Wednesday, April 21

too dumb to be happening



The Moron-in-Chief is headed to Manhattan to crush capitalism, impede Wall Street, reward all his rich banker buddies with Too Big To Fail bailout guarantees and possibly introduce America to the dreaded VAT.

May God save the Republic and help us elect a Congressional majority of Constitutional Republicans in six months.

I agree with the wise words spoken by NYC Mayor Mike Bloomberg last week: "The bashing of Wall Street is something that should worry everybody."

Also worrisome? The new $100 bill. Democrats just insist upon emulating Europe.

13 Comments:

Blogger Jason said...

Whats up buddy? You should be bashing wallstreet. While I wouldn't want to bore you with the finance, they are the biggest contributor to the subprime mortgage crisis which I think contributed heavily to the state of our present economy (I used the word "think" half-jokingly since the statement is common sense).

Whats up man? Haven't been to the blog in a while, figured I'd stop by!

8:46 PM  
Blogger Jaz said...

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9:41 AM  
Blogger Jaz said...

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9:45 AM  
Blogger Jaz said...

Blaming Wall Street is blaming a symptom of the problem and ignoring the root cause.

It was the Federal Government's ham handed attempt at social engineering by doing whatever it could practically to encourage banks to give loans to those who could not pay them back in the name of getting every American to be a home owner that is the root cause of the financial crisis.

That bankers and people in financial services created debt instruments around an ill advised policy does not mean that they caused the problem in the first place.

Wall Street was actually smart enough to hedge it bets with credit default swaps and CDO's. They saw how unsustainable and ridiculous the loans that the government was encouraging bankers to make were and they bet against them.

"Wall Street" is an amorphous concept anyway. Who are we really blaming when we blame Wall Street as if its some kind of coherent entity? It's just a bunch of capitalists doing some stuff based on the framework that the government sets up.

It is the Federal Government's responsibility to not make policy that leads to the perfect storm in the first place.

But the law of unintended consequences is ignored and the Feds go on creating more feel good yet irresponsible new policies and programs like Obamacare all the while blaming some vague entity like "Wall Street" when things go badly.

9:46 AM  
Blogger Jason said...

Smart enough to hedge their bet? Pretty sure credit default swaps actually encouraged the banks to loan more money so they could have someone on the other end of the "bet".

The ONLY reason they created credit default swaps was because a small number (very small number) of investors called the brokerage houses and asked for them. The "smart" brokerage houses first reaction? Laugh, hang up, disregard etc.

The CDO's are a joke, an even bigger joke are synthetic CDO's. Considering the rating agencies, the brokerage houses, investors, etc can't explain whats in a CDO tells me that you (and me) don't know what is actually in them either. I won't even get into the fact that a CDO is NOT any sort of hedge. So I'll give you the benefit of the doubt and assume you meant something else.

Blaming wall street is blaming the rating agencies, blaming the brokerage houses, etc.

Since you think brokerage houses were "smart" to hedge their bets, I would encourage you to do a bit more research on the subject. It's actually pretty fascinating finance. I have a Financial Engineering degree, I studied this stuff, and frankly, I know more about it than most. That may be cocky, but its true.

4:05 PM  
Blogger Jason said...

Fact 1: Year 2000, $130 Billion in subprime mortgage loans and $55 billion in mortgage bonds. Year 2005, $625 Billion in subprime mortgage loans and $507 billion in mortgage bonds.

Fact 2: There were 0, let me repeat ZERO public subprime lending companies in America.

Fact 3: Blaming Wall Street. A brokerage huose sells a credit default swap, gets someone to insure it (i.e. AIG), claims the entire transaction is risk free to them and hold it off its balance sheet. I'm not arguing for a bailout but asking you to imagine what would have happened if AIG failed to insure these bets?

fact 4: Blaming Wall Street 2. The rating agencies are ignorant and brokerage houses are crooks. They were outsmarted by the brokerage houses. Their rating models looked for an average FICO score of a certain level. Now, to put it simply an entire portfolio of a certain score is infinitely safer than a portfolio of half really high scores and half really low scores. BUT the brokerage houses knew how the models worked and packaged portfolios with high and low knowing it would get a higher rating than it should have, but selling it regardless.

Fact 5: To create a billion dollar CDO you needed to lend $50 billion in cash to actual borrowers.

Just food for thought.

4:34 PM  
Blogger Jason said...

I don't think my point on part 3 was actually very clear. The transaction IS risk free if the insurer makes good on the bet. But in reality, there is risk. Obviously since we know how the AIG thing turned out. But the brokerage houses hid them off their balance sheet anyways.

4:36 PM  
Blogger Jaz said...

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5:47 AM  
Blogger Jaz said...

CDO's have been used as primary elements of hedge funds. I don't think it is accurate to say that CDO's aren't "any kind of hedge".

http://bigpicture.typepad.com/comments/2007/06/cdo-hedge-funds.html

So yes in and of themselves I supposed CDO's are not individually a hedge. But if they are the assets that are being hedged against, that's good enough for me to consider them part of this discussion.

All you've done here is to continue to make my point by explaining some of the things that went wrong based on what the government allowed to happen.

To you the financial crisis was completely born out of Wall Street, to me the root cause is found further back in history when the government created the Community Reinvestment Act in 1977 which started the ball rolling with the encouragement of risky loans. It doesn't matter if the government itself was giving the loans or not. So long as the government was creating incentives for bankers to give risky loans, that is enough to qualify as leading us into the perfect storm.

So you can talk about elements of the perfect storm like the ratings agencies who clearly failed to do their job, but to me the question is who navigated us into the perfect storm in the first place? Answer: The Federal Government and the CRA.

"...the CRA seeks to ensure the provision of credit to all parts of a community, regardless of the relative wealth or poverty of a neighborhood." -wiki

5:49 AM  
Blogger Jaz said...

Goldman Sachs

Read that about Goldman Sachs and Democrats and understand that I have no inherent interest in giving these cronies a pass, I just think that when discussing the nature of the financial crisis the scope should be broadened beyond focusing only on what went wrong on Wall Street.

7:21 AM  
Blogger Jason said...

Well it doesn't sound like we're debating. My problem is what a CDO is, or as I'll bring up again, a synthetic CDO. They aren't actual assets. They are an indicator, a reference point of an asset. In the discussion we're having, a CDO is basically a collection of the bottom tranches of a mortgage bond. So they take the riskiest tranche, bundle them together, then use them as a reference point to bet against (credit default swap). It's not an asset, it's not a bond, its not a share of stock, it is a reference point. By creating these reference points they came up with a derivative to bet for against. Like I said earlier, pretty fascinating finance when you get into the details. And since I'm a sucker for the stuff, it really interests me.

I don't think its fair to blame the government, not entirely, although they should take plenty of the blame. It was a failure of mass proportions and several parties.

How about this... how about blaming these brokerage houses for going public in the 80's (Soloman). All of these companies were private. Then they went public. Why is this important? Because it was genius... all of the risk of these companies was now passed on to stockholders, not the partners. Thus, they can perform these elaborate trades and create these exotic derivatives.

Again, a fascinating subject. Nice work, thanks for the links!

7:20 PM  
Blogger Kent said...

I love it when my boys get a discussion going.

Jason, I think you get a lot of stuff right here. But I think the government was the driving factor here (as much as making money was/is a driving factor on Wall Street.)

The Democrats have been pushing for minority home ownership since the Carter years. Why?

Not because it's good for the country but because it's a vote-getter.

Clinton revived the push and along with the Republican Congress in the '90's repealed Glass-Stegall. Bush, while warning Congress about Fannie and Freddie, encouraged minority home ownership.

Both political parties have been pandering to the minority communities for so long, it makes me sick. And both political parties have chosen to ignore the many problems we face, preferring to kick the can down the road for someone else to deal with.

I do not support more government regulation on Wall Street and I don't agree that it is needed. The Dodd bill, as I read it, is full of bailouts and landmines for those of us left behind after Dodd goes back home to Connecticut to die.

12:01 PM  
Blogger Kent said...

The thing that continues to stick in my craw is the idea that Democrats were given more power in 2006 and 2008 in government when they were the ones primarily responsible for the financial meltdown.

Nobody did more to prevent reform of Fannie and Freddie than Chris Dodd and Barney Frank. Even Barack Obama opposed F & F reform as a senator.

12:16 PM  

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