6 ms·

The Big Takeover

72 points by martythemaniak 18y ago

Slzr 18y ago
FTA:"The latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history — some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That's $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second. And all this happened at the end of eight straight years that America devoted to frantically chasing the shadow of a terrorist threat to no avail, eight years spent stopping every citizen at every airport to search every purse, bag, crotch and briefcase for juice boxes and explosive tubes of toothpaste. Yet in the end, our government had no mechanism for searching the balance sheets of companies that held life-or-death power over our society and was unable to spot holes in the national economy the size of Libya (whose entire GDP last year was smaller than AIG's 2008 losses)."
agotterer 18y ago
For anyone who still doesn't understand whats going on. Check out http://crisisofcredit.com/ http://crisisofcredit.com/ (already been posted).
pg 18y ago
Can anyone supply a link to an article that actually explains the stuff that this article purports to be about? The test of "actually explains" being "explains how to prevent."
- earl 18y ago
  Paul: There is probably more than a single article's worth in terms of explaining how to prevent, but you could start with Barry Ritholtz' blog http://www.ritholtz.com/blog http://www.ritholtz.com/blog -- he also has a book coming out that will probably be very illuminating: http://www.amazon.com/exec/obidos/ASIN/0470520388/thebigpictu09-20 http://www.amazon.com/exec/obidos/ASIN/0470520388/thebigpict... . You might also try nakedcapitalism.com, another well respected blog.
- gasull 18y ago
  This article explains what needs to be done and what needs to be stopped: http://www.aspousa.org/index.php/2009/03/no-we-cant/ http://www.aspousa.org/index.php/2009/03/no-we-cant/ FTA: What is the biggest impediment in 2009 to mitigating the harmful effects of energy problems in the 21st century? The answer may surprise you—it is insolvent zombie banks and our entrenched FIRE economy (Finance, Insurance, Real Estate). Or if you want a quick 10-minute explanation of what should be done watch this interview with Michael Hudson: http://www.youtube.com/watch?v=3pwAFohWBL4 http://www.youtube.com/watch?v=3pwAFohWBL4 My favorite source for economic news is entrepreneur Eric Janszen's articles at http://itulip.com http://itulip.com . HTH.
- martythemaniak 18y ago
  Matt Tiabbi does write with a certain muckraker-type style, and because it's only an article, it can only go so deep in the story. Having said that, as far as I can tell what he says is pretty much spot on and very much factually correct. One example: He spends a few sentences explaining how banks created CDOs: take some good loans, take some bad loans, put them together and using some math convince regulators and investors that these things are AAA rated. Wired wrote an article (itself not that detailed) explaining the formula that allowed them to do this: http://www.wired.com/techbiz/it/magazine/17-03/wp_quant http://www.wired.com/techbiz/it/magazine/17-03/wp_quant I don't think there can be an article that explains this stuff. Some years from now, someone who is both smart and an excellent writer will be able to look back and write a book that explains everything, but until then this stuff will be about as good as it gets. Details on "how to prevent" are even harder, and you'll probably have to look at the upcoming G20 summit in April where the Europeans will try to at least start talking about some kind of regulatory framework, while the Americans will just want everyone to throw more money at the same people that fucked things up.
  - anamax 18y ago
    > One example: He spends a few sentences explaining how banks created CDOs: take some good loans, take some bad loans, put them together and using some math convince regulators and investors that these things are AAA rated. You write that like it's wrong or in error. As Google has demonstrated, you can create something that it is more reliable than its parts. A bundle of somewhat independent things has less variance than the pieces.
    - petewarden 18y ago
      "somewhat independent" is the crux of the problem. In a crash the only things going up are the correlations. The modelling behind mortgage securities assumed that defaults were uncorrelated based on the short time period they based them on. Now we know better.
      - anamax 18y ago
        Misunderstanding correlations among defaults was part of it but the other big surprise was that different asset classes which less independent than thought. For example, no one expected an increase in mortage defaults to be accomplied by problems in stocks. In fact, its likely that these two things fed each other, that the unexpected correlation in defaults is at least partly due to the unforseen correlation across asset classes and the unforseen correlation across asset classes is at least partly due to the unexpected correlation in defaults.
jeroen 18y ago
I don't get this: the Accounting and Auditing Act of 1950. The relevant section, 31 USC 714(b), dictated that congressional audits of the Federal Reserve may not include "deliberations, decisions and actions on monetary policy matters." The exemption, as Foss notes, "basically includes everything." Does congress not have the power to change that act? (please note that I'm not from the US)
- jhancock 18y ago
  I have been taught the U.S. Constitution mandates ALL spending must be initiated through Congress. If this is correct, then the above cited Act is not constitutional. There are many that argue the Fed has long been exercising powers it does not have. We shall see how much longer this behavior continues.
  - deleted 18y ago
    [deleted]
  - anamax 18y ago
    (1) Creating money isn't spending. And, technically congress merely controls govt spending and the fed, so the argument goes, isn't really govt. (2) "The Fed is unconsitutional" argument was lost long ago.
- szn46 18y ago
  Congress certainly has the authority to change the Act if they did so in the first place in 1950. I do not think that they did have the authority to give up their responsibilty if it was un-constitutional in the first place. One of posters on this thread, 'jhancock' said that quote "creating money isn't spending." Well, hey buddy! What do you call what the Fed has been doing since 2008? So far they have lent 3 Trillion US dollars and provided some 5.7 Trillion bucks in guarantees on PRIVATE investments. Definitely illegal according to the Constitution. It is outside of their mandate. How it will play out if we, the tax-payer, tell them to take a flying leap...Beats me! I support H.R. 1207 that would require the GAO to audit the Fed. It is a start. After that I am sure most Americans will want to get rid of it and control our own money.
drewr 18y ago
No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Someone did ask for the latter: http://en.wikipedia.org/wiki/Community_Reinvestment_Act http://en.wikipedia.org/wiki/Community_Reinvestment_Act
- bilbo0s 18y ago
  Facilities like CRA and TIF did not contribute to the housing crisis in the manner you postulate. They contributed by giving real estate developers political and, more importantly, financial cover for redeveloping inner city areas. The areas redeveloped were full of impoverished people, BUT the areas were not redeveloped FOR the impoverished people. Generally, those people were moved out to section 8 housing, (rentals), and new people would come in. People who were decidedly non poor. Then, of course, those people started to default on their mortgages and the rest is history. Witness the downtown condo boom that happened across the US. Then witness the downtown condo bust that is happening presently. Been to Chicago or Miami lately? So, in short, the developers never sold their condos to "ex-strippers on work release and Taco Bell clerks". They sold them to retirees, empty-nesters, and a crapload of yuppies and speculators. Now the data coming in right now, at least the data for the developer that I worked for, seems to indicate that selling to yuppies and speculators was a mistake. But the gentrification of those neighborhoods was not a mistake, in my own opinion. I know others may think differently.
  - jerf 18y ago
    I have to ask you if you even know what the CRA is, because your description of its effects appear to be based on not knowing. It is a requirement that banks load to people who couldn't afford a mortgage on their own merits because of the politically-oriented belief that the reason why these people couldn't get mortgages was not that they couldn't repay them, but because the bankers are racist. It is impossible for the CRA to have had any involvement in the creation of an area for "retirees, empty-nesters, and a crapload of yuppies and speculators", because those people would not have qualified under the CRA, what with being relatively rich and all. (Excepting the last one; one of the saddest outcomes in my opinion of this whole mess are those who use the CRA to speculate. Oops.) The CRA's entire, explicit purpose was the creation of a large number of toxic mortgages, a function it continues to perform. (It is of course impossible that a law so noble, so totally full of those glorious good intentions could be a bad idea, and the idea that it should be repealed is of course racist.) So, as my parenthetical sarcastically points out, that's not how the politicians see it, but it is an accurate description of the act in terms of what it actually does in practice. You can argue about the extent of responsibility it bears, but it is inarguable that it created toxic mortgages to some extent; for the CRA, that is working as designed.
antidaily 18y ago
So why isn't Cassano sitting in jail with Bernie Madoff?
- martythemaniak 18y ago
  Why would he? It's not like he did anything illegal, and if you tried to say what he was doing should be illegal, or at the very least regulated and in the open, then you would have been called a loser socialist who's jealous of financial innovation. Let's not forget what the prevailing attitude was just a few years ago, and you can still see lots of it left over today.
- jhancock 18y ago
  Cassano was not committing fraud in the narrow context that our politicians had been bought off to ease regulations to allow him to do what he did. Additionally, our executive branch pulled the age-old political trick of "speak loudly but underfund". That is, there was noone providing oversight in the OTS. According to the article, there was only 1 OTS employee that had a background and position to oversee the entire industry. Incidentally, a similar thing happened with Pentagon spending: for much of the Bush years, there was reportedly only 1 person to review ALL expense reports from all contractors. The result was everything was approved; zero oversight. This is what I term "engineered incompetence".

Slzr 18y ago

FTA:"The latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history — some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That's $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second. And all this happened at the end of eight straight years that America devoted to frantically chasing the shadow of a terrorist threat to no avail, eight years spent stopping every citizen at every airport to search every purse, bag, crotch and briefcase for juice boxes and explosive tubes of toothpaste. Yet in the end, our government had no mechanism for searching the balance sheets of companies that held life-or-death power over our society and was unable to spot holes in the national economy the size of Libya (whose entire GDP last year was smaller than AIG's 2008 losses)."

agotterer 18y ago

For anyone who still doesn't understand whats going on. Check out http://crisisofcredit.com/ http://crisisofcredit.com/ (already been posted).

pg 18y ago

Can anyone supply a link to an article that actually explains the stuff that this article purports to be about? The test of "actually explains" being "explains how to prevent."

earl 18y ago
Paul: There is probably more than a single article's worth in terms of explaining how to prevent, but you could start with Barry Ritholtz' blog http://www.ritholtz.com/blog http://www.ritholtz.com/blog -- he also has a book coming out that will probably be very illuminating: http://www.amazon.com/exec/obidos/ASIN/0470520388/thebigpictu09-20 http://www.amazon.com/exec/obidos/ASIN/0470520388/thebigpict... . You might also try nakedcapitalism.com, another well respected blog.
gasull 18y ago
This article explains what needs to be done and what needs to be stopped: http://www.aspousa.org/index.php/2009/03/no-we-cant/ http://www.aspousa.org/index.php/2009/03/no-we-cant/ FTA: What is the biggest impediment in 2009 to mitigating the harmful effects of energy problems in the 21st century? The answer may surprise you—it is insolvent zombie banks and our entrenched FIRE economy (Finance, Insurance, Real Estate). Or if you want a quick 10-minute explanation of what should be done watch this interview with Michael Hudson: http://www.youtube.com/watch?v=3pwAFohWBL4 http://www.youtube.com/watch?v=3pwAFohWBL4 My favorite source for economic news is entrepreneur Eric Janszen's articles at http://itulip.com http://itulip.com . HTH.
martythemaniak 18y ago
Matt Tiabbi does write with a certain muckraker-type style, and because it's only an article, it can only go so deep in the story. Having said that, as far as I can tell what he says is pretty much spot on and very much factually correct. One example: He spends a few sentences explaining how banks created CDOs: take some good loans, take some bad loans, put them together and using some math convince regulators and investors that these things are AAA rated. Wired wrote an article (itself not that detailed) explaining the formula that allowed them to do this: http://www.wired.com/techbiz/it/magazine/17-03/wp_quant http://www.wired.com/techbiz/it/magazine/17-03/wp_quant I don't think there can be an article that explains this stuff. Some years from now, someone who is both smart and an excellent writer will be able to look back and write a book that explains everything, but until then this stuff will be about as good as it gets. Details on "how to prevent" are even harder, and you'll probably have to look at the upcoming G20 summit in April where the Europeans will try to at least start talking about some kind of regulatory framework, while the Americans will just want everyone to throw more money at the same people that fucked things up.
- anamax 18y ago
  > One example: He spends a few sentences explaining how banks created CDOs: take some good loans, take some bad loans, put them together and using some math convince regulators and investors that these things are AAA rated. You write that like it's wrong or in error. As Google has demonstrated, you can create something that it is more reliable than its parts. A bundle of somewhat independent things has less variance than the pieces.
  - petewarden 18y ago
    "somewhat independent" is the crux of the problem. In a crash the only things going up are the correlations. The modelling behind mortgage securities assumed that defaults were uncorrelated based on the short time period they based them on. Now we know better.
    - anamax 18y ago
      Misunderstanding correlations among defaults was part of it but the other big surprise was that different asset classes which less independent than thought. For example, no one expected an increase in mortage defaults to be accomplied by problems in stocks. In fact, its likely that these two things fed each other, that the unexpected correlation in defaults is at least partly due to the unforseen correlation across asset classes and the unforseen correlation across asset classes is at least partly due to the unexpected correlation in defaults.

jeroen 18y ago

I don't get this: the Accounting and Auditing Act of 1950. The relevant section, 31 USC 714(b), dictated that congressional audits of the Federal Reserve may not include "deliberations, decisions and actions on monetary policy matters." The exemption, as Foss notes, "basically includes everything." Does congress not have the power to change that act? (please note that I'm not from the US)

jhancock 18y ago
I have been taught the U.S. Constitution mandates ALL spending must be initiated through Congress. If this is correct, then the above cited Act is not constitutional. There are many that argue the Fed has long been exercising powers it does not have. We shall see how much longer this behavior continues.
- deleted 18y ago
  [deleted]
- anamax 18y ago
  (1) Creating money isn't spending. And, technically congress merely controls govt spending and the fed, so the argument goes, isn't really govt. (2) "The Fed is unconsitutional" argument was lost long ago.
szn46 18y ago
Congress certainly has the authority to change the Act if they did so in the first place in 1950. I do not think that they did have the authority to give up their responsibilty if it was un-constitutional in the first place. One of posters on this thread, 'jhancock' said that quote "creating money isn't spending." Well, hey buddy! What do you call what the Fed has been doing since 2008? So far they have lent 3 Trillion US dollars and provided some 5.7 Trillion bucks in guarantees on PRIVATE investments. Definitely illegal according to the Constitution. It is outside of their mandate. How it will play out if we, the tax-payer, tell them to take a flying leap...Beats me! I support H.R. 1207 that would require the GAO to audit the Fed. It is a start. After that I am sure most Americans will want to get rid of it and control our own money.

drewr 18y ago

No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Someone did ask for the latter: http://en.wikipedia.org/wiki/Community_Reinvestment_Act http://en.wikipedia.org/wiki/Community_Reinvestment_Act

bilbo0s 18y ago
Facilities like CRA and TIF did not contribute to the housing crisis in the manner you postulate. They contributed by giving real estate developers political and, more importantly, financial cover for redeveloping inner city areas. The areas redeveloped were full of impoverished people, BUT the areas were not redeveloped FOR the impoverished people. Generally, those people were moved out to section 8 housing, (rentals), and new people would come in. People who were decidedly non poor. Then, of course, those people started to default on their mortgages and the rest is history. Witness the downtown condo boom that happened across the US. Then witness the downtown condo bust that is happening presently. Been to Chicago or Miami lately? So, in short, the developers never sold their condos to "ex-strippers on work release and Taco Bell clerks". They sold them to retirees, empty-nesters, and a crapload of yuppies and speculators. Now the data coming in right now, at least the data for the developer that I worked for, seems to indicate that selling to yuppies and speculators was a mistake. But the gentrification of those neighborhoods was not a mistake, in my own opinion. I know others may think differently.
- jerf 18y ago
  I have to ask you if you even know what the CRA is, because your description of its effects appear to be based on not knowing. It is a requirement that banks load to people who couldn't afford a mortgage on their own merits because of the politically-oriented belief that the reason why these people couldn't get mortgages was not that they couldn't repay them, but because the bankers are racist. It is impossible for the CRA to have had any involvement in the creation of an area for "retirees, empty-nesters, and a crapload of yuppies and speculators", because those people would not have qualified under the CRA, what with being relatively rich and all. (Excepting the last one; one of the saddest outcomes in my opinion of this whole mess are those who use the CRA to speculate. Oops.) The CRA's entire, explicit purpose was the creation of a large number of toxic mortgages, a function it continues to perform. (It is of course impossible that a law so noble, so totally full of those glorious good intentions could be a bad idea, and the idea that it should be repealed is of course racist.) So, as my parenthetical sarcastically points out, that's not how the politicians see it, but it is an accurate description of the act in terms of what it actually does in practice. You can argue about the extent of responsibility it bears, but it is inarguable that it created toxic mortgages to some extent; for the CRA, that is working as designed.

antidaily 18y ago

So why isn't Cassano sitting in jail with Bernie Madoff?

martythemaniak 18y ago
Why would he? It's not like he did anything illegal, and if you tried to say what he was doing should be illegal, or at the very least regulated and in the open, then you would have been called a loser socialist who's jealous of financial innovation. Let's not forget what the prevailing attitude was just a few years ago, and you can still see lots of it left over today.
jhancock 18y ago
Cassano was not committing fraud in the narrow context that our politicians had been bought off to ease regulations to allow him to do what he did. Additionally, our executive branch pulled the age-old political trick of "speak loudly but underfund". That is, there was noone providing oversight in the OTS. According to the article, there was only 1 OTS employee that had a background and position to oversee the entire industry. Incidentally, a similar thing happened with Pentagon spending: for much of the Bush years, there was reportedly only 1 person to review ALL expense reports from all contractors. The result was everything was approved; zero oversight. This is what I term "engineered incompetence".