Frontline: Money, Power and Wall Street.

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Frontline: Money, Power and Wall Street.

Postby Dauric » Mon May 07, 2012 2:47 pm UTC

Yes I reference Frontline a lot.

Frontline: Money, Power and Wall Street

The PBS show Frontline recently completed a 4 hour special on the banking failures of 2008, what proceeded them and the way that Washington DC reacted to the crisis. It's broken up in to 4, 1-hour episodes.

Episode 1: details the rise of the investment instruments that led to the disaster, including interviews with some of the people that were at JP Morgan that thought up securitizing debt obligations and never imagined that the technique would be used on houses.

Episode 2: Focuses on the attempts by Paulson, Bernanke and Geitner to deal with the crisis as the economy was collapsing.

Episode 3: Details the early days of the Obama administration attempting to clean up the mess.

Episode 4: (I'm still watching this one as I type this) Goes in to the current culture of Wall Street and how we're still at risk of another collapse today.

I know it's mostly video and some of you can't see videos at work, but I highly recommend taking the time to watch these episodes even if you have to do it at home.
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Re: Frontline: Money, Power and Wall Street.

Postby KnightExemplar » Mon May 07, 2012 2:56 pm UTC

Frontline always impresses me with outstandingly good journalism. I'll be sure to watch these as soon as I have a chance.

The problem is that they take like four years to research these sorts of stuff >_<. The good thing is, they take their time until they're damn sure they've got the truth. Lol.
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Re: Frontline: Money, Power and Wall Street.

Postby Dauric » Mon May 07, 2012 3:04 pm UTC

KnightExemplar wrote:Frontline always impresses me with outstandingly good journalism. I'll be sure to watch these as soon as I have a chance.

It's why I keep referencing them. It's also good that you can view the full episodes of many of their documentaries online.

The problem is that they take like four years to research these sorts of stuff >_<. The good thing is, they take their time until they're damn sure they've got the truth. Lol.

It's the problem with any good journalism really. That said Frontline has done many episodes on the topic, this special 4-part series includes clips from many of those previous interviews.

This page was posted the week before Money, Power and Wall Street aired and has five previous episodes that details many economic issues related to the "M,PaWS" special.
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Re: Frontline: Money, Power and Wall Street.

Postby liveboy21 » Tue May 08, 2012 12:06 pm UTC

I've just watched all 4 hours and it was really good to watch. It explains what happens in a way that should be easy to understand, even if the viewer isn't familiary with financial terms. Unfortunately, it gets slightly biased whenever they discuss the actual people involved or when they get guests who say things like 'it was the only thing we could do' but overall, it's a really good documentary.

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Re: Frontline: Money, Power and Wall Street.

Postby Dauric » Tue May 08, 2012 1:02 pm UTC

liveboy21 wrote:I've just watched all 4 hours and it was really good to watch. It explains what happens in a way that should be easy to understand, even if the viewer isn't familiary with financial terms. Unfortunately, it gets slightly biased whenever they discuss the actual people involved or when they get guests who say things like 'it was the only thing we could do' but overall, it's a really good documentary.


Well, Frontline's never been the type of journalism where they intensively grill the people they interview. Consider how difficult it must have been to get the JP Morgan employees that thought up making securities of debt risk given all the calls in congress to "Find the person who thought up <those securities>. Fire them!" and all the public desire to see them up on criminal charges. I actually prefer that Frontline lets them speak in their own words, then presents the verifiable facts and leaves the evaluation up to the viewer. They don't need to insult your intelligence by spoon-feeding you an editorial opinion or 'creatively' editing the interviews (they post the entire interviews on their website as well), they just put the information out there and let the viewer come to their own conclusions.

Especially with regards to the interviews about "Government doesn't have the authority to <prevent the economic disaster>", in a way they were right. In Frontline: The Warning they detail how Greenspan's Treasury undermined Brooksly Born, the head of the Commodity and Futures Trading Commission when she went to attempt to regulate the derivatives market (all those "Black Box" deals). Even today the CFTC -still- doesn't have authority to regulate the markets they were explicitly set up to regulate because Congress in response to Greenspan's team at the treasury, removed the CFTC's ability to do anything and recent legislation has done nothing to reverse this. The people complaining that they couldn't do anything about it were dealing with the legacy of Greenspan's dogmatic adherence to Ann Rand's ideology in his tenure at Treasury.
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Re: Frontline: Money, Power and Wall Street.

Postby KnightExemplar » Tue May 08, 2012 1:25 pm UTC

Yeah, Frontline doesn't really "grill" their interviewees. However, they manage to interweave different opinions to discuss an issue at the same time.

Dauric's example is one of the better ones for example. I've only seen the first part of the set so far, but it did contain this example:
Consider how difficult it must have been to get the JP Morgan employees that thought up making securities of debt risk given all the calls in congress to "Find the person who thought up <those securities>. Fire them!" and all the public desire to see them up on criminal charges.


And right after they show that "Fire those guys" quote, they FIND the team that invented CDOs, and show their side of the story. Its absolutely fascinating.
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Re: Frontline: Money, Power and Wall Street.

Postby Dark567 » Tue May 08, 2012 3:04 pm UTC

Dauric wrote:Especially with regards to the interviews about "Government doesn't have the authority to <prevent the economic disaster>", in a way they were right. In Frontline: The Warning they detail how Greenspan's Treasury undermined Brooksly Born, the head of the Commodity and Futures Trading Commission when she went to attempt to regulate the derivatives market (all those "Black Box" deals). Even today the CFTC -still- doesn't have authority to regulate the markets they were explicitly set up to regulate because Congress in response to Greenspan's team at the treasury, removed the CFTC's ability to do anything and recent legislation has done nothing to reverse this. The people complaining that they couldn't do anything about it were dealing with the legacy of Greenspan's dogmatic adherence to Ann Rand's ideology in his tenure at Treasury.
Greenspan wasn't at the treasury, he was at the Fed, which I don't believe has any authority over the CFTC.
Also lets be honest, Greenspan was hardly dogmatic to Ayn Rand, sure he was a follower, but in practice he was much more Milton Friedman than Ayn Rand, who would certainly hate the Greenspan put.
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Re: Frontline: Money, Power and Wall Street.

Postby Dauric » Tue May 08, 2012 9:32 pm UTC

Dark567 wrote:Greenspan wasn't at the treasury, he was at the Fed, which I don't believe has any authority over the CFTC.
Also lets be honest, Greenspan was hardly dogmatic to Ayn Rand, sure he was a follower, but in practice he was much more Milton Friedman than Ayn Rand, who would certainly hate the Greenspan put.


My bad about which dept. Greenspan was at, but Greenspan didn't need -direct- authority over the CFTC, he was on the "President's Working Group", and with his reputation as "The Wizard" along with Larry Summers, Robert Ruben, Arthur Levitt and a number of "Industry Experts" convinced Congress to first refuse Born's proposal to regulate derivatives, then later effectively neuter the CFTC entirely by placing the CFTC under a regulatory freeze which precipitated Brooksley Born's resignation.
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Re: Frontline: Money, Power and Wall Street.

Postby Dark567 » Tue May 08, 2012 10:29 pm UTC

Dauric wrote:My bad about which dept. Greenspan was at, but Greenspan didn't need -direct- authority over the CFTC, he was on the "President's Working Group", and with his reputation as "The Wizard" along with Larry Summers, Robert Ruben, Arthur Levitt and a number of "Industry Experts" convinced Congress to first refuse Born's proposal to regulate derivatives, then later effectively neuter the CFTC entirely by placing the CFTC under a regulatory freeze which precipitated Brooksley Born's resignation.
Sure, but now this deepens the picture, Summers and Rubin are moderate Keynesian Democrats, hardly Rand Acolytes.
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Re: Frontline: Money, Power and Wall Street.

Postby Dauric » Tue May 08, 2012 10:39 pm UTC

Dark567 wrote:
Dauric wrote:My bad about which dept. Greenspan was at, but Greenspan didn't need -direct- authority over the CFTC, he was on the "President's Working Group", and with his reputation as "The Wizard" along with Larry Summers, Robert Ruben, Arthur Levitt and a number of "Industry Experts" convinced Congress to first refuse Born's proposal to regulate derivatives, then later effectively neuter the CFTC entirely by placing the CFTC under a regulatory freeze which precipitated Brooksley Born's resignation.
Sure, but now this deepens the picture, Summers and Rubin are moderate Keynesian Democrats, hardly Rand Acolytes.


Except when they advocated with Greenspan that the CFTC shouldn't regulate the markets to prevent fraud. Since becoming part of the Obama Administration Summers has done a 180 since the late 90's and has been advocating for exactly the kinds of regulations on derivatives that he fought against when Brooksly Born was advocating for them from the CFTC.

However, their degree of attachment to a liberal ideal isn't the point. The point is that the President's Working Group successfully halted the department of the government that was supposed to be in a position to monitor and regulate derivatives from being able to do -anything- arguing that regulation of the industry would collapse the economy. When the BushII Administration Treasury officials say "There was nothing we could do", they're not entirely wrong, the department with the official powers to intervene in the derivatives market had it's hands tied a decade earlier.
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Re: Frontline: Money, Power and Wall Street.

Postby Bubbles McCoy » Tue May 08, 2012 11:28 pm UTC

Dauric wrote:Except when they advocated with Greenspan that the CFTC shouldn't regulate the markets to prevent fraud. Since becoming part of the Obama Administration Summers has done a 180 since the late 90's and has been advocating for exactly the kinds of regulations on derivatives that he fought against when Brooksly Born was advocating for them from the CFTC.

However, their degree of attachment to a liberal ideal isn't the point. The point is that the President's Working Group successfully halted the department of the government that was supposed to be in a position to monitor and regulate derivatives from being able to do -anything- arguing that regulation of the industry would collapse the economy, so when the BushII Administration Treasury officials say "There was nothing we could do", they're not entirely wrong, the department with the official powers to intervene in the derivatives market had it's hands tied a decade earlier.

I find this line of reasoning a bit suspect. If everyone including moderate democrats refused regulation at the time (I think you can get farther left democrats like Barney Frank on record saying similar things), I'm not really sure what practical lessons this suggests. The fact that more severe regulation was at one point suggested doesn't really mean much by itself; I'm sure if you dig up every proposed regulation from the past forty years you will find a bunch of rejected ideas that in retrospect turned out to be quite prescient. However, the number rejected good ideas may be much, much smaller than the number of rejected bad ideas, so there'd be no teachable lesson except that predicting the future is hard.

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Re: Frontline: Money, Power and Wall Street.

Postby Dauric » Wed May 09, 2012 1:57 am UTC

Bubbles McCoy wrote:I find this line of reasoning a bit suspect. If everyone including moderate democrats refused regulation at the time (I think you can get farther left democrats like Barney Frank on record saying similar things), I'm not really sure what practical lessons this suggests. The fact that more severe regulation was at one point suggested doesn't really mean much by itself; I'm sure if you dig up every proposed regulation from the past forty years you will find a bunch of rejected ideas that in retrospect turned out to be quite prescient. However, the number rejected good ideas may be much, much smaller than the number of rejected bad ideas, so there'd be no teachable lesson except that predicting the future is hard.


I'm not of the opinion that everything that happens in life by necessity has an associated "Teachable Lesson", in part because the future is so elusive. My point is entirely about the tools the Paulson Treasury had available to them when they needed it in relation to the assertion that there was nothing they could do about the collapse of AIG. Now I'm not convinced that there was "nothing" they could do, however they had at their disposal an agency supposed to keep track of the derivatives markets that was unable to do anything to keep track of the derivatives market. It's like having a battery-powered drill with no batteries and no bits but a desperate need to drill some holes.
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Re: Frontline: Money, Power and Wall Street.

Postby Dark567 » Wed May 09, 2012 3:01 am UTC

Dauric wrote: Now I'm not convinced that there was "nothing" they could do, however they had at their disposal an agency supposed to keep track of the derivatives markets that was unable to do anything to keep track of the derivatives market. It's like having a battery-powered drill with no batteries and no bits but a desperate need to drill some holes.
Well, not all derivatives, just OTC ones. The same thing is kinda analogous to equities, where the SEC doesn't have the same authority over OTC equities as it does exchange equity, and it doesn't really cause us serious problems(although I admit it does have more authority over OTC equity than the CFTC has over OTC derivatives).
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Re: Frontline: Money, Power and Wall Street.

Postby Metaphysician » Wed May 09, 2012 4:10 am UTC

I am both elated and depressed by this series. Elated because for the first time in five years I feel like I actually learned something new from a news source. Depressed because what I don't understand is why these institutions weren't gutted. See I'm a fairly big fan of the middle ground. I understand that the bailouts, while distasteful, were necessary to save the economy in the short term. The problem is that there were no long term solutions enacted. I fail to see why we couldn't simultaneously bail out the institutions that were too big to fail, and then turn around and completely gut them of every person remotely responsible for the financial collapse, file civil and criminal charges against those that committed fraud, strip them of anything and everything they gained personally from engineering the destruction of the economy and send a message that the banks may be too big to fail, but we'll fucking ruin your life personally if you commit fraud. I don't see how it's possible for all of this shit to happen, and for there to have been no laws broken, no corruption involved. The bottom line is that after all of this, Obama and Romney both have Goldman Sachs as their largest contributor. A company that committed all out fraud by selling bad goods to their clients and then betting against those clients' investments in order to make money... fuck those guys. The other thing is that all of these bailouts had so few strings attached to them. If the federal government has to step up and save your sorry fucking ass from destroying the world economy, the money they do it with should come with serious strings, and there should be some benefit for the American people on some level. It's disgusting to me that a year after the initial collapse, these fucking CEOs still had their jobs and the financial district had mostly recovered and meanwhile a huge portion of Americans find themselves to be more and more fucked every day.
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Re: Frontline: Money, Power and Wall Street.

Postby aleflamedyud » Wed May 09, 2012 4:17 am UTC

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Re: Frontline: Money, Power and Wall Street.

Postby Dark567 » Wed May 09, 2012 3:00 pm UTC

Metaphysician wrote: I fail to see why we couldn't simultaneously bail out the institutions that were too big to fail, and then turn around and completely gut them of every person remotely responsible for the financial collapse, file civil and criminal charges against those that committed fraud, strip them of anything and everything they gained personally from engineering the destruction of the economy and send a message that the banks may be too big to fail, but we'll fucking ruin your life personally if you commit fraud. I don't see how it's possible for all of this shit to happen, and for there to have been no laws broken, no corruption involved. The bottom line is that after all of this, Obama and Romney both have Goldman Sachs as their largest contributor. A company that committed all out fraud by selling bad goods to their clients and then betting against those clients' investments in order to make money... fuck those guys. The other thing is that all of these bailouts had so few strings attached to them. If the federal government has to step up and save your sorry fucking ass from destroying the world economy, the money they do it with should come with serious strings, and there should be some benefit for the American people on some level. It's disgusting to me that a year after the initial collapse, these fucking CEOs still had their jobs and the financial district had mostly recovered and meanwhile a huge portion of Americans find themselves to be more and more fucked every day.
First off, no one needs to commit fraud for this bad of a situation to happen, they just need to be really bad at managing risk. I mean we can imagine a situation where a bank invests a ton of money into a bad asset and it massively losing value. Long-Term Capital Management is a perfect example, pretty much everyone agrees no fraud was committed, but still left the government on the hook for a very large amount of money.

Most of the CEO's of the largest bailout receivers have been fired, only the banks that mostly successfully navigated the downturn have kept theirs(Wells-Fargo, Goldman). Goldman's clients also were what are called "sophisticated investors", meaning that Goldman selling products it considers bad, isn't necessarily fraud. The same way when I sell a stock that I think is bad to someone else isn't me committing fraud, its two entities with a different opinion of a security.
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Re: Frontline: Money, Power and Wall Street.

Postby iamspen » Wed May 09, 2012 3:46 pm UTC

It's fraud if the financial institutions knew their products and services were bad, but told customers, "no, no, it's great!" But let's put this argument into more tangible situation. If you sell me a car knowing the engine is going to explode, but tell me the engine will never explode, and I buy the car, you're liable when the engine explodes. So far, those responsible for the economic catrostophe we're still dealing with have yet to even sniff real consequences, because they get to sit at home enjoying the massive pensions their former companies gave them when they were released while those they screwed over are losing their homes in droves.

And let's not even speak of the collusion between the financial institutions, the credit ratings agencies, and the credit ratings agencies, which was basically a Ponzi scheme of epic proportions and has been well-documented by Frontline and Inside Job, among others.

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Re: Frontline: Money, Power and Wall Street.

Postby jseah » Wed May 09, 2012 3:50 pm UTC

iamspen wrote:If you sell me a car knowing the engine is going to explode, but tell me the engine will never explode, and I buy the car, you're liable when the engine explodes.

Think that was the point though. Most of the sales of CDOs were done in the run up in the bubble, and not after it started to go shaky (coz no one wanted it then). And when it was still building, most of everyone thought the "engine isn't going to explode". Certainly, the banks would never have sold or take on so much risk if they knew it was to blow up.
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Re: Frontline: Money, Power and Wall Street.

Postby Griffin » Wed May 09, 2012 3:54 pm UTC

I'd argue that if you sell me a car and tell me the engine won't explode, for sure, even you merely /think/ it /might/ not explode (but have avoided looking too deeply, maybe because it's too much work to analyze all the factors involved), and then it does, you should still be liable.
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Re: Frontline: Money, Power and Wall Street.

Postby iamspen » Wed May 09, 2012 3:57 pm UTC

Except, again, they were involved in that massive Ponzi scheme. And Ponzi schemes collapse. It's what they do. It's their destiny. The the leaders of the financial institutions were either too stupid to realize that or too crass to care doesn't absolve them of responsibility. And the reason they didn't stop the process is because, hey, or shareholders like these quarterly returns and I like my annual quarter-billion dollar paychecks. Everybody involved knew the scheme couldn't last, but like a heroin addict, they couldn't stop being shitheads until everything was crashing and burning around them. Except that they're still shitheads and they're still bundling derivatives and nothing significant has changed.

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Re: Frontline: Money, Power and Wall Street.

Postby Garm » Wed May 09, 2012 4:00 pm UTC

Dark567 wrote:
Dauric wrote:My bad about which dept. Greenspan was at, but Greenspan didn't need -direct- authority over the CFTC, he was on the "President's Working Group", and with his reputation as "The Wizard" along with Larry Summers, Robert Ruben, Arthur Levitt and a number of "Industry Experts" convinced Congress to first refuse Born's proposal to regulate derivatives, then later effectively neuter the CFTC entirely by placing the CFTC under a regulatory freeze which precipitated Brooksley Born's resignation.
Sure, but now this deepens the picture, Summers and Rubin are moderate Keynesian Democrats, hardly Rand Acolytes.


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Re: Frontline: Money, Power and Wall Street.

Postby jseah » Wed May 09, 2012 4:08 pm UTC

Well, it was more of a case of:
"Here's a car. It's the latest model everyone wants and thinks it superduper-awesome. Sure, it has a 0.1% chance of the engine exploding, but that's low enough right? Even all the best certifiers say it won't explode more than 0.1% of the time!"

Turns out it was alot more than 0.1%.
And it was *impossible* to look deeply enough to assess the risk properly. Practically no one knew where the risk comes from.


After watching all 4 hours of those Frontline videos, I would say that the main problem in the whole mess is the lack of transparency and basic regulation. If the banks knew that AIG was taking on so much swaps without enough collateral, they would have stopped selling swaps to AIG or each other. 'course that would have burst the bubble right there, but it wouldn't be so catastrophic. (bubbles form and burst regardless of whatever you do)

Now of course, lobbying by the banks played a large part in removing the requirement for transparency. And you can't really punish people for lobbying in the first place. So yeah, they're probably going to get away with causing the mess. =( Because it was legal. (you can't outlaw bubbles)
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Re: Frontline: Money, Power and Wall Street.

Postby iamspen » Wed May 09, 2012 4:28 pm UTC

Are you suggesting the banks didn't know the credit ratings agencies were giving toxic assets AAA ratings so they could buy and insure against them cheaply and easily, and that AIG didn't know they were insuring falsely-labelled toxic assets in order to make a quick buck and swap them cheaply and easily, and the banks didn't know those swaps were toxic when they were making those decisions cheaply and easily, and that all these activities that massively benefited all three industries in the short term were indepent and coincidental? That suggestion would give Occum an aneurism even if collusion wasn't well-documented.

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Re: Frontline: Money, Power and Wall Street.

Postby jseah » Wed May 09, 2012 4:55 pm UTC

POV of banks:
Here's my bundled CDOs, I want a better rating for them. I'll buy insurance for them! *goes to AIG* AIG will surely be able to pay my insurance! It's AIG! It *doesn't* fail!
Gets insurance, gets better rating, sells AAA toxic asset to customer.

POV of rating agency:
Oh, another CDO. Let's see, out of 100 000 loans, say 4% don't pay in the worse case (looking from past home loan default rate), effect on top tranche... not much at all. And oh look insurance from AIG!
*stamp* AAA!

POV of insurance company:
Meh, worst case is 7% go bust, we can pay that. And we'll put away the premiums to build up capital! It'll be fine...


Housing market crashes, more than 7% don't pay. Suddenly it's not worth an AAA rating and insurance payouts get way too high... AIG dies -> everyone dies.

Of course, it's a bit more complicated than that. They sell insurance to each other too.
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Re: Frontline: Money, Power and Wall Street.

Postby Dark567 » Wed May 09, 2012 4:58 pm UTC

iamspen wrote:It's fraud if the financial institutions knew their products and services were bad, but told customers, "no, no, it's great!"
No, it's not necessarily. That's exactly what selling to a "sophisticated investor means". If I am Goldman, and I am selling a CDO to Bear Sterns. I think the CDO is bad, and Bear Sterns thinks the CDO is good. Bear Sterns also knows that I think the CDO is bad, because there isn't any other reason I would sell it to them. When your a sophisticated investor, your telling the used cars salesman(and the government), "no I am an expert in evaluating engines, I think the used car salesman(Goldman) is wrong, and want to buy it anyway". You are absolving Goldman from any claims of fraud.

iamspen wrote:Are you suggesting the banks didn't know the credit ratings agencies were giving toxic assets AAA ratings so they could buy and insure against them cheaply and easily, and that AIG didn't know they were insuring falsely-labelled toxic assets in order to make a quick buck and swap them cheaply and easily, and the banks didn't know those swaps were toxic when they were making those decisions cheaply and easily, and that all these activities that massively benefited all three industries in the short term were indepent and coincidental?
Yes and no. I suspect the banks did not generally know that such a large portion of the assets were toxic. AIG almost certainly didn't know, and if they did would have charged much more for its insurance.

They weren't independent and coincidental though, the incentive were set up that way and everyone was making money. Fighting a status quo as a corporation while making lots of money is hard to do, the assumption is that the current methods are working.

Griffin wrote:I'd argue that if you sell me a car and tell me the engine won't explode, for sure, even you merely /think/ it /might/ not explode (but have avoided looking too deeply, maybe because it's too much work to analyze all the factors involved), and then it does, you should still be liable.
Would you ever do hold the person who sold you a share of public stock that crashed liable? You can't because it would destroy the principles of modern finance. When you buy stock in a company, you understand you are responsible for the evaluation of it before you buy it. Holding the person responsible for selling to you liable is nonsensical, because he's selling it to you because he thinks its bad. Financial products really aren't analogous to cars in any shape.(Well except for the fact that when you lose money on a car, you can't hold the salesman liable... that actually works)
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Re: Frontline: Money, Power and Wall Street.

Postby jseah » Wed May 09, 2012 5:13 pm UTC

Dark567 wrote:AIG almost certainly didn't know, and if they did would have charged much more for its insurance.

They would have put away more money to cover the risk. And charged more. And then whole thing wouldn't have worked at all.

At least, it wouldn't work if everyone did it. Observation from economics, stuff that works for one guy, doesn't work for everyone.
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Re: Frontline: Money, Power and Wall Street.

Postby Dauric » Wed May 09, 2012 5:43 pm UTC

Dark567 wrote:That's exactly what selling to a "sophisticated investor means".


Problem is that there's no criteria to define a "Sophisticated Investor" other than "Someone who wants a CDO", it's a circular definition that ultimately means nothing. These complicated investments were being sold to nuns and small city councils around the world like Cassino Italy and Birmingham Alabama, and Goldman's dodge is that they must have been sophisticated enough to invest in them since they wanted these investments.

Of course these deals are black boxes, so there's no way to know who's buying in to them and if they're genuinely sophisticated enough to understand the risks involved. Hell even organizations that might qualify as "sophisticated", like the German Landis Banks (IKB being one detailed in the first episode) were being told by their agents that the market was collapsing, IKB was still buying U.S. subprime on the belief that the market would quickly recover "... It has to recover." It's a reoccurring theme with many of the interviews in MPaWS that the banks themselves didn't understand what they were buying in to. If the banks and financial institutions aren't "Sophisticated" enough, what the hell chance do nuns, volunteer city treasurers, and school-boards have?

The whole "Well they're sophisticated investors" is utter bullshit. It's a dodge to say the investors got themselves in to trouble when in many cases the investors were clearly -not- sophisticated enough to understand the deal and it's risks and never should have been approached with these kinds of investments from Goldman and others in the first place.
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Re: Frontline: Money, Power and Wall Street.

Postby Dark567 » Wed May 09, 2012 5:59 pm UTC

Dauric wrote:
Dark567 wrote:That's exactly what selling to a "sophisticated investor means".


Problem is that there's no criteria to define a "Sophisticated Investor" other than "Someone who wants a CDO", it's a circular definition that ultimately means nothing.
No, its a legal definition set in place by the US government. If you don't meet it, the government bans you from buying CDOs. You or I could not legally go and buy a CDO. Just the fact that we want one does not make us a "sophisticated investor".

The whole "Well they're sophisticated investors" is utter bullshit. It's a dodge to say the investors got themselves in to trouble when in many cases the investors were clearly -not- sophisticated enough to understand the deal and it's risks and never should have been approached with these kinds of investments from Goldman and others in the first place.
Than they shouldn't have been involved. When you sign up as a sophisticated investor that's what you get yourself into. You are claiming expertise in this area and claiming you can evaluate these products. If the trade had gone the other way, and Goldman had lost a ton of money on selling CDOs to IKB short, you would simply be sitting here claiming Goldman wasn't sophisticated enough and shouldn't have been taking these investments from IKB. When your trading, the other side is always trying to screw you. That's how it works. You also happen to be trying to screw them.
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Re: Frontline: Money, Power and Wall Street.

Postby iamspen » Wed May 09, 2012 6:01 pm UTC

And you have the added complication that people who were sophisticated investors (i.e. they knew exactly what they were doing) only bought these investments for the express purpose of insuring against them when (not if) they collapsed. These firms were role models, they bought these investments and told everyone there was very little risk involved, and those who followed their lead and/or advice got screwed while these firms cashed in right up until the Ponzi scheme collapsed.

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Re: Frontline: Money, Power and Wall Street.

Postby Dark567 » Wed May 09, 2012 6:07 pm UTC

iamspen wrote:And you have the added complication that people who were sophisticated investors (i.e. they knew exactly what they were doing) only bought these investments for the express purpose of insuring against them when (not if) they collapsed. These firms were role models, they bought these investments and told everyone there was very little risk involved, and those who followed their lead and/or advice got screwed while these firms cashed in right up until the Ponzi scheme collapsed.
No, these firms the question was 'if', and "to what extent", not "when". The idea that they predicated this in order to profit from it is completely bogus. They wouldn't have bought the products in that case. Role models for who? Only legally sophisticated investors were allowed to buy these derivatives.
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Re: Frontline: Money, Power and Wall Street.

Postby Dauric » Wed May 09, 2012 6:12 pm UTC

Dark567 wrote:
Dauric wrote:
Dark567 wrote:That's exactly what selling to a "sophisticated investor means".


Problem is that there's no criteria to define a "Sophisticated Investor" other than "Someone who wants a CDO", it's a circular definition that ultimately means nothing.
No, its a legal definition set in place by the US government. If you don't meet it, the government bans you from buying CDOs. You or I could not legally go and buy a CDO. Just the fact that we want one does not make us a "sophisticated investor".


Except -again- these investment products were being sold to people that shouldn't meet that criteria (whatever it is), and their nature as black-box trades means there's no way to know who's involved in the trades for the government to enforce that regulation. The lack of regulation and transparency makes arbitrage in derivatives simple. We don't know how many deals like these were done because they're confidential.

They sold derivatives to convents, nuns, for crying out loud.

Whatever the criteria, whatever the licensing process to be considered "Sophisticated", is clearly inadequate to regulate the process.
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Re: Frontline: Money, Power and Wall Street.

Postby iamspen » Wed May 09, 2012 6:20 pm UTC

Besides which, a couple of low-level NPR beat reporters bought a bunch of toxic derivatives last year for a piece on toxic derivatives. It was like a four-part story on Morning Edition, I clearly remember listening to it.

No, these firms the question was 'if', and "to what extent", not "when".


Why are you ignoring the Ponzi scheme aspect of these deals? Did you miss the part where credit ratings agencies intentionally overvalued assets so they could buy them and insure them, effectively betting against their own investments? Or the part where AIG (who is the least guilty party in this mess, IMO, but still committed heinously egrigious errors) insured these things knowing at least a susbstantial number of them would fail because, hey, a quick buck? These institutions did all these things because it was quick money, because it looked good on their quarterly reports, KNOWING THEIR ACTIONS WERE UNSUSTAINABLE. THAT'S HOW PONZI SCHEMES WORK. They didn't stop because, well, I refer to my heroin addict reference from earlier. But any idiot could have told you this loop wasn't sustainable, and, in fact, many of them did.

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Re: Frontline: Money, Power and Wall Street.

Postby Dauric » Wed May 09, 2012 6:32 pm UTC

iamspen wrote:Besides which, a couple of low-level NPR beat reporters bought a bunch of toxic derivatives last year for a piece on toxic derivatives. It was like a four-part story on Morning Edition, I clearly remember listening to it.


"Toxie" Planet Money's pet toxic asset.
They bought it so you could watch it die.
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Re: Frontline: Money, Power and Wall Street.

Postby kiklion » Wed May 09, 2012 6:41 pm UTC

Dauric do you have any sources of nuns that purchased a CDO? I feel they would have a very good case against the seller by proving they were not a sophisticated investor and should not have been sold to. Just as we punish the seller of a firearm to one who is not licensed, or the seller of alcohol to one not of age, selling a CDO to someone who is not a sophisticated investor breaks the argument that the purchaser was one.

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Re: Frontline: Money, Power and Wall Street.

Postby iamspen » Wed May 09, 2012 6:45 pm UTC

They say so in the Frontline piece linked above.

Edit: I believe that's the case, I haven't been able to watch it yet, either. But I caught the end of one of the episodes on TV the other night and remember them talking about the city in Italy and convents, as well as Birmingham(?), Alabama.
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Re: Frontline: Money, Power and Wall Street.

Postby kiklion » Wed May 09, 2012 6:49 pm UTC

iamspen wrote:They say so in the Frontline piece linked above.


Ok I will need to watch it when I get home.

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Re: Frontline: Money, Power and Wall Street.

Postby Dauric » Wed May 09, 2012 7:05 pm UTC

http://www.irishcentral.com/news/Irish-Nuns-sue-Morgan-Stanley-over-64-bond-losses-100518589.html

This is an article about recent developments in one particular case, just to add some additional sources.
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Re: Frontline: Money, Power and Wall Street.

Postby Dark567 » Wed May 09, 2012 7:08 pm UTC

Dauric wrote:Whatever the criteria, whatever the licensing process to be considered "Sophisticated", is clearly inadequate to regulate the process.
And what is your evidence of this? That someone massively fucked up? Bear Stern and Lehman surely would have met any criteria to qualify as "Sophisticated", and still massively fucked up, that's hardly evidence that the definition is bad.
(I'm interested to know the exact details on the convents thing though)

iamspen wrote:Why are you ignoring the Ponzi scheme aspect of these deals? Did you miss the part where credit ratings agencies intentionally overvalued assets so they could buy them and insure them, effectively betting against their own investments? Or the part where AIG (who is the least guilty party in this mess, IMO, but still committed heinously egrigious errors) insured these things knowing at least a susbstantial number of them would fail because, hey, a quick buck?
This is nonsense. The ratings agencies didn't buy and sell or insure derivatives, they rated them. AIG didn't believe nearly as many would fail, if they did they wouldn't have sold as much for the prices they did. No one at these institutions believed this was going to happen, much less know.

Your spouting conspiracy theories.
Dauric wrote:http://www.irishcentral.com/news/Irish-Nuns-sue-Morgan-Stanley-over-64-bond-losses-100518589.html

This is an article about recent developments in one particular case, just to add some additional sources.
Those sound like fixed-income instruments, usually not considered derivatives. That said, sounds like MS's brokerage fucked up by not selling the bonds in their account when they were required too. This is a completely different situation than the one you describe above.
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Re: Frontline: Money, Power and Wall Street.

Postby iamspen » Wed May 09, 2012 7:14 pm UTC

Dark567 wrote:This is nonsense. The ratings agencies didn't buy and sell or insure derivatives, they rated them. AIG didn't believe nearly as many would fail, if they did they wouldn't have sold as much for the prices they did. No one at these institutions believed this was going to happen, much less know.

Your spouting conspiracy theories.


No. It's what happened. Insiders have said it's what happened. Credit ratings agencies gave AAA ratings to toxic assets that were doomed to fail because profit. It's verifiable information. Loans were given and broken up and repackaged because lending institutions knew that, no matter how shitty those loans were, they'd be given a high rating. Then they bet against their own investments. And even if there weren't a plethora of sources for this information, not the least of which is linked in this very thread, Occam's razor suggests that the alternative, that these things happened independent of each other and were entirely coincidental, is even more implausible than the suggestion of collusion.

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Re: Frontline: Money, Power and Wall Street.

Postby Dark567 » Wed May 09, 2012 7:18 pm UTC

iamspen wrote: It's verifiable information.
Verify it.

And this:
Then they bet against their own investments
is literally a contradiction. You can't bet against your own investment. :-/ You can hedge it, you can insure against it. But if your betting against it, your not investing in it.
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