Secrecy Worsens Wall Street Mess

 

By Brent Budowsky

 

Editor's Note: With multiple scandals sweeping Wall Street, it might seem like an odd time for anyone to say "trust me" when it comes to spending trillions of dollars in bailout money, but that's basically what the Bush administration and the Federal Reserve are telling the public.

In this guest essay, Brent Budowsky examines how secrecy has contributed to the crisis – and is now threatening a resolution:

The public is angry – and that anger is rising.

The dangers to our economy are escalating while confidence, trust and credibility are collapsing for both government and business institutions.

Whatever else Wednesday's mammoth action by the Fed suggests, we know this: After $8 trillion of support for financial institutions by multiple federal agencies, the Federal Reserve Board has concluded that the program has not worked, and much more is needed.

I emphasize this: I do not oppose bailouts; I oppose bailouts that are poorly managed, poorly structured and, far too often, conducted with secrecy.

I have warned since 2007 about the cascading financial crisis that would spread from sector to sector, bank to bank, and consumer to consumer. I have called, repeatedly, for direct action to benefit real people such as a temporary freeze on foreclosures.

What I continue to most strongly oppose are top-down bailouts, where $8 trillion goes to financial institutions that continue to raise their interest rates and cut credit lines for even their most creditworthy consumer and business customers.

As for disclosure, the banks and investment houses must be far more direct, comprehensive and honest in disclosing information to Congress, to regulators, to the public, and to investors.

In olden days, markets were based on prices applied to entities with ascertained value and trading was done as the value of those very ascertainable assets would rise and fall.

Today we have a new, and in my view vile, phenomenon: the securitization of everything, where clusters of mortgages, credit card accounts, etc. are bunched together and traded like Nasdaq stocks.

This removes the value proposition and makes these securitized instruments impossible to value, and they are traded based on whims, rumors and mindless speculation until some dumb slob is the last guy buying overvalued and bubbled assets.

This last guy is the slob holding the bag at the end, and now the bag is being handed to taxpayers.

http://www.consortiumnews.com/2008/121708a.html