Just one year ago the investment firm Lehman Brothers collapsed, kicking off a financial panic. CNN spent much of “American Morning” Sept. 14 arguing that nothing has changed to prevent another financial collapse and that Wall Street needs more regulation.
In multiple segments, including “Minding Your Business” with Christine Romans, the morning show’s anchors, reporters and guests urged heavier government regulation of financial industry. No one pointed out that certain regulations actually contributed to the monetary crisis.
Transitioning from a story about Serena Williams verbal tirade during the U.S. Open, Kiran Chetry launched the first Lehman story saying: “We all sat here a year ago – it was a year ago that Lehman Brothers collapsed – “
“Speaking of obscenities,” Romans interjected.
“Right, uh,” Chetry continued. “The federal government said, you know, ‘Let the chips fall where they may.’ After that we saw a lot of changes, but when we ask the question: ‘Are we better off today? Is the financial system healthier? Could this happen to us again?’ What’s the answer?”
Romans told Chetry, “There are many people who think it could happen again and that there are a lot of regulatory reforms that haven’t happened yet – that we haven’t got a handle on some of the risk taking that helped bring Wall Street to the brink.” In particular, Romans said the government needs to deal with companies being “too big to fail” and the “patchwork” of regulation that they are bound by.
Later in the program, John Roberts interviewed Fortune and Daily Beast contributor Bill Cohan, and Diane Swonk of Mesirow Financial.
Swonk criticized the legalization of credit-default swaps (CDS) saying, “Much of what we saw came from um, 100 years ago we outlawed many of the laws that allowed us to do exactly what we did in 2000 and this last ten years. That is, make side bets on Wall Street – so-called credit default swaps. Sort of a faux insurance policy where they really weren’t, um – we’re like taking Wall Street and legalizing gambling. And we outlawed that in 1907, um, and then re-legalized it in 2000.” Later in the program, CNN’s Alan Chernoff also likened Wall Street to a “casino.”
According to an article from Reason magazine that explored the regulatory aspects of the financial crisis, the “re-legalization” Swonk referred to was the Commodity Futures Modernization Act of 2000.
Reason’s Katherine Mangu-Ward actually quoted The Washington Post to explain that legalizing such derivatives did not cause of the crisis, [1]“but it may have exacerbated it.”
That article cited two regulatory actions that made the situation worse. One was a 2004 rule change by the Securities and Exchange Commission in which “commissioners took on a massive burden in 2004 without realizing they had signed up to safeguard the world’s financial system” The second was the 2007, Financial Accounting Standards Board’s “mark-to-market” accounting rules which forced companies to mark items on the books at whatever value they could be sold at on that day.