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The Financial Crisis: Who's to Blame?

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The Federal Reserve plans to spend $700 billion (adding to our current $10.6 trillion deficit) to buy up mortgage-related debt from our ailing banks so the banks will be able to lend again. Credit is, after all, what America runs on. As Fed Chairman Ben Bernanke put it, this plan is "the last wrench in the toolbox" to fix our financial crisis. But how did we get here? Here's where the blame game leads us"¦

Alan Greenspan
He had interest rates too low for too long, which resulted in the housing bubble. But what is too low too long? I don't blame Greenspan, though he did push subprime lending, lauding the "innovation and structural change in the financial services industry "¦ critical in providing expanded access to credit for the vast majority of consumers, including those of limited means."

Consolidated Supervised Entities Program
In 2004 the SEC changed the rules under which banks with at least $5 billion of capital calculate their gross leverage ratios. It basically raised the leverage ratio to 30, from about half that. A leverage ratio measures the amount of debt a company has compared to its total capital. A leverage ratio of 30 means that 30% of a bank's total capital is debt. The banks could take on more debt, which was good when times were good because it allowed them to make more transactions. However, high levels of debt means it takes only a small decline in the value of the firm for the bank to go bankrupt.
Five investment banks fell under the program: Goldman, Merrill, Lehman, Bear, and Morgan Stanley. It is noted that at the time of decline, Merrill had a leverage ratio of about 40, Lehman of 36.

Goodbye, Uptick Rule
In 2007, the SEC eliminated the "uptick rule," which prohibited sellers from shorting a share when the stock was selling for lower than the previous trade. This rule was instituted after the Crash of 1929, as shorting was alleged to be the culprit of the crash. After research and assessment of the rule, the SEC suggested the uptick didn't matter and lifted the ban. Now, shorting has been blamed for today's crisis and has been put on a temporary ban.

Hedge Funds
Hedge funds aren't as highly levered as investment banks, but they do a lot of shorting. Perhaps their ubiquity spurred the financial decline. They'll pay whether or not that is the case. About 90% of hedge funds are currently losing money and that's sure to increase with the advent of the short selling ban.

Ratings Agencies
It's not the Fed's job to allocate or assess risk, so we can't truly blame Greenspan. But the job is someone's responsibility. Whose? The ratings agencies, these government sanction oligopolies like Moody's, S&P, and Fitch. See, the ratings agencies slapped high ratings on all of the Mortgage Backed Securities. An MBS is a bundle of a bunch of loans, some dodgy, some not, that are all rolled into one tradable security, like a stock. The Ratings Agencies rate all securities based on their level of risk. Again, the ratings are a lot like school grades: A good, B okay/bad, C junk. The Ratings Agencies aren't regulated by the SEC, and so were not really watched throughout this whole game. So they were able to slap high ratings on risky MBS' last year, and then downgrade AIG last week, putting the onus of bailing them out on you and me.

sec.jpgThe SEC
The SEC was created in 1933 to protect small investors against securities fraud. It doesn't have robust oversight over all financial entities, ratings agencies included, and is not really equipped for our financial world.

The Deregulatory Financial Modernization Act of 1999
In 1933, Congress established a set of banking regulations under the Glass Steagall Act. Thinking commercial banks (ones that take deposits from everyday citizens) caused the Crash of 1929, the act separated the commercial banks and the investment banks. This way investment banks would take on risky investments, and commercial banks could protect its members by not doing that. Before 1933, there were few investment banks and the Glass Steagall Act spurred Wall Street as we know (ahem, I mean knew) it.

The Glass Steagall Act was repealed, however, in 1999 under the Deregulatory Financial Modernization (Gramm-Leach-Bliley Act) Act. This allowed the commercial banks to take on the same risky bets that investment banks did. A commercial bank (one that sells to you and me, like Citigroup or WaMU) could trade Mortgage Backed Securities, Collateralized Debt Obligations, and other Structured Investment Vehicles. So basically, it allowed the guys that are usually safe and who hold my life savings to take on risky investments and get all mixed up in the mess too.

The Glass Steagall Act of 1933
Or you could blame the Glass Steagall Act of 1933 (mentioned above) itself, for really creating the stand alone investment bank in the US.

Be sure to read more of what Diana learned today here.

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Food
Let Alexa Help You Brine a Turkey This Thanksgiving
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There’s a reason most of us only cook turkey once a year: The bird is notoriously easy to overcook. You could rely on gravy and cranberry sauce to salvage your dried-out turkey this Thanksgiving, or you could follow cooking advice from the experts.

Brining a turkey is the best way to guarantee it retains its moisture after hours in the oven. The process is also time-consuming, so do yourself a favor this year and let Alexa be your sous chef.

“Morton Brine Time” is a new skill from the cloud-based home assistant. If you own an Amazon Echo you can download it for free by going online or by asking Alexa to enable it. Once it’s set up, start asking Alexa for brining tips and step-by-step recipes customized to the size of your turkey. Two recipes were developed by Richard Blais, the celebrity chef and restaurateur best known for his Top Chef win and Food Network appearances.

Whether you go for a wet brine (soaking your turkey in water, salt, sugar, and spices) or a dry one (just salt and spices), the process isn’t as intimidating as it sounds. And the knowledge that your bird will come out succulent and juicy will definitely take some stress out of the holiday.

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Big Questions
Why Do the Lions and Cowboys Always Play on Thanksgiving?
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Because it's tradition! But how did this tradition begin?

Every year since 1934, the Detroit Lions have taken the field for a Thanksgiving game, no matter how bad their record has been. It all goes back to when the Lions were still a fairly young franchise. The team started in 1929 in Portsmouth, Ohio, as the Spartans. Portsmouth, while surely a lovely town, wasn't quite big enough to support a pro team in the young NFL. Detroit radio station owner George A. Richards bought the Spartans and moved the team to Detroit in 1934.

Although Richards's new squad was a solid team, they were playing second fiddle in Detroit to the Hank Greenberg-led Tigers, who had gone 101-53 to win the 1934 American League Pennant. In the early weeks of the 1934 season, the biggest crowd the Lions could draw for a game was a relatively paltry 15,000. Desperate for a marketing trick to get Detroit excited about its fledgling football franchise, Richards hit on the idea of playing a game on Thanksgiving. Since Richards's WJR was one of the bigger radio stations in the country, he had considerable clout with his network and convinced NBC to broadcast a Thanksgiving game on 94 stations nationwide.

The move worked brilliantly. The undefeated Chicago Bears rolled into town as defending NFL champions, and since the Lions had only one loss, the winner of the first Thanksgiving game would take the NFL's Western Division. The Lions not only sold out their 26,000-seat stadium, they also had to turn fans away at the gate. Even though the juggernaut Bears won that game, the tradition took hold, and the Lions have been playing on Thanksgiving ever since.

This year, the Lions host the Minnesota Vikings.

HOW 'BOUT THEM COWBOYS?


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The Cowboys, too, jumped on the opportunity to play on Thanksgiving as an extra little bump for their popularity. When the chance to take the field on Thanksgiving arose in 1966, it might not have been a huge benefit for the Cowboys. Sure, the Lions had filled their stadium for their Thanksgiving games, but that was no assurance that Texans would warm to holiday football so quickly.

Cowboys general manager Tex Schramm, though, was something of a marketing genius; among his other achievements was the creation of the Dallas Cowboys Cheerleaders.

Schramm saw the Thanksgiving Day game as a great way to get the team some national publicity even as it struggled under young head coach Tom Landry. Schramm signed the Cowboys up for the game even though the NFL was worried that the fans might just not show up—the league guaranteed the team a certain gate revenue in case nobody bought tickets. But the fans showed up in droves, and the team broke its attendance record as 80,259 crammed into the Cotton Bowl. The Cowboys beat the Cleveland Browns 26-14 that day, and a second Thanksgiving pigskin tradition caught hold. Since 1966, the Cowboys have missed having Thanksgiving games only twice.

Dallas will take on the Los Angeles Chargers on Thursday.

WHAT'S WITH THE NIGHT GAME?


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In 2006, because 6-plus hours of holiday football was not sufficient, the NFL added a third game to the Thanksgiving lineup. This game is not assigned to a specific franchise—this year, the Washington Redskins will welcome the New York Giants.

Re-running this 2008 article a few days before the games is our Thanksgiving tradition.

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