Inside Job: how bankers caused the financial crisis

[CHIMO]

When Michael Moore made his debut feature, Roger and Me, he set about vilifying the boss of General Motors, the now deceased Roger B Smith, for destroying his home town of Flint, Michigan. Charles Ferguson's film Inside Job attempts to blame a wider cast list for the banking crash of 2008 and explains why so little has been done to reform the financial world or bring criminal prosecutions against the main protagonists.

His villainous lineup includes bankers, politicians (many of whom were previously bankers), regulators, the credit ratings agencies and academics. When Glenn Hubbard, George Bush's chief economic adviser and dean of Columbia Business School, is shown as a partisan advocate of deregulation, we have one of the movie's punch-the-air moments. During the interview, Hubbard, who denies he was corrupted by his paid-for relationships with government, angrily barks: "You've got five minutes, mister. Give it your best shot."

The spotlight has largely bypassed academics in the UK. There are plenty of economists who believed the banks understood what they were doing and supported deregulation. Whether they took large slugs of cash for writing poorly researched, cheerleading reports on the economic miracle in Iceland (pre-crash), as former US central banker Frederic Mishkin is found doing, is less clear. Over here, the relationship between academia and business appears to be more arm's length, though London Business School dean Sir Andrew Likierman sits on the Barclays board, while Howard Davies, who argued for light-touch regulation while head of the Financial Services Authority, has become director of the London School of Economics. The UK's chief villian, however, is probably the disgraced, but largely unpunished, banker Sir Fred Goodwin, the former boss of Royal Bank of Scotland, once the fifth-largest bank in the world.

In Inside Job, the name that keeps cropping up is Larry Summers, a friend of President Bill Clinton and more recently Barack Obama. Summers exemplifies the links between cheerleaders in academia, Wall Street, supine regulators and an ignorant Capitol Hill that Ferguson stresses were at the root of the problem. It helps that Summers looks like a mafia boss, but the difficulties in making the case against him are shown by the need to explain financial products like credit default swaps and how securitisation was used by banks to increase their borrowing.

http://www.guardian.co.uk/film/2011/feb/17/inside-job-financial-crisis-bankers-verdicts

[madmax]

1. Watch your back, Michael. nt K&R

[girl gone mad]

2. I hope this one wins the Oscar.

[jtuck004]

3. If you get a chance to see it, please go.

And it doesn't hurt if you have read some Matt Taibbi, Yves Smith, Nomi Prins, Barry Ritholtz.

The worst part is that this IS the story. The propoganda, wherein the blame is placed on the "GSE's" and those who lost their homes or had some misfortune, leaving out this much larger part of the story, is repeated constantly on Main Stream Media outlets and right-wing radio and tv, even from some on our side. (Heard this watered-down version of crap on NPR today when they were interviewing a professor from Trump's alma mater Wharton). It does nothing to inform, and deflects attention from the real criminals in the financial sector.

So people will see this movie once, but hear the other stuff perhaps multiple times in a day. Then when TPTB want to look like they are doing something they talk about getting rid of GSE's or how we need to send all home financing to the private market (such as the people in the film above - does that makes SENSE to you?). No on will think twice about the fact they they are ignoring the squids that are wrecking so many millions of lives, and still profiting today.

But the movie is good, and the DVD comes out in a month or two. Hope the library gets one.

Maybe discussion groups would pop up? Like the Koch's funded to turn people against public option.

[howaboutme]

6. WARNING: The PTB are making sure that screening is limited

to a few artsy theaters, so that the sheeple are kept in the dark.

Even availability of the DVD will be limited. Blockbuster still does not have copies of "Gasland" available to view. It is a conspiracy to keep the public in the dark. I spoke to an independent theater owner (one of the few remaining) about this and there is no interest in showing it, and stirring up the masses. They'd prefer to screen something less informative and less controversial to the elite. No Oscars here, you can bet on it.

http://www.youtube.com/watch?v=acLW1vFO-2Q

[vert1276]

4. just another hit piece im sure

for a bunch of guys that dont know anything about economics or banking.

[CRH]

5. The problems with movies like Inside Job, ...

The problems with movies like Inside Job, is even if they accurately reduce the crime into its component parts of responsibility, they always miss by one half the those truly, responsible.

Yes, the bankers, mortgage brokers, investment houses, regulators, rating agencies, politicians, the main stream press, the mighty advertising machine of a false culture of frivolous consumption; all had a vested interest in the monetary charade that collapsed. But, so did everyone who participate in the debt culture to buy a life beyond their pay check.

I had many friends, normal people, who purchased their way into a growing pile of debt through credit cards, then credit cards to pay the credit cards, then charges at the box stores for furniture, then buy an SUV with next to nothing down and financed over six years. Then a twisted Texan stole the White House, and a whole society entered into a period of time where there was no regulation, no minimum requirements, no fiscal sanity, and certainly no adults in charge.

Rather than seeing this situation for what it was, irresponsibility gone wild/with prudence gone missing, many of us saw this as an opportunity to gain yet more materialism and chase yet more frivolous fashion, financed by dreams of tomorrow's better financial circumstance. A person's reasonable mortgage on a reasonable home became a credit card with equity cash out loans. New kitchens with different cabinets, ceramic flooring, a center island bar surrounded by new appliances of the proper fashionable color. But daddy needs something too, how about a new barbecue deck with some new landscaping and a little fountain that trickles, to relax next to while we entertain. The kids need a computer/recreation room, their bedroom is not enough. The stress from chasing the material needs to be relieved with a hot tub near the deck. While we are at it, all those pesky credit cards past due can be rolled into one simple to pay monthly mortgage bill, seeing that we are filling out our own finance histories on this computer form. STOP! Before you click in the final amount, perhaps a little extra for a family trip to disney world, ...

Or, another part of this sad story is that old two thousand sq/ft house just isn't enough for our post boomer family of four, oops can't forget the latest squirt is on the way, make that family of five. Those 200 - 400 hundred thousand dollar 3,500 sq/ft homes out west of town are perfect, and now we can, no we work hard, we deserve, to move up. Because our parents lived in the same house for 40 years doesn't mean we should. ... Ah, ... What do you mean we're entering a recession and you don't have enough work for me, I have a new house to pay for!

Or how about this part of the sad story. I couldn't afford a house in the past because the 20% down and my credit card bills always got in my way. I guess my work history was a bit of a problem too. But, look e here, those silly requirements no longer exist, finally I can afford a home with no money down, don't have to pay nuttin' for three months and then jest the interest. Then in three years I can jest fill out more of these computer forms and re-refinance when I have a better job and more income. All I have to do is sign, here. ... and later, Jeez, you mean if I can't pay the interest only payment I'll lose my home. Why, this isn't fair, I'll have to move back into that old apartment!

Then the perfect world stopped being perfect, the damn car broke down, the second income collapsed, and man the mortgage is a load. A bit of recession and a third of overextended America, many of them our friends, just normal people after all, start having serious difficulty paying their mortgage and other bills as well. And with their misery and defaults, comes our shared resulting problem, with tighter credit even for the responsible, a weakened economy, a dead job market for our graduating children, and local governments with a faltering tax base.

All of the above that has happened to friends, to just normal people after all, and happened because a culture of debt we allowed, yes our own individual decisions that spiraled out of our fiscal reality, that aided and abetted the very crimes we are crying about. Half of all responsibility is collectively ours, whether we want to admit it or not. Even if you as an individual did not fail, and even if you as an individual have managed your debt responsibly; when one in three households are crumbling under excessive debt and in the process dragging us all lower, that shared responsibility for our debt culture, the one we keep voting into office, remains. After all, these people with these debt problems are our neighbors, just normal people after all.

There of course are exceptions, but damn few.

[jtuck004]

7. I think we should give our neighbors a break.

You have some very valid points, but for some perspective, let me throw in an analogy, please.

Pick a used car, worth about $1200. Owned by a group of people, they sell it. They have some friends at the bank who make an undocumented strawberry picker a loan that requires some interest payments for a few months, then a balloon payment for the balance. They convince him he is getting such a good deal that the car will be worth more in a few months, and he will be able to afford it when they re-finance it again. They all have finance degrees, he barley made it out of high school, and he believes they are honest. They think they are too. So the loan makers and the seller of the car make out pretty well. They thought that was such a good idea that they sell a whole bunch of bets on whether that car will be worth more in 10 years or not to people who borrow money to make it happen. They price those bets, lets call them synthetic bets, based on the fact that that their uncle had one that went up in value, and they can't imagine a future in which the value of that car would drop.

Then they sell the owner of the car an insurance policy on which they will pay off if the person that bought the car defaults on the loan they took out. That was so profitable they then sell copies of that insurance policy to a hundred more people. They are required by law to have reserves to cover their payoff, for which they get about a dollar for every 35 or 40 dollars of "value" on that car insurance, essentially promising to pay back $35 or $40 for every $1 they get. They don't have enough reserves to cover anywhere near even 1/40 of those bets, so they buy 25 crappy bicycles from some guy on the corner, and pay the guy at the pawn shop to say they are worth enough to cover all the nearly $480,000 they made from the insurance sales alone, and use the copies of those insurance policies as reserves for the synthetic bets they made earlier.

The fields freeze. The car buyer loses his job and defaults on the car loan. The entire scheme begins to unravel. The bank takes the car, he is on foot, and all those creditors want their money. And the government steps in to reward prevent the failure of the people who took on all this debt, sold all these policies, and they pay them about twice what they owed, about a million dollars, using taxpayer money. 3 years later the people who created this scheme are paying themselves record bonuses for the second year in a row, and still being subsidized by taxpayer dollars they get for free to use as they see fit.

And all this time they have been running stories, getting their friends to talk to the press, making sure this mantra is repeated over, and over, for years, in as many channels of the main stream media as they can, on R. Limbaughs show, on MSNBC, on CNN, in the halls of government, and around the water cooler at your work...

"IT'S ALL THE FAULT OF THAT GUY WHO DEFAULTED ON THE CAR LOAN".

Because they know damn good an well that it takes effort to understand all this, and most people won't put in the effort, because they have been taught that studying is hard. These are good hard working people that know about mortgages and credit cards, and find it very easy to just place the blame on the strawberry picker, sometime just half, sometimes in total.

Then the people who created that original Ponzi scheme being to hire the regulators that would have put them in prison, offering them a choice between a yearly salary that nets them more money than the average person makes in a lifetime, or the chance to stay at their low-paying government job and try, just try, to get a conviction of people who most people show little to no interest in convicting.

Hard choice, ain't it? :rofl:

It's easier for people to blame their neighbors, but how, in all good conscious, can they do that?. I would almost bet $10 that some will read the disparity in the data below and STILL say, yeah, but what about all those people that didn't pay their loans?.
Sigh...
__________________________________________________________________________

The total amount of consumer debt, reported by the St Louis Fed, is about $14 trillion. Of that, about

$10.4 trillion mortgages
$1.6 non-revolving credit
$977 billion consumer debt - that's been reported down to near $860 billion, not quite a trillion but close.
$477 other. (?)



Roughly $14 trillion total. The part that gets most people's attention is that which is bad debt. Of that:

Subprime is about 11% of the mortgage market, of which less than 20%, actually less than 200 billion, are bad. are $1.4 trillion. That's only part of the story though, because (from a residential mortgage report, Mortgage Bankers Association reports 51% of all foreclosed homes in the last three years were financed with prime loans."). But among all that there is about $400 billion a year in real loss. If we look at the roughly $100 million decrease in revolving credit (notice how the numbers are getting smaller - now we are talking millions) and assume, as reported, that a large part of that was write-offs, we could get to a trillion dollars worth of our problems caused by the consumer. But we have to start adding years.

There is more, of course, with the drag on productivity of debt, etc, but for simplicity lets stay with the real loss for a moment.

So far, as far as the consumer part of this, we have to add years together to start getting above $1 trillion in bad loans. And a significant portion of those were people who DID play by the rules, who weren't making loans they shouldn't make. They had 18 years on the job with increasing income, and really thought it would continue like their parents life.

But that just pales in comparison to Wall Street's binge of criminal activity, totalling into the tens of trillions of dollars. They encouraged the removal of underwriting standards, then paid rating agencies to give AAA ratings to loans they KNEW we not be repaid which allowed them to be sold as "safe as government bonds". Laws were changed with the lobbying of ex-Large Investment Bank employees (Goldman's being the most frequently identified and rewarded) now working IN the government. These firms sold duplicates of the same insurance, or credit default swaps, many dozens of times over, against loans they KNEW would go bad, to people with no insurable interest other than they were betting against the asset appreciating. (Note - I didn't say dropping, I said just staying even. That's all that had to happen for them to win.). They packaged and repackaged to get securitized loans in the hundreds of billions out the door, and, as we now know, essentially "hid" billions in the desk drawers when they couldn't sell them by holding the liability.

Remember the car analogy from earlier? Now do it with housing. You know a Collateralized Debt Obligation, (CDO) is - a bunch of mortgage (or whatever) loans in a bundle, a bond. You sell the bond to someone. You know better than anyone what is in it (many of the so-called sophisticated buyers really never knew what the contents of their CDO's were, they just invested pension fund or state or county or private money). That was so profitable that after you sell it, you sell it again, and again, many times. That, the "Synthetic CDO", works ok if you have the reserves to back it up. (This is where your tax dollars start to disappear, btw). You also sell insurance on the potential default, then sell copies of that, over and over, to people with no insurable interest.

The "reserves" that were laid under all this activity? Loans of money of as much as $35 or $40 for every supposedly sound $1. The value that they were on the hook for may have reached $750 trillion at one point, (had we lost every dollar in the market - even 8 or 10% of that total is a terribly destructive force on our economy - and their contracts said they had enough to pay all that off. They did, if you count the toxic assets they were using for reserves, and air that existed under the 35 or 40 dollars in loans on every dollar of inflated housing value. No, really. It was mostly cotton candy of course, but only a few people had taken the time to sit down and read even simple explanations. Those that did made public pronouncements, even disrespectful gestures and comments at public gatherings. Yet the ship sailed on...

But that probably wasn't their biggest stupid. Or maybe ours. They were operating on models that told them the housing market couldn't go down. One hedge fund founded on these models nearly collapsed in 1998. When these were studied, it became obvious to some that not only would the market go down and destroy all this, but that all it really had to do was STOP going up. All that did is light a fire under Wall Street, who saw the profits to be made in securitization of the debt of the market, and dived into it. Whole hog is probably not hyperbole. And when everything stopped going up, the Ponzi scheme began to topple.

The upshot of this was at least 10 million people added to our unemployment rolls, millions of people having lost and continuing to lose their homes, at least $40 trillion dollars in lost wealth, much in the United States and some outside of our borders.

So to apportion the responsibility correctly, we should put the score at

Wall Street 40*. Consumer 1.

*I would like to give double credit to the investment banks, however. These were smart people who knew damn well knew what the end-game would be, and did it anyway, because it was immensely profitable to them..

Note: This would be a really good story to go read now, and finish this later.

The real crooks live their fairly lavish lifestyle every day and laugh at us. They collected record bonuses in 2010. Banks are insolvent, only propped up by FASB rules which direct them to hold their assets on the books at higher values than they could possibly recover. The financial sector has been the beneficiary of as much as $23 trillion in loans from various programs, as well as the replacement of toxic assets with AAA rated treasury bonds, on which the banks collect interest. They are still the beneficiaries of hundreds of billions in zero-interest rate loans with they loan out for a solid return on millions of transactions each day. And by some estimates there is still $2 trillion outstanding in money owed by the investment banks. Yet we now have a record 40 million people, our neighbors, on food stamps.

There is not enough demand to put 27 million underemployed people back to work, and company after company reports that their profits are higher outside of our borders. The majority of states are insolvent, with deficits in their budgets running to the tens of billions of dollars. Pension funds may face a total shortfall of $2 trillion or more, and we are just beginning to see the glimmerings of that one. There is more detail, and more horror, to this story, but more is not necessarily going to help.

Just because we are familiar with home mortgages and credit cards probably means we ought to make extra effort to learn about the financial instruments which have effectively put a yoke on the labor of each and every American until all the debt they ran up is paid for. By design, however, it never will be.

Especially while we keep blaming our neighbors when, in the face of such overwhelming evidence, it is clear that their participation in the crisis is relatively negligible.

I just can't do that.

[CRH]

8. Enjoyed your analogy, ...

in some places it was accurate.

Though I do not think many undocumented strawberry pickers even to this day have credit problems, much less foreclosure problems.

And your compilation of a culpability ratio through a paper derivative figure, is as corrupt as the practice of issuing derivatives in the first place. Yes there were by most estimates over 750 trillion over sold and over lapping derivatives, that when the crash did come, should have become worthless paper. However as we both know, our government covered some of them with the AIG bailout, Citi, and others. Those losses are in the billions, not trillions. Add to this hundreds of billions more in losses to pension funds and individual accounts. Where is the rest of that paper now? Most of it is un collectable insurance at this point. However the largest damage caused was the fear derivatives instilled that froze the corrupt market and brought down the ponzi scheme. Main Street followed effecting many who didn't participate in the party.

What you have stated of the Wall Street practices are absolutely true, Matt Taibbi has plainly laid out all that you have said. Wall Street is and was corrupt and should be made to pay both in fines and incarceration.

But what you and everyone else refuse to address, is although the system was thoroughly corrupt, and should be reformed, the nature of the debt society we have participated in and allowed to dominate our lives, creates the problem. It preys on our desire to seek more materialism than we can afford. In the past banks would not allow us loans if they thought we could not pay. Credit cards started out a business convenience, department stores expected payment at the end of the month. Slowly that changed, personal credit cards were issued to credit worthy individuals, then eventually the flood gates opened and any one who had a pulse received one each month in the mail, needing only a phone call to activate. When the flood gates opened on mortgage requirements, people were already well trained at buying what they could not afford, they were ripe for the picking. What happened was predictable, if one only looked at the credit card debt that had piled up by the end of the Clinton administration.

People still had a choice, to suggest the debt culture that allowed people to live far beyond their means with wistful platitudes of repayment in the future didn't largely contribute, is empty of responsibility. Over half of the people have little or no debt, they made choices different from the thirty percent still trying to dig their way out of debt.

It takes two sides to consummate a contract. There have been times in my life I wanted a new car, or wanted a television, or wanted a bigger house, but I also knew I could not afford them under my current wages and obligations. End of story. Never lived with a balance on a credit card, paid them off at the end of every month for twenty five years. Not so with relatives and friends, they made different choices, and most have paid the piper.

In short Wall Street and their enablers need to be punished monetarily and when appropriate with incarceration, and people who have recklessly lived the debt culture need to feel the consequence of their actions as well. Most people in trouble with debt, made bad choices. Choices made because excessive debt became an accepted budget plan within our debt culture.

Your 40 to 1 ratio of culpability doesn't survive a thorough examination when counting what was worthless paper then, and worthless paper now.

[jtuck004]

9. What, specifically, didn't you like about the analogy? What is inaccurate?

Any ratio is fine, but one that is representative of the published numbers will show a huge difference. You are correct that people became too used to the easy availability of credit, but as their jobs changed and prices increased around them, while their salaries didn't keep up, what else were they to do? And money spent on homes only looks bad in hindsight - from the perspective of the family making $100K a year how could they have known the world had changed and they now needed to be saving 1/2 of that - screw the kid's college.

But trillions of dollars went to the banks, and they have not ALL been returned. That is orders of magnitude larger than the consumer problem just on its face. And the banks are still collecting a part of hundreds of billions of dollars - over and above the "bailout" funds - including zero interest rate loans and interest on Treasuries. This is documented in FCIC papers, a few other government and a few private sites, but still incomplete because some assets are shielded at private companies and the Fed, with no regulators willing to insist on transparency.

I think the above post mis-characterizes the position. It's not that I don't recognize the consumer issue, but I do recognize how small it is in their larger scheme. The TOTAL consumer market is barely $14 trillion, of which losses or bad loans are only now in the $1 trillion arena, vs liabilities (mostly loss) of the financial sector of around $140 trillion (in 2008, a figure from a former managing director at Bear and then Goldman, from the European and American desks that created the debt, the most conservative and "inside" statement I can find. And they have not all been disclosed, even today, so who knows how much real loss there is?).

The squids on the Street are working in pools of global, not local dollars, so their effect extends well beyond the effect of our consumer market. Their losses are certainly in the scores of trillions, and that is without adding 10 million unemployed, a few million foreclosures, perhaps 15 million people with no health insurance, and some percentage of the record 40 million people on food stamps, all directly a result of the Ponzi scheme and its collapse, and the priorities of where money is invested by the government. It is so large that the final bill may never get paid. Which I am sure would suit Wall Street, since they make money be collecting for that debt.

(On the other hand, if so many of our credit-trained consumers were more savvy and less susceptible to the charms of easy money, they might insist on a more just system, wherein the management of the large mortgage banks spend a few months in the general population of a state prison, and where consumer debt is then reduced to a more manageable level.)

We aren't in this trouble because people charged too much on their credit cards for big screen television. This is the wrong channel for that, and the proof says otherwise. It was a combination of the wealth-creating jobs lost over the past 25 or so years, and, while we are weak from that, the collapse of a multi-faceted Ponzi scheme perpetrated by Wall Street and their lobbyists and apologists in government offices, and the resultant reward for that behavior by their friends. The buyers of homes were just along for the ride. Some of those were sharpies that took advantage, but very small numbers, still, by comparison.

Read Broke, U.S.A. People aren't using easy credit just because they thought to. It was a business decision, a way to extract wealth from them. Extra fees are extracted from those who are the most vulnerable, yet they still try hard to stay even with what they borrow. As you said, most people live within their means. If they are behind on their bill at one payday store, they get a loan at another and start paying too high interest rates to both. But the larger point is the reason people open up pay day loan stores and high cost tax offices with 124% loans - those customers pay their bills. They generally try to avoid misusing credit - and they will sell their blood to pay your bill. Which is why their portion is so small.

For Wall Street, on the other hand, your blood is not enough.

I am not sure what legal system is being referred to. Here, when an insurance contract or a mortgage, or a derivative of one of these no matter how virtual it is, has a loss, someone is generally on the hook. You were correct, they could be looked at as worthless, but the person to whom the debt is owed still enforces a liability - so they don't just dry up and blow away. Ask most any pension fund manager if the people whose money they manage if those suddenly become worthless, or if they are now paying bills - bills for dog's sake - on these things they "invested" in. These were sophisticated investors who bought into the idea that the housing market would never go in the direction it did.

I do agree that fear played a large part in our problem. But having a few billions disappear from a pension fund is hardly just emotional - it means people won't get paid the money they thought they had saved for a time in their life when there was no other income. Ask the city in (Georgia?, I 'd have to look it up) that laid people off because the derivatives they took on and now owe for. They would like very much for that to become the above-referenced "worthless paper" , but it's not.

Btw, wanna change the strawberry picker to a guy that works at WalMart? Be my guest. ;) My favorite story from the financial crisis (which began with Reagan's visit to China in 1984, and the rise of companies like Manufacture in China) was that of the strawberry picker that was sold a $740,000 mortgage on a home. They convinced him he could afford it by their refinancing it for him when it went up in a year. There were tens of thousands of people and deals just like this, by customers who NEVER took a mortgage broker class in their life - they weren't the ones who knew now to get these loans past the underwriters. They were like putty in the hands of the mortgage salesperson. They were approached, cajoled, lied and marketed to just to get their signature and agreement for 2 minutes. Cops do it to suspects every day without their realizing it. And then they have you. There is plenty of documentation to support it. The books that detail this from Prins, Ritholtz, Johnson\Kwak, Smith, Taibbi, Lewis are out there, as well as reports from the FCIC and others.

A significant number knew what they were doing. But could they have foretold a de-valuation of their job, of themselves? The Federal Reserve president was on TV a two years AFTER AIG quit selling swaps telling everyone the market was fine, that housing would be unlikely to go down. If he didn't know, or was lying, how could people without his access know that there was so much fraud in the system around them, so much unsupportable debt? How could they possibly know that the day their home stopped increasing in value vast sums of money would They had a decent job, one of two in the house, and they invested into what had traditionally been a solid investment. "In the past, banks would not allow us loans if they thought we could not pay" was written in your post."Most people who have had trouble with debt made bad choices". But 51% of the bad loans today were written as Prime. They met the standards of common underwriting. And they are going bad faster now than the subprime. Something is wrong in Disneyland - You said credit buyers should be responsible. They were, and are. And their loans are going belly up.

And the agents of this massive scheme were the people on Wall Street. Not the now-trained-to-the-credit-yoke consumer.

Thank you for the post.

[CRH]

12. The analogy and other points, ...

So what is wrong with the analogy? How about, some of that happened sure, but the grand majority of the problems stemmed from people knowingly entering into contracts using wishful future scenarios of a never ending rise of home values, or a better job in the future, of better wages, or whatever. The people truly conned are a but a small slice of the problem.

To be sure the new age mortgages were unrealistic, no money down, interest only payments, adjustable rate mortgages with teaser entry rates that reset beyond capabilities. However much a future trap, people still knowingly rolled the dice.

Ever been to a carnival and watched the carnies work the marks. Ever been to a casino and watched people try to beat the odds, then lose. In both cases people are being led to believe they can win. And, it is perfectly legal. People are expected to exercise common sense, to retain a level of responsibility to ascertain when the odds are a suckers bet, or the bet is more than they can afford.

This is not to say mortgage contracts shouldn't be regulated and lending laws clearly defined. I personally very much believe in regulative over sight of the financial system and capitalism as a whole, but both parties of a contract, still have responsibility.

~~

Then the analogy travels from the illegal immigrant strawberry picker/ Walmart worker, to the scam laid down by Wall Street to free up more capital for the casino; credit derivatives, mostly credit default swaps (CDS's), and collateralized debt obligations (CDO's), tainted mortgage backed securities (MBS) as well as insurances and other synthetic instruments.

It is easy to blame Wall Street for all responsibility for the crash, but is it accurate?

Much of the questionable structuring of mortgages designed to fail, happened under the umbrella and jurisdiction of state laws and at the main street level of finance. Wall Street did invented credit derivatives that provided a fountain of renewable credit formation, that supported the corruption of the mortgage systems at state and main street levels. It should be noted, for nearly every transaction there were also local real estate agents eager for sales in inflated markets and mortgage brokers soliciting clients, not just Wall Street banks. The failures of the mortgage markets were systemic from main street to Wall Street.

However, not so with the credit market failure at the national and global level. Nearly all of that responsibility falls within investment banking, both on Wall Street and in foreign markets. For these crimes, it is a shame to see no incarcerations and little re regulation to follow the collapse. The result will be damn little lasting reform.

The use of credit derivatives did indeed freeze the credit markets and crashed the entire financial system, and it is a good thing it did. With uncontrolled spiraling of the cost of commercial and residential real estate, who would have been able to afford future markets? Certainly not the middle class, or their children. Only the very people who were profiting from the corrupted system had any hope to rise above others future restraints. House flippers and speculators were reaping sizable profits from the bogus market conditions having run wild, along with developers, and real estate agents. But the majority of home buyers between 2001 and 2007 paid a false inflated value even with a solid prime mortgage, and many are now underwater.

The skullduggery behind the credit market is not contested, but the stated levels of residual paper debt is not as great as many have stated. To be sure, losses are significant. The greatest loss is to the trust bestowed upon the investment markets. The remaining players are professional, the market has now become too sophisticated, global, risky and corrupted, for ordinary investors to have a chance with simple study and strategy.

The much quoted 750 trillion in derivatives is not an accurate figure if one is discussing the credit market of investment banking. Credit derivatives topped out near 58 Trillion. Though credit derivatives have been around for a long time the volume exploded from the year 2000 through 2006. In a article linked below is an example of the miss conception of many.

http://www.portfolio.com/views/columns/wall-street/2008/10/15/Credit-Derivatives-Role-in-Crash/

~~ excerpt ~~

J.P. Morgan continues to dominate the world of derivatives. It has derivatives contracts tied to $90 trillion of underlying securities. Of that, $10.2 trillion are credit-derivatives contracts. Those mind-boggling totals are somewhat misleading. They reflect what is called the “notional” amount in the world of derivatives, based on the underlying amount of the contract, not its current value. When offsetting contracts are taken into account, that figure is whittled down to a much smaller—though still enormous—$109 billion of derivatives, of which $26 billion are credit derivatives. That’s the amount the bank could lose if all its trading partners went out of business, an extremely remote event. But the exposure is climbing, up 17.4 percent from the end of 2007. That’s equal to 20 percent of the bank’s net worth.

~~ end excerpt ~~

As this illustrates, much of the party - counter party manipulation of debt risk off sets. That is not to say that this system is either wise or equitable, only that the actual liability is less than often presumed. The biggest problem and what caused the collapse of the corrupted market, is no transparency and creating credit and supposed wealth out of only paper without any physical collateral. There in lies the con of the casino, and ultimate corruption of, once thought to be safe securities. This also transcends the housing and credit markets, to include most forms of corporate debt and offerings of stocks and bonds. What are their true value, and where can it be found on the balance sheet, or is the debt, even on the balance sheet? The layman will never know.

So a good portion of your analogy though pointing out questionable and possibly immoral and illegal practices, in no way reduces individual responsibility for individual contracts. Whether Walmart workers, first time home buyers, people keeping up with the Jones, speculators, or house flippers, it is hard for me to think of these people as victims. If they are victims of anything, they are victims of the influences of a systematic debt inducing culture that captures desire and promotes frivolous consumption over inherent real need. The credit debt culture of desire.
~~

From your second post:

I think the above post mis-characterizes the position. It's not that I don't recognize the consumer issue, but I do recognize how small it is in their larger scheme. The TOTAL consumer market is barely $14 trillion, of which losses or bad loans are only now in the $1 trillion arena, vs liabilities (mostly loss) of the financial sector of around $140 trillion (in 2008, a figure from a former managing director at Bear and then Goldman, from the European and American desks that created the debt, the most conservative and "inside" statement I can find. And they have not all been disclosed, even today, so who knows how much real loss there is?).

I think this post mis-characterises the position, if it has been found that the total of the mortgages gone bad are near a trillion dollars, when the supposed 'real' loss of the financial sector is 140 trillion dollars. Where does all this loss come from, the leveraging alone, it is certainly not the MBS's? Now if you want to include all the 750 trillion dollars of derivatives, one, we are leaving the credit crisis arena, and two, many of those nominal values have been demonstrated to be cross party canceling, and the actual incurred losses are much less. The material loss for investors with home buyers included, is small fraction of the 140 trillion supposed 'liability (mostly loss)' by the financial sector. The numbers don't add up to anything other than hyperbole.

Included in the last post was the plight of the unemployed, an effect caused by the crash following the crisis.

Some perspective to think about. Most of the jobs created during the years of Bush II were created on false economy. The induced housing bubble provided jobs in real estate, the mortgage and finance industry, construction, materials sectors, as well as all the supporting jobs derived from this commerce. Those jobs and perhaps a few more, have been lost as the housing boom has bust. Subtracting those jobs of the false bubble economy from todays unemployment, would yield unemployment in the lower six percent range. The Bush administration realized almost no job growth while needing 150,000 jobs a month just to fulfill demand. The real growth in our economy while skidding between bubble after bubble, is near zero when factored for increasing need for employment. The average individual wealth continues to decrease in relation to the GDP. Our system has been failing provide for the future of our young, for many years. Without the false economy, unemployment will keep on rising.

Also to be held in perspective, is with no real GDP growth in non bubble economies, and the accompanying decrease in average individual wealth, is that the debt society we have been thrust has been the only thing supporting the level of living, of an ever increasing consumption of 'desired' materialism. Since the crash, the real economy has not been supporting growth in frivolous consumption.

IMHO, future wealth will come from what is saved, not spent. Our day of inventing wealth, has passed with the peaking of our resources. Our credit debt culture, will no longer soften the blow, of reality.

[jtuck004]

14. The OTC unregulated market is most likely a $600 trillion market.

Since it is not reported, it is only estimates from various sources. Internatinal Settlements says it is $1,444 Trillion worldwide. But they are just guessing too, I suspect.

The regulated amount reported in the ISDA, as you have pointed out, is much smaller.

Thanks.

[CRH]

15. The unregulated OTC markets, ...

In a global economy of 58 trillion GDP, the real physical value of anything in the 600 trillion figure is much smaller than the leveraged paper that supports. It is scary to even think of the 1,444 trillion International Settlements figure, when it must be acknowledged the global GDP is itself floated far above the physical value of commodities, products, services, and labor.

The system is clearly broken, no longer representing even a glimpse of logic or reality. Nor does it acknowledge that the future projected growth that is supposed to cover todays leveraged debt and credit, is limited by finite resource. We the people are the carnie's marks, the casinos' pigeons. We can only lessen the abuse by not participating in economy beyond needs.

It is why I have progressed, or regressed, I'm not sure, from a supporter of the political left to a platform of an armchair anarchist, with thoughts and actions tilting toward benevolence. The system is beyond repair, hope is tempered by reality, the pain of dualism blunted by emotional detachment.

Peace.

[jtuck004]

16. There is a certain amount of irony in anarchism these days, I think.

Your avowed goal is to abolish the state and remove authority, traditionally represented as action, or at least resistance, against a more powerful state.

Then the state goes and destroys itself. Poof.

And the anarchist, having watched the state take over and finish his/her life's work - essentially having watched the job
be outsourced just like all the rest - then proceeds to...?


:toast:

thanks.

[CRH]

17. Quit it, you are giving me a headache, ...

And the anarchist, having watched the state take over and finish his/her life's work - essentially having watched the job
be outsourced just like all the rest - then proceeds to...?

? Empty metaphysical thoughts of our purpose? I think your toasting beers is probably equally productive. !!!Cheers!!!

and, Thank You, jtuck

[robotamadeus]

10. Money Gods

Ive got some good books on the fall of the economy.  one was
called the Gods of Money.  it was about wallstreeters who
control the financial climate.  the other is Toxic Currency,
about realty and other archaic forms of finance structures
that still have a hold on the market today.

[head of joaquin]

11. Good books

Robert Sheer's The Great American Stick deals with this in detail. He's not a particularly good writer, but he takes on the issue from a progressive perspective. I also recommend Reich's book Aftermath, for a more scholarly view of what happened, and a bigger picture of what the real problem is (the deracination of the middle class by policies that shift wealth to the top bracket)

[ElbertHubbard]

13. Banking crisis was caused by this

Gramm-Leach-Bliley act of 1999. Signed by Clinton backed by Republicans.
http://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act

[upi402]

18. The film's trailer link here;

http://www.sonyclassics.com/insidejob/
Brilliant trailer, well done. Academy Award for sure, this.