The 2009 Crisis: Who Gets the Blame?

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 |  Includes: DIA, QQQ, SPY
by: Daniel Eskin

A few prominent investment banks were wiped out, the housing market crashed, oil prices plummeted, investors ran from the market bears, people hoarded the last remaining gold, American automakers faced serious peril … sounds like a financial hurricane went through in 2009, doesn’t it?

Looking back at it now, one question still glows in embers – who was responsible? As the worst recession in our lifetime is slowly turning into a memory, millions of people are still suffering in a recovering global economy. The haste of numerous banks in creating toxic securities was not just the result of the US Fed creating a speculative real estate bubble with low interest rates, but also a result of greed. Greed and recklessness.

Most of us are familiar with what happened after: mortgages that should have never been permitted were granted with little financial reason. “No down payments? No credit history? No loan documentation? No problem – We’ll get you a loan.” And the gluttony of the culprits lead to the use of these mortgages to create packaged, yet questionable, debt securities that infected the global financial system. A vaccine was not even available as few people knew the true nature of these “investment vehicles,” the few that unleashed them.

When the truth got out and it was clear that the dreamed-up value of these synthetic instruments was sure to crumble sooner or later, the hurricane began and it destroyed everything in its path. There go Lehman and Bear Stearns. Complete and utter paralysis ensued – creating a mood that was unfamiliar to Wall Street. Nobody knew what to do, so why would institutions make credit available? Credit paralysis lead to the bankruptcy of numerous debt-dependent businesses, showing how hopelessly reliant on debt the US economy is, and the recession stepped in at full force. Almost all bank executives were booted, except at Goldman Sachs (NYSE:GS), the largest producer of toxic synthetic instruments.

Hey – now, it’s not all that bad. Our vehicle manufacturers are stabilizing as Toyota (NYSE:TM) suffers, gold and oil are on the rise, S&P is back up at 10,500 (almost double from a year back), and the US economy grew 5.9% annualized in the 4th quarter of 2009. Great stuff!

As I opened up my news feed this morning, I realized the crisis is just a memory. Bonuses are back up after the year-end earnings reports and investment bankers are once again trying to profit from other peoples’ money. It was nice to hear that the Goldman Sachs that we all know and love kindly helped Greece by offering it complex derivatives. Were the real culprits of the crisis penalized? Did they learn their lesson from the events of just a year or two ago?

As I said, it’s not all that bad. What’s AIG’s (NYSE:AIG) $8.8 billion loss compared to last year’s $61.6 billion? Peanuts.