What Major said. Look at some other examples, Look at the Shanghai Housing index. This market had two massive speculative bubbles collapse recently in 2006 and again in 2008, and is currently inflating a third. But none of these collapses really seriously threatened even the Chinese economy, let alone the Global one, because the risk wasn't alchemized into something that the financial system asa whole was placing big (leveraged) bets on. Don't believe me? Google the phrase "China MBS" - you get a listing of chinese restaurants ouside of Saginaw, Michigan. Then look at the Dutch Tulip Mania of 1630. It basically destroyed the entire dutch economy for decades - why? It's not like the dutch economy was built on Tulips before the 1600's. Why did it hurt the Dutch? Because they developed futures markets and other instruments that caused people to make bigger and bigger bets on the bubble and exacerbated the crisis outside of the Tulip market to the economy as a whole (where people were betting the House) until the music stopped.
First check out the difference between MBS, CDO and CDS. You seem to get all hanged up on this "big (leveraged) bets, synthetic CDOs", those might sound all fancy to someone is observing from outside, and its easy to point at one thing as the culprit. But its usually a lot more complicated.
It's really not as complicated as you claim. A property bubble that isn't exported and multiplied throughout the globe via financial products designed to spread risk (which instead amplified it) is, by definition, going to be less disruptive than one that is.
I don't actually disagree with you on this, I just don't agree with the number one bullseye you and few others are putting on the CDS product.
You guys are over-analyzing this. The cause was a bunch of greedy mothereffers decided to go from rich to ridiculously rich and set up a bunch of crap transactions that more resembled a ponzi scheme than a modern economy. We missed the chance to really regulate these assholes when everyone panicked and passed TARP the way the Bush administration wanted it passed.
The SNL crisis of the late eighties didn't cause a global panic, it didn't even threaten to take down our own financial system.
They had some solid players in Phil Hartman, Jon Lovitz etc - obviously Kevin Nealon or A. Whitney Brown was nothing super special, but those guys held down the fort enough for young talent like Chris Farley, Chris Rock, Adam Sandler etc to shine a few years later.
I really think that we have seen merely the tip of the iceberg when it comes to commercial real estate.
Good point, and as Major and several others have stated without the tremendous overleveraging of the financial sector utilizing derivatives, swaps, etc. we would not have come near the brink of worldwide economic destruction. Lehman, Bear Stearns, AIG, etc. did not bankrupt themselves because people stopped paying their mortgages. They bankrupted themselves because of what they did with those mortgages, how much debt they took on to play the game, and how much risk they exposed themselves to. The former CEO of Citigroup Charles O. Prince said in November 2007: "As long as the music is playing, you've got to get up and dance." This metaphor summarized how financial institutions took advantage of easy credit conditions, by borrowing and investing large sums of money, a practice called leveraged lending. Debt taken on by financial institutions increased from 63.8% of U.S. gross domestic product in 1997 to 113.8% in 2007. http://www.newleftreview.org/?getpdf=NLR28403&pdflang=en A 2004 SEC decision related to the net capital rule allowed USA investment banks to issue substantially more debt, which was then used to help fund the housing bubble through purchases of mortgage-backed securities. From 2004-07, the top five U.S. investment banks each significantly increased their financial leverage (see diagram), which increased their vulnerability to a financial shock. These five institutions reported over $4.1 trillion in debt for fiscal year 2007, about 30% of USA nominal GDP for 2007. Lehman Brothers was liquidated, Bear Stearns and Merrill Lynch were sold at fire-sale prices, and Goldman Sachs and Morgan Stanley became commercial banks, subjecting themselves to more stringent regulation. With the exception of Lehman, these companies required or received government support. http://www.nytimes.com/2008/10/03/business/03sec.html Another example relates to AIG, which insured obligations of various financial institutions through the usage of credit default swaps. The basic CDS transaction involved AIG receiving a premium in exchange for a promise to pay money to party A in the event party B defaulted. However, AIG did not have the financial strength to support its many CDS commitments as the crisis progressed and was taken over by the government in September 2008. http://www.bloomberg.com/apps/news?pid=20601109&sid=aKKRHZsxRvWs&refer=home IMO it comes down to AIG, they're insuring all of this crap and when everyone came calling for them to pay up they couldn't. Except AIG isn't Omaha Insurance Company that goes belly up when a couple of counties flood and destroy crops in the midwest. They are a gargantuan, worldwide, systemic bombshell. Tulips or mortgages doesn't matter the product it matters when that product is called AAA when it's not, packaged together, overleveraged to infinity and then bet against and insured by companies who exposed themselves to too much of it's risk.
better and better! Disappointed that the "too big to fail amendment" didn't pass. But it looks like it's going to be a strong bill. Wall Street Reform Takes A Populist Turn Anti-Wall Street sentiment is so strong and Republicans have such a weak hand that Democrats in the Senate are suddenly finding themselves strengthening the financial reform bill with new amendments and beating back GOP attempts to weaken it. The latest evidence of this populist surge is that the Senate is now expected to adopt an amendment, authored by Sen. Bernie Sanders (I-VT), that will require an audit of all of the Fed's emergency lending activities, starting in late 2007.* Sanders' success in winning support for his amendment is emblematic of the greater debate over financial reform, which has, thanks to the Democrats' aggressive political posture, and the unpopularity of Wall Street, been much more favorable to progressives, even over the objection of powerful interests. The Sanders measure is similar to a Fed audit proposal that was included in the House's financial reform legislation, which passed last December, and should simplify the process of ironing out the differences between the two bills in a conference committee.
This is one idea that I think is absolutely terrible. I understand the rationale that this stuff shouldn't be secret, but you can just see this playing out with the politicalization of the Fed. Every decision made by the Fed is going to be subject to the scrutiny - and political posturing - of a bunch of Congresspeople who know relatively little about economics and are not going to have any rational grasp on what the Fed is doing or why. And they are going to use it to force the Fed to play politics, which is TERRIBLE for economic policy. I would suggest that if we want the Fed's policies to be public but not politicized, we just make available the information after something like 8 or 10 years.
I'm guessing that Rush Lamebaugh will claim today that yesterday's mystery drop in the S&P was the work of econo-terrorist trying to influence the bill in Congress. It's as plausible an assertion as any other he has made lately. But the events do show how vulnerable the system is to attack. Infiltrators into the murky world of electronic algorithm trading can knock trillions out of the US economy within minutes and hurt us a lot more than any bomb.
Like any bubble, its the amplifier that causes the most damage. The CDS was insurance which under the 'moral hazard' issue allowed companies to act more aggressively. They were who cares...i'm covered! Also CDS' became used at after they allowed the 5 billlion or over firms to lever up beyond the net capital rule they required insurance which a majority was in the form of CDS'. This was based on pleading of every major house to allow them to lever up. I think we're going nuts on all this regulatory stuff and they just need to limit leverage. Any bubble expands based on bets beyond what they can withstand and leverage is the rocket fuel. If Bear Stearns wasn't levered at 40 to 1, Lehman 33 to 1 and Fannie/Freddie around 50 to 1, along with other firms this wouldn't have had the severe effect that it did.
passed By a vote of 59-39 tonight, the Senate passed sweeping legislation to tighten the rules governing the U.S. financial system.
Guys, what were your opinions on the SAFE Banking Amendment? Seems like our government was chickenshiet worried that "Big Government" would interfere too much with "free markets". The money list seems to wipe that benefit of the doubt. 61 Senators Perpetuate "Too Big to Fail" ... OK, so why not just end "too big to fail"? The SAFE Banking Act recently came up for a vote. This amendment, which would have limited the size of bank liabilities to the $300 billion to $400 billion range, was literally "a vote to end too big to fail." It didn't pass. Why did 61 senators vote to preserve -- instead of fix -- the problem? It can't be because megabanks are better for the economy -- there are no efficiencies of scale in banking beyond $100 billion. Nor is it because megabanks charge lower fees to their customers -- they don't. Instead, Donny Shaw of A New Way Forward discovered that senators who voted to perpetuate "too big to fail" received an average of $3.5 million in campaign contributions from the financial sector during their career -- twice what those who voted in favor of the bill received. Now, 33 senators did stand up to lobbyists by voting for this amendment. But just as it's important to hold banks responsible for their failures, it's only fair that we hold politicians responsible for theirs. And the vote on this critical issue was buried in a busy news day that included the market flash crash -- presumably in order to shield the 61 senators who voted with Wall Street. So without further ado, here are the names of the 33 senators who voted to end too "big to fail" -- and of the 61 who voted to preserve it, thus making future economic catastrophes more likely. The 33 "Yes" votes to end "too big to fail" Senator Career $ From Finance Sen. Mark Begich [D-AK] $412,637 Sen. Carl Levin [D-MI] $2,260,576 Sen. Jeff Bingaman [D-NM] $1,059,499 Sen. Blanche Lincoln [D-AR] $2,447,809 Sen. Barbara Boxer [D-CA] $2,765,288 Sen. Jeff Merkley [D-OR] $721,157 Sen. Sherrod Brown [D-OH] $1,620,430 Sen. Barbara Mikulski [D-MD] $1,301,068 Sen. Roland Burris [D-IL] $4,900 Sen. Patty Murray [D-WA] $1,687,337 Sen. Maria Cantwell [D-WA] $1,878,690 Sen. Mark Pryor [D-AR] $1,345,008 Sen. Ben Cardin [D-MD] $2,756,636 Sen. Harry Reid [D-NV] $4,389,858 Sen. Bob Casey [D-PA] $1,355,841 Sen. Jay Rockefeller [D-WV] $2,213,734 Sen. Tom Coburn [R-OK] $1,078,264 Sen. Bernie Sanders [I, VT] $181,095 Sen. Byron Dorgan [D-ND] $1,455,834 Sen. Richard Shelby [R-AL] $5,371,330 Sen. Richard Durbin [D-IL] $3,055,424 Sen. Arlen Specter [D-PA] $6,406,258 Sen. John Ensign [R-NV] $2,589,370 Sen. Debbie Stabenow [D-MI] $1,899,835 Sen. Russell Feingold [D-WI] $990,917 Sen. Tom Udall [D-NM] $1,062,336 Sen. Al Franken [D-MN] $1,022,598 Sen. Jim Webb [D-VA] $563,161 Sen. Thomas Harkin [D-IA] $2,534,445 Sen. Sheldon Whitehouse [D-RI] $1,222,607 Sen. Ted Kaufman [D-DE] $0 Sen. Ron Wyden [D-OR] $2,658,024 Sen. Patrick Leahy [D-VT] $615,682 TOTAL $60,927,648 The 61 "No" votes to preserve "too big to fail" Senator Career $ From Finance Sen. Daniel Akaka [D-HI] $556,295 Sen. Mike Johanns [R-NE] $697,621 Sen. Lamar Alexander [R-TN] $4,940,775 Sen. Tim Johnson [D-SD] $3,143,865 Sen. John Barrasso [R-WY] $295,932 Sen. John Kerry [D-MA] $18,112,577 Sen. Max Baucus [D-MT] $4,790,487 Sen. Amy Klobuchar [D-MN] $734,117 Sen. Evan Bayh [D-IN] $4,393,347 Sen. Herbert Kohl [D-WI] $73,950 Sen. Michael Bennet [D-CO] $835,796 Sen. Jon Kyl [R-AZ] $3,741,994 Sen. Kit Bond [R-MO] $3,255,538 Sen. Mary Landrieu [D-LA] $2,500,584 Sen. Scott Brown [R-MA] $1,015,364 Sen. Frank Lautenberg [D-NJ] $3,478,817 Sen. Samuel Brownback [R-KS] $1,336,269 Sen. George LeMieux [R-FL] $0 Sen. Richard Burr [R-NC] $2,988,952 Sen. Joe Lieberman [I, CT] $10,084,996 Sen. Thomas Carper [D-DE] $2,311,778 Sen. John McCain [R-AZ] $33,474,029 Sen. Saxby Chambliss [R-GA] $3,483,860 Sen. Claire McCaskill [D-MO] $863,393 Sen. Thad Cochran [R-MS] $662,234 Sen. Mitch McConnell [R-KY] $5,247,103 Sen. Susan Collins [R-ME] $2,273,113 Sen. Robert Menéndez [D-NJ] $4,151,772 Sen. Kent Conrad [D-ND] $2,507,437 Sen. Lisa Murkowski [R-AK] $875,690 Sen. Bob Corker [R-TN] $3,150,750 Sen. Bill Nelson [D-FL] $3,213,078 Sen. John Cornyn [R-TX] $4,597,492 Sen. Ben Nelson [D-NE] $2,844,056 Sen. Michael Crapo [R-ID] $1,779,063 Sen. Jack Reed [D-RI] $2,897,782 Sen. Chris Dodd [D-CT] $14,367,412 Sen. James Risch [R-ID] $228,711 Sen. Michael Enzi [R-WY] $1,087,043 Sen. Pat Roberts [R-KS] $1,647,286 Sen. Dianne Feinstein [D-CA] $3,657,556 Sen. Charles Schumer [D-NY] $15,918,336 Sen. Kirsten Gillibrand [D-NY] $2,334,456 Sen. Jeff Sessions [R-AL] $2,158,535 Sen. Lindsey Graham [R-SC] $1,951,429 Sen. Jeanne Shaheen [D-NH] $1,046,765 Sen. Chuck Grassley [R-IA] $2,605,399 Sen. Olympia Snowe [R-ME] $1,700,184 Sen. Judd Gregg [R-NH] $1,070,249 Sen. Jon Tester [D-MT] $603,993 Sen. Kay Hagan [D-NC] $585,694 Sen. John Thune [R-SD] $3,636,776 Sen. Orrin Hatch [R-UT] $2,481,543 Sen. Mark Udall [D-CO] $1,781,168 Sen. Kay Hutchison [R-TX] $4,694,038 Sen. George Voinovich [R-OH] $2,770,340 Sen. James Inhofe [R-OK] $1,477,202 Sen. Mark Warner [D-VA] $2,632,766 Sen. Daniel Inouye [D-HI] $1,453,487 Sen. Roger Wicker [R-MS] $1,263,098 Sen. John Isakson [R-GA] $3,849,408 TOTAL $218,312,780 As one senator recently noted, "banks ... frankly own this place." I don't know about you, but to me, this arrangement seems outrageous. It's not how free markets or democracies are supposed to work. If you want to let your senators know how you feel about banks gutting Wall Street reform, click here for their contact information.
