Bailout bill a Band-Aid on gushing wound

September 29, 8:11 AMPolitical Issues ExaminerJudah Freed

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While Congress moves toward finalizing the banking industry bailout bill, our leaders apparently are still missing the main cause of the current financial crisis. Consequently, the bailout as now proposed may not fundamentally improve the situation long term.

The financial crisis is blamed on sub-prime mortgage loans to unqualified home buyers, but the real source of the crisis is gambling on "derivatives."

The speculative financial securities derived from bundled sub-prime mortgages gambled that real estate prices would keep rising forever. The corruption inbred by that wishful thinking, that irrational fantasy, is the cause of the crisis more than anything else.

Once the foreclosures began to rise on the unsustainable mortgages, the bubble popped. All these complex derivatives (designed by math wizards) suddenly lost their market value. All the financial companies holding these suddenly worthless investment instruments, to be polite, suddenly lost their bets,

Gambling on derivatives and falsifying accounting records are what together brought down energy giant Enron. Gambling on derivatives and falsifying accounting records are now bringing down the giants of high finance.

Meanwhile, Democrats and Republicans are now debating whether or not the U.S. government should buy the bad debts (based on derivatives) to prop up Wall Street and avert a total financial collapse. The real focus of the debate instead should be banning derivatives completely. At minimum, we should be debating how these derivatives can be regulated so reliably that Wall Street will never be able to build a house of cards like this again.

I've yet to hear or read any news reports that these often-fraudulent financial instruments are being banned or heavily regulated. If I've missed these reports, please post a link in the comments below.

Unless we stop the financial hemorrhaging from derivatives, if you'll pardon the graphic analogy, we'll just be putting a Band-Aid on a gushing wound to the nation's primary fiscal artery as our lifeblood rapidly drains away.
 

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