Bloomberg News is a good source for poop on the financial markets. I found the story attached to this link to be, a very general, but good history of what allowed the whole mortgage meltdown to happen. Readers will remember that a less political version of this was presented last September 20 as well in my first posts. By the way, I and my two colleagues, at the company that we set up to provide the banks with a GAAP acceptable way of keeping the off-balance sheet vehicles off balance sheet, spoke with, basically anyone that would listen, but the SEC, staff people in both the Senate and the House, FASB and most of the banks. As I've tried to convey, the banks brought this mess on by gutting the new regs - as mentioned in the Bloomberg article.
It's now up to us to pick up the tab ...
Anyhow, here's the link: http://www.bloomberg.com/apps/news?id=20601170&refer=special_report&sid=aspN..hVXJC4
Thursday, March 26, 2009
Sunday, March 15, 2009
Credit Default Swap
Think about this number, $67,000,000,000,000 - that's $67 Trillion dollars in outstanding Credit Default Swaps. The GDP of the US, according to the BLS, at the end of Q4 2008 was $14.2 trillion. This means, that the Fed, the regulator of all US National Banks, allowed banks to get into a business that leveraged their capital by a factor that is way outside of what is considered within the acceptable guidelines of risk. Further, they did it with their eyes wide open ... when Citi's capital went below the regulatory limit of 3% in 1991, the only thing that kept them afloat was their $1 trillion interest rate swap book. That is, the Fed was too obtuse to comprehend how to unwind an interest rate swap book - CDS's, referenced to a mortgage-backed security are more complicated by a huge factor. IN SPITE OF THAT, THEY LET THE BANKS GO DEEP ENOUGH INTO THIS MARKET THAT THEY HAVE BANKRUPTED, NOT ONLY THE US, BUT ENTIRE THE WORLD BANKING SYSTEM.
Golly, don't you just love a deregulated market? Yea, but I like the way that things get done in Washington even more. I sleep extra soundly knowing that the regulatory framework of the entire US capital market is written by people hired by the firms that are the beneficiaries of lax regulation. Golly, thanks W, thanks Alan and an especial thanks to the Hammer.
THINK!
Wednesday, March 11, 2009
Who Knew?
I suppose that I shouldn't keep harping on this subject, but every time that I read that one of the banks is in deeper than anticipated, I keep coming back to the idea that the folks that got us into this mess either knew and didn't care or are just plain stupid (read my stuff from a few months back about how the banks work and how deals get done and who, if anyone, really understands how to analyze MBS).
The Sunday Times had an article about the Wall Street physicists. I didn't bother reading it, because I am aware that most recent PhD's can't get a job in academia and they can't teach because they don't speak English very well. But, if they can program and do regression analysis, then come on down to the Street and build some complex derivatives! The point is, these people are supposed to be smart.
This is the last time that I'll say this - none of these dopes really understand risk. They let very limited models make the decisions for them. This includes the rating agencies. When the models say that the risk of doing a deal is acceptable, then ratings are assigned and the deal gets placed (or financed and held).
In reality, any idiot could have seen this disaster coming. All that was required was to do the most basic analysis related to mortgage qualification, e.g., the process of stressing a borrower's income to make certain that P&I payments can be met. In addition, some thought should have been given to median income as compared to the median cost of housing in all areas of the country. Either of these simple calculations would have quickly revealed that the market was way overdone.
Think about it, if a humble and lovable bike shop owner can figure this stuff out, how come the professionals could not? HUH?
I want to know who is going to jail and when? I also want to know which members of congress (not the fun kind) got money from which members of the Wall Street/Mortgage Bankers Association/American Bankers Association/Securities Industry Association/and on and on trade groups, better known as lobbies.
Do you really think that the people who enabled this whole mess are actually going to fix it?
THINK!
The Sunday Times had an article about the Wall Street physicists. I didn't bother reading it, because I am aware that most recent PhD's can't get a job in academia and they can't teach because they don't speak English very well. But, if they can program and do regression analysis, then come on down to the Street and build some complex derivatives! The point is, these people are supposed to be smart.
This is the last time that I'll say this - none of these dopes really understand risk. They let very limited models make the decisions for them. This includes the rating agencies. When the models say that the risk of doing a deal is acceptable, then ratings are assigned and the deal gets placed (or financed and held).
In reality, any idiot could have seen this disaster coming. All that was required was to do the most basic analysis related to mortgage qualification, e.g., the process of stressing a borrower's income to make certain that P&I payments can be met. In addition, some thought should have been given to median income as compared to the median cost of housing in all areas of the country. Either of these simple calculations would have quickly revealed that the market was way overdone.
Think about it, if a humble and lovable bike shop owner can figure this stuff out, how come the professionals could not? HUH?
I want to know who is going to jail and when? I also want to know which members of congress (not the fun kind) got money from which members of the Wall Street/Mortgage Bankers Association/American Bankers Association/Securities Industry Association/and on and on trade groups, better known as lobbies.
Do you really think that the people who enabled this whole mess are actually going to fix it?
THINK!
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