Wall Street Has a Gambling Problem

[evildevil.livejournal.com]

Angry doesnt even begin to describe what I feel. The fact that Wall Street is willing to blame the consumers rather than take a hard look at themselves and what went wrong makes me wish we could return to teh old days when we used to arm people with pitchforks and torches to release our anger...

Edit: I dont know if you can watch the video, it is working fine for me, here is the link for the interview: http://www.thedailyshow.com/watch/tue-november-16-2010/exclusive---bethany-mclean---joe-nocera-extended-interview

(if you are in canada trying to watch the video, here is a link telling you how: http://theintrepid.blogspot.com/2009/10/how-to-watch-daily-show-and-other.html)


I mean how do justify madness like this?

The following flow chart reverse engineers the mortgage on the Ekstrom family residence. It took Dan over one year to take it this far and it clearly demonstrates what happens when there are too many lawyers being manufactured.

Take a look at this chart and then decide how long you think it will take for Barney Frank and Eric Holder to sort everything out.

Comments

[gunslnger.livejournal.com]

I like the black hole on the right side. That must be CERN.

[onefatmusicnerd.livejournal.com]

Letting physicists run our government, that explains so much.

"Why match my socks and balance a budget, when I could be researching the secrets of the universe?"

[ninboydean.livejournal.com]

Capitalism consistently evolves into advanced financial formulations meant to be distanced from production and based on fictitious-capital - that is capital whose basis is in money and, in effect, confidence.

These industries are doomed to crash, but its not a danger for the capitalist participants insofar as they can foresee and divest at the right time. All that bullshit about derivatives, securitizations and other forms of fictitious capital "helping industry by directing investment" completely ignore this aspect of the financial markets.

It's basically an overextension of value, or a mis-direction of value, from the real production-capital-value and consumer-value relations which exist in the "real" market. This "real" market is comprised of players who cannot readily divest of values - owners of fixed capital and consumers. Further, this mis-direction of value is increasingly beholden to confidence, which makes it incredibly volatile, unlike value which is tied to consumer goods and production capital, whose relation to confidence does not fundamentally dictate its value, but rather dictates marginal changes in a value-model which is largely fixed.

As a side note, this I why I love Jon Stewart. He makes an honest attempt to get to the root of these systems. NBC, CNN and their ilk can only rephrase these issues into childish partisan concerns.

[mijopo.livejournal.com]

FWIW, I'm usually disinclined to spend 15 minutes watching a video and your discussion of the graph seems to make no sense without it. (What is the Ekstrom family residence, what's so important about it? Who is Dan?)

If you want to stimulate some discussion you might summarize some of the key points of the video, possibly with pointers to the time in the video in which they're explicitly discussed or find web pages that also communicate the facts about which you're getting upset.

[rasilio.livejournal.com]

I have to agree, the post on it's surface looks interesting but since I get most of my online time at work and the company blocks all streaming media I can't exactly watch the video

[ddstory.livejournal.com]

Yes, a brief summation would've come handy.

[evildevil.livejournal.com]

I dont know if you are getting the correct video, for some reason they get something diff. I dont know

http://www.thedailyshow.com/watch/tue-november-16-2010/exclusive---bethany-mclean---joe-nocera-extended-interview

we should be seeing the Bethany McLean & Joe Nocera Extended Interview

[policraticus.livejournal.com]

This only matters to us because the government, and therefore the taxpayers, are underwriting the whole deal via FreddieMac and FannieMae and a Congress willing to pick up the pieces via TARP, etc. If this was just private people making bad decisions and investing in crazy, complicated financial instruments than it would only make the investors themselves angry. By attempting to insulate everyone from risk we allowed this entire fiasco to happen.

[rasilio.livejournal.com]

This


For all of the claims that the free market is the reason for the sub prime crisis everyone constantly overlooks just how regulated the housing and banking industries are and just how effectively socialized they were at their core with pretty much all risk being laid at the feet of the tax payer in one way or another.

[ninboydean.livejournal.com]

And yet, it was deregulation, private contracts and the financiers' derivatives which all played significant parts in the inflation and deflation of the housing market.

The insulation of risk via securitization is hardly a government phenomenon (its a banking practice formed via private interest) and there is no reason to exclude private market phenomena - particularly in instances of deregulation where it counted most - from the blame in this crisis.

[ninboydean.livejournal.com]

Furthermore, it was the government enhancement of risk by allowing consumer banking firms to start clearing CDOs (deregulation)and the like that actually extended the risk to the housing consumers.


You anti-govt kids are so confused about the market precisely because you're trying to find a way to blame regulation for its failure. But it is precisely the deregulation of the markets that have allowed this fiasco to occur, and there isn't a lot of legitimate criticism of this point so its so painfully obvious that the partisans simply prefer to divert our attention to it.

[rasilio.livejournal.com]

And yet none of it would have been a problem if those finance companies and their investors were left on the hook for the results of their actions.

The would have gone out of business and lost their investments, there would have been a temporary blip in the economy as it adjusted to the event and everyone would have gone on that much the wiser on how foolish those risky investments were.

Further one cannot possibly understate the role that government agencies Freddie and Fannie played in encouraging, practically even demanding that lenders make these ridiculous loans.

As long as the one taking the risk is the one who will realize the loss there is no need for government regulation to prevent an activity, the problem is government regulations were created to specifically interfere with this risk-loss relationship thereby encouraging risk by socializing much if not all of the losses.

[ninboydean.livejournal.com]

I don't disagree with what you cite until this (like all these "fraud cases" its neither the gov't nor the market as 'separate entities' totally to blame):

"As long as the one taking the risk is the one who will realize the loss there is no need for government regulation"

But that's precisely what derivatives cease to reflect. By inflating markets, derivatives traders basically play with numbers which others are beholden to.

the problem is government regulations were created to specifically interfere with this risk-loss relationship thereby encouraging risk by socializing much if not all of the losses.

And yet, precisely the example of regulation I cite (the gov't restriction of consumer banking firms from dealing in derivatives) is an isolation of risk from uninvolved parties.

And the deregulation of this is what precipitated the crisis. It was the freeing of the market which expanded risk and 'socialized it' (to use your bastardization of the phrase) across the whole housing market.

[sorvino23.livejournal.com]

Pardon me for interjecting on my break, but I see an issue here.

And yet none of it would have been a problem if those finance companies and their investors were left on the hook for the results of their actions

This would be a true statement if the nature of the game they were playing contained the risk to two counterparties. That's not the case for two reasons: 1. toxic debt was chopped up and spread around to a load of institutions that had no idea what was in them. 2. these securities were heavily levered. Once one institution blew up, those who were counterparty to its liabilities also blew up. The damage was already done before the government stepped in.

one cannot possibly understate the role that government agencies Freddie and Fannie played in encouraging, practically even demanding that lenders make these ridiculous loans.

One can certainly overstate the role that GSEs played. Without a doubt, Fannie and Freddie did play a role in the fiasco. But how much? Can you tell anyone here?

Technically (and largely a moot point but I'll say anyway), GSEs were not allowed to make subprime loans, though they irresponsibly bent the boundaries of their charters to get some in. Regardless, I think their liabilites, and those acting according to HUD, were somewhere along the lines of 1/5 of the entire subprime market if I remember right. There was plenty of private capital out there, flush with liquidity due to prolonged low interest rates, that was playing in that market.

[mijopo.livejournal.com]

I don't disagree with you that we can't overlook the government subsidized loss of moral hazard as a factor. But one can also look at Canada's banking system which is more highly regulated but which suffered no subprime crisis. It's pretty hard to look at the subprime data from around the world and not come away with the conclusion that the banking system weathered the crisis best where the government retained oversight.

(On the flip side, Canada doesn't grant mortgage interest rates deductions. Arguably, these debates should never really be about whether or not government intervention is good or bad. clearly, IMO, the answer is "it depends on whether they're going to be stupid or smart".)

[sorvino23.livejournal.com]

This issue matters to people not because the U.S. gov't is backstopping losses of GSEs, but because securitized debt instruments spread highly levered risk to a host of financial institutions that were not contractually involved in the originator's risk decisions. This was a primary cause of a recession that affected the world economy.

Systemic risk is the term, and it is a negative externality that affects the lowliest gas station attendant to the Lehman proprietary trader.

Besides, TARP came out OK -- your tax payers made a profit on it.

[telemann.livejournal.com]

Did you embed the correct video? Actually when you refresh the browser, you get different items. Oh my.

[evildevil.livejournal.com]

http://www.thedailyshow.com/watch/tue-november-16-2010/exclusive---bethany-mclean---joe-nocera-extended-interview

we should be seeing the Bethany McLean & Joe Nocera Extended Interview

[mijopo.livejournal.com]

For others who were as confused as I was by the big chart that got pasted into the OP, here's a story that gives it some context: http://news.yahoo.com/s/huffpost/20101118/cm_huffpost/785315

[reality-hammer.livejournal.com]

Take a look at this chart and then decide how long you think it will take for Barney Frank and Eric Holder to sort everything out.

That made me laugh.