U.
S. financial breakdowns usually have to do with governmental
“experts” in the past reacting to problems in a panic mode. I’m
referring to the Great Depression and our current Great Recession.
The rescuers had come from the financial community, attuned only
to the short term, and thus could not see how caution and avoiding
panic would overcome problems. Nor did they truly envision the danger
of acting in haste.
Example:
The value of debt obligations, CDOs. or their
derivatives, were “marked-to-market,” under so-called fair value
accounting. The latter is part of the Generally Accepted Accounting
Principles (GAAP) rule in place since the 1990s.
But
that rule could have and should have been suspended for the
emergency. CDOs were not some other product that accountants usually
measure on balance sheets.
As
a result, bank and investment company net worth figures were daily
being devalued to so-called “toxic” levels. Those levels were
actually a fiction, brought on by an illiquid market, where true fair
value was impossible to determine. The rescuers were blinded by their
own personal and business backgrounds.
The unintended
consequences are slowly but surely unfolding day by day.
(See
the Earl J. Weinreb NewsHole® comments.)
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