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Shahla
Money Managing Guru
Joined: 13 Nov 2004
Posts: 3324
Cash Points ££ 126163.28
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 Posted: Tue Apr 15, 2008 1:44 am Post subject: Is Our Financial System Out Of Control? |
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By: Anthony_Cherniawski
The financial crisis that started in 2007 had its genesis in the deregulation of the financial markets. This began in the mid-90s when Travelers Insurance Company bought Citibank, forming Citigroup, thumbing its nose at the Glass-Steagall Act , which separated Commercial banks from owning other financial institutions. This led to its repeal by the Gramm-Leach-Bliley Act that implied that Citigroup would not be held accountable for flaunting the law.
Since then, the lines have blurred between insurance, commercial banking and investment firms. In addition, deregulation has been the byword of all our regulatory agencies. That, coupled with the loss of an arms-length relationship between lenders and borrowers has led to leverage going out of control . This is why the commercial banking division of Citigroup can lend 95-97% of the assets of a hedge fund also owned by Citigroup. This massive leverage gave Citigroup huge profits when the markets were rising, but are causing huge headaches when asset values are falling. This is also why a company such as Bear Stearns might appear healthy one day and bankrupt the next. Under the radar are several companies that had near-death experiences, such as Lehman Brothers, which tumbled to $20.25 on March 17 th , then rallied to nearly $50.00 a week later, just in time for it to sell $3 billion shares of preferred stock to the public on March 31 st .
All of this is being done quietly with the help of the President's Working Group on the Markets. Most of the work it does is behind the scenes in order to keep investor confidence. The run on Lehman Brothers was due to rumors that it, too, was running out of money and would suffer the same fate as Bear Stearns . Like a row of dominoes, the Fed considers the large brokerage firms and commercial banks “ too interlinked to fail .”
http://www.marketoracle.co.uk/Article4211.html |
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