Decisions in 2000 and 2004 that promoted the debt crisis…

Just a quick post to put these two governmental actions in the same post: H.R. 5660 from the year 2000, and the 2004 S.E. C. decision to decrease capitalization minimums for the big investment banks. The former created the ecology of lightly regulated securitized instruments (including swaps and CDO’s), while the latter gave them more gas (and removed the brakes!).

The two best descriptions of the inside stories of these actions are here:

You have until 12:00 pm..(the signing ceremony) to bring up why this bill should not be signed enabling a large number of Government workers to receive their monies before the holiday’s begin…. If you do find something you have to make the moral choice, with Congress being out of session until after the first of the year, of having to wait until then to pay those employees. And even if you do, as the decider, decide to stand firm, and hold the funding bill hostage, in fifteen days there will be a Republican Congress that will override your veto anyway, and a Republican president who will rubber stamp whatever they choose to do, anyway…

and here:

After 55 minutes of discussion, which can now be heard on the Web sites of the agency and The Times, the chairman, William H. Donaldson, a veteran Wall Street executive, called for a vote. It was unanimous. The decision, changing what was known as the net capital rule, was completed and published in The Federal Register a few months later.

With that, the five big independent investment firms were unleashed.

In the cleanup, we’ve got to learn where the government messed up,  where the blind spots of bubble-capitalism’s are, and then look forward to what is likely to come out of this mess. At the very least, I will predict that the market for computerized economic models of risk that allow for avalanches will increase. Mark Buchanan wrote about this area of modelling in the NY Times the other day, too. Invest in chaos modeling, people - and let’s reconsider the Westerhoff tax on international currency movement.