By one measure, according to the Times, for about every $40 in assets, the nation's five largest investment banks had only $1 in capital to cover losses, meaning that a 3% drop in asset values could have wiped out the firm. The banks hid their excessive leverage using derivatives, off-balance-sheet entities and other devices, the report found. The speculative binge was abetted by a giant "shadow banking system" in which the banks relied heavily on short-term debt.
"When the housing and mortgage markets cratered, the lack of transparency, the extraordinary debt loads, the short-term loans and the risky assets all came home to roost," the report found. "What resulted was panic. We had reaped what we had sown."
The report, which was heavily shaped by the commission's chairman, Phil Angelides, is dotted with literary flourishes. It calls credit-rating agencies "cogs in the wheel of financial destruction." Paraphrasing Shakespeare's "Julius Caesar," it states, "The fault lies not in the stars, but in us."
Of the banks that bought, created, packaged and sold trillions of dollars in mortgage-backed securities, it says: "Like Icarus, they never feared flying ever closer to the sun."
In other words, the cover story is that it was all a big "accident.' "We just couldn't see what was going to happen -- how could we possibly know that housing prices would not go up forever?!"
("Who could have ever imagined that airliners would be hijacked by terrorists and then flown into buildings?!")
The main problem with the Angelides Commission Inquiry is that it doesn't come right out and recognize that what it should be investigating is a case of systemic fraud. On a short video clip, economics professor Michael Hudson explains:
One of the main problems here is that the criminals that committed the fraud were the main contributors to the Obama campaign -- and now, having been appointed to top positions in Obama's administration, essentially run our government!
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