What went wrong? CEOs trusted their old boys network too much. They took too wrong to fix their problems. It is easy to blame them. These are pretty smart guys.... Without getting into technicals, I would like to be political here.
I blame Christopher Cox, the chairman of SEC. He was appointed by Bush. Cox deregulated as much as he could and made SEC business friendly.
What happened to Bear, LEH, and what's happening to GS and MS now are also cause by themselves.
Cox removed the uptick rule in July 2007, and let naked short sellers go wild. Big boys wanted such freedom in the market place so they could take down their targets like Tony Soprano. But, what goes around comes around, they became victims of their creation. a play ground for short sellers. Now shorts are killing them.
Financial institutions are easy targets for short sellers. This is how it works.
When a stock price declines rapidly, rating agencies put them on a watch list requesting the company to raise capital. In this environment, it is very difficult to raise capital, so they go into liquidity crisis. The rating agencies downgrade them, it will be even harder to raise capital.... So, once a bank becomes are target, there is no way out.
Short sellers are necessary in order to maintain liquidity in the market, but in today's market shorts are empowered. This is what caused the Great Depression.
I don't feel bad for 3 big boys who went down, but I cannot emphasize enough that Cox had a big role in this meltdown.
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