Martin Wolf, an economist and columnist for the London Financial Times, laments that America is turning into "a giant hedge fund."From 2002 through 2005, Federal Reserve Chairman Alan Greenspan kept banks’ own borrowing rates lower than the rate of inflation – in effect, for bankers, money was free. Bankers also began to package up their loans into new types of bonds that they could sell off to pension funds and other investors to free up their capital for more lending. When money is free, and banks can earn rich lending fees without tying up capital, the rational banker will lend to infinity.
Countrywide Financial, one of the more notorious pushers of toxic mortgages, is a good example. Unusually easy money allowed it to employ extreme leverage, and incur heavy cash flow deficits – a total of $38 billion in operating cash deficits from 2003 through 2007. Not to worry. That was covered by $44 billion in low-rate borrowing from the Atlanta federal home loan bank. Angelo Mozilo, the Countrywide CEO, was paid $48 million in 2006, and made another $100 million-plus selling his Countrywide stock just before the subprime mortgage crash. Your taxpayer dollars at work
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The floods of easy money from chairman Ben Bernanke look like a doomed effort to paper over the inflated asset values, the phony triple-A ratings and the hidden liabilities marbled through American balance sheets.
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In the late 1980s, Japan experienced an asset bubble much like our current one. The tight network of government and financial executives conspired to conceal it with cheap money. And the crisis dragged on for another 15 years.
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There is a better alternative.
....but hey, do what you want....you will anyway.
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