*****Government (not Wall Street) Financial Innovation Caused 2008 Financial Crisis*****

Below are two videos showing how the federal government (not wall street) caused 2008 Financial Crisis.

Video 1 shows that it was the government who:

1) Bundled toxic (subprime) loans into securities

2) Used financial alchemy to make risk "disappear"

3) Designed complex financial structures to hide the fraud

4) Developed insanely optimistic evaluation models to inflate ratings on toxic securities

5) Marketing these toxic securities to an unsuspecting public

Video 2 shows that it was the government who:

1) Created the entire infrastructure necessary for the subprime market to function

2) Decimated state authority to regulate the financial sector

3) Shielded subprime lenders from prosecution

4) Encouraged banks to buy toxic CDOs and to get rid of safer assets

"As to new financial instruments, experience establishes a firm rule ... that financial operations do not lend themselves to innovation. What is recurrently so described and celebrated is, without exception, a small variation on an established design, one that owes its distinctive character to the aforementioned brevity of the financial memory. The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version. All financial innovation involves, in one form or another the creation of debt secured in greater or lesser adequacy by real assets, that, in one fashion or another, has become dangerously out of scale in relation to the underlying means of payment"
-john Kenneth Galbraith, A Short History of Financial Euphoria

Links to articles in video 1:

Blowing up the Lab on Wall Street (TIME, August 16, 2007)

Calling Out the Culprits Who Caused the Crisis (Washington Post, September 21, 2008)

U.S. Gets Creative to Sell Junk Bonds (Los Angeles Times, April 04, 1990)

TIME TO SPEED UP THE S&L CLEANUP (CNN Money, November 16, 1992)

Managing the Crisis: The FDIC and RTC Experience (FDIC's website)
Chapter 16.Securitizations

Tainted Legacy (Portfolio.com, October 12, 2008)

Links to articles in video 2:

Managing the Crisis: The FDIC and RTC Experience (FDIC' s website)
PANEL 2 — Asset Disposition

Tainted Legacy (Portfolio.com, October 12, 2008)

Uncle Sam Knows Best about the Economy - Except When He Doesn't (Bloggersbase, March 5, 2009)

The Bet That Blew Up Wall Street (CBS, August 30, 2009)

Predatory Lenders' Partner in Crime (Washington Post, February 14, 2008)

How a secret rule caused the crisis (CityAM, February 22, 2010)

Greed Layered on Greed, Frosted With Recklessness (New York Times, June 15, 2009)

State TV in Egypt Offers Murky Window Into Power Shift (New York Times, January 31, 2011)

This entry was posted in Financial_Wizardry, Key_Entries, Treasury, Videos. Bookmark the permalink.

8 Responses to *****Government (not Wall Street) Financial Innovation Caused 2008 Financial Crisis*****

  1. Jimmy says:

    This is a very good analysis/visualization about securization.

    You're back in the market!


    ps: please do not post anymore about Fukushima or other cases, but only monetary cases where u're the master... (dark pools, HFT's, securitizations,...) There are so little blogs whose are focusing on these items and explaining it so good, so the dummies could understand the problem. Thank you for your efforts to inform people.

  2. JP says:

    Thanks, great video. Well explained

  3. Bondbubble says:

    Great investigative analysis. Do you think any one from mainstream media (say John Stossal of Fox) will be willing to air this analysis?

  4. Tuomas Pietila says:

    Excellent work! I must say this will freak out my Professors who've been working on financial innovation leading to the current crisis and none of their papers apparently have sufficiently far back in history to figure out underlying these issues. Coincidentally in a month I've got a major piece of work due to review the causes of this financial crisis and whether its due to too little or too much goverment intervention... Not that this truth would make i.e. Lehman Brother's and other failed banks' business models appear any better, but at least private sector bankers get slight release from the guilt of engineering all this in the first place.

  5. Cosmic says:

    In theory you are right BUT it is NOT the government or congress who writes the bills but the lobbyist who work for certain groups of interest. It is and alway has been that way.

    The problem is the governemt and state structures have become too weak and unprepared for the fast changing world. Besides, most politicians and administration are, unfortunately, too lazy and corrupt to oppose the lobbying big business... And the public doesn't care much anyway... sad but true

  6. UP4Liberty says:

    Dear Eric,
    Thanks again for a brilliant article. I have learned so much from these reports, and I am grateful for your efforts - cheers!

  7. Daniel Domingues says:


    Thank you for taking the time to awaken us to what is actually taking place, and explaining it in layman's terms.

  8. RB says:

    The definition of fascism is the complete merger of the government and the corporations.

    Now that the whole house of cards is collapsing, the finger pointing begins.

    We will be seeing more and more the corporations blaming government and government blaming the corporations.

    It is all an elaborate smokescreen so that they can delay justice until after the crash, when justice will become almost impossible to come by.


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