Senator Dodd wants investigation agains Lehman Brothers

Senator Chris Dodd, the chairperson of the Senate Banking Committee wants the Department of Justice to step up its investigations against Lehman Brothers so that the culprits – whether employees or other firms, can be prosecuted. Dodd pressed his point in a letter addressed to Attorney General Eric Holder.

The court appointed examiner who researched the matter of Lehman has concluded that the bank had used a controversial accounting tool to fudge the balance sheet and made it look healthier than what it really was.

Earlier this year the chairperson of the Federal Reserve Ben Bernanke had made similar statements in a speech. He had said last January that “the increasing use of more exotic types of mortgages and the associated decline of underwriting standards” was the prime cause for the housing bubble; it was not because of low rates of interest.

The argument goes round and round. However the Federal Reserve alone cannot be blamed for the economic crisis. The gluttonous banks and mortgage lenders together with lenders who only focused on short term quick gains were equally to blame. They turned a blind eye to the risks involved by giving loans to borrowers who lacked the credentials to run the loans.

Long term rates remained low and sometimes even dropped after the Fed finally began to tighten its belt from 2004 summer. This led to the notorious bond ‘conundrum’ that Greenspan rued. But it is difficult to understand how long-term rates of bonds and mortgages could have fallen to such levels if the short term rates were not so low for such a long period of time at the start

John Norris of Oakworth Capital Bank in Birmingham, Alaska said, “The Fed wasn’t the sole culprit. But if not for an artificially steep yield curve, we probably would not have had a global financial crisis. The Fed wasn’t the sole culprit. But if not for an artificially steep yield curve, we probably would not have had a global financial crisis. If you give bankers an inducement to lend more than they ordinarily would they are going to do so.”

Greenspan had argued that a quick boost to the short-term interest would in all probability done nothing to stop the hysteria in the housing sector, that led to a lot of foreclosures. He argued that if the Feds had increased the rates it could have led to a greater economic crisis.

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