I can't believe no one's posted this yet. It's getting a fair amount of press from some bigger outlets. And I know nothing about Pro Publica or their political leanings. But they're working with NPR which is probably the most objective major news outlet in the country.

Well, in a sense, everyone. But mostly it's the fat cats on Wall Street trying to line their own pockets. At the very least they exacerbated an underlying problem that no one pointed out. At worst, they ran up the prices of investments they knew were worthless while lining their own pockets. It's hard to see the coming tsunami when everyone's making money but after reading this article it appears it's a little closer to the latter.

http://www.propublica.org/article/banks-self-dealing-super-charged-financial-crisis

Beware, it's a long read.

Quote :

"Over the last two years of the housing bubble, Wall Street bankers perpetrated one of the greatest episodes of self-dealing in financial history. Faced with increasing difficulty in selling the mortgage-backed securities that had been among their most lucrative products, the banks hit on a solution that preserved their quarterly earnings and huge bonuses: They created fake demand. A ProPublica analysis shows for the first time the extent to which banks -- primarily Merrill Lynch, but also Citigroup, UBS and others -- bought their own products and cranked up an assembly line that otherwise should have flagged. The products they were buying and selling were at the heart of the 2008 meltdown -- collections of mortgage bonds known as collateralized debt obligations, or CDOs. As the housing boom began to slow in mid-2006, investors became skittish about the riskier parts of those investments. So the banks created -- and ultimately provided most of the money for -- new CDOs. Those new CDOs bought the hard-to-sell pieces of the original CDOs. The result was a daisy chain [1] that solved one problem but created another: Each new CDO had its own risky pieces. Banks created yet other CDOs to buy those. Individual instances of these questionable trades have been reported before, but ProPublica's investigation, done in partnership with NPR's Planet Money [2], shows that by late 2006 they became a common industry practice. An analysis by research firm Thetica Systems, commissioned by ProPublica, shows that in the last years of the boom, CDOs had become the dominant purchaser of key, risky parts of other CDOs, largely replacing real investors like pension funds. By 2007, 67 percent of those slices were bought by other CDOs, up from 36 percent just three years earlier. The banks often orchestrated these purchases. In the last two years of the boom, nearly half of all CDOs sponsored by market leader Merrill Lynch bought significant portions of other Merrill CDOs [3]. ProPublica also found 85 instances during 2006 and 2007 in which two CDOs bought pieces of each other's unsold inventory. These trades, which involved $107 billion worth of CDOs, underscore the extent to which the market lacked real buyers. Often the CDOs that swapped purchases closed within days of each other, the analysis shows. There were supposed to be protections against this sort of abuse. While banks provided the blueprint for the CDOs and marketed them, they typically selected independent managers who chose the specific bonds to go inside them. The managers had a legal obligation to do what was best for the CDO. They were paid by the CDO, not the bank, and were supposed to serve as a bulwark against self-dealing by the banks, which had the fullest understanding of the complex and lightly regulated mortgage bonds. It rarely worked out that way. The managers were beholden to the banks that sent them the business. On a billion-dollar deal, managers could earn a million dollars in fees, with little risk. Some small firms did several billion dollars of CDOs in a matter of months. "All these banks for years were spawning trading partners," says a former executive from Financial Guaranty Insurance Company, a major insurer of the CDO market. "You don't have a trading partner? Create one." Get ProPublica's latest headlines and major investigations delivered to your inbox. [4] The executive, like most of the dozens of people ProPublica spoke with about the inner workings of the market at the time, asked not to be named out of fear of being sucked into ongoing investigations or because they are involved in civil litigation. Keeping the assembly line going had a wealth of short-term advantages for the banks. Fees rolled in. A typical CDO could net the bank that created it between $5 million and $10 million -- about half of which usually ended up as employee bonuses. Indeed, Wall Street awarded record bonuses in 2006, a hefty chunk of which came from the CDO business. The self-dealing super-charged the market for CDOs, enticing some less-savvy investors to try their luck. Crucially, such deals maintained the value of mortgage bonds at a time when the lack of buyers should have driven their prices down. But the strategy of speeding up the assembly line had devastating consequences for homeowners, the banks themselves and, ultimately, the global economy. Because of Wall Street's machinations, more mortgages had been granted to ever-shakier borrowers. The results can now be seen in foreclosed houses across America. The incestuous trading also made the CDOs more intertwined and thus fragile, accelerating their decline in value that began in the fall of 2007 and deepened over the next year. Most are now worth pennies on the dollar. Nearly half of the nearly trillion dollars in losses to the global banking system came from CDOs, losses ultimately absorbed by taxpayers and investors around the world. The banks' troubles sent the world's economies into a tailspin from which they have yet to recover. It remains unclear whether any of this violated laws. The SEC has said [5] that it is actively looking at as many as 50 CDO managers as part of its broad examination of the CDO business' role in the financial crisis. In particular, the agency is focusing on the relationship between the banks and the managers. The SEC is exploring how deals were structured, if any quid pro quo arrangements existed, and whether banks pressured managers to take bad assets. The banks declined to directly address ProPublica's questions. Asked about its relationship with managers and the cross-ownership among its CDOs, Citibank responded with a one-sentence statement: "It has been widely reported that there are ongoing industry-wide investigations into CDO-related matters and we do not comment on pending investigations." None of ProPublica's questions had mentioned the SEC or pending investigations. Posed a similar list of questions, Bank of America, which now owns Merrill Lynch, said: "These are very specific questions regarding individuals who left Merrill Lynch several years ago and a CDO origination business that, due to market conditions, was discontinued by Merrill before Bank of America acquired the company." This is the second installment of a ProPublica series about the largely hidden history of the CDO boom and bust. Our first story [6] looked at how one hedge fund helped create at least $40 billion in CDOs as part of a strategy to bet against the market. This story turns the focus on the banks. "

It makes me sick knowing that these people are, as a whole, are the most successful and well-paid professionals in the world.

Here's a good discussion on housing/investments/bubbles.

Visit msnbc.com for breaking news, world news, and news about the economy

8/28/2010 11:59:33 PM

I thought that such escapades were fairly well known at this point.

Regardless, I clicked on this thread because your title phrasing echoed that of salisburyboy back in the day and I hoped that the top of the page would say THE JEWS.

8/29/2010 12:14:49 AM

sorry to disappoint

8/29/2010 12:18:24 AM

Not this stale as shit argument again…

8/29/2010 12:19:45 AM

Quote :

"Who's REALLY at fault for the economic meltdown? "

Answer: Everyone in the freaking world. Happy now, you have someone to blame. Now we can get back to the real problem. Why and how did it happen, and how do we prevent it in the future?

This blame game shit is getting old.

8/29/2010 4:25:59 PM

MAIN STREET not WALL STREET rabble rabble rabble

8/29/2010 4:47:52 PM

Quote :

"Now we can get back to the real problem. Why and how did it happen, and how do we prevent it in the future? "

Are you retarded? The article explains how and why it happened and the way we prevent it from happening again is to correctly place blame and prevent investment bankers from creating massive bubbles through shady dealings.

Has anyone actually read the article?

8/29/2010 4:51:18 PM

It's clear that Wall Street will always and forever be ahead of the regulatory agencies. Just like at the current state of high frequency trading. Everyone outside of the players profiting off of this business can look at it and say this serves no utilitarian purpose to society and carries with it unnecessary risks and yet the SEC won't even go so far as to say "turn the machines off until we come up with prudent regulation". I think we need a panel that reviews violations not just of the black letter but also the spirit of any law and if violators are found then they should be banned from Wall Street or any security packaged and traded in a way related to Wall Street for a decade. The punishments are simply not severe in the least for the crimes perpetrated on society.

8/29/2010 5:18:13 PM

Quote :

"I think we need a panel that reviews violations not just of the black letter but also the spirit of any law and if violators are found then they should be banned from Wall Street or any security packaged and traded in a way related to Wall Street for a decade. The punishments are simply not severe in the least for the crimes perpetrated on society."

That doesn't strike you as a dangerous precedent? We're going to punish you for violating the law we meant to pass instead of the law we really passed?

8/29/2010 7:24:43 PM

I think the punishment fits the crime there. It's not like they lose anything but their job that they're irresponsibly doing... which isn't the case right now. If you don't do your job competently, wouldn't you expect to lose it?

8/29/2010 8:31:51 PM

Quote :

"That doesn't strike you as a dangerous precedent? We're going to punish you for violating the law we meant to pass instead of the law we really passed"

So long as laws are super detailed, there will always be lawyers picking them apart for loopholes. And I imagine if I offered we should have simple broad laws, there will be someone to argue that leaves too much uncertainty for private business as to what is allowed and not allowed. This would be fine to me and we'll leave it to judges or juries to decide when consumers have been harmed.

Here is a timely of example of how Wall Street is trying to extract maximum wealth from the economy

http://tickerforum.org/cgi-ticker/akcs-www?singlepost=2148265

Quote :

"Oh, incidentally there is no clear disclosure in these solicitations that these cards are not subject to the protections of the CARD act - I looked. Don't you think, CONgress and The Fed (which claims to be the "enforcer" of consumer protection), that the least you should do is require that these banks display in prominent 18pt bold type that these cards carry none of the protections under the law that consumer cards now have? Naw, doing that would mean that people would have fair notice that the banks are trying to pull yet another evasion around what are supposed to be reasonable consumer protections."

A clear violation of the spirit of CFPA, a business decision no doubt arrived at after hundreds of lawyers combed through the law and figured out a way around it. As a consumer, I simply shouldn't have to wade through thousands of words of small lawyer speak to figure out that this credit card is not subject to laws other credit cards are subject to.

8/29/2010 9:16:08 PM

The solution was to not bail them out. Anything else is just missing the point. If you want to punish someone, legally, punish everyone in Congress that voted for it.

8/29/2010 9:25:56 PM

Unfortunately, that does nothing to prevent the same bad actors from perpetuating fraud on the economy in some new fashion. They still have access to the same networks of people that help them and others like them to skim money from society in one way or the other.

8/29/2010 9:28:25 PM

Nothing withers your network of people faster than owing people money that you cannot pay back.

And the only people capable of skimming money from society are Congressmen. Everyone else must first convince people to give them their money. And nothing makes that harder than bankruptcy.

[Edited on August 30, 2010 at 1:31 AM. Reason : .,.]

8/30/2010 1:31:01 AM

^So congress isn't supposed to do the job delegated to them with regards to budgeting and spending?

I mean, you can talk about how much you want them to have to work with, but spending the money in the treasury is kind of what you're supposed to do in congress. It's article 1.

This isn't a statement on what "common welfare" means, it's just a statement that, yeah, congress does have the power legally to tax and spend.

[Edited on August 30, 2010 at 3:27 PM. Reason : .]

8/30/2010 3:24:33 PM

Quote :

"Because of Wall Street's machinations, more mortgages had been granted to ever-shakier borrowers. The results can now be seen in foreclosed houses across America."

Isn't this also laying some of the blame on the borrowers, not just the lenders? After all, it takes two to tango...

8/31/2010 12:40:37 AM

I don't think you can really blame either side. The borrowers were following the will of the market as were the lenders. It will always be either the lack or existence of legislation. You can't blame the ship for hitting the iceburg and you can't blame the iceburg for sinking the ship, the blame will always reside on the captain for either steering it too much or too little.

8/31/2010 1:00:42 AM

So, PinkandBlack, is it your assertion that all previous Congresses that didn't bail out failed corporations were not doing "the job delegated to them"? I did not realize the Constitution required Congress to pass whatever bill came to the floor.

That said, I think an Amendment to make bailouts unconstitutional would allow us to bailout current idiots and avoid moral hazard. But I suspect the democratic process will work in this instance. After the next round of bailouts, which theory suggests will be much larger than the last round, bailouts will be sufficiently unpopular that politicians will be unwilling to grant them under any circumstances for at least a generation. History does show that this is not the first time that western government experimented with bailouts during financial crisis, they ended badly last time, and they will end badly this time.

8/31/2010 8:41:59 AM

I like how you speak in such absolutes on a subject that certainly isn't one.

8/31/2010 9:17:27 AM

I think the a decent solution would just be to make bonuses illegal for Wall Street employees. They can still be paid huge wages, but when they're making risky deals in order to create massive bonuses for themselves they should lose the privilege of getting bonuses. Some of you might argue that this is too much interference in a private business but when a business like this is capable of affecting the entire economy there need to be different rules. If a company still wants to pay an employee a huge basic salary that's well within their right but the way the current system is set up we're basically incentivizing bad behavior and that is unacceptable.

Remove bonuses and bailouts and the investment banks will start operating they're supposed to operate.

8/31/2010 7:07:02 PM

#1) blatantly unConstitutional.
#2) They'll just find other ways to pay them the bonuses.
#3) Horribly bad idea to begin with.

The proper thing to do is not to bail out companies in the first place. Then the crazy bonuses for taking asinine risks won't be likely to come back, as companies know they will be fucked when the risks don't pay off.

8/31/2010 7:13:46 PM

I'm just curious, which part of the constitution says that this can't be done?

I'm fairly certain there exists legal structures already in place via the various regulators that could enforce something like this. However, I don't think we really need to go that far if we set up other aspects of our economy such that finance doesn't pay off the way it currently does.

You know there is something fucked about your society when engineers, physicists, and math PHds are being employed not tackling some of the most difficult problems of our generation (pick one, energy, cancer research, agriculture) but instead are coming up with computer algorithms to treat the stock markets like a casino that can be exploited through something dubious and fraudulent means.

There is no reason to treat finance like anything other than a means to an end. We don't need a 3000 page bill to do it either.

8/31/2010 9:32:02 PM

which part of the Constitution says it can't be done? Maybe the part that says "you can't make laws directed at one person or a group of specific people," for starters...

8/31/2010 10:48:08 PM

^^ The allocation of scarce resources is valuable. Thanks to the people on wallstreet doing better at allocating scarce capital, our farmers and cancer researchers have better equipment than they otherwise would have.

I am not talking marginally, either. If it were not for the people working on market allocation, we would not have ANY cancer researchers, as there would be no workers left as 80% of us would still work in agriculture.

8/31/2010 11:41:21 PM

CEO pay back to record levels

http://www.newsweek.com/2010/08/31/ceo-crybabies.html

9/1/2010 2:29:15 AM

Quote :

"which part of the Constitution says it can't be done? Maybe the part that says "you can't make laws directed at one person or a group of specific people," for starters..."

No, I mean which amendment/article is that articulated in. I'm not a constitution pro and you seem to be one by your assertion. I just assumed you could quickly point me to that section or case law discussing it.

Quote :

"^^ The allocation of scarce resources is valuable. Thanks to the people on wallstreet doing better at allocating scarce capital, our farmers and cancer researchers have better equipment than they otherwise would have. "

That's a pretty generic description of the current state of Wall Street, no? Apparently "better" in your terms means creating "financial weapons of mass destruction", relying on math models rather than common sense, and sucking up vast intellectual resources aimed at endeavors that are designed to skim profits off of the capital markets to the benefit of executives and shareholders (where that money gets plowed back into the same system).

Quote :

"I am not talking marginally, either. If it were not for the people working on market allocation, we would not have ANY cancer researchers, as there would be no workers left as 80% of us would still work in agriculture."

I would assume a rant about high frequency trading wouldn't be construed as a rant against the entire idea of capital allocation via capital markets, but I'm not surprised a slave to the free markets would construe it this way. Somehow, this nation was functioning completely perfectly for generations without any means of electronic stock exchange, was then functioning perfectly fine for a couple decades with them, and now all of a sudden I read reports on a near daily basis of computer programs gone amuck. And btw, when that happens, the perps of those programs aren't actually fined or punished in anyway, they are just canceling trades. This is before considering the other flaws in a system aimed not at connecting those with capital to risk with those that need it, but rather to skim a little off the top of that system while managing to destabilize that system to the detriment of many for the profit of few.

9/1/2010 9:02:20 AM

So, you believe that before computers, no stock trader ever made a mistake? Trust me, they did. Of course, then as now, mistakes are punished: the owners of a computer program or an error prone human trader must eat the losses that come from selling low and buying high.

On the other hand, if these systems you rant against are actually producing profits by selling high and buying low, then they are a benefit to society, as they are making prices more stable and accurate. Someone is paying these people for their efforts, it must be profitable. And it must not be that destabilizing, as the exchanges are private entities and perfectly capable of banning such practices if they are driving away customers.

9/1/2010 9:24:22 AM

Quote :

"On the other hand, if these systems you rant against are actually producing profits by selling high and buying low, then they are a benefit to society, as they are making prices more stable and accurate. Someone is paying these people for their efforts, it must be profitable. And it must not be that destabilizing, as the exchanges are private entities and perfectly capable of banning such practices if they are driving away customers."

But these systems that people like myself have helped create don't create real growth, they game the system and take advantages of loopholes in laws or holes in poorly concieved security rating systems. They do destablize the system by creating demand that isn't really there by creating profits that shouldn't be there.

9/1/2010 10:04:31 AM

The money must come from somewhere. "Profits that shouldn't be there" are still profits; they are coming from someone. Why is that someone happy paying your profits? Why not go talk to them about why you believe they should stop paying you. You don't need an act of Congress to address this problem. Contracts are not signed under a gun, they are negotiated, and so you can only be taking advantage of someone that wants you to do so.

Quote :

"security rating systems"

i stand corrected. You are referring to acts of Congress that have gamed the system. The problem is not the gaming, they are the acts of Congress that codify them into law. The solution, of course, was to allow the credit ratings agencies to go bankrupt and not be replaced. But this would have taken an act of Congress to repeal these perverse laws. What we don't need are even more perverse laws.

[Edited on September 1, 2010 at 12:16 PM. Reason : .,.]

9/1/2010 12:14:19 PM

Quote :

"Why not go talk to them about why you believe they should stop paying you."

The Madoff principle.

Quote :

"you can only be taking advantage of someone that wants you to do so"

Or if you're lying to them.

Quote :

"You are referring to acts of Congress that have gamed the system. The problem is not the gaming, they are the acts of Congress that codify them into law. The solution, of course, was to allow the credit ratings agencies to go bankrupt and not be replaced."

Many of them are private entities tasked with a job far more important than they should be responsible for.
I love this "just don't bail them out" argument as well, it's so wonderfully ignorant. By the failure of the company that took too much risk other companies will then know not too take that much risk again right? But by not bailing out one company we hurt innocent bystanders as well. What about the undeserving companies that took a correct amount of risk and were still hurt? Would the lesson for them not be to take an even lesser amount of risk, thereby not satisifing ideal market equilibrium? You people need to understand this basic inaccuracy in capitalism. It does not price goods correctly in this situation because of this very reason. Interdependence causes this level of instability.

[Edited on September 1, 2010 at 12:33 PM. Reason : ]

9/1/2010 12:33:34 PM

Quote :

"So, you believe that before computers, no stock trader ever made a mistake?"

You are misunderstanding. I'm making the case that HFT activities involving 1000s quotes/sec designed to try and discern order flow for the purposes of front running orders or for the purposes of distorting the NBBO aren't ethical and are certainly not productive endeavors. The non computer analogues of 30+ years ago involving the trading floor had laws enacted to stop them.

I can only imagine how many people had generous stop loss triggers (10% on stodgy dividend paying giants that might move that much in months) that got ejected out of their stock because these stupid fucking computers that you claim are providing a net benefit to the market (in the form of liquidity, though I don't know if you know that) decided to step out of the way.

Quote :

"On the other hand, if these systems you rant against are actually producing profits by selling high and buying low, then they are a benefit to society, as they are making prices more stable and accurate."

The profit to be made is completely disconnected with accurate and stable prices. This is before considering just how quickly the machines are turned off when things look weird as they did on May 6.

Quote :

"as the exchanges are private entities and perfectly capable of banning such practices if they are driving away customers."

By many measures, customers are disappearing from the markets. The bulk of the trading volume is made up of a handful of the most liquid stocks. It just so happens that these are the stocks that have heavy investment from the pension and mutual fund community which are often moving large volumes of shares around. I haven't nailed it down yet, but I feel like the appearance of liquidity encourages fund managers to move funds around more. So we get yet another positive feedback mechanism into the stock markets casino. Of course, these inefficiencies take time to show their face in the form of increased management costs to the mutual funds (which will have people leaving) and increased dislocations thanks to computer programs that blow up.

Look, I'm on your side when it comes to capitalism. I think it eventually works out the problems. But I suppose I'm arrogant enough to think we can by policy look at endeavors that don't make intuitive sense and put the breaks on them before they blow the economy up.

9/1/2010 2:42:30 PM

Quote :

"No, I mean which amendment/article is that articulated in."

http://www.lmgtfy.com/?q=Bill+of+Attainder

Quote :

"But by not bailing out one company we hurt innocent bystanders as well."

Bystanders are hurt even more when we bail out the companies. This is the perfect example, where we have a huge economic calamity caused by previous bailouts. No company would have taken such huge risks without the possibility of a bailout in the back of its mind.

9/1/2010 6:56:53 PM

I don't think you understand how the regulators work. The Fed could easily claim that percentage based bonuses are banned if corporations want access to the discount window.

And it seems from my wikipedia-ing bills of attainder, they are mostly related to after the fact laws that a legislature would try to pass. A ban on bonuses would be no different in spirit than a minimum wage. They are both intervention in the free market, but a ban on bonuses wouldn't be a punishing or taking of private property without trial.

Pretty good try though, for the soap box and all.

Quote :

"caused by previous bailouts. "

Which previous bailouts?

[Edited on September 1, 2010 at 8:10 PM. Reason : .]

9/1/2010 8:08:22 PM

haha. bills of attainder are not the same as ex post facto laws. Those are two distinctly different things.

Quote :

"but a ban on bonuses wouldn't be a punishing or taking of private property without trial."

how the fuck do you figure? Telling a specific group they can't have X at all is the definition of a bill of attainder.

Quote :

"Which previous bailouts?"

you might wanna do some more googling.

9/1/2010 8:55:37 PM

Why are we discussing what the Fed can do if we're talking about the constitutionality of an action?

Quote :

"No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility."

The Federal Reserve itself is unconstitutional. It takes over one of Congress' functions. The argument is that the Federal Reserve (or any central bank) must be an independent institution, otherwise the money creation process would be politicized. Of course, it's already politicized, because Congress couldn't continue to spend if it were not for the Fed, and the Fed is aware of that. Plus, we don't even know what exactly the Fed purchases. If Congress were responsible for issuing money, do you really think they'd be able to get away with creating money out of thin air to pay for whatever? It'd be way too transparent. Everyone would see the inflation coming, and they'd hold politicians accountable. By having the Fed, there's a smokescreen up so they can purchase bonds and worthless securites, while pretending to worry about deflation.

9/1/2010 9:10:09 PM

Quote :

"By the failure of the company that took too much risk other companies will then know not too take that much risk again right? But by not bailing out one company we hurt innocent bystanders as well. What about the undeserving companies that took a correct amount of risk and were still hurt? Would the lesson for them not be to take an even lesser amount of risk, thereby not satisifing ideal market equilibrium?"

Only if you believe "ideal market equilibrium" should assume that no other market actors are under-pricing risk, which is stupid, as that is not the truth. The truth is that market actors often underprice their own risk and inflict risks upon others. Those other actors SHOULD plan accordingly, or lose their marbles. To suggest otherwise is folly on your part.

Quote :

"Many of them are private entities tasked with a job far more important than they should be responsible for."

I would say their job is far too important to grant George Bush a monopoly in capital allocation. It would be devastating for all our capital resources to be funneled into clearing brush and invading Iraq. After-all, many countries have had public entities managing their entire capital stock, Cuba and North Korea, all of them do the job about as good as we could expect George Bush to do.

9/1/2010 9:13:03 PM

Quote :

"how the fuck do you figure? Telling a specific group they can't have X at all is the definition of a bill of attainder."

Go back and read some more, you aren't understanding it. Attainder applies to existing contracts. I don't think Stoned is implying a claw back. He is implying a banning of writing a future contract promising a bonus.

Quote :

"you might wanna do some more googling."

Oh, so you're only interested in putting on the facade of knowing what you're talking about?

9/1/2010 10:01:37 PM

not at all. Preventing a specific subset of people someone from entering in to contracts with each other based on alleged wrong-doings via law is very much covered by BoAs.

As for bailouts, this isn't the first time we bailed out a car company. it's also not the first time we bailed out banks. It's common fucking knowledge. I don't have to prove to you that 2+2=4.

9/1/2010 10:22:28 PM

Quote :

"As for bailouts, this isn't the first time we bailed out a car company."

And what moral hazard was suffered from the Chrysler bailout? That these car companies would continue keeping pension promises made decades earlier? That they'd have the audacity to provide health insurance in the face of rising health care costs? That they'd be so brazen as to produce a shitty product in both quality and design that no one would want to buy? That they'd be so bold as to have to submit to the will of unionized labor? We're in agreement that car companies shouldn't be bailed out by taxpayer dollars, but they didn't fail on this go round because moral hazard lead them to make dumb decisions in a way similar to the banks. Btw, at the least, the US taxpayer profited from that bailout.

As far as bank moral hazard, your premise is wrong

Quote :

"No company would have taken such huge risks without the possibility of a bailout in the back of its mind"

The implication is they took risk because of an implicit bailout guarantee. It's just as easily arguable that they relied entirely too much on quant models that were proven to be severely flawed. If the case is they took risk because of a bailout guarantee, then how did Lehman get it so wrong? They weren't bailed out. So is the answer that they thought they had a bailout guarantee and were wrong, or did they have their models wrong? The latter is much more likely.

Quote :

"Telling a specific group they can't have X at all is the definition of a bill of attainder."

Not per Cummings v. Missouri. Not per U.S. v. Lovett. These are both dealing with cases where the Government is attempting to interfere with existing contracts. Please get this in your head, what Stoned has proposed is not a theft of already promised bonuses per an existing signed contract. This is where a bill of attainder would apply.

9/2/2010 10:40:12 AM

Quote :

"You are misunderstanding. I'm making the case that HFT activities involving 1000s quotes/sec designed to try and discern order flow for the purposes of front running orders or for the purposes of distorting the NBBO aren't ethical and are certainly not productive endeavors. The non computer analogues of 30+ years ago involving the trading floor had laws enacted to stop them."

Good post on ZH today about HFT: http://www.zerohedge.com/article/gft-forex-schlossberg-hft-destructive-and-does-nothing-frontrunning-and-quote-stuffing

The consensus seems to be that it's destructive, and I can see how. Nothing is added to the economy through this process, though some will argue that it's necessary for accurate pricing. Not sure if I agree or not, but I can see how HFT will result in a much sharper decline of the stock market, especially in the equity market.

9/2/2010 3:03:39 PM

Quote :

"The Federal Reserve itself is unconstitutional. It takes over one of Congress' functions."

It uses authority granted by Congress to do things that Congress ultimately has power over; btw this power is what makes the new "Audit the Fed" bill even feasible.

9/2/2010 3:25:46 PM

^^ Come on man. Don't you get it, information about this is known by everyone, perfectly. And it wouldn't exist unless all parties were profiting from it. Loneshark said so.

9/2/2010 5:45:55 PM

^^That sounds like the same justification that we used for the war resolutions. "Only Congress has the power to declare war, but since we have that power, we'll just give it to the President." The only difference is that the Executive branch is an actual branch of government, whereas the Fed is a secretive institution that has no constitutional basis. Either way, you can't just hand off powers like that.

9/2/2010 6:03:22 PM

Which part of the constitution says they can't?

9/2/2010 6:04:50 PM

If you're asking that question, I don't think you're reading the Constitution the way a constitution is meant to be read. Aside from certain parts of the Bill of Rights, the Constitution is not a list of things that the government can't do. It designates what sphere each branch operates within; it defines the limits of government. There are an unlimited number of actions that the Constitution does not expressly prohibit. That doesn't mean any branch of government should perform those actions.

9/2/2010 6:14:37 PM

I'm just playing devils advocate, I'm not such a big fan of the people that control the Fed. But when I run into a libertarian making that type of argument I walk away feeling let down.

If the constitution doesn't prohibit it...look, up until Nixon took us off the Gold Standard, congress had been setting the value of our dollars, long after the creation of the Fed. So they were regulating the value of the money as defined in A1S8. You need to understand this. It doesn't matter the system, powerfully connected people will forever be gaming it to their advantage and to the disadvantage of the rest of us. We (the middle class) can only hope they throw us some bones along the way so that we can live out a happy life before we die.

9/2/2010 6:21:29 PM

Quote :

"And what moral hazard was suffered from the Chrysler bailout? That these car companies would continue keeping pension promises made decades earlier? That they'd have the audacity to provide health insurance in the face of rising health care costs? That they'd be so brazen as to produce a shitty product in both quality and design that no one would want to buy? That they'd be so bold as to have to submit to the will of unionized labor?"

See Below. Yes. Yes. Yes. and yes. GM and Chrysler would not be the first companies killed by unions. But if I were them, I too would expect a bailout. As you yourself say, the last bailout made money, as theory suggests. It is how these things worked in the 19th century. Bailing out those that did not expect to be bailed out is almost always profitable for government, because it pays such low interest rates. According to a book I read entitled Manias, Panics, and Crashes, this process works itself out worldwide every century or so since the 14th century. The problem is that once you bailout, people begin to expect a bailout and creditors act accordingly. The next round produces firms sufficiently bankrupt to lose taxpayer money on the bailout. Now, confronted with the fact that taxpayers are not only willing to bailout, but lose money on the deal, creditors stop paying attention all-together and the third and final round of bailouts (20 years after the first round, it seems) are so large they threaten government solvency, causing a political shift making future bailouts impossible. It is that next round which really hurts, because the firms go bankrupt and no one bails them out. From then on, for a century or so, no one expects bailouts and no one receives bailouts.

It is unclear if the current round of bailouts was the last round or just before the last. Only history can tell.

9/2/2010 6:41:12 PM

Quote :

"Yes. Yes. Yes. and yes. "

Look, you simply can't draw the line from the Chyrsler bailout to the things I mentioned. Pensions obligations were set before then. The union grabbed and kept having the American automakers by the balls. The risk to just letting works strike indefinitely was simply too great and as far as I know, they can't just say "ok, we're done paying our bills, were going to file voluntary bankruptcy so we can properly reorg". What fucking board or CEO is going to do that when they continue to think they are going to eventually turn the company around?

What were the bailouts of the 19th century?

9/2/2010 9:21:42 PM

Quote :

"Only if you believe "ideal market equilibrium" should assume that no other market actors are under-pricing risk, which is stupid, as that is not the truth."

Market equilibrium is defined as nothing is underpriced. The very definition of underpriced is that it is priced below equilibrium. You're arguing against definitions here, you're calling an apple an orange.

Quote :

"I would say their job is far too important to grant George Bush a monopoly in capital allocation."

I didn't suggest they get in the business of capital allocation, and I certainly didn't suggest they monopolize it. I was suggesting that they rate securities. These ratings are used for determining values on taxes and balance sheets and such, so I don't think it's unreasonable to suggest they value these themselves rather than depending on private entities, which clearly are not always able to do so accurately.

9/2/2010 9:27:01 PM

Definitions. By my definitions, the ratings agencies are government sponsored enterprises. As such, you are arguing they should have been run by the government, which they were. They were run poorly, as us libertarians would predict, so you probably think the fault was giving them too much autonomy. I would agree. Government sponsored enterprises usually work best when members of Congress are clearly liable for their behavior, which is why so much of our government works even worse than theory suggests.

Quote :

"Market equilibrium is defined as nothing is underpriced"

Then by your definitions, no bailouts were necessary as everyone properly priced their own risk back before 2008?

Quote :

"Look, you simply can't draw the line from the Chyrsler bailout to the things I mentioned."

Well, that one we certainly can. If Chrysler had gone bankrupt in 1979 then it would not have existed to need a bailout in 2008.

9/3/2010 12:54:10 AM