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Those are terrible analogies. They did not hide bad loans in there and claim they were good. The products specifically consiste of a subprime tranch. In the fi

by sambe 14y ago

Those are terrible analogies. They did not hide bad loans in there and claim they were good. The products specifically consiste of a subprime tranch. In the financial world you are always buying products with risk attached. The amount and nature of the risk varies with the product; remember lots of people made money on CDOs as they will continue to do, as they did and do on junk bonds, and every other product that has bankrupted someone in the past. Attempting to put some arbitrary limit on what can and cannot be sold seems rigid and counterproductive. You realise that you can still buy Greek government bonds, right? Further, there is a reason caveat emptor is heavily restricted in the consumer domain: the overhead of people trying to assess and manage the risk of every single purchase they make far outweighs the cost of legislation and the onus on the company to deal with it instead. Note also that the strongest protections apply to new products. If you buy a used car without guarantee something can go wrong without any liability for the seller, so you are not even factually correct. I cannot see a legitimate reason to downbote my parent unless considered to be factually incorrect. Probably better to state the inaccuracies, you know, kind of friendlier where they are non-trivial. Spent today upvoting similarly against-the-consensus comments; exceptionally disappointing that such discussion must be one-sided on HN.

corford 14y ago
Car analogy aside, I thought the other two were very apt. >In the financial world you are always buying products with risk attached. Which is why investors use ratings agencies to help them gauge the risk. Good job none of those AAA rated tranches were cut with toxic assets... Oh, they were? Woops. I don't think anyone is arguing that financial products don't carry inherent risk. What would be nice is if the banks and investment houses worked hard to mitigate this risk for their clients rather than throwing them to the lions (or in many cases simply out and out lying) and profiting regardless. If they aren't capable of doing this themselves, then they should be regulated in to compliance. I don't expect my accountant to fuck me and the same goes for my financial advisor.
- sambe 14y ago
  That was precisely the conclusion of my (heavily downvoted) reply. The ratings agencies are not the banks. What is unclear about this? I wouldn't even think it controversial. The parent that I replied to stated that the instruments were marketed as safe when they were anything but. The implication in my view was that you should not be able to sell unsafe things (and the only other reply confirms this). Even if I misread this, it's simply not factually correct to say that they were marketed as safe. They will - like anything else - be marketed as a good product. Which means a good risk/reward ratio. Which means fuck all, if you don't trust ratings agencies. But again we are back to the same issue. Is it a good thing that ratings agencies make money from the companies selling the products they rate? Wow, you know what? That's an interesting point! Maybe it's easier just to click the down-arrow though - it's not as if the discussion is valuable. whatever, hating on bankers is more important than facts. apologies for the sarcasm.
  - corford 14y ago
    Except it isn't just the ratings agencies is it? The banks have been mis-selling and over hyping virtually everything that goes across their desk. Dodgy prospectuses, mis-selling interest rate swaps (http://www.telegraph.co.uk/finance/rate-swap-scandal/9364019/Big-Four-banks-admit-to-mis-selling-interest-rate-swaps.html http://www.telegraph.co.uk/finance/rate-swap-scandal/9364019...), mis-selling payment protection insurance, rigging municipal bond auctions and the list goes on. This is before we even wade in to the whole LIBOR scandal. How are you supposed to, as an investor, accurately gauge risk if the independent base rate used to calculate your interest has itself been compromised by the very banks you're buying the investment products from?
    - sambe 14y ago
      I think it would be more valuable to question your assumptions. You have changed the topic and conflated several different issues - it is not the case that doing one thing wrong means doing everything wrong. There's a lot rotten in banking, but selling a bundle of mortgages with varying quality - without misrepresentation of this, and to another financial institutoion - is not morally or legally questionable. If you really want to talk about the other issues, I find it highly unlikely that 'mis-selling' in this sense means lying. That implication is yet another easy way to join the narratives to sell papers. Small and medium business are generally protected in the same style as consumer purchases - they are not sophisticated investors, and should not even be sold complex products. When they complain about the consequences not being explained to them, they were in fact quite plain in the contract, but they didn't bother to read it properly, or did not understand it. I can understand why we protect them like this, however - same reasoning consumer purchases. LIBOR - trying to manipulate the market is a crime. Actual effect? Maybe none? Previous investigations and a couple of academic papers found no effect. The Economist also considers the more important thing the 'second type' of wrongdoing - where the ire directed at Barclays is that they initially didn't lie, and then later lied less than everyone else (possible at the suggestion of the government?). At the stage of 'not lying as much as others', it's getting pretty silly in my view. Much like the financial crisis's beginnings, the public is sold nonsense and hyperbole and cartoon villains. So we focus so heavily on the bankers that we don't really look into mortgage brokers, ratings agencies, government monetary policy, regulators, etc. Conclusion is to velify one group - exactly what the other groups want - without fixing those that set the wrong incentives/hold them accountable. See you in 10 years for the same story.
intended 14y ago
Those are spot on analogies. I forget the name of the particular synthetic security case, but from the emails it was clear that the bank knew they were selling junk to their customers. From their sales materials / ppt / brochures its equally clear that they made no mention whatsoever that they thought it was useless/terrible/ and that they were shorting it. When a bank shorts something, and then turns around and sells the counter position to a client while promising them that it will go long, what else would you call it? Edit: I'm providing a reason only to why the Analogy is correct. Finance discussions are always complex, and the rest of your points I have no real beef with. I am only pointing out that the banks are playing asymmetrically. In these cases it would not be possible for the customers to avail of the "informed / educated investor" clause.

by sambe 14y ago

corford 14y ago

Car analogy aside, I thought the other two were very apt. >In the financial world you are always buying products with risk attached. Which is why investors use ratings agencies to help them gauge the risk. Good job none of those AAA rated tranches were cut with toxic assets... Oh, they were? Woops. I don't think anyone is arguing that financial products don't carry inherent risk. What would be nice is if the banks and investment houses worked hard to mitigate this risk for their clients rather than throwing them to the lions (or in many cases simply out and out lying) and profiting regardless. If they aren't capable of doing this themselves, then they should be regulated in to compliance. I don't expect my accountant to fuck me and the same goes for my financial advisor.

sambe 14y ago
That was precisely the conclusion of my (heavily downvoted) reply. The ratings agencies are not the banks. What is unclear about this? I wouldn't even think it controversial. The parent that I replied to stated that the instruments were marketed as safe when they were anything but. The implication in my view was that you should not be able to sell unsafe things (and the only other reply confirms this). Even if I misread this, it's simply not factually correct to say that they were marketed as safe. They will - like anything else - be marketed as a good product. Which means a good risk/reward ratio. Which means fuck all, if you don't trust ratings agencies. But again we are back to the same issue. Is it a good thing that ratings agencies make money from the companies selling the products they rate? Wow, you know what? That's an interesting point! Maybe it's easier just to click the down-arrow though - it's not as if the discussion is valuable. whatever, hating on bankers is more important than facts. apologies for the sarcasm.
- corford 14y ago
  Except it isn't just the ratings agencies is it? The banks have been mis-selling and over hyping virtually everything that goes across their desk. Dodgy prospectuses, mis-selling interest rate swaps (http://www.telegraph.co.uk/finance/rate-swap-scandal/9364019/Big-Four-banks-admit-to-mis-selling-interest-rate-swaps.html http://www.telegraph.co.uk/finance/rate-swap-scandal/9364019...), mis-selling payment protection insurance, rigging municipal bond auctions and the list goes on. This is before we even wade in to the whole LIBOR scandal. How are you supposed to, as an investor, accurately gauge risk if the independent base rate used to calculate your interest has itself been compromised by the very banks you're buying the investment products from?
  - sambe 14y ago
    I think it would be more valuable to question your assumptions. You have changed the topic and conflated several different issues - it is not the case that doing one thing wrong means doing everything wrong. There's a lot rotten in banking, but selling a bundle of mortgages with varying quality - without misrepresentation of this, and to another financial institutoion - is not morally or legally questionable. If you really want to talk about the other issues, I find it highly unlikely that 'mis-selling' in this sense means lying. That implication is yet another easy way to join the narratives to sell papers. Small and medium business are generally protected in the same style as consumer purchases - they are not sophisticated investors, and should not even be sold complex products. When they complain about the consequences not being explained to them, they were in fact quite plain in the contract, but they didn't bother to read it properly, or did not understand it. I can understand why we protect them like this, however - same reasoning consumer purchases. LIBOR - trying to manipulate the market is a crime. Actual effect? Maybe none? Previous investigations and a couple of academic papers found no effect. The Economist also considers the more important thing the 'second type' of wrongdoing - where the ire directed at Barclays is that they initially didn't lie, and then later lied less than everyone else (possible at the suggestion of the government?). At the stage of 'not lying as much as others', it's getting pretty silly in my view. Much like the financial crisis's beginnings, the public is sold nonsense and hyperbole and cartoon villains. So we focus so heavily on the bankers that we don't really look into mortgage brokers, ratings agencies, government monetary policy, regulators, etc. Conclusion is to velify one group - exactly what the other groups want - without fixing those that set the wrong incentives/hold them accountable. See you in 10 years for the same story.

intended 14y ago

Those are spot on analogies. I forget the name of the particular synthetic security case, but from the emails it was clear that the bank knew they were selling junk to their customers. From their sales materials / ppt / brochures its equally clear that they made no mention whatsoever that they thought it was useless/terrible/ and that they were shorting it. When a bank shorts something, and then turns around and sells the counter position to a client while promising them that it will go long, what else would you call it? Edit: I'm providing a reason only to why the Analogy is correct. Finance discussions are always complex, and the rest of your points I have no real beef with. I am only pointing out that the banks are playing asymmetrically. In these cases it would not be possible for the customers to avail of the "informed / educated investor" clause.