SubscribeBut in the late Nineties, a few years before Cassano took over AIGFP, all that changed. The Democrats, tired of getting slaughtered in the fundraising arena by Republicans, decided to throw off their old reliance on unions and interest groups and become more "business-friendly." Wall Street responded by flooding Washington with money, buying allies in both parties. In the 10-year period beginning in 1998, financial companies spent $1.7 billion on federal campaign contributions and another $3.4 billion on lobbyists. They quickly got what they paid for. In 1999, Gramm co-sponsored a bill that repealed key aspects of the Glass-Steagall Act, smoothing the way for the creation of financial megafirms like Citigroup. The move did away with the built-in protections afforded by smaller banks.one of the reasons why the Repub's have been going slowly apeshit is that the Dem's, starting with Clinton, have been stealing away their natural constituency: Wall Street bankers. Those hedge funds gave a lot of money to the democratic party.
We knew Bush wasn't a big reader, but does Obama and company read this stuff?Nope. And if they do, it's dismissed because it doesn't fit with their world view.
As a 24 year old I can't wrap my head around how the generation that brought me up has left my generation with no real future aside from cleaning up the shit they've left in their pants.Oh, you'll be fine. Even if you do have to clean up some shit, you're ignoring the fact that you don't have to do it in the snow uphill both ways.
Mike Francis: My name is Mike Francis. During the beginning of the mortgage implosion, I was an executive director at Morgan Stanley on the residential mortgage trading desk.who also sold tranches of mortgage backed securities, and said
Mike Francis: it was unbelievable. We almost couldn’t produce enough to keep the appetite of the investors happy. More people wanted bonds than we could actually produce. That was our difficult task, was trying to produce enough. They would call and ask “Do you have any more fixed rate? What have you got? What’s coming?” From our standpoint it's like, there's a guy out there with a lot of money. We gotta find a way to be his sole provider of bonds to fill his appetite. And his appetite’s massive.So it is in his interest to find as many products to sell ASAP. Of course one would have to look at the quality of the underlying loans, are they likely to pay or not ?
Mike Francis: All the data that we had to review, to look at, on loans in production that were years old, was positive. They performed very well. All those factors, when you look at the pieces and parts. A 90% NINA loan from 3 years ago is performing amazingly well. Has a little bit of risk. Instead of defaulting 1.5% of the time it defaults at 3.5% of the time. That’s not so bad. If I’m an investor buying that, if I get a little bit of return, I’m fine.NINA stands for "no income no asset" loan , that's clearly bottom of the barrel, high risk loan. Yet these failure rates, to a superficial reader, appear nice. Those rates are, of course, based on historical data from loans made in the past. Except that (emphasis mine):
Adam Davidson: As we now know, they were using the wrong data. They looked at the recent history of mortgages and saw that foreclosure rate is generally below 2 percent. So they figured, absolute worst-case scenario, the foreclosure rate may go to 8 or 10 or 12 percent. But the problem with is there were all these new kinds of mortgages, given out to people who never would have gotten them before. So the historical data was irrelevant. Some mortgage pools, today, are expected to go beyond 50 percent foreclosure rates.I don't belive, not for a second, that credit rating agencies and employees of Morgan Stanley are likely to commit the very basic, very investment error every other Joe makes : that of thinking that data in the past, however analyzed, is going to reflect the future.
Alex Blumberg: To be fair, they knew there were risks. But investors have a system to assess those risks. They’re these special companies. Credit rating agencies. Moody’s, Standard & Poor’s, Fitch. Their job, their main job, is to assess risk for Wall Street and the global pool of money. They rate every kind of bond according to its risk. Triple A is the safest, then there’s double A, single A, all the way down to single B and below.
And that’s all most investors look at - the letter grade. They trust the credit rating agencies. And these agencies blessed most of these mortgage-backed securities. Gave them AAA ratings - which means they were considered as safe as a US government bond. This was the magic of this whole system. You could take a pool of thousands of risky mortgages, and create a security that was called money-good, as safe as any investment out there. At least that's what people thought. But now we know those agencies relied on the wrong data. That same historic data that had nothing to do with these new kinds of mortgages.
The people who have spent their lives cloistered in this Wall Street community aren't much for sharing information with the great unwashed. Because all of this shit is complicated, because most of us mortals don't know what the hell LIBOR is or how a REIT works or how to use the word "zero coupon bond" in a sentence without sounding stupid — well, then, the people who do speak this idiotic language cannot under any circumstances be bothered to explain it to us and instead spend a lot of time rolling their eyes and asking us to trust them.I'd just like to thank a few people - Mutant and Malor at the top of the list, but others - for treating us like mature and intelligent people who, with a little work, do in fact understand this stuff.
...what all this verbiage means, is that hedge funds will be allowed to establish investment positions, levered up to 10x with the government's aid, on which the funds will have only a stop loss of a certain percentage, and all incremental losses will be borne by you, dear (American) reader. And while this risk was "somewhat" acceptable for TALF 1.0, now that Geithner is opening it up to the whole morass of uber toxic and even more uber illiquid garbage floating on banks' balance sheets, the Treasury has just gone all in with taxpayer money in its bet that the market will recover. Geithner's Put has just been transformed...of course - Geithner's job is safe. The president even joked that were Geithner to tender his resignation, he would say, "Sorry, Buddy, you've still got the job."
...might we might be seeing the first real rumblings of class warfare... In one corner are the technocrats not only in finance but also in government and the media: people who can understand the importance of distinguishing between a $250,000 base salary, a $2.5 million bonus, a $250 million bonus pool, a $2.5 billion bonus pool, a $250 billion bailout package, a $2.5 trillion monetary stimulus, and so on.The middle classes are revolting!
In the other corner are the real people, the angry people, the unemployed people -- and with them their elected representatives in Congress. They're not interested in such distinctions any more, they're not interested in what's fair or what's sensible. They saw their real wages stagnate for decades as the orgy of plutocratic self-congratulation reached obscene levels only to keep on growing. All they ever had was the American Dream... Now, of course, that dream is shattered...
They're not interested in constructive solutions or in leveraging private capital or in the sanctity of contracts: fuck that shit. Those days are over. They want to see jail time, confiscatory policies, and worse.
As inequality grew in America over the past 30 years, there was always the risk that it would snap back violently and dramatically. That day is not yet here, but it's closer than it has ever been, and its possibility cannot be discounted. Barack Obama smells the public mood, and is trying to respond to it in a grown-up and non-incendiary way. Congress smells it too, and is being rather less grown-up about things. And Wall Street still largely remains inside its bubble, watching the tour buses on the outside with fear and incomprehension. But unless some very senior executives start smelling the coffee sharpish, they might end up facing the biggest tail risk of them all.
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posted by fatbird at 11:22 PM on March 20 [3 favorites]