Sunday, May 03, 2009

Obama Misses Causes in Financial Meltdown

President Obama spoke to characteristics of America's out of control financial system. He suggested regulation would prevent "massive risk taking."

Odd, the Obama administration is restarting debt securitization. There are no plans to crack down on naked credit default swaps, which allows firms to bet on their peers' failure without holding the underlying instrument.

What about the causes of greed and leverage? Executive incentive pay remains firmly in place. Innovative financial instruments are restarted using taxpayer money. Risky credit bets can still be made, well outside any reasonable risk management structure. No bond insurer, credit rating agency or investment bank (responsible for due diligence) has been investigated, much less held accountable for packaging junk, aka fraud.

Regulation of America's shadow banking system is powder puff, at best. Yet, the taxpayer will backstop any too big to fail shadow bankers. Those too big to fail commercial bankers? They won't be broken up. Financial pundits predict they'll get bigger.

President Obama offers more hollow rhetoric. Tim Geithner's actions paint a very different picture.

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