Christine Lagarde Quotes

This quotation is particularly interesting in it shows how far partisanship and ideology can go into deluding political perception. Wallinson is a man of integrity who we must assumed believed what he said. Yet in the 30 years he referred to, most had Republican Presidents and there were a number of Republican controlled Congresses. During all that time the Republican Party platform called for continuous deregulation. Every Republican President and even Democrat William Clinton has bragged about their success at deregulating the business and financial environment in America. During that period, left wingers paraded to testify to Congress that the deregulation policies and practices was in their view injuring the country, While there was great debate over the desirability of deregulation, virtually no elected politician of the left or right denied that deregulation was happening. The Chamber of Commerce during that time always complained that the deregulation was not occurring fast enough and consumer groups claimed the rate was too fast. Yet Wallinson instead of taking the position of most conservatives that the deregulation had little or nothing to do with the Financial Crisis of 2008, actually convinced himself that there had been no deregulation. Human perception of political reality can be easily altered by ideology. Similar delusions have also occurred for left wingers. It is the ideology who is vulnerable regardless of what the ideology is.

He was referring to Fannie Mae, the government-created. private mortage guarantee company. It was heavily regulated, and in general it met the regulatory requirements. However, the requirements were insufficient, and in the 2008 Meltdown and the Great Recession that followed, Fannie Mae itself was in such bad financial condition, that the Federal Government had bail them out or have the entire home mortgage industry fall apart.

The result was regulation of the banks and the creation of the SEC to regulate the stock market, However, over the years, the regulations were not able to keep up with the sophisticated development of new forms of investments and financial instruments and the financial industry were able to speculate with other people’s money in ways that FDR and his reformers never imagined. Finally, even the regulation that did exist was weakened by the policies of the George W. Bush administration and the combination brought about the Great Recession of 2008 where the profits from excess speculation were privatized and the losses, socialized with the taxpayer and the American worker bearing the brunt while most of the speculators were bailed out and made more money than ever. The Obama administration tried to reform the situation, but was unable to put an end to the legal speculation with other people’s money or of having institutions that were “too big to fail.”

4 years after the Great Recession where major banks of America needed government bailouts to prevent failure the Administration and Federal Reserve board wanted to increase the capital requirements to increase the safety of the Banks. Essentially the banks would speculate and gamble with depositors’ money. If their investment paid off, there were large profits and bonuses for the executives. If it did not, they ran out of capital as they had very little of their own at risk. The government bailed them out and the executives got their bonuses anyway. The efforts to make the banks speculate with more of their own money were strongly opposed by the banks and bank executives.

in the meltdown of 2008

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”.

Greenspan accepted this as many other economists and financial regulators did. What they did not take into account was the incredible greed of many of the financial executive who were betting with their customers money, If the bet was right they, the shareholders and the customers all made out very well as they were highly leveraged. If the bet was wrong, the shareholders and customers lost a lot, and the financial executives only made their multimillion dollar salaries and bonuses (Many were actually were guaranteed their bonuses even if they put the company into bankruptcy.) Worse, they earned their money when they made their sales or earnings targets, but when the securities they bought went sour, even if the company had no funds left, the. It was “heads we all win and tails only I win.” The vested interests between the financial company executives, the shareholders, and the clients were divergent, and the customer was at the bottom of the money pole.