You think indirectly they are the biggest people to blame for this? The defense of what they were doing is a huge factor in bankrupting this country isn’t it?
I would say no. The actual cost of the “War on terror” is pretty small in relative terms. I think the real culprit is people wanting, and worse, getting more than they should.
In a regular “Free market” you only get what you can afford. In a market that is being pressured to certain factors more than they would be under less pressure the whole market gets off kilter. We’ve been “Tilting” markets for decades, not just since 9/11.
if you can’t, then perhaps you’re a right wing anarchist rather than somewhere on the political spectrum between centrism and libertariansm.
Or maybe you can’t speak English because this ***please, read this, then take off your ideological hat because so far you haven’t really proposed any factual arguments for why an attempt to socialize ******bank losses. ***makes no sense. What the hell does “for why an attempt to socialize bank losses” mean?
…your thesis is fundamentally too narrow and thus incorrect…
Agreed, I couldn’t post in the LR otherwise
it was not fraud. that’s the way markets innovate.
You could have put that in pink font. I’ve heard that argument but I disagree. IIRC the financial industry (and Greenspan) lobbied heavily to keep these unregulated (during the Clinton years?) so specific funding targets were not regulated.
But… the reason I believe it was fraud is that the models people were using suggested they would (probably) never have to pay off on these vehicles which to me does not excuse you from maintaining the ability to do so. If you’ve charged for insurance without the ability to supply it that’s fraud. I’ve even wondered if the larger financial institutions could be charged under RICO for using “too big to fail” as essentially a criminal collusion in the case that they were all ever caught without the ability to pay up on these vehicles.
I think that at least part of the reason why Matt couldn’t understand your sentence is that its last clause has no predicate. (I couldn’t understand it either.) Instead of badgering him for not understanding, why don’t you fill in the missing words?
OK. I will read the paper ASAP. Can you perhaps enlighten us on what the possible outcomes are of a economic collapse. It appears everyone has their own idea(big surprise here) of what or what not could happen. I don’t see how money would hold any value, it would be like monopoly money. I do see where precious metals would be worth something in barter. The same with medicine or drugs or …?
the culprit in this particular instance, i’d say, was not that the financial markets sold these kinds of instruments but that they were almost entirely unregulated. there was a complete lack of truly international regulation.
Depends on how you look at it. When markets “innovate” and create these new, “exotic”, and “innovative” financial instruments (mortgage backed securities, CDOs, etc.) and you mix in greed, it is a recipe for fraud. At first, these newly created financial products are not fully understood and how they work. In addition, financial institutions develop their own valuation models for the securities they created - an inherent conflict of interest and easier to deceive the public and engage in unscrupulous practices for personal gain.
Regulation by the SEC is slow to catch on to these new financial instruments and figure out ways on how to regulate them. By the time, they do figure how to regulate them and actually enforce that regulation, the financial institution has moved on to create some other new and “innovative” security.
Matt couldn’t understand your sentence is that its last clause has no predicate.
Grammar was never my strong suit…but unless I’ve recently had a stroke I can still read. Something is definitely missing from that sentence. Then maybe being a right wing wacko makes certain words disappear or something.
You may not know all the rules of grammar consciously, but you have what linguists call “competence” in the English language, which enables you to intuit quickly whether or not a sentence is syntactically valid.
But… the reason I believe it was fraud is that the models people were using suggested they would (probably) never have to pay off on these vehicles which to me does not excuse you from maintaining the ability to do so. If you’ve charged for insurance without the ability to supply it that’s fraud. I’ve even wondered if the larger financial institutions could be charged under RICO for using “too big to fail” as essentially a criminal collusion in the case that they were all ever caught without the ability to pay up on these vehicles.
Thanks for the link btw, I’ll check into it.
Some of what you are saying is accurate and perhaps its semantics, but I would challange the notion it was fraud as well. Nobody understood the true nature of the risk, it wasn’t that the insurance didn’t exist, its that it was grossly inadequate. When you bundle assets, you expect them to default based on a certain profile in terms of who, when and how much (loss given default). Obviously you don’t need 100% coverage backstopping the paper or there would be no way to sell it. So what is the proper number? I am just guessing, but I suspect the number is much smaller than you would believe probably less than 100bps as recently as 18 months ago. If you suddenly have quarters over quarters of sustained 300bps in losses some of which are coming from AAA rated paper where zero risk premiums were priced in the whole thing falls like a house of cards.
So it wasn’t so much fraud (which implies intent) as much as it was ignorance and greed. If you accurately price in risk, you might be undercutting profits in the short run, but you limit your downside. Unfortunately loss limitation is not the primary driver for corporations.
What I am seeing now are loans being funded at HUGE spreads. In the bank environment spreads are rising, expenses are shrinking and all anyone is trying to do is figure out is how big the hole in the middle actually is. Suffice to say it is not 400 bps which is what investment grade credits are being priced at today. Below investment grade deals are being priced at 500-900 bps which WAY out in left field. The banks that make it out of this are going to generate enormous profits in the near future.
..I would challange the notion it was fraud as well. Nobody understood the true nature of the risk, it wasn’t that the insurance didn’t exist, its that it was grossly inadequate…
So it wasn’t so much fraud (which implies intent) as much as it was ignorance and greed
I am implying intent, and I am suggesting the insurance was beyond grossly inadequate and that it didn’t exist. The financial industry lobbied congress not to place restrictions on the % of capital needed to cover these investment vehicles, and as a result I really do think there was zero additional capital put aside from the sales of the insurance.
I may not know economics (not really sure anyone does) but I do know about Monte-Carlo simulation, statistics and the type of modeling that financial institutions must have been using to do this predictions. These are smart folks and some of them must have realized that with no additional capital put aside it wouldn’t take much downside (i.e. payout required) for the system to collapse. Imagine if property insurers banked on revenues from future sales/clients to cover the bill if a Katrina happened for example.
RICO offenses
Under the law, racketeering activity means:
…
Bankruptcy or securities fraud;…
Securities fraud, also known as stock fraud and investment fraud, is a practice in which investors make purchase or sale decisions on the basis of false information, frequently resulting in losses, in violation of the securities laws. Generally speaking, securities fraud consists of deceptive practices in the stock and commodity markets, and occurs when investors are enticed to part with their money based on untrue statements
So selling insurance in which you have no intention of paying (and have no ability to do so), either because your models say it was unlikely you would have to, or if you did have to pay in any significant amount the government would bail you out (you being your co-RICO conspirators) because you are too big to fail, is consistent with sales based on “false information”.
