Musings on Structural Challenges to the Financial System
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I read my article from Naked Capitalism entitled “Musings on Structural Challenges to the Financial System” posted by Yves Smith. This article blames securitization as the main reason why the banks of today are such in a mess. The author starts off with how the current system of the banks is bothering him and how it reminds him of the Great Depression. According to Smith finance was different if you go back to 1980. In his opinion outside of New York City and MBA programs no one knew what an investment banker was. Banks were affected by being disintermediated which is when funds from banks are withdrawn and invested in other things that will yield a higher return. Smith says the following “Much of sound banking credit processes has been replaced by sophistry” this is show there was shady practices by these financial institutions.
One line that sums up the whole article is the following:” And securitization was and remains the epicenter of the crisis”.
From what I understand the author uses the factor of investment banks and regular banks to prove a point. The fact that he mentions banks was different as to going back to 1980. Then there is shift. What I’m wondering is if the rise of investment banks caused the trouble throughout the article its mention overtly and also in a subtle. At the end of the article refers to the Great Depression and says “And I worry that like the Depression , we will have to see it break down completely before we can start to rework it ins significant ways” The author seems to think with securitization and negligence he feels the financial system break down will take time to rework.
Dhanha Bien-Aime
