- also very attractive
Posted on 09/29/2008 12:41:22 AM PDT by Freedom_Is_Not_Free
Two weeks ago, the nation’s most powerful regulators and bankers huddled in the Lower Manhattan fortress that is the Federal Reserve Bank of New York, desperately trying to stave off disaster.
As the group, led by Treasury Secretary Henry M. Paulson Jr., pondered the collapse of one of America’s oldest investment banks, Lehman Brothers, a more dangerous threat emerged: American International Group, the world’s largest insurer, was teetering. A.I.G. needed billions of dollars to right itself and had suddenly begged for help.
The only Wall Street chief executive participating in the meeting was Lloyd C. Blankfein of Goldman Sachs, Mr. Paulson’s former firm. Mr. Blankfein had particular reason for concern.
Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said.
Days later, federal officials, who had let Lehman die and initially balked at tossing a lifeline to A.I.G., ended up bailing out the insurer for $85 billion.
Their message was simple: Lehman was expendable. But if A.I.G. unspooled, so could some of the mightiest enterprises in the world.
A Goldman spokesman said in an interview that the firm was never imperiled by A.I.G.’s troubles and that Mr. Blankfein participated in the Fed discussions to safeguard the entire financial system, not his firm’s own interests.
Yet an exploration of A.I.G.’s demise and its relationships with firms like Goldman offers important insights into the mystifying, virally connected — and astonishingly fragile — financial world that began to implode in recent weeks.
(Excerpt) Read more at nytimes.com ...
The vast majority of loans originated in the last few years were 80/20 or “piggyback” loans, so the purchase money mortgage was technically only 80% of the FMV, hence no PMI required. In essence, a shady way to avoid having to pay pmi.
I saw your previous post, and have been trying to remember where I read that relaxing the requirement for PMI was part of the “Re write” during the Clinton assault on the Mortgage Industry later in his misAdministration. I cannot remember the title of the article now, but it was posted here within the past week IIRC.
Specifically the article (I’m Paraphrasing here of course) mentioned that the costs of insurance to the disadvantaged loan applicants was too much and had to be eliminated to allow the applicants to focus on the loan repayment.
I recall an uncontrollable facial contortion upon reading that.
My next-door neighbor, who happens to be a brand new rillastate agent, mentioned to me that someone had asked him about this yesterday.
Great word.
We hear the Rats and the RINOs shrieking and moaning about "the crisis we have to address". If the crisis they were talking about was the crisis of embedded corruption and self interest in both the legislative and executive branches, I'd be with them one hundred percent.
And these people up on the Hill wonder why we’re so suspicious of even a “good” bailout bill, if one could be created? THIS IS WHY.
There may well need to be some sort of government intervention to steady the credit markets, I don’t know. It’s all too complex for me to understand. But when we see things like this, automatically, we think that ANY intervention is being done to support the “inner circle” on Wall Street. This incestuous relationship between Congresscritters, Paulson, regulators, Wall Street execs...that’s why those of us out here in flyover country are willing to risk a partial collapse of the US economy and a painful recession. Because we’re sick of these people.
}:-)4
The more I keep hearing how the world is coming to an end the more I'm surprised that it hasn't.
Goldman is the firm that other Wall Street firms love to hate. It houses some of the world’s biggest private equity and hedge funds. Its investment bankers are the smartest. Its traders, the best. They make the most money on Wall Street, earning the firm the nickname Goldmine Sachs. (Its 30,522 employees earned an average of $600,000 last year — an average that considers secretaries as well as traders.) *snip* While the credit crisis swamped Wall Street over the last year, causing Merrill, Citigroup and Lehman Brothers to sustain heavy losses on big bets in mortgage-related securities, Goldman sailed through with relatively minor bumps. In 2007, the same year that Citigroup and Merrill cast out their chief executives, Goldman booked record revenue and earnings and paid its chief, Lloyd C. Blankfein, $68.7 million — the most ever for a Wall Street C.E.O. *snip* By the weekend, it was clear that Goldman’s options were to either merge with another company or transform itself into a deposit-taking bank holding company. So Goldman did what it has always done in the face of rapidly changing events: it turned on a dime. “They change to fit their environment. When it was good to go public, they went public,” said Michael Mayo, banking analyst at Deutsche Bank. “When it was good to get big in fixed income, they got big in fixed income. When it was good to get into emerging markets, they got into emerging markets. Now that it’s good to be a bank, they became a bank.” The moment it changed its status, Goldman became the fourth-largest bank holding company in the United States, with $20 billion in customer deposits spread between a bank subsidiary it already owned in Utah and its European bank. Goldman said it would quickly move more assets, including its existing loan business, to give the bank $150 billion in deposits. Even as Goldman was preparing to radically alter its structure, it was also negotiating with Mr. Buffett, a longtime client, on the terms of his $5 billion cash infusion. Mr. Buffett, as he always does, drove a relentless bargain, securing a guaranteed annual dividend of $500 million and the right to buy $5 billion more in Goldman shares at a below-market price. While the price tag for his blessing was steep, the impact was priceless. “Buffett got a very good deal, which means the guy on the other side did not get as good a deal,” said Jonathan Vyorst, a portfolio manager at the Paradigm Value Fund. “But from Goldman’s perspective, it is reputational capital that is unparalleled.” EVEN if the bailout stabilizes the markets, Wall Street won’t go back to its freewheeling, profit-spinning ways of old. After years of lax regulation, Wall Street firms will face much stronger oversight by regulators who are looking to tighten the reins on many practices that allowed the Street to flourish. For Goldman and Morgan Stanley, which are converting themselves into bank holding companies, that means their primary regulators become the Federal Reserve and the Office of the Comptroller of the Currency, which oversee banking institutions. Rather than periodic audits by the Securities and Exchange Commission, Goldman will have regulators on site and looking over their shoulders all the time. The banking giant JPMorgan Chase, for instance, has 70 regulators from the Federal Reserve and the comptroller’s agency in its offices every day. Those regulators have open access to its books, trading floors and back-office operations. (That’s not to say stronger regulators would prevent losses. Citigroup, which on paper is highly regulated, suffered huge write-downs on risky mortgage securities bets.) As a bank, Goldman will also face tougher requirements about the size of the financial cushion it maintains. While Goldman and Morgan Stanley both meet current guidelines, many analysts argue that regulators, as part of the fallout from the credit crisis, may increase the amount of capital banks must have on hand. More important, a stiffer regulatory regime across Wall Street is likely to reduce the use and abuse of its favorite addictive drug: leverage.
I especially liked this passage:
"Of course, as this intricate skein expanded over the years, it meant that the participants were linked to one another by contracts that existed for the most part inside the financial world’s version of a black box."
To the average guy, this whole financial system is just voodoo and this passage encapsulates that feeling very nicely. It's also one of the main reasons that a bailout is so strongly opposed. There's a widespread feeling that this has all come about because of shady deals made by fast operators who have flown under the radar. This affair will keep journalists and documentary makers busy for years.
Team Obama is very scared of the ‘tape’ that came out yesterday(the day before online)of Barney Frank et, al....they are in major spin mode! The internals on this must be turning in our favor.
Thanks for the ping to this article. Heard Newt talking about it last night. Goldman Sacs is in the tank for Obama....his biggest contributor!!
From the article:
“Croesus was informed Saturday that these complex contracts were hedged until former Chairman Hank Greenberg was ousted from his post in April 2005. Sources close to Greenberg claim AIG held very little subprime paper, if any, before April 2005. But during the last part of 2005 AIG got deeply into subprime mortgages.”
Thanks again, Eliot Spitzer. For nothing!!!
Remember the 1990s bailout over Mexican debt? Robert Rubin from Goldman Sachs was treasury secretary under Clinton.
“This affair will keep journalists and documentary makers busy for years. “
Well maybe not journalists - they prefer fiction rather than fact these days.
“After years of lax regulation, Wall Street firms will face much stronger oversight by regulators who are looking to tighten the reins on many practices that allowed the Street to flourish.”
Overregulation (Sarbanes Oxley) led to money fleeing the stock market and over investing in property and later commodities (the next bubble to pop, or maybe just deflate).
I don’t know the exact answer but tightening down on ways to make money seems counterproductive.
We should start by repealing Sarbanes Oxley and let money flow back into the stock market. We are strangling ourselves!
This appears to be a good article. Thanks!
You are welcome.
The way this is structured for a low-income person is to give them a second-loan at about 12% for the down payment, and then the first mortgage has a low teaser rate for the rest of the 80% of the cost.
It's basically a bomb with a short fuse.
Ping.
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