The economic crisis was an 'inside job'

The Washington Post ^ | 8/13/10 | Kathleen Parker

[Sakity Yaks]

If you haven't been humming tunes from "Les Misérables," you haven't seen "Inside Job," the new documentary about how our economic crisis evolved.

The most forgiving American will want to seize a pitchfork and march on Wall Street. Or Harvard Square. Or in front of the White House. There are so many despicable parties, it's hard to pick a favorite. Is it time to reconsider the Axis of Evil?

The film, written and directed by Charles Ferguson (and narrated by Matt Damon), will be opening in select cities this week. Although much of the story is familiar, Ferguson manages to weave together decades of bits and pieces into a dramatic narrative that plays like a whodunit. Names have faces, and storytelling combined with graphic illustrations helps explain the complex series of events that led to the global meltdown. Here are a few takeaways:

One, trying to assign blame to either Democrats or Republicans is pointless. Everyone is culpable. From the early 1980s, when Ronald Reagan deregulated banks, through the two Bushes, Bill Clinton and now Barack Obama, each administration has endorsed -- and each Congress has helped tweak -- laws and rules that made systemic abuses and the meltdown not only possible but, looking back, inevitable....

I'm not one to advance class warfare, and most Americans still want to preserve a market system that leaves open the possibility that they, too, can work hard and achieve wealth. But it's clear from "Inside Job" that the game has been rigged so that only a few were in positions to get rich at the expense of the middle class, not just here but globally....

[Toddsterpatriot]

Sounds more like your “source” doesn’t understand how derivatives work.

[irish_links]

“So if you assume that only 1% of derivatives are “at risk” (odds are it’s more) and 10% of that “at risk” money is lost, you’ve wiped out nearly 1/3 of the banks’ equity.”

Derivative players are generally well hedged. The total exposure is much greater than the “net” hedged exposure. I don’t think its appropriate to use too broad a brush in this situation: AIG was the exception rather than the rule of derivative players pursing an absolutely idiotic, unhedged position. The overall net exposure to derivatives is much smaller than you suggest. Let’s hope I’m right.

As for the interest of “our” creditors, everyone benefits from a reflation of collateral asset values, most notably in the real estate sector. If we can accomplish that without rekindling hyper-inflation, we can whistle past this graveyard and our creditors will applaud loudly on the sideline. Admittedly, this is a daunting prospect but one that I don’t think is beyond the realm of probability. Indeed, I think it is the most probable outcome, although we are likely to experience a high degree of volatility along the way.

[Toddsterpatriot]

See the link in post #37.

[mo]

Lets just put it this way...We’re all OK if Peter Bernstein is right about risk.....we’re done for if Denninger is...and who knows if Taleb is?!!!LOL

My personal concern is that America and American banks have historically been granted great latitude and powers by virtue of the US Constitution which ensured conduct under law rather than whim-especially relative to the rest of the world.

Denninger’s argument is that this is no longer so...if which case the cardhouse we’ve been allowed to build has a flawed foundation upon which the integrity of risk management principles Bernstein discusses is based.