This seemingly innocuous power point slide from the Securities and Exchange Commission (SEC) was used in June of 2004 to explain to market participants a new ruling on how broker dealers could compute their “net capital”. Instead of the previous fixed limits on leverage of 10:1, broker dealers like Lehman Brothers could use their own “internal models” to determine how much leverage they could put on their capital. As we saw with the crash of Bear Stearns and now Lehman Bros., both firms were leveraged more than 30:1.
When you combine this ridiculous willingness to let broker dealers determine their own leverage with the decision three years later to alter the short selling rules to make it easier to short a stock, you have a recipe for financial chaos. These are both Bush administration SEC moves. They stem from a idealogical hatred of regulation. They cannot be blamed on Democrats. This needs to be stated clearly by Obama and Biden.