Letting Down Their Guard

It's funny, but I don't remember Ben Bernanke, Henry Paulson, or any of the heads of the major financial institutions (including JPMorgan) saying that the financial world was on the brink of disaster when Bear Stearns was careening towards belly-up-ville.

Financial markets were giving off that message, of course, but the people who really knew what was going on were tight-lipped or were reassuring everyone that everything was under control.

Now, though, with equity traders and other lost souls believing that the worst is over (which it isn't), you have people willing to let down their guard with admissions like those in the following report from Thomson Financial, "International Financial System Was Close to the Brink - Credit Suisse Ex-CEO."

The international financial system was close to the brink in March when joint action by the U.S. Federal Reserve and JP Morgan Chase & Co. avoided the collapse of investment bank Bear Stearns, Credit Suisse Group's ex-CEO Oswald Gruebel said.

The breakdown of the comparatively small investment bank would have triggered a global run on other financial institutions around the world and the situation would have spiraled out of control, he said in an interview with Swiss Sunday newspaper SonntagsBlick.

Gruebel, chief executive of Switzerland's second largest bank from 2004 to 2007, said that central banks fortunately realized that they had to de facto take over the interbanking market.

'We've narrowly escaped a system collapse. This has never happened before,' Gruebel said.

Nevertheless, the impact of the financial market crisis will still be felt over the coming years as banks tighten credit, which will in turn substantially limit economic growth, he said.

My guess is, authorities won't go after those who downplayed the extent of the crisis that was unfolding weeks ago, even though at least some of them were guilty of making misleading statements and market manipulation. What do you think?

Comments

[dome]

By coincidence, this morning I was reading Galbraith's book "The Great Crash 1929". In one of his many excellent points, he says :
"In Wall Street, as elsewhere, there is deep faith in the power of incantation. ...... Preventive incantation required that as many important people as possible repeat as firmly as they could that it wouldn't happen. This they did."

Sadly, I agree that nobody "who downplayed the extent of the crisis" is going to be prosecuted. But I would like the regulatory authorities to publish the personal trading accounts of the main players, just in case.
Regards
Dome

[Al]

The interesting thing about this near collapse, is that nothing outside of 'normal' business happened. No major acts of God caused this. There weren't any terrorist attacks. It was just escalating bad business practices. It makes me wonder about the viability of the system.

Dome,
It would be interesting to see those accounts wouldn't it....

[FB]

Since we were supposedly on the brink of systemic financial meltdown and a huge amount of public funds have been appropriated, there needs to be a full and independent investigation of all the events leading up to the incident and how the problems should be corrected. After the Three Mile Island nuclear reactor accident, there were two investigations. After each Space Shuttle disaster there was an investigation. Why has no independent commission been appointed by our Congress to investigate this matter? I encourage everyone to call their Congressman and demand a full and independent investigation.

Because Congress is nothing but an administrative arm of the FED, whom so much interest is owed

A slave doesn't chastize the Master.

cause your living in the land of illusion

"I could do this all day" -- Larry the Cable guy