Sunday, Mar 22, 2009
The global economic crisis
Matt Taibbi: The Big Takeover
There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system — transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.
Posted by devo @ 09:35 PM (850 views) Add Comment
10 Comments
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1. devo said...
"And the worst part about it is that we're still in denial - we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street..."
2. devo said...
"Geithner has continually talked about partnering with private investors to create a so-called "bad bank" that would systemically relieve private lenders of bad assets - the kind of massive, opaque, quasi-private bureaucratic nightmare that Paulson specialized in. Geithner even refloated a Paulson proposal to use TALF, one of the Fed's new facilities, to essentially lend cheap money to hedge funds to invest in troubled banks while practically guaranteeing them enormous profits.
God knows exactly what this does for the taxpayer, but hedge-fund managers sure love the idea."
3. devo said...
51ck, please give us your opinion on the following quote...
From the article (edited to avoid censorship)
A CDO is like a box full of diced-up assets. They can be anything: mortgages, corporate loans, aircraft loans, credit-card loans, even other CDOs. So as X mortgage holder pays his bill, and Y corporate debtor pays his bill, and Z credit-card debtor pays his bill, money flows into the box.
The key idea behind a CDO is that there will always be at least some money in the box, regardless of how dicey the individual assets inside it are. No matter how you look at a single unemployed ex-con trying to pay the note on a six-bedroom house, he looks like a bad investment. But dump his loan in a box with a smorgasbord of auto loans, credit-card debt, corporate bonds and other carp, and you can be reasonably sure that somebody is going to pay up. Say $100 is supposed to come into the box every month. Even in an apocalypse, when $90 in payments might default, you'll still get $10. What the inventors of the CDO did is divide up the box into groups of investors and put that $10 into its own level, or "tranche." They then convinced ratings agencies like Moody's and S&P to give that top tranche the highest AAA rating - meaning it has close to zero credit risk.
Suddenly, thanks to this financial seal of approval, banks had a way to turn their shippiest mortgages and other financial waste into investment-grade paper and sell them to institutional investors like pensions and insurance companies, which were forced by regulators to keep their portfolios as safe as possible. Because CDOs offered higher rates of return than truly safe products like Treasury bills, it was a win-win: Banks made a fortune selling CDOs, and big investors made much more holding them.
The problem was, none of this was based on reality. "The banks knew they were selling carp," says a London-based trader from one of the bailed-out companies. To get AAA ratings, the CDOs relied not on their actual underlying assets but on crazy mathematical formulas that the banks cooked up to make the investments look safer than they really were.
4. devo said...
Here we go, right on cue...
The U.S. Treasury Department announced on Sunday that Treasury Secretary Timothy Geithner will hold a briefing on Monday morning on efforts to stabilize the financial system.
"Tomorrow, Treasury will announce details of the next component: the Public Private Investment Program, which will invest alongside private investors in funds that will provide a market for the legacy loans and securities that currently burden the financial system" Treasury said in an announcement.
Reuters, Sun Mar 22, 2009
www.reuters.com/article/topNews/idUSTRE52L1FL20090322
5. drewster said...
Referring to the original article, "most of us are financial illiterates". The same can be said for the legal system and the tax system, both of which have become ridiculously complex over the years. Too many new laws are passed and too many new tax rules are enacted, with the resut that we are all helpless against the power of the state. It also means that those with money to pay the best lawyers and the best accountants can get away with murder or tax evasion (cf. the recent Barclays / Guardian scandal).
6. crunchy said...
Hey I cant read but iz can count da bailout now at nearly 10 trillion. Dats all iz need to know boz man.
We all been bought and sold!
7. crunchy said...
Time for a musical break......http://www.youtube.com/watch?v=6RVdWwe_Fuk&feature=related
8. crunchy said...
http://www.youtube.com/watch?v=dYY_5wIinv0&feature=related Hell why not.
devo........"And the worst part about it is that we're still in denial - we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street..."
Not enough pain yet bro, but people are getting it, or will soon enough.
9. troy said...
crunchy, some may have already had more than there share of pain and therefore have a different perspective to those who are yet to suffer.
10. crunchy said...
9. troy
A double whammy for some, that's for sure.