Over the past two months I have written three articles relating to the so-called financial crisis for the Business Insider. Those three articles in order of their publication were called: (1) Fannie and Freddie Need to Go—Now; (2) How 20-Five Years of Mismanagement at Fannie and Freddie Caused the Financial Crisis; and (3) Why 4.0% Fixed Rate Bonds Could Solve the Financial Crisis.
As a result of those articles, Business Insider (Henry Blodget) has offered me the privilege to regularly post my thoughts and feelings in their magazine unedited—a privilege that I promise not to abuse.
This being my first unedited post, I find it ironic that it comes one day after what some people are calling the passage of the most sweeping financial reform bill since the Great Depression. The ironic part of this is that my position has consistently been that this sweeping measure does nothing to address the real problem that created the financial crisis in the first place.
Regardless of what the Government financial elite (Bernanke, Geithner, Warren, Frank, Dodd, just to name a few) are telling the people of the United States, the financial crisis was not a result of misdeeds at the “big banks” and their esoteric gambling with derivatives. No, it was not. In all truth derivatives are nothing more than a zero-sum game with both winners and losers.
Instead, the financial crisis was brought on by more than 25-years of financial mismanagement of long-term rates by the Federal Reserve, Fannie Mae, and Freddie Mac—none of which have been addressed in the new sweeping financial reform bill. And if you want to see analytical documentation for making that statement, the best place to start is to read the three articles mentioned above in the order that they were written.
The new financial reform bill will neither stimulate business nor reduce the rolls of our unemployed masses, as one might gather from Ben Bernanke’s testimony yesterday in front of Congress as part of this semi-annual ritual when he said, “We are now giving up on the notion of a standard recovery in the U.S. economy.”
Instead of banging on Wall Street, true financial reform requires reforming the actual Government financial institutions (sponsored or otherwise) that were negligent in carrying out their government-authorised fiduciary responsibilities. And sad to say, but the best place to start is right at the top—the Federal Reserve, itself.
For twelve years (1988-2000), including the period of the Savings & Loan crisis, I was responsible for directing the PricewaterhouseCoopers’ team that designed, developed, and then monitored the “analytical” risk monitoring systems for Ginnie Mae’s $500 billion portfolio of mortgage-backed securities. Thus, there are few people walking around today that have as much insight as I do regarding mortgage risk, which was the primary culprit behind the financial crisis.
And based upon that experience, for the last 10 years I have spent much free time and expense trying to warn the powers to be of the threat that Fannie Mae and Freddie Mac posed to the United States of America—to no avail.
Although I have tried to remain optimistic these last two years, offering solutions that would help energize and stimulate the inherent strength (business innovation) of our country, not one single Government official has sought the wisdom from my experience and education since the financial crisis began in 2008. As a side note, I have an M.B.A. from The Wharton School (University of Pennsylvania) and an M.P.A. degree from The School of Public and Environmental Affairs (Indiana University)—both of which are known as top national schools in their discipline.
My 4.0% solution, which is discussed in one of my earlier Business Insider articles, still remains the best hope for returning our economy to full employment.
Enough said today. This being my first post, I consider it to be just part of my new experiment in getting the truth out. If it works and draws any interest at all, then my next post will give those who support my effort just a little flavour of the type of things that were done at the lesser of the evil Government Sponsored Enterprises, called Freddie Mac. I think their “Touch More Loans” program, which was initiated in 2004, might raise and eye-brow or two.
Sweeping financial reform bill? I do not think so.