How Wall Street Neary Destroyed the American Economy

[Retire Soon]

Below is a link that will take you to Sunday's CBS 60 Minutes. This news story offers an accurate explanation of how Wall Street used "Credit Default Swaps" to nearly destroy the American Economy.

Wall Street's Shadow Market Video - CBSNews.com

 

[chinaco]

I saw it also. It is shocking.

I will not be satisfied unless those $h!th3ads go to jail. This was little more than looking for a loophole to deceive investors and make a bunch of money for the execs short term.

It was not in the best interest of anyone except those that made fortunes with the scheme... they were setting up something that was inevitable to fail. I suspect they figured by the time it failed, they would be gone so who cares. The next guy is holding the bag.

The Feds need to reach back and start prosecuting former CEOs and execs that were in charge when this began.

We will not get our money back (as investors) but we can at least see those @$$holes on the news doing the perp walk.

 

[socca]

I will not be satisfied unless those $h!th3ads go to jail.

This isn't useful. As the video points out, it was the low-paid clerks who were buying and selling these instruments. The high-paid execs just let the bets roll because they were profiting immensely from them. No one really understood what they were doing. So, where does the blame lie? How many people do you want to send to jail, and what would be accomplished by this?

The video does highlight why I think that bailout is the wrong approach: current and future taxpayers may not be able to cover Wall Street's staggering losses. Converting Wall Street's mountain of bad debt into a taxpayers' mountain of new debt may not be possible even if it is morally justified, which it isn't. We should let Wall Street completely collapse under its pile of bad debt, and then rebuild a new, better financial system in its place. The challenge is how to do a 'controlled implosion' that doesn't injure innocent bystanders.

 

[al_bundy]

one of the people on Fast Money on CNBC said it's only fair that if you send the execs to jail you do the same to the millions of people that committed fraud in the last few years by lying on their mortgage applications+

 

[dex]

My understanding is that CDS are not regulated so, what is there to prosecute them on?

 

[al_bundy]

supposedly you can prosecute people because wall street paid the ratings agencies for AAA ratings on subprime debt for the good ratings. but then you have to wonder what drugs the buyers were smoking. most of the buyers were large institutional investors with herds of MBA's on staff who were supposed to research this stuff and not just buy it because of a AAA rating

 

[Gearhead Jim]

one of the people on Fast Money on CNBC said it's only fair that if you send the execs to jail you do the same to the millions of people that committed fraud in the last few years by lying on their mortgage applications+

Exactly.

 

[Bikerdude]

nearly?

 

[Abreutime]

nearly?

Do you honestly think this is the worst it can be?

 

[Independent]

one of the people on Fast Money on CNBC said it's only fair that if you send the execs to jail you do the same to the millions of people that committed fraud in the last few years by lying on their mortgage applications+

I expect that both the execs and the borrowers would be very hard to prosecute - the execs will say there were no laws prohibiting their actions, and the borrowers will say that the mortgage broker lied to them.

However, in a "fair" world, it would seem that we could fine the execs to the point where their financial position after the fine would be similar to the financial position of the average dishonest borrower.

 

[ziggy29]

However, in a "fair" world, it would seem that we could fine the execs to the point where their financial position after the fine would be similar to the financial position of the average dishonest borrower.

Sounds like that would open up a new insurance industry -- malpractice for Wall Street fat cats.

 

[audreyh1]

You'd think that when Buffett called CDSs "weapons of mass financial destruction" years ago, someone would sit up and listen!

Audrey

 

[lazygood4nothinbum]

at the barmitzva scavenger hunt, the kids had run back to the dj with a sock with a hole in it, his scam being that every sock has a "hole" in it, the "hole" you stick your foot through to put the sock on.

thing is, that's not what a hole in a sock is. just like the top of a glass where you place your lips to drink is not a hole in a glass. a hole in a glass (a cup) is an opening from where the glass would leak, contrary to its function. that is how we derive meaning. misuse of meaning when not simply used to play a joke, but to defraud, is called a scam.

i don't believe for a second that everyone didn't know what they were doing. words have meaning. context has meaning, application has meaning. to say that a swap is not insurance is ludicrous. this is called a scam. plain and simple. since when isn't scamming prosecutable.

 

[Running_Man]

You'd think that when Buffett called CDSs "weapons of mass financial destruction" years ago, someone would sit up and listen!

Audrey

Even on this board just 6 months ago, our Nords and Brewer were saying to ignore Buffet as unreliable in his market statements. I think pretty much anyone who believed what is occuring was possible was treated as the posts in that thread display.


http://www.early-retirement.org/for...le-is-a-disaster-waiting-to-happen-33986.html

 

[lazygood4nothinbum]

it's ok everyone, calm down. firecalc says you can survive this.

 

[ziggy29]

it's ok everyone, calm down. firecalc says you can survive this.

With assumptions of reduced (if any) SS and almost no pension?

 

[soupcxan]

This is pretty weak journalism. First, the $60T value that they cite for CDS is a notional value, not an actual value. The actual value of the CDS is but a fraction of that. Second, they act like the MBS created themselves out of thin air. Surely the individuals who took out ridiculous mortgages (either as speculators, over-leveraged individuals hoping to profit from the real estate market, or those who drained their home equity to buy flat screen TVs or go on vacation) are complicit in this mess. If people had stopped to think, maybe I shouldn't get a mortgage that is 10x my annual income, or maybe I shouldn't sign up for monthly payments that are 50% of my take home pay, there would not have been bad loans filling up the MBS. Not to mention - why were the buyers of MBS asleep at the wheel? Joe Sixpack couldn't buy MBS even if he had known what they were - these were the domain of banks, hedge funds, and pension plans, who pay their staffs big bucks because they are supposed to be financial experts. If they failed to do proper due diligence before putting their funds at risk, they have no one to blame but themselves. The fact that S&P/Moody's rated these things is convenient but that doesn't excuse investors from doing a sanity check. And this doesn't even get into Greenspan who kept rates way too low for too long once a housing bubble was apparent, or congress who kept pushing Fannie and Freddie into riskier sectors of the mortgage market.

Don't get me wrong, the CEOs of firms involved with these products deserve blame for this mess, but they are by no means the only ones who shirked their responsibility.

 

[ziggy29]

This is pretty weak journalism.

Another thing is that sometimes these alarmist numbers add up all the total "value" of the derivatives, but many of them are similar "bets" in opposite directions. For example, a $1 billion position of derivatives that rise if the market does one thing may have a corresponding $1 billion position that does just the opposite. The net effect for these in any market is to cancel each other out.

It's like saying someone has a $1,000 long position on SPY and a $1,000 short position on SPY and saying they have $2,000 "at risk" in the market when, for all intents and purposes, they have zero because one bet cancels the other out (minus frictional costs).

 

[lazygood4nothinbum]

With assumptions of reduced (if any) SS and almost no pension?

oh, that little thing. i had already taken that out of my equation when i planned to reduce my expenditures by 30% by moving onto the ranch as ranch manager & renting out my house besides considering exiting this extended vacation to get a 2nd job. that's gotta be more fun & less stress than watching these markets, at least for now. hope it gets better for everyone before all hope is lost. this ain't pretty.

 

[camberiu]

Almost 2 years ago, Gary North published this article that is of psychic like precision about the crisis we face today. Interestingly enough, the article was hammered by Brewers and Nords, who called the author a nutjob, piglet sodomizer and many other things. Funny how things turn out the way they do.

 

[Bikerdude]

Do you honestly think this is the worst it can be?

Not yet. The fallout is just beginning.

 

[cute fuzzy bunny]

Its even funnier when folks like Bill Gross have been predicting this outcome for 15 years.

When something goes wrong, you can always find someone that 'predicted' it. If it was predictable or even somewhat obvious, everyone would have known it was going to happen.

So what is Gary North now saying will happen over the next two years, so we can check his precision?

 

[ziggy29]

Its even funnier when folks like Bill Gross have been predicting this outcome for 15 years.

Elaine Garzarelli made a career out of "calling" the 1987 crash. The problem is, those who followed her after the crash didn't fare all too well based on her subsequent record.

 

[huusom]

one of the people on Fast Money on CNBC said it's only fair that if you send the execs to jail you do the same to the millions of people that committed fraud in the last few years by lying on their mortgage applications+

I think we should do the same we do to the drug dealers and drug users. We sent the drug dealers (executives) and the drug users (mortgagees) to rehab.

 

[camberiu]

From everything I've read from Gary North, he was always said that once the **** hits the fan, no one can know what will happen. It can be anything, from Civil Unrest, government collapse, world war or just a very simple and uneventful depression. We are on uncharted territory now, as the world markets have never been this interconnected and we have never seen this many derivatives and the level of deleveraging we are seeing now. I doubt anyone can predict where we are heading to now.