Is Wall Street Clean?

Nope. And it never will be as long a Greed is so prevalent here.

Without regulations and watchdogs, Wall Street will fleece us continually.

The arrogance that after the tax payer bailed them out – for their Greed – that they are conducting much of the same financial wizardry again. It just baffles me why the American public hasn’t gone to Wall Street with tar and feathers.

These people deserve the greatest contempt from the entire nation. We are still awaiting justice (no longer holding our breath) for the treasonous acts that lead up to the financial crisis. At the very least Alec Litowitz needs to be imprisoned for treason.

You may find the following of interest.

Rahm Emanuel and Magnetar Capital: The Definition of Compromised
http://www.nakedcapitalism.com ^ | 13 April 2010 | Naked Capitalism Blog

Posted on Friday, April 16, 2010 9:37:27 PM by Rockitz

Magnetar

1) A neutron star with an intense magnetic field, capable of emitting toxic radiation across galaxies 2) A hedge fund, the single market player most responsible for the severity of the 2008 financial crisis, through the toxic instruments it created

Rahm Emanuel

1) White House Chief of Staff 2) Politician selected by Magnetar’s CEO to be sole recipient of his political donations, 2006-2008

Strange as it may seem, nearly three years after the onset of the global financial crisis, its greatest, most destructive, and most profitable “it ought to have been a crime” has gone almost entirely unnoticed.

Most people believe that they understand the broad outlines of the financial crisis, and that a central element was an explosion in mortgages made to people who could not afford them.

But how did such destructive behavior occur on such a large scale? The conventional view is that the subprime mortgage blowup resulted from bank executives being short-sighted, greedy, or both.

But that simple story deters inquiry into how and why this disaster came to pass. Some recognize that the appetite for subprime mortgages seemed to come from investors. In fact, it resulted in a large degree from the way traders at certain large banks used subprime mortgages in a strategy to make their profits seem much larger than they actually were. The effect of this “negative basis trade” strategy was to overpay employees of those banks and consequently eviscerate the banks’ abilities to withstand future economic uncertainty.

The appetite for subprime mortgages was also inflated by people who were betting that the housing market would fail.

Moreover, the devastation wrought by this strategy remains virtually a secret. The fact that it has been almost invisible and appears to have been entirely legal, demonstrates a set of vexing problems. First, that investigations of the crisis have not delved deeply enough, and second, that the deregulation so keenly sought by the financial services industry has made activities legal that by any common-sense standard should be criminal.

But the sponsors of this toxic trade did bother to make sure they had a powerful friend. The head of the firm in question gave substantial amounts of money by political contribution standards to Rahm Emanuel’s PACs, and only his PACs, over the period when these transactions were in play.

The moving force behind a brilliant and devastating subprime short strategy was a heretofore unknown Chicago hedge fund, Magnetar, headed by Alec Litowitz, formerly of the hedge fund behemoth Citadel. Our studies indicate that Magnetar alone accounted for between 35% and 60% of demand for subprime mortgages in the year 2006.

This is how their strategy worked in detail.

The ruse at the heart of their transactions was creating subprime (so called “mezz” or mezzanine) collateralized debt obligations by investing in the riskiest layer, the so-called equity tranche. This kind of CDO consisted almost entirely of not just any subprime risk, but that of the dodgiest layer that could be sold short, the BBB tranches, via a combination of actual bonds and credit default swaps.

But Magnetar’s true objective was not to invest in this toxic waste, which its role as funder of the CDO would lead most to believe. While Magnetar paid roughly 5% of the total deal value for its equity stake, it took a much bigger short position by acting as a protection buyer on some of the credit default swaps created by these same CDOs. This insurance in turn was artificially cheap because over 80% of the deal was rated AAA. Most investors did not understand what Magnetar recognized: this concentrated exposure to the very riskiest type of bond associated with risky mortgage borrowers, each of these CDOs was a binary bet. It would either work out (in which case Magnetar would still show a thin profit) or it would fail completely, giving Magnetar an enormous profit and wiping out even the AAA investors who mistakenly believed they were protected by having other investors sit below them and take losses first. Thus the AAA investors were only earning AAA returns for BBB risk.

As the equity investor, Magnetar could further stack the deck in its favor through the influence it gained over the deals’ parameters. It was able to ensure that the CDOs held particularly dubious BBB exposures, and pushed for, and often got, “triggerless” structures, which stripped away another protection most deals had. When CDOs start to show significant losses, the payments to the lower-tier investors, including the equity tranche, are cut or halted to defend the AAA layer, much the way the human body, when exposed to severe cold, will restrict blood flow from the extremities to save the brain and organs. But triggerless deals, even as they started to fail, kept paying the lower tranche holders, including, in this case, Magnetar itself.

While these transactions may sound similar to the widely decried Goldman synthetic CDO program, Abacus, by which the firm went short various real estate exposures, effectively dumping the risk on customers, the Magnetar program was not only much larger, but also produced far more devastating systemic consequences, thanks to the distinctive structure of its CDOs.

As I explain at greater length in my book ECONNED: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism, the use of cash bonds turned mezz CDOs from a dumping ground for otherwise unsellable mortgage bond risk to a breeding ground for demand. Ex Magnetar-inspired appetite, it is hard to find an explanation for the widely-discussed phenomenon of 2006 and 2007, of the mortgage securitization pipeline screaming for more subprime product, precisely when Federal Reserve interest rate increases should have stanched demand for risky loans above all others.

Market participants have estimated that Magnetar’s CDOs drove over 50% of demand for subprime bonds during the market’s toxic phase, 2006 and 2007. With the input of a team including professionals who have worked on some of these trades, ECONNED, we’ve performed repeated, conservative analyses that indicate the true figure is probably at least 35% of demand, and perhaps as high as 60%. And that’s before allowing for the fact that Magnetar’s strategy was imitated by the proprietary trading desks of major dealers. And for good reason. Magnetar made billions, some observers contend as much as subprime kingpin John Paulson, whose fund earned over $20 billion on its short strategy.

And the hedge fund’s cagey bet on Rahm? Litowitz and his wife had never before made significant political donations. In 2005, they started giving to Rahm and his PACs, and only PACs connected to Rahm, just before the Magnetar CDO program began, and continued through the first quarter of 2008, when the trade would have started to pay out handsomely. The Litowitzs gave a total of $8,000 to Emanuel and $10,000 to his Our Common Values PAC in May 2005. In 2006 and 2007, they contributed $51,700 to the Democratic Congressional Campaign Committee, while Emanuel was chairman. We have been advised by individuals involved in political fundraising that the amounts given would be considered significant, and the way the payments were distributed across the PACs is sophisticated. Put it another way: this money was not given impersonally.

But this troubling connection should be no surprise. Rahm has long been a favorite of the hedge funds, having raised more money from them than any Senator not running for President. Not surprisingly, he has been a staunch supporter of the financial services industry, and is widely credited with playing a key role in securing passage of the TARP after its initial defeat.

As the Magnetar-Rahm connection highlights, Obama raised more money from financial services players than any previous presidential candidate, so it can hardly be a surprise that he and his minions are happy to give the industry a free pass. Key policy figures maintain that no one was at fault, that there was a pervasive lack of regulation, and there are therefore no bad actors. That party line also means that destructive behavior is and will remain unquestioned, unexamined, uncorrected, and unpunished. We are still paying for the costs of the financial train wreck of 2007 and 2008. We can no longer afford the costs of willful blindness.

Nick,

I mostly agree with you. As far as public outrage and consequence go, Wall Street and our own government have convinced us that this is our left arm. If we “cut it off” we would be causing life threatening injury to ourselves. Everyone knows that if you want to subdue the American people, you threaten their wallets. Real change in this area would have to be fundamental to be effective, and it would be painfull.

Leftfield, Wisconsin

The overarching issue is risk management. The improper assessment of risk caused the financial crisis.

The misjudgment occurred when the mortgage banks permitted the issue of liar loans (http://brainmindinst.blogspot.com/2008/09/subprime-lending-truthiness-delusion-of.html) and the investment banks sliced and diced the CDOs that contained these loans (http://brainmindinst.blogspot.com/2007/12/about-taking-risks.html).

The meltdown of 2008 demonstrates that betting on the market carries great peril. Unsurprisingly, some hedged against the risk. Abacus is a case in point. Paulson and Co. walked away a winner, because the firm analyzed the content of Abacus, coming to the conclusion that this bundle was likely to fail, and the firm hedged against it. They could have been wrong. Other skilled investors believed in Abacus and lost. Should we blame Paulson and Co. that they did their homework, before they came to the table?

Crimes that led up to the financial crisis must not go unpunished. Alas, that may be the easy part. The difficult part will be to institute a mechanism that reigns in the lighthearted taking of frivolous risk at the expense of all, without unduly stifling financial activity.

Did we clean up Wall Street?

OH PLEASE! How can you even ask that question?

Of course NOT. It is still full of people who have an immense feeling of entitlement for the massively overpaid ‘hard’ work that they do. Any new regulation is met with a massive effort to either block it or work around it. Make another million dollars, there is no other goal.

The only way to clean up Wall Street is to figure out a way to inject some morality and humility in the ‘players’.
Ain’t gonna happen.

In all aspects of modern life, the “bottom line” is where we focus our hopes. Things alone matter which bring us a profit and even limitless profit. There is no God anymore in the real world. Even “religious” organizations dilute their souls in fund-raising.How much money one can raise determines triumph in the political world. We wonder where all the money went via public response to the Haitian catastrophe, the Tsunami relief, aid to Afghanistan and Pakistan. Did any of it get to the poor, sick, youth; or was the large bulk of it spent on now rusting military hardware and to top dogs.
The men who caused the financial disaster, have been the ones profiting from the bail-out and the master-minds advising Bill Clinton in ’97, are now the departees from the current administration, much wealthier with high wage jobs awaiting them. (cf., Alan Greenspan, Larry Summers, Theodore Geitner, Robert Ruben, et als.) Only Brooksley Born stands tall. When will the real story emerge.
“Justice is mine” says the Lord (oops!).

Tom,
I think you may need to define the meaning of clean. Is Wall Street breaking existing law, in most cases that is difficult to prove. Is Wall Street, using ‘privileged’ access to information to manipulate or game trading in the market. I think the answer is yes.
If that is the working definition of unclean then the market is anything but clean.

Here are some simple rules changes I think will clean up the market and return it back into the boring business capital investment system. I want to close the casino open the bank.

First, require a 50 percent tax on all stock trades held less than thirty days, treat trades as last in first out.
You can’t game the system through high velocity trading.

Second, and this changes all relationships not just with Wall Street. Stop federal employees from taking anything of value from any person or company. That means no PAC’s, no campaign committees, no side businesses for our legislative leaders. You choose to serve, you take an oath to only serve not to further your own cause. Our legislators will have to run only on their record while in office.

Can’t be done? With social media and the power of the people I think it can. We have the power when we organize.

Want something bad enough, you will act to make it happen. Be the change you want.

No regulations, No rule of law, No ethics, No national allegiance = Wall St 2011.

They do have their own ways of grasping for ever larger sums of public money through their many power centers. They control DC and all of the people who reside there, they control the courts, and they control the media. I’m sure they are planning another huge pump and dump of the world economy where the taxpayers will once again be punishing them with huge amounts of public money paid directly to each institution in involved in the crimes.

I noticed that the oligarchs themselves don’t like being cheated. IMO the Madoff affair illustrates the power THEY have to get back their losses. They drowned the business partner and got a little back. Then they hung the son, to get the numbers either from him or the father, and announced three days later that a huge sums would be returned to the biggest investors. Hmmm.

As long as the power of Big Government is used to pick winners and losers on Wall Street, via the unaccountable Fed and well-intentioned central planners, we will have unfree markets, a lack of alternatives and the status quo collusive corruption that follows.

Investment Bankers and the State:

http://www.lewrockwell.com/rothbard/rothbard97.html

And,

Hope for open minded, honest, Libertarians and Progressives to work together:

http://www.thefreemanonline.org/headline/getting-taken-seriously/

alot of the comments after that article might interest those here.

Every time you say Wall St, you need to complete the phrase with “Wall St., The Fed, and the well-intentioned Government Planners.”

Inevitable results.

Give a copy of this to your guests:

http://www.periheliondesign.com/downloads/uswealthdistribution.pdf

Markets operate, theoretically, under the Rule of Law. If they are acting lawlessly wild, it is due to a lack of enforcement of the Rule of Law, basic, equal guidelines, and only occurs via the power of government and the Fed, choosing NOT to enforce the basic Rule of Law that a true free market needs to operate fairly and efficiently.

Lets watch the BS here, with all due respect:

“Finally, libertarians need to be attentive to the difference between being “pro-market” and “pro-business.” It’s easy when talking with Progressives to engage in reflexive defenses of the private sector, but it’s important to keep in mind that what we ultimately care about is competition, not individual competitors, since it is competition that best serves the needs of everyone — the worst off among us most of all. We don’t need to go as far as Kevin Carson or Roderick Long and argue for a more left-oriented understanding of the market, though their work is a powerful corrective to the problem I’m identifying. But we need to be willing to call out private firms that use the State and to acknowledge when private firms behave badly on their own. Reflexive defenses of the private sector are both bad strategy and intellectually mistaken.”

http://www.thefreemanonline.org/headline/getting-taken-seriously/

Ron Paul and Austrian style economists called this a looooong time ago. Old News.

Give non-mainstream credit where it is due.

Does anyone else wonder why the American public is not so upset at the large amounts of monies being spent in bailouts, 0% or extremely low interest loans, and other means that are being financed by the American taxpayer for the sole benefit a few extremely wealthy people?

I do wonder how long the established political parties in this country can keep forcing the risks that financial institutions take on the American public while letting all of the rewards go to a exceptionally small percentage of the population. This is not only reflected by the government treatment of Wall Street but also our tax code.

Bankruptcy would have been the ultimate rule. But of course, too big to fail.

GS–AIG would have paid the price along with the rest of them. They could never have become the beasts the were with Government support along the way, and the knowledge they would be bailed out with our money in the event of failure.

To just say we have to Regulate, presupposes we know everything, good and bad that can be happen. That is just static utopian dreaming.

What we need is true assumption of risk by owners and investors, and the might hand of failure to whack down those who go too far.

Amazing what self-preservation, if you are forced to feel it, can do to control your behavior. But with Big brother and Too big to fail, we never feel it.

I went to a party last fall full of NYC financial types. All the talk was about the houses in the Hamptons they were buying and the elite schools their kids attended. I was horrified by how little pain they felt when the rest of the population is worrying about how to pay the bills. I think they live in a bubble that allows them to believe that they deserve this life — it’s time to pop that bubble! This industry needs serious controls to rein in its behavior!

When it comes to government, you get what you pay for.

Wall Street bought influence in Washington with campaign contributions and undid or defeated the regulations that would have prevented this.

We will have more of these cycles unless politicians are answerable to the people, and that will not happen unless we get meaningful campaign finance reform. And that would not survive with the current Supreme Court, as proven by Citizen’s United.

The government by bailing out these huge monstrosities has only “kicked the can” and delayed what really NEEDS to happen. These firms should FALL and let the truly free markets decide. The super rich still don’t have enough money to prop up these greedy institutions.

We have heard it over and over: the banks had to be bailed out or the financail system would collapse.

So, three years, and 14.2 trillions dollars later Wall Street is back in the stratosphere and the American economy is crumbling.

What we could have done in this country with that money to get off of oil, to build infrastructure, to educate people, to take care of people, to create jobs is something we will never know.

We are a wreak of a society now and headed downward at lightening speed.

There is 20%+ unemployment in this country and the states and municipalities are going to lay off another 1 million people this year.

We are in big trouble people. And and a good half of it is directly due to Wall Street.

Shortly after FDR was elected he appointed Joseph P. Kennedy as the first chairman of the SEC. Kennedy was widely seen as one of the biggest winners/crooks on Wall St. and FDR figured that if anybody could prevent a future crash by fixing its flaws it was Joe Kennedy.

I’d like to know if Mr. Lewis could reccomend the modern equivalent of Joe Kennedy?

Darryl – All my friends and I have wondered why people aren’t protesting in the streets. I think it’s because of the Tea Party – the financial folks have got them stirred up – toward government and Obama. The rest of the country just feels like it’s impossible to make a difference.

We have a Democratic president and party that is just as invested in protecting Wall Street as the Republicans are. Most of the 60′s types I know I just dispirited about making any dent in the system.

If you read “The Big Short” or “All the Devils are Here” and look around you’ll see that nothing has changed.

John
Williamstown, VT

Maybe the question is How did we clean up wall street?

As a small investor I am confused by some of the investment vehicles that have been created. An example is derivatives, CDOs and more. Poor investments made by others directly effect me and my neighbors. Although I have a general idea of what these investment vehicles are I am unable to participate or protect myself.

It is a closed game.

Hi Tom

Would you have your guests comments on the role played by the
Professors of Economics at our major universities. In the movie,
Inside Job, Charles Ferguson (producer) interviewed among other, Glenn Hubbard,
Dean of Graduate School of Business. According to Ferguson,
Glenn Hubbard was paid approx. $145M by the Icelandic Chamber
of Commerce to write a glowing report of the banks which failed
shortly after the report was published. Hubbard saw nothing
the matter w/ this.

And another thing. How do we expect an entire group of people whose SOLE PURPOSE is making money (“bankers”) to have a MORAL COMPASS? That is a silly question!

In addition to Wall Street culpability in causing the financial crisis, why are you not focusing on the roles certain members of Congress played in not allowing more regulation of Fannie Mae and Freddie Mac? President Bush proposed legislation in 2005 about the extreme risks being assumed by by these two organizations and was blocked by Congress, ie, Barney Frank. And how about the risks by Fannie and Freddie assumed and how this benefited former leaders of these two organizations with one leader leaving with more than $50 million.

Let’s get the full story out; not just the Wall Street chapter.

How about changing the monetary system?

Anyone who looks beyond the curtain on Wall Street and the Fed will find the ultimate source of todays financial issues AND government debt to be the wrong direction taken with the Federal Reserve Bill of 1913. How about some bold innovation now on the nation’s financial system? “Bold” meaning enough to bring about a fundamental change that brings equality, protection, abundance, and maybe even a bit of leisure time to a majority of ‘we the people’!!!!

Why not put the right to create money back in the hands of the government, for example?

Can we hear more about fundamentally CHANGING THE SYSTEM?

Question for Ms. McLean.

Please speak to the ratings companies’ sins in the valuation of toxic debt. Isn’t there a common thread here, left from the Enron crimes, there was never really pulled (perhaps except in your fine book, The Smartest Guys in the Room)?

Is the problem with the ratings companies really a fraud and a conspiracy to allow accounting crime?

Wall Street is a scam, as are the politicians who take millions of dollars to prop up Wall Street. The discussion is deliberately ignoring the willful goal of the government to increase home ownership. The guests deliberately fail to mention the many law suits that were brought by the activists against the lenders and banks to force them to lend to those who could not afford such mortgages loans. These lenders, were forced to change their lending qualifications and lend to people who were clearly unqualified for such loans. These banks found ways to unload their defective loans. These lenders, knowing that the loans were defectivem, then sold the loans to others who passed the risk to others in order to make money for themselves. The greed that exists in this country is outrageous. Choke on your money. The taxpayers got screwed again. It will happen again and again. The regulations passed under Obama did nothing. But continue to believe that things are better. Continue to believe that Obama will save you. Freddie and Fannie have not been reformed. As long as the governemnt guarantees such loans, the scam will continue.

Right now the Senate Budget Committee is holding a hearing on the U.S. economic outlook for the next ten years

Senator Conrad of North Dakota’s opening remark was the same excuse we’ve heard since the start: we had to bail out the banks or we would have had a collapse of the financial system. We had to hand over trillions of taxpayer dollars or we would have had a depression.

The truth, Mr. Conrad is you, and your bought and paid for fellow congressman sold the citizens of America into a lifetime of debt and no services because you handed criminal banks a not only a life jacket, but a mega yacht.

Can anyone explain to me why investment banks aren’t liable for breaching fiduciary responsibilities? It seems obvious that they represented themselves as offering financial services when, in fact, they were just looking for the best way to make the most money off of them.

There is a danger of oversimplying by referring to the entire financial sector as “Wall Street” and villifying it as a criminal activity. The bottom line is that most businesses and governments (from state and local to federal) are dependent on functioning financial markets. This broad definition of Wall Street can encompass bod markets, municipal finance, standard investment banking, venture capital, private equity, hedge funds, etc….

There was fundamental breakdown in corporate governance and risk management that occured at financial institutions when people whose primary job is to manage and mitigate financial risk started to become compensated like traders and sales people (e.g. on short term sales). Many investment banks essentially became large hedge funds and made more money on their own trading desks from standard investment banking activities from servicing their corporate clients.

I believe a modern day Glass Stiegal that separates day to day banking and even standard investment banking from risker activities, such as a firm’s proprietary trading and hedge funds, is essential. The Volcker rule was a good start. A key is whether a bank has access to the Federal Reserve discount window, but this entire concept of “To Big to Fail” needs to be addressed even among those entities that fall outside of those with access to the Federal Reserve discount window.

Matt Taibbi, in his new book Griftopia, suggests that the Wall Street speculators are behind the sharp increase in commodity prices worldwide…is this the new manner with which they are crashing the world economy that Micael suggested?

@ John

Thank you and I agree about our political parties, I actually believe that we have one party the Corporate Party that has two competing wings. You are lucky to live in a state were there seems to be a collective push to local systems and businesses that is populated by people who seem to be aware that the accepted business as usual is not sustainable.

It is a far cry from Alabama, where all of our problems are blamed on the “liberal elite that controls government and business” I really want to move my family to Vermont.

Please ask your guests to elaborate on the false bravado of the Bank CEO’s. They still need to act like big gorillas, who thump their chests to scare away. All along they cannot seem to admit their ignorance of, and intimidation by, the MIT physicists who concocted the CDO’s. They isolated themselves at the top (playing bridge, etc.) while their risk managers had no staff to counter the quants. The CEO’s only cared about the daily bottom line, and maintaining their image of being in charge.

Maybe the SEC will do something when it gets the funding, and independence like the Congressional Budget Office ha,) from Congress it needs after it was gutted by the Bush admin. Many of the SEC people wern’te money people, they were lawyers. They didn’t have the staff (Years ago they sent TWO investigators to check out Madoff and pronounced it ok), much of the staff didn’t have the qualifications, and they didn’t even have working office equipment, having to go to Kinkos to simply makes copies.

Changing the system means changing the collusive influence of the Federal Reserve. As the greatest, unaccountable power in our world, you will never hear the status quo elite that use it to attempt to centrally plan our world, ever challenge it.

The more complicated and unaccountable our systems are, the more power is shifted from people to government and business interests, the less chance at a fair shake at life we will have.

Government loves the complicated legal framework they have created over generations because it gives the power to work under the radar and grant legal favors where the want.

Obviously Big business loves that as they lobby for the favors to their industry.

Do you see how this is corrupt? How Government/Business collusion, that Democrats and Republicans love, and Libertarians abhor, is continually holding us hostage?

Central planning gives the utopian dream of actively constructing a “fair” world, but power corrupts. Only liberty, with the collective decisions of free individuals has a chance, not a guarantee, a chance, of leading us to a good place. But concentrated power and central planning is guaranteed to fail.

Jamie Dimon of JPMorgan Chase should be spending time in prison instead of mouthing off at Davos Switzerland about how governments must stop banker bashing.

We are to blame as well. We believed their lies. We borrowed and spent and believed it could never end. I am no different. Though others are far worse off, I too have enough debt that I cannot disengage from this corrupt system. I too must be led along by the nose by the corrupt financial and political institutions. Hopefully our children will surpass us in strength and wisdom. I do not believe we are up to the challenge.

Leftfield, Wisconsin

How does Brooksley Borne fit into this?

For anyone who hasn’t seen Frontline’s The Warning, it’s a must-see.

In the US the easiest ways to get rich are to advance professionally, invent something, speculate, or speculate…manipulate markets… inflate bubbles. Better yet speculating with other people’s money.

We’ve allowed much too much of our economy to revolve around reckless and unproductive speculation instead of productive investment.

WNNZ western mass

Arlington, MA – A few years ago, when I heard about interest only mortgages, the hair stood up on the back of my neck. I was just freaked that anyone would buy a house and have a mortgage like that! What could they be thinking?

Years before that, when I heard about dot com firms that had no assets, no income, raking in the big bucks by selling stock, I thought what are they thinking? Then I realized what they were thinking – that sales at brick & mortar stores would remain strong, AND people would spend that much again for purchases over the internet. Essentially, they were predicting consumers would double their spending! No. Not going to happen. And it didn’t. And it crashed.

There is a fundamental issue of human nature at work here. That is the desire of something for nothing. The siren song that speculation is a good way to build wealth. Nonsense. Real wealth is not money, it’s what we have created in real world assets.

“We’ve allowed much too much of our economy to revolve around reckless and unproductive speculation instead of productive investment.”

And it all starts with the unaccountable Federal Reserve and its’ monetary policy, and the leverage it affords the bubble pumpers.

It is clearly the economic model of our generation. Get what you can from the bubble and get out before it vaporizes. Good luck regular guy or gal.

Why do we believe there is a difference between the mob and wall street. Criminals always gravitate to the easies place to make fast money and it seems they pulled off the greatest scam the world has seen in a long time.

When I quizzed my bank representative in 2005 why I was being approved for a home-loan greater than my ability to pay it back I basically received a verbal shrug of the shoulder. I found a more rational lender.

Wall Street’s behavior showcases how both ethics and common sense can be erased by greed – and the idea of financial stewardship went out the window. We may not be able to teach common sense but the ethics of stewardship can be taught and should be both formally and informally.

If the food industry mismanaged our national safety this way there would be street riots.

Housing prices were deliberately driven up and most people who did got into the game were just trying to buy a house so they could live in it before the prices went completely out of reach.

To blame this orchestrated crises by the criminals on Wall Street and Washington on people who are just trying to live a decent life is crazy.

Dave – I wasn’t putting down the Tea Party. I’m pointing out that Democrats and others see no place for them in the Tea Party. They are the one’s getting shouted down by Tea Partiers.

I say that the Tea Party is not wrong they are just misdirected and late to the game. They should have been questioning how you fight two wars w/o raising taxes back in 2004-5. They should have been questioning how you can keep an economy going without good paying jobs.

Instead of looking at the root of the problem Tea Partiers have been herded into the budget cut creeping socialism mantra – which is too bad. They need better, more level-headed leadership but the people who could provide that feel very shut out from the Tea Party movement.

John
Williamstown, VT

I am tired of hearing blame being placed on the mortagees. Some may well know exactly what they are doing but most trust that they are being honestly dealt with. Blaming the little-guy is just blaming the victim – like saying the rape victims are responsible for making themselves vulnerable.

Thanks John, I agree with that. I am saddened that honest Tea Party people/spirit has been so quickly and effectively herded and co-opted. Make progressives hate them, try to make them love republicans. Divide and conquer.

Louis Brandeis once said that we can have a democracy or we can have large concentrations of wealth, but we cannot have both.

We are living that prediction with this financial crisis.

Dear Tom,
Your show is brilliant! Your guests are brilliant!! You are brilliant!!! But I seriously wonder if all this brilliance is really contributing more of a splash to the so called “National Dialogue than the on-going fog of toxic idiocy.
Is it not time to bring back real national dialogue by calling out spokespersons such as your guests or a panel of your guests to go up against other spokespersons, such as Jamie Dimond of Morgen Stanley or Jamie and a panel of other experts with the same viewpoint.
I get so tired of hearing what the “American People” are demanding from self-appointed interpreters, that, I, again, seriously wonder if we don’t have a duty to our nation and the world to put our best minds of contrary opinions in point to point discussions. Civil and self-governed. A new “American Idol” for voters.

If we want change look to the people of Egypt. Get on the streets in the millions and protest and demand the changes.
If the wall street folks don’t like, to bad. Tell them the party is over, freeze their accounts. Break them all up.

there is another answer that bethany didn’t mention. take your money out of the big banks and put it in your local community banks. start new community banks. take away their assets!! they can’t do what they do without the assets. and make sure that these local community banks cannot be “gobbled up” by the big ones to get their assets back.

commenting about trying to say that people borrowing too much/buying homes they could not afford. well, i can only say that NO ONE can borrow money unless someone (read, the banks) gives it to them. if they do not know how to do due diligence when they lend money, then, how can they claim to be bankers?

JP Morgan Chase (led by Jamie Dimon) is one of few financial institutions that actually managed its risk to housing and its related financial instruments including subprime, CDO’s, etc… Others in the business can learn from JP Morgan Chase, which will probably make a good future case study at Harvard Business School.

P.S. I see that the liberal definition of free speech means that those with whom the far left disagrees should be in prison. Spoken like a true Stalinist.
Posted by Rob (in NY)

I can tell from your comment you know nothing about went on with JPMorgan Chase in the past 3 years.

Or you work there.

MYTHOLOGY DRIVES THE NARRATIVES

1. From Greenspan’s fervent belief in “free market economics”–uncontrolled capitalistic expansion, to

2. The belief in “the American Dream” of home ownership, to

3. The big institutions need to be left free of any regulation, from the crowd with torches and pitchforks, and that the only fault is with the poor (read, Black, Hispanic, single mothers, etc.) who took out those mortgages, to

4. We deserve our high salaries and all the perks, our wealthy lifestyles–we “earned” it–from those making vast sums of money on this system, to

5. If we identify and punish “bad guys”, individuals, we will have eradicated the source of the problem, to

6. If investments, such as Derivatives which were reaching levels over 10 trillion dollars, I read, in the year or two even before
The Crash–as long as these are complex, unregulated, obscure, part of a Shadow Banking System–like other behaviors which are in the shadows, then, psychologically, THEY ARE NOT REALLY HAPPENING and so don’t count,

It seems clear to me that most are not interested in reality, in facts, in finding out and understanding the truth, but in dealing with their anxiety and uncertainty by reasserting familiar myths as vociferously as possible.

Yes, I agree that this crisis is not over but continues on, with the subsequent failures being national budgets, beginning in Europe and spreading…this is a long cave in, folks, like the ground over a place which has been mined and mined until it is hollowed out.

WHEN WE IGNORE REALITY AND SUBSTITUTE MYTHOLOGY, WE ARE FIRMLY SET ON A PATH OF SELF DESTRUCTION.

My conclusion and remedy is to start being interested in facts and reality and to let these show the way forward. We might start teaching Economics, real Economics in high school. The American public is close to ignorant on the subject, to its peril.

It’s time to take to the streets. We are ruled by Oligarchs who have created the illusion of choice by supporting two parties with the same agenda. What’s happening in the middle east can happen here. The difference here is the general public is armed to the teeth. Just look at the overreaction to the assassination in Tuscon. That had nothing to do with ideology yet the overwhelming response by government and media was as if it did (including our dear host). That’s how frightened the ruling class really is of the slightest spark of public realization of our serf status. Open your eyes oligarchs the peasants are in the barn sharpening pitch forks! (And I’m a bleeding heart lefty.)
Somerville Ma

Posted by anne marie havel, on February 1st, 2011 at 11:02 AM
“there is another answer that bethany didn’t mention. take your money out of the big banks and put it in your local community banks. start new community banks. take away their assets!! they can’t do what they do without the assets. and make sure that these local community banks cannot be “gobbled up” by the big ones to get their assets back.”

If anyone chooses to take this course of action, PLEASE make sure the smaller bank you choose to deal with is FDIC insured and you stay below the FDIC limits on all personal and business depository accounts. People should also ensure your brokerage accounts have SPIC protection (e.g. you get the assets you are invested in if the brokerage firm goes bust). There is nothing wrong with dealing with community bank, just make sure they are reputable and you cover your own risk.

Oh. And the elite here will have no problem using our military forces against us if we really threatened the system with protest. Who would punish them if they did?

Right to Bear Arms making any more sense? Not that it would be a remotely fair fight.

“Tea Party wants to see no decrease in the appetite of that insatiable defense industry.”

Ron Paul and Campaign for Liberty types rail against the Military Industrial Complex and Foreign intervention, as well as economic welfare almost daily.

http://www.campaignforliberty.com/article.php?view=1309

Also I think its very hard to recreate the energy that kicked off the grass roots tea party stuff against bailouts and too big to fail.

Maybe we are building up a head of steam again now, as the unaccountability continues, and maybe hopefully we are a broader coalition of outraged.

Posted by anne marie havel, on February 1st, 2011 at 11:02 AM
“there is another answer that bethany didn’t mention. take your money out of the big banks and put it in your local community banks. start new community banks. take away their assets!! they can’t do what they do without the assets. and make sure that these local community banks cannot be “gobbled up” by the big ones to get their assets back.”

This is a good idea in theory. I would also add that credit unions are the best of all options as they are FDIC insured and they are owned by all who are members. One thing to remember more small community banks have failed in this current recession than large ones, the number is scary.

Cory wrote:”at, Santa Cruz,

Just too long, dude.”

Neither too long or too short at, your quote explains exactly what happened and if people didn’t read it how can they expect to do anything about it. Sure some of us know what Litowitz and company did, but it is obvious from the posts that a lot of us still do not comprehend the criminality of what he did. The fact that someone comes here and says “just too long” is sort of part of the problem. I wonder how many people skipped over this post because it was too long. It took me all of three minutes to read it. How pathetic.

I think the thing that always is the most frustrating about the Wall Street situation is the facade put on so frequently by those in the financial industry — that they play by the rules. In reality of course, they don’t play by the rules yet expect everyone else to play by the rules. Or rather, they create the rules to benefit them heavily. They can bend them and tweak them whenever they see fit but everyone else is expected to play by the straight and narrow.

In a way, similar to Tiger Woods making millions off of his “family friendly” image when he was anything but.

Good points, all, Dave in CT. There needs to be enough common purpose, goals, and philosophy behind a populist/anti-corporate/pro-middle class movement for it to take hold and draw in enough people for it to stick. I’d say the current Tea Party is a good example of what can happen when a mass movement goes off kind of half cocked.

The analysts and philosophers are—although marginalized by most of the corporate, mainstream press—out there and doing good work; witness Chomsky, Hitchens, Nader, et. al.

There are plenty of people and organizations doing good, meaningful work on a wide range of issues in the trenches every day dealing with sustainable energy and food, a variety of social issues, LBGT rights, etc., etc.

The Greens offer one organized, political alternative while some (like Thom Hartmann) argue for a progressive takeover of the Deomcratic from within, much like the religious right did with the Republicans in the 80s.

Part of what’s needed, i’d humbly offer, is a focal point/common goal around which progressives and enough of regular ol’ citizens can unite to galvanize the energy needed for the task at hand.

Looking at past, progressive movements, the issue/goal/target was clear—labor rights in the early 20th century, civil rights through the 50s and 60s, the environment beginning in the 70s…

Now, the target is a more amorphous—corporate control over the country’s politics and infrastructure. Harder for most people to wrap their minds around.

If the new Movement can pick a few manifestations of this broader issue in a way in which the broader population can understand and relate to it, i think we’re off to the races.

I’d offer that good candidates for this would be the Wall Street/bailout mess (banks for people not for profit), health care (single payer, universal coverage, Medicare for all; health care for people, not for profit). You get the idea…

The fact the people are at least talking about this in these kinds of terms is encouraging, but there’s a lot of work to do.

My business (a rehearsal complex in NYC) was in trouble and I foolishly looked for a second mortgage for my house in Massachusetts. I easily found people through the Lending Tree who would get me a second mortgage or help me refinance my current mortgage, regardless of my iffy financials and doubtful credit. The typical offer was for an extra $60K, of which $10K would evaporate into additional closing or origination fees that looked to me as though the were going directly into the originators’ pockets. These individuals expressly told me that these were “no doc” mortgages, ie that no one would question whatever income I put on the application. My conclusion was that the extra money coming out of these loans and going directly to them was the price of their looking the other way when I lied on the mortgage application.
Regardless of whether these mortgage offers were subprime, it seems to me that these individuals were engaging in unprofessional and probably illegal activity — certainly activity injurious to the investors in the loans they were originating. Surely enforcing existing laws and regulatory practices would have sufficed to prevent such activity? (Note: I didn’t take out a loan on these terms and am glad I didn’t.)

I hear a great of blame being cast on students. I hear students taking responsibility for that blame. What I don’t here is much discussion of the way in which the faculty and the organizational environments of Colleges and Universities contribute. Do this exercise: Count the number of adjuncts universities hire. Count the number of faculty publications normally required to make tenure. Listen to the administrative demands on faculty time in terms of producing new knowledge and the funds to support the production of that knowledge. Then look at how much material support those same faculty receive in terms clerical assistant and teaching assistants. Look at how much of their time is spent filling out letters of reference for students. Look at the reward structure for them in terms of teaching. All of this data will show pretty clearly that while most faculty care about teaching and care about their students, they also recognize that this is the one area where their are few rewards for pushing students and holding them accountable. And in fact there are many perverse incentives to do just the opposite and not hold the students accountable. The students sense that fact and are not motivated to, or do not understand how, become advocates for themselves. But its not their fault – not really. The problem is that the mission of universities has changed and not in terms of student interest.

nj wrote: “We are witnessing a convergence of trends and circumstances in this country—the Wall Street abuses being just one of the more blatant and serious manifestations—that appear to be plunging the U.S. ever more deeply into corporatism/fascism a la Mussolini.”

The other day someone posted a message in which they asked what the difference was between China as it is now and a fascist state. Nobody answered. I believe the tacit point was that there was none. I love it when those sparkly cheerleaders for China come one Toms show and breathlessly talk about the shinning future and spew their propaganda. I can easily imagine them wearing a nazi arm band and being a poster child for fascist Germany

@Cecelia Blair

Brilliant Cecelia. However punishing individuals will go a long way toward reforming institutions. No individuals have been punished. Unless you consider a good finger wagging in front of congress a punishment. “You were a bad bad boy. Now go home and enjoy your ill gotten gains.”

Regards, I hope I meet a woman with a mind like yours at LuLu’s when I go for coffee later, or even a man, though that would be less interesting.

I’m wondering if your guests have read ‘Deadly Spin’ and how they see Wendell Potter’s conclusions applying to the financial arena? I’d love to see Mr. Potter join efforts w/ an insider from any number of areas where this spin is influencing voter opinions. You have named a number regarding the financial crisis you could also add climate change unbelievers, gun control, the electric car……the list is endless. Thanks to your present guests and people like them that provide rays of hope.

spokane, wa

I worked for Countrywide in secondary marketing IT and clearly saw the crisis coming in 2005 when I finally quit. It is absurd to imagine that intelligent people didn’t know they were creating a house of cards.

What is rarely mentioned is the needed reforms or nationalization of the ratings agencies. They were complicit and rated junk as triple A because they are paid by the seller of the junk they are rating. Is there any other business where the seller gets to essentially set the price? The ratings agencies must be paid by the buyers of the securities, not the sellers!

“The tea parties were not formed against the bailouts or too big to fail.

They didn’t start until the stimulus bill.

They are tools of the elite. Nothing more.”

The tradespeople around here, like a foreman who built homes in our neighborhood, who talks libertarian-style, local first, common sense economics, mistrust of bureaucracy and corporate collusion, and self described interest in the tea party stuff, is not a tool of the elite. He is someone who wakes up every day, works for a living, and resents the powers that be mucking up the real supply and demand economy of everyday people.

I feel like the self-described “liberals” who constantly trash or don’t believe that their is an honest tea-party spirit or people, are as much tools of the elite as anybody.

For people with too much money, if you want to gamble–Fine. Go to Las Vegas or any of the other gambling dens. We will see you as addicts. Fine. You are.

For people with too much credit, if you want to gamble–Same as the above, only you’re also ruining your family’s finances, future, and so much more.

But for people who want to INVEST, why not invest in what is real and what needs support, like people and the planet in so many ways. There are so many OPPORTUNITIES to be really constructive. Can we get excited about this?

@Edward Worth reposting.

“If you or I took an insurance policy out on someone we knew would default, and told the insurer that they were a good risk. Then took the house and the insurance pay off… would we not in prison for Insurance Frude? We need true reform and Wall Street needs to pay for it. I cannot believe…

1. Not one CEOs is behind bars. In a world wide crises. Why are banks making record profits.

2. All the big banks are bigger because they were given the assets of the backs the collapsed. Only Making them bigger. Why not the little banks that had little or no loss?

3. The government is loaning banks money a 0% to loan, but they are buying US Bonds that we are paying out on. In what Escher like universe would this make sense and why has it not been stopped.”

Exactly.

And that state of affairs could never happen without the support/collusion of a powerful Federal Reserve and corrupted Government.

So when people don’t understand why people see government as part of the problem, as well as corrupt business people, I am very puzzled.

Fox News built the Tea Party. Let’s not go into how they did that. Who will help re-build us?
Sara Porter, Midway, KY.

Sara, Please look at this link from the Washington Post no less; Poll: Americans want GOP to listen to the tea party

http://voices.washingtonpost.com/thefix/republican-party/poll-americans-want-gop-to-lis.html

You started out so right in your comments yet bought in once more to the notion that the Tea Party was manufactured encourage “racist” who “oppose government” simply because our President is “of color”. Don’t believe the lies of those who would silence those who have taken to the streets, in order to call attention to the absolute insanity of the status quo. The Tea Party is not about being against government, it’s about being for a government that works!

How much did Alan Greenspan and his hedgefund make?

JaMu,

1. The guidelines for posting here include the words “be brief”. This isn’t the proper place for manifestos, dissertations, or twenty paragraph exposes.

2. I also have to believe that if there is a terrific point made in that essay, it could have been made much more succinctly or precisely.

3. Yeah, that post took you 3 minutes to read. There are many days and topics where the posts total 150-200. You may have 10 hours to read them all but I don’t.

4. And as far as being pathetic… Whatever, DUDE.

Leftfield, Wisconsin

Yar, thanks for your posts and your optimism. McLean said the action we can take is not using credit cards (fees to the banks). But she didn’t say don’t use credit to buy houses, which is probably a much larger piece of the credit business.
The idea of getting the casino element out of our retirement accounts, and getting the casino element out of at least a definable part of the financial lubrication a growing economy needs, that is worth getting behind.
I got hugely defeated when the banks were NOT broken into smaller, able-to-fail entities in the Dodd/Frank bill, and even more hugely defeated when it seemed in the Citizens United decision that even the Supreme Court is against free and fair elections (in other words, enabling the reign of money, moneyed interests, in selecting and electing).
Proposing alternatives seems to be the order of the day. I don’t think that we can march in the streets and say down with the dictator, because the dictator it is us. I’m still hoping some international bodies with some kind of international law behind them can look at the international damage banking shenanigans have caused and bring the plutocrats to heel.
Something like that.

The reality is as I said before the banks own us. They want it all, they want the social security as well.

The republicans are more than willing to give these robber barons what they want. Hello 1880′s.

someone mentioned heads on pikes, well I bet that would scare these captains of capitalism but it would not change a damn thing nor would putting the worse offenders in jail. The only thing these people understand is regulations, and they have to be stiff ones with a lot of teeth behind them. Without it as the guests of today’s show stated the future is very depressing indeed.

geffe: regarding your last post. Here is a portion of the too long post that “at” made that people seemed to have skipped over because it contained too much info.

“As the Magnetar-Rahm connection highlights, Obama raised more money from financial services players than any previous presidential candidate, so it can hardly be a surprise that he and his minions are happy to give the industry a free pass. Key policy figures maintain that no one was at fault, that there was a pervasive lack of regulation, and there are therefore no bad actors. That party line also means that destructive behavior is and will remain unquestioned, unexamined, uncorrected, and unpunished. We are still paying for the costs of the financial train wreck of 2007 and 2008. We can no longer afford the costs of willful blindness.”

It is true that Obama (who I call Oromney) and the Dems are bought just like the GoP. You only have to look at his financial advisors – yuck.

What can you do when both parties are bought? The TP might represent a promising direction. However it has 2 fatal flaws. 1. The TP is strongly manipulated by the oligarchs. 2. The TP thinks the solution is getting rid of government. However, that will simply let the financial criminals continue to run wild. Why do you think think the superrich support the TP? Follow the money!

The only solution is to take gvt back for the people and re-institute strong regulation and progressive taxation. I know it seems impossible now, but from the 1930s to 1980 it was what we did. IMO we don’t need a new system, we need our old system. Funny how that’s the period when the American middle class was the economic wonder of the world.

Why is today’s topic framed as a question when the panel and host are so skewed to one side of this debate? Quite the lovefest of bank haters with nobody knowing what they are talking about. Michael Lewis hasn’t been on Wall Street for 30 years, he’s got little expertise relating to this topic. Blaming potential sovereign defaults on sub-prime loans is ridiculous beyond belief. Rahm was on Fannie’s board, so this is bipartisan.

Bethany needs to explain why Canada’s banking system is so much more concentrated than ours and yet has not had nearly as many problems. Big banks is not the problem.

Let’s do another show, same question and have only CEOs from wall street banks or PR departments.

This Commission was seen as too political for its results to be given much credibility.

Look at the numbers: total mortgage market, total subprime market, and total subprime defaults.

Arnold: Now you are one person who absolutely should read my initial post.

What we need was ironically proposed by The Onion: The American people actually need a lobbyist to represent them in Washington! How sad is that?
http://www.theonion.com/articles/american-people-hire-highpowered-lobbyist-to-push,18204/

Seriously, both of these guests are making big money criticizing big banks. Lewis totally buys into the thesis that people who lose money in something obviously didn’t understand it and that people who make money do so because they understood what they were doing. More often it’s luck, good or bad. I owned NEXT Computer stock and did terrible, eventually going under; but I bought it because I thought the CEO was a dynamo. Luckily I got involved in his next venture, Apple. Luck or skill?

This discussion displayed a considerable lack of civility and balance. I thought Tucson had changed our way of operating.

Arnold wrote: “Seriously, both of these guests are making big money criticizing big banks.”

Seriously, you should read at’s post

I think the big banks share in the blame but mostly because compensation should be longer-tailed than it is. I just don’t think the perspective of these guests or the host really helps us understand because their experience is not broad enough and their biases too strong.

Script for the hangman: Just before he drops the floor out from under our fearless captains of the financial industry the executioner must look soulfully into the eyes of each and say, “Enjoy your money.”

Sounds good at, but may I suggest that instead of the typical, make them look like a retch before they are executed, like is typical (see Sadam), we should make sure they have all just had a manicure and five hundred dollar hair cut, and are dressed in their finest five thousand dollar suit complete with power tie. I think this will send a more valuable message to tomorrows would-be cowardly thieves. NO?

@ JaMu: Maybe, but America doesn’t like killing people who dress up in suits. America likes to kill people who dress in PJs. Not sure why that is, but we do (see Vietnam, Iraq, Afghanistan.) So we might have to dress them in sweats or something.

To use a quote from Douglas Adams, changing the subject from the original (“time” and “lunchtime”):

Money is an illusion,
Finance money doubly so.

Not all fantasies are dangerous, but those that directly impact the well-being of an entire society–such as money, religion, racial or gender supremacy, etc.–must be recognized as fantasies and denounced as such. Otherwise we will never be able to build a world based on humane realism–the only kind of world that isn’t doomed to self-destruct.

Wake me when there’s a perp walk. Just one, other than Bernie Madoff, whose crime was not that much different than what Wall Street did to all the rest of us. Until I see some perp walks, Wall Street will remain in my mind the open-air septic field that it is at this moment.

I keep remembering George Carlin’s prescient comment that: “They call it the American Dream because you have to be asleep to believe it.” I no longer believe it.

Wall Street did nothing wrong, and Holder agrees. Those who lied on their mortgage applications deserved to be booted. No one really believes in a NINA mortgage.

Markopolis was silent until he had a book to sell.

Well I guess the tenor of my last post, which is missing, just ain’t gonna fly, so let me encourage you fine people one and all to be polite every day and every way. Just because someone committed a premeditated act that enriched them greatly while gutting everyone else, especially their own customers (known in the biz as “the enemy”)does not mean that they are a bad type of fellow. We must not prejudge them. It is very possible that in court, if we can entice them to invite us there sometime, they may have been following the letter of the law that they had passed. So if they were not doing anything illegal, I am sorry but we must follow their rules, they are obviously as innocent as the new driven snow, and if anything deserve a heartfelt apology and perhaps more of a say in how things are run so that this problem will never come up again. And isn’t that what we all really want — a polite harmonious society like they have given us. They are polite. They do not flaunt their wealth in front of us, they don’t even interact with us at all — except for these unfortunate incidents that we keep bringing up in our incredible ingratitude for what these dynamos of industry have done for us. Think of what you can do in one hour and what you get payed, now just think of what someone who gets several tens of thousands of dollars an hour twenty four hours a day and what they must be able to do. We should get down and kiss the feet of these gods who dain to live among us, or give them a good present, like free money or an additional tax cut because look how they have looked after our interests and the interests of the country. I’d just like to say thanks big guys — you are all the tops.

@ E. Weiss:

I’m not an arbiter. But you apparently seem to believe in the ultimate fantasy: the arbiter called God (or so I judge by your reference to a “fallen world.”). And your own judgment–”Wall Street isn’t so bad”–suggests that your moral sense really is “unclean.”

Many I know want wall street hung, but will go each weekend to gamble where the odds are against you before you walk into the door. Strange reasoning.
Posted by david, on February 1st, 2011 at 7:42 PM

The little difference you fail to note is that people who had no idea what was going on lost their retirements, homes, savings, lives, jobs, and securety. This typically does not happen with casinos, unless you go in and play.

It’s clear by now that many of those on Wall Street used legal ways to take advantage of many people, and there are probably many that deserve to be punished that.

But the fault is not only on the bankers and Wall Street. There are many that put themselves in bad situations, most specifically with the housing market crash. People need to take responsibility for their own actions. With the housing market, the bankers may have over-approved loans, but people still know what their own income is, and what they can and cannot afford. We live in a world where people chronically spend money they don’t have, including our own government, so it’s really no surprise we’re in this situation.

@Lisa

Nonsense: that wasn’t the problem. The problem was scams like magnetic tar pulled. It was all bankers and wall street. That how people were able to get these loans they didn’t give them to each other. It was the managers who made them because they won if the loans went bad. I thought every knew that by now. That’s what the very first posts were about. Back of the class

ty, realdeal

The article below appeared in the New York Times on December 2,2010. THE MESSAGE IS RIGHT ON! It was written by Thomas M. Hoenig, President of the Federal Reserve Bank of Kansas City

“THE world has experienced a severe financial crisis and economic recession. The Treasury and the Federal Reserve took actions that saved businesses and jobs and may very well have saved the economy itself from ruin. Still, the public seems ungrateful, expressing anger at these institutions that saved the day. Why?

Americans are angry in part because they sense that the government was as much a cause of the crisis as its cure. They realize that more must be done to address a threat that remains increasingly a part of our economy: financial institutions that are “too big to fail.” More

I mean that regarding human values hey? Like that’s enough rules — Joshua wins — new human era — nobody does crappy *hit to each other or we kill them, nuff said — next.

(Joshua may not go along with the “or we kill them part”)
Jesus I forget which parody I am parroting hey?

True enough Susan. We gotta make %hit. (I mean &hit)
How about a nano diamond heat pipe for my new processor. I could use one of those. One on which you can change the shape of the pipes would be nice. I would buy it. Watch out for Chinese nano diamond scams though. I can think of lots of stuff I should have. Someone make stuff! Now!

It seems to me that the GoP has forgotten about Bush’s “Ownership Society”. Anyone here remember? It was great, wages were slipping, benefits were slipping, but all was OK because the subprime bubble had given us the “Ownership Society”. Now I think it means that the bank owns you. Have the GoP written it out of history?

Actually the bubble did a great job of disguising the fact that the superrich and the financial predators were stealing all the $ from the real economy.

Specifically what kinds of reform or regulation should be adopted?

(1) What kind of reform would deal with the moral hazard created by the securitization of mortgage loans?

(2) What kind of reform would deal with the failure of the ratings agencies to property rate mortgage securities?

realdeal,
“The little difference you fail to note is that people who had no idea what was going on”
In 1991, Larry Burkett wrote The Coming Economic Earthquake, warning of the dangers of the ever-growing appetite for debt … I listened to him on the radio years ago and he predicted almost to the very detail the financial meltdown we have. I knew as well as many around me that this crap was going to hit the fan. As soon as gas prices started up that was the trigger.
Not to have seen it coming, one must have had their heads in the sand. One year before this all got started, smart so called rightwing idiots knew it was coming. They tried to warn people, but few would listen.
I tried to warn my brother, he would not listen, he lost his butt in GM stocks. Even the crazy Glenn Beck was warning people to get out of the stock market a year before the fall.
Here is some more crazy advice, get out of debt, stay out of debt and save as much as you can, cause the storm is not over yet!

I have read here that we should march in the streets, a la Egypt’s masses. Others said to take your money out of big banks and put it into smaller banks. I like the latter idea better than the former.

I say this because I don’t believe that the Federal Government will ever be able to successfully regulate the banks again. I have given up on that. Seriously. The problem is just too complex because banks are just too large and complex themselves. The complexity of any proposed regulations are like any complex software. All software has bugs, unless it is trivial. Same goes for government regulations.

But, still, it’s difficult. I paid off any credit card debt I had and don’t use them anymore. I moved all my accounts out of Bank of America (just one was left) and put them into local banks. However, there seems to be no easy recourse for a mortgage. First, it’s not as easy as just closing one account and opening another. You have to “refinance.” Then, even if you do, there are almost no small banks that can handle mortgages anymore. So you’re mortgage will be ‘sold’ to one of the same big banks or Freddie Mac.

I could sell my house and go live in a tent. Or, there is the lifestyle practiced by the Amish, who eschew loans and help each other with ‘big purchases’ instead. They “owe” each other.

The key here is to shift to smaller, simpler, easier to wrap your mind around ways to live your life. No, it’s not easy. It’s not quick. It’s not as immediately satisfying as saying “throw them all in jail.” But the way I see it, it’s the only thing that is sure to work. So:
- forget making money through clever investments. Work for a living.
- network locally. Buy from community supported agriculture if you can. Compost your vegetable scraps because it takes your waste stream out of the world where money is required (i.e. you don’t have to pay taxes to have it hauled away).
- support local forms of entertainment – live performances in local venues, for instance, local art shows, school plays, anything you can do to keep money and effort within your community.
- instead of shopping to feel better, go get a massage by a local practitioner
- (you get the idea)

As we do this (and we already are – this is not just talk or an empty proposal), we will be slowly but effectively pulling the rug out from under the financial industry. Without our money they are nothing.

Again, this cannot happen overnight. Nor does it require big street demonstrations. All it needs are thousands of conversations like the one we’re having here. Just spread the word. You don’t need me or any other leader to do this. All you need is the ability to network and act locally. If one network is shut down, use a different one. In the movie “independence day” they fell back on morse code because it could be carried by radio waves that didn’t need satellites (the aliens had vaporized the satellites). So we’re creative and adaptive. We don’t have to keep trying the same old ways to fix this. Writing your congressional representative is so yesterday. Massive street demonstrations are so late 60s. They are good for saying what you don’t want or what you want, but not for actually making it happen. That requires focus and concentration and creative thought on a daily basis. We can are we are doing this. Let’s continue to get on with it.

“Here is some more crazy advice, get out of debt, stay out of debt and save as much as you can, cause the storm is not over yet!” – (posted by David).

Yes. I agree. I can’t refinance my mortgage right now. Anyway, I’d just be jumping from one big bank to another and starting the ‘mortgage clock’ over at the beginning (where you pay the most in interest and the least in principal!)

So instead, every extra dollar I can spare I add to my mortgage payment as extra principal pay off.

That last sentence I wrote in my first post had a typographical error, “We can are we are doing this.” Should have been, “We can and we already *are* doing this.”

funniest,most clever article in the onion rec by poster above…thanks much…americans hire lobbyist to represent them. This is a democracy?

The posters here are getting kooky and arguing too much. our financial crisis lack of punishment to instigators are getting people unhinged, it seems. Watch out.

I picked up a book Monday and think I’d better recommend it. Expletive deleted. I am not your handy composter of books. Most economics books are over my head. This one restates what we’ve been saying to each other on this site for a couple of years. Home-sweet-home.
“It’s Life Inc., How Corporatism Conquered the World and how we can take it back.” By Douglas Rushkoff, out in 2009, in paperback 2011. Walter Isaacson says “This is a provocative and controversial look at the dark side of corporatist effects on our economy… Whether or not you agree… you will find the book challenges some of our basic assumptiosn about how our economy works.” Great indexing. Great notes. See rushkoff.com.
The end points to many ways people are already acting on the kinds of concerns OnPoint and the commenters have pointed to. Rushkoff has done a lot of research into who has and is doing what.
I-cannot-tell-a-lie — I haven’t read through to the end, but I skipped to see. There are many directions. For instance, on banking there’s a section on breaking up the big banks, anewwayforward.org, or http://www.onebluedot.com or kiva.org
or at page 301, “Simply Evolve the Species,” see http://www.evolver.net. That began in May 2007 with the ezine Reality Sandwich, which evolved into the Evolver.net for “conscious collaboration,” so “by early 2010,” there were over 30 active groups, from Boston to Seattle, Cape Town to Sydney… Further on, and/or before, there’s the issue of campaign funding somewhere here, and media warping and whooping. Gotta go read it now.

“In 1991, Larry Burkett wrote The Coming Economic Earthquake, warning of the dangers of the ever-growing appetite for debt.” -david @10:06pm

Yeah…um, he also warned people to stockpile food, water, and various emergency supplies to last an extended period of time just before Y2K was supposedly going to be the end of the world. He had been predicting variations on the End of Days belief in his writing and commentary since he began getting published and being a conservative, talk-show radio personality; he was an evangelical Christian, after all (sorry, I almost said “for Chrissake” which would have had too much of at least a double entendre). It was his duty to warn people; he would have been going against the Bible otherwise.

Mr. Burkett pegged the financial crisis fourteen years early based on such insightful and radical ideas as too much debt can make economies unstable…the man was a genius, a clairvoyant—why, a veritable modern-day Nostradamus! I’d say, it’s just a good thing you managed to go against the grain of the reckless, misguided advice promulgated by east coast, liberal elitists intent on destroying the world/putting a great big old hole in the hull of this great big old ship we all sail in together and listened to those wrongfully-maligned right-wingers that other people called idiots (Mr. Burkett told you precisely when to get in and when to get out of the stock market during the financial crisis–which happened about four years after his death–did he?). Did he speak to you in dreams, through the word of God, during prayer, what? …Hey, there’s nothing partisan about following a prophet, am I right or am I right?

P.S. -Your theory that rising gas prices caused the financial crisis is an interesting one. Did this guide you at all, i.e., prompt you to get out of the stock market when they rose and get back in when they lowered? Did Mr. Burkett’s heavenly spirit instruct you to let gas prices be your guide or was that in his earlier-written book when he had a more earthly presence? Maybe YOU should write a book; you know, carry on with Mr. Burkett’s missionary work, as it were.

Katherine, good questions:

“(1) What kind of reform would deal with the moral hazard created by the securitization of mortgage loans?

(2) What kind of reform would deal with the failure of the ratings agencies to property rate mortgage securities?”

1. Institutions should be required to keep some % of the loans they originate.

2. The solution is that the issuers should not be able to shop for a rater. I’m not sure of the best way to implement it. A lottery?

Above all, a big crash requires leverage (borrowing to gamble). You can’t bring down the economy if you only lose everything you have. As part of Bush’s job-killing deregulation, the SEC upped the allowed leverage by investment banks from 10:1 to 40:1, arguing that they knew what they were doing and would not endanger themselves – the “self regulating” voodoo. Limits on leverage and reserve requirements are crucial!

Finally, we’ll never recover if voodoo like “gvt is the problem” and “the free market always finds the best solution” persists. There’s a world of difference between an energized SEC with a leader who believes in the mission and an SEC where the staff are told they’re losers because they don’t have a job in the private sector. Ultimately it’s all done by people!

It would be good also to get over the nonsense “the banksters are too smart to be regulated”. Bull**it. A con is a con i a con. The problem is not the incredible intelligence of the greedy mediocrities on wall st, it’s that we have not appointed anyone who wants to go after them. A 3-card monte guy from the streets of NYC would know exactly what to do.

They are fine without us but with the Fed. The Fed is giving them free $, that’s why they don’t have to offer us any interest on our deposits.

The report on the crash is a silly thing. It’s a government report, of course it’s not going to blame the government. That’s like asking a restaurant to rate its own cleanliness. This happens after every crash, the free-market gets blamed by the government and their lackeys, and the solution is always more and better regulations. You people need to wake up, freedom isn’t to blame. The bubble was caused by the Federal Reserve. The banks and loan managers knew they would get bailed out by the Fed, so they really didn’t care about risk, they only cared about reward. This is a business cycle, Bubbles always pop, you should look at the reason the bubble was allowed to get so big for so long. Also, you can’t stop human greed, but you can stop it from hurting everyone. We should have let the banks fail, but now this recession will last 10 years instead of 2. We are not through this by a long shot. And the tax payers are the always the ones stuck with the bill in the end.
If you want real answers on this topic, Please go to MISES.ORG.

Eugenia, it’s nonsense to say the crash was a “black swan”, an “act of God”, or even a surprise. It was just yet another speculative LEVERAGED bubble bursting, not terribly different from Tulipmania or, I expect, something to do with property in Gaul during Roman times.

Leverage is the key. You can’t crash the economy when you can’t borrow to gamble. Sheesh, I learned in high school that a big part of the 1929 crash was margin (= leverage) debt. Just like nobody seems to remember W touting the “Ownership Society”, nobody seems to remember, or have noticed, that the Bush SEC raised the allowable leverage to 40:1 for the big investment banks. If leverage had been “only” 10:1, none of the big banks would have been insolvent.

Individual banksters absolutely knew a crash was coming. They just planned to be on that caribbean island before it happened.

2nd Amendment solutions to wall street greed?

Glenn why don’t you and Dave (if you are not the same person) go off and lick some gold (which by the way has no intrinsic value outside of its industrial use, which will soon be superseded by nano materials. Your ideas have no chance of working in the real world. While inspiring some young patriots to scare the bastards straight actually does. You guys will be working your little gardens and exchanging hemp until the sheriff shows up and kicks you off your land, and the greedy power people will be stealing everything that they already haven’t because you think its 1850, and think you can correct great evil by navel gazing. I go with feelthelove and Larry.

The report on the crash is a silly thing. It’s a government report, of course it’s not going to blame the government. That’s like asking a restaurant to rate its own cleanliness. This happens after every crash, the free-market gets blamed by the government and their lackeys, and the solution is always more and better regulations. You people need to wake up, freedom isn’t to blame. The bubble was caused by the Federal Reserve. The banks and loan managers knew they would get bailed out by the Fed, so they really didn’t care about risk, they only cared about reward. This is a business cycle, Bubbles always pop, you should look at the reason the bubble was allowed to get so big for so long. Also, you can’t stop human greed, but you can stop it from hurting everyone. We should have let the banks fail, but now this recession will last 10 years instead of 2. We are not through this by a long shot. And the tax payers are the always the ones stuck with the bill in the end.
If you want real answers on this topic, Please go to MISES.ORG.

Absolutely, Dave in CT, Obama (= Oromney) is a typical corporatist. His financial team is wall st insiders and his health care plan is Romney’s. Our former GoP governor’s plan has now become socialism, as has the individual mandate which the right loved so much in the 90s. A plan by and for the corporations has become “a total government takeover of the health care system”. Geez, WellPoint and the hospital corporations must be really surprised that the gvt has replaced them.

This is insane!

Obama is a center-right, corporatist, moderate republican. He’s a lot like Romney. He’ll never tame the financial sector.

Support the financial system! And also eliminate health care, environmental protections, worker protection, and corporate regulations until we can play on the same business field as the third world. Don’t worry, a few billionaire CEO’s will be paying for their pretty private parks for us to look at as we bicycle by.

Great show with a couple of articulate and interesting guests! Unlike some public radio show hosts (umm Michelle Martin on WNYC ,e.g.), Tom knows the show is not about him, asks good questions, and lets his guests express themselves. But this did leave me pretty depressed about the state of things today. What does it take to bring about real reform?? Starvation, violence in streets?