After devoting over 20 years to financial planning, I am convinced that government oversight is required in the banking, investment, and insurance industries.
I understand that many people think our government should be less involved in our lives (i.e., they want a smaller government), but it just doesn’t work in the world of finance. Greed is the driver when money is involved, and we have plenty of examples to learn from in recent history.
2022
In mid-November, we watched FTX — one of the world’s largest crypto exchange platforms—implode and file for bankruptcy. Initial reports suggested the collapse was caused by Sam Bankman-Fried (CEO of FTX) transferring billions of dollars from customer assets at FTX to his crypto hedge fund, Alameda Research. Additional factors were later identified. In late November, crypto lender BlockFi filed for bankruptcy, and it is too soon to predict how widespread the economic damage will be.
I never recommended Bitcoin or cryptocurrencies to any of my clients, and I would never invest in them myself. The risk is too high for my conservative investment philosophy. However, I know several people (even financial advisers) who have invested. Cryptocurrencies are digital assets, and many early investors reveled in the fact that there was limited oversight by U.S. or global authorities.
The FTX collapse is being compared to the 2008 bankruptcy of investment bank Lehman Brothers, which was a major factor in the 2008 financial crisis. Let’s review the factors that almost brought down the U.S. and global economies. A lack of oversight was definitely involved.
2008
In approximately 2005, the mortgage industry began encouraging people to buy larger houses than they could afford — with hefty mortgages. The old rule of thumb to not spend over 30% of a person’s gross income on…
