Wall Street Coup | 19 comments (19 topical, 0 hidden)
Banks and Bank-Like Organizations (none / 0)
One-hundred eighty-one banks, savings banks, and thrifts have failed since 2008 (see FDIC, WSJ).

Of the 149 banks that failed in 2008-2009, they had total assets of $473 billion.  If the bailout money that had been given to the those banks, they could have been saved, although the bankruptcy system -- if it still worked -- actually would be a more appropriate way to deal with them.  Instead, however, the thieves who are now running our economy decided that bankers should be able to pocket all of that money without actually helping our economy at all.

We actually do need a good banking system that helps finance the manufacturing and service sectors.  But somewhere along the way, people decided that shuffling money around with CDOs and CDSs was actually productive, even though it's not, and started dismantling the manufacturing and housing sectors in order to pay for otherwise worthless paper.  After all, who wants work where they actually have to get their hands dirty?

Bankers and other finance workers must now be classified with hairdressers and, especially, fast food workers: we have far too many of them, they don't produce anything of any substantial value to society, and we're likely to die from over-consuming their products.

With no hope in sight for reform for our banking and finance system, I have little hope that things will improve.  Congress is simply too corrupt, and the voters don't have the will to clean it up.

by EveningStarNM on 02/09/2010 04:07:47 AM EST

insert broker for banker (none / 0)
The thing is that none of them needed to be bailed out. The Mark to Market rule changes allowed counter parties to say your paper is worthless, regardless of the underlying asset value. More or less, the change foreced liquidation at a manipulated market bottom caused by short sellers, rate hikes and accounting tricks.

Bank Assets - from raided banks were given to JP Morgan, Citi and BOA by the FDIC at penny's on the dollar.  Bank liabilities were taken on by the tax payer via the Fed, Treasury or GSE's (fred and fan).

Privitize Profit socialize debt........


by sisco66 on 02/09/2010 06:13:27 AM EST

[ Parent ]
A lot of their paper /was and is/ worthless. (none / 0)
They've created paper based on the value of paper based on the value of paper, and most of those derivatives, the CDOs and CDSs (which they still continue to create) have only the most tenuous connection to any real assets.

The original paper was useful for the economy in that it provided loans for productive uses, even if a portion of them were bad loans in that the lendees should never have been given such large loans or that the terms of the loans were usurious or deceptive.  A good banking system is supposed to provide good loans for productive purposes.

But our banking and finance system has been drastically changed: what used to be non-banking institutions act a lot like banks, and they have invented new means for shuffling money around that not only are not productive to the economy, but are outright harmful.  For instance, a financial institution that has an arm that functions like a bank can make loans, and the brokerage side of the institution can make bets that the loans will fail, thus making it in the institution's interest to issue very bad loans so that it can make a ton of money by selling them short.

I take your point: all of those teaming numbers of excess brokers that our schools of higher education have produced had to create some means for cashing in, and without any regulations to limit how unscrupulous or unproductive they could be, deceptive loans and worthless derivatives were the natural result.

A lot of those derivative "assets" that are now held by the larger institutions actually are worthless, and they have large liabilities attached to them.  We've temporarily staved off the consequences of the creation of those valueless "assets" by shoving so much money into the brokerage-banking industry that they've been able to shuffle numbers around enough to pad their balance sheets to show profits even when they've supposedly given back -- or never actually took -- the TARP money.  Every cent of the profits and bonuses which were distributed to the bankers and brokers should have been given to the taxpayers.

But there actually should not have been enough money left over to create such profits and bonuses because relatively little was done to take those actually worthless assets off the books.  A lot of institutions should have failed, been declared bankrupt, and their assets and liabilities re-valued and sold off.  But with the intervention of the government in lieu of a well-functioning bankruptcy system, we have allowed the brokerage-banks to reinflate the bubble with the creation of still more worthless paper.

No one seems to know it yet, but Goldman-Sachs and their brethren actually are bankrupt because they still hold mostly worthless paper.  It's just that they're allowed to say that the derivatives that they shuffle around actually have value.

It seems to me that nothing has really changed since before the collapse except that the taxpayers are deeper in debt and there is more worthless paper in the derivatives market sucking money out of markets that do have actual value than ever before.

by EveningStarNM on 02/09/2010 09:41:58 AM EST

[ Parent ]
paper vs property (none / 0)
There is two sides to this coin. One side is the paper and bets traded between banks, brokers, AIG and the people who bought the CDO's. The other side is the actual commercial and residential real-estate. The triggers for the CDS payouts were tied to underlying asset values of both.

When the mark to market rules changed, it created a margin call thus a fire sale on the real estate market for commercial property owners and home builders, as well as the banks. The banks went from requiring 5 or 10% equity to requiring 20 or 30% regardless of your payment history. In other words, as short sellers were driving stock and equity assets into the ground the victims had to liquidate devaluing assets in a falling market to maintain capitalization or margins. 
This forced downward spiral wiped out all the operating margins and reserves for most companies as well as states. Don’t forget, that it was the very same short sellers and brokers that drove oil to $140 barrel putting the final nail in the coffin of the economy.
The whole thing has been manipulated to create artificial lows and highs. The same leverage that was used to drive the bubble was used to devalue it. It is long standing Goldman practice.  Due to naked short selling, the leverage on the way down was much greater than on the way up since you did not actually have to buy the stock or wait for an uptick. Hence the quick collapse. As the insiders changed the rules through Paulson, Cox and Bernanke they placed their bets accordingly.






by sisco66 on 02/09/2010 07:35:28 PM EST

[ Parent ]
I didn't know this: (none / 0)
"The banks went from requiring 5 or 10% equity to requiring 20 or 30% regardless of your payment history."

While I can understand that if the banks changed that requirement abruptly it could cause some inconveniences and cause some borrowers to drop out of the market, isn't that a good thing overall?

by EveningStarNM on 02/09/2010 10:44:59 PM EST

[ Parent ]
Ya Great, for Goldman Sachs (none / 0)
You have to look at how all the pieces fit together. Not to be smart, but you do know what a margin call is, right?

When a 100,000 commercial property owners have to start dumping properties into the real estate market at the same time, while rates were high and values were already declining it creates a massive downward spiral on property values. Fire sales, and that is if you can actually sell the property.

At the same time this was going on, you had more or less the same process happening in stocks, corporate bonds and CDO's due to short selling, all triggering CDS payouts to the very people doing the short selling and creating the margin calls. Not to mention making money on the shorts. Oil as well. Behr, Merrill Lynch and Lehman were all neck deep in oil at $140 a barrel, even Buffet.

Not only did the developers and speculators get caught with their pants down in real-estate, they lost everything they had in the stock market as well. The fire sales happened so fast that people instantly started walking away from their home, particularly if they got trapped into having 2. Our builder sold the model with all the upgrades and fully furnished for 100k less than the base price of the house the year before, he needed the money.

So to answer your question. No it's not a good thing to force people to sell at the bottoma, unless your Goldman Sachs.

by sisco66 on 02/10/2010 10:36:49 PM EST

[ Parent ]
one more step (none / 0)
Many of the people who purchased with ARMs or sub-primes but could have probably afforded a 30 year fixed were unable to refinance without paying PMi insurnce once the rate expired or reset, due to the loss of equity. PMI on a 400k house is probably close to an extra $400 a month. That's a lot of cash when gas is $4 a gallon and all your credit card rates are 30%.

It was an across the board assult on the a American people, a true act of terrorism. And it was done and continues to be done to us by our government on behalf of  Goldman Sachs, JP Morgan, Citi and BOA.

Note: The bankruptcy rule changes only applied to people, not corps. It would have been very easy for the OTS (office of thrift supervision) to shut down AIG's thirft or bankrupt it without killing the insurance company, as Cenk suggested.

by sisco66 on 02/10/2010 10:50:31 PM EST

[ Parent ]

Wall Street Coup | 19 comments (19 topical, 0 hidden)