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depittydawg
04-27-2010, 02:59 PM
A video of analysis of why Wall Street failed. About 25 minutes long, but worth the time.

http://www.pbs.org/moyers/journal/04232010/watch.html

Franco
04-27-2010, 03:34 PM
Thanks for posting the interview, it just supports what my instincts felt.

From the interview;

Do you want to look at these seemingly respectable huge financial institutions, which are your leading political contributors as crooks?
BILL MOYERS: TheHill.com website says Goldman Sachs is uniquely positioned to fight this case, that it spent $18 million over the last decade lobbying members of Congress, and put millions more in their campaigns. I mean, you've said elsewhere. That's smart business, right, to invest in the politicians who are going to be investigating you?

WILLIAM K. BLACK I would tell you, the Savings & Loan crisis, our phrase was, "The highest return on assets is always a political contribution."

WILLIAM K. BLACK No, and one of the most important things a president has is the bully pulpit. We have not heard speeches by the president demanding that the frauds go to prison. We have not heard speeches from the attorney general of the United States of America, Eric Holder. Indeed, we haven't heard anything. It's like Sherlock Holmes, the dog that didn't bark. And that's the dog that is supposed to be our guard dog. It must bark. And it must have teeth, not just bark.

menmon
04-27-2010, 03:58 PM
A video of analysis of why Wall Street failed. About 25 minutes long, but worth the time.

http://www.pbs.org/moyers/journal/04232010/watch.html

I liked this and agree with it....having said this, if the investment and commercial banks had to hold a piece of their offerings and maintain adequate capital, fraud would not be an issue.

Example: I'm a banker and I get a salary but I get an incentive bonus for making money for the bank, so I'm motivated to make as much money for the bank as I can. However, I have a credit committee that has to bless every loan I do as well as derivative I sell, so albeit we have regulators that examine our loans and derivative positions, we do not want to make bad loans because we hold them on our balance sheet. Now this is not fool proof since banks like mine get in trouble, because bad decisions get made and things out of one's control happen, but if adequate capital is required to be held by the bank, it provides a cushion for those bad loans and change in value of derivatives.

I realize it is more complex than this, but these two things will effect behavior more than anything they are discussing.

Franco
04-27-2010, 07:33 PM
What concerns me the most regarding the economy is that we donít know who is really running the country? We elect people to Federal office that are taking huge contributions from special interest and Investment Banks. They seem to have all the key politicians in their pocket.

We had x-Goldman Sachs executives like Paulsen bailing out his own interest! Paulsen, Benacke, Rubin, Dodd, Frank, Raines (Fanny & Freddie), the CEO of Countrywide and the list goes on and on should be investigated. Do they own the government to the point that they canít be investigated? Our political hacks passed the laws that have allowed them to steal legally.

What else should we expect from bureaucrats? They do nothing; they just milk the government for a great paying job with benefits superior to tax payers. That is, when they arenít watching porn at work.

Thatís a major reason I canít condem Arizona for passing the legislation they did on Friday. The Fed Government has failed them and the other 49 states. The damn government has just gotten too big, too inefficient, too out-of-touch, too distracted and too self-indulgent to do a good job.

We need to shrink the Federal Government, tell them how much they can spend, pass tougher Ethics Laws and make them public servants!

depittydawg
04-27-2010, 07:42 PM
We need to shrink the Federal Government, tell them how much they can spend, pass tougher Ethics Laws and make them public servants![/FONT]

The 6 trillion dollar question is HOW? I've felt this way for quite a few years. I've bought into and been sold out by both political parties over that span. Everytime I think maybe we've got the real deal in a leader, they either turn to jelly or do an about face.

Franco
04-27-2010, 07:52 PM
Asking Fedreal politicians to live within a budget by the people and cutting the massive bureacracy would be like asking a child or your grandfather to give up thier ice cream. Isn't going to happen.

I've never seen polarization is politics like it is today. Problem is that both sides are wrong!!! Both sides have been horrible at running the country.

We need an Independent that can take the best of both parties and lead us by showing us!

YardleyLabs
04-27-2010, 08:04 PM
Asking Fedreal politicians to live within a budget by the people and cutting the massive bureacracy would be like asking a child or your grandfather to give up thier ice cream. Isn't going to happen.

I've never seen polarization is politics like it is today. Problem is that both sides are wrong!!! Both sides have been horrible at running the country.

We need an Independent that can take the best of both parties and lead us by showing us!
I'd say we had a similar (possibly even more severe) polarization under Johnson and Nixon about Vietnam. However, I agree that this is right up there.

Franco
04-27-2010, 08:06 PM
I'll add that I think the GOP is done. Bush did them in. The image of the GOP is beyond repair. Between the Wall St scandels and the Iraq War, you can stick a fork in them! The label Conservative today has the same negaitve imagine that Liberal had through the 80's and 90's with the majority of voters. Today, the label Progressive is more popular than Conservative. And, with the Conservatives we have today, who can blame the negitive connotation. Just look at the face of today's GOP and tell me they aren't done.

Problem with the Democrats is they are too dam socialist. They think they have the answer to eveything and the only thing they know how to do is throw money at a problem. They take from the productive to support those that choose not to be productive. They feel like they can do a better job than business when they have very little business acum. We don't need a mother hen as much as we need a pissed off rooster!

Buzz
04-27-2010, 08:38 PM
What concerns me the most regarding the economy is that we donít know who is really running the country? We elect people to Federal office that are taking huge contributions from special interest and Investment Banks. They seem to have all the key politicians in their pocket.



It should be against the law for politicians to take contributions from those that they regulate.



I'll add that I think the GOP is done.


This is why they are working so hard to co-opt the tea party movement, or at least why they are embracing it so enthusiastically.

depittydawg
04-27-2010, 08:45 PM
I'd say we had a similar (possibly even more severe) polarization under Johnson and Nixon about Vietnam. However, I agree that this is right up there.

We did have polarization back then. But one thing has definitely changed. Up until probably the Clinton administration once an election was over members of both parties focused on doing right for at least a year or two between election cycles. When the Right lost the 92 election they changed the rules. Instead of coming to the table to compromise and govern they simply started campaigning both inside and outside Washington and have never stopped since.
That is a new kind of polarization that has basically shut down any opportunity for compromise, debate and good governance. The best thing that could happen to the nation is for another large scale defeat for the republicans in 2010 and 2012. I say this because the Republican Party must be reformed. Unfortunately, that isn't looking to probable. Mainly because the Dems have blown it again.

menmon
04-28-2010, 10:59 AM
What yesterday's senate hearing showed me is there is no case against GS.

Having said that, both parties took it on themselves to demonstrate how they are looking out for Americans, and by the end of it, the senators looked like the dumbest in the room.

The massive liquidity that was available the last 15 to 20 years is what allowed for the asset back securities market to become so vibrent. One thing the GS CEO kept hitting home was the people buying these securities are suppose to know what they are doing and he was right. There customers are not main street, they are large institutions

However, the reason why the R/E market crashed is the liquidity got scared and started selling when the defaults started going up, thus reducing the value of the securities, thus causing margin calls, thus causing more selling, thus ultimatly causing all buyers of these securities to leave the market. Yes there was fraud, but fraud is not what caused the failure.

Had the investment banks had more capital, they would not have had more ability to manage the market versus having to cover margin calls.

The main thing that will prevent this from happening again is to require some period that the bank have to hold the securities they are selling. Having said this, that takes capital and makes banks hold risk that might not be a good use of their capital. Therefore, it will make banks not want to partcipate in many of these asset backed markets, thus hurting the consumer by not making as much credit available. However, one could argue that the consumer does not need credit as readily available. Lack of consumtion with credit will reduce sales across all industries, thus eliminating the need for as many employees, reducing tax revenue, increasing the deficit, etc., etc.

The point of this is that the congress we have don't understand the financial industry as they didn't understand healthcare, and all it takes is someone gaining the ear of the public and the Tea Party and others start marching when they really don't understand the issue, but somebody has simlified it into terms they think they understand, and they are mad and raising hell now, so we get failed policies on these very complicated issues because politians play to the votes not the issues.

depittydawg
04-28-2010, 11:17 AM
[QUOTE=sambo;606549]What yesterday's senate hearing showed me is there is no case against GS.
Had the investment banks had more capital, they would not have had more ability to manage the market versus having to cover margin calls.

I'm no expert on financial markets, but I'm pretty sure there isn't enough capital in the world to even come close to covering the derivative markets. The best way I heard it described it sounded like an old fashion Ponzi scheme. They keep packaging and repackaging selling, and re-selling bets, and bets on the bets until it gets so entangled nobody knows what they're buying anymore. A security that started out with a value of 100 dollars eventully has a million riding on it or something like that.

Buzz
04-28-2010, 11:21 AM
So how do you feel about synthetics being created and traded over the counter, totally unregulated???

Wasn't a big part of the problem that the swaps were created, the risk assigned to them was too low, so the banks pocketed and leveraged the "profits" on them, didn't retain enough capital to cover them, and all hell broke out when the dominos started to fall?

dixidawg
04-28-2010, 11:25 AM
It should be against the law for politicians to take contributions from those that they regulate.

Wouldn't that be everyone in the country? Is that what you are proposing?

Buzz
04-28-2010, 11:26 AM
Wouldn't that be everyone in the country? Is that what you are proposing?

Maybe...... Unless you don't think it creates conflict of interest.

depittydawg
04-28-2010, 11:27 AM
The main thing that will prevent this from happening again is to require some period that the bank have to hold the securities they are selling. Having said this, that takes capital and makes banks hold risk that might not be a good use of their capital. Therefore, it will make banks not want to partcipate in many of these asset backed markets, thus hurting the consumer by not making as much credit available.

Good points. The amount of reserves banks were required to hold has steadily been lowered in the deregulation environment of the last 25 years or so. This was a huge factor in the collapse of banks. I think at the root of the banking / finance problem is that over this period of time, banks morphed from being safe, boring secure entities that performed a 'service' to the economy, to profit centers. Banks should not be profit centers. This is because they add no value to the economic cycle.
In fact, they pull value out of the cycle. The more 'profit' banks pull from the overall system, the less available capital there is to finance the means of production, i.e. construction, factories, small business, etc.

menmon
04-28-2010, 12:13 PM
The main thing that will prevent this from happening again is to require some period that the bank have to hold the securities they are selling. Having said this, that takes capital and makes banks hold risk that might not be a good use of their capital. Therefore, it will make banks not want to partcipate in many of these asset backed markets, thus hurting the consumer by not making as much credit available.

Good points. The amount of reserves banks were required to hold has steadily been lowered in the deregulation environment of the last 25 years or so. This was a huge factor in the collapse of banks. I think at the root of the banking / finance problem is that over this period of time, banks morphed from being safe, boring secure entities that performed a 'service' to the economy, to profit centers. Banks should not be profit centers. This is because they add no value to the economic cycle.
In fact, they pull value out of the cycle. The more 'profit' banks pull from the overall system, the less available capital there is to finance the means of production, i.e. construction, factories, small business, etc.

If I never made any money I could not build equity and make more loans, so I need to be profitable. Derivatives are not bad things, they are used to manage risk and reduce cost for all types of businesses. Having said that the risk of them must be managed, and capital needs to be maintained to cover that risk. People got a little too creative with them and buyers were not as aware as they needed to be, but you don't throw out the baby with the bath water.

Buzz
04-28-2010, 12:19 PM
Having said that the risk of them must be managed, and capital needs to be maintained to cover that risk. People got a little too creative with them and buyers were not as aware as they needed to be, but you don't throw out the baby with the bath water.

But as we know, the whiz kids understated the risk on these instruments. That allowed them to overstate their profits by minimizing the capital they needed to keep on hand to cover potential losses. Those profits went into their pocket in the form of huge bonuses on said "profits." Then we end up holding the bag when all the dominos start to fall...

I would prefer to see all those whiz kids applying their vast talents toward stuff that actually benefits humanity instead of inventing fancy financial instruments.

paul young
04-28-2010, 12:45 PM
you mean you didn't like being whizzed on, Buzz? lol!!!

the root cause was GREED. the object of the game was to be seated when the music stopped. there were only a few seats, however. it LOOKED like there was a lot of them, but they were only reflections in a mirror.-Paul

menmon
04-28-2010, 02:37 PM
you mean you didn't like being whizzed on, Buzz? lol!!!

the root cause was GREED. the object of the game was to be seated when the music stopped. there were only a few seats, however. it LOOKED like there was a lot of them, but they were only reflections in a mirror.-Paul

The problem was those wiz kids were under the assumption that the underlying assets had value...their part in the process was math. But having said that, the street got very loose in the sense that companies wanted structures that preserved debt ratings, limited tax liabilities and on and on, and you were deems a smart bank if you could solve these problems for customers. Had the audit firms been doing their job and the rating agencies been on top of their game, these structures would not have flown. One thing to keep in mind is the analyst that work for moody's and standard and poor are anaylst that did not make it at the big firms, because the pay does not compare.

Keep in mind, Greed is the component of the financial system that makes it work. The republicans have everybody sold on free markets, and like I have warned before, their has got to be rules are someone's greed can drive this truck off the cliff.

depittydawg
04-28-2010, 02:51 PM
The republicans have everybody sold on free markets, and like I have warned before, their has got to be rules are someone's greed can drive this truck off the cliff.

There is nothing FREE about markets. Never has been. Never will be.

Buzz
04-28-2010, 03:07 PM
Had the audit firms been doing their job and the rating agencies been on top of their game, these structures would not have flown.

With that stuff being sold over the counter, does anyone really know who is on the hook for what?

depittydawg
04-28-2010, 03:50 PM
Had the audit firms been doing their job and the rating agencies been on top of their game, these structures would not have flown.

Did a little research on this. The Financial Services Reform Act of 1998 (HR 10 as it was known then) which opened the door to the mess we live with today passed Congress by a vote of 214 yes, 213 no.
There were many who stood before congress and predicted a major banking failure would result from creating an unregulated market of securities to be packaged and sold among financial service organizations and "sophisticated investors".
The argument, presented by Allan Greenspan and then Secretary of Treasury and former Goldman Sach's Chairman of the Board) Robert Rubin, was that regulation was NOT required because these securities would only be traded among "sophisticated" investors who would be looking out for their own interests.
After the crash in fall of 2008 Greenspan testified before congress that he had made a huge error in judgement and that he admitted to being wrong. During that testimony he also expressed disbelief and dismay that these "sophisticated" investors and banks had in fact acted against their own best interests...
In retrospect, it would seem that allowing banks and financial institutions the authority to 'police' themselves is akin to locking up a coyote to guard the chicken house.
The point of all this is to acknowledge that it was not so much a regulatory failure that caused the banking collapse. Regulation had already been legislated out of the system. The other point I find very interesting is that 1 vote in congress was all it took to make these sweeping changes. That and a President who was currently under impeachment, compromised and possibly coierced into signing this legislation. Thank you Bill!

menmon
04-28-2010, 03:51 PM
With that stuff being sold over the counter, does anyone really know who is on the hook for what?

Almost everything is sold over the counter...the stock exchanges only account for about 30% of the stock that is traded. All bonds are sold over the counter.

Yes they know who is on the hook for this stuff, that is the reason it wiped out balance sheets. See when everyone was running for the hills, they called their salesperson and sold out of their positions, and the salesperson didn't want to not make a trade with them, because the rule of thumb is you don't tell big institutions no when they want a market.

Franco
04-28-2010, 04:10 PM
The argument, presented by Allan Greenspan and then Secretary of Treasury and former Goldman Sach's Chairman of the Board) Robert Rubin, was that regulation was NOT required because these securities would only be traded among "sophisticated" investors who would be looking out for their own interests.




As the say in the big investment houses in Manhatten, "There is a sucker around every corner".

Apparently, they ran out of corners!

menmon
04-28-2010, 04:28 PM
As the say in the big investment houses in Manhatten, "There is a sucker around every corner".

Apparently, they ran out of corners!

There is actually truth in that statement.

When someone sales a security because they don't think it rewards their risk, their is usually someone else that has a different risk adversion to sell the security to. The problem this time was there were no bids to buy, so the brokerage houses could not sell away the risk

Golddogs
04-28-2010, 05:26 PM
Another great read is the book 13 Bankers. In my book, no different than running a Ponzi scam. Why be honest and accountable if you know the Goverment will bail you out because you are too big to fail.

depittydawg
04-28-2010, 05:50 PM
Another great read is the book 13 Bankers. In my book, no different than running a Ponzi scam. Why be honest and accountable if you know the Goverment will bail you out because you are too big to fail.

Here is a Frontline Story that I saw several months back. It is an eye opening story of the players involved and the tactics they used in creating the system that led to the Financial Collapse.
http://www.pbs.org/wgbh/pages/frontline/warning/view/?utm_campaign=viewpage&utm_medium=grid&utm_source=grid

menmon
04-29-2010, 10:00 AM
I'll be the first to say that there were excesses that lead to the callaspe of the financial system and the ultimate recaptialization by the governemnt with TARP loans, and yes this caused much pain to many people.

What I think is important to remember is that this financial machine known as Wall Street brings borrowers and savers together and does it very efficently, making home loans, car loan, business loans very affordable to many that in the past meaning (50 years ago) were only available to a few and at a much higher cost, because of the need of intermediators called banks. If a bank could not sell its mortages directly to the savers, it would be limits to amount of mortages it could provide, based on the banks capital. I can go on an on about the positives that these wall street firms do and how their ability to bring savers together with borrowers benifit us all. Yes the compensation sounds excessive, but having lived there and made large bonuses on most people standards, I know that the cost of living is 3 times as much as it is in Texas, so to have the same lifestyle one has to make 3 times as much.

It is real easy to get upset about these banks doing well while many still suffer, but for the suffering to end, credit has to flow again and its means they will prosper first.

Having said all this, we need to adjust the system so that it continues to work for us placing capital and debt where companies can grow and make jobs, but change the rules so that we are not a likely to revist what just happened again but still allow the positive contribution of Wall Street to still exist.

Lot easier said than done.

Uncle Bill
04-29-2010, 06:41 PM
We need to shrink the Federal Government, tell them how much they can spend, pass tougher Ethics Laws and make them public servants!




But, But, But...that's what Obama and the "Wicked Witch of the West" promised. You mean they hain't delivering?

What happened to her vow to "drain the swamp"? :rolleyes:


UB