Posted on 04/07/2010 5:53:20 PM PDT by dangthis
"At today’s Financial Crisis Inquiry Commission hearing, Brooksley Born, the former head of the Commodity Futures Trading Commission, declared Alan Greenspan’s tenure at the Federal Reserve an unmitigated failure – to his face. Greenspan accords a certain degree of respect on Capitol Hill, despite Born’s accurate take on his many failures, and so this outburst was highly unusual – and gratifying.
Born, who pushed to strictly regulate derivatives under the Clinton Administration, but lost the battle to, among other people, Alan Greenspan, told the former Federal Reserve chair that his agency “failed to prevent housing bubble, failed to prevent the predatory lending scandal, failed to prevent the activities that would bring the financial system to the verge of collapse.”
“You failed to prevent many of our banks from consolidating and growing to a size that are now too big or too interconnected to fail,” Born added. She added that Greenspan’s views on deregulation, which he took as an article of faith, contributed to the Federal Reserve’s failure in delivering on its mandate."
(Excerpt) Read more at news.firedoglake.com ...
Insider tips about what?
Data dump proving what exactly?
Yeah, it was a good book, so what?
THE FORGOTTEN BAILOUT OF THE 90s [which did indeed help Sachs]
Who bailed out LTCM? Why do we care if Goldman was helped?
You have the strangest crooked gun that fires like crazy. I didn’t say Putin acted like an arb — he FOUND them. He sought them out, like China. You are wasting my time.
I give you the proof you hounded me for, and then you still aren’t satisfied. If you had simply relied on my memory, it would have been better. Now you shift to “who cares”?
It was bailout precedent. It was puny, granted, but it opened the door to what we have now. For crying out loud, of course we should care.
How did his secret allies act like arbs?
Who bailed them out?
My original question to you was about proof of Kanjorski's claim.
If I had known you didn't know the difference between the Fed and SEC. About how the Fed works or what an arb is, I wouldn't have bothered.
Keep swallowing whatever you see in the MSM. Thinking would be too difficult for you.
Please forget I was here.
I had always thought that Greenspan was a “god” to economic decitions in the 90s. Silly me.
You have a lot of confused and incorrect thoughts, don’t you?
“Correct. And that weakness was exploited by Putin and his secret allies who acted like arbs [one of the few trading terms I know].”
OK, so the Russian economy is so divested from the world markets that crashing them would be beneficial to Russia. Perhaps pay back for the cold war was the goal? No, I got it. Bush and Putin cooked up this scheme out at the ranch over some barbecue. One giant problem with this conspiracy theory. It didn’t work. The housing market had already reached saturation, the law of diminishing returns had already peaked. That’s what caused the defaults to start. ARMs began to reach their two year maturities and the option to sell dried up on the vine. Then the bankruptcies became the new victim class.
Baloney is all lined up in a parade. Don’t forget to enter your float. Perhaps you can win the spirit award for best conspiracy theory on wheels with a pastel clad flower driven contraption.
So answer this. Where was the news coverage of the Russian financial attack? That should have come out on day one by the business networks. It must have been the liberal lame stream media that was doing the bidding of the George Bush administration again. Something is fishy about this theory. You could fly a 747 through the holes in it.
It's just another red herring in the trail. The Democrats killed the regulation that would have prevented this from happening more than ten years before the crash. The Bush administration & congress kicked around the idea to do something about it long before the crash but Barney Frank & Chris Dodd blocked it. Alan Greenspan warned of a housing turn around back in 2005-06. He did it cautiously, just like times before when he warned of a housing turn around in the early 90's. The 1990's blip on the screen was handled so it didn't hit real hard. Wild speculation resulted in too many homes on the market. Competition resulted in topping out the market. Speculators were not seeing the profits they had anticipated back from 2006 to 2008. So they got caught holding onto maturing ARMs. So they began to walk away from the bad investments. The Russians had nothing to do with the crash. The government, wall street, and the banks got caught holding the bag. So they past the buck to the taxpayer. Now we have you saying it was the Russians. It's time to come clean. You work in the White House basement, right?
I guess I don’t get out enough! LOL!
You have to admit - we currently seem to be living through a Rand novel at the moment.
SW, who thinks Ayn got some things right, and got some things wrong too.
Well they simply bought themselves immunity from regulation. They had created new financial instruments that didn’t fit into any of the old categories. A lot of the innovation was done over in London where it was even less visible to American regulators. Brooksley Born was one of the few who could see that something was going on that was obviously affecting the US banking system, and at the least it needed to be done on something like an exchange where the trades would be transparent. The hedge funds and investment banks wanted none of that, so they persuaded some politicians in both parties to make sure that the OTC derivatives market remained unwatched and unregulated.
Fannie and Freddie were created in order to develop a secondary market for mortgages and mortgage backed securities. That market didn’t exist until Fannie was established in 1938 and Fannie had a monopoly on it for over 30 years. Fannie was spun off as a private corporation in 1968. Freddie was established in order to give Fannie some competition, and it too was spun off as a private corporation.
“The government guaranteed that the market was kept in the dark and they got on board too. But they made sure that the market was unregulated. The cats out of the bag. The government gave the green light to this potentially dangerous market. It allowed these frivolous loans to happen”
You have this wrong on a number of counts. Fannie and Freddie’s transactions were always transparent. But there was a parallel shadow banking market that hedge funds and investment banks had developed, and they used their influence to make sure that it remained hidden from view and unregulated.
“In fact it (government) mandated it to these independent bankers.”
That’s absolutely incorrect. You couldn’t be more wrong on this point.
” It was a bunch of liberal social engineering programs, the independent banking scheme, the potentially dangerous financial instruments, the credit default swaps, Barney Frank saying that everything is just fine, and nobody looking at the history of the housing market.”
There were and are liberal social engineering programs involved including one promoted by GW Bush: “the American Dream Downpayment Initiative”. There were plenty of risky financial instruments innovated by Wall street including CDOs, synthetic CDOs, CDOs squared, and so on. Credit default swaps had been around for years but investment banks had managed to turn them into a rigged casino. They badly needed to be regulated, to be confined to only insuring the primary contract. An IB could sell toxic paper to a bank, then take out as many swaps as it wanted to betting against the bank’s survival.
” Barney Frank saying that everything is just fine, and nobody looking at the history of the housing market. Politicians were getting their money too. So why not just go along with Greenspan. They all gambled and they all lost. Only they put the tax payer on the hook for everything. There is no way it was just the banks.”
There were loads of people saying that everything was fine. The real estate and finance industry who wanted the party to never end. Politicians who were bragging about how well the economy was doing under their watch. Anti-regulation oriented economists like Greenspan who thought that their vision of a self-correcting unregulated market was being vindicated. But there were also a number of people who identified the bubble and warned that it was going to do a whole lot of damage.
“That’s right. They purchased the potentially bad loans from Fannie and Freddie. “
Nope. Fannie and Freddie had nothing to do with OTC derivatives in any fashion. Fannie and Freddie paper was composed of boring, low yield conforming loans even when it was subprime. It was of no interest to investment banks and hedge funds. The IBs generated their own subprime paper through their networks of mortgage brokers. These loans were exotic, high risk, and high yield. This is where the financial weapons of mass destruction grew.
“The issue is that government oversite over government sponsored programs and mandates made the choice to allow it to happen”
This isn’t an inaccurate statement. The vast majority of the problem paper was privately issued by firms that weren’t covered by gov’t programs like CRA. It was created by investment banks and non depository mortgage originators because it was extremely lucrative for them. There was no government oversight because these firms wanted it that way and used political influence to make sure it stayed that way. This is a variation of what is called regulatory capture.
“They were hot potatoes. When full mortgages were chopped up into parts in order to minimize risk they didn’t bother to remember that markets like real estate go up and down rapidly.”
The IBs didn’t care what the RE market was going to do. They were all hedging themselves using a formula based on Li’s Gaussian copula function and had fooled themselves into thinking that they were bullet proof. They weren’t. And they weren’t tranching mortgages to minimize risk, they were doing it in order to market their paper to different buyers.
” The government sponsored worthless paper.”
There is enough of interest in this whole affair without pursuing misleading explanations that appear to offer political gain. The big players who cranked out trillions of dollars of dangerous financial paper weren’t depository institutions and weren’t covered by gov’t mandates. They were developing and farming the riskiest parts of the subprime market because it offered them extremely high yields. The government sat by and allowed this risky paper to be created in the private markets because during both Clinton and Bush II we had officials who were committed to the idea of self-correcting unregulated markets, and they were happy to accommodate the financial firms who didn’t want regulation. You might want to pick up a copy of Yves Smith’s “ECONned”. It’s a good new book on what happened by a very good financial writer.
Kanjorski hasn’t got anyone joining him in his theory. He’s not credible.
So why did Fannie and Freddie go into conservatorship? What happened to the toxic mortgages?
Mortgage-backed security:
http://en.wikipedia.org/wiki/Mortgage-backed_security
“First, mortgage loans are purchased from banks, mortgage companies, and other originators. Then, these loans are assembled into pools. This is done by government agencies, government-sponsored enterprises, and private entities, which may offer features to mitigate the risk of default associated with these mortgages. Mortgage-backed securities represent claims on the principal and payments on the loans in the pool, through a process known as Securitization. These securities are usually sold as bonds, but financial innovation has created a variety of securities that derive their ultimate value from mortgage pools.
Most MBS’s are issued by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), U.S. government-sponsored enterprises. Ginnie Mae, backed by the full faith and credit of the U.S. government, guarantees that investors receive timely payments. Fannie Mae and Freddie Mac also provide certain guarantees and, while not backed by the full faith and credit of the U.S. government, have special authority to borrow from the U.S. Treasury. Some private institutions, such as brokerage firms, banks, and homebuilders, also securitize mortgages, known as “private-label” mortgage securities.”
http://en.wikipedia.org/wiki/Subprime_mortgage_crisis
Subprime mortgage crisis
“In 1995, the GSEs like Fannie Mae began receiving government tax incentives for purchasing mortgage backed securities which included loans to low income borrowers. Thus began the involvement of the Fannie Mae and Freddie Mac with the subprime market.[106] In 1996, HUD set a goal for Fannie Mae and Freddie Mac that at least 42% of the mortgages they purchase be issued to borrowers whose household income was below the median in their area. This target was increased to 50% in 2000 and 52% in 2005.[107] From 2002 to 2006, as the U.S. subprime market grew 292% over previous years, Fannie Mae and Freddie Mac combined purchases of subprime securities rose from $38 billion to around $175 billion per year before dropping to $90 billion per year, which included $350 billion of Alt-A securities. Fannie Mae had stopped buying Alt-A products in the early 1990s because of the high risk of default. By 2008, the Fannie Mae and Freddie Mac owned, either directly or through mortgage pools they sponsored, $5.1 trillion in residential mortgages, about half the total U.S. mortgage market.[108] The GSE have always been highly leveraged, their net worth as of 30 June 2008 being a mere US$114 billion.[109] When concerns arose in September 2008 regarding the ability of the GSE to make good on their guarantees, the Federal government was forced to place the companies into a conservatorship, effectively nationalizing them at the taxpayers’ expense.”
http://en.wikipedia.org/wiki/Federal_takeover_of_Fannie_Mae_and_Freddie_Mac#Credit_default_swaps "In the credit default swap (CDS) market, the standard contracts typically used between parties to a swap define the action of placing Fannie Mae and Freddie Mac into conservatorship to be equivalent to bankruptcy, because of the change in management control. In CDS parlance, this is termed a credit event, and that triggers the settling of outstanding contracts for the derivatives, which are used to hedge or speculate on the potential risk that a company will default on its bonds. The two GSEs have approximately US$ 1.5 trillion in bonds outstanding, and since the market in credit default swaps is not public, there is no central reporting mechanism to verify how many credit default swaps are linked to those bonds. One estimate floated is US$ 500 billion, and that the entire CDS market has a notional value in the vicinity of US$ 62 trillion.[40][41] Settlement on the contracts, will likely be the largest in the market's decade-long history.[41] Credit-default swaps on Fannie and Freddie have been among the most actively traded the several months leading up to the conservatorship. "Thirteen 'major' dealers of credit-default swaps agreed 'unanimously' that the rescue constitutes a credit event triggering payment or delivery of the companies' bonds," according to a memo circulated by the International Swaps and Derivatives Association (ISDA) after the conservatorship announcement.[42] The day after the conservatorship announcement, the International Swaps and Derivatives Association, which sets industry standardized contracts for financial derivatives and swaps, announced it was working on a protocol on how to evaluate and settle Fannie Mae and Freddie Mac credit default swaps.[43] Most of these swaps were settled on October 6, 2008."
“In finance, a swap is a derivative in which two counterparties exchange certain benefits of one party’s financial instrument for those of the other party’s financial instrument.”
http://en.wikipedia.org/wiki/Swap_(finance)
“Credit default swap
A credit default swap (CDS) is a swap contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument - typically a bond or loan - goes into default (fails to pay). Less commonly, the credit event that triggers the payoff can be a company undergoing restructuring, bankruptcy or even just having its credit rating downgraded. CDS contracts have been compared with insurance, because the buyer pays a premium and, in return, receives a sum of money if one of the events specified in the contract occur.”
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