Today we are going to get a display of political outrage over something that may or may not have happened when Bernanke will get grilled and apparently accused of acting inappropriately during discussions with Bank of America over the Merrill Lynch takeover.
This really seems like a non-event, because the "outrage" over the fact that implicit or implied threats were levied to make the deal happen is clearly part of any difficult negotiation. Now, one can argue if this was the only or even the best solution to the financial crisis that was happening at the time but considering the seriousness of the situation when some were predicting financial Armageddon, strong words were probably to be expected.
Watching the republican congressman talk last night, he is trying to make the point that the Government's involvement was somehow inappropriate, since we should have let the free markets handle the crisis. How ludicrous that argument is. The reason for the crisis was the unbridled greed culture of the "free markets" and the lax regulations that allowed extremely high risk instruments to be created and traded so widely since they generated tremendous apparent profits.
It really is hard to believe that these financial professionals could have been as clueless as they now claim about the real risks of these instruments. They probably didn't really care as long as they had "big" profits and "big" bonuses in the immediate year. I doubt they expected the house of cards to come tumbling down the way it did, but really were these people all that much different than Bernie Madoff? OK, Madoff actually knew what he was doing was illegal but I bet he hoped for a financial miracle that would allow him to set things right. The people generating and peddling these credit instruments had to know they depending on asset valuations continuing up forever. Everyone was going to make more and more money because everything was going to get more and more valuable? Did they really believe that?
One of the things you see discussed on some financial shows is how they have to pay high salaries and bonuses in order to keep talent. I don't want to say that many of the people working in the financial markets aren't bright talented people. I'm just not sure they are any brighter or more talented than the people in any other profession. They may be a lot greedier, I think that has been demonstrated. However, they think they are entitled to big salaries for the same reasons professional athletes think they are, it has become the norm. The big difference is that professional athletes have demonstrable skills that most of us don't. I haven't seen that in the financial professionals. Maybe its time to burst that salary bubble?
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