MB Civic

By Robert Kuttner | Saturday, September 22, 2007 | The Boston Globe

“…Since the late 1970s, financial institutions have invented exotic ways of extending credit and taking big speculative risks. For example, bonds backed by packages of mortgages are not like traditional bank loans. In a crisis, their value can plummet. Likewise the other derivative instruments heavily traded by hedge funds.

In the old days, bank examiners could look at a bank’s portfolio of loans, assign a precise degree of risk, and require banks to hold adequate reserves against losses. Today, much of what banks hold is a financial black box. Nobody knows what this paper is really worth. And just as all this risky innovation was proliferating, Congress made matters worse by deregulating much of the banking sector, reflecting the prevailing view that financial markets could regulate themselves. Up with markets, down with government!….”…BS

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2007/09/22/the_fed_the_enabler?mode=PF