Bullish On Books

Published: Tuesday, 23 Jun 2009 | 1:12 PM ET

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In his newest book, The 86 Biggest Lies on Wall Street, John R Talbott answers my question first by writing, "I know what you're thinking, how was I able to narrow down the number of lies to just eighty-six."

Here are some samples from the "Biggest Lies on Wall Street"

• Going into the current crisis, the American economy was the strongest and most resilient in the world
• This was simply a subprime mortgage problem that no one could have foreseen
• Like the Great Depression, this is primarily a liquidity problem, and injecting cash into the system will solve it
• CEO pay is deserved because it is determined in a highly competitive market
• Excessive regulation is not needed in the financial markets because anyone who is harmed can seek redress in the courts
• Government regulation is bad for economic growth and prosperity

In The 86 Biggest Lies on Wall Street Talbott offers his prescription for our broken economic system, stating that we cannot have a real economic recovery without fundamental, structural reform of our financial systems.

Any bounce we are seeing now, he says, will backfire as the government's borrowing and spending is not going to get us out of this crisis.

Here is Talbott's list of reforms we really need:

1 - Clear restrictions need to be placed on commercial banks to prevent them from directly influencing or controlling Fed policy.

2 - FDIC-insured banks need to be highly regulated with regard to size, leverage, risk of assets (derivatives), and risk of business mix (Glass Steagall.)

3 – Banks should not be allowed to contribute money or otherwise lobby the government on issues related to broad financial reform: otherwise, no one can expect regulations to improve.

4 - The credit-default swap market must be closed: not because it’s poorly run, but because trading default risk makes companies too interconnected to fail, thus violating everything that capitalism is about.

5 - The hedge fund industry must be closed: its manipulation of markets and its reliance on insider trading makes markets both overly risky and unfair.

6 - Don’t reform rating agencies, eliminate them. No one in his or her right mind will believe in a 20 rating agency or buy pools of undecipherable assets from one ever again.

7 - Discourage over-diversification among investors: investors now hold too many asset types in too many countries for any one investor ever to evaluate or monitor.

8 - Require boards to be completely elected by shareholders through cumulative voting. No company insiders, including the CEO, should be allowed on the board.

9 - Eliminate complex financial products altogether. All mortgages should be thirty-year fixed-rate deals with down payments of at least 15%.

10 - Require complete transparency. 100% of a company’s positions should be disclosed on the Internet, and all losses should be fully and immediately recognized.

Photo by: Mike Jackey John Talbott

John R. Talbott is a former investment banker for Goldman Sachs and the author of seven books on economics and politics, including The Coming Crash of the Housing Market, Obamanomics, Contagion, and The 86 Biggest Lies on Wall Street.

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