News Banks Bundled Bad Debt, Bet Against It and Won

[StevieTNZ]

Is there a book available that talks about the main points raised in this thread?

 

[WhoWee]

Is there a book available that talks about the main points raised in this thread?

I'm afraid our focus has wandered a bit - anything in particular?

 

[Amp1]

SteveTNZ,

check post #38 "Chain of Blame", Astronuc posted the link - I'm sure there are other books on the topic

 

[nismaratwork]

I'd add... if you want a look at fiscal and geographical folly: 'Cadillac Desert' is a great book. It doesn't touch on this exact issue, but I find it illuminates this kind of behaviour in general.

Oh... and I just got a Kindle, so if anyone has more books beyond Chain of Blame... list 'em. I have Kindling, now I need to make a fire... wait, that sounded creepy!

 

[russ_watters]

But the companies did illegal things, overseen by 'those people'.

bolding mine.

I agree that Raines should probably be in jail. That said, the article glosses over or ignores the legal actions taken against the people in that quote: Raines and three others settled a civil suit for a total of about $3 million -- they didn't get off completely scott free, not that that's anywhere near enough to cover the profits from the alleged fraud.

That's a big problem with a 5 year statue of limitations.

Agreed.

That same year [2006], AIG paid $1.6 billion after it was caught in a major accounting scandal that would indirectly lead to its collapse two years later, but no executives at the insurance giant were prosecuted.

Not true:

The case of five former executives, four from General reinsurance Corp. and one from American International Group Inc., who were sentenced to jail for a sham finite reinsurance transaction heads to an appeals court today.

Tom Carson, a spokesman in the Connecticut’s U.S. Attorney’s Office, said U.S. vs. Ronald Ferguson, et al, will be argued before the U.S. Court of Appeals for the Second Circuit in New York.

The executives were convicted after a six-week jury trial in 2008. They’ve all been free on bond while the appeal is pending, Carson said.

Ronald Ferguson, former Gen Re chief executive, was sentenced to two years in prison plus ordered to pay a $200,000 fine. Christian Milton, former AIG vice president of reinsurance, was sentenced to four years in jail and ordered to pay a $200,000 fine. Elizabeth Monrad, former Gen Re chief financial officer, was sentenced to 18 months in prison and ordered to pay a $250,000 fine. Christopher Garand, former Gen Re head of finite reinsurance operations in the United States, was sentenced to one year in prison and ordered to pay a $150,000 fine. Robert Graham, former assistant general counsel at Gen Re, was sentenced to one year in prison and ordered to pay a $100,000 fine.

The five executives were convicted on charges that included conspiracy, securities fraud, making false statements to the U.S. Securities and Exchange Commission and mail fraud.

http://www.programbusiness.com/news...rance-Transaction-Case-Heads-to-Appeals-Court

Again, the point isn't that no one went to jail, it's that 'no one high enough to suit my taste went to jail, so I'll just ignore the people who actually DID go to jail.'

That's not the only example of something similarly misleading/wrong. I didn't get very far in the article because it is a tough read, but on page 2, I found this:

In the late 1990s, the agency had an open-and-shut case against the Rite Aid drugstore chain, which was using diabolical accounting tricks to cook their books. But instead of moving swiftly to crack down on such scams, the SEC shoved the case into the "deal with it later" file. "The Philadelphia office literally did nothing with the case for a year," Turner recalls. "Very much like the New York office with Madoff." The Rite Aid case dragged on for years — and by the time it was finished, similar accounting fiascoes at Enron and WorldCom had exploded into a full-blown financial crisis.

Given the thesis of the article, you might conclude from this that "nobody went to jail", but actually, the top brass did go to jail:

Rite Aid also had a major accounting scandal that led to the departure (and subsequent jail time) of several top ranking executives, including the CEO, Martin Grass, son of company founder Alexander Grass. Former Rite Aid vice chairman Franklin C. Brown is serving a 10-year sentence in a medium-security facility at Butner Federal Correctional Complex in Raleigh, North Carolina.[10] After serving six years in prison Grass was released on Jan. 18 2010.

http://en.wikipedia.org/wiki/Rite_Aid#Company_troubles
The example actually argues against the article's point, but they present it in a misleading way - only actually lamenting that it took a long time to resolve - that implies it supports their point.

 

[russ_watters]

One of the reasons I asked is that I remembered an NPR piece from back in the early days when the spit was hitting the fan, that discussed this very issue of whether people might see jail-time for what went down, and the speculation was that yes there would probably be people going to jail, but that in general it would be very hard to make a criminal case against most of the people that we have a bad feeling about, and that it would take a pretty long time for any comprehensive investigation to come up with anything conclusive anyway, so odds are, no one's going to jail in the next couple years, and after that, it comes down to how much interest there remains in proceeding with expensive investigations and trials.

Yes.

 

[nismaratwork]

I'm a fan of justice, and even the occasional bloody revenge, but spending money to put people in jail who are already banned from trading seems like... a waste of money.

 

[russ_watters]

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

What banks are you referring to and what do you mean by "busted"? Besides the institutions that have been fined or bought-out, here's a list of roughly 400 banks that were taken over by the government in the past 3 years: http://www.fdic.gov/bank/individual/failed/banklist.html

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

I'll echo my previous point: hyperbole doesn't make for a convincing point here. It simply isn't true that "Nothing, nada, zip" happened.

 

[russ_watters]

I'm a fan of justice, and even the occasional bloody revenge, but spending money to put people in jail who are already banned from trading seems like... a waste of money.

Whether the actions are worth it depends on the goal of the action. In the Madoff case, there is a lot of money out there that can be recopued for a moderate effort so it is worthwhile to fight to recover it. On the flip-side, spending $10 million to get a rich guy into a minimum security prison for 4 years when he has no chance of ever committing the same crime again does seem like a pretty mediocre deal. Nevertheless, while I may be mostly arguing the other side, I have a pretty strong sense of justice and a bloodlust that would love to see more people jailed just on general principle.

My main point here actually isn't about the CEOs that aren't in jail, it's that I hate shoddy journalism and propaganda.

 

[nismaratwork]

Whether the actions are worth it depends on the goal of the action. In the Madoff case, there is a lot of money out there that can be recopued for a moderate effort so it is worthwhile to fight to recover it. On the flip-side, spending $10 million to get a rich guy into a minimum security prison for 4 years when he has no chance of ever committing the same crime again does seem like a pretty mediocre deal. Nevertheless, while I may be mostly arguing the other side, I have a pretty strong sense of justice and a bloodlust that would love to see more people jailed just on general principle.

My main point here actually isn't about the CEOs that aren't in jail, it's that I hate shoddy journalism and propaganda.

Well, I see no problem in simply letting the public at them... or maybe banishment from the country?

Anyway, the kind of justice I'd want would never occur (BlutRache) in the form of bloody revenge, so... forget it. Still, it would be a lot of fun to use Enhanced Interrogation to get money out of them! Classify them as economic terrorists...

 

[Proton Soup]

I'm a fan of justice, and even the occasional bloody revenge, but spending money to put people in jail who are already banned from trading seems like... a waste of money.

i think it is wrong to treat white-collar crimes as something less than acts of violence.

Well, I see no problem in simply letting the public at them... or maybe banishment from the country?

Anyway, the kind of justice I'd want would never occur (BlutRache) in the form of bloody revenge, so... forget it. Still, it would be a lot of fun to use Enhanced Interrogation to get money out of them! Classify them as economic terrorists...

if things get bad enough financially in the US, i think you will see violence, same as in other parts of the world. I'm just not sure it will be anything more than random. the people hurt the most will be the ones most ignorant of who did it to them, and of the least means if they did.

 

[russ_watters]

There is an irony to all this that I didn't see before:

While the article uses hyperbole to draw a wide chasm between who actually went to jail ("no one...except Madoff", they claim) and who they wanted to go to jail ("[everyone who works on] Wall Street"), the reality is that they really aren't interested in all that many people. They are only really interested in the leaders.

For example, people are generally pretty happy with the resolution to the Madoff scandal: The leader and a one or two (not actually sure how many) of the high level execs went to jail and much of the money is going to be recovered, so people are happy. But Madoff almost certainly had quite a bit of help from people much lower down: twenty-something number-crunchers who did virtually all of the actual fraud on his behalf. These people are almost never jailed and for all the hyperbole of the article's title, almost never given much thought.

 

[WhoWee]

There is an irony to all this that I didn't see before:

While the article uses hyperbole to draw a wide chasm between who actually went to jail ("no one...except Madoff", they claim) and who they wanted to go to jail ("[everyone who works on] Wall Street"), the reality is that they really aren't interested in all that many people. They are only really interested in the leaders.

For example, people are generally pretty happy with the resolution to the Madoff scandal: The leader and a one or two (not actually sure how many) of the high level execs went to jail and much of the money is going to be recovered, so people are happy. But Madoff almost certainly had quite a bit of help from people much lower down: twenty-something number-crunchers who did virtually all of the actual fraud on his behalf. These people are almost never jailed and for all the hyperbole of the article's title, almost never given much thought.

EVERY EMPLOYEE with a securities license should have known better. The lawyers and paralegals should have also been able to identify a problem. The accountants (CPA's especially) should have known and MBA's have no excuse. We'll pretend that secretaries, assistants, and receptionists mind their own business - never hear a thing? These people were not hired at the corner for day-labor.

 

[WhoWee]

Going back to the bad debt for a moment.

One way to soften a market correction might be to re-structure all troubled loans - by lengthening. Why not extend to 50 years at a low fixed interest rate - perhaps 3.25%? A mortgage of $250,000 financed at 3.25% for 50 years would have a payment of under $850 per month (60 years under $800). The banks would keep the loans at face value (unlike the plan being kicked around DC now) and foreclosures would be reduced.

Who might takes a hit - not the Government, not the banks, not the homeowners, and not the loan originator - most likely companies that purchased the re-bundled portfolios. The investors in the pools would be secure - but realize lower rates of return.

This type of market re-set would restrict the in-flow of cheap product (less foreclosures) and the re-surgance of building could begin sooner - probably smaller, more affordable homes?

 

[edward]

Inside the Meltdown video is still online

http://www.pbs.org/wgbh/pages/frontline/meltdown/view/

 

[mugaliens]

Given the nature of the responses, it appears PF has been overrun by financial gurus trying to affirmm their right to whatever.

 

[WhoWee]

Given the nature of the responses, it appears PF has been overrun by financial gurus trying to affirmm their right to whatever.

Fair enough? As details emerge about the President Obama plan to have banks write down the loan amounts - for select loans - it makes me wonder how their "guru's" plot strategy - is it political or economic?

 

[nismaratwork]

Fair enough? As details emerge about the President Obama plan to have banks write down the loan amounts - for select loans - it makes me wonder how their "guru's" plot strategy - is it political or economic?

It would seem that at least one study about beating or even matching the market indicates they, "perform about as well as a chimpanzee throwing darts." (SciAm, Michael Shermer quoting study author)

 

[WhoWee]

It would seem that at least one study about beating or even matching the market indicates they, "perform about as well as a chimpanzee throwing darts." (SciAm, Michael Shermer quoting study author)

Hey, don't laugh - in 1986 (to relieve stress during the crash) we actually ran a comparison chart to our portfolio and some public funds - against our "DART FUND". We took turns throwing darts at a newspaper and tracked the results.

After about 90 days, both our portfolio and the "DART FUND" beat the public funds. Unfortunately, we only "capitalized" the DART FUND with a small amount - again, it was to relieve stress.

 

[nismaratwork]

Hey, don't laugh - in 1986 (to relieve stress during the crash) we actually ran a comparison chart to our portfolio and some public funds - against our "DART FUND". We took turns throwing darts at a newspaper and tracked the results.

After about 90 days, both our portfolio and the "DART FUND" beat the public funds. Unfortunately, we only "capitalized" the DART FUND with a small amount - again, it was to relieve stress.

I'm not laughing, more and more studies make it clear that if you want to match the market, you should throw darts; I was deadly serious, as was that quote from the study author.

 

[OmCheeto]

Looks like another radical hippy read that Rolling Stone article:

http://english.aljazeera.net/indepth/opinion/2011/02/2011226131635826806.html#"
Wall Street crime goes deeper: The system means prosecutors fail to jail corporate criminals.
Danny Schechter
Last Modified: 26 Feb 2011 17:16 GMT
Opinion section of Al Jazeera

... Hats off to Matt Taibbi for staying on the Wall Street crime beat...

"Financial crooks," he argues, "brought down the world's economy — but the feds are doing more to protect them than to prosecute them."

True enough, but that’s only part of the story.

...

Ten problems

You could see that when television host Bill Mahrer pressed Taibbi to name the biggest Wall Street crooks, on his weekly political comedy show, he didn't fully understand what we are really up against.

...

It's a bit of a read, so here is my synopsis of Danny's enumeration:

First: Banksters decriminalized what they were about to do, via Washington of course.
Second: They then invented, um, I can't remember what they were called, but I believe Alan Greenspan said he didn't understand them.
Third: They then waved their hands in front of everyone and said; "It's scientific economics!"
Fourth: Foxes were put in charge of the hen house. (Wall Streeters go to Washington!)
Fifth: Wall Street advertised that there was nothing wrong
Sixth: Lawyers got involved
Seventh: I don't understand this one. I'll let http://www.whitecollarfraud.com/" sum it up; "We have no respect for the laws. We consider your codes of ethics, and your laws, weaknesses to be exploited in the execution of our crimes."
Eighth: Washington is not willing to accept that America is no longer the center of the universe.
Ninth: Excuse for the above; "Everyone did it!"
Tenth: We sit around PF discussing this like it's something out of a classroom homework assignment.

I'll finish off with Danny's summary paragraph:

When will we call a crime a crime? When will we demand a jail-out, not just more bail-outs. Unless we do, and until we do, the people who created the worst crisis in our time will, in effect, get away with the biggest rip-off in history.

bolding mine

contact information:
http://www.senate.gov/general/contact_information/senators_cfm.cfm"
http://www.house.gov/house/MemberWWW_by_State.shtml"

 

[nismaratwork]

Looks like another radical hippy read that Rolling Stone article:


It's a bit of a read, so here is my synopsis of Danny's enumeration:

First: Banksters decriminalized what they were about to do, via Washington of course.
Second: They then invented, um, I can't remember what they were called, but I believe Alan Greenspan said he didn't understand them.
Third: They then waved their hands in front of everyone and said; "It's scientific economics!"
Fourth: Foxes were put in charge of the hen house. (Wall Streeters go to Washington!)
Fifth: Wall Street advertised that there was nothing wrong
Sixth: Lawyers got involved
Seventh: I don't understand this one. I'll let http://www.whitecollarfraud.com/" sum it up; "We have no respect for the laws. We consider your codes of ethics, and your laws, weaknesses to be exploited in the execution of our crimes."Eighth: Washington is not willing to accept that America is no longer the center of the universe.
Ninth: Excuse for the above; "Everyone did it!"
Tenth: We sit around PF discussing this like it's something out of a classroom homework assignment.

I'll finish off with Danny's summary paragraph:


bolding mine

contact information:
http://www.senate.gov/general/contact_information/senators_cfm.cfm"
http://www.house.gov/house/MemberWWW_by_State.shtml"

Re: bolding mine: That is one of the purest expressions of relatively organized sociopathic thinking I've read or heard in a very long time.

Last time I've heard such a blatant expression of pure ASPD

"Ich fahren die Weise Geschick hat spitz mich, gefällt ein bemannen gehend in sein schläfst."(Adolf Hitler)
"I go the way that fate has pointed me, like a man walking in his sleep." (Adolf Hitler)

 

[OmCheeto]

Re: bolding mine: That is one of the purest expressions of relatively organized sociopathic thinking I've read or heard in a very long time.

Last time I've heard such a blatant expression of pure ASPD

"Ich fahren die Weise Geschick hat spitz mich, gefällt ein bemannen gehend in sein schläfst."(Adolf Hitler)
"I go the way that fate has pointed me, like a man walking in his sleep." (Adolf Hitler)

Since you've only been here less than a year, I will forgive you this one my friend.

Godwin's law
(also known as Godwin's Rule of Nazi Analogies or Godwin's Law of Nazi Analogies)
is a humorous observation made by Mike Godwin in 1990 which has become an Internet adage. It states: "As an online discussion grows longer, the probability of a comparison involving Nazis or Hitler approaches 1." In other words, Godwin put forth the hyperbolic observation that, given enough time, in any online discussion—regardless of topic or scope— someone inevitably criticizes some point made in the discussion by comparing it to beliefs held by Hitler and the Nazis.

Though I agree completely with your analysis that that the Wall Street environment appears to encourage sociopathic behavior.

 

[nismaratwork]

Since you've only been here less than a year, I will forgive you this one my friend.



Though I agree completely with your analysis that that the Wall Street environment appears to encourage sociopathic behavior.

I should be clear on a couple of points... first, other than historical figures, and some contemporaries such as Stalin... nobody has anything on Hitler. My comparison wasn't the behavior in any way, but rather the pure expression of sociopathy. It's rare to find a reflective sociopath, or rather, one capable of even modest (if fleeting) insight... Hitler's quote is a fine example.


I can think of little in the world that compares with Nazi Germany, or Stalin's Russia; they are not singular, but very nearly so.

 

[OmCheeto]

I should be clear on a couple of points... first, other than historical figures, and some contemporaries such as Stalin... nobody has anything on Hitler. My comparison wasn't the behavior in any way, but rather the pure expression of sociopathy. It's rare to find a reflective sociopath, or rather, one capable of even modest (if fleeting) insight... Hitler's quote is a fine example.


I can think of little in the world that compares with Nazi Germany, or Stalin's Russia; they are not singular, but very nearly so.

I should point out that my mother was in the German Luftwaffe during WWII, so I am aware of how simple humans can be swayed and swallowed by events surrounding them. Seeing the black and white photograph of her, with the swastika on her broach, and that proud glowing smile in her uniform when she was sixteen, I often reflect on what I would do in other peoples shoes.

So I can kind of see your analogy. Wall Street is no different. It is an entity filled with such people. There are leaders, followers, clerks, technicians, etc. etc.

Power, wealth, and googly eyed poor people looking up in awe, thinking that they'd like to be there too, and hence, letting it all happen.

Going over the http://en.wikipedia.org/wiki/Antisocial_personality_disorder#Signs_and_symptoms", it looks as though we have rules and regulations that keep this kind of behavior in check in normal society. Unfortunately, the language of Wall Street has been bastardized to the point where when they tell congress, "This will make the market more efficient if we do this.", congress, and the public, hears something totally different from what is actually meant.

 

[nismaratwork]

I should point out that my mother was in the German Luftwaffe during WWII, so I am aware of how simple humans can be swayed and swallowed by events surrounding them. Seeing the black and white photograph of her, with the swastika on her broach, and that proud glowing smile in her uniform when she was sixteen, I often reflect on what I would do in other peoples shoes.

Intersting... my grandfather fought for the USA in the Pacific theatre... still, neither of us are our parents. I think it's very important to draw a distinction between a child or even a young person swept up in events without having any real exposure to their consequences, and a sociopath. I don't know your mother obviously, but there's a world of difference between... and really, I meant nothing in general about Nazis; it was specifically the utter lack of self restraint and the predatory "sleepwalker" analogy.

So I can kind of see your analogy. Wall Street is no different. It is an entity filled with such people. There are leaders, followers, clerks, technicians, etc. etc.

I think you're right, but that's not the analogy I was drawing... it was a comparison between two organized sociopaths.

Power, wealth, and googly eyed poor people looking up in awe, thinking that they'd like to be there too, and hence, letting it all happen.

Going over the http://en.wikipedia.org/wiki/Antisocial_personality_disorder#Signs_and_symptoms", it looks as though we have rules and regulations that keep this kind of behavior in check in normal society. Unfortunately, the language of Wall Street has been bastardized to the point where when they tell congress, "This will make the market more efficient if we do this.", congress, and the public, hears something totally different from what is actually meant.

We have rules and regulations which pick up the minnows; the sharks find a way throught he nets, often because they're the ones making them to begin with.

In general, I wouldn't compare the endevour of fraud to mass murder and genocide. It is possible to compare the mental dysfunction of two people, who while they hurt the world in different ways, have the same non-ethos.

It's rare that a predator tells you how it hunts, and it's wise prey that listens carefully.

 

[WhoWee]

Looks like another radical hippy read that Rolling Stone article:


It's a bit of a read, so here is my synopsis of Danny's enumeration:

First: Banksters decriminalized what they were about to do, via Washington of course.
Second: They then invented, um, I can't remember what they were called, but I believe Alan Greenspan said he didn't understand them.
Third: They then waved their hands in front of everyone and said; "It's scientific economics!"
Fourth: Foxes were put in charge of the hen house. (Wall Streeters go to Washington!)
Fifth: Wall Street advertised that there was nothing wrong
Sixth: Lawyers got involved
Seventh: I don't understand this one. I'll let http://www.whitecollarfraud.com/" sum it up; "We have no respect for the laws. We consider your codes of ethics, and your laws, weaknesses to be exploited in the execution of our crimes."
Eighth: Washington is not willing to accept that America is no longer the center of the universe.
Ninth: Excuse for the above; "Everyone did it!"
Tenth: We sit around PF discussing this like it's something out of a classroom homework assignment.

I'll finish off with Danny's summary paragraph:


bolding mine

contact information:
http://www.senate.gov/general/contact_information/senators_cfm.cfm"
http://www.house.gov/house/MemberWWW_by_State.shtml"

Are you sure this wasn't another of Charlie Sheen's rants?

 

[chiro]

What banks are you referring to and what do you mean by "busted"? Besides the institutions that have been fined or bought-out, here's a list of roughly 400 banks that were taken over by the government in the past 3 years: http://www.fdic.gov/bank/individual/failed/banklist.html
I'll echo my previous point: hyperbole doesn't make for a convincing point here. It simply isn't true that "Nothing, nada, zip" happened.

After doing a little research I am glad that you are correct about investigations into Goldman Sachs, which is what is needed.

I'm am however still concerned that nothing will be done, or more correctly not enough will be done.

I would compare a "successful" outcome would be on the order of what happened in the Savings and Loans Crisis a while back in the states: that is the people that break the law go to jail instead of getting a small fine and/or a slap on the wrist.

 

[nismaratwork]

Are you sure this wasn't another of Charlie Sheen's rants?

Ooooh, wasn't that just a priceless bit of oratory from Sheen? I could hardly tell that he was out of his mind on coke!

 

[WhoWee]

We have rules and regulations which pick up the minnows; the sharks find a way throught he nets, often because they're the ones making them to begin with.

In spite of the the rhetoric about the evils and greed of "Wall Street", I trust the US system to protect me from harm more than the Asian and European capital markets.