The Credit Crunch 2550



  • Thought it would be worth setting up a sticky as from a control perspective the fallout from the credit crunch is fascinating. Many of the institutions failing have had control or governance issues previously.
    Conflict of interest in the Financial Services industry has caused all sorts of problems.
    Elliot Spitzer proscuted many of them.
    Discuss.



  • Denis - Thanks for sharing … Some brief thoughts below:

    • Definitely a lot of bad underwriting and risk taking by all involved parties. As collapse of the housing, credit, and financial ‘bubbles’ are factors, (e.g., the good times tempted some folks into running up too much credit through home equity loans or even trying to make USDUSDUSD in flipping multiple houses).
    • SOX obviously wasn’t effective in monitoring valuations and fiscal soundness for these firms. As some have shared, SOX isn’t supposed to ensure you make the right business decisions and make a profit. Still, how can billions of liabiliites and de-valued assets remain so hidden until now by just about every financial institution?
    • It makes the Enron, Worldcom, and other scandals seem tame in comparison, as both federal and state financial regulations got a little too lax during recent times.
    • The US government was late in getting a handle on the issues. US Banking oversight committee, the Fed, and Treasury were too slow to get involved last year.
    • Most of the recent unparalleled and unprecidented governmental actions have only delayed trouble rather than curing the root causes.
      Those of us invested in the marketplace will have to work extra years due to the damage on our 401K and retirement funds. We’re no where near out-of-the-woods, as it’ll be more like the Great Depression than a Recession if some of these root issues aren’t solved. This major event could also stiffle world economies for years to come 😞




  • Denis - Thanks for sharing … Some brief thoughts below:

    • Definitely a lot of bad underwriting and risk taking by all involved parties. As collapse of the housing, credit, and financial ‘bubbles’ are factors, (e.g., the good times tempted some folks into running up too much credit through home equity loans or even trying to make USDUSDUSD in flipping multiple houses).
    • SOX obviously wasn’t effective in monitoring valuations and fiscal soundness for these firms. As some have shared, SOX isn’t supposed to ensure you make the right business decisions and make a profit. Still, how can billions of liabiliites and de-valued assets remain so hidden until now by just about every financial institution?
    • It makes the Enron, Worldcom, and other scandals seem tame in comparison, as both federal and state financial regulations got a little too lax during recent times.

    Totally agree, see the other two links that I’ve put in today.

    • The US government was late in getting a handle on the issues. US Banking oversight committee, the Fed, and Treasury were too slow to get involved last year.
    • Most of the recent unparalleled and unprecidented governmental actions have only delayed trouble rather than curing the root causes.
      Some of this amazes me, where is the free market mantra now? During the Asian crisis those countries were told to take the pain and some fre market medicine - and are stronger for it now.
      But when did the United States become a Socialist country - nationalising troubled companies when the market says that they’re done?
      A new Resolution Trust - what a great idea :roll: Let’s allow the bankers press the reset button and carry on as before whilst dumping all the toxic waste back on the taxpayer 8O


  • Just wanted to share some thoughts, that the recent events have been discouraging in terms of the SEC, Treasury, and Congressional oversight failing the system 😞
    Allowing financial institutions to move from traditional 10-1 leveraging to 30-1 or beyond is one of the root causes (e.g., one German bank was 112-1). Then in the past year years, there was a rapid movement to non-regulated instruments (e.g., CDOs) intensifying the risk factors.
    While the devaluation of homes is the genesis of our financial institutions unwinding, banking CEOs/CFOs most likely ‘signed off’ on SOX 302 compliancy, knowing about the high risk toxic assets on the books. While SOX isn’t supposed to alleviate ‘bad business decisions’, these were still high risk, speculative, and unregulated investments.
    Then there’s Bernie Madoff who created the greatest fraudulent scandal (USD50B) of all time factoring in as well. The Enron and other scandals seem trivial in comparison to recent events. Back in the old west, they would hang horse thieves on the spot. How will investor confidence in the system improve, when he’s still enjoying a luxurious USD7M apartment, rather than at least being behind bars to await trial.
    All these events made me a little less active here over the past few weeks, as it certainly shakes investor confidence in the markets. My 401K account has become a ‘201k’ account in just 6 months or so. I used to believe that SOX was a meaningful control, but my faith has been shaken based on recent events.
    Going forward, I’m hopeful the SEC, Treasury, and Congress will evaluate improved controls for the future – if we can even rescue financial institutions from the highly over-leveraged and near bankrupt conditions they are currently in.
    Maybe long term, some good will come the ‘lessons learned’ during these unprecedented events. If SOX 2.0 emerges, I’m hopeful it will not be a meaningless exercise like some of the SOX 404 actions can become, but provide tighter fiduciary controls where it is truly needed.
    Respectfully - Harry



  • A picture is worth a '000 words
    What does one TRILLION dollars look like?
    http-and-#58;//www.pagetutor.com/trillion/index.html


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