Congress Is Blowing It On Financial Reform (Again): Where Are The Limits On Leverage?
Dec 14, 2009 at 2:48 PM
DailyBail in Dylan Ratigan, congress, dylan ratigan, dylan ratigan video, financial crisis, financial reform, financial regulation, leverage, paulson, paulson, video

Nothing about the single most relevant factor in the blow-up.


Until 2004 (quick refresher) our investment banks had a leverage limit of 12:1.  After Paulson led the multi-year effort to sway the SEC to drop these rules entirely, allowing 5 banks to utilize unlimited leverage, all 5 became effectively insolvent within 4 years.

It's the most important factor in explaining how this banking crisis was so devastating compared to previous blow-ups, and why it was so widespread -- European banks were (and remain) even more leveraged than our own.

And, it's the easiest part to fix.  Just turn the rule back to pre-2004.

There are only 2 possibilities.

The obvious answer is 'captured', but the more I consider it, the second choice of 'just plain stupid' is not out of the realm of possibilities. 


I wrote this short post Friday night; I read this morning that Blodget had a similar thought:


MUST SEE Video: Ratigan annihilates Paulson for causing the financial crisis -- Oct. 19, 2008

Stated again for the record, the problem was leverage on the part of our biggest banks. The SEC rule change in 2004 that allowed the Big 5 to dramatically increase their leverage is the single most important event in the entire sordid story.  Were it not for this change and subsequent leverage hike from 12:1 to 40:1, our current crisis would not be so chaotic or expensive.

And it still galls me to this day that the person leading the argument that morning in front of the SEC is none other than former Treasury Secretary Henry 'Hank' Paulson.  I will ask again: when will a journalist with a large audience make it a goal to expose this man and what he has done to imperil your children's future?  He personally helped to pass the rule change that led to this crisis, then he led the effort to solve it by giving $700 billion of borrowed money from your kids to failed banks including his former employer Goldman Sachs, from whom he received $600 million in severance when he headed to Washington.

Another irony seems apparent: Paulson and the other CEOs used the same logic in front of the SEC as they did in front of Congress in the fall of 2008.  Paternal we're-smarter-than-you fear mongering.  "Trust us, we know what we are doing.  It is imperative that you grant us an exemption to the leverage limits so that we can compete on an equal basis with European banks, otherwise the US banking industry could be wiped out by the Europeans.  "Trust us, we know what we are doing. It is imperative that you grant us $700 billion with no oversight and no questions otherwise, the US banking system will be wiped out and your ATM cards will not work."


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