lorddarley

Now Playing: Zombie Condos in Manhattan

As go real estate values, so go municipalities. The bailouts have just begun.

NYC has no way to replace its bubble finance industry. Federal taxpayers will be forced to bail out New York.

Fannie and Freddie Did Not Cause This Crisis

The problem is with leverage and derivative products. It's not just the fault of too many subprime loans and the irresponsibility of the securitization process.

I'd lay much of the blame with the SEC and the 2004 decision to permit investment banks with brokerage units to borrow more than permitted. That is the cause of 30:1 leverage and obscene risk-taking.

I would also fault the total lack of regulation of insurance company parents, who seem to have skipped state and federal regulation altogether in a rush to issue "insured" products that were technically not "insurance." It's those products, with swaps and instruments originally intended to limit risk ($40 trillion, or so, give or take), that are causing the meltdown concern, not the few trillion we may expect from defaulted ALT-A and subprime mortgages.

The total failure of the regulators to have seen this coming means that we will now have a lot of well-meaning regulation in future which will stifle economic growth.

And I doubt that new regulators will be any smarter than their predecessors in addressing the next crisis: the default of municipal and state governments on issued debt. Just as with Fanny and Freddie, the politicians will be afraid to touch this until it explodes.

LordDarley