I read today that the reason we have not seen more charges brought against bankers is the government lawyers think they cannot prevail against the defense the bankers can bring, due to their deep pockets.
Total BS or not?
Not to say it’s not, but I think there are things that can be improved.
I am saying I don’t approve of gambling where the gambling affects the outcome of something unrelated to the gambling. The economic function of it is of precious little concern to me at this moment.
Speculation on deliverable commodities, that I have no particular objection to (aside from extreme trading on the margin, which as I’ve already said, I think actual producers/consumers ought be able to get around–one ought to be able to use one’s own expected future production to trade on the margin, and someone buying the commodity for actual use is going to have a plan to pay for it.) The act of having a contract that requires you to actually deliver or take delivery of the item means that you need to have a plan to be involved if the market goes a very strange direction and you can’t unload. That will naturally serve to make speculation a little more risky.
I have a moral objection to financial futures for roughly the same reason I object to a certain class of CDS instruments: I disapprove of gambling with someone else’s money (margin/leverage) and I disapprove even more of being able to place bets on something you’re externally affecting the outcome of.
Obviously. I just want it to.
I don’t, in fact, think they’re always long–that was just for illustration (a short-seller driving the price down and then getting penalized for not being able to deliver would be equally amusing to me). Speculating using contract instruments that don’t require physical delivery strikes me as, I dunno, as if the guys at the sports bookie actually affected the playing field they were betting on.
It’s funny, because that sounds pretty much like what you did (poorly) every time you flailed at engaging me.
The funny thing is, this was just a small part of the hissy fit he threw when, after saying I was done debating him, I noted in passing that he was citing a bad source. 
Let me refer you to posts 256, 262, 264, 266, 267…
Really, that was the part where it became clear that Scylla had absolutely no idea what he was talking about.
I’m interpreting “Another 15 years or so in various related roles, the specifics of which I can’t disclose.” as “I totally did fifteen tours in the sandbox, and I had to literally register my hands as deadly weapons, but I can’t tell you my MOS.”
What sort of leverage do you thinmk I as an individual investor can get on buying treasuries?
I know a lot of people on wall street and almost every last one of them are very smart, very hard working and very driven by money. You simply don’t survive if you don’t have those three characteristics. Amoral (not immoral) greed will be ever present on walls treet and you have to regulate it or they will go down whichever road will increase the size of their next paycheck because noone on wall street is sure that they will have a job next year.
So then you would agree that most of your complaints cold be addressed with sufficient regulation and oversight (including perhaps an insurance fund).
I don’t know if he doesn’t know what he is talking about or if he has just gotten lazy and imprecise because he thought he was dealing with a less sophisticated audience than he is used to.
Tax lawyer.
I agree that in today’s market people consider municipal bond insurance to be insurance but it is the exception not the rule. Classically speaking, investment risk (including default risk) were not considered insurance risk. There is a line of cases starting with Helvering v. Legierse that addresses insurance, I think most tax lawyers you speak to would agree with me. I don’t think the law of alrge numbers applies very well to insurance risk, there is the flood plain aspect to it and you might be confusing risk distribution with risk diversification.
They knew, its just that they misjudged the likellihood of the event.
Ah, you are talking about corporate bonds. I was focused on REMIC CDSs for some reason.
Well it seems to me that if you are going to appeal to authority on your own expertise (and on occassion act as your own cite based on your expertise), it might be worth pointing out these sort of errors. Everybody makes mistakes but you seemed to be presenting this scenario as a base case upon which you could attach a series of bells and whistles. And yeah, maybe I’m a bit of a picayune prig.
If you are trying to explain why the gross notional amount of outstanding CDS is not a particularly good indicator of the net amount of risk being taken then I think that is self evident but that at least the ones used for hedging don’t really present two separate risks but I don’t think there is a lot of hedging of CDSs with other CDSs except to the extent you hedge industry benchmark CDSs against single issues or seomthign like taht and even that isn’t anywhere near what you would call common.
Sorry, I don’t know why I got so fixated on mortgage securities.
Yeah that’s fair, I got fixated on mortgage securities at some point and you had moved on to CDSs on corporate bonds. Although I will note that noone strips corporate bonds these days (and frankly there has never really been a strong market for stripped corporate bonds).
I’ve detailed this before but Fannie Freddie adn CRA role in this crisis was not causative. Fannie has been around since the great depression and freddie has been around since the 1970’s CRA has beena round since the 1970s.
People blame the CRA for forcing banks to make subprime mortgages but this is utter bullshit. Most of the subprime mortgages before the crisis were originated by lenders who were not subject to CRA. The definition of what qualified for CRA was expanded and banks really didn’t have any problems meeting their CRA requirements. The role taht the CRA did play is that before the CRA there was no good data on how subprime mortgages behaved. Then after CRA we had a good idea of how 20% down payment mortgages to people with jobs but bad credit behaved over a 30 year period. Bankers had models that they were comfortable expressed the behaviour of subprime mortgages they realized that you could make a significantly larger spread (more than enough to justify the additional risk) on these mortgages and so they started to actively pursue these borrowers. Then the housing market heated up and the demand for these securities went through the roof and they applied that model to subprime mortgages with zero down and no income verification. Wall street pushed this activity because they were making huge profits and people were getting very large bonuses.
Folks who blame Fannie and Freddie for this crisis are blaming the Ocean for a tidal wave caused by an earthquake. Fannie and Freddie didn’t lead this charge, outfits like countrywide and Ameriquest did. Wall street started selling private label securities and Fannie and Freddie started chasing market share because people’s bonuses depended on it and that got them into trouble. They were part of the market that melted down and may have magnified its effect but they were not a precipitating factor.
On the flip side, if you look at what happened with Ginnie mae, as the private market started absorbing mortgage demand, Ginnie Mae’s market share shriveled to almost nothing because they were focused on serving a policy goal of making mortgages available (a goal that was being more than adequately served by the market at the time) rather than a profit goal, noone’s bonus depended on how much business they did. Now they account for more than a third of the market.
We are never going to be able to fully privatize fannie and freddie. We could swear on a stack of bibles that we would never again bail them out again and people will still act as if we will and that will ultimately force us to do so. The only answer is to either get rid of them entirely or absorb them into Ginnie Mae.
As Zeriel points out people were greedy but that’s just human nature, even moreso among the self selected group that chooses to dedicate their life to finance. You have to regulate them because they will not regulate themselves.
No, no, no! Its all because the liberals forced the banks to make those mortgages to help the poor people! What could the banksters do, they had no real power, no representation in the Halls of Congress, no way to redress their grievances! Sure, they took the money, but it was cold comfort for surrendering their deeply held principles!
Whatsamatta you?
I know I have been offered 3-1 from my financial advisor’s brokerage (25% margin) for government securities. Cursory google research suggests that some brokerages will allow an individual account to go as high as 19-1 (5%) on medium-term treasuries and 9-1 (10%) on long-term.
I think you and I would disagree with where the line is between “amoral” and “immoral”.
Certainly, if such regulation/oversight ruled out of existence the riskiest (and generally thus the most short-term profitable) gambling behaviors that appear to be prevalent these days.
I think he expected we would collectively take his claims of expertise at face value in the face of evidence to the contrary (like his beliefs about the CRA and Fannie Mae).
Well, there was a time when the CRA was necessary to prevent racism and racial disparity in lending. By the time it was no longer necessary to prevent the racism, the banks had figured out that it was also pretty profitable.
Thats pretty high leverge don’t you think? (I think I can get 30:1 leverage on short term).
Perhaps. I think that we might also disagree about the extent to which almost anyone presented with the incentives and disincentives they are presented with would act in pretty much the same way without proper regulation and oversight.
I also think its very easy to be chaste when noone will have sex with you (I don’t mean you specifically but if you haven’t been faced withy the prospect of a million dollar bonus for churning lots of mortgages or getting shitcanned for not doing so, its hard to know if the nagging doubt that you may be contributing to some potential global economic meltdown would be enough to make you choose to get shitcanned).
With proper regualtion adn oversight I don’t see why we would have to get rid of anything.
I think his positions on the CRA and Fannie Mae/Freddie Mac are informed more by his ideology than his expertise. He is clearly financially literate.
Damuri Ajashi:
I would prefer if you did not take the word of Captain Ignorance and the troll twins as to what my arguments are.
I’ve written extensively about my views and provided cites where appropriate. When I get the chance, I will go back through the thread, and repost them.
The gist of which is that there are many causes of the crash of 2008. Part of it was simple greed, part of it was corruption or failure of regulators to enforce laws already on the books, part of it was simply a classic bubble. In short, I don’t disagree with any of the causes you’ve suggested. Where we do seem to differ is that I place significant blame on the government, HUD, and Barney Frank. The HUD mandates are what created the market for subprime mortgages in the first place and incented the originators to cut corners in underwriting to bring them to the table.
It is true that there was a backing off of the mandates prior to 2008 but by that time the market had already hit escape velocity for these instruments, as institutions learned, or thought they learned how to guarantee these mortgages through securitization without Fannie and Freddie.
There were plenty of warning signals that this was beginning to occur, as early as '02. Action at that point would have likely forestalled or completely bypassed the later meltdown, but was blocked largely by Franks and the Democrats.
On the other side of the coin, if we had had courage from the Bush administration, perhaps a Paulson could have come out as early as April of '08, with something like Tarp, but only much smaller.
A smaller dose of medicine at the right time would have been more effective than the larger dose too late.
Anyway those are my feelings on the matter and the sum of my posts in this thread reflect that. My main objective in pointing out the culpability of Frank, the Dems, regulation, et al is not to suggest that a huge amount of blame does not exist for the Financial community which collectively ran through just about every red light there was.
Rather, it was to dispute the rather stupid and simplistic argument that the whole thing is the fault of corporate greed/financiers.
More later when I have time.
Ps. I said I was leaving when it was just Z and me going back and forth which was getting old.
New poster brings new life.
Absolutely it is, and I think it’s just as bad as the big institutions doing it. You won’t catch me doing that kind of shit.
Meh. I’ve been shitcanned for not doing something unethical before, and I stood by my principles (and not incidentally got said employer nailed for software piracy violations, after I left and the next guy started passing around the cracked software). That’s the basic definition of ethical behavior.
And hell, even if I were to grant you that regarding the risky financial stuff that brought down the economy in the first place, that doesn’t explain away the CLEARLY unethical and in many cases illegal methods some of those institutions are using to foreclose on people–falsified records and signatures, etc., not to mention the fraud and outright lying on the part of mortgage officers country-wide (of COURSE you can afford/flip that house for a profit, here I’ll just fudge your annual income on the application). How much ethical leeway do we have to give before we can just admit there are a lot of people in finance whose greed makes them actively evil?
IMHO, if it allows 30-1 leverage when gambling on securities, it’s not “proper” regulation in the first place.
If his ideology blinds him to the extent that he’s putting as much blame on those entities as he is, there’s no particular reason to believe anything else he’s saying absent a cite.
Who’s asking him to? I referred him to the horse’s mouth:
Awww, you must’ve broken down and read a post of mine.
How sweet. I knew you still cared.
Yep, there’s always a new poster who, at least for a little while, isn’t fed up with you and your bullshit, so you can kiss off the old new posters. Eventually, of course, Damuri Ajashi will get tired of your silly games, and your attitude towards him then will be the same as your attitude towards Zeriel now. (I’ve seen this movie a few times.) The only question is, will fresh meat come along once again before DA and you have reached a state of complete mutual loathing?
Not a very interesting question, but such is life.
Damuri Ajashi:
Again, I’m not sure what you mean by “classically speaking.” All the criteria for insurance seem to be fulfilled not just muni type bond issue insurance, but a CDS, and even tradittional market risk type insurance such as what you get with a variable annuity with a floor benefit, or living benefit.
I’ve argued that they didn’t. I certainly didn’t think what happened was possible. I don’t really see either of us providing cites to support our assertions here.
It’s not so much an error as an ommission. Perhaps I was faulty in ommiting it (but since it wasn’t germaine I don’t think so.) Anyway, as long as we are increasing the accuracy of an example, what you say is fair.
No what I was trying to explain was how, conceptually, somebody could hold the other end of a CDS. So, I kind of started going down the chain showing how you can use leverage and stripping to change the character of a security. If he had more questions or seemed sincerely interested I would have launched into the process for pooling investments and then breaking up the characteristics of the pool and selling them off seperately, creating a CDO, structured investment, or what have you… but I thought what I said sort of explained the gist of it.
Again, it’s a difficult thing to explain to a layman, particularly a hostile one who was already formed an opinion without understanding.
No biggee.
I may pass on mining this thread for my earlier post and just let what I wrote last post stand unless you have an issue.
I think it is fair to say you are not particularly receptive to cites that contradict you.
Arty, who says you are Captain Ignorance? Honestly, you can be such a little bitch, sometimes!
I have subjected this post to rigourous forensic analysis, it registered .19 millihicks, which is to say, entirely devoid of irony.
I think it’s fair to say you’re not receptive to cites that contradict your claimed expertise or prior political leanings, so at best we’re even.
Much of the time, I was openly mocking you, remember.
Wrong, fuckhead. It exists because some really smart people figured out what you shitstains have been doing to this country by stealing our wealth from us with your market manipulation, gamesmanship and amoral (and in some cases flat out illegal) behavior and are finally calling your shit on it. Get used to a severely greater level of scrutiny from now on. We’re on to you.
Let’s not forget that the disingenuous morons who keep trying to pawn this off on the CRA are just flat wrong that it was subprime mortgages that even caused this crash in the first place. To wit:
The Absurd Zombie Lie About the Economy Right-Wingers Desperately Cling To – And Why It’s Totally Wrong
The entire subprime mortgage market was worth only $1.4 trillion in the fall of 2007, and that includes loans that were up-to-date. As former Goldman Sachs trader Nomi Prins noted in her book, It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street, the federal government could have bought up every single residential mortgage in the country – good, bad and in between – and it would have cost a trillion less than the bailouts.
Short of that, notes Prins, if the crisis were really about people buying McMansions that they couldn’t afford, “we could have solved it much more cheaply in a couple of days in late 2008, by simply providing borrowers with additional capital to reduce their loan principals. It would have cost about 3 percent of what the entire bailout wound up costing, with comparatively similar risk.”
What brought down the global economy was as much as $140 trillion worth of financial gimmickery built on top of the mortgage industry. It was the alphabet soup of the credit meltdown – the CDOs, default swaps and other derivitaves that made less than a trillion dollars of foreclosed loans into an economic weapon of mass destruction that would cost the American economy alone $14 trillion in lost wealth. Great article — you should take a few minutes and read the whole thing, I think you’d like it.
Nah, I thought you and I were the troll twins. 
Shayna:
That is a surprisingly informative article despite itself.
If we take away all the spin and bullshit you have a story that is pretty similar to what I have been saying.
It seems to be in the interest of the article to deemphasize the effect that CRA and HUD made on the market, but if you go back and read those parts again about how CRA was only a suggestion without penalties, it’s pretty hollow.
The inability to merge or engage in new business and the lack of access to lower rates is, in effect, a mandate.
So, I don’t think that part is very true.
As for the banks learning how to securitize and guarantee pools of loans on their own, I already talked about that, didn’t I? So, that doesn’t disagree factually with anything I e said. Earlier I posted some statistics as to what the CRA mandates were and what part of the market they were.
Perhaps my troll/stalker/secretary can make himself useful and find it.
Anyway shayna, what we have is the left arguing that it is all big business’ fault and the right arguing that it is all governments’ fault.
Both views are simplistic.