Our financial system is crumbling this week.

[Freed Roger]

Here are currently .. America's biggest rats imo:

1. Christopher Cox ... Bush's appointed chairman of the Securities and Exchange Commision. The really nice guy who oversaw this whole fiasco and didn't do a damn thing to try and stop it.

2. CEO Stan O'Neal .. chief executive officer of Merril Lynch

3. CEO Dick Fold .. of Lehman Brothers.

4. CEO James Cayne of Bear Sterns.

Each took home tens of millions of dollars in pay for making decisions that destroyed their firms.

They all belong in jail pending further investigation by the Justice Department

Phil Gramm belongs on the top of that list.

Definitely concur on Cox. The guy had a well-known committment to de-regulation and privatizing to extreme. he had no business being the guy who oversaw that balance sheets were accurately reported. under Cox- these sham mortgage investment packages received stellar investment grades.

Others to add to the list
the guy who appointed Cox. Bush belongs on the list. The president sets the tone. Putting a guy like Cox in charge (and other moves) sends this signal to Wall St. - anything goes.

Greenspan.- hyper-deflation of the interest rate. meddling that led to the bubble, then bust.

Cyron -CEO of Fannie Mae. with his $18 million salary.

and lastly - the GOP. With their control, the attitude toward govt has been "kill the beast" almost deliberately making govt fail, for the sake of ushering some sort of smaller govt that serves their wishes. sadly their moves have had an opposite effect, our govt (which include military operations) is bigger than ever - and growing.

[sighyoung]

There were so many problems at so many levels (from individuals getting mortgages, to mortgage lenders, to mortgage insurers), and such lack of common sense, and even endemic fraud, that it's hard to single out one group or set of individuals.

I will nominate, however, the sponsors of the Commodity Futures Modernization Act of 2000, which deregulated many banking products, and which was passed in both houses of Congress without debate, and which was signed into law by President Clinton. The deregulated products included credit default swaps (the banking insurance that A.I.G. and Lehman Brothers and others provided to mortgage lenders, and for which neither had sufficient cash reserves on hand).

[greenback44]

I will nominate, however, the sponsors of the Commodity Futures Modernization Act of 2000, which deregulated many banking products, and which was passed in both houses of Congress without debate, and which was signed into law by President Clinton. The deregulated products included credit default swaps (the banking insurance that A.I.G. and Lehman Brothers and others provided to mortgage lenders, and for which neither had sufficient cash reserves on hand).

The problem for the CDS issuers was they couldn't know what level of capital/reserves would be sufficient until after the fact. Yes, it's an obvious point, but it's pretty close to what I do for a living, so it's something I'm particularly sensitive to. If you look at historical models (which is probably what they did), then this crisis should not have happened, not even close. Somebody else just learned the lesson of why historical models for human behavior sometimes break (incidentally there's money to be made, along with a decent helping of schadenfreude, exploiting the statistical naifs on Wall Street). Even taking that naivete into consideration, AIG probably had as good a grasp of the risks involved with $500+ billion of credit insurance as anybody in the House or Senate. They just f'd up.

Robert Willumstad, the former CEO of AIG, should be everybody's hero now. Reportedly he's rejecting his $22 million severance payment. Good for him.

[sighyoung]

I will nominate, however, the sponsors of the Commodity Futures Modernization Act of 2000, which deregulated many banking products, and which was passed in both houses of Congress without debate, and which was signed into law by President Clinton. The deregulated products included credit default swaps (the banking insurance that A.I.G. and Lehman Brothers and others provided to mortgage lenders, and for which neither had sufficient cash reserves on hand).

The problem for the CDS issuers was they couldn't know what level of capital/reserves would be sufficient until after the fact. Yes, it's an obvious point, but it's pretty close to what I do for a living, so it's something I'm particularly sensitive to. If you look at historical models (which is probably what they did), then this crisis should not have happened, not even close. Somebody else just learned the lesson of why historical models for human behavior sometimes break (incidentally there's money to be made, along with a decent helping of schadenfreude, exploiting the statistical naifs on Wall Street). Even taking that naivete into consideration, AIG probably had as good a grasp of the risks involved with $500+ billion of credit insurance as anybody in the House or Senate. They just f'd up.

Robert Willumstad, the former CEO of AIG, should be everybody's hero now. Reportedly he's rejecting his $22 million severance payment. Good for him.

Thanks for the post and explanation. And I'll second you on Willumstad.

[heyzeus]

This is really worth reading! And it has stick figure drawings, so that makes it fun.

http://www.scribd.com/doc/2190705/CDO-P ... ime-Primer

[jim]

I will nominate, however, the sponsors of the Commodity Futures Modernization Act of 2000, which deregulated many banking products, and which was passed in both houses of Congress without debate, and which was signed into law by President Clinton. The deregulated products included credit default swaps (the banking insurance that A.I.G. and Lehman Brothers and others provided to mortgage lenders, and for which neither had sufficient cash reserves on hand).

The problem for the CDS issuers was they couldn't know what level of capital/reserves would be sufficient until after the fact. Yes, it's an obvious point, but it's pretty close to what I do for a living, so it's something I'm particularly sensitive to. If you look at historical models (which is probably what they did), then this crisis should not have happened, not even close. Somebody else just learned the lesson of why historical models for human behavior sometimes break (incidentally there's money to be made, along with a decent helping of schadenfreude, exploiting the statistical naifs on Wall Street). Even taking that naivete into consideration, AIG probably had as good a grasp of the risks involved with $500+ billion of credit insurance as anybody in the House or Senate. They just f'd up.

Robert Willumstad, the former CEO of AIG, should be everybody's hero now. Reportedly he's rejecting his $22 million severance payment. Good for him.

My wife is also in the financial field and understands this much better than I, but I always ask her about the reliance on "history" when dealing with something that is more of a social science. First off, it's not alot of history .. about 1/1000 of the time that people have been roaming the earth yet Economists will back on it like it's a fundamental law of the universe.

My biggest problem is that when I took a common sense approach to how loans were being given out, I knew it was going to crash and burn. My first house we put 20% down (we have done that on every house since btw), and got the 3rd degree on why I had 4 jobs within my first 5 years out of college. I felt like a criminal almost, I really felt like I had to answer that to their satisfaction or they weren't going to give me the loan. I felt like I had to earn their trust before they gave me a truckload of money.

I don't know about theoretical economic models, but it doesn't take an Allen Greenspan to look at how they were processing loans and knowing that was a recipe for disaster. Just common sense imo. If you don't have the money to buy something, then you can't buy it. And if you loan money to those people, you won't get it back.

[Leroy]

This is really worth reading! And it has stick figure drawings, so that makes it fun.

http://www.scribd.com/doc/2190705/CDO-P ... ime-Primer

That's pretty good.

[Hungary Jack]

This is really worth reading! And it has stick figure drawings, so that makes it fun.

http://www.scribd.com/doc/2190705/CDO-P ... ime-Primer

That's pretty good.

That's hilarious.

[greenback44]

I don't know about theoretical economic models, but it doesn't take an Allen Greenspan to look at how they were processing loans and knowing that was a recipe for disaster. Just common sense imo. If you don't have the money to buy something, then you can't buy it. And if you loan money to those people, you won't get it back.

Common sense also said Tampa Bay had no chance in the AL East and the LHC is an extravagance. Even if you follow common sense rules, you're still left with the question of how risky this stuff would be. Was it 10% worse? Was it 10 times worse? The question had to be answered because this country decided a while back that people should own houses and capital should flow unabated to those willing to use it (which may be the reason for the bailout). The people tasked with finding an answer weren't involved with the loan processing, which only exacerbated the problem.

I have little interest in defending the people responsible for this mess. You're right, it was dumb behavior. But the solution to this problem will require much more than a large bucket of cash and a couple of show trials.

[Arthur Dent]

From: Minister of the Treasury Paulson
Subject: REQUEST FOR URGENT CONFIDENTIAL BUSINESS RELATIONSHIP

Dear American:

I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.

I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.

I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transactin is 100% safe.

This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.

Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.

Yours Faithfully Minister of Treasury Paulson


http://blogs.wsj.com/economics/2008/09/ ... -treasury/