. W. W. Norton & Company, 1997.
It was the souped up nature of the credit default swaps that was in part responsible for the souped up melt down of the economy of 2008 and the great recession thereafter. A credit default swap is an insurance policy that a company will pay off its bonds and not go bankrupt. It is a cross between an insurance mechanism and a stock exchange type security mechanism and through heavy lobbying escaped any kind of regulation. It cost a company no money to write a credit default swap and they were paid to do so. As long as business and the economy was good, it was a terrific business but there was no way of ever knowing how much risk they were taking. So companies who wrote credit default swaps did not have to have the money to pay to back them up if they business was bad. When that happened in 2008 even the largest insurance company in the world collapsed because of the risk of having to pay the credit default swap and the U. S. Government had to take over the insurance company. In 2010, the Obama administration passed a financial reform bill that began to regulate credit default swaps.
Despite this warning, and the hundreds of billions of dollars of people’s money that was lost on derivatives, and recommendations for not allowing derivatives to bought or sold by institutions who invest the public’s money, derivatives were not outlawed by Congress in its efforts to reregulate the financial industry.
U. S. Treasury Secretary Larry Summers called Rajan a “Luddite” for this view, but what Rajan observed and predicted was exactly what happened in the Meltdown of 2008 which led to the Great Recession. Rajan was one of the few economists to call this right. Several, invested their own money assuming a crash and made billions. Most, like Summers and the Federal Reserve Chairmen in retrospect admitted that they missed the signs and didn’t connect the dots. See {637168}, {637987}, and {620038}
Felix George Rohatyn was an American investment banker and diplomat. He spent most of his career with Lazard, where he brokered numerous large corporate mergers and acquisitions from the 1960s through the 1990s. In 1975, he played a central role in preventing the bankruptcy of New York City as chairman of the Municipal Assistance Corporation and chief negotiator between the city, its labor unions and its creditors.
