YOUR LETTERS

In Thursday's DB Mr. Fleming expresses uncertainty as to the cause of the present financial market debacle. Then Mr. Lillico offers one explanation. May I offer a clarification, with the caveat that it does not do justice to the complexity of the problem. Everything Mr. Lillico writes is correct. But he is accurately describing the tail of an elephant. The tail did not bring down, Northern Rock, Bear Stearns, Merrill Lynch, AIG, Solomon, etc. Mortgage defaults, while high, are manageable. Hyper leveraged speculation destroyed the behemoth financial companies. There have been reports that they were betting 60 to 1 money on Wall Street. It was far worse in the City. Tony Blair allowed casino operators to print money as did Alan Greenspan. When a single securities trader Mr. Leeson was in a position to put Baring Brothers under the British government should have rewritten the safeguards under which the City operates. Mr. Blair did nothing. At no point did the unworthily lauded former Fed chairman raise the margin rate in the real estate bubble or the dot.com boom. The two captains were conspicuously absent from the bridge while the ships careened towards each other.

The expansion of the money supply via reckless credit pumped up real estate prices, not under funded home purchases by the poor. Inflation is the result of printing money, not of the act of tossing a few small coins to those at the bottom of the economic pyramid. Government meddling in the mortgage market created banking short falls, but it did not inflate the currency. Irrational leveraged speculation did that. On the American side of the pond if John McCain or Barack Obama wants to offer a useful, understandable program it should contain the following:

Bring back Glass-Steagal which separated banking from investment banking;

Impose strict margin requirements on all trading;

Prosecute for fraud all those whose reckless gambling in contravention of prudent asset management obligations made this crisis.

Both Mr. Brown and Mr. Cameron should consider a similar program. It would not only be good politics but it would be sound economic policy.
Furthermore, this means confiscating ill gotten gains with interest. The closest that someone like Fuld of Lehman Brothers should ever be allowed to get to money is a janitor's job sweeping up after honest, prudent men. He and his ilk should be reduced to janitorial positions and, then, public housing in their old age. Crime, greed and stupidity should never be rewarded. These men do not deserve golden parachutes, nooses would be more appropriate. They have wrecked the lives of millions, they merit the same.

Ralph McGaughey
Boston, MA USA