Wake up America ........ before it to late


http://www.foxnews.com/politics/2012/04/19/new-federal-agency-ofr-stirs-orwellian-fears/


http://www.ce-nif.org/faqs-role-of-the-nif/office-of-financial-research

Belly35;1148521 wrote:Wake up America ........ before it to late

Too late.

Going strong since 1984...

Money straight down the toilet. We will never pay people at the OFR enough to attract workers smart enough and talented enough to actually understand what they are regulating.

It's why I laugh at these approaches. People at hedge funds and on Wall Street make a lot of money because a lot of what they do is really fucking complicated. You won't control or manage risk by hiring some mediocre OSU accounting grad and expecting them to understand what's going on. $158M or whatever and it's just window dressing to convince the public the govt has a handle on things. And people wonder how we end-up with $1.5T deficits.

It's a shame that the taxpayers have to police financial people. But that's what happens when they collectively stole trillions of dollars from Americans under the guise of free market capitalism.

Hundreds and hundreds of these too big to fail bastards should be in jail...but they just live to steal another day.

Taxpayer can't police them, that's the point. And it's not like these guys intentionally set out to lose themselves millions of dollars (yeah, the execs lost a ton on their stock/options). They have PhD's in math, physics and econ developing very complex risk models, and the problem is always the fat tails. It's not that they ignore risk, to say otherwise is not even close to the truth. It's overconfidence on the risk models and too much leverage. Really what brought down everyone in 2008 was a perfect storm of market events, several of which had rarely happened (if ever). And that's why the risk models failed - they're built on and rely on past history.

Easy to say it's such an evil, terrible thing. But we've been through this several times over the past 30 years or so. Fact is it has been a huge source of growth and value for the US economy because our capital markets are second to none. When you're on the leading edge, sometimes you take a step back to move forward. The junk bond king Michael Milken is a great example - he went to jail after nearly destroying the S&L industry. Yet today junk bonds - aka high yield - is a huge market and hugely successful for both investor and company. And make no mistake as we move forward the lessons learned with CDS and MBS are going to be good for housing and the homeowner.

gut;1149465 wrote:And it's not like these guys intentionally set out to lose themselves millions of dollars (yeah, the execs lost a ton on their stock/options).

Howie Huber lost $9 billion for Morgan Stanley and its' investors, the largest trading loss in Wall Street history, by selling CDO's on AAA subprime bonds(all of which were collections of bonds originally rated B- and repackaged to game the ratings agencies.) He was given a $10 million severance and recently opened up a firm that will, again, deal in the mortage business.

It's not that they ignore risk, to say otherwise is not even close to the truth.

It's absolutely the truth. The average major investment bank is 2007 was leveraging 30-1. Think they'd do that if it was a partnership and not a corporation? Think they'd have repackaged collections of CDOs as bonds with their own money? Think they'd have repackaged mezzanine tranches to game Moody's and S&P into higher ratings?

Really what brought down everyone in 2008 was a perfect storm of market events, several of which had rarely happened (if ever). And that's why the risk models failed - they're built on and rely on past history.

Completely inaccurate. It was a very specific negligence and gaming of the system in order to make easy short run gains, Sure they defended(read:sold) it with generalities like "it's never happened before" and "just because one tranche goes bad, doesn't mean they all do." Which to anyone with a knowledge of the industry, is completely absurd. They packaged piles of shit in a way that made it impossible to understand what was being bought and sold. They were trading rotten oranges, then squeezing the juice out and calling it fresh so they could sell it again.

And make no mistake as we move forward the lessons learned with CDS and MBS are going to be good for housing and the homeowner.

Yep, that's who will probably win, the homeowner.

Citibank gets money from TARP in excess of our national education budget. Morgan Stanley gets money to repay Goldman Sachs(at 100% rate by the way, which is absurd in any debt settlement agreement.) Homeowners lose their houses. Investors lose their money. And they get the privilege of having their tax dollars pay for the major banks fuck ups.

Yep, the homeowner is the one winning :laugh:

2kool4skool;1149476 wrote: It's absolutely the truth. The average major investment bank is 2007 was leveraging 30-1. Think they'd do that if it was a partnership and not a corporation? Think they'd have repackaged collections of CDOs as bonds with their own money? Think they'd have repackaged mezzanine tranches to game Moody's and S&P into higher ratings?

They had risk models. The risk models failed. The execs that ok'd the use of that leverage lost tens of millions. Those at Bear and Lehman lost everything. They were also being prodded by the Fed and Congress to keep turning the mortgages because, you know, everyone should be able to own a home. Partnership or public doesn't really matter, their personal assets would not be at risk and their value at risk is basically the same in either case because they hold large amounts of stock.

Banks were doing what they do managing and diversifying risk. AIG was a big part of the failure because that was the insurance a lot were buying and when it went down, that started the chain reaction. There was also risk management with a lot of traditionally uncorrelated assets that all nosedived with the popping of the liquidity bubble. No single event would have taken it down, it was the perfect storm as I said.

2kool4skool;1149476 wrote:\
Citibank gets money from TARP in excess of our national education budget. Morgan Stanley gets money to repay Goldman Sachs(at 100% rate by the way, which is absurd in any debt settlement agreement.) Homeowners lose their houses. Investors lose their money. And they get the privilege of having their tax dollars pay for the major banks **** ups.

Except TARP has nearly been completely paid back, with interest. And the govt is making money on the toxic stuff it took over (because it was a mark-to-market liquidity issue as much as anything). It's simply wrong to say the taxpayer lost money on TARP and the auto bailout vs. the alternative. Basically the govt stepped in to provide DIP financing with a market/economy that couldn't do it as it normally would.

And the lesson for the homeowner losers is don't ever pile in your lifesavings into the top of a bubble (a lesson that will unfortunately continue to be repeated). But in the long-run, yes, the securitization of mortgages is going to save homeowners hundreds of billions in the form of lower interest rates. Yes, the collateral damage is horribly unfortunate. It's not the first time and it won't be the last.

2kool4skool;1149476 wrote:It was a very specific negligence and gaming of the system in order to make easy short run gains,

People said the same about junk bonds. If there is anything the govt can regulate or a solution to be found here, it's that the CDS/MBS market, as with junk bonds, grew too fast in its infancy. But as mentioned the govt had no real interest or motive in putting the brakes on that market, and in actuality the gubmit was dumping gasoline on it.

gut;1149480 wrote:They had risk models. The risk models failed.

Except they knew the risk models were shit.

January 2007: Greg Lippman, top trader of Deutche Bank, tells Morgan Stanley on a conference call he wants the insurance payouts for the CDO on his bonds because the bonds have dropped 30%. Morgan Stanley(citing Goldman's similar risk model) states their model still has them trading at 95 cents on the dollar, and no such payout will be made.

Later in the SAME day, Morgan Stanley and Goldman are offered an option to buy SAME CDO's at 70 cents on the dollar. They decline......

They were also being prodded by the Fed and Congress to keep turning the mortgages because, you know, everyone should be able to own a home.

This was a popular one we were told to justify the inexplicable risk and that a lot of people have bought hook, line, and sinker. It's simply not true. It does not account for the volume, and it certainly doesn't account for the repackacing of CDO's as separate bonds. If they were upset about "having to make the loans"(they weren't) they wouldn't have repackaged them so they could essentially trade them 2,3, even 4 times over.

Banks were doing what they do managing and diversifying risk.

They weren't doing what they were supposed to do, that was the problem. In fact, Morgan Stanley and Merril Lynch seem to have sat on their end of most of the CDO trades, which was unthinkable to most as the trades were happening.

AIG was a big part of the failure because that was the insurance a lot were buying and when it went down, that started the chain reaction.

AIG was the initial market for the credit swap on the mezzanine tranches. They stopped participating in said market in 2005, and other banks jumped on the opportunity without doing the research that led AIG to remove themselves from the market.

it was the perfect storm as I said.

"The perfect storm" was the result of overexposure, lack of hedging, and a gaming of the system in response to the real risk of subprime mortage loans. Lehman collapsed following their CDO's collapsing. Bear Stearns had to freeze customer assets because they were over leveraged and it destroyed market faith eventually leading to their collapse. Merril and Morgan froze their customer assets and were unable to repay Goldman.

Yeah, a lot of separate things happened. But they all trace back to one root cause.

The poor bankers/financial people. Lose trillions of the investors' money and then the corporate welfare state kicks in. So how did they manage to pay back the majority of TARP? Cue the .35% APR on many savings accounts....or the 1.9% on CD's that conservative people invest in.

In due time, they will somehow steal your IRA's too. But shame on Obama for trying to slow down the fleece.

2kool4skool;1149490 wrote: Yeah, a lot of separate things happened. But they all trace back to one root cause.

How dare you blame the investment banking cartel. We need rich bankers...don't you know?

2kool4skool;1149490 wrote: Yeah, a lot of separate things happened. But they all trace back to one root cause.

Two roots causes, actually. Arbitrarily low interest rates and an unrestrained FNMA/FMAC. Those are the root causes. Whether you want to admit it or not, the banks are essentially middlemen facilitating the transactions and charging a service fee. The root of all this is essentially the govt giving handouts to greedy homeowners until the house of cards collapsed. Yes, the banks failed in their fiduciary responsibility to manage the risk and they, too, could have put the brakes on. But blaming evil, greedy Wall Street is scapegoating at it's finest. The Fed, Congress and homeowners were all equally complicit, intentionally or not.

2kool4skool;1149490 wrote: they wouldn't have repackaged them so they could essentially trade them 2,3, even 4 times over.

That's an inaccurate characterization. You're talking about CDO's - credit DERIVATIVES - and the reason for multiples in notional values has to do with the betas/risk between the the more liquid and stable tranches vs. the more volatile equity tranches. In order to hedge my interest rate risk on the equity tranche, I need a short multiple times the notional value of the investment grade tranches. This is entirely different than "repacking and selling multiple times". It's insurance, and it fails when counter parties default far in excess of expectation. It's triggered by credit markets freezing, the extent of which only happened because of a perfect storm of rare/unusual market conditions.

This is actually the opposite of greed. They are all trying to manage/hedge their risk. It is not a directional bet, but when one party defaults then it becomes a directional bet because you are no unhedged as a result. And then you had the systemic breakdown with AIG as the ring leader where you have cross-default contagion roiling thru the markets. And the final straw that breaks the camel's back is the mark-to-market losses triggering forced selling and overdriven discounts. That's why the govt ultimately is able to assume the toxic crap and make money because they really aren't subject to the liquidity risk. Basically gambler's ruin - the bet to the end is not a bad bet, but you don't have the liqudiity/capital to ride out the short-run losses.

So trying to regulate the banking industry that cost us trillions with what is at best very bad decision making and at worst a deliberate attempt to fleece us all is Orwellian to Republicans. Yet policies like the Patriot Act, SOPA/PIPA/the current CISPA going through the paces, the TSA, Drug War, etc are all things that we need to be safe from people that are trying to kill us because we're free.

One of those groups is definitely Orwellian and it isn't banking regulations. Big Brother didn't control the proles with banking regulations but the Party did use fear of being attacked and demonizing of things like sex (look another thing in common with Republicans) to control people.

Banking regulations are not Orwellian. That doesn't mean all banking regulations are good but seriously, calm the fuck down.

gut;1149982 wrote:That's an inaccurate characterization. You're talking about CDO's - credit DERIVATIVES - and the reason for multiples in notional values has to do with the betas/risk between the the more liquid and stable tranches vs. the more volatile equity tranches. In order to hedge my interest rate risk on the equity tranche, I need a short multiple times the notional value of the investment grade tranches. This is entirely different than "repacking and selling multiple times". It's insurance, and it fails when counter parties default far in excess of expectation. It's triggered by credit markets freezing, the extent of which only happened because of a perfect storm of rare/unusual market conditions.

This is actually the opposite of greed. They are all trying to manage/hedge their risk. It is not a directional bet, but when one party defaults then it becomes a directional bet because you are no unhedged as a result. And then you had the systemic breakdown with AIG as the ring leader where you have cross-default contagion roiling thru the markets. And the final straw that breaks the camel's back is the mark-to-market losses triggering forced selling and overdriven discounts. That's why the govt ultimately is able to assume the toxic crap and make money because they really aren't subject to the liquidity risk. Basically gambler's ruin - the bet to the end is not a bad bet, but you don't have the liqudiity/capital to ride out the short-run losses.

That's all pretty and all. But a simple summary is all that's required. The banking cartel simply privatizes the profits and sociallzes the losses. I wish I could do that in Vegas but ole Footwedge does not qualify as being too big to fail.

gut;1149966 wrote:Whether you want to admit it or not, the banks are essentially middlemen facilitating the transactions and charging a service fee.

I'm not trying to be condescending, but this part right here tells me you don't have an understanding of what went on besides a few talking points. That's the role of some banks, most of the time. That wasn't what occurred with the subprime market unfortunately. At least not for many of the major players.

The root of all this is essentially the govt giving handouts to greedy homeowners until the house of cards collapsed.

Except the majority of subprime loans were originate and sell.

Did Americans just wake up one day and decide to all lie on their mortage application? The system gamed them like they gamed everyone else, then diluted the individual loans into tranches so it was impossible to tell the specifics of them. They just never foresaw it coming back to bite them because "it never happened before"(great statistical reasoning there )

If you want an argument about whether the government sucks, you won't find one from me. I have a feeling we have different reasons for why we feel that way though.

gut;1149982 wrote:That's an inaccurate characterization. You're talking about CDO's - credit DERIVATIVES - and the reason for multiples in notional values has to do with the betas/risk between the the more liquid and stable tranches vs. the more volatile equity tranches.

That would be all well and good, except they repackaged B rated bonds as AAA by gaming the ratings agencies for years. Huber invested in CDO's on AAA to hedge his bets on the mezzanine tranche, ask him/Morgan Stanley how that worked out. :laugh:

I Wear Pants;1149993 wrote:Yet policies like the Patriot Act, SOPA/PIPA/the current CISPA going through the paces, the TSA, Drug War, etc are all things that we need to be safe from people that are trying to kill us because we're free.

I didn't want to get into it on this thread because I'm more informed in the financial side of things rather than the national security side, but that struck me as odd too. How can this be proverbial Orwellian tipping point when the Patriot Act has been running strong for a decade now?