Wall Street execs more interested in false profits than economy
O.K., I have sat back and listened to the financial gurus tell me how this current financial crisis is so involved that I might not be able to understand how it happened, and that is too involved to be explained in a clear and concise fashion.
Well I guess that wasn’t necessarily true now was it?
The guy on 60 Minutes pretty well summed it up for me in a nutshell. It seems that a bunch of egghead directors and executive level financial whiz kids on Wall Street made decisions regarding loans that they would have fired their subordinates for.
The guys who are making $50 million a year on performance bonuses and benefits packages were playing a little loose with the market. Imagine that.
Can you believe that a bunch of millionaires on Wall Street were more interested in their false profits that they were about a potential financial meltdown?
It seems that the center point of this crisis revolves around a class of derivatives known as credit default swaps. I had no idea what these were until last night, and quite honestly I cannot see why anyone with any financial savvy would have ever thought these to be a good investment. I can see where the seller would want to dump these derivatives, but who in their right mind would invest in such a high risk venture.
Apparently these credit default swaps were a way to sell high risk loans and notes in a pretty package that claimed some form of protection for the investor should the loan default. Well guess what? There was no protection against the default. Had these been known as credit default insurance they would have been regulated and those making the guarantee would have been held accountable for the capital necessary to guarantee the loans...but these were "swaps" and therefore unregulated. AIG held huge amounts of credit default swaps. The prospect that AIG wouldn’t be able to pay out the swaps was a major reason the government took over the company.
And then there are the hedge funds, which invest huge pools of money for wealthy investors and pension funds, are part of what some analysts call the "shadow banking" system that also included investment banks such as Lehman. This "shadow" system provided the capital for many subprime mortgage brokers by buying huge amounts of mortgage-backed securities and creating demand for more mortgage loans. Mortgage loans made to people who could not qualify for a loan. Mortgage loans made with no proof of income, no qualifying, and no credit check.
Can anyone else see where we began down this road? Who in their right mind is going to loan money to people who cannot afford to pay it back and are betting that they won’t default. OF COURSE THEY WILL DEFAULT-THEY COUDN’T QUALIFY FOR THE LOAN. Sad thing here...this was just people hedging a bet that they could pay the loans back.
The buck doesn’t stop there either those wonderful people at the credit rating agencies such as Moody’s Investors Service, Standard & Poor’s and Fitch Ratings were all too happy to give their top ratings on complex mortgage-related securities that few investors are now willing to buy.
And when I say complex mortgage-related securities I think it worthy to note that these securities were developed and created by Physicists and Mathematicians with PhD’s in their fields. They were so complex that the formulas developed take pages on mathematical computations and look like something from my college calculus class times ten.
Big problem here is that none of these eggheads can accept that you cannot calculate human behavior with a mathematical formula. Essentially we had several brilliant, highly educated idiots leading a bunch of ignorant greedy investors down the rosy path to financial ruin.
Damaged and nearly destroyed by huge losses on risky home loans, the banking industry is now on the shakiest ground since the early 1990s, when more than 800 federally insured institutions failed in a three-year period. Estimates total deposits in banks that fail during the current crisis at $1.1 trillion.
After calculating gains from selling deposits and some of the assets of the failed banks, Mason estimates the clean-up this time will cost the FDIC $140 billion to $200 billion.
And how do we pay for it? The FDIC’s fund currently has about $45 billion, which a five-year low, but we are told the agency can make up for the shortfalls by borrowing from the U.S. Treasury and eventually repaying the money by raising the premiums that it charges the healthy banks and S&Ls. In other words, we are going to use our money to solve a crisis that we had nothing to do with.
Congress had come up with a plan to run a government hedge fund to buy up troubled securities that nobody else will buy because it is virtually impossible to figure out what they’re worth. Did you get that?
Congress is going to buy up these BAD DEBTS that no-one else will touch with the outside hope that some of them will go up in value. I cannot fathom the result. Under their plan, the Treasury will buy these securities and hold them until credit and housing markets settle down, hoping that their value will increase. If so, Uncle Sam will make money, if not...guess what?
So, once again we see how corruption and greed in the corporate world affects the economy. Once again we see how the rich get richer, and it’s not by doing the right thing...no...it’s not about making wise decisions...no...it’s not about tomorrow. It is all about today with these guys. It’s all about how much money they can make right now and tomorrow be damned.
This financial crisis was absolutely avoidable. This financial crisis has caused world-wide financial problems with all the markets. This is no longer a world of isolationism. Our markets are all tied together and when something as catastrophic as this occurs it affects the world.
Question is what are we going to do about it? If a banker made the same decisions at a local bank he would be fired and run out of town on a rail. If a new broker on Wall Street made the same choices he would never work in the industry again. But these guys, well these guys are the super rich, the untouchables.
Personally I think the people behind this debacle are a bigger threat to National Security than any Afghan in Guantanamo and perhaps we should shift our focus on who the enemy really might be. I can assure you that North Korea had been trying for years, as have other countries, to damage and destroy our economy and none of them could have ever caused this much damage.
It is time for people to go to jail. It is time for accountability. The American people spoke out against the bail-out at about ten to one, and your Congressmen and Senators passed it anyway. Check the vote ladies and gentlemen and remember which of your elected officials chose to ignore the will of their constituents for the benefit of the Wall Street fat cats. Vote ‘em out in November.