Michael Lewis and David Einhorn have a stunning two-fer op-ed, “The end of the financial world as we know it” and “How to repair a broken financial world,” in last Sunday’s New York Times. The duo points out six of the core problems leading to the current financial crisis.
- The sacrifice of long-term, collective interests for short-term, individual gain
- Mismeasurement of corporate risk—either through malice or incompetence—by the credit-rating agencies, who are paid by the issuers of the bonds they rate
- Reversal of the purpose of the Securities and Exchange Commission (SEC) from protecting investors from financial predators to “protecting financial predators with political clout from investors”
- The revolving door at the SEC: “If you work for the enforcement division of the SEC you probably know in the back of your mind, and in the front too, that if you maintain good relations with Wall Street you might soon be paid huge sums of money to be employed by it”
- Treasury Secretary Henry Paulson Jr. insisted on US$700 billion to buy distressed assets from banks; when he got the money, Paulson instead overpaid for preferred stocks in the banks
- Paulson “granted himself the power to dispense unlimited sums of money without Congressional oversight.”
What’s especially disturbing is that not one of these problems have been resolved. No checks or incentives have been put in place to prevent even one of them from happening again.
