Morley Safer Quotes

Moody’s and Standard & Poors, the 2 largest credit rating agencies, gave A ratings to securities that had packaged terrible F-rated, toxic, subprime mortgages, and gotten the credit ratings agencies to rate them as A on the theory that the risk was diversified. Each new security like this that a bank put out was submitted informally to one of the credit rating agencies to “discuss”. If the agency “concluded” that they could give it an A rating, they received a very large fee. If not, the bank would not officially submit the security and not pay anything. That almost never happened with these packages of subprime mortgages.

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}

Sovereign credit substitution is where the government, one way or another, assumes and guarantees the debts of private corporations. This is an elegant way of saying: “taxpayer bailouts”

Born thought that her agency was responsible for regulating the new esoteric financial products—derivatives including credit default swaps—for otherwise there would be no regulation at all of financial products that could dwarf the stock and bond market. Summers persuaded her to back off. When the Meltdown of 2008 hit, the huge derivative exposure of the large banks and some insurance companies was so great that it was one of the major causes for the meltdown of the entire banking system. Summers, normally a great economist not only called this one wrong, but later, along with most other government and private economists ignored a very explicit warning—See {637168}, {637986}, and {620038}.

This was a very important quotation because Cox was a strong advocate of deregulation and voluntary regulation, and that is why he was appointed to head the SEC by George W. Bush. He was the leading Republican expert on Regulation of the Stock Markets and sale of public securities. However when the Meltdown of 2008 hit, it was clear to all but the extreme ideologues that some Federal regulation was necessary. Nonetheless, it took several years to reform the regulations for the financial industry with the Banks and Wall Street fighting it all the way and by that time the Republican Party had been so dominated by ideological conservatives that the views of Cox and others no longer had much influence. They fought the Dodd-Frank reforms to go preserve self regulation to a great extent.

Geithner, the Treasury Secretary immediately after the Meltdown of 2008, facing complete collapse of our financial system, among other ameliorations, advocated and implemented many subsidies to bail out the banks most of whom had been greedy, foolish and often dishonest. He even allowed banks to use taxpayer money to pay bonuses to Bank executives who had brought the bank to ruin being a cause of the crisis. However, the banks not only survived but recovered and made huge profits while many of the taxpayers whose funds were used to help the banks were still struggling to make ends meet and it was they who received little, if any, government assistant.

There were few if any consumer protection laws in those days and many wealthy aristocrats made their money by taking advantage of the poor. They were the landowners, bankers, financiers and often the industrialists. Shaw was a sarcastic social critic and this is a typical line he gave his upper class characters. Today, we have more controls on business and finance, and many wealthy business people have gotten that way by providing great value to the consumers and being honest. However, we still have large numbers of wealthy members of society who do make their money from the poor and middle class by unethical and often illegal means. In the aftermath of the Meltdown of 2008. hundreds of thousands of the homes of the working poor and middle class were foreclosed by the major banks forging the legal documentation for the foreclusures. Millions of consumer contracts are issued that even a PhD cannot understand the terms of without special legal and financial training. There is even a legal definition of a salesperson lying to make a sale which is so commonplace that our law excuses it and calls it "puffing". However, there has been over time, improvement over Shaw's era.

Credit default swaps were in large part responsible for the melt down of the economy of 2008 and the Great Recession thereafter. A credit default swap was one of the favorite derivatives that became popular. 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. 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. Buffet, the American who had made the most money in financial securities, realized the great danger not only to the company, but to the entire national economy. Most of the rest of the financial institutions, could make large amounts of money without have to have much capital as long as things went well. So credit default swaps began to exceed the other financial instruments in activity. Neither the Federal Reserve or the other government regulatory agencies chose to regulate these risky instruments nor even to require that they be publicly disclosed -- See {637987}, {637986} and {637992}.

The Grammar Curmudgeon

While Stockman and some others believe that the Meltdown of 2008 would have “run its course” if the government didn’t bail out financial institutions, the very conservative Republican Secretary of the Treasure Paulson and the Chairman of the Federal Reserve told President Bush, Congress, and incoming President Obama that if there was not a quick bailout, the economy of the nation would crash with a depression resulting as bad if not worse of the Hoover Depression of 1929. Bush and Obama and the majority of Congress agreed and took action to avoid that. There is no way of knowing whether they were right or Stockman was. However, the people with the responsibility of governing and safeguarding the nation clearly did not want to take a chance that the advocates of no action might be wrong.

The Meltdown of 2008 came a year later and Citigroup, one of the largest banks in America, had massive liquidity problems and in order to stave off bankruptcy the taxpayers had to come up with $45 Billion. The bank executives, as this quotation demonstrates, knew that they were in a very risky situation and that if the subprime mortgages started to default, the “music would stop” and they and the other banks would have a massive liquidity problem. None the less, they kept on investing more and more of their bank customer’s money and making money in what they knew was a highly risky enterprise. The greed clouded their judgment and when the music stopped and many were no longer dancing, the Meltdown of 2008 almost destroyed the entire national economy and triggered the Great Recession where the overwhelming proportion of Americans had to suffer for the greed of those who could not “stop dancing” even as they knew it was very dangerous.