roland@equalpartners.ca
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Equal Partners
by Roland Ezri

Equal Partners by Roland Ezri

Equal Partners

By Roland Ezri

"Women are the backbone of all societies. They do a substantial part of the work, and play a major role in raising the future generation yet they are largely powerless. The decisions that count are made by men and foisted upon women."

Writings by Roland Ezri

Finance – V. Banks

On any given day, over $1 trillion crosses the wire
connecting the world’s major banks.  The human mind cannot even
absorb such a figure, let alone accept the possibility that a
major problem could affect the banking system.  And yet, the 2008
financial earthquake has forced us to look down at the abyss.
The pieces of the broken banking system are still being picked
out; it will take a long time to piece it back together, writes
its history, and learn our lessons.  Books have been written on
this financial calamity, even though this is an incomplete story.
But with the passage of time, we will we know most of the details
(both the honest mistakes and the sordid aspects).  And then it
will be the turn of the historians to write a comprehensive
history.

I do have to ask at this point the following question:  Of
what use is history to us?  We never seem to learn.  Past history
has provided us with many lessons of the problems that can affect
the banking system.  And yet, what did we do?  We have given
the banks, in the ’90s and the first part of the 21st century,
unfettered freedom.

The Savings and Loans (S&L) saga

As an example of a more or less recent financial meltdown,
and the impact bank problems can have on the financial system,
let me recount the sad tale of the Savings and Loans (S&L).
(S&Ls are also known as thrifts).
The S&L debacle of the 1980s is one of the greatest monetary
disasters of all times.  When they collapsed, the cost to the
U.S. government was estimated at $200 billion.

S&Ls were born in the 19th century, they were mutual savings
banks that pooled the savings of workers to finance home mortgage
loans.  In the 1960s, S&Ls faced competition from banks both for
deposits and mortgages.  In the 1970s, money market funds were
competing with S&Ls for deposits.  However, it was the inflation
and the high interest rate of the late 1970s that exposed the
S&Ls flaw:  depositors tempted by higher rates in the unregulated
markets withdrew their funds, but these funds have been committed
by thrift managers to long term mortgages.  As rates rose, the
value of outstanding mortgages sank (loans such as bonds and
mortgages move in the opposite direction of interest rates).
S&Ls find themselves mired in the red.  The solution was to
deregulate them.

Once free of strictures, thrifts engaged in doubtful
financial ventures, examples:  superfluous shopping centers in
the middle of nowhere, speculative office buildings, and junk
bonds.  To engage in these pursuits, and later on to cover
losses, thrifts pushed up interest rates to attract deposits from
Wall Street.  Predictably, many thrifts went bust.

The financial disaster that ensued was blamed (depending
upon who you listened to) on greed, incompetence, fraud,
inflation, interest rate volatility, real estate slump, deposit
insurance, auditors, the media, regulators (federal and state),
and Congress.  However, this blaming game offered no solace to
the government when it had to come to the rescue; Washington had
no choice in the matter, no modern government can afford to let a
financial crisis turn into a general collapse.

In any financial review we undertake, we will need to take a
close look at the banking system.  There is a lot at stake here.
Mistakes, as we have found out as recently as 2008, can spell
disaster.

Source

Wall Street, How It Works and for Whom
Doug Henwood
Verso
New York
1997

                                               *  *  *

There are two more topics to be addressed:  The need for
regulations and auditing.  Before doing so, I will take a bird’s
eye view of the financial crisis of 2008.  It will provide a
context for what I have said before, and what I will discuss
after.

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