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The best article I've read so far on the end of Wall Street's Boom

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  • The best article I've read so far on the end of Wall Street's Boom

    Incidentally titled "The End of Wall Street's Boom"

    He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says.
    “This was the engine of doom.” Then he draws a picture of several towers of debt. The first tower is made of the original subprime loans that had been piled together. At the top of this tower is the AAA tranche, just below it the AA tranche, and so on down to the riskiest, the BBB tranche—the bonds Eisman had shorted. But Wall Street had used these BBB tranches—the worst of the worst—to build yet another tower of bonds: a “particularly egregious” C.D.O. The reason they did this was that the rating agencies, presented with the pile of bonds backed by dubious loans, would pronounce most of them AAA. These bonds could then be sold to investors—pension funds, insurance companies—who were allowed to invest only in highly rated securities. “I cannot ****ing believe this is allowed—I must have said that a thousand times in the past two years,” Eisman says.
    “As we sat there [after the collapse], we were weirdly calm,” Moses says. “We felt insulated from the whole market reality. It was an out-of-body experience. We just sat and watched the people pass and talked about what might happen next. How many of these people were going to lose their jobs. Who was going to rent these buildings after all the Wall Street firms collapsed.” Eisman was appalled. “Look,” he said. “I’m short. I don’t want the country to go into a depression. I just want it to ****ing deleverage.” He had tried a thousand times in a thousand ways to explain how screwed up the business was, and no one wanted to hear it. “That Wall Street has gone down because of this is justice,” he says. “They ****ed people. They built a castle to rip people off. Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience.”
    Just stunning.
    ~~ Veritas simplex oratio est ~~
    No matter how far a wizard goes, he will always come back for his hat. --T. Pratchett

    <---- You know you're getting old when you rely on your forum meta-data to remind you how old you are.


  • #2
    Re: The best article I've read so far on the end of Wall Street's Boom

    I never really believed that ENRON and Tyco and other scandals where the end of it. I wanted to believe but just couldn't.

    There is a common thread among all this. I just know it.
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    • #3
      Re: The best article I've read so far on the end of Wall Street's Boom

      Good post Rincewind. The last line of what you quoted is the crux of the issue - "Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience. My biggest fear is that this won't change - not in the banking system, not in the corporatocracy (see GM), and not even in government.

      The tragic catharsis for me was when Greenspan testified before the House Oversight Committee in October and essentially declared his 30-year belief in the free market system as critically flawed.

      Former Federal Reserve Chairman Alan Greenspan, describing the current financial crisis as a "once-in-a-century credit tsunami" acknowledged Thursday that the crisis has exposed flaws in his thinking and in the workings of the free-market system.

      Greenspan told the House Oversight Committee that his belief that banks would be more prudent in their lending practices because of the need to protect their stockholders had been proven wrong by the current crisis. He called this a "mistake" in his views and said he had been shocked by that.

      Greenspan said he had made a "mistake" in believing that banks in operating in their self-interest would be sufficient to protect their shareholders and the equity in their institutions.

      Greenspan called this "a flaw in the model that I perceived is the critical functioning structure that defines how the world works."

      The head of the nation's central bank for 18 1/2 years, Greenspan said in his testimony to the committee that he and others who believed lending institutions would do a good job of protecting their shareholders are in a "state of shocked disbelief."
      I don't think enough people paid attention to this - especially the part about how the world works. Ayn Rand was wrong. Time to call it for what it is - greed rules, and it will fail us every single time.

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      • #4
        Re: The best article I've read so far on the end of Wall Street's Boom

        The bad thing is, as flawed as the free market can be, government intervention can be even worse, seeing as politicians can be the most corrupt among our society. Too many greedy little buggers have their hands in the pot. Politicians, Executives, and even everyday citizens who stupidly bought homes and other crap they couldn't afford. I think our whole nation got greedy, the times got too artificially prosperous, and this is what we get. I believe there is no perfect solution. As much as I hate the idea of government interference, maybe some sort of legislation to curb exorbitant CEO severance packages might be in order.
        "Common sense is not so common." -Voltaire

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        • #5
          Re: The best article I've read so far on the end of Wall Street's Boom

          Originally posted by War.mongeR1 View Post
          As much as I hate the idea of government interference, maybe some sort of legislation to curb exorbitant CEO severance packages might be in order.
          What's that got to do with it? Greed runs in the bloodlines of the business. One of the basic truths of capitalism is that you get to reap what you sow, rags or riches. If there should be any laws written about compensation, it should have to do with failure and collapse. The fact that some of these guys get away in gold-plated lifeboats while the ship they were sailing sinks in flames (with the stockholders on board) is wrong. But that has nothing to do with the greater economic effects at stake - this is a failure of capitalism that the free market can't and won't solve.

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          • #6
            Re: The best article I've read so far on the end of Wall Street's Boom

            So what can solve it if not the free market ?
            A state controlled market ?
            Hasn't that been tried several times with horrible results ?
            What was the real level of government interference with the sub-prime market ?
            I have heard that government and community organizing groups forced the loans on the banks and later said they would cover the cost of any defaults but to what extent was that force used ?
            Or did the banks see a new revenue source and jumped on it without planning for the crash they all knew was coming ?
            I heard guys I know in the financial industry bitching about too much credit in the late 90s so this wasn't really a surprise to the people in the industry.
            The federal government certainly knew it was a problem in 2000 when they tried to investigate and were shut down by the people who controlled the oversight.
            Why haven't people like Barney Frank and Chris Dodd lost their jobs ?
            They were in charge of oversight and they clearly failed.

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            • #7
              Re: The best article I've read so far on the end of Wall Street's Boom

              Originally posted by KomradeObama View Post
              So what can solve it if not the free market ?
              A state controlled market ?
              Hasn't that been tried several times with horrible results ?
              False dilemma alert.

              Originally posted by KomradeObama View Post
              What was the real level of government interference with the sub-prime market ?
              I have heard that government and community organizing groups forced the loans on the banks and later said they would cover the cost of any defaults but to what extent was that force used ?
              This has been covered in several other threads, but in short: No. The government didn't create complex financial derivatives based on bad loans and put a giant house of cards on top. The government didn't program the financial models to never consider the price of a house going down.

              Originally posted by KomradeObama View Post
              Or did the banks see a new revenue source and jumped on it without planning for the crash they all knew was coming ?
              Acutally they didn't all know or they would've went short. Some may have been willfully ignorant. Most lacked the proper incentives to "rock the boat".

              Why haven't people like Barney Frank and Chris Dodd lost their jobs ?
              They were in charge of oversight and they clearly failed.
              Maybe, but I think that's a side issue being used for political purposes to distract people from the real, more intrinsic, problems of the system.

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              • #8
                Re: The best article I've read so far on the end of Wall Street's Boom

                The derivatives would make the losses less severe than otherwise. CDOs spread risk around instead of keeping it concentrated in one place.

                And yes, the government (Fannie Mae / Freddie Mac) did in fact subsidize bad loans by the boatload.
                Last edited by Nikolas; 11-15-2008, 04:00 PM.
                A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

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                • #9
                  Re: The best article I've read so far on the end of Wall Street's Boom

                  So in essence the facts here depend on your ideology ?
                  Because either we the people underwrote the loans or we didn't.
                  If we did, then we have to bail them out, but if we didn't .....they lose and so do millions of people.
                  As far as I have read the banks are not using the money already given to deal with problem and are still giving bonuses to executives that watched the ship sink.
                  The big three need a bailout, as does Amex and several large cities so to me it would seem to be people who tried to cheat the system that caused the problem rather than the system itself.

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                  • #10
                    Re: The best article I've read so far on the end of Wall Street's Boom

                    He had tried a thousand times in a thousand ways to explain how screwed up the business was, and no one wanted to hear it.
                    Who did he talk to? How come we here at TG never heard about it? Sounds like he didn't do a very good job of whistle-blowing.

                    BTW, on a related note, I just heard recently that some women paid $400,000 to a Nigerian phish scam. Apparently a lot of Wallstreet players are just as easily fooled, and want to be fooled.

                    Consider all the innumerate people who play lotteries, not understanding the math behind them.
                    Dude, seriously, WHAT handkerchief?

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                    • #11
                      Re: The best article I've read so far on the end of Wall Street's Boom

                      Originally posted by ScratchMonkey View Post
                      Who did he talk to? How come we here at TG never heard about it? Sounds like he didn't do a very good job of whistle-blowing.
                      Read the article. Really. It's a bit long but it's very well written and very insightful. As a bonus, you wouldn't be asking us to answer a question that is extensively covered in the article. ;)
                      ~~ Veritas simplex oratio est ~~
                      No matter how far a wizard goes, he will always come back for his hat. --T. Pratchett

                      <---- You know you're getting old when you rely on your forum meta-data to remind you how old you are.

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                      • #12
                        Re: The best article I've read so far on the end of Wall Street's Boom

                        Originally posted by ScratchMonkey View Post
                        Consider all the innumerate people who play lotteries, not understanding the math behind them.
                        I play every time the jackpot breaks $100million, simply because it's worth a dollar for the entertainment of daydreaming about what I'd do if I won.
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                        • #13
                          Re: The best article I've read so far on the end of Wall Street's Boom

                          Originally posted by CingularDuality View Post
                          I play every time the jackpot breaks $100million, simply because it's worth a dollar for the entertainment of daydreaming about what I'd do if I won.
                          You've said this before :) and now when the jackpot breaks 100M I also daydream about what I'd do with the money (free computer to all TG SM's anyone?) for free. :D
                          ~~ Veritas simplex oratio est ~~
                          No matter how far a wizard goes, he will always come back for his hat. --T. Pratchett

                          <---- You know you're getting old when you rely on your forum meta-data to remind you how old you are.

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                          • #14
                            Re: The best article I've read so far on the end of Wall Street's Boom

                            Originally posted by Rincewind View Post
                            You've said this before :) and now when the jackpot breaks 100M I also daydream about what I'd do with the money (free computer to all TG SM's anyone?) for free. :D
                            Yes, but your daydreams, by their very nature, are inferior to mine because you know that you don't have a chance to win, while I do.
                            Become a supporting member!
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                            Take the world's smallest political quiz! "I was touched by His Noodly Appendage."
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                            • #15
                              Re: The best article I've read so far on the end of Wall Street's Boom

                              Originally posted by CingularDuality View Post
                              Yes, but your daydreams, by their very nature, are inferior to mine because you know that you don't have a chance to win, while I do.
                              LMAO !
                              My daydream is that drug money courier has a seizure in the car ahead of me and crashes.
                              When, as a concerned citizen, I stop to help,I see the money, take it and run calling 911 as I leave.
                              Same daydreams, about the same probability of it happening and it doesn't cost me anything.

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