Good Layman's guide to the financial crisis

[Ski]

My fault on this if it's reading as if bad loans to unqualified people is the cause.


The CDO/derivitive issue is the real cause of the problem - $65T worth of it, compounded with an $11T debt which we're trying to spend out way out of...despite being $11T in debt.

That's $76T of bad paper. Or 6 years of American GDP paid off. It's not going to get fixed by spending money we don't have. That much I know.

What I don't know is where the fall ends, or how to fix it.

[selil]

The CDO/derivitive issue is the real cause of the problem - $65T worth of it, compounded with an $11T debt which we're trying to spend out way out of...despite being $11T in debt.

That's $76T of bad paper. Or 6 years of American GDP paid off. It's not going to get fixed by spending money we don't have. That much I know.

What I don't know is where the fall ends, or how to fix it.

Can't argue with that a bit. One of those green beanie's told me while I was visiting Benning one time. Adventurers jump out of airplanes, only idiots don't pull the cord. I've likely mauled the quote but we're falling and all anybody keeps doing is make us fall faster.

[George L. Singleton]

Selil:

You are correct as to total process. But the action, initial, is what identifies the cause, bad loans to undeserving folks at all levels of income buying homes and other properties, then that led to dishonest [fradulent] securitizing of bad mortgages in bundles together with good mortgages. But step one had to be making, over and over, the bad mortgages to begin with. Yes, this then created leveraged or multiplier bad debt outcomes, but never 40 to 50 times, that is too high a multiplier. The textbook rule of thumb is a 5X money multiplier, which is bad enough.

Greed drives all this.

I have to disagree with the idea that this financial crisis was caused simply by the wrong/poor people getting bad loans. That story just doesn't float. Yes people got credit that shouldn't have gotten credit. It was bankers and financial institutions who leveraged known bad debt 30 to 50 times original value and much more. When you knowingly leverage bad debt and then sell it as a "AAA" fund that is fraud.

I think this little conspiracy theorist essay may have more to do with how we got to where we are http://wallstreetwatch.org/soldoutreport.htm .

[Ken White]

...we're falling and all anybody keeps doing is make us fall faster.

'stimulating.'

[Surferbeetle]

The textbook rule of thumb is a 5X money multiplier, which is bad enough.

Greed drives all this.

George,

The attached wikipedia link reflects 2007 leverage ratios in the low 30's for Bear Stearns, Merrill Lynch, and Morgan Stanley. Goldman Sachs is depicted at 25 and Lehman Brothers as approximately 29 and change. The data was reported as being gathered from company reports.

The WSJ has the following at the link

But Mr. Gramm makes no mention of deregulatory movement within the executive branch, most notably the 2004 decision by Securities and Exchange Commission leaders to exempt the nation's largest investment banks from existing net capital requirements, and Chairman Christopher Cox's subsequent reluctance to apply the SEC's oversight capabilities. It was after this that leverage ratios skyrocketed from a limit of 12 to 1 up to peaks of 30 to 1 or higher, as in the cases of Bear Stearns and Lehman Brothers.

In my younger days, before I joined up with the USG, I spent two years collecting bills (30 to 120 day buckets) for Citicorp. I learned many things about business and capitalism during that time and I do not recall a single one of our customers receiving a bailout

Best,

Steve

[Schmedlap]

I'm considering writing some deep-in-the-money puts (Jan 2011 $45) on GE and using the proceeds to purchase shares of Wal-Mart and Proctor & Gamble. Should this speculative endeavor not payoff, can I get a bailout?

[ODB]

I'd join former Countrywide Mortgage execs....LINK

So it may come as a surprise that a dozen former top Countrywide executives now stand to make millions from the home mortgage mess.

Stanford L. Kurland, Countrywide's former president, and his team have been buying up delinquent home mortgages that the government took over from other failed banks, sometimes for pennies on the dollar. They get a piece of what they can collect.

[Ski]

I don't have a link handy, but Lou Dobbs reported last night that Wall St. sent over $5B to lobbyists in DC over the last 15 years in order to get a slew of laws changed or rescinded. I think it ended up being 12 laws all together.

Greed, greed, and more greed.

And here's the result of that greed, so far:
http://www.nytimes.com/interactive/2...NHARDT.html?hp

A very useful map - the official unemployment rates per county in the US, with the growth in unemployment over the last year as well.

[slapout9]

I don't have a link handy, but Lou Dobbs reported last night that Wall St. sent over $5B to lobbyists in DC over the last 15 years in order to get a slew of laws changed or rescinded. I think it ended up being 12 laws all together.

Greed, greed, and more greed.

And here's the result of that greed, so far:
http://www.nytimes.com/interactive/2...NHARDT.html?hp

A very useful map - the official unemployment rates per county in the US, with the growth in unemployment over the last year as well.

I watched that last night. All those folks should be in GITMO since there will soon be plenty of space down there. It was not just criminal it was treason!

[Ken White]

I watched that last night. All those folks should be in GITMO since there will soon be plenty of space down there. It was not just criminal it was treason!

what they legally if not ethically could do to help themselves make more money -- which is what their business was all about -- or the Politicians who can unfortunately legally if not ethically take that money and thus abrogate their Oath to the Constitution and thus indirectly to the nation and the American people.

I'd be inclined to put people who ignored their duty for money in jail before I would try to jail people who used money to make money -- the which was their nominal job...

[Sergeant T]

There has grown up in the minds of certain groups in this country the notion that because a man or corporation has made a profit out of the public for a number of years, the government and the courts are charged with the duty of guaranteeing such profit in the future, even in the face of changing circumstances and contrary to public interest. This strange doctrine is not supported by statute or common law. Neither individuals nor corporations have any right to come into court and ask that the clock of history be stopped, or turned back.

Robert Heinlein, Life-Line, 1939

[bourbon]

Robert Heinlein, Life-Line, 1939

Yep, that's regulatory capture for ya.

[Schmedlap]

... Wall St. sent over $5B to lobbyists in DC over the last 15 years in order to get a slew of laws changed or rescinded...

Fannie and Freddie were in on the action, too.

And according to the AP, the highest lifetime contributions from those PACs? Why none other than the Speaker of the House, House Minority Leader, House Minority Whip, Senate Majority Leader, Chairman of Senate Banking, Housing and Urban Affairs Committee, and the Chairman of the House Financial Services Committee. This is the best government that money can buy.

The best suggestion that I've heard for conditions to be tied to TARP funds is for the banks to not be allowed to donate any money to political campaigns, not be allowed to spend money on lobbyists, and not be allowed to otherwise waste money on issue advocacy or other spending that is coordinated with or related to politics. I suspect that I've got a better chance of seeing Elvis and Jesus twice in the same day.

[Surferbeetle]

I suspect that I've got a better chance of seeing Elvis and Jesus twice in the same day.

Just fell out of my chair laughing, bonked my head...is that you Elvis?

[slapout9]

what they legally if not ethically could do to help themselves make more money -- which is what their business was all about -- or the Politicians who can unfortunately legally if not ethically take that money and thus abrogate their Oath to the Constitution and thus indirectly to the nation and the American people.

I'd be inclined to put people who ignored their duty for money in jail before I would try to jail people who used money to make money -- the which was their nominal job...

Ken,good question...so I would use the Huey Long method. Anybody that is a "Ten Millionaire" can keep it! Anybody above that is a suspect and most likely guilty. Can't have more than 10mil. and say you got it legallyand if they did get it legally that is to much money for anyone person to say they earned it ethically so pay a guilty tax of 90%

[Ski]

Down is under 6600...another 4% loss today...almost don't even want to monitor the market any longer...don't see how GM, Chrysler, Citi, AiG and BoA are going to make it...why are we continuing to reinforce failure...

Sigh.

[Schmedlap]

Here's one more reason why I think the financial "crisis" is a good thing.

From the Dec 14, 2008 NY Times: Bad Times Draw Bigger Crowds to Churches

I just hope that they sincerely embrace faith for the long haul, rather than seeking temporary comfort until the economy rebounds.

[ODB]

Cycle of Democracy

From bondage to spiritual faith;
From spiritual faith to great courage;
From courage to liberty;
From liberty to abundance;
From abundance to selfishness;
From selfishness to complacency;
From complacency to apathy;
From apathy to dependency;
From dependency back again to bondage.

In his book "Democracy in America", Alexis DeTocqeville (circa 1848) had this to say: " A Democracy cannot exist as a permanent form of Government. It can only exist until the voters discover they can vote themselves largesse (a liberal gift) out of public treasury. From that moment on the majority always votes for the candidate promising the most benefits from the public treasury with the result that Democracy always collapses over a loose fiscal policy, always to be followed by a Dictatorship."

So which stage are we in?

[selil]

Exiting selfishness to complacency, entering complacency to apathy. That is my vote.

[Schmedlap]

I don't think that our country can be said to be at any point in that cycle because our country is too diverse, both culturally, which tends to coincide with geography, and socioeconomically. Some segments are in different stages at different times - and I don't think that they necessarily go through the stages in the order cited.