That's no surprise. A discussion should ensue that this debacle was facilitated by the self-absorbed, carefree, no-responsibility crowd-----who espouse "moral relativity." But don't hold your breath. Read on
The (cough) "brains" behind some of these cockamamie finanical instruments---including credit default swaps---was Lehman Bros honcho. Dick Fuld. Fuld never tired of telling people that Lehman was built to triumph in adversity........his way of motivating the 26,000 employees at his command......which enabled him to take-home $300 million one year alone.
But it also led Fuld and his closest associates to say things that had no connection whatsoever to business reality. Fuld's delusion – compounded by the powerful and destructive forces of ambition within the bank – was propelling Lehman towards catastrophe. The death spiral beckoned. Lehman went belly-up.
THE GLOBAL MELTDOWN UP CLOSE Lehman, Citi, and other Wall Street smart*****...... "securitized and packaged" bank loans that were sold globally as profit-making financial instruments. Financial gain was predicated on the notion that mortgages were a reliable "stream of income" .......b/c since time immemorial, conscientious people owned a moral obligation to repay loans.
We now know the mortgages were the infamous toxic subprime mortgages that went into default b/c they were given to deadbeats who could not pay.......and that they signed off on documents falsified with inflated incomes, and so on.
Thus the revenue stream could not be sustained and the financial instruments fell apart.
NOTE AIG is at the eye of the hurricane b/c its global Financial Products division "insured" more than a $trillion dollars in virtually worthless bank loans....and could not payoff claims. AIG's Financial Products division "insured" more than a $trillion dollars in virtually worthless bank loans.........these loans were "securitized and packaged" as profit-making financial instruments-----BUT they were built on the now-infamous subprime mortgages---mortgages that people could not payback and should never have received.
AIG is an insurance company and is SUPPOSED to hold in reserve monies that the insured might rightfully request in the form of "claims." Some of the insured might never put in a claim.....but the money has to be there....just in case.
When the house of cards collapsed---AIG did not have the money to pay all the claims the insured were demanding. That's why US tax monies are going to foreign companies-----b/c they were "insured" by AIG. Keep in mind that insurance policies are based on "faith" that the insurer respects its "moral" obligation to payoff claims.
As I said----moral relativity.
“. Dick Fuld. Fuld never tired of telling people that Lehman was built to triumph in adversity..”
Fuld was beyond stupid. He could have sold his company, but his hubris buried it.
>>”securitized and packaged” bank loans that were
>>sold globally as profit-making financial instruments.
Got FICO?
For “Liar Loans”, that’s the only number that mattered... and if those scores were fabricated - then so were the AAA ratings... that went “poof” and were downgraded to junk almost overnight.
How does one fabricate a FICO score? Well, it begins with purchasing the source-code to Empower, the loan origination Software used by Argent Mortgage (Ameriquest’s wholesale division), and making a few changes - specifically, to the data entry screens related to FICO...
Nah, nothing to see here, move along.
And you’re Right On Target with regards to moral relativism. When folks start living by “Do what thou wilt shall be the whole of the Law”, bad things happen.
“As I said——moral relativity. “
Maybe more like moral bankruptcy. All of this securitized POSpaper were designed so everone could grab one or two points, and then pass it off to the next schminder. All the while the rating agencies were in their pockets, offering them cover. Nice scam if you can get in on it.
Still, that is 5 to 6 times total of USA's total real estate market, which tells everything one needs to know about the nature of this "insurance" that no sane insurance company would underwrite. John Paulson (AFAIK, no relation to Hank Paulson) was one of the several hedge fund guys who figured this out very early in the "game".
Was this economic crisis planned? - FR - 2009 January 07, one of my several posts on this "supersized" $60+ Trillion "insurance".
One of the reasons CDSs flew under the radar of the SEC and other financial regulators because the instrument was sold not on the open / public market or exchanges like stocks, bonds or options but as an unregulated "insurance," most of it from or through London branches of international banks and financial institutions. Now there is a "clearance exchange" in the works for these types of derivatives, which should provide substantially more transparency.
An excellent overview on the origins and the "Masters of the Universe" of this particular derivatives / CDSs fiasco (Howard Sosin, Randy Rackson and Barry Goldman of Drexel Burnham Lambert, and later of AIG Financial Products Division) is in this three-part series from January 2009, by Robert O'Harrow Jr. and Brady Dennis:
Bold innovators led AIG's stunning rise