The Big Short, inside the doomsday machine.
brad herschel
As an inside look at the machinations of Wall Street, it is
unsurpassed. For anyone with more than a couple of bucks in the
market, it is a must read.
Some Highlights:
The market is always right. Wrong. Here is a fine example that it's
quite possible for every major institution on Wall Street to be wrong.
No one would demolish the system on which our way of life is based in
order to make an extra buck. Wrong. The sheer numbers of Wall Street
residents who were ready, willing and able to take the system down
will make you want to blow chunks. It was as if anyone capable of a
crisis of conscience was weeded out of every Wall Street firm.
Until I read this, I assumed that there were a number of amoral people
working on the Street but at least a significant minority of the
honest and upright. This book documents the overwhelming presence of
greed and corruption in the fabric of Wall Street.
Wall Street firms are shrewd assessors of risk. Wrong. This book
documents the fact that not some but all of the big Wall Street firms
miscalculated the risks associated with subprime loans and subjected
the firms to hugely excessive risks. In most instances the CEOs were
the most clueless about what was happening within their own
organizations. Without the assistance of the federal government, all
of the major Wall Street firms would have gone into bankruptcy. All of
them.
At the height of the problem, the major Wall Street firms refused to
let market pricing adjust to economic fundamentals. This clear
illustration of how supply and demand can be subverted by money and
power is perhaps the most damning piece of evidence in regard to how
our financial system is susceptible to manipulation.
The clear conclusion is that it's all about the Benjamins for
practically all of Wall Street. If someone's sister or mother has to
get sold into the sex trade to make a buck, well that's the way it
works. After having almost destroyed our financial system and our way
of life, these people are substantially still in place going about
their business in the same old way. And fighting every attempt to put
in place regulations that would prevent them from trying it again.
One of the other causative factors noted was the public ownership of
some Wall Street firms. The point was made that no privately owned
firm would have ever subjected itself to the risks of 35 to 1
leverage. But to subject shareholders and the country and the system
to the risks of 35 to 1 risk - no problem.
But hey - don't take my word for it. Read it.
cole
mg
>
> One of the other causative factors noted was the public ownership of
> some Wall Street firms. The point was made that no privately owned
> firm would have ever subjected itself to the risks of 35 to 1
> leverage. But to subject shareholders and the country and the system
> to the risks of 35 to 1 risk - no problem.
>
> But hey - don't take my word for it. Read it.
>
> cole
As I recall, Bush actually allowed them to leverage at a ratio up to
40 to 1, from something like 20 to 1, I think. Then when they failed,
he bailed them out. Here are some excerpts from his bailout speech:
"We've seen triple-digit swings in the stock market. Major financial
institutions have teetered on the edge of collapse, and some have
failed. As uncertainty has grown, many banks have restricted lending,
credit markets have frozen, and families and businesses have found it
harder to borrow money.
We're in the midst of a serious financial crisis, and the federal
government is responding with decisive action.
. . .
So I propose that the federal government reduce the risk posed by
these troubled assets and supply urgently needed money so banks and
other financial institutions can avoid collapse and resume lending.
. . .
With the situation becoming more precarious by the day, I faced a
choice, to step in with dramatic government action or to stand back
and allow the irresponsible actions of some to undermine the financial
security of all.
I'm a strong believer in free enterprise, so my natural instinct is to
oppose government intervention. I believe companies that make bad
decisions should be allowed to go out of business.
Under normal circumstances, I would have followed this course. But
these are not normal circumstances. The market is not functioning
properly. There has been a widespread loss of confidence, and major
sectors of America's financial system are at risk of shutting down.
The government's top economic experts warn that, without immediate
action by Congress, America could slip into a financial panic and a
distressing scenario would unfold.
More banks could fail, including some in your community. The stock
market would drop even more, which would reduce the value of your
retirement account. The value of your home could plummet. Foreclosures
would rise dramatically.
. . .
I know that an economic rescue package will present a tough vote for
many members of Congress. It is difficult to pass a bill that commits
so much of the taxpayers' hard-earned money.
. . .
Under our proposal, the federal government would put up to $700
billion taxpayer dollars on the line to purchase troubled assets that
are clogging the financial system."