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POPSWall Street: Hurry Up and Die, So We Can Make a Profit Mr. Doherty says that in reaction to widespread securitization, insurers most likely would have to raise the premiums on new life policies. “It’s bittersweet,” said James D. Cox, a professor of corporate and securities law at Duke University. “The sweet part is there are investors interested in exotic products created by underwriters who make large fees and rating agencies who then get paid to confer ratings. The bitter part is it’s a return to the good old days.”
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POPSThis Is Primarily a Crisis of Globalization
The economic growth rate depends on two factors: the technological ability to increase the supply of goods and services and the sociological ability to enlarge demand for those goods and services. It's that sociological ability that failed. In a narrowly identified, especially national, framework, a company does not make the reduction of its total salary expenses a priority (the "Fordist compromise": I increase my workers' salaries so that they can buy my cars). However, with globalization, salaries are perceived solely as a cost, and, as soon as that happens, they stagnate. Ford's heir today could say, "I don't increase my workers' salaries because otherwise they'll buy foreign cars that cost less because salaries are lower there." But this stagnation weighs down demand, compresses domestic demand, and consequently global demand and economic growth: so then unemployment grows. That's where the key to the problem is to be found: foreign demand is not always higher relative to do
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POPSThe Man Who Blew Up Wall Street I tend toward the camp who says that the software isn't the problem. As one of the commenters says, "Osinski's software wasn't at fault any more than the manufacturer of his computer was at fault."
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POPSAbrogating AIG's Bonus Contracts Very interesting post by Rutgers law professor Anna Gelpern on whether AIG's bonus contracts can be abrogated. In short, the answer is yes. But it's a slippery slope that shouldn't be used "early and often." Check out her analysis.
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POPSFixing A Failed Financial System On this view, the relaxation of regulation was a good thing because it did not impair the ability to innovate. As a basic precept, getting out of the way of innovation is generally a good thing. But once a concept becomes an article of faith, important questions and consequences tend to go overlooked. The result was a financial market of ever more complex instruments that were not well understood. But the key failing was something different: it was that the credit risks were not distributed. A large portion of them stayed on the books--or just off the books--of the major leveraged financial institutions. Rather than distributing risks, there was a pooling of risk in the largest financial institutions that made them very vulnerable and, because of their complex interconnections, very dangerous to the whole financial system. Obama and Geithner need plenty of advice--and it's available!
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POPSSummer of Rage Ironies this is a very unfair crisis. The epicentre is the United States, but the rest of the world, and particularly America's trading partners, will get hit harder than the U.S.
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POPSAxis of Upheaval If only we'd taken care of business at home:a financial chain reaction, beginning in the U.S. subprime mortgage market, spreading through the banking system, reaching into the “shadow” system of credit based on securitization, and now triggering collapses in asset prices and economic activity around the world.
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POPSDon't Push Banks to Make Bad Loans Bankers should always lend prudently, as they are now doing. If they are jawboned or worse by Washington into reckless lending, the U.S. will set itself up for another debt crisis, even before the present mess has been cleaned up.
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POPSFrank Foresees Sweeping Regulatory Overhaul "I think we can make the argument, as the New Deal did, that in fact we are being very pro-market." He said that securitization -- used to repackage mortgage loans and sell them to investors as bonds -- has "good aspects" when done right but can also lead to abuses. Mr. Frank predicted that legislation to tighten consumer protections in the credit card market and to crack down on mortgage lending abuses would become law. He also said bank regulators would adopt a code to prevent unfair and deceptive practices.
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POPSThe "miracle" of securitization This quiet little piece is probably the sharpest analysis of what actually went wrong with our financial system that I've read. Here's a money quote: ``Securitization was based on the premise that a fool was born every minute,'' Joseph Stiglitz, a professor of economics at Columbia University in New York, told a congressional committee on Oct. 21. ``Globalization meant that there was a global landscape on which they could search for those fools -- and they found them everywhere.''
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POPSPaulson Was Against Cumbersome Regulations
Now he's trying to defuse the crisis deregulation has caused... (excerpt) Today, (Paulson's) Goldman stands alone as the only bank that has yet to take huge write-downs in the credit crisis. However, IT was an INTEGRAL PART OF A MONEY-HUNGRY WALL ST. CULTURE that helped build, oil and maintain the securitization and SPIN-OFFS, underlying the current mortgage-fueled problems. The financial crisis has swirled around the White House in more violent waves. But each sign of economic trouble brought assurances from regulators, Mr. Paulson and others in the Bush adm. that the housing sector was experiencing a “CORRECTION” or a “REPRICING OF RISK” (ROVE-NEWSPEAK) that would work its way through the system without throwing the economy into a steep downturn. Each assurance soon ran aground as more bad economic news poured in. (MOTHER OF ALL SELF-RIGHTEOUS QUOTES) "the real problem facing Wall Street was a welter of cumbersome regulations" - Henry Paulson (Yew recon HE LEARNED SOMEthang)
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POPSGlobal Bankers Seek Raid Taxpayers On Subprime Fiasco Currently, Attorneys General in New York, Ohio, and Colorado are investigating illegal appraiser activity with respect to banks and other lenders pressuring appraisers to fudge their appraisals. The Securities and Exchange Commission is currently investigating illegal activity at credit rating companies who might have been pressured into issuing artificially high credit ratings. For the investment bankers, most of their profit is taken out of the "enhancement" value at the expense of the underlying investment that is being purchased by unsuspecting investors. In other words, the ultimate investor is getting hosed from the start but the house of cards doesn't fall until the cash flow starts to dry up -- as in, John Doe can't make his house payment and goes into default on his mortgage. Securitizations made against the subprime lending markets were simply the weakest links in the financial chain.
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POPSClayton Holdings Subpoenaed In SEC Subprime Probe The SEC has been looking for potential accounting irregularities in the securitization of subprime mortgages for some months. A suspicion is that firms have been using credit quality ratings as the basis for pricing and marking issues of collaterallised debt obligations (CDOs), which are repackaged pools of debt, in this case subprime mortgages, sold to investors. CDOs are not easy to price as there is not an active market in them. Most times it is a matter of an educated guess. But a credit quality rating is not the same as a valuation. No doubt some investors have taken the two to be the same, and suffered as a result. But who encouraged them to think so? And is it sharp or illegal practice if a firm did encourage them to do so. That is something the SEC is trying to work out. -- PM
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