French Elections

[Torurot]

Azza
NO surprise I disagree with your point about the egg or the chicken. First the banks through the magnificent US Bribery, Lobby & Tribute system that passes for "Democracy/Republic" in the U.S. got the banking rules weakened, and then went on a betting spree, privatising the profits and CLEARLY socialising their losses, which brings us to now

Digest this

Recovery or Collapse? Bet on Collapse
http://www.paulcraigroberts.org/2012....omments
By: Paul Craig Roberts| May 20, 2012 |
The US financial system and, probably, the financial system of Europe, like the police, no longer serves a useful social purpose.

[azza33]

i can't see how you can disagree with the point.
securitsed debt which allowed this bubble to explode was only a successful product because investors were happy to lap up this sit - its demand driven!!

demand driven by people who bought the bogus premise.

its a sad indictment on society that we can't accept responsibility for our actions. Someone else has to be held accountable...

[pacman]

(azza33 @ May 22 2012,09:05) We all blame investments banks for the GFC...

How can anyone else be blamed for the crimes committed by the major banks?

Public greed alone could never account for the mess that global banking got themselves into. When the dot.com boom burst, all that money finished up back in the banks who had to lend it against something.

Their only option was real estate & the only way they could get it all out was to remove the barriers to borrowing it. Hence we saw 1000's of finance brokers spring up all over the US making commissions on unsustainable loans.

If the borrower had no job, couldn't read or write, no problem, lend him the money & by the time he had defaulted on his first few payments, the debt had already been sold off in one of 1000's of CDO's (collateral debt obligations). The banks took one or two gilt edged loans & wrapped them around a swag of these worthless loans to dress them up as being AAA securities.

The major ratings agencies were in on the scam, subsequent released emails reveal their level of culpability in this fraud the banking system perpetrated on the economy. Then to cap it all off in what can only be regarded as the stake through the heart of international banking, the giants of the banking world cross insured all their dodgy loans to each other with Credit Default Swaps. These ensured that none could be held accountable as they wrote millions of these instruments making it completely impossible to ever unravel this unholy mess.

Poor old Joe Public may have been caught up in the greed of the moment thinking his new investment might make him a profit in the future but he was merely a pawn in this scam that now threatens to take out the world's banking system. The end borrowers lost their deposit if they had any & lost their credit rating while the big banks who caused the problem get to be bailed out by the taxes of the very people they defrauded in the first place.

And the directors of these banks continue to be paid obscene bonuses in defiance of the public contempt they are held in.

When the revolution arrives, no one should be surprised.

[azza33]

CDO .... Nothing wrong with the product.
CDS ..... Nothing wrong with them if tangible asset backing supports the risk.

Invesments are DUMB in CDO if you dont read the product disclosure and understand the product.

Taking out a loan you CANT afford is stupidity - I blame the borrower as they are the only ones who know their true financial position.

Failure to regulate tbe CDS market was a government failure.

Individuals monetising their homes lead to an effective ponzi scheme.

Their is NOTHING inheritently bad about CDO Or CDS... to suggest to the contrary simply implies a lack of understanding. Sure they alliw banks to derisk the balance sheet but this is only because investors are happy to ride the real estate ponzi scheme and receive above market bond returns. No investors equals NO ability to onsell and derisk.

Bubbles will always happen due to individuals greed.
Stop crying and accept the reason any financial product is succesful is due to DEMAND. GREED fuels DEMAND. Blame all you will but these products sold by the evil bankers have a customer - thats you and me! We are chasing the dream and prepared to take more and more risk & taking on more leverage to achieve our goals.

[azza33]

Btw Pac. Only thing I agree on were ratings agencies.

Dont confuse proprietry trading desk taking educated positions in the credit markets. As pointed out in late 2006 early 2007 warning signs emerged. They are free to trade on how they think things will unfold.

As for cross insuring.... I thought all sensible pundits did this if there is an exposed risk.  

[PigDogg]

(azza33 @ May 21 2012,23:17) Their is NOTHING inheritently bad about CDO Or CDS...

I agree.

The problem stems from low down payments and "no doc" loans.

To me, No Doc loans are a friggin joke.

For a some what higher interest rate the borrower would not have to provide any documentation whatsoever as to his financial status.  Now the mortgage brokers know the borrower is lying.  The original lender knows the borrower is lying and doesn't give a shit because they're going to sell off the loan to others who will repackage, slice and dice, and sell off to others.

At some point unsophiscated investors as well as some sophisticated ones will get burnt.

The idea that everyone has a right to "own" a home is absurd.  No money down loans are a recipe for disaster.

Now I suppose at first glance the loans did not appear super toxic, in that if housing prices tumbled by let's say 20%, the investor would still have most of his money if default.

But it seems that there were side bets made, and I'm not sure of the exact mechanics that exacerbated the problem.

At any rate because of lax oversight, opaque financial instruments that bigwigs like Blankfein and Mack said they didn't even understand relying on their specialists, and greed the financial system was a brink of collapse hence the bailout.

I do agree with the bailout however there never should have been and never again should be a situation where the big banks need to be bailed out.

It's easy to take risks with other people's money, if the bet wins everyone gets a big bonus, if the bet loses the banks get bailed out.

So proper risk controls need to be implemented to prevent future problems. And the public can't rely on the banks to police themselves.

Lastly, it disingenuous for Blanky to state that Goldman was perfectly hedged therefore not bailed out.  If numerous counterparties started defaulting Goldman would be in deep shit.

[azza33]

To me, No Doc loans are a friggin joke.

Agreed, assumes the premise that the person applying for their loan understand their financial position enough to comprehend what they are getting into... yeah right  

Lastly, it disingenuous for Blanky to state that Goldman was perfectly hedged therefore not bailed out.  If numerous counterparties started defaulting Goldman would be in deep shit.

Agreed, AIG would have failed as they didn't have anything supporting the facilities they wrote. I suspect after they had fallen over, GS would have exercised their next time of protection against AIG defaulting and probably made whoever that was insolvent. And the dominos would fall one by one... hence the mother of all bailouts.

[rxpharm]

azza, I think culpability is on both sides - the consumers whom, PT Barnum commented, there's a sucker born every minute, but also on the side of the corporations who clearly lobbied to have relaxed the rules to offer these kinds of loans and then package them off as investment vehicles - if this situation wasn't created then the suckers wouldn't have "bit".

[Torurot]

Here's your "honest" bankers hard at work

Facebook Bankers Secretly Cut Forecasts For Company In Middle Of IPO Roadshow

http://j.mp/Jvhhfu (Business Insider)

"And now comes some news about the Facebook IPO that buyers deserve to be outraged about. Reuters Alistair Barr is reporting that Facebook's lead underwriters Morgan Stanley, JP Morgan, and Goldman Sachs, all ["secretly"] cut their earnings forecasts for the company in the middle of the IPO roadshow."

- - -

--Lauren--
Lauren Weinstein ([email protected]): http://www.vortex.com/lauren
Co-Founder: People For Internet Responsibility: http://www.pfir.org
Founder:
- Data Wisdom Explorers League: http://www.dwel.org
- Network Neutrality Squad: http://www.nnsquad.org
- Global Coalition for Transparent Internet Performance: http://www.gctip.org
- PRIVACY Forum: http://www.vortex.com
Member: ACM Committee on Computers and Public Policy
Lauren's Blog: http://lauren.vortex.com

[azza33]

why would you buy Facebook anyways? Business model makes no sense to me. Who goes there to read advertisements? The kid pretty good tho

[azza33]

btw yes its dishonest.... they did the same shit during dot com days.

at the end of the day they are salesman not professionals....

i don't listen to these guys when i make decisions....nor does my buddy warren

[pacman]

(PigDogg @ May 22 2012,22:39)

(azza33 @ May 21 2012,23:17) Their is NOTHING inheritently bad about CDO Or CDS...

I agree.

The problem stems from low down payments and "no doc" loans.

To me, No Doc loans are a friggin joke.

No one suggested there is anything wrong with CDO's & CDS's, it was their willful manipulation by criminal bankers that led rise to the GFC.

And I don't see the fault lying with small deposits or NO-DOC loans, many a sound businessman has been able to secure finance with either method when they couldn't provide the necessary evidence to support their application. And of course like any generous system, they have been rorted. But they weren't soley responsible for triggering the collapse.

Once the regulations governing corporate behaviour for the major banks were relaxed, they set about dreaming up ways to increase their wealth. By approving loans for large amounts of property & giving them a AAA credit rating, they started introducing large amounts of cash into the banking system. Once a loan is raised, the Fed creates the necessary money, it is one of the endearing quirks of the fractional banking system. (I wrote earlier that it was dot.com money finding a new home but that was only part of it.)

Now the banks had found their way to create untold riches, much of it for themself. But when they stooped to bribing the ratings agencies to pass everything off as AAA, the end was in sight. Alarm bells were going off everywhere but no one wanted to stop the party, it was too damn lucrative.

Once the dodgy securities started to be revealed for the merde they were, banks started failing & it was up to the Fed to bail them out. However, when Hank Paulson saw his chance to gain revenge on his old foe Dick Fuld, he made the decision not to bail out Lehman Brothers.

Hank got woken in the middle of the night to be told that none of the European banks could trade because of his decision. Everything was so interconnected & with Lehman's collapse, no bank would trust the next bank with money. This proved to be the greatest mistake of Hank's life & the event that would have caused the entire world banking system to collapse but for massive injections of Fed cash. Money that is still being doled out today.

Now I don't claim special knowledge in all this, I didn't understand why Lehman could set off such a dramatic event so I looked into it. These Credit Default Swaps that are being defended had been taken out multiple times over the same properties but with different institutions. And each of these 3rd parties had also cross insured their "investment" with other institutions.

And it was revealed that there were 1000's of swaps on each transaction. So many that no computer program could ever unravel who owed what in the event of a meltdown. And that was a deliberate tactic undertaken by the investment guys when they realised what the inevitable outcome of their criminal lending behaviour would lead to.

There are over 400 of these banking officials waiting to be charged with serious crimes once the special FBI team can work out who is responsible for what. And they are going down for a very long spell, that has been implied by those overseeing the operation.

Funny how there is no police investigation being undertaken to find criminal behaviour among the poor saps who applied for these loans. I guess when the police realised some of these people couldn't read or write & signed their applications with an X while their job description calls them Space Scientists & Brain Surgeons, the authorities made the decision to go after the real criminals - the bankers.

[azza33]

Ya missing the point Pacman ... sorry buddy but you getting carried away with the exotic stuff and missing what is MOST important - leverage!!!

When the bubble burst - as all GREED bubbles do the bank were too leveraged - a small decrease in asset value has massive ramifications for losses.

People keep writing about all the exotic and just don't get it...

Simple question why did Lehmans collapse? Was it exotic CDS plays? CDO manipulation? Hedge fund manipulation? NO - they got caught holding bad debt!! - It's that simple...  

In 2008, Lehman faced an unprecedented loss to the continuing subprime mortgage crisis. Lehman's loss was a result of having held on to large positions in subprime and other lower-rated mortgage tranches when securing the underlying mortgages; whether Lehman did this because it was simply unable to sell the lower-rated bonds, or made a conscious decision to hold them, is unclear.

No one suggested there is anything wrong with CDO's & CDS's, it was their willful manipulation by criminal bankers that led rise to the GFC.

Where is there ANY evidence of manipulation of CDS? AIGFP was the biggest writer of CDS prior to the GFC (based out of London) - they went tits up because they failed to have tangible asset backing supporting these effective insurance products. (PS I love the DREXEL connection to this business unit   ) To my knowledge AIG was the only CDS issuer to be bailed due to the to big to fail... and they were!

CDO manipulation.... ummm again sorry NO evidence i've yet to see supporting this theory either.
Some of the CDO of course were more toxic than others.

Please explain how CDOs were manipulated? They are merely bonds owned by investors who are reliant on the home owners meeting their mortgage commitments.

Most CDO were reasonably good and even if mortgage payers were not able to pay in full, then the person who looses out is the INVESTOR.

I agree there were misleading statement regarding the true credit risk of the products but that doesn't imply manipulation.

Sorry but i can't see how issuing bonds is some sort of manipulation. Contrary to the theory Lehman brothers failure was a DIRECT result of not selling CDO to derisk their book and holding actual debt.


I'll ask one final question, as an investor in CDOs - especially related to mortgages - why the fuck would you want to invest in a product whereby a mortgage holder can simply hand the key back and walk away from their obligation? In my mind, only an idiot would back such an investment. Why such demand for these assets? GREED

*****

As a aside, my business unit to this day is still financing its book issuing CDOs that are sold to investors in USA. They are the same structure as the mortgage back securities of the GFC folklore.
Funnily enough they are 100% successful & at this point in time we have never failed to make payments to the bond holders - and never had a shortfall of willing investors.  

[Torurot]

Azza, are you saying that Lehman just was the unlucky last sap in a "game" of pass the parcel?? Obviously you are in this business. Clearly the banking participants fcked up otherwise we wouldn't be where we all are now, socialising the losses.
Too big to fail? WHY??

In Australia & NZ you can't just "hand the key in" and be "off the hook for your mortgage" like you can in the US. So.....

[azza33]

Clearly the banking participants fcked up otherwise we wouldn't be where we all are now, socialising the losses.

Agreed. They got carried away and excessively geared their balance sheets. Relaxing government rules, lending standards and basic moral accountability led to the ability to excessive gear the balance sheet. Don't confuse leverage with the property bubble - this is a mania. Happened before and will happen again.

BTW Sub-prime lending was only a tiny part of lending that fueled the bubble. Think about how banks have expanded the mortgage markets. Single income household - Double income household (fuck family values) - 20 year loans - 30 year loans - interest only loans. (I could mention other things but I'm sure i've got you thinking). This procession of events helped fuel the bubble as the public could borrow more and more. All changes perpetrated by people that were convinced that property always goes up, thus risk was considered minimal  

Remember that no-one forced any person to borrow - this was a conscious choice by consumers to aggressively acquire property and often in multiples.

Lehman just was the unlucky last sap in a "game" of pass the parcel

Not really, they willingly bought mortgages they knew to be of low quality with the hope of unloading it to greedy investors and in turn make a good commission themselves. i wouldn't call it unlucky i'd would call it mismanagement. They chose to deal in shit and got caught. I think to use the term "unlucky" doesn't really adequately fit. First way out was dumping to investors... No second way out.... Poor business risk when you really think about it.

In Australia & NZ you can't just "hand the key in" and be "off the hook for your mortgage" like you can in the US.   So.....

Debt deflation is well under way here in Australia. Real prices are down 10% from the peak in 2009 (i think). Very subtle at the moment.
Just like the share markets, some corrections are violent and short term. Other correction unwind sideways for extended periods. US was the former, Australia at the moment is the latter.
In my mind its about employment... whilst people have a job they will attempt to pay their debts... and this is why Australian property has held up well... 5% unemployment rate.

If we went into recession then there would be a rapid price deflation to trend. I can't pick where employment will be in Australia so i can't tell you if prices will rapidly deflate any time soon. All i know is business cycles still exist and next time there is a severe recession i'd be shorting the Australia credit market  

The Australian government do a good job of artificially holding up prices by restrictive land allocation practices... food for thought me thinks...  

Too big to fail? WHY??

Consider Lehmans as a small example. What happened when they went ass up? Markets completely froze - there is zero transparency in what assets another business may be holding and it got to the point that nobody was prepared to do business with each other. Understandable really - if Lehman went under why transfer funds to another entity that may stop trading tomorrow - potential to loose untold sums of money in under 24 hours. The central banks had to step in to provide liquidity to the system until such time as confidence was regained that tradings partner wouldn't fail. 

Consider AIG. $180 billion for the bailout. Say the government let them fail, what next?  Another credit default event occurs, hopefully this time the counterparty will have assets backing their CDS position. These assets are sold in depressed markets, spiraling prices further and further into the abyss. Say prices are so depressed that counterparty can't pay the bill, well the go bankrupt and trigger another CDS event. The potential for a manic spiral is horrendous. IF AIG, Citi & UBS all fell at once.. imagine the sums needed to make good any claims.... the multiplier effect would be....  

Bottom line is "too big to fail" means we have no idea what will happen and where the endpoint would be.  

I've attached a graph of US real property value... as you can see the event is just a natural popping of the mania and prices have returned to "trend". The magnitude of the mania is amazing. The LUST to acquire property was staggering.