Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

The way out of our financial mess is transparency
American Thinker ^ | November 22, 2011 | Thomas Lifson

Posted on 11/23/2011 12:46:48 PM PST by neverdem

David P. Goldman, writing as Spengler in the Asia Times, diagnoses the heart of the Wall Street crisis, and lays out the solution to the rot in our financial markets. This is an important article to read and digest.

Goldman was himself an executive at Credit Suisse, and saw firsthand the generation of profit-making deals in the slicing, dicing, and resale of elements of risk associated with large bundles of individual home mortgages packaged as securities. In his customary clear-eyed, data-rich style, Goldman explains how it all works, and where it went wrong.

The ratings agencies - Moody's, Standard and Poor's, and Fitch - agreed that it was inconceivable that more than a third of a pool of subprime mortgages could default. If the banks got one group of investors to accept the first 35% of losses on the pool, the ratings agencies would label the rest of the pool default-proof, and give it a triple-A rating. 

The banks then went to the Federal Reserve and asked permission to increase leverage on what the ratings agencies called ultra-safe securities. Normally banks can hold about $12 of loans or securities for every $1 of their own money, but the Fed allowed them to own $70 of the phony subprime triple-A's for every $1 of shareholders' capital. Some of those bonds are now trading at 33 cents on the dollar. 

The ratings agencies, Fitch, Standard & Poor's, and Moody's, were enablers (my term, not his) of these packages of securities being accepted as financial instruments by the banks and other parties which bought and traded them. They have a conflict of interest: the issuer of a security pays the rating agency to give an opinion. The proliferation of...


(Excerpt) Read more at americanthinker.com ...


TOPICS: Business/Economy; Crime/Corruption; Editorial; Politics/Elections
KEYWORDS: bankingcrisis; financialcrisis
The above linked article is worth a gander if the financial and banking crisis leaves you mystified.

This won't help the economy that much until the housing debacle is resolved. A lot of people are going to have to take their losses, including the taxpayers because of Fannie, Freddie and the FHA, or our economy will limp along like the Japanese economy has done for the last 20 odd years because of the collapse of their real estate bubble. They're still refusing to resolve all of their non-producing loans, IIRC.

BTW, U.S. Congress Votes to Raise FHA Mortgage Limits to $729,750 Nov. 18, 2011, Businessweek via Bloomberg

We needed to get out of government sponsored enterprises, so these idiots put us on the hook for more with the FHA.

I'm going to try to find the roll call votes. Yahoo's search function isn't responding correctly now.

1 posted on 11/23/2011 12:46:49 PM PST by neverdem
[ Post Reply | Private Reply | View Replies]

To: neverdem

IMHO...

Fix: get government completely out of the banking and finance business except for enforcing usury and fraud laws that have always been on the books.

No government borrowing, no government lending, no government lending guidelines, requirements, forms, agencies, data gathering, etc., except max 18% annual interest rate (above that being usurious).


2 posted on 11/23/2011 1:03:00 PM PST by PieterCasparzen (We have to fix things ourselves.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: PieterCasparzen; Clintonfatigued; wardaddy; Joe Brower; Cannoneer No. 4; Criminal Number 18F; ...
I'd only keep VA Loans as long as we have a volunteer military, IMHO. It's time to wind down all other gov't sponsored enterprises.

President Signs Bill Extending FHA, VA Loan Limits, Hitting GSEs with Fee (H.R. 2112)

FINAL VOTE RESULTS FOR ROLL CALL 857 - H R 2112 House

FINAL VOTE RESULTS FOR ROLL CALL 208 - H.R. 2112 Senate

We need to primary almost all of the pubbie Yeas for HR 2112, with the exception of Brown from MA in the Senate and Rehberg from MT in the House because we have to take the Senate next year. The rest have become go along to get along, inside the beltway nitwits.

Rehberg Urges Obama Administration & Allies to Abandon Anti-Hunter Policies Any spare shekels? Rehberg's a good investment.

The Hillary Moment (Prominent rats turn on Obama!)

10-year-old Wash. boy defends mom with BB gun

Twelve Big Wins for Gun Owners

Some noteworthy articles about politics, foreign or military affairs, IMHO, FReepmail me if you want on or off my list.

3 posted on 11/23/2011 2:14:40 PM PST by neverdem (Xin loi minh oi)
[ Post Reply | Private Reply | To 2 | View Replies]

To: neverdem

Transparency helps in politics, too. It should be illegal to serve in any office without putting your money into a blind trust.

Local zoning laws are used to enrich sitting politicians all the time.


4 posted on 11/23/2011 2:21:15 PM PST by 1010RD (First, Do No Harm)
[ Post Reply | Private Reply | To 1 | View Replies]

To: neverdem; PieterCasparzen; 1010RD

Thanks for posting. Very interesting.

From the Goldman’s (aka Spengler) article...

That’s one reason the banks had massive losses, but not the only one. Banks (and insurance companies) were writing huge amounts of guarantees on phony triple-A-rated debt, generating up-front fee income in return for turning the banks’ balance sheet into a toxic waste dump.

By the time that Lehman Brothers went under in September 2008, there is no way that its chairman, Dick Fuld, could have calculated the volume of losses for which his bank was on the hook. Every derivatives and structuring desk was taking in all the fees and back-loading all the risk it could, telling the risk managers as little as possible.

What do we want from Wall Street now?...

OK, how do Goldman & Lifson square this from Tyler Durden at zerohedge?...

Stunningly, nobody at the SEC was aware of Lehman’s Repo 105 program. And guess what: NEITHER DID DICK FULD. This is unbelievable - the criminality reaches to the very top, yet the very top denies all knowledge.

Richard Fuld, Lehman’s former Chief Executive Officer denied any recollection of Lehman’s use of Repo 105 transactions. Fuld said he had no knowledge that Lehman treated any kind of repo transaction as a true sale or that Lehman ever removed from its balance sheet assets transferred in a repo transaction. In addition, Fuld did not recall having seen any reports referencing the amount of the firm’s Repo 105 activity. Fuld further stated that he did not know that Lehman removed approximately $49 and $50 billion in inventory off its balance sheet at quarter-end
through the use of Repo 105 transactions in first quarter 2008 and second quarter 2008, respectively. Fuld said, however, that if he had learned that Lehman was temporarily cleansing its balance sheet of assets at quarter-end through Repo 105 transactions, it would have concerned him.

Evidence, however, suggests that Fuld is blatantly lying:...

MUCH MORE HERE...

http://www.zerohedge.com/article/repo-105-scam-how-lehman-fooled-everyone-including-allegedly-dick-fuld-and-how-other-banks-a

...with evidence and 250 comments


5 posted on 11/23/2011 3:15:59 PM PST by PGalt
[ Post Reply | Private Reply | To 1 | View Replies]

To: neverdem; PieterCasparzen; 1010RD

We needed to get out of government sponsored enterprises, so these idiots put us on the hook for more with the FHA.

Fix: get government completely out of the banking and finance business except for enforcing usury and fraud laws that have always been on the books.

Transparency helps in politics, too.

BUMP! BUMP! BUMP!


6 posted on 11/23/2011 3:31:14 PM PST by PGalt
[ Post Reply | Private Reply | To 1 | View Replies]

To: PGalt

Thanks for the link. I’ve forgotten about that Repo 105 program.


7 posted on 11/23/2011 3:54:44 PM PST by neverdem (Xin loi minh oi)
[ Post Reply | Private Reply | To 5 | View Replies]

To: neverdem

bump


8 posted on 11/23/2011 3:58:42 PM PST by gloryblaze (Don't forget to donate and keep FR going strong!)
[ Post Reply | Private Reply | To 1 | View Replies]

To: neverdem; All

Goldman was himself an executive at Credit Suisse...

Was there a connection between Lehman CFO Erin Callan and David Goldman at Credit Suisse?...

http://www.muckety.com/Erin-Callan/20929.muckety


9 posted on 11/23/2011 4:46:46 PM PST by PGalt
[ Post Reply | Private Reply | To 1 | View Replies]

To: neverdem; All

Courtesy of zh poster williambanzai7...

http://williambanzai7.blogspot.com/2010/03/vintage-repo-105-warning-sign.html


10 posted on 11/23/2011 5:03:54 PM PST by PGalt
[ Post Reply | Private Reply | To 1 | View Replies]

To: 1010RD; All

Transparency helps in politics, too.

LESSON 6: Transparency is for wimps.

Much (banzai7’s analysis...09/15/2011...of Lehman’s collapse) more...(here)...

http://www.zerohedge.com/contributed/2-stupid-2-survive-real-lessons-lehman


11 posted on 11/23/2011 5:20:22 PM PST by PGalt
[ Post Reply | Private Reply | To 4 | View Replies]

To: neverdem; All

There are a few sides to the “solution” coin, a free market.

If government got completely out of everything but what it should be in, transparency becomes a moot point.

Investors will be attracted to companies that are more transparent with their shareholders and bondholders.


12 posted on 11/23/2011 6:58:10 PM PST by PieterCasparzen (We have to fix things ourselves.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: AdmSmith; AnonymousConservative; Berosus; bigheadfred; Bockscar; ColdOne; Convert from ECUSA; ...

Thanks neverdem. and /bingo


13 posted on 11/23/2011 9:51:19 PM PST by SunkenCiv (It's never a bad time to FReep this link -- https://secure.freerepublic.com/donate/)
[ Post Reply | Private Reply | To 3 | View Replies]

To: PGalt
It's pathetic what a sound financial system can be reduced to in a few decades, with just a little ( </sarcasm> ) vote-buying finagling by the government . . .
14 posted on 11/24/2011 2:37:26 AM PST by conservatism_IS_compassion (DRAFT PALIN)
[ Post Reply | Private Reply | To 5 | View Replies]

To: PGalt; neverdem; PieterCasparzen
Given the circumstances you'd expect criminal prosecutions to rise, but...

Criminal Prosecutions for Financial Institution Fraud Continue to Fall

All the regulations in the world don't matter one whit if fraud isn't punished.

15 posted on 11/24/2011 5:13:52 AM PST by 1010RD (First, Do No Harm)
[ Post Reply | Private Reply | To 5 | View Replies]

To: 1010RD; All

Thanks for the link. Why Isn’t Wall Street In Jail?

http://www.zerohedge.com/article/matt-taibbis-latest-why-isnt-wall-street-jail

Honor among thieves? Music to read this thread by...

http://www.youtube.com/watch?v=YvRsn-5SqSA&feature=related


16 posted on 11/24/2011 5:37:51 AM PST by PGalt
[ Post Reply | Private Reply | To 15 | View Replies]

To: conservatism_IS_compassion; All

“It’s pathetic what a sound financial system can be reduced to in a few decades, with just a little ( </sarcasm> ) vote-buying finagling by the government . . .”

Excerpt of a very good article that takes it back “a few decades”...

“What about the long-awaited bank reform law, which Congress finally delivered in July 2010 in the form of the Dodd-Frank Act? The law does not address the fundamental factors that have caused recurrent, intensifying financial crises: fraud, accounting, executive and professional compensation, and regulatory failure. The law does create a regulatory council that is supposed to identify systemic risks. The council, however, will be dominated by economists of the same theoclassical stripe who not only failed to identify the systemic risks that produced the recent financial crises, but actually praised the criminogenic incentives that caused those crises.”

http://www.dollarsandsense.org/archives/2011/0111black.html

...and doesn’t even mention the couple of decades old BIG ELEPHANT in the room...DERIVATIVES...UNregulated, UNaccountable instruments of looters/socialists.


17 posted on 11/24/2011 7:31:23 AM PST by PGalt
[ Post Reply | Private Reply | To 14 | View Replies]

To: neverdem; All

“We needed to get out of government sponsored enterprises...”

GSE’s and NGO’s and CSO’s...all UNaccountable bureaucracies (socialism) run by UNaccountable bureaucrats (socialists).

http://www.freedomadvocates.org/articles/illegitimate_government/abusing_the_system_through_ngos_and_csos_20100405403/


18 posted on 11/25/2011 5:50:20 AM PST by PGalt
[ Post Reply | Private Reply | To 1 | View Replies]

To: neverdem
In fact, the financial industry is full of people who know perfectly well that they are mediocre, but who nonetheless want to make a great deal of money. So they cheat.

Wow! Does this quote ever sum up not only the financial industry, but America circa 2011 in general! Everyone from Wall Street CEO's to welfare recipients seem to be in on this grand scheme to consume more than they produce.

19 posted on 11/25/2011 6:01:10 AM PST by Mr. Jeeves (CTRL-GALT-DELETE)
[ Post Reply | Private Reply | To 1 | View Replies]

To: PGalt

I think politicians profit from the fraud, plus most people are innumerate. Add in the politicization of government bureaucracy, the DOJ, state and local DAs are all bureaucrats and political, and this is what you get:

A nation of laws, so many laws that they’re all broken all the time so why enforce them. A moral people need few laws.

You may look to our educational system as the culprit. We’ve abandoned the classics, children learn nonsense and at the foot of idiots. Who would design such a system?


20 posted on 11/25/2011 6:12:01 AM PST by 1010RD (First, Do No Harm)
[ Post Reply | Private Reply | To 16 | View Replies]

To: 1010RD

Well-stated, 1010RD. I agree.

(I had to look up the word “innumerate”...I read alot and I do not recall ever seeing that word before...thanks...very much...still learning)


21 posted on 11/25/2011 7:51:58 PM PST by PGalt
[ Post Reply | Private Reply | To 20 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson