Comments on: FINANCIAL CRISIS http://www.mikecritelli.com/2008/10/01/financial-crisis/ Mike Critelli's Blog Tue, 06 Jan 2009 04:13:35 +0000 http://wordpress.org/?v=2.7 hourly 1 By: Bill Hibbard http://www.mikecritelli.com/2008/10/01/financial-crisis/comment-page-1/#comment-3465 Bill Hibbard Thu, 02 Oct 2008 21:22:35 +0000 http://www.mikecritelli.com/2008/10/01/financial-crisis/#comment-3465 Very glad to read your insights on the financial crisis. My understanding is that all three root causes you describe are connected to specific government policies. The excessive risk you describe in the first cause is tied to the relaxation of the "net capital rule" for broker-dealers by the SEC in 2004, which allowed Bear Stearns, Lehman and Merrill Lynch to use too much leverage. The "mark-to-market" accounting you describe in the second cause is a rule of the Financial Accounting Standards Board in 2007. The lack of understanding you describe in the third cause is not only due to complexity, but also due to the Commodity Futures Modernization Act of 2000, which prohibited federal regulation or reporting requirements for credit default swaps (I understand that this non-transparent market is estimated at about $60 trillion). Have I got it right, or am I oversimplifying? More generally, what government policies would you recommend to prevent similar crises in the future? Perhaps this question is too big for a comment, and deserves its own blog post. Thank you. Very glad to read your insights on the financial crisis. My understanding is that all three root causes you describe are connected to specific government policies. The excessive risk you describe in the first cause is tied to the relaxation of the “net capital rule” for broker-dealers by the SEC in 2004, which allowed Bear Stearns, Lehman and Merrill Lynch to use too much leverage. The “mark-to-market” accounting you describe in the second cause is a rule of the Financial Accounting Standards Board in 2007. The lack of understanding you describe in the third cause is not only due to complexity, but also due to the Commodity Futures Modernization Act of 2000, which prohibited federal regulation or reporting requirements for credit default swaps (I understand that this non-transparent market is estimated at about $60 trillion). Have I got it right, or am I oversimplifying?

More generally, what government policies would you recommend to prevent similar crises in the future? Perhaps this question is too big for a comment, and deserves its own blog post. Thank you.

]]> By: Steve Licardi http://www.mikecritelli.com/2008/10/01/financial-crisis/comment-page-1/#comment-3464 Steve Licardi Thu, 02 Oct 2008 20:24:38 +0000 http://www.mikecritelli.com/2008/10/01/financial-crisis/#comment-3464 Mike, As someone that I have a great deal of respect for I enjoy reading your blog. Regarding the financial crisis,in your opinion, what do we need to do to work our way out of it. I am not convinced the $700 billion is the answer. I would like to see a committee made up of up the heads of the financial institutions weigh in on it. After all, the Gov't got us into this mess by requiring sub prime lending through the CRA. I have a problem with them getting us out of it. Mike, As someone that I have a great deal of respect for I enjoy reading your blog. Regarding the financial crisis,in your opinion, what do we need to do to work our way out of it. I am not convinced the $700 billion is the answer. I would like to see a committee made up of up the heads of the financial institutions weigh in on it. After all, the Gov’t got us into this mess by requiring sub prime lending through the CRA. I have a problem with them getting us out of it.

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