This article is the subject of Ritholtz's last blog entry that now has 24 comments- http://bigpicture.typepad.com/comments/2008/09/forbes-wheres-t.html

http://www.forbes.com/home/2008/09/12/lehman-greenspan-regulation-opinions-cx_br_0912ritholtz.html
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Barry Ritholtz 09.12.08, 4:45 PM ET

The credit crunch. Bear Stearns. The housing crisis. Fannie Mae and Freddie Mac. And as of today, Lehman Brothers, Wachovia and possibly even such august firms like AIG and Merrill Lynch.

These are the bailouts of the past 12 months and the potential bailouts of the next 12 months. The U.S. is experiencing a set of financial crises unlike anything since the Great Depression. It has forced long-held ideologies to be closely re-examined, destroyed enormous amounts of wealth, quashed hundreds of thousands of jobs and ruined the reputations of corporate titans and former Fed chairs alike.

Wall Street is now scrambling, anticipating a sale of Lehman Brothers (nyse: LEH - news - people ) this weekend. It behooves the reader to consider how we got ourselves into this mess, what possible solutions there are to the current problems, and most important, how we can avoid finding ourselves in a similar situation in the future.

The current headache begins and ends with ideology, namely that of former Fed Chairman Alan Greenspan--an acolyte of Ayn Rand, a free-market absolutist, a true believer in the evils of regulation. Many of the present headaches point directly back to the decisions made by the Greenspan Fed. Sure, there is plenty of other blame to go around: an unengaged president, a clueless Congress, a hapless FDIC, a compromised OFHEO, and Phil Gramm--but the biggest and most accusatory finger points directly at Easy Al.

A brief bit of history puts this into some context: In the 1960s and '70s, the U.S. had developed a serious regulation problem. Oversight by the government had become excessively time-consuming to comply with, terribly complex and quite costly. When Ronald Reagan became president in 1981, he started a process of eliminating red tape and excess regulation. For the most part, this was a good thing. It made the cost of doing business cheaper and allowed new start-ups to flourish and businesses to grow.

But there are some rules and regulations that serve a valid purpose. These went out along with onerous costly ones. It only took a few generations--or about 75 years--to forget the lessons of the Great Depression. The Glass-Steagall Act was repealed, allowing brokerage firms and banks to once again merge. Free-market deregulation became a misguided rallying cry of ivory-tower neo-con ideologues.

The U.S. had moved from a state of excess regulation to one of excess de-regulation.

Somewhere along the line, too many people forgot that an ounce of prevention is worth a pound of cure. Reasonable capital requirements? Who needs 'em! Leverage limitations? Forget it! Enforcement of lending standards? Not here in America! And all these misguided attempts at allowing the markets to police themselves have come home to roost. The clean-up for this is going to be expensive. We still have no idea how many trillions--yes, that's trillions with a "T"--this is going to cost.

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It has forced long-held ideologies to be closely re-examined, destroyed enormous amounts of wealth, quashed hundreds of thousands of jobs and ruined the reputations of corporate titans and former Fed chairs alike.

One can only hope this is the case, but I just don’t see it from where I am sitting. Those who called the mortgage crises right – are still being ignored by the media. While the economic hoers who caused the crises in the first place, continue to be the “economic experts” and given opportunity after opportunity to say, “Oh things are fine, the rebound is just around the corner.”

Uhm, case in point:

Look for a dramatic rally in Wichita-area home sales in 2009. That's the big headline from the Wichita State University Center for Real Estate's 2009 Housing Market Forecast, which will be released this afternoon.

Existing-home sales should rise 6.5 percent -- 555 units -- beginning in the second quarter of 2009, according to the forecast. New-home sales should rise by 15 units in 2009.

http://www.kansas.com/news/story/526996.html

First, look at who is making the forecast. Our state universities are in the business of making these kinds of forecasts for industry? Or is this another example of a privet firm who uses the university system as a back-door subsidy for their investment and real-estate consulting business?

I have recently been told that local real-estate has come to a violent crash. Unlike other parts of the country, much of Kansas never had much of a housing boom. Housing prices here are much more in keeping with inflation. Why this is remains something of a mystery. I once speculated that Kansas has a regulatory environment that frustrated such speculation. But Kansas actually proves to be rather lax in this area, and other areas that have been hit by the boom do have stronger regulations.

A likely explanation is Kansas is fly over country. Big money were more interested in speculating in the hot spots like LA, or even Kansas City (which has been hit rather hard), and ignored the “one horse towns” like Wichita.

But what caused local real-estate problems is the fact that capital IS scarce and becoming more scarce by the day. If you can’t secure a loan, well, then you can’t buy a house. And if more than one person is in the same boat, well this drives down the market.

Take a closer look at the reasoning.

The area housing market should rebound in 2009 once buyers adapt to tighter mortgage lending policies and regain faith in the housing market, said Stan Longhofer, director of the real estate center.
Huh? Adapt to tighter lending policies?

The problem is that lending practices were too loss to begin with in order to rope in perspective buyers with low credit ratings. Tightening these standers will by their nature force constrictions in the market. And unfortunately the credit system, the backbone the lending system, is a better measure of how gullible a client is, rather than his financial risk.

For example, even here in Wichita, lay-offs have become the rule. One’s credit risk thus needs to take into account how likely it is that they will be laid off and with what kind of warning.

Barry Ritholtz is a wonk on all things to do with the economy. What he does at his BigPicture blog is put up information he is scanning as he sorts through what anyone that is anyone is saying. His fame has spread and this article appeared at Financial Times partly because the big guns on finance have lost credibility. I still look at Bloomberg several times on most days, but Financial Times is all but dead to me now that I found Ritholtz and his BigPicture blog- http://bigpicture.typepad.com/comments/

One thing about the blog besides the filtering that BR, as they call him, is the comments. There is a high level of information being presented and I am sure this thread would make a fine discussion for a class in Economics 101. The thing is now that everyone is up in arms at all the crookedness that has been in the open and how the taxpayer is being hit for what is most usually called socialization, as in socialization of losses. You are hearing words like revolution in recognition that the Wealthy are not going to passively let go of their grip.

There is a concept that I have concerning "One mind" that is relevant to BR and crew. Like I have stated to the point of boredom is that people really have an inate desire to be right in a reptilian brain way. Everyone has to chose the right path or else there can be injury or doom. The problem really centers around the statement that everyone is entitled to their own opinion, but not their own facts. When you have that high level discourse as seen in the comments and blog, it is not low level complaining and talk dwells on what the proper path should be. A term related to current discussion is "moral hazard" which says in capitalism when failure comes, the investor losses. With government we see that socialization solution which shows government to be the tool of industry that they are and that the bankers run the country.

I talk about Mike Adams of NaturalNews in the same vain as someone to listen too. Once you find the person that filters out all the stuff that everyone is saying, you don't have to read everything. You can just take on reading and follow the stories as they come through the newsletter and begin what is an education. Adams made his fortune in the software business and does not take a salary or profit from NaturalNews. He is a man on a mission. He is a modern day hero with DrugWatch.com to tell of the dangers of pills and NaturalPedia which in time will explain the universe of health dangers and nutrition.

The medical fascism/slavery that characterizes our highly profitable medical system that draws so heavily from the public well can be seen quite easily for anyone that wants to read. This understanding does not come in a pill form and requires a depth of reading, but its illustration could easily be seen by reading the articles and going backwards for only several weeks. Someone with a television mind that wants to make sense of our present senselessness could gain awareness looking through the window is http://naturalnews.com/

I would again like to cite Steve Lendman as someone to listen too- http://sjlendman.blogspot.com/ What we see in Lendman is the course of his intellectual curiosity. He has a desire to know how things are and he explains his understandings so well. He is one of the few people I ever emailed and it was to tell him he deserved the Medal of Freedom for his article on the US v Venezuela Constitution alone. It was very jugular to the Illusionists.

We are coming on interesting times as we discard those that keep on talking nonsense and chase down those that we will listen too. The Frauds/Illusions cannot hold here in America the Fantasyland. All three of those websites will point to the conclusion that government is open gangsterism even if it said in more polite ways.

The Internet will produce "One Mind" to address the Illusionists and people not in on it will be the "Mindless," although I think "Retards" will come to be a popular word for those not of the "One Mind." We will see BumperStickers that say "Fox is for Retards" and "DU is for the Mindless." The voice of the One Mind is saying something and that something is what is needed to turn the heat into flame. The Mind is calling out "We are ruled by treason" and for everyone to get their citizenship up instead of failing us and all future generations of everything that lives.

A year ago, New York and London bankers shook their heads grimly
over the fact that an estimated $1 trillion of supposed assets had vanished into
space. Today the US taxpayer has accepted responsibility for the $5.4 trillion
liabilities of the Freddie Mac and Fannie Mae mortgage businesses, without the
remotest notion of how much of this money, too, will disappear down the Swanee. A
mere trillion seems less serious money than it used to be.

http://www.guardian.co.uk/commentisfree/2008/sep/15/useconomicgrowth.useconomy


Lehman Brothers finally threw in its towel and filed for
bankruptcy. In one way or another it will be the end for a bank that started in
Alabama back in 1844 – a sticky end considering that last year it had sales of $57bn
and only a few months ago was named by Business Week magazine in its 50 top
performing companies for 2008.
http://www.guardian.co.uk/commentisfree/cifamerica/2008/sep/15/useconomy.creditcrunch

The corporate media is advising people not to run their banks:
(be very concerned when the media have to say this - those who withdraw their funds
now before the collapse will not lose - so this advise is hoping that people will
not behave according to nash:
By applying Game Theory to all forms of human interaction, he proved that a society based on mutual suspicion didn't necessarily lead to chaos, but he made the assumption that humans were naturally calculating and always seeking an advantage over their fellows and this led to an equilibrium. This system could only work if everyone behaved selfishly. As soon as people started co-operating together, instability ensued and this proved to be the case when the system was tested - participants co-operated with each other. )


Bank share prices have taken a hammering this morning in the wake
of the collapse, but the British Bankers' Association has urged savers not to
panic.
http://www.guardian.co.uk/money/2008/sep/15/banks.savings1

They don't know at all how many more will go down before this is played out.

Make sure your deposits are insured - this entire industry has the bubonic plague.

If Merrill was on the ropes ready for a bleedout - that means none of the remaining
banks are in a capital position any different (though they surely bluff like the
poker players that their scam demands they pretend).

It’s simple. Bank managers who refused to go after the easy money in the sub-prime industry were fired and replaced with bank managers who were all about “managing risk.” The share holders of privet banks are just as responsible for this “contagion” as the CEO’s they appointed, perhaps even more so as CEO’s who didn’t play by the rules were evicted.

Even having an insured account will not be good enough. The bank insurance system as it is assumes that only one or two banks will fail – not all of them.

They are already calling this Black Monday. (How original)

The problem is far worse than the media is letting on. Many of the top tear banks that have just collapsed were major stock market traders, holding vast sums of paper capital, much of which was already sold in order to show up there credit. But now they are starting to drop out of the market itself, meaning the major market movers and shakers are going flat broke.

The stock market itself now risk implosion as they now have fewer and fewer top tear, wealthy traders to by and sell stocks and bonds. Those who remain are no where near as wealthy and can not take up the volume.

As many of the still standing banks have much of their holdings in stocks and bonds, their balance sheets will also start to evaporate, accelerating the cycle. More banks will fail as a direct result of the market down turn.

I know there is a lot of talk about “wealth disappearing,” but this is something of a misnomer to the basic problem. The fact is that this wealth never really existed; every one just pretended that it did. Wealth is not disappearing, reality is intruding.

Once you realize that you have walked off a cliff, gravity will not suddenly recognize the mistake, reverse, and place you back on the cliff so you know how many steps is one step too far. Once you fall off the cliff, you will keep falling until you hit rock bottom. Flapping your arms will not help.

This means that come of the efforts to “shore up” consumer and trader confidences actually makes the problem worse. We have a lot of government officials running around, flapping their arms, trying to tell every one that we will soon be back where we were. And yet we keep falling. The truth is that is not really a lot that can be done at this point.

The only real question is – who will get smashed on the rocks below, the wealthy, or the poor. I’ll give you three guesses what the answer is and the first two don’t count.

Some are saying that the real rulers of the country orchestrated this and besides creating a buying opportunity, it could usher in the Amero when the world no longer accepts our money.

What are we going to make besides weapons that the taxpayer funds as presents. When we don't make our own televisions, monitors, washing machines what is it we are supposed to export to pay for this oil and global conquest.

What we are going to see besides the Reality v Illuision, the Internet v television is Social Security v the military budget. People should be on a war criminal hunt and see who is not capable of calling our imperialism the imperialism that it is.

If the government did not employ so many people through taxes and debt the unemployment would be more than the 12% that it is now. It is funny how the lying treasonous bastard politicians, not spouting get tough on crime this go round.

Hang them all.

<snippalawillywillynukunukuoioi>
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This leaves Goldman and Morgan Stanley on the spot. A bank can be highly skilled in risk management and trading, as Goldman has proved. Yet a single big mistake, as we have now witnessed, may spark a fatal spiral. Even a Fed guarantee of short-term funding could not save Lehman from chapter 11 bankruptcy protection.

It seems to me that Goldman and Morgan Stanley have two options. One is to follow Merrill and sell out to a large commercial bank with a big capital and deposit base. That could provide them with sufficient backing for their capital markets divisions, which can be revenue and profit powerhouses in good times.

The second is to scale back heavily, or abandon, their broker-dealer arms and become more like big hedge funds or private equity funds. In Wall Street jargon, this would involve a switch from sell side to buy side, where most money is now made. In exchange for becoming much smaller, they might retain their high margins.

My guess is that Morgan Stanley will opt for the first and Goldman for the second. It is sad to witness 73 years of investment banking history end this way but there is no use in denying it. Goodbye to all that.

http://www.ft.com/cms/s/0/30031a6c-8343-11dd-907e-000077b07658.html