What Really Lies Behind the Financial Crisis?
What was the true cause of the worst financial crisis the world has seen since the Great Depression?Was it excessive greed on Wall Street?Was it mark-to-market accounting?The answer is none of the above,says Jeremy Siegel,a professor of finance at Wharton.While these factors contributed to the crisis,they do not represent its most significant cause.
Jeremy Siegel,author of Stocks for the Long Run and The Future for Investors,provided a detailed analysis of the factors that fueled the worldwide financial meltdown in 2008.According to him:Financial firms bought,held and insured large quantities of risky,mortgage-related assets on borrowed money.The irony is that these financial giants had little need to hold these securities; they were already making enormous profits simply from creating,bundling and selling them.“During dot-com IPOs of the early 1990s,the firms that underwrote the stock offerings did not hold on to those stocks,”Siegel says.“They flipped them.But in the case of mortgage-backed securities,the financial firms decided these were good assets to hold.That was their fatal flaw.”
Explaining his theory further,Siegel pointed out that many troubled banks and insurers continued to prosper in almost every other aspect of their businesses right up to the 2008 meltdown.The exception was the billions of dollars in mortgage-backed securities that they bought and held on to or insured even after U.S.home prices went into a free-fall more than two years ago.American International Group(AIG),the insurer that received an $85 billion federal rescue package last September,is a prime example.Some 95% of its business units were profitable when the company collapsed.“AIG has 125,000 employees,”Siegel noted.“Basically,80 of them tanked the firm.It was the New Products Division,which had an office in London and a small branch office in Connecticut.They came up with the idea of insuring mortgage-backed assets,and nobody at the top decided it wasn’t a good idea.So they bet the house − and the company went under.”
According to Siegel,federal officials—particularly outgoing Treasury Secretary Henry Paulson— mishandled initial efforts to intervene in the crisis.For example,Paulson was concerned about the political backlash that might be unleashed by bailing out Lehman Brothers.He allowed the firm to collapse last September but underestimated the impact of Lehman’s demise on financial markets.Despite a $700 billion bailout,banks are still unwilling to extend credit,Siegel said.
In many important measures,the economy is not nearly as battered as it was during the early 1980s,when unemployment,inflation,and interest rates were all considerably higher than they are today.Stocks—as evaluated by their price-to-earnings ratios—are undervalued to the point where they could draw enough investors to spark a recovery before the end of 2009.“I’m actually an optimist,”said Siegel.“I think by the second half of this year,things might turn around faster than people are now predicting.”
While angry investors and taxpayers are anxiously looking to assign blame for the current state of the economy,it’s important to know not only which factors led to the meltdown,but which ones did not.He said that government programs encouraging home-buying by low-and middle-income families and short-selling of financial stocks—which was halted for a time last fall—have little to do with the crisis on Wall Street.
Instead,Siegel pointed to two interlocking issues:One is a massive failure,not only by traders,but by CEOs of financial firms,their risk management specialists and the major rating agencies to recognize that an unprecedented housing-price bubble began building after 2000.Their faulty reasoning was that the inability of homeowners to pay their mortgages—and the consequent foreclosures—would not pose a threat to their mortgage-backed securities.They believed that as long as home prices kept rising,the underlying value of the real estate would provide a hedge against the risk of such defaults.They failed to realize that this reasoning was based on the assumption that home prices would go in just one direction—up.In fact,these assets became enormously risky once the housing bubble burst and home prices began their inevitable decline.
Siegel also argued that ultimately,the buck stops with corporate CEOs who didn’t ask hard enough questions about the risks posed by mortgage-backed assets.He said he and others have wondered why firms like Lehman Brothers,Bear Stearns and Morgan Stanley—which survived the much more severe Great Depression of the 1930s—collapsed during 2008.One reason,he suggested,might be that,back then,these firms were organized as partnerships.In such an organizational structure,the partners would have to risk their own capital.When the partnerships were reorganized as widely held public companies,however,they no longer had such constraints.“Back when it was a partnership,you had your life invested in that company,”said Siegel,noting that banks also began making higher-return but higher-risk investments in recent years as public ownership increased.
One other key player that Siegel criticized for not heading off the collapse of the mortgage-backed securities is former Federal Reserve chairman Alan Greenspan,who oversaw the government’s central bank until 2006.Greenspan was so influential while he oversaw the Fed that he could have easily blown the whistle on the over-accumulation of mortgage-backed assets by the U.S.-based financial giants.He,however,failed to discover that firms were taking such large,risky individual stakes without protecting themselves against a housing market collapse.“[Greenspan was] the greatest central banker in history—he had access to every piece of data,”Siegel said.“He could have looked at the balance sheets of Morgan Stanley or Citigroup and said,‘Oh my God—they didn’t neutralize their risk.’”
Another reason why federal officials and economists failed to detect the perilous economic risks of the 2000s,Siegel said,is the so-called“Great Moderation.”This term refers to the fact that since the 1980s,the volatility of the business cycle has declined,thanks to more aggressive fiscal policy and the rise of a service-based economy,among other factors.Siegel noted that a similar flattening of the economic cycles had occurred during the 1920s after the 1913 establishment of the Federal Reserve Bank,a factor that caused stock investors to ignore risks,which eventually led to the stock market crash of 1929 and the Great Depression.
“People asked,‘Are we ever going to have a big recession again?’”Siegel said of today’s policy makers.“Everybody thought we were in a new stage and risk premiums didn’t need to be so high.”But those risks hit home in 2008.While it would have been difficult for federal regulators to save Lehman Brothers—which had invested billions of dollars in assets related to subprime mortgages—even if they had acted six months sooner,the fall of the 158-year-old financial house had a disastrous impact on the wider financial market.Lehman Brothers was connected to 950,000 or so transactions.As a result,bankers became gun-shy about making any type of loan,even to companies with a flawless credit history.
(Source:http://knowledge.wharton.upenn.edu/article.cfm?articleid=2148)
Task 1:Reading Comprehension Questions
The following questions are asked based on the above article.Please go back to the article and find the answers.
1.What was the fatal error made by financial institutions according to Jeremy Siegel?
2.How did The American International Group get into trouble?
3.Why was Henry Paulson blamed?
4.Why was Siegel optimistic about a quick economic recovery?
5.What factors did Siegel point out that had led to the subprime crisis?
6.What was the misconception about the housing boom held by financial firms?
7.What was the major cause of the collapse of Lehman Brothers and Bear Stearns according to Siegel?
8.Why was Alan Greenspan blamed?
9.Why did economist fail to detect economic risks of the 2000s?
10.What impact did the failure of Lehman Brothers have on banks?
Task 2:Paraphrasing
Explain in English the underlined words and expressions in the context of the above article.
1.What was the true cause of the worst financial crisis the world has seen since the Great Depression?Was it excessive greed on Wall Street?Was it mark-to-market accounting?
2.“During dot-com IPOs of the early 1990s,the firms that underwrote the stock offerings did not hold on to those stocks,”Siegel says.“They flipped them.But in the case of mortgage-backed securities,the financial firms decided these were good assets to hold.That was their fatal flaw.”
3.Paulson was concerned about the political backlash that might be unleashed by bailing out Lehman Brothers.He allowed the firm to collapse last September but underestimated the impact of Lehman’s demise on financial markets.
4.Stocks—as evaluated by their price-to-earnings ratios—are undervalued to the point where they could draw enough investors to spark a recovery before the end of 2009.
5.Government programs encouraging home-buying by low-and middle-income families and shortselling of financial stocks—which was halted for a time last fall—have little to do with the crisis on Wall Street.
6.Siegel pointed to two interlocking issues:One is a massive failure,not only by traders,but by CEOs of financial firms,their risk management specialists and the major rating agencies to recognize that an unprecedented housing-price bubble began building after 2000.
7.Their faulty reasoning was that the inability of homeowners to pay their mortgages—and the consequent foreclosures—would not pose a threat to their mortgage-backed securities.
8.They believed that as long as home prices kept rising,the underlying value of the real estate would provide a hedge against the risk of such defaults.
9.“[Greenspan was] the greatest central banker in history—he had access to every piece of data,”Siegel said.“He could have looked at the balance sheets of Morgan Stanley or Citigroup and said,‘Oh my God—they didn’t neutralize their risk.’”
10.As a result,bankers became gun-shy about making any type of loan,even to companies with a flawless credit history.
Task 3:Translation
Read the article again and translate it into Chinese.
阅读文章参考译文：
金融危机的根本原因究竟是什么？
自20世纪的“经济大萧条”以来，全球见证了2008年这场最严重的金融危机。然而，这场危机的根本原因到底是什么？是华尔街的过度贪婪吗？是市值计价会计法吗？沃顿商学院金融学教授杰里米·西格尔认为，这两者都不是。虽然二者都起到推波助澜的作用，但它们却不是危机的真凶。
杰里米·西格尔出版了《股市长期投资》和《投资者的未来》两本专著，对引发2008年这场全球性金融灾难的诸多因素进行了详尽分析。他认为最主要的因素是，金融机构购买、持有并承保了大量的高风险、与抵押贷款相关的资产，而这些资产原本就是以借贷资金购置的。具有讽刺意味的是，这些金融巨头根本没有必要持有这些证券，单凭他们制造、打包并销售这些证券，就已经赚得盆满钵满。西格尔说：“在二十世纪九十年代初期，当网络公司挂牌上市时，承销商并不持有那些股票，而是赶紧脱手。但是，面对抵押担保证券，金融机构却认为，这些证券是优质资产，值得持有。这就是它们致命的错误。”
为了进一步阐明自己的观点，西格尔指出，直到2008年大崩溃之前，很多有问题的银行和保险公司，几乎在所有的业务上一直生意兴隆。唯一的例外是，两年多以前当美国房价暴跌，它们依然还在购买、持有或承保价值数百亿美元的抵押担保证券。去年九月，保险公司巨头美国国际集团，获得了850亿美元的一揽子联邦救助资金，这就是一个最好的例证。当这家公司垮塌时，约有95%的业务部门依然是盈利的。“美国国际集团雇用12.5万名员工。”西格尔指出。“从根本上说，搅黄公司的是其中的80人，那就是新产品事业部。这个部门的总部设在伦敦，在康涅狄格州有一个小分支机构。他们提出了为抵押贷款资产保险的想法，而公司高层却无人对此提出异议。所以，他们把赌注压在了房产上，最终导致公司破产。”
西格尔认为，联邦政府官员，尤其是即将卸任的财政部部长亨利·鲍尔森，在初期干预这场危机的时候处理不当。比如，鲍尔森担心，如果救助雷曼兄弟公司，可能会导致政治上的强烈对抗。所以，去年九月，他听任了雷曼兄弟走向灭亡，却低估了这家公司的破产给金融市场带来的影响。西格尔说，尽管政府拿出了7千亿美元的救助资金，银行现在也不愿提供信用贷款。
我们以多项重要指标来衡量，发现目前的经济所受到的冲击，并没有二十世纪八十年代初那么严重，当时的失业率、通货膨胀率以及利率都远远高于当下的水平。按市盈率计算，股票现在被大幅低估，因此应该能吸引足够多的投资者入市，预计在2009年年底之前会出现回暖。“我实际上是个乐观主义者。”西格尔称，“我认为今年下半年，形势扭转的速度可能会比人们预期的要快。”
当愤怒的投资者和纳税人正在迫切寻找造成目前这种经济状态的罪魁祸首时，我们一定要厘清哪些因素导致了这场危机，哪些因素与这场危机毫不相干。西格尔说，政府鼓励中低收入家庭购房的计划，以及卖空金融股票（这一行为在去年秋季曾一度终止），这些与华尔街爆发的危机没有瓜葛。
西格尔指出，重要的原因在于两个相互关联的问题。第一个问题是，不仅是交易者，而且也包括金融机构的首席执行官、风险管理专家以及主要的信用等级评级机构，他们都没有认识到从2000年开始，一场史无前例的房价泡沫正在形成，这是一个重大的失误。他们错误地以为，房主无力偿付抵押贷款并由此带来的房屋止赎，并不会对他们持有的抵押担保证券构成威胁。他们以为，只要房价不断上涨，房产的标的价值就能对冲掉这类还贷违约的风险。他们没有意识到，这种推理是建立在一个假想的基础上，即房价只会一路走高。事实上，一旦房地产泡沫破裂，房价就势必开始下跌，这些资产就会变得风险极高。
西格尔还指出，最终的责任归咎于公司的首席执行官，因为他们没有严肃拷问抵押贷款资产带来的风险。他谈到，他和其他人都感到纳闷，为什么像雷曼兄弟、贝尔斯登和摩根斯坦利这样的大公司，能挺过二十世纪三十年代情况更为严重的“大萧条”，却在2008年的小阴沟翻了船。他认为可能的原因之一是：在过去这些企业都采用合伙制。在这种组织架构中，合伙人必须拿自己的钱去冒险。但是，一旦合伙企业华丽转身成上市公司之后，这些约束荡然无存。西格尔说：“当年是合伙制时，你的身家性命全投进了公司。”他还说，随着近年来新股上市公司的增多，银行便开始投资回报高但风险更高的股市。
西格尔批评的另一个关键人物，是美联储前主席艾伦·格林斯潘。虽然他监管政府央行直到2006年，但却未能阻止这次抵押贷款证券的崩盘。在格林斯潘主持美联储期间，他的影响力非凡，完全可以轻松制止美国的金融巨头持有过量的抵押担保资产。然而，他却没有发现，这些金融机构在持有如此庞大数量的高风险股票时，却没有预设房地产市场崩盘的自我保护措施。“［格林斯潘］是历史上最有权势的中央银行行长，他可以获取所有的数据。”西格尔说，“他本应仔细看看摩根斯坦利或花旗集团的资产负债表，然后会惊呼：‘啊，我的上帝！他们根本没有防范风险的措施！’”
西格尔指出，联邦官员和经济学家之所以没有察觉二十一世纪乱象丛生的经济风险，是因为所谓的“大稳健时期”。该术语是指自二十世纪八十年代以来，由于积极的财政政策和服务型经济的崛起等因素，经济周期的波动性趋于平缓。西格尔注意到，1913年成立美国联邦储备银行之后，二十世纪二十年代的经济周期同样也曾趋于平缓，由此造成了股民无视风险，最终导致了1929年的股市大崩盘和经济“大萧条”。
“有人问：‘我们还会再经历大衰退吗？’”西格尔针对当前的决策者说：“所有人都认为，我们已经进入了一个全新的时代，而风险溢价不必如此太高。”但是，这类风险在2008年就给了我们沉重的一击。虽然联邦政府要救助雷曼兄弟困难重重，因为该公司在次贷资产上投资高达数百亿美元，即使政府提早六个月采取行动，也难以阻止这家经营了158年的金融机构的倒闭。雷曼兄弟的破产给整个金融市场带来了灾难性的影响，因为与雷曼兄弟有关联的业务就达95万笔之多。结果是，现在各家银行对任何种类的贷款，都变得风声鹤唳，哪怕是面对那些没有任何信用污点历史的公司，也是谨小慎微。