The Greenspan Depression?

Hein-Verbruggen

Lim:

Really. Wake up and smell the fraud. No need to reach back to Michael Milken and LBOs gone bad. Plenty of active crooks operating now. Just lik doping in sports---fraud has ALWAYS been active at all times.

Wall Street has a history all right. Every firm cheats to some degree.
Audit profession has a history too--every public CPA firm cheats too.
Corporate lawyers aid (mask) the cheating in exchange for big fees.
Bribing University Dept Heads to write flattering articles for industry.

Without cheating--there would be no need for:
1) Grand Cayman off shore tax-free accounts
2) fake audits
3) hedge funds devoid of disclosure rules
4) SPE (special purpose entities)
5) risk dumping junk paper into funds w/o accounting valuation rules (mark-to-market)
6) DOJ discourgement deals with KPMG and a $600 MILLION fine for tax evasion schemes
7) Harvard MBAs dominating Enron's finance department
8) leveraged CDOs Hedge Funds of Funds (Bear Stearns)
9) Goldman & Sachs
10) Mother Merrill
11) The NYSE black box of skimming

In TV-based sport--the financial conflict (leading to fraud) is the athlete endorsement, event underwriters and TV rights all owned by the same party--or related parties. That my friend is known as a 'FIXED OUTCOME EVENT"

Many parallels between cheating in the Capital Markets and Cheating to win a TDF or an Olympic Gold Medal. Same work ethic.

Bro Deal

I disagree--sort of. The two are somewhat disconnected. The abandonment of mortgage standards could have occurred without cheap money, but in this case the profits derived from cheap money acted as an incentive for relaxation once the low hanging fruit from cheap credit had been picked.

In the U.S. there has been a two step process. More accurately it was a series of small steps, but it is easier to discuss if it is envisioned as two steps. The first was AG lowering interest rates and keeping them there for far too long. The cheap money inflated the value of assets, the easiest of which to see was housing prices. This would have had ill effects, as a credit bubble always has.

The second step was massive fraud that came about due to complete lack of oversight and regulation. The easy credit created a boom in the lending industry. People were macking it hard, the people at the bottom with commissions and the people at the top with bonuses and stock grants. This would have ended much earlier than it did, resulting in a smaller bubble, but the industry moved to fraud as a way to keep the spigot flowing. There was a steady progression of ever more risky loan products being created and the industry dug further and further in the barrel. They started scraping the bottom early this year.

The current crop of bankrupt lenders and hedge fund implosions are not due to cheap money. These are the companies and funds that were taking the most risk, they knew exactly what they were doing, and they are just the first dominos to fall. They were killed because of fraud. The bankruptcies that come about and could be said to be primarily from cheap money instead of fraud will come later in the cycle.

__________________
"You are like the wind and I like the lion. You form the tempest. The sand stings my eyes and the ground is parched. I roar in defiance but you do not hear. But between us there is a difference. I, like the lion, must remain in my place. While you like the wind will never know yours." -- Mulay Hamid El Raisuli, Lord of the Riff, Sultan to the Berbers, Last of the Barbary Pirates

limerickman

The low interest rates - cheap money - required banks to compete to extend their loan books in order to secure more and more business.

CDO's, various financial instruments derived ultimately from the policy of cheap money.
Waiving the regulations - not checking peoples ability to repay - were all products of cheap money.

__________________
.."But finally the last thing I’ll say to the people who don’t believe in cycling, the cynics and the sceptics. I'm sorry for you. I’m sorry that you can’t dream big. [I]I'm sorry you don't believe in miracles. You should believe in these athletes, and you should believe in these people. I'll be a fan of the Tour de France for as long as I live. And there are no secrets" - this is a hard sporting event and hard work wins it - Armstrong 2005 TDF
morelike hypocrisy.

Bro Deal

I agree with the first statement but as for the last, I guess it depends on what the definition of "product" is. My chief point is this: Even though the Fed pursued a policy of easy money after the dot com collapse, the goverment could have mitigated the effects by effective regulation. The disciples of Milton Friedman, of which Greenspan was one, are at fault for the extent of the damage.

__________________
"You are like the wind and I like the lion. You form the tempest. The sand stings my eyes and the ground is parched. I roar in defiance but you do not hear. But between us there is a difference. I, like the lion, must remain in my place. While you like the wind will never know yours." -- Mulay Hamid El Raisuli, Lord of the Riff, Sultan to the Berbers, Last of the Barbary Pirates

limerickman

I'm not disagreeing with you : the banks took risks when offering loans.
And banks who bought CDO's, based upon those loans, were taking even greater risks when purchasing these instruments.

All they were interested in was getting a return.

Derivatives, financial instruments etc : this whole area is a mindfield.
There is no clarity to any of it.

It's the poor bugger who took out the loan from the bank and who's nowbeing foreclosed that I feel sorry for.

It's the people who placed their pensions with financial institutions who invested in these "instruments" - who's pension value could now be zero - that I feel sorry for.

__________________
.."But finally the last thing I’ll say to the people who don’t believe in cycling, the cynics and the sceptics. I'm sorry for you. I’m sorry that you can’t dream big. [I]I'm sorry you don't believe in miracles. You should believe in these athletes, and you should believe in these people. I'll be a fan of the Tour de France for as long as I live. And there are no secrets" - this is a hard sporting event and hard work wins it - Armstrong 2005 TDF
morelike hypocrisy.

Bro Deal

Yup. Warren Buffet has been calling for derivatives to be reigned in for years. There is a huge systemic risk that no one really understands. It violates the principle of transparency that should exist in an efficient market.


Some innocent people will be hurt. In many cases the home owners are far from innocent. They were part of the fraud. They inflated their income with liar loans, they took out ARM/interest only mortgages thinking they would make minimal payments and sell for a large profit in a couple of years, they fooled themselves into buying vacation homes that were really bought for investment purposes, they lied to banks that their investment homes would be owner occupied, etc. There is a large percentage of people I don't feel sorry for at all. I hope they burn.

The people to feel sorry for are the naive and possibly stupid people who were taken advantage of or who did realize what was going on. A couple of weeks ago I had a conversation with a friend who laid out his plans for the next eighteen months. They involved selling his house next Spring, which he had bought recently for the proverbial "$50K under what it was worth", and going to grad school to get an MBA in a year long program. He is not working now because he figures that he is making money from his house. I tried to advise planning for the worst and looking for a job because the housing market is cooling, but he is so convinced that his house is worth $150K or so above what he paid he is not open to discussion. I did not feel like depressing him by telling him he was doomed. I feel sorry about his wife and little daughter.

Then there is my brother's neighbor who has not really worked since he got laid off at the end of the dot com meltdown. He was lucky enough to have bought a vacation condo in a bubble market and his own house has also gone up. Evidently he has spent the last five years living on housing equity.


A lot of people will be hurt when their "safe" investments evaporate.

__________________
"You are like the wind and I like the lion. You form the tempest. The sand stings my eyes and the ground is parched. I roar in defiance but you do not hear. But between us there is a difference. I, like the lion, must remain in my place. While you like the wind will never know yours." -- Mulay Hamid El Raisuli, Lord of the Riff, Sultan to the Berbers, Last of the Barbary Pirates

limerickman

If it's an consolation we had the same people doing the same thing here.
People who should have known better.

They deliebrately lied on their mortgage application - inflated their pay - to buy the proverbial "holiday home" - which they only occupy for two weeks per year but which they can boast about to their neighbours!
Like you I have no sympathy for them.

But I do have sympathy for the first time buyers who, trying to get their starter home, had to pay over the odds for an asset (house) which was inflated in price because "demand" for houses was high.
They're now being burnt - they're paying more for a value that is falling.





The old "I can release equity from my home" theme.
We have that here too.
After you've made inroads on the repayment - the bank comes along and says "why not release the difference between the house value and the remaining outstanding balance - to fund a lifestyle choice".
Been happening over here for the past 5 years or so.

Your friend is like a lot of people : they assume that property is a oneway street.





yeah, I just wonder how much "blue-chip" is really bluechip?
Enron would have been viewed as bluechip at one point.

This is a house of cards.
Problem is that the banks will not, will not, fess up until the horse has well and truly bolted.

__________________
.."But finally the last thing I’ll say to the people who don’t believe in cycling, the cynics and the sceptics. I'm sorry for you. I’m sorry that you can’t dream big. [I]I'm sorry you don't believe in miracles. You should believe in these athletes, and you should believe in these people. I'll be a fan of the Tour de France for as long as I live. And there are no secrets" - this is a hard sporting event and hard work wins it - Armstrong 2005 TDF
morelike hypocrisy.

Wurm

Did anyone notice how 2 years ago when the (anti)Bankruptcy Law was passed, that was when subprime loans really took off?

__________________
"Bush is the first President to admit to an impeachable offense."

- John Dean, former Counsel to the President (Nixon)

The aim of big corporations is to separate fools from their money all of the time and ordinary folks from their money most of the time. The rest of us must fend for ourselves.

Bro Deal

I am sure it was a complete coincidence. We all know that a lender stupid enough to give additional credit cards to people staggering under the weight of their current debt should be protected. It is all the fault of those who take the credit not those who extend it.

__________________
"You are like the wind and I like the lion. You form the tempest. The sand stings my eyes and the ground is parched. I roar in defiance but you do not hear. But between us there is a difference. I, like the lion, must remain in my place. While you like the wind will never know yours." -- Mulay Hamid El Raisuli, Lord of the Riff, Sultan to the Berbers, Last of the Barbary Pirates

Hein-Verbruggen

Excellent example of lack of understanding how the mortgage origination business actually worked over the past ten years.

Banks prefer NOT to carry mortgage loans directly anymore--chosing instead to dump (sell/spin off) the collection risk onto others. (Hedge Funds, CDO, Pension Funds, SIVs, etc...) Paradoxically, many large banks did lend money to these very same hedge funds which, in turn bought CDOs. This is a loan loss accounting problem and a 'mark-to-market' issue.

Interest rates had NOTHING whatsoever to do with loan fraud, no doc applications, stated income, wholesale suspension of underwiting standards.
Liar loans can be made with neg-amortization high rates, or zero interest. No relationship with rates & fraud. They remain different concepts.

The only competition was to find a dishonest hedge fund, which was quite easy to do. Just like finding suckers to root for Team CSC or Lance.

This is NOT a subprime credit crisis, it is a PRIME commercial lending crisis. And that is why all central banlers will intervene with stimuli.

Central banks will bail out these broken credit markets w/o fixing the problem without any rule enforcement.

Wurm

That's what I thought - utter coincidence. The same type of coincidence that keeps medical care excessively high/unaffordable, and why about 1/2 of all non-commercial bankruptcies are medical-related.

__________________
"Bush is the first President to admit to an impeachable offense."

- John Dean, former Counsel to the President (Nixon)

The aim of big corporations is to separate fools from their money all of the time and ordinary folks from their money most of the time. The rest of us must fend for ourselves.

Bro Deal

There are a lot of coincidences that occur when the middle class gets robbed. If you did not know better, you might think that corporate crooks were making the laws to benefit their scams. That could never happen in our democracy though. Never, ever, ever.

We all know that an introductory college textbook on physics should cost $150. Even though it has the same Newtonian physics, electromagnetism, and optics that were being taught fifty years ago, and anyone can go to Barnes and Noble to pick up books on the most fringe of subjects for thirty or forty bucks.

__________________
"You are like the wind and I like the lion. You form the tempest. The sand stings my eyes and the ground is parched. I roar in defiance but you do not hear. But between us there is a difference. I, like the lion, must remain in my place. While you like the wind will never know yours." -- Mulay Hamid El Raisuli, Lord of the Riff, Sultan to the Berbers, Last of the Barbary Pirates

Crankyfeet

Bro, those guys have to recover their costs. Do you realize how much bribery they have to partake in to get their book on the recommended text list? Or is this the subtle point that I missed in your post?

__________________

Wurm

Hein-V, the Wall-Streeter's are somewhat to blame yes, but I would say that Greenspan has never been seen sporting a halo, (at least not by any of the Great Unwashed):



http://globalresearch.ca/index.php?context=va&aid=6239

and,



http://globalresearch.ca/index.php?context=va&aid=6209

...with a bit of help from the (anti)Bankruptcy Law of 2005 of course, which Greenspan AND Wall Street well knew was going to shift the onus from the predatory lenders to the under-compensated worker/credit-maxxed consumer.

So! Easy credit for all and a chicken in every pot.

Until the sh!t hits the fan and you find that the Fed now won't let you wipe the slate clean through bankruptcy, but they WILL be nice enough to let you spend the rest of your life paying it off.

A great scheme, as long as you're not on the wrong end.

__________________
"Bush is the first President to admit to an impeachable offense."

- John Dean, former Counsel to the President (Nixon)

The aim of big corporations is to separate fools from their money all of the time and ordinary folks from their money most of the time. The rest of us must fend for ourselves.