Alan's Finance Blog

The Economic Crisis No One Saw Coming: A Convenient Untruth

The Economic Crisis No One Saw Coming: A Convenient Untruth

August 9, 2010

By Elliott Wave International

The single most convenient untruth about the 2008 (and counting)
financial crisis is that it was unforeseen. For two years policymakers
have insisted “There was no way to know ahead of time” that
the liquidity boom would come to a screeching halt. Back in November
2008, in fact, the usually tight-lipped Queen of England herself
publicly described the turmoil of international markets as “awful” and
openly asked a panel of experts from the London School of Economics “Why
did nobody notice?“

Her Majesty is right: Most financial authorities did
NOT notice the crisis before it was too late. Comedy Central’s “The
Daily Show with Jon Stewart” of all places provided the
most poignant evidence: A March 2009 video montage
shows executives and economists from the world’s leading financial
firms repeatedly forecasting continued upside strength in stocks,
plus renewed bull market growth in financials — right as debt
markets came unhinged and the US stock market headed into a 50%-plus
selloff.

Dubbed the “8-Minute Rap” (after the “18-Minute
Gap” of Nixon’s Watergate tapes), the Daily Show video feature
sent an equally powerful message, as the clip
below makes plain.

Yet even as the mainstream authorities failed to detect the
economic earthquake moving below their own feet, somebody did “notice” well
in advance. That person was EWI’s president Bob Prechter.

The clip below is from a 2007 Bloomberg interview.
Clear as PLAY, the foreseeable nature of the crisis emerges from
Bob’s October 19, 2007 interview.

As the historic trend change began to unfold, Bob issued this
timely insight:

“We’ve seen the first crack in the credit structure
with a huge drop in commercial paper… These are the harbingers
of a change toward the downside for the stock market, commodities
including oil, and the debt market itself.”

Don’t believe the convenient untruths. Get objective market
analysis today. Download
this free report that contains valuable market forecasts directly
from the desk of Bob Prechter.

FRONTLINE: The Warning – Video

Hi everyone. I’ve got a really cool documentary that I’d like to share with you. It’s called The Warning.

In The Warning, veteran FRONTLINE producer Michael Kirk unearths the hidden history of the nation’s worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.

“I didn’t know Brooksley Born,” says former SEC Chairman Arthur Levitt, a member of President Clinton’s powerful Working Group on Financial Markets. “I was told that she was irascible, difficult, stubborn, unreasonable.” Levitt explains how the other principals of the Working Group — former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin — convinced him that Born’s attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was “clearly a mistake.”

Born’s battle behind closed doors was epic, Kirk finds. The members of the President’s Working Group vehemently opposed regulation — especially when proposed by a Washington outsider like Born.

“I walk into Brooksley’s office one day; the blood has drained from her face,” says Michael Greenberger, a former top official at the CFTC who worked closely with Born. “She’s hanging up the telephone; she says to me: ‘That was [former Assistant Treasury Secretary] Larry Summers. He says, “You’re going to cause the worst financial crisis since the end of World War II.”… [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.’”

Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. “Born faced a formidable struggle pushing for regulation at a time when the stock market was booming,” Kirk says. “Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves.”

Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.

“It’ll happen again if we don’t take the appropriate steps,” Born warns. “There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience.”

Watch the documentary here:

I’d like to thank PBS for putting out this informative documentary. Please folks remember to support your local PBS station.

http://www.pbs.org

Take care,

Alan

http://alansfinanceblog.com