Monday, September 15, 2008

A Ponzi Scam by No Other Name

Wall Street: Global stock market sectors dropped dramatically Monday as giants Lehman Brothers filed bankruptcy, Merrill Lynch taken over by Bank of America and American International Group (AIG) restructured. It is the latest of shockwaves in the 14-month-old credit crises caused by subprime mortgage debt. It could get worse if stop-gap measures such as a global consortium providing $70 billion to troubled banks fails. The U.S. Treasury has drawn a line in the sand stipulating no more massive bailouts despite taking that road to salvage Bear Stearns, Freddy Mac and Fannie Mae. Bear Stearns, it turns out, was a test case. It failed to stop the erosion. Taxpayers will foot the bill to keep the twin Macs afloat. There have been 11 major bank failures in recent months. The question arises: Will the federal guarantee of private investors deposits up to $100,000 break the FDIC reserves? It is terrifying to realize the bulk of Treasury Notes are held by China and other Asian banking behemoths. What prevents them from calling them in? Common sense, one would hope. Common sense is not the operative password how the U.S. private banks and mortgage houses got themselves in this mess. It was a failure of up-to-date regulatory enforcement, greed and establishment of a Ponzi scheme run amok. Investors, including prime shareholders, placed blind faith in the money managers who engineered this colossal scam. They took the risk. They enjoyed the fruits. Now they must eat their losses. Naturally, the financial collapse has filtered into the presidential campaigns. Republican John McCain promises reform of the ineffective patchwork quilt of regulatory agencies governing commerce. Democrat Barack Obama blames the failure on the Bush administration. Obama should knock off the blame game and propose reforms of his own. This crises is borderline national security seriousness. If market forces don't correct the problem, the Asians will do it for us in currency un-American as the yen and yuan.

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