Blame Game

Time to point fingers!:

Financial specialists blame derivatives, and their cheerleader, Alan Greenspan:

“Clearly, derivatives are a centerpiece of the crisis, and he was the leading proponent of the deregulation of derivatives,” said Frank Partnoy, a law professor at the University of San Diego and an expert on financial regulation.

The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.

If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman from 1987 to 2006, many economists say, the current crisis might have been averted or muted.

Alan Greenspan says, no, no, it was the surprising appearance of greedy investors and bankers that caused the problem:

And when Mr. Greenspan began to hear of a housing bubble, he dismissed the threat. Wall Street was using derivatives, he said in a 2004 speech, to share risks with other firms.

Shared risk has since evolved from a source of comfort into a virus. As the housing crisis grew and mortgages went bad, derivatives actually magnified the downturn.

The Wall Street debacle that swallowed firms like Bear Stearns and Lehman Brothers, and imperiled the insurance giant American International Group, has been driven by the fact that they and their customers were linked to one another by derivatives.

In recent months, as the financial crisis has gathered momentum, Mr. Greenspan’s public appearances have become less frequent.

His memoir was released in the middle of 2007, as the disaster was unfolding, and his book tour suddenly became a referendum on his policies. When the paperback version came out this year, Mr. Greenspan wrote an epilogue that offers a rebuttal of sorts.

“Risk management can never achieve perfection,” he wrote. The villains, he wrote, were the bankers whose self-interest he had once bet upon.

“They gambled that they could keep adding to their risky positions and still sell them out before the deluge,” he wrote. “Most were wrong.”

No federal intervention was marshaled to try to stop them, but Mr. Greenspan has no regrets.

“Governments and central banks,” he wrote, “could not have altered the course of the boom.”

Jimmy Carter blames George Bush:

Carter told reporters on a stopover in Brussels that "profligate spending," massive borrowing and dramatic tax cuts since President George W. Bush took office in 2001 were behind the market turmoil and economic crisis.

"I think it's because of the atrocious economic policies of the Bush administration," said the 84-year-old Democrat, who served in the White House from 1977-1981 during a period of high inflation and energy crisis.

Whoever wins next month's U.S. presidential election would inherit economic problems that would force them to postpone implementing some of their proposed reforms, he said.

"The economic situation is an entrenched problem. It is going to take years to correct what has been done economically," Carter said, adding he hoped Democrat Barrack Obama would win and immediately improve Washington's image in the world.

Eight years ago, the United States had a budget surplus, low inflation and a stable, strong economy, he said.

Carter said he was astonished that the United States now owed China "in the neighborhood of $1 trillion."

Deregulation and what he called a withdrawal of supervision of Wall Street had encouraged irresponsible elements in the U.S. financial system, enabling banks to borrow 30 times their value.

Steve Forbes has a whole enemies list:

The U.S. economy is in recession, and the slide is gaining momentum. Europe is also in a recession, and Asia's growth rates are slowing down markedly. Yet Congress couldn't resist playing brinksmanship partisan politics. The Administration deserves a severe knuckle-rapping as well. More important, President Bush--not to mention Hank Paulson and Ben Bernanke--never convincingly explained to the American people why the legislation was a dire necessity, flawed as it was. Most Americans thought of it as a gratuitous handout to greedy Wall Street executives. Even so, House Republicans should have made sure the bill passed on Monday, Sept. 29. Occasionally members of the national legislature must act in the national interest even if--temporarily-- constituents don't realize the magnitude of the impending horror.

Put the bailout's $700 billion price tag in perspective: American households, until recently, had net assets of $56 trillion. A 2% decline in the value of those financial and hard assets overwhelms that $700 billion.

This whole crisis was absolutely unnecessary. The list of villains is long and ugly. The housing bubble and the promiscuous issuance of exotic junk securities would never have reached the level they did had the Fed not been so recklessly loose in its monetary policy. Our central bank behaved like a bartender who continues to ply low- to no-cost booze to already inebriated customers. The White House and Treasury Department went along with the Fed's weak-dollar policy, which wrought havoc on the world by creating a commodity bubble and a catastrophic loosening of lending standards and investing prudence.

Myself, I blame trolls living under Sacramento's I Street Bridge, and their culture of grasp and greed, for the problem.