December 15, 2015
By Brad Brooks
...How did our financial system weaken (click here) to the point where a quarter of a percent increase in rates is more than it can handle?
The process started a dozen years ago, when Alan Greenspan -- then chairman of the Fed -- decided to lower rates to 1 percent after the country had emerged from the mild recession that followed the popping of the tech bubble. Then, when the Fed began to tighten policy, it did so with agonizing slowness -- raising rates just a quarter of a percent at a time, so as not to upset the financial markets.
This set the table for the subprime housing debt mess in a way
that neither Greenspan nor his successor, Ben Bernanke, could foresee.
Everyone assumed real estate was too diverse an asset class to ever be
in a bubble. Despite credible warnings about the potential problems
starting in 2005, the Fed and Treasury were still blindsided in 2008 by
the enormous losses at Bear Stearns, Lehman and AIG. Suddenly, the
emergency 0 percent overnight lending rate was required and, almost
seven years later, it's still deemed necessary. Meanwhile, three rounds
of quantitative easing have added roughly $3.5 trillion in purchases to
the Fed's balance sheet....
I don't think the Fed was blindsided. There was a lot of hubris following the implosion at Bear Sterns. Wall Street wasn't worried, they were joyful and laughing at the financial firm. They were joking at having to pay a dime or less for Bear Sterns stocks.
Bear Sterns fell and it wasn't as though they didn't know it was coming. James Cayne woke up one morning and stated, "Oops, the company just lost every bit of it's value." I don't think so. And no other bank believed it would effect them. Sure.
Colorful leader (click here) of tightly run New York investment bank Bear Stearns. After stint as scrap iron salesman, moved to New York to play bridge full-time. Fellow card player and Wall Street legend Alan (Ace) Greenberg hired him as a stockbroker in 1969. Earned stripes during New York City's 1970s financial crisis making market in the city's bonds. New York staved off bankruptcy; Bear made a fortune. Took over as chief executive in 1993; assumed chairman mantle from Greenberg in 2001. Bridge aficionados Gates and Buffett are richer, but Cayne plays better: 10-time national champ ranked one of the best in the world.
By Brad Brooks
...How did our financial system weaken (click here) to the point where a quarter of a percent increase in rates is more than it can handle?
The process started a dozen years ago, when Alan Greenspan -- then chairman of the Fed -- decided to lower rates to 1 percent after the country had emerged from the mild recession that followed the popping of the tech bubble. Then, when the Fed began to tighten policy, it did so with agonizing slowness -- raising rates just a quarter of a percent at a time, so as not to upset the financial markets.
I don't think the Fed was blindsided. There was a lot of hubris following the implosion at Bear Sterns. Wall Street wasn't worried, they were joyful and laughing at the financial firm. They were joking at having to pay a dime or less for Bear Sterns stocks.
Bear Sterns fell and it wasn't as though they didn't know it was coming. James Cayne woke up one morning and stated, "Oops, the company just lost every bit of it's value." I don't think so. And no other bank believed it would effect them. Sure.
Colorful leader (click here) of tightly run New York investment bank Bear Stearns. After stint as scrap iron salesman, moved to New York to play bridge full-time. Fellow card player and Wall Street legend Alan (Ace) Greenberg hired him as a stockbroker in 1969. Earned stripes during New York City's 1970s financial crisis making market in the city's bonds. New York staved off bankruptcy; Bear made a fortune. Took over as chief executive in 1993; assumed chairman mantle from Greenberg in 2001. Bridge aficionados Gates and Buffett are richer, but Cayne plays better: 10-time national champ ranked one of the best in the world.
