This nagging question has been half formed in my mind, since the Federal Reserve and US Trashery began intervening in the financial markets. I'm not sure I have it down entirely. (Please click, 'read more')
It starts something like this: since consumer confidence must be restored before the economy recovers, why is it taking so long for Congress and the Administration to pass new legislation requiring transparency, accountability, and fiscal order on the unrestrained and unregulated proliferation of structured derivative instruments, like credit default swaps and other synthetic products that have no connection to underlying assets other than pure risk?
Alan Greenspan is the one who got this wrong. His point of view was that derivatives were essential to diversify risk in the global economy. His belief, cheered in the Wall Street bubble, that enlightened self-interest would naturally restrain financial markets turned out to be fine in principle and fraud in practice. Today, the float of the shadow banking system dwarfs the markets that millions of Americans believe to be the heart of the US economy.
Putting controls on the practices and financial debt products that drove the world economy into the deepest ditch since the Depression should have been the first order of business. Why hasn't it happened?
It is now clear that hundreds of billions of taxpayer dollars, thrown to Wall Street, have not been accounted for and that bankers are still drawing bonuses and compensation by handling the treasure of taxpayers. So can we be blamed for worrying that people close to the center of power believe that our economy cannot function without the shadow banking system, and that it has to be propped up first before any significant regulatory reform can be undertaken?
I'm not sure where that leaves ordinary taxpayers and investors. But it is no wonder that notions are spilling out that we are in the midst of a silent revolution to further enrich the perpetrators of America's greatest economic calamity or that these notions are gaining more momentum by the day. Clarifying the rules and regulations to restrain the shadow banking system should have been dealt with, long before wasting our nation's wealth.