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The report, which was heavily shaped by the commission’s chairman, Phil Angelides, is dotted with literary flourishes. It calls credit-rating agencies “cogs in the wheel of financial destruction.” Paraphrasing Shakespeare’s “Julius Caesar,” it states, “The fault lies not in the stars, but in us.”Yahoo News Story Panel cites roots of meltdown, but does it matter?
Of the banks that bought, created, packaged and sold trillions of dollars in mortgage-related securities, it says: “Like Icarus, they never feared flying ever closer to the sun.”
Unlike the banking crises of the 1980s and 1990s, where regulators allowed insured institutions to double up their losses after they became insolvent, the markets were proving themselves unrelenting in trying to shut down LTCM. Lowenstein correctly notes that by halting that process and encouraging protection, the Fed's behavior could have long-term costs.
By sparing creditors, equity holders and managers some of the pain of loss, we are more likely to see a repeat of the behavior that produced the LTCM crisis in the first place. Indeed, the expectation of future bailouts could have played a subtle role in the growth of LTCM in the first place. Did the favorable financing of LTCM go beyond reliance on the LTCM brand name and reflect the brand name and potential support of the U.S. government? Will LTCM's resolution make the too-big-to-fail problem even worse? Perhaps with time we will have a clearer sense if the benefits of the Fed's role in the LTCM resolution outweigh potential costs. For now, enjoy Lowenstein's fable but come up with your own more satisfying moral.
In today's "Bible school without all of the mess" lesson, I would like to explore a different topic. We just completed another bout of Christmas where an entire society celebrates, with straight faces, the "virgin birth."
Work like you don't need the money, love like you've never been hurt, dance like no one is watching, sing like no one is listening, and live like it's heaven on Earth.
It was attributed to "anon." A quick search reveals that this quote has been attributed to Randall G. Leighton, Mark Twain and Satchel Paige (three of America's greatest Presidents).
Regardless of the identity of the wisdomer who imparted this wisdom, there are a few obvious omissions: