Does Anyone feel like Bailing

[sugarpop]

Originally Posted by tw

It was not their job to know. It was their job to blow the whistle. However we built a system where accounting fraud (Enron accounting) is now legal. Look at what Geitner did when he finally walked into Bear Stearns to discover what was going on. He and his staff worked all night. Then at 4 o'clock AM, he called Benanke. Woke Bernanke up to announce ‘Pearl Harbor’. Bear Stearns was wall to wall junk.

Did the Wall Street executives know this years ago? Of course. What did they do? One (Merrill Lynch) even fired the messenger. They even created dummy companies to move losses into. Then claimed those companies as assets on their spread sheets. This is acceptable behavior if trained as a stock broker, investment banker, or MBA. Why are stock broker investment recommendations not to be trusted? Why do so many stock brokers recommend mutual funds to ignorant investors?

How do you know the company is in trouble? CEO comes from the finance department. Carly Fiorina who was running HP into the ground. She also was dumb because her education was MBA. Look at Rick Wagoner at GM. He never ran an single profitable operation in GM. But he was a finance guy his entire carrer. So they made him the top liar in GM. Look at the guys who replaced Herb Greenburg in AIG. The guy who created risk management was basically forced out so they could buy massive CDOs for increased profits and completely disregard the risks.

Again, I asked three important questions. Questions asked because the answers are paramount. Three questions. You saw the impending housing crash in 2005? What do Fanny Mae and Freddie Mac do and why? What is the purpose of a company? Three questions that make obvious what has happened. I await those answers that better define this mess.

hey, I agree with you. But to answer your questions, did I see the crash in 2005? No, but I don't work in finance, banking or housing. IF I had known they were bundling mortgages and selling them over and over again, and they weren't checking people's income to see if they could even afford to buy a house, and mortgage lenders were creating loans where payments would balloon in a few years, and they were coercing some people into these loans who did not understand them, then I would have seen it, yes. Those are NOT good business practices, it is insanity.

My understanding of Fannie and Freddie is they were part private/part government mortgage companies. Fannie was created after the Great Depression to help lower income families own homes. It worked great for decades. From what I've read/heard, my understanding is the repeal of the Glass Steagall Act, and the separation of investment banks and regular banks, is partly what caused this. The rest is the creation, by all those MBAs you talked about, of seriously flawed systems that enabled them to make lots and lots of money while risking the world economy.

IMO, the purpose of a company is to supply a need, and supply a living to people working there. Yes, it is also their business to make money, but not at the expense of the workers, the shareholders, or anyone else (I would include the environment there) by engaging in risky behavior so people can make money.

I watched the movie Wall Street earlier, and it is even more relevent today than it was in the 80s. People on Wall Street have gotten greedier and greedier, and the job they do is crap. They don't produce anything. You are right. All they are is glorified salesmen. And what they are selling, the foundation of the system, is fundamentally flawed. I don't presume to understand it, all I know is they continually cause all kinds of problems that effect society as a whole. I am all for free enterprise, when that's what it is. What we have now? It's not that.

[tw]

Originally Posted by sugarpop

hey, I agree with you. But to answer your questions, did I see the crash in 2005? No, but I don't work in finance, banking or housing. IF I had known they were bundling mortgages and selling them over and over again, and they weren't checking people's income to see if they could even afford to buy a house, and mortgage lenders were creating loans where payments would balloon in a few years, and they were coercing some people into these loans who did not understand them, then I would have seen it, yes.

Posted in 7 Sept 2006 in
Which is your favorite paranoid fantasy?

Originally Posted by tw

Has good news in this economy been based in productive activities? Well, incomes have been dropping for the past five years. So why the strong housing market? Was that housing market due to productive and necessary products - or just wild speculation? ...

Those who otherwise could not afford the home and those who were only buying on speculation will suffer. Big part of the American economy that has been its 'engine' may collapse. That is the economic fear to a flurry of bankruptcies, a collapse of industries that kept the American economy looking good, and maybe a major recession. ...

Any one of three things may happen. Housing prices drop leaving massive debts for homeowners - maybe a house worth less than its mortgage. Rents skyrocket. Third is inflation resulting in much higher interest rates. We already see inflation jolting upward AND massive American dollars overseas waiting for what?

Nobody really knew how much worse the economy had been made because Enron accounting and other money games were openly encouraged even at highest levels in government. Meanwhile, notice how many even denied that mild warning in 2006.

We knew a downturn was coming. We just had no idea how severe it would be because fraud was almost everywhere in the finance industry. Obvious in facts and numbers posted in those 2006 responses: downturn was pending. After all, that is what even tax cuts create once we eliminate rhetoric from those inspired by politicians. Any yet in the face of such facts, many (and from my perspective - most) still remained in denial.

Even Greenspan, who did not believe outrageous fraud had been all but encouraged by government, said finance people in free markets can be trusted. Greenspan could not believe people would promote or sign into an ARM. It just made no sense - except where political spin had even promoted houses as an investment. (If not yet obvious - housing never was investment.) Obvious was a pending downturn. But those who should have known it would remain openly in denial. Those who knew the entire financial industry was mostly wealth created by toxic (fictional) assets (ie CDOs, SIVs) attached to nothing of physical value - they were most in denial.

The lesson is obvious - your stock broker, investment banker, or financial consultant is typically the worst person to consult for financial advice. These people are mostly either ignorant of basic economics or have interested contrary to yours.

View that discussion even in July 2006 where I knew something bad was pending - with reasons why. Obvious even to me without any finance training or industry experience. But then I do not entertain my emotions AND do not listen to political hype, conclusions without reasons and numbers, and other junk science myths. One need not be in the industry to know something bad was coming. (Even I did not realize in 2006 how much worse it would be.)

Without finance knowledge, I did something I never do. Early last year (2008), I sold all investments. Without any financial knowledge and a contempt for brokers who really have no economic knowledge (who are only salesmen), I did something completely contrary to my investment philosophies - that I never did in generations. I got out because this market was obviously in a dangerous and unstable state due to too much MBA thinking and too few productive companies. Because I have contempt for political spin, the economy was in trouble.

The point: yes most who ignored facts and numbers - who were the problem and preached the party line - could not see it coming even thought facts and numbers were screaming otherwise. No, I too had no reason to know it would be this bad. But remember, finance people (some of the least economically knowledgeable and trustworthy) are promoting another obvious myth about a recovery in 2009 or 2010. Economists are saying otherwise. But again, finance people are not driven by knowledge even when facts and numbers bluntly say otherwise.

With basic knowledge (in or out of the finance industry), obvious was a housing bubble that had to crash because housing prices were 40% too high. Obvious was that all housing prices had to fall at least 20%. Obvious. And then we learned finance people did only what finance people routinely do - outright fraud and corruption. Mortgage backed securities and other intentional lies intended first or only to enrich finance people (despite what finance people said or believed).

Predicting a pending housing crisis in 2005 did not require finance wizardry. It required one to think logically and to not believe the so called experts who really don't understand basic economics (ie what was posted in mid July 2006) and whose interests are too often contrary to others.

This completes a response to question one. What you saw in 2005 is typical because we tend to deny facts and even listen to people whose interests are often contrary to America. A long reply because this quite simple concept still remains too new or radical to some. But again, read that 2006 discussion to appreciate why housing problem should have been obvious to laymen even in 2005.

Originally Posted by tw

You are suppose to say that a so called 'booming' economy was partially due to people taking houses they could not afford. A later resulting recession created by an economy today inflated by wild and irresponsible government spending and other financial instruments that create only paper wealth.

Thread title was Paranoid Fantasy? Yes, to so many in 2006 who remained in denial of facts that everyone could /should have known.

[tw]

Originally Posted by sugarpop

My understanding of Fannie and Freddie is they were part private/part government mortgage companies. Fannie was created after the Great Depression to help lower income families own homes. It worked great for decades. From what I've read/heard, my understanding is the repeal of the Glass Steagall Act, and the separation of investment banks and regular banks, is partly what caused this.

Glass Stegall separated investment banks and commercial banks. But it was never completely repealed. For example, ask your commercial banker about your stock investments. He cannot access them. Investments are separted from commercial banking.

Fannie and Freddie were crated to help low income families more easily afford a home. Make homes affordable to the early comers and increase housing prices for everyone else. There is no free money. A lower interest rate for early applicants means homes now have more buyers: so home prices increase making homes just as less affordable. But now we have this massive government bureaucracy that also must be paid for. Worse, to put things back to normal - to eliminate Fannie and Freddie – home prices drop down to where they should have been. Home sellers take an unexpected price drop.

The intent (a popular belief) is not what Fannies and Freddie actually do. Did it worked great for decades? Or did people appreciate them while ignoring why Fannie and Freddie only caused higher housing prices and more government bureaucracy? Show me how Freddie and Fannie also capped housing prices?

Why would Fannie and Freddie be necessary? Because commercial banks would not make home loans? So we maintain massive government bureaucracies rather than fix the problem - bank loan officers? Yes, things like Freddie and Fannies had a purpose to fix a temporary problem during the Depression. However their continued existence does little productive. Their functions should have been passed back to commercial banks and other mortgage lenders long ago.

All that goodness by Fannie and Freddie ignores how both distort market prices – keep prices artificially higher – do not make houses any more affordable. IOW too many believe what they are told - ignore how the housing market compensates low interest Fannie and Freddie mortgages by raising prices.

[sugarpop]

Originally Posted by tw

Glass Stegall separated investment banks and commercial banks. But it was never completely repealed. For example, ask your commercial banker about your stock investments. He cannot access them. Investments are separted from commercial banking.

Fannie and Freddie were crated to help low income families more easily afford a home. Make homes affordable to the early comers and increase housing prices for everyone else. There is no free money. A lower interest rate for early applicants means homes now have more buyers: so home prices increase making homes just as less affordable. But now we have this massive government bureaucracy that also must be paid for. Worse, to put things back to normal - to eliminate Fannie and Freddie – home prices drop down to where they should have been. Home sellers take an unexpected price drop.

The intent (a popular belief) is not what Fannies and Freddie actually do. Did it worked great for decades? Or did people appreciate them while ignoring why Fannie and Freddie only caused higher housing prices and more government bureaucracy? Show me how Freddie and Fannie also capped housing prices?

Why would Fannie and Freddie be necessary? Because commercial banks would not make home loans? So we maintain massive government bureaucracies rather than fix the problem - bank loan officers? Yes, things like Freddie and Fannies had a purpose to fix a temporary problem during the Depression. However their continued existence does little productive. Their functions should have been passed back to commercial banks and other mortgage lenders long ago.

All that goodness by Fannie and Freddie ignores how both distort market prices – keep prices artificially higher – do not make houses any more affordable. IOW too many believe what they are told - ignore how the housing market compensates low interest Fannie and Freddie mortgages by raising prices.

If they are so bad, why then did they only now crash? Fannie has been around since the 30s or 40s. Seems to have worked pretty well up until recently.

[tw]

Originally Posted by sugarpop

If they are so bad, why then did they only now crash? Fannie has been around since the 30s or 40s. Seems to have worked pretty well up until recently.

What they did and the reason for Fannie’s and Freddie's crash are different situations.

Fannie and Freddie crashed when recently doing something – finance 'toxic' mortgages. Mortgages that even Fannie and Freddie would never have touched 30 years ago.

Fannie and Freddie were established to make mortgages easier. As a result, home prices increased. Any bureaucratic solution to make mortgages easier was overridden by higher housing prices. Basic economics. Throwing money (ie lowering mortgage interest rates) does not make any economy wealthier or more productive. Throwing money makes a problem appear solved - short term ... then economics takes revenge – long term.

Fannie and Freddie should have been temporary solutions to a cash flow problem. When the problem was resolved, Fannie and Freddie were not longer necessary. Instead we added a new problem.

Something completely different are mortgages to anyone who could not afford them. Mortgages without any responsibility or due diligence. Even finance people 30 years ago would have never done this. The new mantra promoted by our wacko extremist’s political agenda: no responsibility got renamed deregulation. Short term money games - a ponzi scheme – that continued all through the 2000s also masked a 2004 downturn. What could have been a recession may now be a depression.

Fannie and Freddie, whose job should have been spun off to commercial banks, instead made things worse. Participated in another money game we now call mortgage backed securities and SIVs. But Fannie and Freddie were only doing what our wacko extremists politicians wanted. Encouraged by new Enron accounting techniques and corporate welfare. What Fannie and Freddie did are symptoms of a larger problem directly traceable to our 2000s government.

Ben Franklin's quote defines a patriotic American. Any great American from history innovated. Getting rich does not define a patriotic American. Any finance man who got rich only by financing - evil and corrupt.

A productive finance person is only a servant to the nation's patriots - people who actually innovate as Franklin defines. A finance person's job solves cash flow problems. Techniques such as investments, bridge loans, letters of credit, etc. are not innovations. A finance person deserves to be compensated as any servant or bureaucrat who pushes paper work. When the president of Goldman Sachs or JP Morgan gets paid more than the president of Cisco or Hewlett Packard, then the economy has been corrupted by bean counters. The economy violates principles defined even by Franklin - where innovators deserve reward because they innovate rather than only push forms.

[tw]

Originally Posted by sugarpop

IMO, the purpose of a company is to supply a need, and supply a living to people working there. Yes, it is also their business to make money, but not at the expense of the workers, the shareholders, or anyone else ...

I watched the movie Wall Street earlier, and it is even more relevent today than it was in the 80s. People on Wall Street have gotten greedier and greedier, and the job they do is crap.

Greed is good only when the greedy forget their purpose: forget to serve the economy. Your response to question three is the rare and accurate one. But Wall Street has not become greedier. We asked them to become greedier. Wall Street et al always needs heavy regulation because of the nature of a finance person is to enrich themselves first. To sell anybody anything as long as they reap a profit. All are greedy. Some less than others.

Derivatives and other such contracts have no business being traded outside of regulated markets. Worse, accounting has no right to consider them hard assets. 'Mark to market' being absolutely essential because finance people are forced to maintain a larger inventory of real collateral to back up those 'short' assets. 'Mark to market' also forces traders to have access to liquidity that day in case assets do what are normal in any market. In short, to have reserves so that today’s financial collapses could never happen.

The best part of 'mark to market' - the greedy finance man gets driven to bankruptcy now before he can cause even further and worse damage. Bankruptcy is especially essential to harm the greedy ones. But today, we even eliminated regulations and oversight. Some so love to destroy Wall Street responsibility as to even oppose 'mark to market' – which is especially brutal on the greediest.

Extremist Republicans got the economy they wanted - where the rich reap income increases sometimes by 60% and 100% annually. Where the middle class saw their incomes drop 2%. Where the most rewarded are finance people – not innovators who actually do productive work. How curious. This income redistribution only happened once previously in American history - just before the 1929 stock market crash.

They did not get greedier. Finance people - including those I went to school with - typically are not the bright ones. They are the greedy ( often conceited) ones who more often promoted themselves. Were chock full of vanity and self-promotion. In some cases, had no interest in knowing how anything worked.

People whose job is about promoting myth - whose wealth can increase if they can lie: over the past ten years we let them do that without oversight.

They did not get any greedier. When did everyone know the foxes controlled the hen house? When the Feds refused to investigate and prosecute Enron. When Harvey Pitts (George Jr's SEC commissioner) refused to take any additional money from Congress to do SEC investigations. They were as greedy as we wanted. Nobody could have ignored Harvey Pitts testimony (and his predecessors) unless they wanted foxes to control the hen house. Any additional greed is directly traceable to Cellar dwellers and other citizens who wanted greed to increase by staying silent and naive.

Why do venture capitalists create so many productive companies? And not Wall Street? The former invest by actually knowing how things work. The latter believe their personal wealth is more important and only know what any salesman would understand. Which ones reap profits by serving America? Which ones reap bonuses by inventing finanical instruments not even based in hard assets? George Jr encouraged the greed that we wanted.

[sugarpop]

Originally Posted by tw

...Why do venture capitalists create so many productive companies? And not Wall Street? The former invest by actually knowing how things work. The latter believe their personal wealth is more important and only know what any salesman would understand. Which ones reap profits by serving America? Which ones reap bonuses by inventing finanical instruments not even based in hard assets? George Jr encouraged the greed that we wanted.

We could all learn something by listening to, and living by, the words and ideals of Benjamin Franklin... "As we enjoy great advantages from the inventions of others, we should be glad of an opportunity to serve others by any invention of ours; and this we should do freely and generously." His inventions also included social innovations, such as "paying forward." Franklin's fascination with innovation could be viewed as altruistic; he wrote that his scientific works were to be used for increasing efficiency and human improvement.