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Paul Kiesel
Paul Kiesel
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"The Four" Who Helped Usher in the Economic Crisis

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There were those that predicted the current economic, foreclosure, housing, and mortgage crisis (Paul Krugman, who incidentally just won the Nobel prize in economics, Robert Shiller, Dr. Nouriel Roubini) and then there were those other figures — politicians, economists and conservative pundits — who recklessly enabled or promoted the economic situation the U.S. faces today (see below).

Alan Greenspan (former Fed Chairman)

We now know that stronger regulation of derivatives would have done much to stem the current financial crisis, but Greenspan argued against that philosophy:

"What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so," Mr. Greenspan told the Senate Banking Committee in 2003. "We think it would be a mistake" to more deeply regulate the contracts, he added. (New York Times, 10/8/08)

Phil Gramm (former Texas senator and economic adviser to John McCain)

From the New York Times: For more than two decades in Congress he argued that the forces of the market had to be freed from government interference. Just a year after the passage of Gramm- Leach-Bliley, he was largely responsible for another bill — the Commodity Futures Modernization Act — that clearly did contribute to the current crisis. That law unleashed the derivatives market and paved the way for banks to become more aggressive about investing in mortgages. As recently as this summer, he was still saying that the biggest problem facing the American economy was excessive regulation.

Chris Cox (Head of the SEC)

Cox, who is the current head of the SEC, helped put greater deregulation into effect, and as of last March, was saying the following:

"We have a good deal of comfort about the capital cushions at these firms at the moment."

Henry Paulson (Treasury Secretary)

"I have great confidence in our capital markets and in our financial institutions. Our financial institutions, banks and investment banks, are strong. Our capital markets are resilient. They’re efficient. They’re flexible." — Treasury Secretary Henry Paulson on March 16, 2008

"There is little public policymakers can, or should, do to compensate for untenable financial decisions." — Treasury Secretary Henry Paulson on July 8, 2008

From the New York Times: They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.

The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary.