[speechlesstx]

I love the GM ad, how shameless can you get?

Speaking of too big to fail, Obama said his financial reform will "put a stop to taxpayer-funded bailouts." NPR surveyed financial experts both left and right and determined they "cannot find any experts -- of any party -- who are willing to agree with Obama on this one."

What, he lied?

[excon]

What, he lied?

Hello again, Steve:

I'm going to try it again. Don't say I ain't persistent. When he says it will put a stop to taxpayer funded bailouts, he believes it. I'm sure your man George W. Bush (I promised that I wouldn't call him dufus anymore), absolutely KNEW that HE wouldn't bail out anybody, because HE believed his own schtick...

But, when push came to shove, he caved. Was he lying to himself when he convinced himself that he's not a bail out kind of guy? Nope. He was simply mistaken. I could say he lied, if I was as mean as you, but I ain't.

excon

[speechlesstx]

No, ex, Obama has a pattern of outright lies, either that or he's absolutely clueless. No, he just lies. He's still shamelessly lying about his campaign donors. He's lying about this, he lied and lied about health care reform, he can't seem to keep from lying.

[excon]

Hello again, Steve:

I'm willing to give my president the benefit of the doubt. As much as I disagreed with Bush, and as much as the evidence suggested otherwise, I NEVER said he lied, and I NEVER said I hated him.

I'm also willing to give SOME of my congressmen the benefit of the doubt too, as I did to John Lewis. You don't extend these people the same courtesy. Ok.

You don't think Republicans lie, do you?

excon

[Athos]

Important question.

I agree a company should be prevented from getting so big that failure requires a taxpayer bailout. But how does that play out in practice?

The Sherman Anti-Trust Act works well with a de jure monopoly like AT&T, but not so well with a de facto monopoly like Microsoft was seen to be a few years ago when it approached 90% of the market.

The people against "too big to fail" cite socialism (an exaggeration), a free market, and the need to be able to compete globally.

The in-favor crowd cite the inability of the market to self-regulate (historically true), the market distortion caused by being too dominant, and the moral hazard of eliminating risk to a large degree, thereby placing the onus on the taxpayer. (Both sides)

I think the idea of government interference (in this particular case) trumps the free-market philosophy, but exactly how this can be done is elusive.

The last thing we want is an economy too shackled by a rigid set of laws, but we also want to prevent future AIGs and Citicorps and GMs. There must be a middle ground that reasonable people can accept as necessary.

One step might be carefully regulating M&As since centralization always tends toward "too big".

[inthebox]

No, ex, Obama has a pattern of outright lies, either that or he's absolutely clueless. No, he just lies. He's still shamelessly lying about his campaign donors. He's lying about this, he lied and lied about health care reform, he can't seem to keep from lying.

Here is another lie ----

Health Care Cost Increase Is Projected for New Law - NYTimes.com


G&P

[tomder55]

Athos . I was under the impression that M&A is already subject to any number of Federal and State Regulations not limited to Sherman Anti-Trust regs . Are you saying even more oversight more regulation more control is needed ?

Also ,there are a number of financial institutions that have been deemed "too big to fail" (whatever that means) . There are also many other banking institutions in this country that aren't . All these institutions are competing globally against institutions of similar size.

During the S&L crisis the number of banks that failed were in the hundreds . This was also deemed to require a government intervention by the powers that be. None of the banks that went down could've been defined as "too big to fail" . So the problem then is how big does a corp have to get to be defined as "too big to fail" requiring government intervention ? The example of the S&L crisis ,TARP ,and GM to me is that ANY company in any industry can be the target of government takeover or intervention .

That is way too much power for the government to have.

[speechlesstx]

I'm willing to give my president the benefit of the doubt. As much as I disagreed with Bush, and as much as the evidence suggested otherwise, I NEVER said he lied, and I NEVER said I hated him.

No, you just called him "the Dufus." Oh, and I've never said I hated Obama, I'd appreciate it if you wouldn't give people the impression that I have.

I'm also willing to give SOME of my congressmen the benefit of the doubt too, as I did to John Lewis. You don't extend these people the same courtesy. Ok.

Only until the evidence show otherwise. Video is a powerful witness.

You don't think Republicans lie, do you?

Don't be ridiculous, of course they do. Meanwhile, Democrats are the liars in charge at the moment.

[excon]

No, you just called him "the Dufus."

Hello again, Steve:

Oh, he isn't very bright. But, being stupid and being a liar ain't the same thing.

excon

[Athos]

Athos . I was under the impression that M&A is already subject to any number of Federal and State Regulations not limited to Sherman Anti-Trust regs . Are you saying even more oversight more regulation more control is needed ?

Also ,there are a number of financial institutions that have been deemed "too big to fail" (whatever that means) . There are also many other banking institutions in this country that arent . All these institutions are competing globally against institutions of simular size.

During the S&L crisis the number of banks that failed were in the hundreds . This was also deemed to require a government intervention by the powers that be. None of the banks that went down could've been defined as "too big to fail" . So the problem then is how big does a corp have to get to be defined as "too big to fail" requiring government intervention ? The example of the S&L crisis ,TARP ,and GM to me is that ANY company in any industry can be the target of government takeover or intervention .

That is way too much power for the government to have.

You bring up some good points.

The M&A regs need to be enforced, not necessarily added to. During the last two administrations (Clinton and Bush), they, along with other regs, were loosened leading to two bubbles - dot com and housing. (Regs in general, not only M&A regs)

The S&L crisis was caused by eliminating govt regs - allowing the S&Ls to get into areas they had historically been prevented from getting into. The bailout in that case was due to a systemic failure - not any one single bank.

(Btw, Chrysler's bailout in the early 80's worked well).

Government "takeover" and government "intervention" are two very different terms. Surely it is the role of government to intervene in order to avoid a greater calamity or chaos. I think that describes the current government actions. Government certainly has no interest, for example, in maintaining their stock/ownership position in GM. As soon as GM recovers (if it recovers), the govt will sell that stock immediately. They have no interest in running GM.

The core of the present crisis, as I see it, is the action of the rating agencies. All of this could have been avoided if the agencies had not acted fraudulently for whopping payments from the banks to rate toxic mortgage bonds Triple AAA when everyone involved knew they were garbage. Triple AAA is the equivalent of risk-free government bonds. Buyers of these bonds - pension funds, municipalities, etc. - saw the AAA rating and assumed they were solid.

It is almost incomprehensible that Goldman knew this, sold them as excellent investments, and, at the very same time, bet AGAINST the very bonds they were touting as great investments by buying insurance (credit default swaps) that they would default!

You can't make this up.

Probably the best way to manage this stuff for the future is some serious jail time for the offenders.

So, I disagree that "this is way too much power for the government to have". The "market" obviously failed in its self-regulatory role - "self-regulation" is almost always an oxymoron.

Only the government has the power to watchdog this aberration of go-go unbridled capitalism.

[tomder55]

Probably the best way to manage this stuff for the future is some serious jail time for the offenders.

I agree . If there is violations of the law then there should be consequences. Not sure Goldman falls into that even though their emails clearly demonstrate their contempt for their investors.

The core of the present crisis, as I see it, is the action of the rating agencies. All of this could have been avoided if the agencies had not acted fraudulently for whopping payments from the banks to rate toxic mortgage bonds Triple AAA when everyone involved knew they were garbage. Triple AAA is the equivalent of risk-free government bonds. Buyers of these bonds - pension funds, municipalities, etc. - saw the AAA rating and assumed they were solid.

If everyone recognized them as garbage then why did the brokers making the purchases continue to buy them ?
If there was genuine fraud then perp walks are in order . But that tells me (as you suggest also ) that the regulations existed and did not prevent the crisis . It was enforcement that was lacking (too much porn time ? ) .


But ,it isn't unbridled capitalism when someone wins and someone loses... and almost by definition a trade is someone betting for something and someone betting against.

There was as much greed demonstrated by the buyer.

Perhaps regulations should limit the purchase of risky investments by brokers managing pension accounts and charitable organization's portfolios.

Government "takeover" and government "intervention" are two very different terms. Surely it is the role of government to intervene in order to avoid a greater calamity or chaos. I think that describes the current government actions. Government certainly has no interest, for example, in maintaining their stock/ownership position in GM. As soon as GM recovers (if it recovers), the govt will sell that stock immediately. They have no interest in running GM.

When the IPO for GM is announced I may just do some investing . I know the government has a vested interest in their success and that is a kind of backing I wouldn't get from purchasing Ford stock. Who knows if they will be a zombie or not ? Chrysler clearly was ,even though the bailout in the 80s gave them a temporary reprieve.

The shock in the system was that Lehman was permitted to fail. If the system made it clear that the government would not pull their butts out of the fire ;perhaps they would've shown more caution when it came to risk taking . I don't like it one bit when the government gets to decide which business survive and which fail... especially when one of the chief competitors is sitting in the Treasury chair.

Edit : I wonder if the US AAA rating is the result of fraud and bribery or is it an accurate reflection of our credit??

[Athos]

If everyone recognized them as garbage then why did the brokers making the purchases continue to buy them ?

...


There was as much greed demonstrated by the buyer.

...

Perhaps regulations should limit the purchase of risky investments by brokers managing pension accounts and charitable organization's portfolios.

The investors bought them because the bonds carried triple-A ratings. They relied on the rating even though the underlying mortgages were sub-prime, and the ratings were wrong (later admitted to by the ratings agencies).

Buying a risk-free bond at a yield better than a US bond is not greed, it's good financial management.

The bad capitalism here lies with the sellers of fraudulent securities, not the buyers of those securities - the buyers are the victims.

[tomder55]

If the rating agencies don't rate accurately they will soon lose credibilty and be out of business. But I think you have a legit point there;one that is easily solved by competiton... by having ratings paid for by the buyers instead of the sellers;or a competing rating system one representing buyers and one representing sellers.

If the sellers committed fraud there are criminal consequences . We had regulations sufficient enough for the SEC and Federal Reserve to regulate the investment banks. I don't see much reason for any more government action beyond enforcement of existing law.

We don't know if the brokers representing pension funds and non-profit organizations are as innocent as you say ;or as stupid .Yes the people they represent can be called victims ;but they dealt with their broker expecting them to act in their best interest.

Where government could tweek is in the bankruptcy laws in the handling of derivitives . Create a special court for firms that people describe as too big to fail. If Bear Sterns and AIG had bankruptcy protection from their derivative creditors then an orderly dismantling could've taken place (currently derivitives are exempt from bankruptcy rules).

An important example could've been set by allowing Bear Sterns to go down. When Lehman was allowed to fail the uncertainty in the market caused the credit crisis that Hank Paulson over reacted over .

If these companies know there is no government cheese waiting for them if they screw up then the moral hazard no longer exists and they act appropriately . And if they go down;a judge should be deciding their fate and not partisan politicians .It doesn't surprise me that Goldman Sachs came out of the "crisis" largely intact ;and was given a special role in the management of TARP given how many of their compatriots sit in seats of power.

I also want to go back to the basic fundamental problem that caused this crisis . The government had an agenda to increase home ownership and pressured banks of all kinds to participate in the selling of toxic debt. The goals the government aimed for would never've come close to fruition without securitization.
I posted yesterday on another OP that the government desire to promote green technology through mandates ,legislation and EPA directives will guarantee the creation of a bubble .After that;it's only a matter of time the bubble will burst ;and the rage will be against the market instead of the government that is largely responsible for it.

[excon]

I also want to go back to the basic fundamental problem that caused this crisis . The government had an agenda to increase home ownership and pressured banks of all kinds to participate in the selling of toxic debt.

Hello tom:

As we discussed before, and I'm sure we will again, you're analysis above is WRONG. Yes, there were some toxic mortgages created, but if that's ALL is was, the problem would have been a blip on the charts.

What caused the problem is that the derivatives the banks created based on those toxic mortgages, and sold them. Then they created some more that were based on NOTHING, and sold those too. They created a multi TRILLION dollar market for them based on NOTHING, but air.

Then the bubble burst. So, while the government regulators were asleep at the switch, it was the bankers who did it - NOT government.

excon

[tomder55]

You left out the key part of the paragraph.

The goals the government aimed for would never've come close to fruition without securitization.

[Athos]

If the rating agencies don't rate accurately they will soon lose credibilty and be out of business. But I think you have a legit point there;one that is easily solved by competiton... by having ratings paid for by the buyers instead of the sellers;or a competing rating system one representing buyers and one representing sellers.

If that were true, they'd be out of business now - they're not. A buyer will never pay for a rating. The cost is prohibitive, making it impossible for the buyer to realize any gain. Rating agencies should be non-profit. That may work.

If the sellers committed fraud there are criminal consequences . We had regulations sufficient enough for the SEC and Federal Reserve to regulate the investment banks. I don't see much reason for any more government action beyond enforcement of existing law.

Obviously, the regulations were NOT sufficient enough. Note: yesterday, Justice opened a criminal investigation against Goldman.

If Bear Sterns and AIG had bankruptcy protection from their derivative creditors then an orderly dismantling could've taken place (currently derivitives are exempt from bankruptcy rules).

In that case, MORE banks would have failed - all those who were counterparties to AIG. (But, keep thinking).

An important example could've been set by allowing Bear Sterns to go down. When Lehman was allowed to fail the uncertainty in the market caused the credit crisis that Hank Paulson over reacted over .

Maybe, it's hard to say without the benefit of hindsight.

... It doesn't surprise me that Goldman Sachs came out of the "crisis" largely intact ;and was given a special role in the management of TARP given how many of their compatriots sit in seats of power.

This is one of the more bizarre developments - the guys who missed the whole problem (and, arguably, caused it) are the very ones now managing the solution.

I also want to go back to the basic fundamental problem that caused this crisis . The government had an agenda to increase home ownership and pressured banks of all kinds to participate in the selling of toxic debt. The goals the government aimed for would never've come close to fruition without securitization.

I couldn't disagree more. By promoting home ownership, (as the government traditionally has done with the GI Bill, mortgage interest deduction, CRA policy, even the 19th century Homestead Acts), the government is doing a worthy social policy. It's true that the policy was gamed by the banks, but the blame lies primarily in the hands of the "gamers" (including the rating agencies), not the government. I agree the government has SOME culpability by providing a bad environment and not seeing what was happening.

Without the banks selling garbage securities, there is no crisis. Plenty of homeowners defaulting, but no crisis.

[paraclete]

Hello tom:

As we discussed before, and I'm sure we will again, you're analysis above is WRONG. Yes, there were some toxic mortgages created, but if that's ALL is was, the problem would have been a blip on the charts.

What caused the problem is that the derivatives the banks created based on those toxic mortgages, and sold them. Then they created some more that were based on NOTHING, and sold those too. They created a multi TRILLION dollar market for them based on NOTHING, but air.

Then the bubble burst. So, while the government regulators were asleep at the switch, it was the bankers who did it - NOT government.

excon

I think ex you have explained part of the problem. What isn't generally known is how banks manage risk and their position using derivatives and it can take huge nominal values in derivitatives to bring their statistics and position into to line with regulation etc at any time, so there is in fact a bubble at any particular time but the crisis was exacibated by the way these securities had been used to secure the position in other securities. The Ratings agencies should have be stripped of their licence for their part in this

[tomder55]

I couldn't disagree more. By promoting home ownership, (as the government traditionally has done with the GI Bill, mortgage interest deduction, CRA policy, even the 19th century Homestead Acts), the government is doing a worthy social policy.

By creating a market for people who could not afford traditional morgages without subsidizing the purchases, the government created a bubble in a market that was bound to collape.
It wasn't the derivative market that created the bubble ;it is the fact that people were purchasing homes with no skin in the game.

What is Goldman's crime ? They bet the housing market would collapse and they were right .They traded in synthetic securities with brokers who were just as willing to bet Goldman was wrong.
What did it mean that Goldman was selling these ? It meant ;by definition, that they did not want them because they believed they'd decline in value
If Goldman committed a crime then so did Fannie and Freddie ,all the regulators and clowns like Andrew Cuomo who pressured banks to loosen requirement standards,. and especially hypocrites like Chris Dodd who was bribed into looking the other way at the inherent riskes involved that he ,Barney Frank, and all the related oversight committees overlooked when they pushed the policies .

Everyone thinks these were a bunch of saps buying the securities .WRONG ! They were savvy sophisticated investors who made their bets on a large part because there was an understanding that the moral hazard they knew they were taking was underwritten by the government in case things went south. Would they have bet on the continued expansion of the housing market if there weren't a concerted effort by the government to push home ownership beyond reason ? I doubt it.

[paraclete]

Just to point it out Greece is now officially to big to fail

[tomder55]

Clete any real surprise there ? 1/3 of the populace on the gvt payroll with ridiculous mandated compensation deals;including a retirement age of 53 ;annual bonuses worth two months' pay,and fully 1/4 of the population that don't pay any taxes.


The nanny state in action . We are looking at the future.