Who Created This (Financial) Monster?

[WishingWealth]

desk481: "Hopefully the democrats will put someone in charge who doesn't have a $100 million nest egg."

But then will he/she have a clue what a SWAP is?
Real knowledge, not bookish or academic knowledge.

WW

[kcowan]

These people won't feel any financial pain, if they're decisions prove to be wrong - which they turned out to be. Hopefully the democrats will put someone in charge who doesn't have a $100 million nest egg.

I don't think high net worth individuals tend to be reckless when it comes to financial decisions. If anything, they are more cautious because they can afford to be. I know they tend to have multiple prestige properties around the world.

[George$]

In 2006 Nouriel Roubini, an economics professor at New York University, predicted the coming monster --

See Dr Doom in the NY Times Aug 17, 2008
a bit ....

For months Roubini has been arguing that the true cost of the housing crisis will not be a mere $300 billion — the amount allowed for by the housing legislation sponsored by Representative Barney Frank and Senator Christopher Dodd — but something between a trillion and a trillion and a half dollars. But most important, in Roubini’s opinion, is to realize that the problem is deeper than the housing crisis. “Reckless people have deluded themselves that this was a subprime crisis,” he told me. “But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.” All of these forms of debt, he argues, suffer from some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight. “We have a subprime financial system,” he said, “not a subprime mortgage market.”

[George$]

"Greed" and "Stupidity" - by NYT Op-Ed Columnist DAVID BROOKS - Published: April 2, 2009

An easy and interesting read ...

What happened to the global economy? We seemed to be chugging along, enjoying moderate business cycles and unprecedented global growth. All of a sudden, all hell broke loose.

There are many theories about what happened, but two general narratives seem to be gaining prominence, which we will call the greed narrative and the stupidity narrative. The two overlap, but they lead to different ways of thinking about where we go from here.

....

[WishingWealth]

RE Brook's article.

I was reading it yesterday and had some sensation of déja vu.
The links mentioned had been covered in FWF.
Usually we can't keep up with the news but this is a case that the news can't keep up with us.



WW

[parvus]

Or that these days, everyone gets their info from blogistan (and not tweeterville).

Actually, on that point, there's a little controversy:

For the past two years, several hundred left-leaning bloggers, political reporters, magazine writers, policy wonks and academics have talked stories and compared notes in an off-the-record online meeting space called JournoList.

Proof of a vast liberal media conspiracy?

Not at all, says Ezra Klein, the 24-year-old American Prospect blogging wunderkind who formed JournoList in February 2007. “Basically,” he says, “it’s just a list where journalists and policy wonks can discuss issues freely.”

But some of the journalists who participate in the online discussion say — off the record, of course — that it has been a great help in their work. On the record, The New Yorker’s Jeffrey Toobin acknowledged that a Talk of the Town piece — he won’t say which one — got its start in part via a conversation on JournoList. And JLister Eric Alterman, The Nation writer and CUNY professor, said he’s seen discussions that start on the list seep into the world beyond.

[Clock Watcher]

"Who created this (financial) monster?"

Simple, the same people who are now tasked with fixing it.

Of all the people who have ever received pork-barrel, the corporate bondholders topped them all, nothing even comes close. In their wildest dreams, they could not have possibly imagined that they will receive trillions, to effectively have a call option with no down-side risk, and it will be funded by the world's youth for the next 2 generations, and furthermore magnifying the magnitude and time scale of this recession! Talking abut being well-connected.

And the media is doing one heck of a sales job on their behalf.

[WishingWealth]

Why no [so little] outrage? A favourite mantra of mine.


@ The Big Money:

Subprime Justice
...
White-collar fraud convictions are notoriously hard, as the recent Bear Stearns [3] (BSC) acquittals [4] showed. But why aren't the feds even trying to pursue a criminal investigation of the Big Three?

Because the federal government has almost no power to do so. The credit-rating agencies lie at the heart of our financial markets, but Congress has banned the Securities and Exchange Commission from fining or prosecuting anyone who defrauds investors. Historically, the agencies have even been protected from civil lawsuits, no matter what they do. This may change in the next few weeks, as Congress considers giving the SEC broad new powers. And recently, a federal judge broke with years of precedent and allowed an investors’ lawsuit [5] against Moody’s to move forward. But on the whole, the agencies have been remarkably shielded from legal consequences.

Consider this: Last year, the SEC released a damning report on the agencies’ role in the subprime crash. It even had a smoking gun that revealed analysts knew some securities were junk. In an internal communication, SEC investigators discovered that, “One analyst expressed concern that her firm’s model did not capture ‘half’ of the deal’s risk, but that ‘it could be structured by cows and we would rate it.’ ” The SEC had the power to conduct this investigation thanks to the Credit Rating Agency Reform Act of 2006. But the same law denied the SEC any authority to punish the agencies for fraud. All the SEC can do is tell them not to do it again.

In fact, drafters of the 2006 law went out of their way to state that it “creates no private right of action.” In other words, you can’t even use this law to sue them. As a result, whenever anyone has filed a lawsuit against the agencies, the courts have thrown them out, citing the First Amendment. In the absence of any explicit provision exposing the Big Three to civil liability, the courts have accepted their defense that they’re just citizens of the Republic, exercising their right to free speech.
...
But one element never made it out of committee. Once again, Congress passed on the opportunity to add criminal penalties against the rating agencies. If the Big Three defraud investors on a historic scale, lie to millions of people about the creditworthiness of junk mortgage tranches, and cash their checks while another market collapses, they might someday pay a little money in civil court. But no one will ever go to prison. As rackets go, that ain’t bad.

Why so much deference? How much does it cost to be part of this select club?

On a few threads, some posters said obviously they must not have broken any laws else they'd be prosecuted. I guess we can see why.

WW

[ghariton]

Why so much deference? How much does it cost to be part of this select club?

WW

So who are you more angry with -- big corporations (banks, etc), or the big governments whom they seem to have bought off?

George

[WishingWealth]

My anger is vast and can accommodate both.
(With some left over - so perhaps it's time for anger management)

But still, why such 'accomodement'?

WW

[ghariton]

But still, why such 'accomodement'?

As long as it is raisonable...

So, in this case, would you say that government is part of the solution, or part of the problem?

George

(would have been a missionary if I had been born 100 years earlier)