President Barack Obama getting re-elected sets the stage for another credit crisis.
When the president came into office in 2008 he had a mandate to fix the banking system, which consisted of too-big-to-fail banks holding America and its economy hostage to their greedy schemes.
He swept that mandate under the door of Congress and the Federal Reserve.
The president has no position on the big banks, and it seems he likes it that way.
By lightening up on his already watered-down rhetoric about making banks toe the line, he got campaign money from them. So did Congressmen. That money came from the Federal Reserve.
Now that the president has won a second term, he's not about to fight Congress over their pandering to the big banks, since he's got other things to fight with them over; rather, he's going to advocate a lite-touch going forward to allow banks to continue to strengthen their balance sheets so they can fuel an American recovery.
It seems to be all happening under the cover of darkness. And, it's not going to work.
Created in Prussia in 1769 by Frederick the Great, covered bonds have a long history and through the centuries have become a very popular investment instrument in Europe. There, known as Pfandbriefs, these mostly AAA-rated debentures make up the third-largest segment of the German bond market (behind public-sector bonds and unsecured bank debt).
"In the past few years, covered bonds have enjoyed a resurgence as investors search for high quality investments with attractive yields and as European banks look to finance the growth in mortgage lending," fixed-income heavyweight PIMCO wrote in a 2006 research note to investors.
I'm talking about securitization, a masterstroke of financial engineering in which assets are aggregated in order to reduce risk. Once heralded as the greatest financial innovation of modern times, abusive securitization practices instead generated a feeding frenzy of gross excesses that exponentially multiplied risk and drove the world to the brink of financial Armageddon.
Now, a hybrid form of securitization called "covered bonds" may be our only way out.
And yet, despite high-volume of high-level media coverage, none of the stories have picked up on a very basic - yet very key - fact...
The bailout being developed is as much for Germany as it is for Greece.
Let me explain ...
Answer: Mr. Scott: While the overturning of what remained of Glass-Steagall did not cause the meltdown, it certainly contributed mightily to the systemic nature of the crisis.
Allowing commercial banks and investment banks to marry created giant operations that became too big to fail and too profitable to break up. Everyone was making money. The overriding problem was not the integration of commercial (deposit-taking and loan-making) banks with investment (capital-markets trading) banks, but the extraordinary migration of all banks into the same products, trading, and risk-taking businesses. I am definitely including the ubiquitous game of mortgage origination, securitization, sales and trading.