News How Can We Truly Level the Playing Field?

[apeiron]

Whatever. Goldman Sachs down ~50% over ten years, or $50B of "loot" gone.

Yeah, those executives are crying all the way to the bank aren't they?

Goldman Sachs has set aside $10 billion for compensation and bonuses this year, it announced on Oct. 19 -- the same day it reported a third-quarter loss of $428 million...The $10 billion figure is 24 percent less than the bonus pool at this time last year, but if the bonus pool actually fluctuated based on the company's profits, it would have decreased by 70 percent, because that's how much Goldman Sachs's profits have declined since 2010.

http://www.ibtimes.com/articles/235626/20111021/goldman-sachs-bonuses-executive-compensation-lloyd-blankfein-third-quarter.htm

And meanwhile OWS types keep getting the numbers wrong.

They made a big deal that the CEO earns in an hour what a minimum wage worker earns in a year. What fools. It takes Blankfein at least two hours to earn that!

http://www.politifact.com/rhode-isl...-providence-protester-says-goldman-sachs-ceo/

 

[WhoWee]

Good news - Goldman is hiring.
http://www2.goldmansachs.com/a/data/jobs/search.html

 

[apeiron]

The financial sector is highly regulated. However, people find ways to violate those rules.

So, over-the-counter derivatives, rating agencies, mortgage brokers, non-bank lenders, hedge funds - these are all "highly regulated" aspects of the financial sector in hindsight?

And if people find it easy/rewarding to break what rules there are, does "highly regulated" mean anything in practice? Regulation = rules + enforcement.

 

[WhoWee]

So, over-the-counter derivatives, rating agencies, mortgage brokers, non-bank lenders, hedge funds - these are all "highly regulated" aspects of the financial sector in hindsight?

And if people find it easy/rewarding to break what rules there are, does "highly regulated" mean anything in practice? Regulation = rules + enforcement.

In reference to my link:
"In addition to its bankruptcy filing and lay-offs of more than 1,000 employees, MF Global has told investigative authorities that $600 million of customer money is missing. The shortfall was withheld from investigating authorities for five days -- an apparent violation of the law, according to the head of the Commodities Futures Trading Commission."

Former Democrat Senator and New Jersey Governor (and close Obama/Biden associate) John Corzine's company MF Global ran afoul of regulators for 5 days before they were shut down. It seems 60% of the investor funds were saved by regulators.

 

[Evo]

We've gotten off topic.

 

[ginru]

I tend to go off topic myself as I always see interconnected issues between different threads and then rant about comprehensive solutions to all of them.

Anyways, this is quoted from a http://www.youtube.com/watch?v=kWgkr7aCgIk":
"It's time to level the playing field, and begin treating working Americans as partners again, rather than rented mules."

From this sentence (and putting aside the government's role), I'd gather that the OWS frustration is somewhat connected to a breakdown in working relationships between community and business. Granted, this is a two-way street so the betrayal can be seen on both ends. For example, Consumers can sell out local trust with small business by switching to megastores (Wal-mart), but likewise businesses have opted for profit over community by using cheap overseas labor.

Either way, we're all just serving our bottom lines and I feel there are repercussions for recklessly following that path. This frustration may get expressed or interpreted as anti-capitalism/anti-corporations but I think the issue goes deeper than that.

I also want to add the explanation of "level playing field" from http://en.wikipedia.org/wiki/Level_playing_field" :
************************************************
"A level playing field is a concept about fairness, not that each player has an equal chance to succeed, but that they all play by the same set of rules. A metaphorical playing field is said to be level if no external interference affects the ability of the players to compete fairly. Although some may view "government interference" to slant the field in reality the level playing field is created and guaranteed by the implementation of rules and regulations."
**************************************************

I'm reminded of the last World Cup of Soccer in which an African team (Ghana) had the chance to progress to the Semifinal for the first time, but a player on the Uruguay team handled the ball off the line to prevent a sure goal. Proper procedures were taken, he was expelled and a penalty kick was given but Ghana missed it and then lost on the following shootout.

Now granted, the ref followed procedures by the book, but the final result still left many people bitterly feeling like the thief had been caught, punished, and STILL got away with the goods. And this is a pervasive issue that goes beyond a particular sport where diving and bending the rules to gain advantage is rampant because of the same justification used by ThomasT earlier (Everybody Does It). It's brutal Competition, of course, but then there's also Cooperation needed to ensure that people feel the game is worthy of participation. Public confidence in a system is critical as we all suffer if people start opting for extreme alternatives.

Personally, part of me accepts that the field is marked with holes, bumps and dips aplenty as the cold reality of life but then another part wants to encourage the younger generation in not accepting our cynicism as an excuse.

 

[Oltz]

therefore I favor ideas that encourage balance in both individual and collective economic relationships.

Such As?

 

[ginru]

Such As?

Ahh, you quoted me before I deleted that part as I knew I wouldn't have time to explain this all thoroughly (I'm behind schedule on a few things). Besides, I'd just be rambling through a mix of crazy ideas from a half dozen threads that nobody's really interested in rehashing now so let's just forget it.

 

[Diracula]

Such As?

Personally I like the idea of a "National Dividend", with some modifications. The basic idea is presented about halfway down this page:

http://www.whywork.org/rethinking/whywork/rawilson.html

 

[WhoWee]

Personally I like the idea of a "National Dividend", with some modifications. The basic idea is presented about halfway down this page:

http://www.whywork.org/rethinking/whywork/rawilson.html

The National Debt just passed the $15,000,000,000,000 mark - are you prepared to share this obligation?

 

[Diracula]

Don't we pretty much have to anyway?

 

[WhoWee]

Don't we pretty much have to anyway?

Given a $15 Trillion debt - sustained with $.40 of every $1.00 spent in additional borrowings - why would anyone expect a "dividend" (we're bankrupt - the credit line just hasn't been shut off).

 

[Diracula]

Are you suggesting the government has stopped spending money because of its debt?

(Just a thought: we may need a restructuring of government and a reallocation of resources given the situation we are in. I'm not suggesting implementing a National Dividend would be a magical switch we could flip to fix our problems by tomorrow.)

 

[WhoWee]

Are you suggesting the government has stopped spending money because of its debt?

(Just a thought: we may need a restructuring of government and a reallocation of resources given the situation we are in. I'm not suggesting implementing a National Dividend would be a magical switch we could flip to fix our problems by tomorrow.)

Perhaps the US should cut spending by 40% and allow the people receiving benefits to sign personally for the cash borrowed from China - eliminate the US as middleman on the debt?

Here's a link for anyone interested in setting up a personal line of credit with the bank of China.
http://www.boc.cn/en/

The offer quite a few different options.
http://www.boc.cn/en/bcservice/bc1/For VIP's:
http://www.boc.cn/en/pbservice/pb2/200806/t20080625_1324002.html

 

[ThomasT]

So, over-the-counter derivatives, rating agencies, mortgage brokers, non-bank lenders, hedge funds - these are all "highly regulated" aspects of the financial sector in hindsight?

And if people find it easy/rewarding to break what rules there are, does "highly regulated" mean anything in practice? Regulation = rules + enforcement.

Good points, imho. Wrt the thread topic, it seems that 'levelling the playing field' would entail sufficient regulation/oversight and enforcement to prevent the sorts of atrocities that financial institutions have visited upon us.

 

[WhoWee]

Good points, imho. Wrt the thread topic, it seems that 'levelling the playing field' would entail sufficient regulation/oversight and enforcement to prevent the sorts of atrocities that financial institutions have visited upon us.

Actually, none of those points were supported (we'll excuse the derivates from the list) and the meaning of "highly regulated" was never clarified.

As for "the sorts of atrocities that financial institutions have visited upon us" - perhaps you'd like to clarify a bit?

 

[ThomasT]

Actually, none of those points were supported (we'll excuse the derivates from the list) and the meaning of "highly regulated" was never clarified.

Good points, imho.

As for "the sorts of atrocities that financial institutions have visited upon us" - perhaps you'd like to clarify a bit?

Isn't it common/accepted knowledge that financial institutions caused, more or less, the economic crash? Money was lent, eg., to buy homes, to people who likely would not be able to keep up with payments, especially increased payments. Then those loans were bundled in a way that made them extremely difficult to sort out. Then those bundles were sold in derivatives markets, and knowledgeable insiders bet against them ... making billions of dollars in the process ... while the general economy, the housing market, and tens of millions of ordinary people were affected adversely.

Yes, government 'pressure' on lenders to lend, and breaks for unqualified buyers to buy, had a lot to do with it. But, why did the government do that? My guess is pressure (incentives) from the financial lobby.

Many financial institutions weren't just overleveraged, they were absurdly overleveraged -- and this is something that sufficient regulation and enforcement could have prevented.

So, a small percentage of people got a lot richer, while the rest of the country suffered the consequences of the actions of that small percentage who got a lot richer.

But, yeah, you can chalk some of it (a lot of it ... most of it?) up to the greed of average folks also. We all seem to be alike in that regard, whether rich or poor. Hence, the need for tight(er) governmental regulation and enforcement regarding financial wheeling and dealing, IMHO.

Of course, it could be argued that there would have been an economic downturn anyway (albeit perhaps not so abrupt, and not requiring trillions of dollars to bail out financial institutions). That is, if people who can't afford (or be trusted) to pay back relatively large loans (most Americans, I suspect) like home mortgages weren't extended this credit in the first place, then there wouldn't have been an inevitably bursting bubble for some in the financial industry to take undue advantage of, but there would still remain the inevitable steady decrease in the buying power of most Americans -- which results in downsizing and layoffs, and in turn less buying, and more downsizing and more layoffs, and so on, and there doesn't seem to be any way to reverse that sort of downward spiral.

 

[WhoWee]

Good points, imho.

Isn't it common/accepted knowledge that financial institutions caused, more or less, the economic crash? Money was lent, eg., to buy homes, to people who likely would not be able to keep up with payments, especially increased payments. Then those loans were bundled in a way that made them extremely difficult to sort out. Then those bundles were sold in derivatives markets, and knowledgeable insiders bet against them ... making billions of dollars in the process ... while the general economy, the housing market, and tens of millions of ordinary people were affected adversely.

Yes, government 'pressure' on lenders to lend, and breaks for unqualified buyers to buy, had a lot to do with it. But, why did the government do that? My guess is pressure (incentives) from the financial lobby.

Many financial institutions weren't just overleveraged, they were absurdly overleveraged -- and this is something that sufficient regulation and enforcement could have prevented.

So, a small percentage of people got a lot richer, while the rest of the country suffered the consequences of the actions of that small percentage who got a lot richer.

But, yeah, you can chalk some of it (a lot of it ... most of it?) up to the greed of average folks also. We all seem to be alike in that regard, whether rich or poor. Hence, the need for tight(er) governmental regulation and enforcement regarding financial wheeling and dealing, IMHO.

Of course, it could be argued that there would have been an economic downturn anyway (albeit perhaps not so abrupt, and not requiring trillions of dollars to bail out financial institutions). That is, if people who can't afford (or be trusted) to pay back relatively large loans (most Americans, I suspect) like home mortgages weren't extended this credit in the first place, then there wouldn't have been an inevitably bursting bubble for some in the financial industry to take undue advantage of, but there would still remain the inevitable steady decrease in the buying power of most Americans -- which results in downsizing and layoffs, and in turn less buying, and more downsizing and more layoffs, and so on, and there doesn't seem to be any way to reverse that sort of downward spiral.

My bold No, it's not that simple. Much of the financial crisis was (and is) rooted in Europe. We've discussed the amount of money that was routed to European institutions in other threads.

As for the housing market. When people were signing for no-doc and $0 down loans - as much as the bank would lend - with the hopes of buying a house they couldn't afford with the expectation of appreciation - was the bank the "good guy" if they said "no" - or was the bank the "bad guy" trying to keep the poor person down?

As for the bundling and resale of mortgages - we didn't learn anything from the S&L crisis a decade earlier (and neither did Congress) - IMO.

 

[apeiron]

As for the housing market. When people were signing for no-doc and $0 down loans - as much as the bank would lend - with the hopes of buying a house they couldn't afford with the expectation of appreciation - was the bank the "good guy" if they said "no" - or was the bank the "bad guy" trying to keep the poor person down?

Apparently they were highly regulated, so the dilemma could not occur.

There were liquidity ratios set by Basel, etc, that "tightly controlled" on balance sheet lending. Of course banks could not just make dumb loans according to whether they were feeling generous or mean that week.

But, whoops, then there was the off balance sheet derivative casino where - with a mixture of moral corruption and incompetence - the ratings agencies, mortagage brokers, investment banks, could allow the banks to freely write any stinker loan they wanted (ie: any loan that paid their bonus that year).

Do people still not understand what the credit crunch was all about?

People were persuaded to bid up the cost of their housing far beyond economic sense. They bought mortgage debt believing it to be a gold-plated asset. And the intermediaries made out like bandits in this fools' game. The public have been left covering the losses. The intermediaries - unless they were particularly dumb as well - are retired to nice places with their loot.

The fact that the victims include some hick European banks (as well as many other financial institutions in many other countries) just shows how incompetent they were, and how opaque/unregulated the derivative scams were.

 

[WhoWee]

But, whoops, then there was the off balance sheet derivative casino where - with a mixture of moral corruption and incompetence - the ratings agencies, mortagage brokers, investment banks, could allow the banks to freely write any stinker loan they wanted (ie: any loan that paid their bonus that year).

Do people still not understand what the credit crunch was all about?

People were persuaded to bid up the cost of their housing far beyond economic sense. They bought mortgage debt believing it to be a gold-plated asset. And the intermediaries made out like bandits in this fools' game. The public have been left covering the losses. The intermediaries - unless they were particularly dumb as well - are retired to nice places with their loot.

The fact that the victims include some hick European banks (as well as many other financial institutions in many other countries) just shows how incompetent they were, and how opaque/unregulated the derivative scams were.

Why don't you support your comments?

 

[apeiron]

Why don't you support your comments?

Surely you of all people are not objecting to people expressing an opinion?

 

[WhoWee]

Surely you of all people are not objecting to people expressing an opinion?

Sorry - I didn't notice any "IMO" labels.

Is this an opinion - the word "fact" confused me? my bold

"The fact that the victims include some hick European banks (as well as many other financial institutions in many other countries) just shows how incompetent they were, and how opaque/unregulated the derivative scams were."

 

[Diracula]

IMO everything in the financial industry was on the up-and-up. It's not like some people in finance got rich off the economy nearly collapsing. They are all suffering like the rest of us.

 

[apeiron]

Sorry - I didn't notice any "IMO" labels.

Is this an opinion - the word "fact" confused me? my bold

"The fact that the victims include some hick European banks (as well as many other financial institutions in many other countries) just shows how incompetent they were, and how opaque/unregulated the derivative scams were."

What, are you disputing this as a fact - the victims included hick European banks? You are instead claiming that they were competent and street-wise banks? Help me understand where your confusion lies. And you're welcome to support your claim if you like.

 

[WhoWee]

What, are you disputing this as a fact - the victims included hick European banks? You are instead claiming that they were competent and street-wise banks? Help me understand where your confusion lies. And you're welcome to support your claim if you like.

If this is a "fact" then please support - if it isn't, please label as opinion.

 

[ThomasT]

No, it's not that simple. Much of the financial crisis was (and is) rooted in Europe. We've discussed the amount of money that was routed to European institutions in other threads.

As for the housing market. When people were signing for no-doc and $0 down loans - as much as the bank would lend - with the hopes of buying a house they couldn't afford with the expectation of appreciation - was the bank the "good guy" if they said "no" - or was the bank the "bad guy" trying to keep the poor person down?

As for the bundling and resale of mortgages - we didn't learn anything from the S&L crisis a decade earlier (and neither did Congress) - IMO.

Your points are taken. But to keep this on topic wrt what "levelling the playing field" might entail, I'm just assuming that tighter regulation of the financial industry would be an important component of that. Do you agree or disagree with that assumption?

To elaborate, there have been a few ('scapegoat' ?) prosecutions related to the financial meltdown, and certain financial corporations have failed or are in trouble, but from what I read in the mainstream press (I subscribe to The Week, Newsweek, and Time, and read other sources online) the impression I get is that most commenters think that there hasn't been much significant change for the better.

The playing field obviously isn't level, imo. (For example, you pointed out in another thread that members of congress are exempt from certain laws governing the rest of us regarding certain actions related to 'insider' or 'privileged' information.)

And, I doubt that it ever could be made 'level' in any sense that would satisfy everyone. The thing is that, even given the status quo, there are still 'innumerable' (imho of course) ways to make money in America. Still, I think it would be a good thing for most everybody, ie., for America and Americans in general, if some of the obvious abuses of power and position were systematically constrained.

And, afaik, the only way for most average citizens to contribute to a 'levelling of the playing field' is to simply stop voting for major party candidates.

 

[apeiron]

If this is a "fact" then please support - if it isn't, please label as opinion.

Your demand for support can only be trolling here. Were you seriously suggesting this is a fact in doubt?

But to feed the troll ...

http://en.wikipedia.org/wiki/IKB_Deutsche_Industriebank

After the crash of its shares, the German financial watchdog BaFin and the Ministry of Finance opened an investigation into allegations of reporting and accounting misconduct. Although no charges were brought against the bank, four of the five executives of IKB stepped down between 1 August and 1 November 2007

IKB was mentioned by the U.S. Securities and Exchange Commission (SEC) in court fillings when it sued Goldman Sachs and one of Goldman's CDO traders on April 16, 2010.[14] The SEC alleges that IKB was on the wrong side of the CDO instruments Goldman was creating and that Goldman defrauded both IKB and ABN-Amro in failing to disclose that the CDOs that IKB was purchasing were not assembled by a third party, but instead through the guidance of a hedge fund that was counterparty in the CDS transaction. This hedge fund, Paulson & Co., stood to earn great benefit in the event of default.[15] The suit by the SEC alleges that IKB lost US150,000,000 which Paulson gained.

 

[ThomasT]

Your demand for support can only be trolling here. Were you seriously suggesting this is a fact in doubt?

But to feed the troll ...

http://en.wikipedia.org/wiki/IKB_Deutsche_Industriebank

Apeiron, I don't honestly think that WhoWee is in any way a troll (although it might seem so wrt to certain nitpicking wrt his requests of substantiantion regarding certain contentions). He has certain opinions, a certain world view, as all of us do. Of course, as you should know from my posts, I respect your command of logic, and your knowledge of many factual issues. So, from a layman's limited education and perspective (mine), I'm interested in reading what you and WhoWee have to say on issues relevant to this thread topic (as well as many others).

My basic question is, assuming that people in positions of power (including the very rich, even if not 'public' officials) are 'unfairly gaming' things, then what can be done about it?

 

[apeiron]

My basic question is, assuming that people in positions of power (including the very rich, even if not 'public' officials) are 'unfairly gaming' things, then what can be done about it?

This is also off-topic so perhaps you might want to start up a thread. But clearly, regulate for transparency.

The problem was that over-the-counter trades - the deals that produced the toxic debt vehicles - were outside the regulated environment of the public exchanges.

Well, this is perhaps on-topic, as open trading is precisely about creating level playing fields as far as trading information goes. It is a set of constraints, imposed socially, to maximise individual choice. People can do what they like - be risky, be conservative - knowing that they are not making decisions on any less information than anyone else.

Anyway, abuses happen in the shadows. Market regulation is far from perfect. Goldman Sachs ramping of dotcom stocks is well documented. Insider trading is going to happen. But the way to minimise this gaming is commonsense.

GS was one of those who paid lobbyists to argue long and hard that "highly regulated" finance was in fact stifling creativity, which led to liberalisation of the rules on derivatives. And very rapidly that led to low grade debt being packaged up as AAA.

The "highly regulated" conventional banks (and pension funds, and every other fool) were only permitted by their rules to buy AAA grade debt. And here were these magical CDOs paying a percent or two more than regular AAA debt. They couldn't stop themselves being greedy.

These fool "highly regulated" banks weren't helped by the fact that they had set up their own trader desks (as a result of deregulation) and were paying big bonuses to the people who bought these instruments (the people who were either morally corrupt or spectacularly incompentent - both probably). Then if anyone questioned the pedigree of the gift horse, the higher yields were credited to "financial cleverness" - Wall St engineering, the genius of a bunch of Phds, that somehow improved on the dull old regular bonds that any idiot could understand. And so junk that should have sold for 20% rates to cover the risk was sold for 6%, leaving a fat margin for the intermediary and a timebomb for the dupes.

 

[ThomasT]

@ apeiron,
I'm not sure I understand everything you've said (the last paragraph in your last post in particular). I don't care if I appear to be ridiculously ignorant. I am ignorant. And, I suppose that both you and WhoWee know a lot more about this stuff than I ever will.

My simple question is: what, in your and WhoWee's, and anyone elses opinion, can the average person do to help 'level the playing field' or at least mimimize the negative effects that abuses of power and position can have on the general economy?

 

[WhoWee]

Your demand for support can only be trolling here. Were you seriously suggesting this is a fact in doubt?

But to feed the troll ...

http://en.wikipedia.org/wiki/IKB_Deutsche_Industriebank

This game is tiresome, but you can't have it both ways.

First you stated Surely you of all people are not objecting to people expressing an opinion? "" which sounded a bit condescending.

Then I posted "Sorry - I didn't notice any "IMO" labels.

Is this an opinion - the word "fact" confused me? my bold

your quote
"The fact that the victims include some hick European banks (as well as many other financial institutions in many other countries) just shows how incompetent they were, and how opaque/unregulated the derivative scams were.""

Then your response was "What, are you disputing this as a fact - the victims included hick European banks? You are instead claiming that they were competent and street-wise banks? Help me understand where your confusion lies. And you're welcome to support your claim if you like."

Asking me to support a claim I didn't make is a bit tiresome also-IMO. Here is the problem. You've both claimed your post was an opinion - then you said it was a fact - so which is it?

Accordingly, my response was "If this is a "fact" then please support - if it isn't, please label as opinion."

Now, your response "Your demand for support can only be trolling here. Were you seriously suggesting this is a fact in doubt?

But to feed the troll ...

http://en.wikipedia.org/wiki/IKB_Deutsche_Industriebank
"

Rather than answer the question (opinion or fact to be supported) you call me a troll and post a wiki article.

Again, this game is tiresome.

 

[apeiron]

Again, this game is tiresome.

So are you telling us now that posts cannot be a mix of opinion and fact? Really?

 

[WhoWee]

So are you telling us now that posts cannot be a mix of opinion and fact? Really?

I said no such thing - merely asking you to clarify fact or opinion. Claims labeled "fact" require support - opinions should be labeled opinion.

 

[apeiron]

I said no such thing - merely asking you to clarify fact or opinion. Claims labeled "fact" require support - opinions should be labeled opinion.

Yes, and I supported a fact. So what are you [STRIKE]trolling[/STRIKE] complaining about now?

 

[WhoWee]

Yes, and I supported a fact. So what are you [STRIKE]trolling[/STRIKE] complaining about now?

Are you standing by the wiki article regarding IKB Deutsche Industriebank to support this statement?

"The fact that the victims include some hick European banks (as well as many other financial institutions in many other countries) just shows how incompetent they were, and how opaque/unregulated the derivative scams were."I don't consider IKB a "hick European bank" or incompetent (this is an opinion).
http://ikb.de/content/en/index.jsp

 

[rootX]

Just out of my own interest I found a story related to IKB.

http://www.soldonapn.co.nz/wp-content/uploads/2009/11/NZHA19APR10B016.pdf

Goldman Sachs knows that not
every asset manager would be willing
to work with Paulson, according to
the complaint. In January 2007,
Goldman approaches ACA
Management, a unit of a bond insurer.
ACA agrees to be the manager in a
deal, and to help select the securities
for the deal with Paulson.
Goldman never tells ACA or other
investors that Paulson is shorting the
securities, and ACA believes that
Paulson in fact wanted to own some
of the riskiest parts of the securities.
Goldman puts together a deal
known as a “synthetic collateralised
debt obligation” designed to help IKB
and Paulson get the exposure they
want. IKB takes US$150 million of the
risk from sub-prime mortgage bonds
in April 2007. ABN Amro takes some
US$909 million of exposure as well,
and buys protection on its exposure
from ACA Management affiliate ACA

 

[ThomasT]

I see that apeiron and WhoWee are online now, so I'll ask:

@ WhoWee,
Do you generally agree with apeiron's statements in post #79?

@ apeiron,
Yes, regulating for transparency would seem to contribute to levelling the playing field. Is it realistic to suppose that legislation to that effect will be passed? Can sufficient transparency and the prevention of financial catastrophes be achieved without legislation?

@ WhoWee and apeiron,
Take a time out from your current argument. I think that both of you are pretty knowledgeable. Moreso than me anyway. So, I'm just interested in hearing your opinions (as well as those of other knowledgeable commenters). And if you present your opinions with documented 'facts', then that's even better.

 

[apeiron]

I don't consider IKB a "hick European bank" or incompetent (this is an opinion).

So what is the basis for this opinion? You'll have to explain why you can hold it.

 

[ThomasT]

Just out of my own interest I found a story related to IKB.

http://www.soldonapn.co.nz/wp-content/uploads/2009/11/NZHA19APR10B016.pdf

Has anything come of the SEC's looking at Goldman Sachs? Is part of the problem with the financial industry that, even though some of its dealings might not be quite 'kosher' and might even be harmful to America, those questionable dealings aren't, technically, illegal?

 

[WhoWee]

I see that apeiron and WhoWee are online now, so I'll ask:

@ WhoWee,
Do you generally agree with apeiron's statements in post #79?

@ apeiron,
Yes, regulating for transparency would seem to contribute to levelling the playing field. Is it realistic to suppose that legislation to that effect will be passed? Can sufficient transparency and the prevention of financial catastrophes be achieved without legislation?

@ WhoWee and apeiron,
Take a time out from your current argument. I think that both of you are pretty knowledgeable. Moreso than me anyway. So, I'm just interested in hearing your opinions (as well as those of other knowledgeable commenters). And if you present your opinions with documented 'facts', then that's even better.

ThomasT , I've posted many times across a variety of threads that derivatives need to be regulated (IMO). I do agree that derivatives trading is comparable to a big casino and further believe it siphons investment capital away from more productive uses.

I can't find the link right now, but Warren Buffet a few years ago in a letter to his shareholders provided an interesting overview of derivatives. To summarize, he indicated that he wasn't comfortable trading heavily in that market.

Last, while I'm in favor of developing regulations for derivatives and organizing an exchange, I don't think any regulations should be imposed upon existing contracts. Instead, IMO, the regulations should start at a specific future date and cover new contracts from that point in time forward.

 

[Evo]

So are you telling us now that posts cannot be a mix of opinion and fact? Really?

The rules require that opinion be stated as such and claims of fact must be backed up. I haven't given you any infractions yet for those posts in this thread, but those are the rules.

 

[apeiron]

The rules require that opinion be stated as such and claims of fact must be backed up. I haven't given you any infractions yet for those posts in this thread, but those are the rules.

Yeah, so I was asked to support...

The fact that the victims include some hick European banks (as well as many other financial institutions in many other countries) just shows how incompetent they were, and how opaque/unregulated the derivative scams were.

I cited a very famous specific case, subject of ongoing court action. So how is this not good enough?

If whowhee wants to side with Goldman Sachs and claim that IKB was a "sophisticated investor", then sure, let him/her make the case. One that is more than his/her opinion.

But in the meantime...

From the Economist - http://www.economist.com/node/15955490

“WHO’S on the other side, who’s the idiot?” is the question posed by one of the characters in “The Big Short”, Michael Lewis’s new book on those few investors who bet against the subprime-mortgage market. “Düsseldorf. Stupid Germans,” is the answer they keep getting. “They take rating agencies seriously. They play by the rules.”
For Düsseldorf, read IKB Deutsche Industriebank, a bank that plays the role of hapless victim in the SEC’s complaint against Goldman Sachs and a strong contender for the title of leading chump in the financial crisis...

...IKB was far from being the only German bank to burn its fingers doing so...Most German Landesbanken suffered from poor governance. “All these toxic assets seem to have accumulated in those places where oversight was poorest, and the risk-return ratio was ignored,” says Jörg Rocholl of the European School of Management and Technology in Berlin. Yet even by these dismal standards, IKB stands out.

Or from Corporate Governance Failures The Role of Institutional Investors in the Global Financial Crisis - http://books.google.co.nz/books?id=...ikb small unsophisticated german bank&f=false

A specific example of an unsophisticated SI is the German bank IKB, known best for its role in the SEC's complaint against Goldman

 

[MarcoD]

Just out of my own interest I found a story related to IKB.

http://www.soldonapn.co.nz/wp-content/uploads/2009/11/NZHA19APR10B016.pdf

Well, that's comforting if you realize that Mario Draghi, now presiding the ECB, was vice chairman and managing director of Goldman Sachs and a member of the firm-wide management committee, and that Mario Monti, now prime minister of Italy, was a senior adviser at Goldman Sachs.

The whole of Europe is now gossiping about it. Nothing to do except for to buy stock in GS?

 

[WhoWee]

Yeah, so I was asked to support...

I cited a very famous specific case, subject of ongoing court action. So how is this not good enough?

If whowhee wants to side with Goldman Sachs and claim that IKB was a "sophisticated investor", then sure, let him/her make the case. One that is more than his/her opinion.

But in the meantime...

From the Economist - http://www.economist.com/node/15955490

Or from Corporate Governance Failures The Role of Institutional Investors in the Global Financial Crisis - http://books.google.co.nz/books?id=...ikb small unsophisticated german bank&f=false

You've cited one opinion - here is another on the subject. my bold
http://www.thedailybeast.com/articles/2010/04/23/the-goldman-cases-weak-link.html

"The SEC may have shot itself in the foot when it made a failed German bank a key part of its fraud case against Goldman Sachs.

Yesterday, I reported that IKB Deutsche Industriebank was not the sucker at the table that the SEC depicts in its lawsuit against Goldman. Indeed, its executives were wily and wealthy financiers who employed financial engineering shenanigans to escape the watchful of eye of regulators, shareholders, and auditors.

Now a document exclusively obtained by the Daily Beast demonstrates (view them here) that just a few months before it invested in the derivatives at the center of the SEC's case, the German bank was touting its prowess as a sophisticated investor in those derivatives.

"They weren't consumers, as you or I often think of that term. They were traders."

In other words, IKB were not just sophisticated financial professionals. They were—or claimed to be—sophisticated and experienced when it came to exactly the kind of junky CDOs, dubbed Abacus, they bought from Goldman Sachs.

"Securitisation and CDO investments are an integral part of IKB AG's business model," the document—a marketing brochure for one of IKB's off-balance sheet conduits—claims.

The brochure describes a man named Dr. Thomas Wolwer as the "Senior Portfolio Manager," who has the "responsibility for investing in CDOs both cash and synthetic." His qualifications include working for Dresdner Kleinwort, where he structured and sold various cash and synthetic CDOs. In short, this guy was as experienced in these black financial arts as you can get."
**
Also:
"Either the German bank executives were sophisticated and knew what they were investing in when they bought derivatives from Goldman, or they were lying about their sophistication when they bought them."
**********************

Given the IKB website features derivatives prominently under their "Products".
http://ikb.de/content/en/products/index.jsp

I think IKB is sophisticated enough to be in the derivatives business - but not on par with aggressive Wall Street traders (IMO) acting in less than good faith.

 

[MarcoD]

I think IKB is sophisticated enough to be in the derivatives business - but not on par with aggressive Wall Street traders (IMO) acting in less than good faith.

Hmm, ABN Amro (Dutch) was the loser in that one, right? I agree with your assertion. Germans and Dutch bankers are technically well educated, but not very street wise, they get 'ethical banking' courses instead. In short, they just got suckered, which is okay in Wall Street ethics, and a not-done according to Frankfurt banking.

I personally found them idiots for not understanding the difference between US and European attitude to trade.

(It's actually funny that in that respect the US can't complain too much about the sup-prime mortgages debacle since it amounts to one big foreign capital injection in the US's economy.)

 

[apeiron]

In other words, IKB were not just sophisticated financial professionals. They were—or claimed to be—sophisticated and experienced when it came to exactly the kind of junky CDOs, dubbed Abacus, they bought from Goldman Sachs.

Well which was it? That they were? Or that they claimed to be (and instead proved to be hicks taken by the big city slickers)?

Did you properly read the blog(!) article you are citing here?

Down page it concludes...

It is possible, or even probable, that IKB was overstating its level of sophistication...

Darn tootin' right as history proved!

Of course, IKB was in there trying to be a player with Rhineland. But by what stretch of the imagination were they competent?

As you confess...

I think IKB is sophisticated enough to be in the derivatives business - but not on par with aggressive Wall Street traders (IMO) acting in less than good faith.

...so yes, we agree that IKB was clearly not as sophisticated as GS and Deutsche Bank. But we have different opinions on whether they had enough of a clue to be writing the deals they wrote. Or whether the Rhineland team cared enough about the outcome for their employer.

And IKB was a story shared by many (IMO). Staid traditional bank gets whizzy new CEO who sets up an off-balance sheet entity to "aggressively pursue" great new business opportunity. And comes unstuck because the US was allowing the unscrupulous to package toxic waste as AAA.

 

[WhoWee]

Well which was it? That they were? Or that they claimed to be (and instead proved to be hicks taken by the big city slickers)?

Did you properly read the blog(!) article you are citing here?

Down page it concludes...

Darn tootin' right as history proved!

Of course, IKB was in there trying to be a player with Rhineland. But by what stretch of the imagination were they competent?

As you confess...

...so yes, we agree that IKB was clearly not as sophisticated as GS and Deutsche Bank. But we have different opinions on whether they had enough of a clue to be writing the deals they wrote. Or whether the Rhineland team cared enough about the outcome for their employer.

And IKB was a story shared by many (IMO). Staid traditional bank gets whizzy new CEO who sets up an off-balance sheet entity to "aggressively pursue" great new business opportunity. And comes unstuck because the US was allowing the unscrupulous to package toxic waste as AAA.

I guess it's not a "fact" if you're not certain either?


Also, I'm not certain there are any confessions in my post? It doesn't seem fitting (in the context of your analysis of IKB) to hold Deutsche Bank up as the model of sophistication as they needed a bailout of $11.8 Billion of the TARP funds from AIG - but I think we both consider Deutsche Bank to be competent?
http://www.councilforamerica.org/news/obama-taxpayers.html

Deutsche Bank is still considered to be over-leveraged.
http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/11/21/bloomberg_articlesLUVO5Q0UQVI9.DTL
"By any measure, Deutsche Bank is a giant. Its assets at the end of September totaled 2.28 trillion euros (according to the bank's own website), or $3.08 trillion. In the latest ranking from The Banker, which uses 2010 data, Deutsche was the second- largest bank in the world by assets, behind only BNP Paribas SA.

The German bank, however, is thinly capitalized. Its total equity at the end of the third quarter was only 51.9 billion euros, implying a leverage ratio (total assets divided by equity) of almost 44. This is up from the second quarter, when leverage was about 36 (assets were 1.849 trillion euros and capital was 51.678 euros.)

Even by modern standards, this is very high leverage. JPMorgan Chase & Co. has a balance sheet about 20 percent smaller than Deutsche Bank's, but more than twice as much Tier 1 capital, an important indicator of a bank's financial strength. Bank of America Corp., whose weakness is a serious worry in the U.S. today, has twice Deutsche's capital. (These comparisons use The Banker's ranking of the top 25 banks.)"

Might it be possible the trading department at IKB acted in their own best interest - rather than the bank's? We've heard of rouge traders or departments at other firms that (like a gambler on a losing streak) took bigger and bigger risks to attempt to correct a position - or overstate earnings.

Perhaps the word "hick" means something different for each of us? For me, "hick" (as it relates to this topic) would imply someone who isn't familiar with the industry or products, lacks education in the required area and general preparedness. From my link to the IKB website - derivatives is listed as one of the primary product lines of the bank. This implies (to me) the bank directors considered the bank prepared to transact business in the segment.

When it comes to unregulated derivatives - I'm not certain sophistication can be measured by success or failure? My guess is the market has previously judged competence by the size of the portfolio managed. I think we can agree AIG and Deutsche Bank are both sophisticated - yet they were unsuccessful and needed a bailout by US taxpayers.

 

[John Creighto]

@ apeiron,
Yes, regulating for transparency would seem to contribute to levelling the playing field. Is it realistic to suppose that legislation to that effect will be passed? Can sufficient transparency and the prevention of financial catastrophes be achieved without legislation?

With regards to transparency there are already quite a few rules with regards to disclosure of various derivative risks. Of course I presume disclosure could mean burying them deeply in some obscure report.

 

[apeiron]

It doesn't seem fitting (in the context of your analysis of IKB) to hold Deutsche Bank up as the model of sophistication...

You are harping on now for pages about one word - "hick". The original point was my objecting to your characterisation of the financial sector as "highly regulated". I argued that the credit crunch was caused by the explosive rise of an opaque, off-balance sheet, market for structured financial products and the consequent emergence of predatory behaviour.

Regulation is needed to create transparency and level playing fields in markets so that even ordinary folk can safely invest. But the derivatives casino created an environment in which even "sophisticated" banks, with newly created trading desks, became easy marks. As IKB showed.

You don't actually seem to disagree with anything substantive about what I've just said. You have agreed about the casino aspect, the predatory aspect, the regulation aspect.

You are now repeating points I originally made as if these were novel thoughts...

Might it be possible the trading department at IKB acted in their own best interest - rather than the bank's?

So you can see why your comments seem like trolling rather than a serious intent to engage with the meat of my arguments.

If you actually have some substantive disagreement with my views about the demonstrated perils of unregulated, geared trading, then start a proper thread about it. But so far, it has been nitpicking to little effect because you don't fundamentally disagree it turns out. All IMO

 

[apeiron]

With regards to transparency there are already quite a few rules with regards to disclosure of various derivative risks. Of course I presume disclosure could mean burying them deeply in some obscure report.

There were rules, but they didn't properly cover the situations that developed, nor was there vigorous enforcement of the rules. But attitudes are more important than rules. People have already contrasted the more upright/naive Europeans vs the more unethical/cutthroat Yanks. A game was created where everyone was expected to be "big boys" and so to expect a lack of ethics. If there were rules, they would be bent to the max. If there was a lack of information, then it was you look out.

The problem - the reason everyone got hurt - was that this was all so in the dark that even the biggest boys could not see all the linkages being created. Or the ninja loans that the mortgage broking troops were starting to write.

Predatory financing is nothing new. I personally dug up the story of the world's fastest growing computer leasing company, Atlantic Computers, in the 1980s. It was at heart a simple tale of two documents that looked like a single lease contract, but which came apart to leave you deep in the sh... But people couldn't believe there was anything actually wrong because even big companies like American Express were signing the deals. And then a bank came along and bought Atlantic despite my expose.

So from an early age, I got the view that the level of "sophistication" in high finance is not all it is cracked up to be. Even moderately simple scams are too complex when the players involved are greedy and can't see past the attractive figure on the front page of the contract to actually interpret the fine print contained within.

All IMO of course. But here is what happened to another fool bank that didn't listen to me (I asked Gunn in person why he would buy this toxic pile, he mumbled something evasive). It became the world's biggest bankruptcy for its time.

The 1988 acquisition of Atlantic for pounds 400m proved the undoing for the stock market success story, as a black hole was discovered in the company's accounts. B&C had to write off pounds 550m and in 1990 collapsed with pounds 1bn of debt.

The report says Atlantic never made a profit from its inception in 1975 and employed practices that went beyond the bounds of acceptable accounting policies. 'If the report is correct, it is clear that B&C was sold a pup,' Mr Gunn said.

http://www.independent.co.uk/news/b...w-and-accountants-spicer--pegler-1415499.html