What Cooked The World's Economy?

The Village Voice ^ | January 28, 2009 | James Lieber

[Windflier]

What Cooked the World's Economy?
It wasn't your overdue mortgage.
By James Lieber
published: January 28, 2009

It's 2009. You're laid off, furloughed, foreclosed on, or you know someone who is. You wonder where you'll fit into the grim new semi-socialistic post-post-industrial economy colloquially known as "this mess."

You're astonished and possibly ashamed that mutant financial instruments dreamed up in your great country have spawned worldwide misery. You can't comprehend, much less trim, the amount of bailout money parachuting into the laps of incompetents, hoarders, and miscreants. It's been a tough century so far: 9/11, Iraq, and now this. At least we have a bright new president. He'll give you a job painting a bridge. You may need it to keep body and soul together.

The basic story line so far is that we are all to blame, including homeowners who bit off more than they could chew, lenders who wrote absurd adjustable-rate mortgages, and greedy investment bankers.

Credit derivatives also figure heavily in the plot. Apologists say that these became so complicated that even Wall Street couldn't understand them and that they created "an unacceptable level of risk." Then these blowhards tell us that the bailout will pump hundreds of billions of dollars into the credit arteries and save the patient, which is the world's financial system. It will take time—maybe a year or so—but if everyone hangs in there, we'll be all right. No structural damage has been done, and all's well that ends well.

Sorry, but that's drivel. In fact, what we are living through is the worst financial scandal in history. It dwarfs 1929, Ponzi's scheme, Teapot Dome, the South Sea Bubble, tulip bulbs, you name it. Bernie Madoff? He's peanuts.

[Madame Dufarge]

That raises the question as to why it was done out of London. Regulatory reasons or something else?

From the article:

"The heart of darkness was the AIG Financial Products (AIGFP) office in London, where a large proportion of the derivatives were written. AIG had placed this unit outside American borders, which meant that it would not have to abide by American insurance reserve requirements. In other words, the derivatives clerks in London could sell as many products as they could write—even if it would bankrupt the company."

[Windflier]

There isn't enough money in the world to unwind those positions.

I'm trying to think of a solution to this. What can we do? Would it be possible to mount a global prosecution of all these felons and seize their money and assets to recoup some of our money?

[Windflier]

Billy Jeff again...

And let's not forget that Alan Greenspan successfully lobbied congress to repeal the Glass - Steagal Act.

[La.daddyrabbit]

Thanks for a very informative reply!