“The banks heard, “Do it, or else.” And they did it.”
You know what else they are hearing right now?
They are hearing the government might bail them out, so they are going to sit still until they hear how. To not take advantage of govt. bailouts would be a breach of fiduciary responsibilities to shareholders, and would risk losing jobs.
They are also hearing that under Paulson’s first auction plan mortgage backed securities would be evaluated and valued. To not wait out this valuation process to judge by comparison what the value of the paper they themselves hold would be stupid and maybe a breach of fiduciary responsibilities.
They are also hearing that maybe the auction plan won’t be so big, or not. They certainly don’t trust Paulson and his cronies to be fair across the board. Then they hear the govt. will forcibly take shares in big banks and the Europeans’ urging. Still possible? Now we have Greenspan admitting he was a fool, after Bush’s daily scare noise, and new ideas here presented.
A big reason for the supposed “credit crunch” is the banks awaiting the Bush administration decision, and its ongoing indecision. Complete incompetence.
Bottom Line: Congress got us here. Period.
That the Bush Administration didn’t know what to do about 64.5 Trillion in CDO liability that would come home to roost if someone didn’t bail out every institution that had CDO exposure? I think I can forgive that in light of the fact that total economic activity globally in 2007 was only 53.7 Trillion.
Consider that Sarbanes Oxley requires companies to notify the market with an 8-K to any material change in projected earnings or material condition of the company. The irony is that if Bear Sterns had actually complied, then it would have tanked the market more suddenly that what actually has occurred.
We don’t know everything, just what we can measure from the outside. It wouldn’t surprise me if the Feds told these failing banks not to comply with Sarbox in the interest of national security.
Starting with Glass-Steagal being repealed, coming up throught he Ethanol bill, and continuing through to the Fannie/Freddie ‘ignorance’ in Congress, it’s on their heads.
That Bush signed the Ethanol act was particularly loony, but hey.