New laws and regulations are not necessary to "save" the world from thieves. What has been missing for 8 years is a prosecutor, or a "police" agency willing to maintain conventional standards of behavior in the Market place.
It appears that the appointment of a vigorous Prosecutor would resolve both the financial and psychological aspects of the present "crisis" presented to us by the defalcation of President Bush, who appointed an Attorney General who did nothing to protect us. What is The Law for that we do not enforce?
There are also conventional "private" remedies -- civil causes and even class actions. However, these were also compromised by an Executive who was extremely hostile to legal relief for consumers against institutional predators.
If an investor has been damaged by a fund manager, the investor may have a cause of action against the manager. If a pension fund is involved, the fiduciary duty is even higher. The point is, investors can hire private attorneys to sue investment bankers for breach of fiduciary duty, negligence, or fraud. Interestingly, most of the investment bankers have liability insurance policies covering negligence.
The cause of the present financial crisis is that poor credit risk sub-prime loans were deliberately packaged by investment bankers as "high grade structured credit enhanced leverage funds" for sale to our pension funds. In other words, by giving the security a title that makes it appear to be financially "sound", the bankers were able to aggregate sub-prime loans into "derivatives" that created billion-dollar transactions to support their million-dollar bonuses.
BTW, no one even knows WHAT these new securities are, much less how much they are worth. When it is an aggregation of billions of dollars assigned distantly from the initial loan parties, a CDS - “credit default swap”, or a “derivative” is a meaningless description for an unknown gas for which no amount or value can be attached, but which apparently floated huge bonuses to CEOs.
For years, the plaintiffs' Bar has been trying to put a check on this kind of fraud by suing the bankers -- but of course, there were no "damages" while home equity was rising, and nobody asked, "By the way, how much is the collateral actually worth?"
Bankers with almost no information about the borrowers or the collateral, and with no basis for believing they knew what the value of the security was, were trading the paper. By consolidating huge piles of this paper, they increased the paper value -- pulling enormous commissions out on each successive assignment.
But isn't it fraudulent to NAME this consolidated paper a "high grade structured credit enhanced leverage funds" when in fact it was drawn from a loan broker without verification of income or reasonable "collateralization of risk"?
Isn't it a breach of fiduciary duty to put our pension funds into a "high grade structured credit enhanced leverage fund" the managers have not actually collateralized? Calling this a "derivative" may be fraudulent, because up until July of 2008, the word gave the impression that the Seller was financially sophisticated.
We must also note that there is a hybrid Janus-like quality of both foreseeability and "surprise" in the marketing of derivatives. The collapse was not unforeseeable or unforeseen -- many economists and investors (apparently all outside the Bush Administration and Treasury) had warned about the over-valued and fictionally-valued derivatives.
Nothing suddenly happened. The "due dates" for balloon payments, and stock calls, were all known in advance. The investment bankers like Lehman Brothers and insurers like AIG, all knew well in advance what dynamics were in place.
All the more reason to question the tactic of declaring an emergency so as to obtain a government bail out on the eve of a regime change in Washington DC. ALL of the "risk" was anticipated, joked about ( http://www.brasschecktv.com/page/187.html ), and in fact discounted by the securities market already.
The fact that Paulson pressured Congress for funds (which Congress would have to borrow, ahem, from "Lenders") in order to buy worthless and toxic assets FROM LENDERS to keep them in business, and when Congress gave him the billions he asked for HE DID NOT DO WHAT HE SAID HE WOULD DO, raises at least some question about whether he understood what appears to be an entirely fictional "crisis".
Paulson may have a good faith belief that there was a "crisis". ALL of his friends are investment bankers, and many of them were CEO's on whose watch their corporate vessels had run into the unpleasant shoals of "due dates" and money famine. And there is no question that the prosperity of the country depends upon the availability of loans.
However, if "loan availability" is necessary, why not just set up a "bank" (or a central bank that loans to local banks) that makes loans? Why was it necessary to invest in worthless paper or inject bail-out money into sinking ships? Is there any question in anyone's mind that the CEO's who secretly awarded themselves million dollar bonuses on the eve of the crash of their companies cannot be trusted with money?
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