Posted on 02/02/2009 12:41:18 AM PST by Tempest
The basic story line so far is that we are all to blame, including homeowners who bit off more than they could chew, lenders who wrote absurd adjustable-rate mortgages, and greedy investment bankers.
Credit derivatives also figure heavily in the plot. Apologists say that these became so complicated that even Wall Street couldn't understand them and that they created "an unacceptable level of risk." Then these blowhards tell us that the bailout will pump hundreds of billions of dollars into the credit arteries and save the patient, which is the world's financial system. It will take time—maybe a year or so—but if everyone hangs in there, we'll be all right. No structural damage has been done, and all's well that ends well.
Sorry, but that's drivel. In fact, what we are living through is the worst financial scandal in history. It dwarfs 1929, Ponzi's scheme, Teapot Dome, the South Sea Bubble, tulip bulbs, you name it. Bernie Madoff? He's peanuts.
(Excerpt) Read more at villagevoice.com ...
The reason AIG was bailed out is that they provided the insurance for many of the bad loans....at least that it was one of the reasons
Personally, I would have let AIG crumble....bailout didnt help much as now they are asking for more money
” Notoriously lax and understaffed, the SEC did nothing to limit investment banks that bundled, pitched, and puffed non-prime mortgages as the raters cheered.”
I think the above line from the article, substantiates what you are saying. The sub-prime loans were the largest part of the problem. The author seems to want to gloss it over. It was still a quite informative article, fingering a large number of crooks in all administrations.
That website is trashy.
...and leave them hanging...
My exact thought. It may not cure the problem totally, but it sure would help.
I agree. The real problem is a lack of transparency with the derivatives, and a non-functioning market that makes the underlying assets difficult to price. Once all the derivatives are netted out, the big scary numbers go away.
Allowing AIG to crumble would have led to a full on collapse. They're something of a linchpin in this whole mess.
They'll be asking for more money, and they'll get it, so long as the money is there to give, imho.
Is this "right?" In an ideal world, no it isn't. Do you want to lose your retirement, your savings, all value in your home and most likely your job? That's how bad it could get.
We allowed Lehman to go under, and that had us literally hours away from a banking collapse. We're sort of stuck helping some of these @-holes.
Jeb Bush had no business letting that hurricane get past Florida in the first place!
There may be usable information in the article, d/o the writer one supposes, but remember than any article or quote from the Village Voice needs a barf alert on g.p. Those guys are usually so hoarse from screaming liberal shibboleths and indulging their cultural proclivities that their message is a little scratchy and incoherent with radical gay rage at the best of times.
The best that can be said about the V.V. is that they have reaped heavily the flattery of imitation: The Village Voice is the Soho birdcage liner that Pinchy Sulzberger would like The New York Times to become.
The Village Voice certainly has a POV on rhe cause of the global financial problems but I seriously doubt the VV will offer anything that will be unbiased...what is the history of this Lawyer/Activist/Writer, James Lieber?
Ok, everyone on here has been all over the credit markets, etc. But this started with the price of oil driving up the costs of food. Everyone started cutting back as evidenced by the gov’t bean counters who track miles. People began to cut back on non- essential spending, at first, only a little. Housing prices were too high because of the over- priced market and easy credit. This was a two- fold event. The rates went up after oil prices, as I recall. I could be wrong, my memory isn’t what it used to be.
Anyway, all in all, this is evidence to the people that the government rewards those fat cats who needed a bailout. More money to people who weren’t doing their jobs to begin with. The credit industry and the oil industry. Drill here! Drill now! D@mn the costs! (the oil industry made such a profit, which is ok with me, but now they whine that drilling offshore is just not worth the costs. Not a very patriotic industry!)
When the price of gas went up here last week, everyone panicked. Immediately they recalled the $5 dollar a gallon gas! They stayed home and kept their money there as well.
Theoretically, that is ...... <ahem!>
These guys were operating totally off the hook with extremely large sums of money at issue. And you trust them to have squared the books .... why?
Count me among the old-timey ordoliberals: Free markets, but plenty of smart, incorruptible, unappeasable cops and capacious prisons to keep thumbs off the scales -- or lop them off. Service paid for with our taxes, of course.
This was posted over the weekend in a thread. Item #4 put it in better perspective.
I agree under normal conditions this recession should have been cyclical, but with the amount of bogus funds running through the system they could have really broke it. That is why I think if we stop bailing things out and let the patient bleed-out we'll find the malpractice.
Right now it still seems like everyone is running around trying to literally cover their bets. I liked the ‘bucket shop’ description along with item #4 from the Abyss.
Derivatives are hard to price but imho the problem isn't lack of transparency, if anything it's information overload.
Any time an investor wants to query something he gets slammed with a flood of info --the kind lawyers refer to as a 'document dump'. Not that this makes it any easier; after all, a document dump is a strategy for hiding information.
The problem is us investors. We got a lot of homework to do and we'd prefer someone else do it. There's equations for pricing derivatives but they're horribly complex. In fact, they resemble thermodynamics formulas which is why Wall St. firms have been hiring more Physics grads than business majors.
Interesting!!!
This started in August of 2007, when defaults began to rise preciptitously. Defaults began to rise after propert values flattened and then began to decline. The spike in oil prices drove the economy into recession after the fact, and magnified the default problem.
The article has some good points, but their thesis, expressed above is incorrect. Derivatives do not "suck" liquidity, they create it, but alas only in an expanding credit environment. Also the derivatives are chained onto single payment streams so when the stream dries up (e.g. due to mortgage defaults), then several destinations can be affected.
Meanwhile the Fed and Treasury are trying to fight the problem of cascading defaults by backstopping the credit markets, preventing or at least postponing defaults. That would work provided the credit bubble can be reinflated. But reinflation is dubious and only makes it certain to crash bigger, later. So there is a kind of pretend game going on, that the credit bubble can be unwound, but that cascading defaults can be prevented through backstopping, TARP infusions, etc. It might have worked in theory, but the net effect of the government intervention is to completely kill private investment in any part of the credit market (starting with banks, but especially securities and derivatives).
So the unwinding will continue, the Fed and Treasury will issue more and more cash and credit, monetization will needed and then inflation. It is all absolutely inevitable, either massive defaults and a financial system that is crippled for years or decades, or inflation.
--and on top of that it's soft, strong, and absorbent.
It's a lot worse than that. People can always eat cheaper, but businesses that needed raw materials last spring were starved and killed off. That's what really started our recession (commodity price speculation based on inflationary expectations). Once that ended, the European banks melted down since a lot of loans to speculators (i.e. hedge funds) became worthless. That was October. Four months later, their and our zombie banks are still sucking down capital except now it is mostly taxpayer provided.
What they should do, is not bail out derivatives. Set up replacement firms for the firms that they bail out and buy out all of the assets and liabilities except for the derivatives. Let the derivatives fail. Especially those like AIG London that were set up outside of US regulatory oversight.
Reality is not nearly as bad as all that. As recessions go, the current one is about the mildest on record. If anything is unprecedented this time it's the negativism. So much cash hoarding, people panic selling solid assets at bargain basement prices.
I'd bet the whole problem could be solved in minutes if traders would take a break and soak their heads in ice water.
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