Agency’s ’04 Rule Let Banks Pile Up New Debt, and Risk
By STEPHEN LABATON
Published: October 2, 2008
http://www.nytimes.com/2008/10/03/business/03sec.html?_r=1&hp=&adxnnl=1&...
Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming.
On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.
They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.
The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary.
So there we have it. Hank and his Wall Street cohorts saw a way to use their regulated “emergency money” for huge profits, and to cook the books for their hero, Dubya, at the same time. All Dubya needed to do was to “de-regulate” the stringent SEC requirements for the Big Banks, and they in turn would give him the bragging rights to a new economic Morning In America.
Hank’s reward? Political power as the Treasury Secretary, and untold “insider tip” information for his partners on Wall Street. Now he, and Dubya, want the American taxpayer to foot the bill for this scam. The sad part is, that the “centrist” Blue Dog Democrats are once again enabling these neoconservative criminals to legally rob our treasury.
