Alchemy Lives!
I'm not an economic idiot -- I remember what "elasticity of demand" means -- but I may be an economic special-needs person. Even so, there's one fact about the current credit meltdown that seems to be escaping a lot of attention. I know President Bush wants to solve the problem, and leave the process of finding out how the problem came about for later (maybe four months down the road?), but my needs aren't that special.
So here goes: the key to the process of wrapping questionable mortgages together in fancy financial packages and selling them to financial institutions far away was making those packages attractive. What better way than to turn them into bonds rated AAA, the same rating given to bonds issued by our strongest corporations and best-managed cities? But how does that happen? It would seem to be like turning dross into gold, the old alchemists' trick.
Enter the bond-rating agencies, the folks whose job it is to signal to investors which bonds are golden and which are junk (even junk bonds had their day, although it was in the 1980s). So what possibly convinced these normally sober ladies and gentlemen that financial instruments that basically turned slices of questionable mortgages into "securities" deserved a triple-A rating? I'm all ears.
Maybe Carly Fiorina could explain it to me.
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You misunderstand the fundamentals of Bushenomics 101. If the current bailout of $700 billion goes belly up you borrow another $700 billion to cover it.
Keep repeating until the deficit reaches $100 trillion dollars and China won't lend you any more.
The slow-mo Fascist takeover of America is nealry complete. What began in 1932 as an inept attempt at a military coup (google 'business plot' or 'smedley butler') to remove the socialist Roosevelt (long considered by Republicanites to be a traitor to his class), has finally been achieved after all these years. Soon many mysteries will become clear and we will ask ourselves why we didn't see it coming. I, for one, will not go quietly. I can only hope that other true patriots feel the same. The end is near. This is not a drill.
It's funny that "the greatest generation" as they refer to themselves, the ones who benefitted most from Roosevelt's ideas and actions, the one's who got jobs and benefits and social security and suburbia, are the ones that keep electing republicans.
Ahhh cause and effect, the hobgoblin of the linear mind. While everyone is busy blaming (rightfully so) our greedy financial establishments, why isn't anyone asking why the subprime mortgages failed in the first place??? It's because people couldn't write the check. Why couldn't they write the check you ask? Because their job(s), their livelihood, their careers, their hard earned sources of income got shipped off to lower wage earners someplace else. Why is that? Because the irresponsible, simple minded and out-of-date GREED policies of the Republican party have been allowed to prevail for the last 8 years. Now that's cause and effect!
What about the simple-minded greedy individuals who took out mortgages they knew they couldn't pay, perhaps in an effort to flip the house for a quick profit?
Surely, personal responsibility can be expected of main street as well as Wall street.
Greed IS the american dream.
Speaking as someone who has never been able to buy a home, and finally got out of debt and saved in order to do so, and I say let it burn baby. No bailout no how.
sounds like when the patriot act got passed. Hurry Hurry or else. All I have heard that would happen is you couldnt use your credit cards. Yes I know more would happen however maybe its just because the repubs are going to voted out and they know it, so the game has to stop and now is the time to get caught up at our expense.Wh
And if we do this maybe take all the assets of all the people that made so much profit over the last 8 yrs. Let them know how it feels to lose their homes and jobs.
Very much like the Patriot Act but in a more sinister way. If these firms were allowed to go bankrupt, their every transgression, connection and quasi-legal actions, the PEOPLE would see how corrupt both the Market and Congress and the Fed are. When these folks get done, the Market will be fine, the Big Bosses will be fine and most of the PEOPLE will be worse off.
"Maybe Carly Fiorina could explain it to me."
I doubt it. She isn't capable of running a big corporation. (Wink, wink, nudge, nudge say no more.)
Or even consulting for a small one, if her experience with the Palin/McCain campaign is any indication.
Carley is a clueless mouthpiece demonstrating the level of competence that governs corporate America- not a meritocracy. Its now easy to see why she failed as CEO of HP. You are so correct about the rating agencies. Rating agencies- a disgraceful sellout of responsibilities over profits and inexperienced analysts.
Actually, she wasn't a total failure at HP. As part of the Republican Wrecking Crew, she did manage to destroy the corporate culture that used to be called "The HP Way," part of which was no layoffs, and turn the place into another soulless ant hill. So please, let's give credit where credit is due.
So right... my bad. More credit for the superb business strategy, the stunningly successful Compaq merger and best of all, the $24 million going away gift. Go Carley.
Ant hills actually work far better. And no layoffs.
These people have the gift of reverse alchemy.Th
REWRITE—Per the Rule-of-Law & God given Common-Sen
Include CONTINUOUS ONGOING BICAMERAL SPECIAL COMMITTEE OVERSIGHT.
INSTALL A BIPARTISON FUND GOVERNING BOARD, preferably headed by Paul Volcker, responsible to sign off and limit each major Bailout Expenditure Initiative to be undertaken by the Treasury Secretary.
PREREQUISITE TAXPAYER EQUITY/CON
PROVIDE FOR APPROPRIATE COURT JURISDICTION, perhaps by Special DC Appellate Panel, with reasonable restrictions on actions in equity, consistent with the time critical, emergency nature of the Bailout Initiative.
REQUIREMENT for CORPORATE PARTICIPATION being a supplemental tax on future profits (broadly defined) until all taxpayer losses are repaid with prime rate+ interest.
Requirement any preferential treatment, which might be provided American Headquartered companies, tied with long term (10 year minimum) requirement that primary headquarters remain in U.S.
SIGNIFICANT LONG TERM ALTERNATE MINIMUM TAX requirement on all firms provided assistance.
Bipartisan Commission solely comprised of every willing Nobel Laureate Economists charged with the mission of reregulating corporate accounting standards--given that this entire meltdown is wholly traceable to instruments created for the primary purpose fictionally eliminate liabilities, thus creating fictional profits (e.g. credit default swaps).
The better the rating, the more crap the IBs could sell. The more they could sell, the more they ended up paying the ratings companies that worked for them. Part of the issue is the HUGE conflict of interest.
Another part is the volume of financial products that needed ratings and the complexity of many of those derivatives (the Investment Bank quants vs. the rating agencies quants). When the top executives of the banks themselves don't know what the products (the derivatives) really are and what risk they represent, how can the foot soldiers at the ratings agencies?
They just kept passing the buck (in some ways eerily similar to Enron and the off the balance sheet financial arrangements Andy Fastow et. al. came up with).
As to Paulson's bailout program...
Fiorina is a twit, and that is why she did not do so well in her last job. Maybe she could start a dog grooming parlor which would be about her speed.
Pity the poor dog, that's animal abuse!
The AAA part does sound like collusion.
The tendency began in the offices of loan originators. It was common practice to beef up the stats of young borrowers while writing the loan applicatio
Another reality check question: Before we spend $700 billion, please, calculate the monthly sum of all those mortgage notes. I bet $10 billion per month will pay them all.
Forgive my bumbling terminology (I'm on the short yellow bus with Harry) - are you talking about the sub-prime mortgages? At this point their true worth is indeterminable because the original seller (broker) resold them; many were bundled and resold as securities. The gov't is moving to put them into an RTC (Resolution Trust Corp). Think of the RTC as a box into which these securities will be plopped; the box will be held onto until such time that "the experts" have an idea of what to do with them. They will need to be disentangled one by one in order to see what the value of each is. But for now, the dirty laundry will be separated from the "clean", sort of like drawing a double line at the end of a column of figures and starting fresh on a new page.
If this RTC thing happens, as the sub-primes mortgages are disentangled, US taxpayers will also be in the real estate business, or slum lords depending on the condition of the properties if they were foreclosed upon.
This is how my pea brain envisions just this aspect of the problem.
in 1999 congress passed and clinton signed the repeal of the act(glass-
in 2000 congress passed and clinton signed a bill that made it impossible for the government to regulate what were called collateralized debt obligations(CDOs).
usa where the working class bails out the wealthy; once again.
That bill in '99 was authored by Phil 'Enron' Gramm, who is now McCain's financial adviser; and likely to his choice for a treasury secretary.
Are you sitting down Harry?
An error in the formula in the software at the ratings company.
Yup, they set up a program, garbage in, AAA+ out.
And when it comes to finance if one person makes money at it everybody piles on.
Maybe we should call it virtual alchemy!
There is also the Chris Cox failures, doing the administrations bidding:
1 Failure to enforce disclosure laws and regulations.
2 Failure to enforce accounting standards.
3 Failure to supervise the rating agencies.
4 Failure to investigate and prevent market manipulation, i.e., naked short selling.
5 Failure to protect small investors.
http://see
See Harry Shearer's Profile
Which accounting standards? Steve Forbes was on TV this morning complaining about the lunacy of the "mark-to-market" accounting standard being enforced. As to naked short selling, aren't short sellers basically just the market's sharks sniffing out the weak fish?
from the article cited, "When Cox states that the SEC doesn’t have regulatory authority over capital adequacy of financial services companies, he isn’t telling the truth. The SEC has regulatory authority over the financial statements of ALL publicly traded companies in the U.S. which of course includes the financials. If Cox had required greater reserves and transparency of financial services companies it would have happened. "
I'm not a financial expert, nor play one on TV, but I understand the role short selling has; but with naked short selling, doesn't that end up with an infinite number of possible shares; thereby, distorting (or manipulating) the market?
Ironically, over the past few years, FASB has been strongly pushing standards toward Fair Value accounting. While the current crisis has shed some light on the inadequacies of this model, it is not without merit. The Fair Value model is probably a more accurate model 95% of the time and appropriate for most line items. Unfortunately, it doesn't bode well for exotic securities in volatile times or financial firms whose well being is largely determined by their capital base.
I also have yet to see any evidence that would lead me to believe that shorting has caused or played a large part in the current crisis. Sure it can lead to price distortions, but only in the short term.
See how Ron Paul, interviewed on CNN, weighs in:
http://www
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