Frontline: Inside the Meltdown

If you get a chance to see the PBS documentary which is the same name as the title of this article you should. It puts all the pieces together that are the most useful in understanding what just happened this last year to America's and then the world's finances.

Basically, it goes something like this. Since Treasury Secretary Paulson(until Geitner) is a Republican he stressed moral hazard which means(if you make a big enough mistake as a business, you go bankrupt. You don't get bailed out by the government). So after being forced to bail out Bear Stearns he stressed moral hazard. Since the CEO of Lehman Bros. (an old Wall Street Rival) wouldn't find a buyer for Lehman Bros. it made Paulson angry. And then he and Bernanke decided to let Lehman Bros. fail in order to emphasize moral hazard(the government won't bail every bank out!).

However, because of credit default swaps worth more than the major banks of the worlds assets, and because many or most had hedge fund type insurance policies on Lehman Bros. that Bernanke and Paulson didn't know about because they were secret and unregulated, when Lehman Bros. was allowed to fail and go bankrupt, it left big worldwide banks with insurance policies payable and due bigger than their assets. This caused a collapse of big banks worldwide because their insurance policies (credit default swaps) meant that they owed all the money they had twice or more. This made all banks not trust each other since all these hedge fund insurance policies are secret, like social security numbers and unregulated. And this froze up credit markets worldwide and made no bank lend to another bank. This stopped almost all credit and even with Tarp infusion of 350 Billion dollars credit hasn't unfrozen that much yet because banks feel they can't trust each other because of a complete lack of transparency.

I think I got it right this time, much better than I've said it before. The above two paragraphs illustrate what happens when there are too many secrets in the banking industry and too many things left unregulated. Bernanke and Paulson couldn't have known things were so screwed up because of secrecy and no transparency. If they had known they wouldn't have inadvertently let Lehman Bros. fail and completely screw up the world's finances.

This is what happens without enough transparency and this should be regulated worldwide in order to prevent this catastrophic kind of thing happening 20 or 30 years from now again. And I have to say if it isn't regulated worldwide it will happen again.

Without regulation it won't be if, it will be WHEN!