U. S. financial breakdowns usually have to do with governmental “experts” reacting to problems in a panic mode. I’m referring to the Great Depression and our current Near 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 collateralized debt obligations, CDOs. or their derivatives, were, in the past, “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 usual 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. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)
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