Jackson Jambalaya

Probably the single largest factor that caused the market meltdown was the 2004 SEC rule change that removed leverage limits. The New York Times reported:
"On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.
They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments. ......
Over the following months and years, each of the firms would take advantage of the looser rules. At Bear Stearns, the leverage ratio — a measurement of how much the firm was borrowing compared to its total assets — rose sharply, to 33 to 1. In other words, for every dollar in equity, it had $33 of debt. The ratios at the other firms also rose significantly. ...... "(Kingfish note: The limit had been 12:1 before the SEC action) http://www.nytimes.com/2008/10/03/business/03sec.html?pagewanted=1&_r=1

Want to guess who spearheaded the effort by the investment banks to get the SEC to change the rules? "The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary. "

Anyone questioning the leadership of the Treasury Department as it bailed out Bear Stearns, AIG, Fannie Mae, Freddie Mac, the nine largest banks while each time promising that particular step would solve the crisis as the SAME leadership caused this debacle to happen in the first place in the private sector. Skeptical? Ask Secretary Paulson when he is going to force the banks and other financial institutions to put these CDO's and other off-balance sheet assets or losses on their balance sheets so we can finally have an accurate picture of our financial health? Why does he insist on throwing money at the problem while avoiding the issue of transparency? Sixty Minutes recently reported the credit default swap market could be as large as $60 TRILLION dollars but no one knows for sure because they are not regulated or registered, yet we are assured by the Secretary and Federal Reserve Chairman that spending $700 billion on the banks will fix the problem.

Tic..tic..tic.. that is the sound of invisible off-sheet swaps and balance sheets waiting to explode.