Independent Investigative Journalism Since 1995

donate.jpg (7556 bytes)
Make a secure online contribution
Go to to post comments

Get email updates:

RSS Feed
Add to My Yahoo!
Add to Google

contactContact Us

Order Now


Age of Obama
Barack Obama's presidency

Bush End Game
George W. Bush's presidency since 2007

Bush - Second Term
George W. Bush's presidency from 2005-06

Bush - First Term
George W. Bush's presidency, 2000-04

Who Is Bob Gates?
The secret world of Defense Secretary Gates

2004 Campaign
Bush Bests Kerry

Behind Colin Powell's Legend
Gauging Powell's reputation.

The 2000 Campaign
Recounting the controversial campaign.

Media Crisis
Is the national media a danger to democracy?

The Clinton Scandals
Behind President Clinton's impeachment.

Nazi Echo
Pinochet & Other Characters.

The Dark Side of Rev. Moon
Rev. Sun Myung Moon and American politics.

Contra Crack
Contra drug stories uncovered

Lost History
America's tainted historical record

The October Surprise "X-Files"
The 1980 election scandal exposed.

From free trade to the Kosovo crisis.

Other Investigative Stories



A Global Margin Call

By Brent Budowsky
January 18, 2009

The world is facing a global margin call.

In a margin call, traders must put up a percentage of cash, which is leveraged against the value of assets they trade. When asset value declines, they are forced to put up more cash to meet margin requirements.

These margin calls create a downward spiral in markets. Selling begets selling; asset values decline further. More forced selling follows. The spiral cascades.

When banks buy, sell and trade often-indecipherable financial instruments, often using heavily leveraged borrowed money, and the value of those assets decline, the banks essentially face margin calls.

Treasury Secretary Henry Paulson, who has acted like an agent for the banks, should be drawn and quartered for not demanding full disclosure of liabilities and not demanding assurances that the money would be used as intended.

Now Paulson wants to use taxpayer money to subsidize Bank of America, whose management originally claimed it did not need federal money, to buy Merrill Lynch, whose management has been lavishly compensated based on the falsehood that they had managed their business well.

Perhaps this is necessary. Perhaps not. The point is that both Bank of America and Merrill Lynch have greater problems than have been disclosed. Taxpayer money has been been used far less effectively than has been promised. Future taxpayer support will be greater than has been discussed.

Let’s be honest. The banks are not alone. Consumer debt, corporate debt, budget deficits have all skyrocketed. Even today, banks, investment houses, traders, hedge funds and speculators play markets with heavily margined accounts, using borrowed money with assets of declining value, forcing this global margin call to cascade.

While banks foreclose homeowners, markets threaten foreclosure of banks.
We must urgently build firewalls against these cascading calls of debt. As I have argued in this column since 2007, we must freeze foreclosures now, which is one action that can be effectuated promptly to limit the cascade and restore confidence.

We must impose aggressive limits on all forms of margin trading and investing. We must end the era of speculation financed by huge debt, which is a central cause of this global wave of margin calls.

We must return to a first principle of finance where real assets are bought with real money. We must return to a first principle of management where CEOs understand the assets they are buying and leaders understand the actions they are taking.

We must demand full, honest accounting of the exact condition of banks so we don’t keep wasting money on what are essentially short-term margin calls that help neither taxpayers nor banks solve the real problem.

We must understand that the problem is a global margin call. Once we do, we can build the proper firewalls, halt the slide and set the stage for the great recovery that will begin once we realize the nature of the crisis and end it.

Brent Budowsky was an aide to Sen. Lloyd Bentsen and to Rep. Bill Alexander, then the chief deputy whip of the House. He can be read in The Hill newspaper, where he is a columnist. He can be reached at [email protected].


homeBack to Home Page is a product of The Consortium for Independent Journalism, Inc., a non-profit organization that relies on donations from its readers to produce these stories and keep alive this Web publication.

To contribute, click here. To contact CIJ, click here.