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Saturday, September 12, 2009

Nothing Has Changed

Monday marks the one year anniversary of Lehman Brothers demise and the turmoil in financial markets reached its zenith. Now we have invested Billions and Billions of dollars in banks, auto manufacturers and a sundry bunch of other companies, and apparently, the U.S. Government has learned absolutely nothing from the experience.

Virtually nothing on Wall Street, where the recession began, has shown any appreciable change. Investment bankers still focus on risky investments to drive up their bonuses. The eight major U.S. and European banks have 141,000 employees in their investment bank operations and they are on track to pay an average of $543,000 each in bonuses. Would you be willing to take risks with someone else's money if you could get a $543,000 bonus on top of an already healthy salary?

Don't bother to answer!

And all of the financial "innovations" (CDOs, derivatives, etc.) are all still in full use and traded out of sight of the market. In addition, Wall Street banks are adding "Death bonds" to their arsenal of ways to take risks without recourse (see earlier post for details).

Economists have a term for what is happening and there is absolutely no" moral hazard" anymore. The bankers on Wall Street are more direct about the situation, they call it I.B.G. (which means that when the deal goes south "I'll Be Gone").

In short, everything is in place for another financial meltdown. Given how inept the government's response has been the current recession, you should be afraid, very afraid.

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