News Banks Bundled Bad Debt, Bet Against It and Won

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The discussion centers on the investigation into major financial firms, particularly Goldman Sachs, for potential violations of securities laws during the housing market collapse. Reports indicate that these firms created and sold mortgage-linked securities while simultaneously betting against them, leading to significant losses for clients like pension funds and insurance companies. This practice raises questions about the ethical obligations of banks in disclosing the risks associated with these investments. Participants debate whether the actions of these banks constitute fraud, particularly if they misrepresented the quality of the securities sold. The conversation also touches on the role of government entities like Fannie Mae and Freddie Mac in creating demand for risky loans, suggesting that while banks made poor lending decisions, government policies contributed to the crisis. The discussion highlights the complexities of accountability in the financial sector, the implications of regulatory frameworks, and the ethical considerations of profit-making at the expense of clients. Overall, the thread emphasizes the need for transparency and the potential for reform in financial regulations to prevent similar crises in the future.
  • #31
On a somewhat older side note, from the following article:
http://www.rollingstone.com/politics/news/wall-streets-naked-swindle-20100405"
A scheme to flood the market with counterfeit stocks helped kill Bear Stearns and Lehman Brothers — and the feds have yet to bust the culprits
By Matt Taibbi
April 5, 2010
Rolling Stone (again...)

"I personally went to senior management at *DTC in 1993 and presented them with this issue," she recalls. "And their attitude was, 'We spill more than that.'" In other words, the problem represented such a small percentage of the assets handled annually by the DTC — as much as $1.8 quadrillion in any given year, roughly 30 times the GDP of the entire planet — that it wasn't worth worrying about.

Does anyone know what that means? $1.8 quadrillion?

Is that the sum of all annual transactions?

http://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_Corporation"
 
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  • #32
OmCheeto said:
Please don't get me started on Bernie Madoff...



Yay! They have to give back the money from a ponzi scheme! There is justice in the world!



Money! Money! Let's get all the money back!

Wow, wait, what the, Skreeeeeeeech!(that's the sound that tires made when you pushed on the brakes too hard before they had ABS)



Yippie! Conspire with crooks to make nearly a half a billion dollars, and then have a congressman change the law so you can keep it all.

[multiple expletives deleted]


Sometimes I really wish we still lived in an age of reciprocal justice. I come out of it very quickly, but it's people like Madoff, who are clearly taking the fall for a number of others that really piss me off.
 
  • #33
OmCheeto said:
On a somewhat older side note, from the following article:


Does anyone know what that means? $1.8 quadrillion?

Is that the sum of all annual transactions?

http://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_Corporation"

that's what it sounds like. but why the churn rate would be a valid basis of comparison is beyond me.
 
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  • #34
Proton Soup said:
that's what it sounds like. but why the churn rate would be a valid basis of comparison is beyond me.

What is the "churn rate"?
 
  • #35
nismaratwork said:
What is the "churn rate"?

maybe it is the wrong term, but what i mean by it is simply the amount of money flowing through the system. which in this case is $1.8 quadrillion/year. but how much of that is just the same money changing hands over and over?
 
  • #36
Proton Soup said:
maybe it is the wrong term, but what i mean by it is simply the amount of money flowing through the system. which in this case is $1.8 quadrillion/year. but how much of that is just the same money changing hands over and over?

I have no idea, I wasn't being Socratic... I'm baffled.
 
  • #37
Proton Soup said:
maybe it is the wrong term, but what i mean by it is simply the amount of money flowing through the system. which in this case is $1.8 quadrillion/year. but how much of that is just the same money changing hands over and over?

If that's true, then that comes out to about $7.2 trillion per day.

Odd.

http://en.wikipedia.org/wiki/New_York_Stock_Exchange"
The New York Stock Exchange (NYSE) is a stock exchange located at 11 Wall Street in lower Manhattan, New York City, USA. It is the world's largest stock exchange by market capitalization of its listed companies at US$13.39 trillion as of Dec 2010. Average daily trading value was approximately US$153 billion in 2008.

That means in less than two days, the equivalent of the entire market cap of the NYSE is being traded.

I wonder if this is where DeFazio got the idea for his http://en.wikipedia.org/wiki/Let_Wall_Street_Pay_for_the_Restoration_of_Main_Street_Bill" .
hmmm...
$1.8 quadrillion x 0.0025 = $4.5 trillion dollars a year.
2011 Budget of the United States federal government = $3.82 trillion
giving us a surplus of $680 billion a year, and no more federal income tax!

gads I love not knowing what any of these numbers really mean.

:rolleyes:
 
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  • #38
  • #39
  • #40
nismaratwork said:
I have no idea, I wasn't being Socratic... I'm baffled.

It really shouldn't be so surprising. People get preoccupied with GDP figures, but GDP is a flow, not a stock. The actual value of the United States is (quite obviously) substantially more than GDP. These are approximates, so bear with me.

The asset value of the US is ~$160 trillion dollars, and the liability value is approximately $100 trillion. These assets and liabilities are transitory - people are constantly buying and selling them. Today's asset is tomorrows liability, and vice versa. Whenever these transactions occur, a bookkeeper needs to make the appropriate accounting record. That's DTCC. Given the numbers above, and given transaction and monetary velocities (variable, but let's say about averages about 20x over time), your quickly talking about quadrillions of dollars worth of transactions. Factor in the rest of the world, and all of a sudden its real money.

And this isn't even entirely accurate; there is a great deal of value that is not accurately accounted for in the asset and liability categories, like off-the-books value (handymen, housewives, etcetera), and the exotics like derivatives (technically this is because derivatives have no value on their own; they trade based on the expected value of the underlying asset - but they're marketable). Point here is twofold: economists have a hard time defining "wealth" and tracking it reliably, and the United States is tremendously wealthy (GDP numbers fail to capture the scale of it appropriately).
 
  • #41
Astronuc said:
How about this - http://www.chainofblame.com/

Great link Astronuc. I doubt if one in ten people really knows how this all went down.

As for former Country Wide loans (Now Owned by BOA) the rate of foreclosures has increased during the last year. The foreclosure process is handled by a former division of Country Wide.

Just to get an idea of how bad the foreclosure rate is go to:

Http://www.recontrust.com[/URL]

The website lists the numbers addresses and auction dates by state and county. And these are all just former Country Wide mortgages.

The numbers are staggering. I have followed a number of local foreclosures though the County Assessors Office and the County Recorders Office.

This gives me the current owner of the properties after the foreclosure auctions. 99% of the homes are now owned by Freddie Mac? It looks like BOA got a big break from the government.

The loans are being removed from BOA's books when they are bought by Freddie Mac.

The stats for current forclosure action on former Country Wide mortages in Arizona:

County / Number of Properties
Pinal 1490
Yuma 207
Coconino 165
Gila 77
Mohave 598
Navajo 122
Yavapai 504
Apache 19
Cochise 114
Pima 1885
Graham 21
Santa Cruz 72
La Paz 16
Maricopa 13256
 
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  • #42
Proton Soup said:
maybe it is the wrong term, but what i mean by it is simply the amount of money flowing through the system. which in this case is $1.8 quadrillion/year. but how much of that is just the same money changing hands over and over?

Stocks are being churned at an astonishing rate. I have a nephew who works for a Market Builder They buy millions of shares of stock which drives up the price and then they dump them and take the profit.

They never hold a stock for more than three days.

The larger investment banks, such as Goldman Sachs, are doing it at an even faster rate using super computers. They can buy sell or trade thousands of shares per second.

Google: Quants The Alchemists of Wall Street.

Edit.

http://www.midasoracle.org/2010/09/24/quants-the-alchemists-of-wall-street/
 
  • #43
talk2glenn said:
It really shouldn't be so surprising. People get preoccupied with GDP figures, but GDP is a flow, not a stock. The actual value of the United States is (quite obviously) substantially more than GDP. These are approximates, so bear with me.

The asset value of the US is ~$160 trillion dollars, and the liability value is approximately $100 trillion. These assets and liabilities are transitory - people are constantly buying and selling them. Today's asset is tomorrows liability, and vice versa. Whenever these transactions occur, a bookkeeper needs to make the appropriate accounting record. That's DTCC. Given the numbers above, and given transaction and monetary velocities (variable, but let's say about averages about 20x over time), your quickly talking about quadrillions of dollars worth of transactions. Factor in the rest of the world, and all of a sudden its real money.

And this isn't even entirely accurate; there is a great deal of value that is not accurately accounted for in the asset and liability categories, like off-the-books value (handymen, housewives, etcetera), and the exotics like derivatives (technically this is because derivatives have no value on their own; they trade based on the expected value of the underlying asset - but they're marketable). Point here is twofold: economists have a hard time defining "wealth" and tracking it reliably, and the United States is tremendously wealthy (GDP numbers fail to capture the scale of it appropriately).

OK, so this is like the flux of all assets through the system at any given moment?
 
  • #44
nismaratwork said:
Now that's just mean to do... :biggrin:

I agree.

And that's why when shortly after I started reading that, I said to myself; "**** it all!", and went to the movies...
 
  • #45
Great thread Astronuc, I've been waiting for a thread like this.

I find it unbelievable that these banks haven't been busted. Its pure fraud, that's all it is.

If a took out an insurance policy on a house and I torched it till nothing was left and collected compensation and the facts were found out, I would go to jail. In fact any normal person who did this would go to jail.

But here we have major financial entities doing basically the same thing and what happens? Nothing, nada, zip.

And then as a result what happens? The US taxpayers bail them out! I don't know about you guys in the states, but if the government did that to me I would be pretty pissed off.

In a so called "capitalist free market", these guys would have gone under and people would have gotten over it and started again.

So after everyone losing their wealth and everyone losing confidence in the system, not only is the public wealth's wiped out, but they then got a cheque from the government saying "here's the bill for the banks!". So they took your wealth and now their billing you for the bailout!

Personally I think the legality of certain "insurance products" has to be reviewed and some of them need to be banned. Back in the day when a farmer hedged his bet against a poor crop due to the drought, it was done so that he and his family wouldn't go hungry.

Now there are such bastardized versions of insurance products such that people can benefit on things that they don't even own!

Also the algorithmic trading that goes on should be banned. It provides no use to society whatsoever. Programming computers to make massive trades that move the markets in deterministic ways is in my view a form of "antitrust gone wild", the market is being dictated by thousands of computers.

The banking system has way too much power. Power corrupts. Absolute power corrupts absolutely.
 
  • #46
edward said:
Stocks are being churned at an astonishing rate. I have a nephew who works for a Market Builder They buy millions of shares of stock which drives up the price and then they dump them and take the profit.

They never hold a stock for more than three days.

The larger investment banks, such as Goldman Sachs, are doing it at an even faster rate using super computers. They can buy sell or trade thousands of shares per second.

Google: Quants The Alchemists of Wall Street.

Edit.

http://www.midasoracle.org/2010/09/24/quants-the-alchemists-of-wall-street/

I posted (a few threads and a apparently few years ago) that the market needs a correction (that we still haven't seen). IMO - the Dow belongs in the 5,000 to 8,000 range, not the 10,000 to 13,000 range - again IMO.
 
  • #48
WhoWee said:
I posted (a few threads and a apparently few years ago) that the market needs a correction (that we still haven't seen). IMO - the Dow belongs in the 5,000 to 8,000 range, not the 10,000 to 13,000 range - again IMO.
(bolding mine, of course)

:smile:

What do you call that thing we saw in March of 2009, where it dropped to around 7000? Are you saying we should have stayed there?

Invest in Owens Corning. Very Boring. They make fiberglass. Useful stuff. Current p/e is 5.15. This after the stock jumped 17.27% in the last 30 days.

Buy low, sell high. Do not invest in banks that are [a whole ****load of expletives deleted], regardless of their dividends.

Remember South Africa! http://en.wikipedia.org/wiki/Disinvestment_from_South_Africa" from tyrannical [more expletives deleted]!

And please, to anyone who might be listening, for the sake of your children's children's children, invest in the future.

:smile:

ps. every time I or my stock club friends make a recommendation on a stock, the stock usually drops 20%. ie. wait for it... wait for it...
 
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  • #49
nismaratwork said:
OK, so this is like the flux of all assets through the system at any given moment?

Sure, but I believe flux is a physical term; the language in economics is velocity.

But, yes, the $1.86 quadrillion number is a function of asset value times asset velocity. It's a rate per year (a flow), while the value of the underlying assets is the stock of interest.
 
  • #50
talk2glenn said:
Sure, but I believe flux is a physical term; the language in economics is velocity.

But, yes, the $1.86 quadrillion number is a function of asset value times asset velocity. It's a rate per year (a flow), while the value of the underlying assets is the stock of interest.

Gotcha, thanks very much, because I have to say that seemed extreme otherwise. What you describe is what I mean by flux, but I'm glad to know the proper term... economics, not a strong suit of mine. Heck, I'd venture to say it's downright weak tea.
 
  • #51
OmCheeto said:
(bolding mine, of course)

:smile:

What do you call that thing we saw in March of 2009, where it dropped to around 7000?


Incomplete? Inefficient? Less than adequate? Artificially supported from collapse by external forces?

The rapid rise in oil prices (Middle East events) - if sustained for more than 6 months - will force a true market correction - Dow will bottom at $5,000 and recover to under $8,000 with the components that existed in 2009 - IMO.
 
  • #52
WhoWee said:
Incomplete? Inefficient? Less than adequate? Artificially supported from collapse by external forces?

The rapid rise in oil prices (Middle East events) - if sustained for more than 6 months - will force a true market correction - Dow will bottom at $5,000 and recover to under $8,000 with the components that existed in 2009 - IMO.

Yeah... well that would be a new thing for the world... and we'd have a new Great Depression.
 
  • #53
nismaratwork said:
Yeah... well that would be a new thing for the world... and we'd have a new Great Depression.

Sometimes it's better to take the correction and re-build - unemployed for 2 years is bad - unemployed for a cumulative 5 out of 6 years is much worse.

I think it is much worse to prolong the inevitable for an additional 3 to 5 years (possibly longer?). If real estate had been allowed to collapse 2 years ago - the values MIGHT have recovered to the same as now - instead of dropping (further now).

I feel the same way about the stimulus. I honestly believe most everyone took a wait and see approach to the results. There are no majic bullets.

Do you know anyone that vacationed (or at least took a summer off) on unemployment benefits (because of the extensions) or decided they would rather undergo career re-training than take an undesireable job?
 
  • #54
WhoWee said:
Sometimes it's better to take the correction and re-build - unemployed for 2 years is bad - unemployed for a cumulative 5 out of 6 years is much worse.

I think it is much worse to prolong the inevitable for an additional 3 to 5 years (possibly longer?). If real estate had been allowed to collapse 2 years ago - the values MIGHT have recovered to the same as now - instead of dropping (further now).

I feel the same way about the stimulus. I honestly believe most everyone took a wait and see approach to the results. There are no majic bullets.

Do you know anyone that vacationed (or at least took a summer off) on unemployment benefits (because of the extensions) or decided they would rather undergo career re-training than take an undesireable job?

Sound reasoning, but I think that kind of global depression would lead to war, especially India and Pakistan.
 
  • #55
nismaratwork said:
Sound reasoning, but I think that kind of global depression would lead to war, especially India and Pakistan.

I really don't think a market correction of US real estate values and the stock markets would cause a global depression. It would clearly hurt investment value - but speculative trading always has risk. Anyone that invests based on asset value and dividend/returns would recover - as long as they don't panic and sell.

On the other hand - futures and derivatives are quite risky.
 
  • #56
WhoWee said:
I really don't think a market correction of US real estate values and the stock markets would cause a global depression. It would clearly hurt investment value - but speculative trading always has risk. Anyone that invests based on asset value and dividend/returns would recover - as long as they don't panic and sell.

On the other hand - futures and derivatives are quite risky.

...And now that Qaddafi has decided to try and bomb oil fields... the very fact that he's TRIED is going to have a profound effect.

I don't WhoWee... this is getting more than ugly; too much at once. This is how "bad things happen."
 
  • #57
  • #59
WhoWee said:
I really don't think a market correction of US real estate values and the stock markets would cause a global depression. It would clearly hurt investment value - but speculative trading always has risk. Anyone that invests based on asset value and dividend/returns would recover - as long as they don't panic and sell.

On the other hand - futures and derivatives are quite risky.

The real estate values are still dropping and are actually below what could be called a market correction.

With so many foreclosures hitting the market it seems to be a self sustaining phenomena.

According to ZILLOW almost 70% of homes mortgages in phoenix are now underwater, with a 27% national average.

http://www.bizjournals.com/phoenix/morning_call/2011/02/zillow-70-percent-of-homes-underwater.html
 
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  • #60
edward said:
The real estate values are still dropping and are actually below what could be called a market correction.

With so many foreclosures hitting the market it seems to be a self sustaining phenomena.

According to ZILLOW almost 70% of homes mortgages in phoenix are now underwater, with a 27% national average.

http://www.bizjournals.com/phoenix/morning_call/2011/02/zillow-70-percent-of-homes-underwater.html

I posted ZILLOW link top of this page - just insert location. The values have to bottom before the entire market can rebound.
 

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