A.I.G.’s financial statements provided a clue to the identities of some of its credit default swap counterparties. The company said that almost three-quarters of the $441 billion it had written on soured mortgage securities was bought by European banks. The banks bought the insurance to reduce the amounts of capital they were required by regulators to set aside to cover future losses.
Enjoy the absurdity: Billions in unregulated derivatives that were about to take down the insurance company that sold them were bought by banks to get around their regulatory capital requirements intended to rein in risk.
Got that?
Which brings us to Item 2 for policy makers. Stop pretending that the $62 trillion market for credit default swaps does not need regulatory oversight. Warren E. Buffett was not engaging in hyperbole when he called these things financial weapons of mass destruction.
“The last eight years have been about permitting derivatives to explode, knowing they were unregulated,” said Eric R. Dinallo, New York’s superintendent of insurance. “It’s about what the government chose not to regulate, measured in dollars. And that is what shook the world.”
Read it all. I didn’t catch this piece until this morning, but please note once again the absolutely crucial role of the Credit Default Swaps market–KSH
A more accurate headline would read: YOUR MONEY AT WORK, COVERING THE DELIBERATE, DECEPTIVE AND FRAUDULENT BEHAVIOR OF UNREGULATED BANKS AND BUSINESSES. I guess the word “Free” in the phrase Free Enterprise refers to corporate bailouts.
I never used to believe the Left’s charge of “Corporate Welfare”. Now, we all know better. This is socialism of the elites. Their “moral hazard” is our economic ruin while the Wealthy party goes on. Gosh, it must be wonderful to be part of that class. Lehman’s folks have a $2.5 Billion BONUS coming for their wonderful work. I wish I could get multi-million dollar bonuses for being pathetically incompetent. Wouldn’t it be nice to get paid bonuses even if you fail…even if you burn other people’s money?
I would love to see a return to the 70% tax brackets for the top tier tax payers. NO MORE LAISSEZ FAIRE. I hope they regulate everything from now on. I want the CEO’s to have to fill out a government form in triplicate before they use the executive washroom from now on.
I used to be a free market Republican. That doesn’t exist anymore. I used to believe that class envy was wrong…that if I worked hard and saved and invested, I could climb, too. Well, the elites have shown that for the lie it was. The sad thing is…the heart breaking thing is, the the sheeple will continue to vote Republicrat and nothing will change.
It may be necessary for us to bail out Wall Street in order to keep the financial system from completely collapsing (though I am agnostic about this). I do think that any firm that gets a bailout needs to have all executive staff fired, any bonuses for the past 3 years paid back, and an automatic investigation for fraud made.
That would return “moral hazard” to the financial elites.
As to the 70% tax bracket, it may come. However it will be levied on almost nobody. Folks in that bracket either have modest income, but high assets which are tied up into businesses (farms, limited liability corp. real estate and the like). Or else they have high incomes that are tied to how hard they work. (Like physicians, lawyers etc). Those guys will work less and will transfer into lower paid fields that pay less but have better hours.
In point of fact, more taxes are collected now than previously, despite the fact that the lower 50 % pay no taxes.
I’m still voting Republican. I think the gravest threat is not the economy, but a resurgent nuclear Russia who is making a play for the Arctic, and who I think has designs on both Canada and Alaska. (Ya think NATO will come to our aid, when it is US chestnuts in the fire?)
I think they are waiting for O to be elected to make their play. War on our soil (or simply rolling over and going to a 49 state union with fewer oil reserves) will make the loss of our 401k look like the good old days.
I also think that higher taxes without cutting government entitlements is simply a presecription for even worse conditions. We will probably get higher taxes. However entitlements and government spending (Medicare, Social Security, Environment, government workers, NIH, etc) need to be severely slashed.
There is no alternative.
Yep it’s all those retirees, those environmentalists and all those working poor people who got us into the mess we’re in and by heaven, they’ve got to pay. Sentiments like this I’ve come to expect from Republicans, but they’re been living in Wonderland since Hoover and been profiting ever since. Clueless really is.
We have been making promises we can’t keep, and passing the bills to our children. This is theft.
In previous generations, older people worked until they were a few years from death. That is why Bismark came up with 65 for “retirement”. Most people died before then. If we are going to have a society where people live into their 80s we will need a society where people work into their late 70s. Our children cannot afford us to have a prolonged vacation at their expense.
I too have no 401k. I will have small businesses that I can work until I die. I am arranging my assets so that I can work until I die. I expect to work until I die. Until quite recently, most Americans expected to work until they died.
While I cannot do anything about the national debt that my children and grandchildren will be burdened with, I can do something about the debts that they will be burdened with from family. In my family we choose to ensure that college funds are paid before retirement savings. We think that our kids will have enough to bear paying for the travel plans of those who retired at 65, without having to pay exorbitant college tuitions as well.
When did we, as a nation receive a “right” to 20 years of vacation before dying? What did we do to earn it?
I might add, that this mess might have been averted, had Senators Obama, Clinton and Dodd not killed the bill to reform Freddie and Fannie (which was cosponsored by John McCain).
From:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSKSoiNbnQY0
” Some might say the current mess couldn’t be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie “continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,” he said. “We are placing the total financial system of the future at a substantial risk.”
What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.
If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.
But the bill didn’t become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn’t even get the Senate to vote on the matter.
That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: “It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.”
Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.
But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.
Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.
Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.
There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.
Oh, and there is one little footnote to the story that’s worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess. “
Republicans and the Democrats bought the kool-aid that said greed is good. Regulation did not keep pace with the products being offered, and with the help of senators like Phil Gramm, banks could invest in questionable products.
Clueless’ analysis isn’t quite correct. There were many different factors involved: Greenspan decided to make money easy to get, while making investment in government bonds unattractive. Remember that Fannie and Freddie don’t use government money. In the end, blaming the just government (or the Democrats) is letting the greedy off the hook.
First, remember there was the NINA loan invention. The bank didn’t even check people’s income. How did those happen? Not because of the government. It was a product created by businesses because they knew banks weren’t required by the government to check. Deception on the part of both mortgage lenders and homeowners.
The Democrats bear some responsibility. But it’s not a very deep analysis. You’d have to examine how the global pool of money doubled, and how people are looking for things to invest. In 2000, people wanted low-risk investment that offered some reliable return.
Greenspan kept the fed rate at 1%. That meant world investors would not make many money on treasury bonds for a long, long time. The US, at one time, was the favorite investment for most of the world. Investors went elsewhere. They called Wall Street which had created mortgage investment products. Wall street gave those products, with little risk, buying mortgages from smaller banks, selling them to the world investment managers.
Then people started selling more mortgages. All they did was try to sell mortgages. In 2003, most of the people who were qualified, and wanted mortgages, had them. The incentive was to give more and more mortgages. People could just state their income. They were set up, even encouraged, to lie.
What is wrong with this picture? Who’s fault was it? Perhaps those who took the loan. But then, people were making a lot of money, with some great bonuses. They had no incentive to do background checks.
Banks would sell those loans to Wall Street. Wall street would sell them to the global investors. Housing prices kept rising. People didn’t know that there would be a 50% foreclosure rate. Then those on Wall Street someone noticed that their securities were performing
Where was Moody’s? Why didn’t they know? They considered these as safe as a US government bond. They relied on the wrong data.
Smaller banks became highly leveraged. They had borrowed money to buy mortgages. They defaulted. Who is responsible?
Then there was the Collateralized Debt Obligation.
You can’t blame democrats.
As far as your other points, clueless, people have chosen that they should live in a country that allows those who have given their lives to have a few years of retirement. You can work if you want.
However, it does make sense that we extend the retirement age to something.
This disaster was caused by folks (those who took out liar loans) as well as the government failing to live within their means.
It is time we started living within our means.
If we can’t afford retirement, then saddling future generations will not help, (whatever we the current voters feel “should” happen).
Those future generations will also have “given their lives”. They will still not get retirement, because they will be paying for the excesses of the Boomer generation. They already have worse schools, higher debt and less stable jobs, thanks to our excesses.
In the very recent past (i.e. before WWII, nobody (whether or not they “gave their lives”) got to retire. That was because previous generations lived within their means so that their children could have a better life. They did not whine about “having given their lives” and needing a vacation on our dime. They gave their lives so as to give us a future.
We Boomers, for once in our generational lives should stop being so (explitive deleted) selfish.
#8, you raise an interesting point about retirement – the whole thing is without any biblical foundation. My father is nearly 70, and despite Parkinsons, continues to work, though he has cut back his hours. He has millions of $$ to his name, yet has little intention of blowing it all on c+++ he does not need.
I’ve scoured Google for some articles about retirement and the Bible, nothing really good to link to however….
My mother turns 80 next year and still puts in 40 hours a week. My dad worked until the year before he died (at 69).
Neither needed to work, however they hate the idea of being a charge on either us or on society. They would have been ashamed to be idle and dependant in hard times.
It is not “normal” for people to have decades of childlike freedom. It was novel this (passing) generation. Only the Boomers who already have had the longest childhood and adolescence on human record feel that they are “owed” decades of leisure in late life as well.
… people have chosen that they should live in a country that allows those who have given their lives to have a few years of retirement.
I disagree. If the Social Security system were made voluntary, it would collapse tomorrow.