"The Big Takeover" by Matt Taibbi is probably the best article written to
date explaining the financial crisis and how we got to where we are now.
Taibbi's necessarily lengthy article explains the problems, names the
"poipetrators"
must read.
AIG, Goldman Sachs, and J. P. Morgan turn out to be the major players
causing perhaps the greatest financial crisis in modern history--- even if
the pain is unlikely to get near Great Depression proportions, the dollar
losses to individual investors have certainly gone as far.
JPM was the brewmeister of the CDO, a vat full of various kinds of income
securities, determined to be less risky because the income on most would
almost certainly keep flowing--- kind of like the once popular junk bond
fund that Wall Street insisted was not risky at all because of the great
diversification.
A few years later, the Captains of the Universe created a breed of high
yield foreign government bonds where the interest was guaranteed but not the
principal. (Read that again.) Certainly, the CDO product should have been
looked over thoroughly by all the normal scam detectors and regulators.
But, what's that? Senator Phil Gramm, and his cronies on both sides of the
aisle, had just OK'd the demise of the depression era regulations that
prohibited the combination of Insurance Companies, Banks, and Investment
Banks. Let the games begin.
Later on, the bewigged ones would loosen bank-lending rules, institute
others that value mortgages as if they were common stocks, eliminate the
only firewall protecting shareowners from predatory short-sellers, and deem
that derivatives were not something that could be regulated by any existing
entity.
Basically, Taibbi rightly accuses Wall Street firms of finding loopholes in
rules and regulations, and squeezing creative products through the cracks in
the law for their own benefit. Even in areas where they are under SEC
supervision, over paid corporate lawyers and mathematicians are faster on
their feet than your average government employee.
AIG, and more specifically, its AIG Financial Products Unit was responsiple
for making the ridiculously risky CDO (Collateralized Debt Obligation) the
subject of the quasi insurance gambling devices known as Credit Default
Swaps, or CDS--- a CD with a capital S. (The AIGFP was headed by Joseph
Cassano, allegedly a student of Michael Milken.)
Taibbi explains how AIG used these Certificates of Doom as gambling chips to
create a multi-level risk betting industry, with no backing other than the
idea that nothing would ever cause the housing bubble to pop. The CDS
vehicle allowed the CDO industry to multiply because all of the risk was
being assumed by AIG.
But, and this particular "but" should be in 72-point type, they insured the
same loss multiple times without ever having the reserves on hand to cover
any of the potential losses. The house-of-cards on the Hudson is built on a
shared and intertwined foundation. Paulson's Goldman Sachs, for example, was
AIG's biggest whale.
The final straw was how AIG got itself out from under the regulatory eye by
fraudulently arranging for supervision by the OTS (Office of Thrift
Supervision)
entire staff. The OTS, it seems, never examined AIG, ever.
The article goes on to dig deeply into the bailouts; the Paulson, Geitner,
and Liddy interrelationships, and more. But it reverberates the message
voiced years ago in the first edition of "The Brainwashing of the American
Investor: The Book that Wall Street Does Not Want You to Read".
The arrogance of the financial institutions, the mad scientists they employ
to manipulate the rules and rule makers, and the Emperor's New Clothes
(trust me they're safe) marketing tactics they employ really do need to be
regulated--- by the government, sure; by corporate boards of directors,
absolutely.
In a Working Capital Model world, there would be no financial crisis.
BigGains !!
Change settings via the Web (Yahoo! ID required)
Change settings via email: Switch delivery to Daily Digest | Switch format to Traditional
Visit Your Group | Yahoo! Groups Terms of Use | Unsubscribe
No comments:
Post a Comment