Ways To Part Greater Fools From Their Money
Readers suggested a topic on financial innovation. “What exactly is ‘Financial Innovation.’ Volcker’s attempt to lump the ATM under the umbrella of financial innovation got me thinking (the ATM is of course, a technological innovation, not a financial one).
As I see it, ‘Financial Innovation’ consists of two things:
1) Creating ‘virtual products’ - stocks, bonds, derivatives, various flavors of insurance policies, etc - and having people ascribe value to them. Then creating a system - a market - by which these virtual products can be bought and sold.
2) Figuring out ways to entice people to take on more debt and pay more interest.
2a) Figuring out ways to separate the lender and loan originators from repayment risk.
Anything else?
A modern American financial innovation came from Lee Iacocca, and his ‘56 for 56′ deal. Back in 1956, with a 20% down payment, and a 56 dollar monthly payment for three years, he’d sell you a car. It was a huge hit. A prime example of enticing the individual to take on debt. It was a huge hit because it was a debt level the individual could and would service.”
A reply, “2b) Figuring out ways to part greater fools from their money.”
The Guardian. “If you want to see House budget committee chairman Paul Ryan sanctimoniously excuse himself and his friends for missing the most predictable economic crisis in the history of the world, you now have the opportunity. In a YouTube video produced by his staff, Ryan tells viewers that the crisis called by the collapse of the housing bubble caught ‘us’ by surprise.”
“Ryan should apply a variation on the sanctimonious lines in his video to himself: ‘Imagine being warned about an economic crisis that would throw more than 10 million people out of work and cause millions to lose their home and doing nothing. Imagine that our politicians in Congress and the White House chose to do nothing while there was still time, because it would have been bad politics to upset the Wall Street banks who were making so much money. They, instead, chose to ignore the warnings. That is immoral.’”
From David Dayen. “The important moment in the forthcoming book by Neil Barofsky, the former Special Inspector General of TARP, shows how HAMP’s faulty design led to all sorts of problems, with trapped borrowers, extended trial payments, no-doc modifications, and eventually unnecessary foreclosures. Barofsky mused that Treasury didn’t care about the suffering of borrowers under HAMP, and the issue came up in a meeting with the Treasury Secretary, which was also attended by Elizabeth Warren, then the head of the Congressional Oversight Panel, another TARP watchdog.”
“Warren asked Geithner repeatedly about HAMP. After several evasions, Geithner said about the banks, ‘We estimate that they can handle ten million foreclosures, over time… this program will help foam the runway for them.’”
“As Barofsky says, HAMP was not separate from the bailouts, it was part of them. It squeezed a few extra payments out of borrowers and then allowed banks to do with them whatever they wanted. It stretched out the foreclosure crisis, by design. In fact, by the end of this, HAMP may not help even the borrowers secure in permanent modifications. Not only are the modifications of inferior quality, and not only have they led to high re-default rates already, but most of the permanent modifications are not permanent at all. Barofsky notes in the book that they have five-year time limits, with interest rates rising and payments returning to their original size at that time. “
“As Barfosky says, HAMP was not seperate from the bailouts, it was part of them. It squeezed a few extra payments out of borrowers and then allowed the banks to do with them whatever it wanted.”
It kept hope alive. And this hope not only kept the FBs paying, it kept them staying. Them staying, and them hoping that they would continue staying, persuaded them to keep on plunking time and money into the house’s upkeep with the same energy and enthusiasium as of one who actually owned the house. Plus they guarded the house from the empty-house-strippers.
All this aided the protection of the value of the house - which the bank owned - AND it aided the the protection of the value of neighboring houses - of which many are also bank owned.
“Warren asked Geithner repeatedly about HAMP. After several evasions, Geithner said about the banks, ‘We estimate that they can handle ten million foreclosures, over time… this program will help foam the runway for them.’”
Isn’t foaming the runway what they do when a jet is going to make a crash landing?
over time…
How much time? How much you want to bet that it will conveniently match the amount of time that interest rates stay at rock bottom?
I believe the federal housing “rescue” programs (e.g. HAMP) make the modified mortgage full recourse, even if the original loan was non-recourse based on where it was first funded. So it literally traps the FB.
These programs have always been about keeping that stream of payments coming in to the TBTF banks.
So by supporting these policies the Obama administration is taking money from the poor and middle class in favor of the millionaires and billionaires on wall street.
Impossible! These are just right wing fox limbaugh talking points you picked up on drudge!
Yes. Obama, like the Repubs, is on the bankers’ side.
The guy who wrote the book is a Democrat:
‘Barofsky, former special inspector general for TARP, is a lifetime Democrat and Obama contributor. Barofsky, a former drug prosecutor from New York, wasn’t in the capital long when he noticed political appointees always fretting about where their next jobs will come from — and power brokers use that to manipulate them.’
‘His replay of the Troubled Asset Relief Progran, or TARP, saga is frightening and enlightening. For example, handlers prepping Barofsky for his confirmation hearing gave him these actual instructions:
• If they give you a multi-part question, just pick the part you like best and answer it. Ignore the other parts.
•• Don’t feel like you have to answer their questions. Just say what you want to say.
•• Tell them, if confirmed, you’ll keep an open mind and you’ll make whatever their concern is a top priority.
‘The Home Affordable Modification Program was never meant to help homeowners, he writes. It was created to help banks handle the wave of 10 million foreclosures by assuring they didn’t all hit at the same time.’
‘The modification program often required no documents from homeowners — the same practice that led to many of the original bad mortgages. Treasury effectively paid full value to banks for collateralized debt obligations that the banks were happy to unload.’
‘The American people should lose faith in the government,” he writes. “They should deplore the captured politicians and regulators who took their taxpayer dollars and distributed them to the banks without insisting that they be accountable for how the bailout money was spent.’
http://www.usatoday.com/money/books/reviews/story/2012-08-11/bailout-neil-barofsky-book-review/56938196/1
So what do you say Obama supporters? Or are you too busy in the bits bucket gushing about getting these slime balls re-elected?
Obama turned out to be an Uncle Tom. It’s a shame. He really could have made a name for himself. But in the end, he wanted to be accepted by his masters- the bankers.
Your second term, you’re finally a free man.
“Your second term, you’re finally a free man.”
Good for him right? Not so much for the rest of us. Obama must go, he is a disgrace and an embarrassment.
“Obama has to go”
Wow! Get used to his company. You saw the VP pick right?
I think the probability of a mandate is now very high.
Thank God the country has a referendum on clearly competing views.
Unfortunately for Republicans, most people believe:
- a 39% tax rate on millionaires is not considered confiscatory.
-a woman should be able to safely terminate her pregnancy,
- tolerance of others is desirable.
my question: will Romney even carry Wisconsin?
Obama must go, he is a disgrace and an embarrassment ??
And the republican party of today is downright scary…We got a good dose of its philosophy with Bush/Cheney…It may have destroyed this great country…We should find out in the near future….
He must go ?? I think quite the opposite….He must stay…A dagger in the heart of the neocon radicals is the only way to make them irrelevant…4 more years of Obama and 8 years of Hilary should pretty much do it…
Just by reading political posts you can tell those who get government benefit checks and those who don’t.
Which checks? The billion dollar no-bids or the $1200 month ones?
“The billion dollar no-bids or the $1200 month ones?”
Rn’cha forgetting the gobzillion dollar bailouts to private sector banks and other firms? Cuz those are the only gov’t checks that amount to squat. The rest are peanuts by comparison…
Published: July 24, 2011
Adding Up the Government’s Total Bailout Tab
Beyond the $700 billion bailout known as TARP, which has been used to prop up banks and car companies, the government has created an array of other programs to provide support to the struggling financial system. Through April 30, the government has made commitments of about $12.2 trillion and spent $2.5 trillion — but also has collected more than $10 billion in dividends and fees. Here is an overview, organized by the role the government has assumed in each case.
…
“Through April 30, the government has made commitments of about $12.2 trillion and spent $2.5 trillion…”
This is where the real government spending action is. What do Romney and Ryan propose to do to
1) End too-big-to-fail;
2) Break up the Wall Street Megabank trusts;
3) Resurrect opportunity for small business start-ups which drive real American innovation?
Let’s hear about these things that really belong on the national policy debate. Screw personal morality, right-to-life, and other irrelevant crap that appeals to the Republican base.
“Let’s hear about these things that really belong on the national policy debate. Screw personal morality, right-to-life, and other irrelevant crap that appeals to the Republican base.”
Crickets: CHIRP! CHIRP!!!
Crickets:
You took the word right out of my mouth.
“‘The Home Affordable Modification Program was never meant to help homeowners, he writes.”
So allowing Deadbeats to live for free for 3 to 6 years and collect rent on houses they did not make the mortgage payments on was just an unintended consequence. I knew that but it didn`t make me feel any better about the $100k I put in 2 DBLL`s pockets and the people we know who stopprd paying after they had taken their $200k cash out refis and still had an extra $100k to spend over the last 5 years.
Jeff, are refi’s automatically recourse in FL, or is that just CA? Those deadbeats might get back on their feet in a decade, just in time to get calls from collection agencies.
America’s two main political parties are in complete agreement with each other on many important issues, so the voter who seeks an alternative is forced to look elsewhere. These issues include but are not limited to:
- a consensus that government should always grow larger, more powerful, and more intrusive
- endless deficit spending
- government bailouts and other harmful meddling with the economy
- military adventurism
- pointless “war on drugs”
- religiosity, real or feigned
If you disagree with these things, you cannot in good conscience vote for a Democrat or a Republican. I shall not do so.
Who will get your vote?
Key word being “TBTF.”
No, I think that Obama’s “favoring” of the banks is really just Obama cleaning up the remnant of TBTF, and yeah, that involved favoing the TBTF. And yes, it is taking years to unwind.
The moment Obama got into office, he began NOT favoring the banks. Dodd-Frank, QRM rule, S.3816 (no tax breaks for offshoring, filibustered in the Senate), living wills, Consumer Protection Agency (with recess appointment), yanking juicy gov-backed student loans away from private banks, and the FED telling the big five banks that they better come up with their own plan to sell assets if they get into trouble again, because no more bailouts were forthcoming. And that’s off the top of my head.
Does any of this sounds like a banker-loving President? Don’t mistake a time delay for not doing something.
“No, I think that Obama’s “favoring” of the banks is really just Obama cleaning up the remnant of TBTF, and yeah, that involved favoing the TBTF. And yes, it is taking years to unwind.”
To call your statement a stretch would be an understatement. If anything, Obama looks at the bankers as useful idiots, they give him campaign cash, he throws them a few bones and gets to continue FUNDAMENTALLY CHANGING the country. Obama is 100% political and his brand is Marxism, he will have no use for the money changers on wall street if he were to accomplish his mission.
‘I think that Obama’s “favoring” of the banks is really just Obama cleaning up the remnant of TBTF, and yeah, that involved favoing the TBTF.’
This reminds me of some quotes by one of my favorite comedians/social commentators:
‘People love him. Every FACT points that he’s a liar, corporate puppet, devil (deleted) fascist. Every FACT points to that. Not one FACT to the opposite. But what happens? “WE LOVE YOU RONNIE! 4 more years! 4 more years! Let’s put him on Mt Rushmore! HA HA HA” Let’s put him under Mt Rushmore! HOW FAR UP YOUR A** DOES THIS GUY’S D*** HAVE TO BE, BEFORE YOU REALIZE THAT HE’S F****** YOU?!’
‘People are just like “I like him! I don’t know what it is. He looks good on TV. He brought back patriotism. Goddammit, he’s a good American! Hold it, something’s slapping my ass! OMG HE’S F****** US!” - Bill Hicks, Sane Man
http://billhicks.tumblr.com/
Why is the election even a topic here? Obama has proven to keep the entrenched power structures in place, just like the last douche bags did.
And guess what? He’ll continue to do the same if reelected. Mitzy will do the same. You all know this.
I recall telling the fellow filming the interviews for “American Visionaries” that I thought whatever administration inherited the mess we were in would try to manage it down gradually in order to “preserve the system”. I felt we’d come very close to civil war in the sixties, and were on the verge of a repeat during the the 2008 election campaign.
Given the choice between world-wide economic anarchy (and the resulting social chaos) or attempting to maintain the American market system in at least some rudimentary form, I really don’t see what choice a POTUS would have but to save the American banks and their international counter parties. (Especially given the fact that the decision had already been made and implemented on an international scale, and was most likely a lot more long-term and far-reaching in scope than has yet been exposed.)
As well-documented here on Ben’s Blog, Wall Street et al did indeed “see it coming” and surely would have informed the presidential campaigns what would be necessary if the nation was going to weather the crash and come out of it in a semblance of recognizable form. To the extent that the markets are still with us, and the country still is not an armed camp with militia shooting down our students and protestors in our streets, I’d say they’re doing a credible job of holding US together.
Please don’t construe the above as approval of how the specifics are being handled, merely my acknowledgment that while anarchy appeals to me personally, it probably isn’t the best ideology for the majority of the American public.
‘Why is the election even a topic here’
I don’t think it is the topic. Let’s review:
‘As Barofsky says, HAMP was not separate from the bailouts, it was part of them.’
That’s sorta big news, IMO.
‘It squeezed a few extra payments out of borrowers and then allowed banks to do with them whatever they wanted. It stretched out the foreclosure crisis, by design. In fact, by the end of this, HAMP may not help even the borrowers secure in permanent modifications. Not only are the modifications of inferior quality, and not only have they led to high re-default rates already, but most of the permanent modifications are not permanent at all. Barofsky notes in the book that they have five-year time limits, with interest rates rising and payments returning to their original size at that time.’
That’s some financial innovation for you. And it’s going on right now, not 4 years ago. Why isn’t this book being played up on NPR. These loans are certainly ‘designed to fail’ as much as any other.
‘The Home Affordable Modification Program was never meant to help homeowners, he writes. It was created to help banks handle the wave of 10 million foreclosures by assuring they didn’t all hit at the same time.’
So what does this mean for people buying the last few years? Thrown under the bus by politicians?
There was this in the USA Today piece:
‘The bailout was first advertised as $700 billion, but Barofsky figures the total government commitment was $23.7 trillion. Most of that will never have to be spent because many commitments only backstop loans that are already backed by collateral.’
$23 trillion? Why have we not heard about that before? That’s a whole lotta financial innovation. And remember Michael Lewis putting out a book, pointing a finger at Wall Street, and then telling us all, ‘we can’t prosecute Wall Street, that would stifle financial innovation.’
What’s going on today may be more outrageous, more damaging to this country than what happened in 2004-2007.
Housing is a Massive Loss wrote:
Wall Street is to the Democrats what illegal immigration is to the Republicans.
With illegal immigration, both sides claim to want to control it, but it’s generally accepted the Democrats don’t care about it and are benefitted by it (more voters), while the Republicans are supposedly opposed to it, but also benefit from it (cheap, pliant labor).
Similarly, with Wall Street, both sides claim to want to control it. But it’s generally accepted that Republicans support at best minimal controls on Wall Street. And while the Democrats supposedly oppose the Wild West Wall Street model, they crave Wall Street contributions as much as any jonesing junkie. The change in their tone about Wall Street, up and down the Obama surrogate team, has been absolutely striking from several months ago. Nowadays, all I hear are Democrats publicly singing Wall Street praises.
“Please don’t construe the above as approval of how the specifics are being handled, merely my acknowledgment that while anarchy appeals to me personally, it probably isn’t the best ideology for the majority of the American public.”
Thanks for the chuckle!
‘Not only are the modifications of inferior quality, and not only have they led to high re-default rates already, but most of the permanent modifications are not permanent at all. Barofsky notes in the book that they have five-year time limits, with interest rates rising and payments returning to their original size at that time.’
“Financial innovations” = time-bomb variants of financial weapons of mass destruction
So what does this mean for people buying the last few years? Thrown under the bus by politicians?
Step back and parse the question.
Rephrased; what is Barofsky confirming?
He’s demonstrating that the entrenched power structures own elections and own the office post election. I’m speaking of all the power structures….. weapon manufacturers and their lobby, NARscum/MBA/NAHB, Banking elite, insurance crooks and their counterparts in AMA, hospitals and big Pharm….. the list is endless.
The politicians are bought and paid for but they’re the minor players. The problem is the power structures and the solution is their elimination and that is not going to happen through the election process.
Politicians are the scapegoats. The frontmen. The shills. The lightening rods. The honeytraps.
People believe politicians hold the power and blame them when things go wrong, but the real power is held by the thousands of un-elected 1%ers.
Thus, corporate communist capitalism.
Given the choice between world-wide economic anarchy (and the resulting social chaos) or attempting to maintain the American market system in at least some rudimentary form,
Allena, I believe you are buying into a “false choice” here.
There is no reason to believe that we truly were facing “world-wide economic anarchy” if the big banks failed.
Nothing, except for the self-serving speech of those who stood to benefit from the taxpayers opening up their purses.
I believe TBTF could have been allowed to fail in a careful, controlled way, under the supervision of a BK court. If they served a function that was truly needed by our market economy (such as check-clearing, market-making, etc), there is no BK judge that would have declined a clear statement and some arm-twisting the the POTUS to allow them to keep functioning while in the process of a supervised BK.
The fact that they didn’t even try speaks volumes. But it doesn’t actually imply that we were facing a financial apocalypse.
What’s going on today may be more outrageous, more damaging to this country than what happened in 2004-2007.
+infinity, Ben. The depth of fraud that the PTB are willing to either embrace or ignore is nothing short of mind-boggling.
Don’t know if you’ll see this, prime, but stop and consider for a moment what a loss of faith and credit in the world’s reserve currency would entail. It’s not just a matter of letting the market take care of it if there is no longer a market there to take care of.
“Don’t mistake a time delay for not doing something.”
Seems like there could be a relationship.
July 12, 2012
As ‘Statute of Limitations’ Approaches, Wall Street Crimes of 2008 Go Unpunished
With time running out, federal agencies show no urgency in holding firms or executives to account
A protester at Liberty Plaza holding a sign, “Arrest the bankers”. On Saturday, September 17th, 2011 the Occupy Wall Street Movement started in this park. (Photo: Javier Soriano / javiersoriano.com)The US Securities and Exchange Commission is quickly running out of time to file charges against financial firms and high-level executives involved in fraud and other crimes leading up to the 2008 financial crisis.
Federal laws require the SEC to file official charges within five years of the alleged crimes due to a statute of limitations. Officials at SEC, according to the Wall Street Journal, are now scrambling to file lawsuits before the five-year time limit runs out.
In one example, experts believe that the SEC should file a civil lawsuit against bankers involved in the high profile ‘Delphinus deal’ no later than next Thursday. Delphinus, a $1.6 billion deal, was a subprime mortgage scam which collapsed within months during 2007 and was a major player in the widespread financial collapse.
A criminal investigation into that deal began months ago; however, prosecutors have yet to file charges.
…
Good point. Running out the clock is a strategy too.
federal agencies show no urgency in holding firms or executives to account
Officials at SEC, according to the Wall Street Journal, are now scrambling to file lawsuits before the five-year time limit runs out.
So which is it?
“So which is it?”
Perhaps both factors are in play: First they ran out the clock, but now they are putting on a political Kabuki dance of urgent action to entertain the sheeple…
The number of Goldman Sachs ex-employees in his Administration makes it hard to see him as anti-bank. The relationship with Goldman Sachs and our current government is alarming. But if you want to believe he’s anti-bank, hey, it’s still a free country.
It gets pretty interesting when traditionally conservative magazines like Forbes target investigative reporting at Wall Street Megabanks. Perhaps by the end of the day, America’s free press will succeed where our bought-and-sold-out political establishment has failed.
Halah Touryalai, Forbes Staff
I stalk Wall Street. Stopping short of phone hacking, of course.
8/10/2012 @ 1:39PM
Goldman Sachs: No Longer Enemy #1
What a difference a year makes for Goldman Sachs.
Goldman Sachs CEO Lloyd Blankfein can thank JPMorgan Chase CEO Jamie Dimon and former Barclays CEO Bob Diamond for taking the the bad-boy spotlight off of him for the time being.
One summer it’s being accused of destroying the U.S. financial system and facing criminal charges, the next summer it’s barely making headlines except for a $10 million investment in a social program that works to keep prisoners from going back to jail. Odd, right?
Well, that’s the kind of wild year Goldman Sachs has had, and these days it’s happy to be flying under the bad-news-radar.
Most recently Goldman received some great news courtesy of the Department of Justice. The federal prosecutor said yesterday that it will not pursue criminal charges against Goldman Sachs for its role in the financial crisis due to lack of evidence.
The DOJ’s investigation was launched last year after Senator Carl Levin issued a scathing 600+-page report accusing Goldman Sachs of engaging in massive conflicts of interest, contaminating the U.S. financial system with toxic mortgages and undermining public trust in U.S. markets in the months leading up to the financial crisis.
Levin sent the report to the feds in hopes of scoring criminal charges against the firm’s executives but the DoJ concluded that “there is not a viable basis to bring a criminal prosecution with respect to Goldman Sachs or its employees in regard to the allegations set forth in the report.”
Goldman Sachs is used to feeling lots of heat. It’s viewed as Wall Street‘s evil empire of sorts for putting profits before clients more so than any other firm. Remember muppet clients and vampire squids? But these days Goldman is busy clearing up its name while the rest of Wall Street seems to be caught up in one disaster after another. We’ve seen massive trading errors, erratic and costly trading glitches, rate-rigging and two failed futures firms in just a matter of months.
But guess which firm hasn’t been involved in any of that Wall Street drama. Yup. Goldman Sachs. CEO Lloyd Blankfein can thank JPMorgan Chase CEO Jamie Dimon and former Barclays CEO Bob Diamond for taking the the bad-boy spotlight off of him for the time being.
Consider all the recent blunders. Most notably here in the U.S. JPMorgan Chase endured a huge trading error in the second quarter leaving an ugly mark on the company and its CEO’s reputation. Long viewed as the most stable bank in the system with a CEO who won favor with Washington, JPM was rocked when it announced a $5.8 billion trading loss. Jamie Dimon testified before lawmakers twice in a matter of days to explain what went wrong. That’s a hot-seat often reserved for Blankfein.
JPM’s loss hit shareholders hard as the bank has lost $14 billion of market value since May when it announced the news. Shares of JPM are down 10% since May while Goldman Sachs shares are down 3.5% in the same period. Year-to-date Goldman is outperforming JPM with shares up 13% while JPM is up 10.5%.
Then there’s the massive Libor-rigging investigation which could potentially hit some 18 financial institutions. Regulators from both the UK and US are investigating just about every bank on the Street and in Europe for their role in the rate-rigging scandal. JPMorgan, Bank of America, Citi, UBS, Deutsche Bank, RBS, Lloyds Banking Group, Societe Generale, Credit Suisse and others are facing inquiries over the matter. Notice anyone missing? That’d be Goldman.
To be fair, Goldman is not among those being investigating because it’s not a Libor-reporting bank like the others. Still, to have a scandal this large it’s almost odd not to see Goldman’s name in the mix.
Goldman, by its nature, wasn’t lumped in with that massive $25 billion mortgage settlement that the big banks including Wells Fargo agreed to. That might be a skewed argument since Goldman isn’t a mortgage originator so let’s compare it to a direct U.S.-based rival.
Consider the problems at Morgan Stanley this year. Facebook. Need I say more? Facebook’s IPO was the most hyped in history and arguably the most disappointing. It left retail investors holding shares of a company that no one truly knows how to value, and worse, shares that have sunk over 40%. Leading that IPO was Morgan Stanley which priced Facebook shares at a mind-blowing $38. Ouch.
…
The only type of ” ‘Financial Innovation’ I want is to make financial instruments more transparent, not less. Less transparency has little purpose other than to enable theft.
“Less transparency has little purpose other than to enable theft.”
Isn’t that the purpose?
The MSM is making a big fuss this morning over Romney’s choice of Paul Ryan as his running mate. I guess to the Republican base, Ryan offers a degree of conservativism which Romney lacks, though to anyone with a more centrist perspective, they probably appear as two white conservative white in a pod.
Below the smoke screen of all the excitement, what is clear to me is that Wall Street has already won this election, no matter the outcome. The only politicians who expressed interest in ending too-big-to-fail have been marginalized by Big Money. Obama has already shown little interest in cleaning up Wall Street’s financial cesspool. If they win, Romney-Ryan will push for more deregulation, more power for too-big-to-fail Wall Street Megabanks, and more opportunity for the 1% to benefit from cleptocracy of America’s Main Street through all manner of “financial innovation.”
I am somewhat hoping for a Romney victory. It will be a quicker path to the head-chopping which awaits the greedy.
It will be a quicker path to the head-chopping which awaits the greedy.
FDR bought them 70 years, but they were never appreciative. They never got it and still don’t, as we see.
Experience runs a dear school, but some will lose their heads in no other.
Are you assuming an actual violent revolution? Because I don’t see it.
The real buying power of median incomes has been going down slowly for decades. The Ryan budget is a slow bleed. Leaves Medicare in place for anyone over 55. Those under 55 will have to hit 65 before they see that the subsidy isn’t going to be enough to buy one of the “good” plans. It will take longer than that for the amount of the subsidy to mean that you have to add a lot of your own money to get even an OK plan. The insurance companies will pretty up the plans with nurses you can contact by phone (cheap) while limiting care or reducing reimbursement for docs enough that old people won’t have access to specialists. People who are poor enough to be on Medicaid are not organized. Schools deteriorate slowly. Roads deteriorate slowly. You don’t know that FEMA can’t respond to a disaster until it happens. And so on.
Interesting perspective Polly…A long slow decline…
Not so much perspective as fact and it’s been on going since the 1980s.
The frogs have no idea they are being boiled alive because the heat was raised slowly.
This link provides a simple and dramatic view:
http://www.halfhill.com/inflation.html
Boiled frog is good eatin’ for vampire squids.
How the heck do you keep a frog from jumping outta the pot in the first place? Those darn things are quick!
Make the pot seem safer that what’s outside the pot.
Just put the lid on the pot until the frog is fully boiled, at which point you can enjoy eating the legs.
If Obama doesn’t have to worry about re-elecetion he may be more forceful than in his first term, i.e. universal coverage, teeth in financial regulations.
Not a prediction, just a supposition.
he may be more forceful than in his first term ??
And you may find that out at the convention….
‘Imagine being warned about an economic crisis that would throw more than 10 million people out of work and cause millions to lose their home and doing nothing. Imagine that our politicians in Congress and the White House chose to do nothing while there was still time, because it would have been bad politics to upset the Wall Street banks who were making so much money. They, instead, chose to ignore the warnings. That is immoral.’
Get used to the ‘Blame Obama’ blame game by the sanctimonious conservative Christian Republican candidates, accompanied by claims that if elected, Romney-Ryan will stop blaming others and take responsibility for what happens on their watch onto themselves.
Why not start off by admitting that the recession which sunk America’s economy began in December 2007 during a Republican presidency, leaving Obama in a deep economic hole when he took office in January 2009? That would be a great first step in walking the walk to back up all the cheap talk.
The question I have about this “fiscal cliff” or sequestration is what exactly do people want Congress to do about it?
It seems there are only two choices.
1) Kick the can down the road.
2) Make the indiscriminate cuts to spending: 50% defense spending and 50% entitlements. Raise taxes on those upper income people.
It appears that number 2 is going to happen.
So WHY in the hell are people complaining? Do they think that kicking the can down the road is going to solve the problem of the deficit once and for all? Grr!!
Romney-Ryan fiscal cliff avoidance plan:
Make the indiscriminate cuts to spending:
50% defense spendingand 50% entitlements.Raise taxes on those upper income people.+1 Pbear…..Exactly…
So WHY in the hell are people complaining?
I don’t think people, in general, are complaining about it. I think the 1%ers are using the MSM to try to get people to complain about it.
Just like most people favor raising tax rates on the wealthy, but the MSM rarely mentions this.
The MSM is a tool of the advertisers.
Here in Maryland, gambling interests are advertisers. As a result, news radio outlets have moved from calling it “gambling” to calling it “gaming”.
The MSM makes money by delivering viewers to entities that wish to advertise. Part of that means not alienating those who wish to advertise.
If the Mafia were legal, you can rest assured that the Mafia would be spoken about in glowing terms in the MSM.
If? What do you think gaming is?
Then there’s the worldwide money laundering by the big financial companies. You can google that.
Of course we favor raising taxes on people that make more than us. That is easy. But to really balance the budget there would have to be across the board, deep cuts in all areas of government (not decreases in the increases) and higher taxes for all of us. None of that polls well, thus the proverbial can kicking will continue until it absolutely can’t anymore.
None of that polls well,
Why wouldn’t raising taxes on the wealthy poll well, if most people favor it, as you say?
Why are there only “two” choices? I see plenty of choices:
1. Raise taxes on rich.
2. Single payer health care so that the young and healthy pay for the poor and sick directly with one billing system.
3. Bring back either jobs or tarriffs to bring in American jobs and more middle-class income tax.
“…by the end of this, HAMP may not help even the borrowers secure in permanent modifications. Not only are the modifications of inferior quality, and not only have they led to high re-default rates already, but most of the permanent modifications are not permanent at all. Barofsky notes in the book that they have five-year time limits, with interest rates rising and payments returning to their original size at that time.”
At least the fallout will be spread out over many years, if not decades to come, instead of the bubble collapsing in one deafening thunder clap…
At least the fallout will be spread out over many years, if not decades to come, instead of the bubble collapsing in one deafening thunder clap…
But is a decade or two of fallout really better for the general public than having the wheels fly off, if the return to sustainability were only to take a few years?
My opinion is “no”. I think a significant part of the reason the GD left such a persistent mark on its generation was due to the duration, not the depth. Hope dying takes time. We can withstand a lot for a short while.
I think a significant part of the reason the GD left such a persistent mark on its generation was due to the duration, not the depth.
Why would this time be different- ie shorter?
I think you misunderstood; I was positing that it was made LONGER by the extend-and-pretend tactics such as HAMP.
If it had not been intentionally made longer, it would have been shorter—maybe not shorter than the GD, but shorter than it would otherwise have been this time around.
And if it had been shorter (e.g. its natural duration), I think the psychological scars would have been lessened.
maybe not shorter than the GD
Then it’s too early to judge?
You missed the biggest part of financial innovation:
3) create complex arrangements that tend to reduce transparency (you don’t know what you are actually buying) and mask true risk (you don’t know what risks you are actually taking).
IMHO, this, in addition to the Fed’s 0% interest rate policy, is one of the reasons apartment values have been rising so much, and capital is flooding into the “buy homes for rent” strategy.
The investment is in a real asset, and the risks are presumably known and understandable.
3) create complex arrangements that tend to reduce transparency (you don’t know what you are actually buying) and mask true risk (you don’t know what risks you are actually taking).
Ding ding ding!!!
We have a winner.
This is the heart of financial
innovationalchemy.Landlording is like any other business. Some succeed, most fail.
As far as the prices for these units go, right now we are still in a heavily government-subsidized real estate market. FHA loans have high default rates and are climbing.
Look, I agree that renting is a suboptimal solution. The optimal solution is being able to buy a solid, affordable house that one really wants to live in. And can sell for minimal or no loss within a few years if one needs to move. Renting comes in second to that. However, renting comes in far, far above being saddled with a giant debt burden and an albatross of a house which can only be unloaded for a signficant loss.
Until government stops its massive support of the market, we are never going to find out where the bottom is. The FIRE sector has been relentless this spring and summer in virtually every day getting some news report on the air saying that “housing has turned the corner, it has bottomed and is rebounding strongly.”
A cursory review of the data indicates that’s not true. What data? Case Shiller. Foreclosure data. Certainly, in some metro areas - like DC metro - prices have been steadily rising YOY for several months. DC in particular is unusual. Low unemployment attracts high wage migrants, and if one gets on with the government, that’s a pretty stable income stream, and lenders will realize that.
I know some bright people (e.g. finance professors) who swallowed the serial bottom callers’ propaganda hook, line and sinker.
Come to think of it, some of the serial bottom callers are finance professors!
Let’s roll it back to monkey stuff: financial innovation is waiting for the other guy to come around with a bunch of bananas, and then taking them from him, but convincing him that by surrendering the bananas now, he’ll somehow get more later.
Or, you just take the bananas with no explanation at all.
(I challenge PB to respond without mentioning Bonobos.
)
Q. How do you get bonobos in a coconut tree to throw coconuts down to you?
A. Throw rocks at them.
Throw rocks at them.
Bonobos would probably climb down and have sex with you.
Or, you just take the bananas with no explanation at all.
Lol!
That video is loaded with financial innovation, btw.
Do tax breaks count as financial innovation?
If your name is Mitt Romney.
If the tax break creates an enticement or ability to service more debt, then certainly, that particular tax break could be considered a financial innovation IMO.
Having an economy based on “financial innovation” is something I’d call a “Farmville Economy”:
“Players spend real money on virtual goods such as tractors and crops, and capturing proceeds from these small transactions adds up to big bucks for Facebook.”
http://articles.chicagotribune.com/2012-02-01/news/ct-biz-0202-facebook-side-20120202_1_facebook-users-facebook-s-ipo-active-users
Banksta’s Paradise, by Winston Prescott Coolio, III.
Been printing most our lives living in the Banksta’s Paradise
Been printing most our lives living in the Banksta’s Paradise
Keep spending most our lives living in the Banksta’s Paradise
Keep spending most our lives living in the Banksta’s Paradise
As I walk through the valley of the shadow of debt
I take a look at your life and realize there’s not much left
Cause I’ve been printin’ and pretendin’ so long that
Even my ma’ma thinks that my equity is gone
But I ain’t never crossed an FB that didn’t deserve it
Me, be treated like a deadbeat? you know that’s unheard of
You better watch how you talkin, and where you walkin
Or you and your HOA might be lined in chalk
I really hate to deed in lieu, but I gotta loc’-
As they grew I see myself in the pistol smoke, fool
I’m the kinda B the little FBs wanna be like
On my knees in the night
Praisin’ Weimaranke… in the street light
Been printing most our lives living in the Banksta’s Paradise
Been printing most our lives living in the Banksta’s Paradise
Keep spending most our lives living in the Banksta’s Paradise
Keep spending most our lives living in the Banksta’s Paradise
They got the situation, they got me facin’
I can’t live a normal life, I was raised by the eilte
So I gotta be down with the bank team
Too much polo watchin’ got me chasin’ dreams
I’m an educated fool with fiatscos on my mind
Got my ten MM in my hand and a gleam in my eye
I’m a loc’ed out banksta, Connecticut-trippin banger
And Jamie Dimon is down, so don’t arouse my anger, fool
Default ain’t nuthin but a heart beat away
I’m livin’ life loan-or-die, what can I say?
You’re at 4.99 APR, but can you refi to three point fow’?
The way things are goin’ I don’t know
Been printing most our lives living in the Banksta’s Paradise
Been printing most our lives living in the Banksta’s Paradise
Keep spending most our lives living in the Banksta’s Paradise
Keep spending most our lives living in the Banksta’s Paradise
I think that song is a sampling of a Stevie Wonder song from “Songs in the Key of Life” album. 1974 (?)
Pastime Paradise
Some of Stevie’s lyrics:
They’ve been spending most their lives
Living in a pastime paradise
They’ve been spending most their lives
Living in a pastime paradise
They’ve been wasting most their lives
Glorifying days long gone behind
They’ve been wasting most their days
In remembrance of ignorance oldest praise
Tell me who of them will come to be
How many of them are you and me?
Dissipation
Race Relations
Consolation
Segregation
Dispensation
Isolation
Exploitation
Mutilation
Mutations
Miscreation
Confirmation…….to the evils of the world
It’s about race but not a stretch to plug in the same concepts to the relationships between socio-economic classes.
Are you back? never left? Shoot me an email.
But ,before the debt culture came about people had better paying jobs in terms of buying power and more opportunity
and people did not get that heavy in debt ( like what occurred from 2000 to 2012 ).
I don’t think you can really say that people were even given that kind of credit before Glass-Steagall act was taken away
and all the other deregulation that occurred in the financial markets.
Also people started losing their buying power by Employers not giving wage increases that kept up with inflation ,and Employers started reducing benefits . At the same time medical costs starting going up beyond acceptable ,and in a short time actually people were going downhill until they got this injection by this easy credit bullshit and fake housing market . At the same time manufacturing and jobs were being gutted by slow gradual GLobalism and than the trade inbalances.
Everybody is acting like Americans were just always people who
spent more than they made ( however we have always had credit in our culture ) .
I think its clear what the forces were that came about that created the people making up for those forces by easy credit and fake bubbles that came about .
If the housing bubble and easy credit decade not come about it would of been clear that the problem was with the Employers and Big Corporations changing the game with Globalism .The Wal Marts had been slowly gutting the Ma and Pa stores and manufacting for a number of years .
it was just a slow gradual highjacking of the American economic systems that had been so benefical to the working class .
it was just a slow gradual highjacking of the American economic systems that had been so benefical to the working class .
Exactly. And ironically, this was made possible by the working class itself, as they switched their support to the GOP during the Reagan Revolution. The white working class can now be relied upon to vote against its own economic interests. ‘God, guns, and gays’ was a brilliant strategy. Evil, but brilliant.
And it wouldn’t have worked nearly as well without the cooperation of the Ds.
without the cooperation of the Ds.
By the Dems believing gays should have equal rights as citizens? By refusing to wrongly proclaim America a Christian nation? By asking for reasonable controls on gun ownership?
How is being rational cooperating with idiocy and bigotry?
I’ve already gone over the problems with the ways the Ds relate to rural people, especially in the Rocky Mountain west. We can go over it again sometime if you want to start earlier in the day. But there are legitimate reasons for why some blocks of voters refuse to consider them.
We have a winner.
2) Figuring out ways to entice people to take on more debt and pay more interest.
2a) Figuring out ways to separate the lender and loan originators from repayment risk.
So about this #2a thingie…. What do you all think is the motive for this?
I think it’s just another way to strip away caution and deliberate thought from the transaction. This makes achieving #2 much smoother.
Why is it that on one hand, everyone, especially “fiscal conservatives” endlessly harp on “govt overspending” yet engage in the culture of debt themselves? Worse yet…. they’re entirely silent on the US consumer debt culture.
And I’m not picking on “fiscal conservatives”…. I just don’t think their are any on Main St, DC or Wall Street. The expression “fiscal conservatism” is another convenient diversion…. or as one of my good friends would say, an inversion.
2a) Figuring out ways to separate the lender and loan originators from repayment risk.
Sounds like a great way to separate the risk of loss from the rewards of originating loans. Slap a federal guarantee of principle on the loan and you have a “heads-we-win/tails-you’re-screwed” guarantee to profit.
I would like to make a slight modification to the original premise:
1) Creating ‘virtual needs’ - and having people ascribe value to them. Then creating a system - a market - by which the virtual solution can be bought and sold.
This technique is not just true of the financial market, but virtually all market.
Assuming you are sufficiently lucky to have any spare change available to invest, what terrible asset class are you choosing to invest in?
P.S. I tend to gripe a lot about Wall Street, but to be honest, I idolize John Bogle.
A Mutual Fund Master, Too Worried to Rest
Jessica Kourkounis for The New York Times
John Bogle, at the nautically themed Vanguard offices, says Wall Street needs to follow a unified standard that puts the client’s interests first. “No excuses. Period,” he says.
By JEFF SOMMER
Published: August 11, 2012
VANGUARD, the penny-pinching mutual fund company founded by John C. Bogle, has become a colossus. Its index funds — once derided for not even trying to beat the market — are now the industry standard.
Mr. Bogle, 83, has written 11 books and had at least six heart attacks and one heart transplant. Of today’s market conditions, he says, “It’s urgent that people wake up.”
Mr. Bogle, who now runs a research center on Vanguard’s campus, likes having “an independent voice.”
And after at least six heart attacks and one heart transplant, Mr. Bogle has managed to witness this triumph. “It’s all a kind of a miracle,” he says in a booming baritone. “It’s really nice that I’m able to see this happen in my own lifetime.”
With this kind of medical history, any other man of 83 might simply enjoy his success. But not John Bogle. He is still on a mission, as outspoken as ever and nearly as vigorous — thanks, he says, to the heart of a younger man. He’s not done yet.
“It’s urgent that people wake up,” he says. Why? This is the worst time for investors that he has ever seen — and after more than 60 years in the business, that’s saying a lot.
Start with the economy, the ultimate source of long-term stock market returns. “The economy has clouds hovering over it,” Mr. Bogle says. “And the financial system has been damaged. The risk of a black-swan event — of something unlikely but apocalyptic — is small, but it’s real.”
Even so, he says, long-term investors must hold stocks, because risky as the market may be, it is still likely to produce better returns than the alternatives.
“Wise investors won’t try to outsmart the market,” he says. “They’ll buy index funds for the long term, and they’ll diversify.
“But diversify into what? They need alternatives, bonds, for the most part. What’s so frightening right now is that the alternatives to equities are so poor.”
In the financial crises of the last several years, he says, investors have flocked to seemingly safe government bonds, driving up prices and driving down yields. The Federal Reserve and other central banks have been pushing down interest rates, too.
But low yields today predict low returns later, he says, and “the outlook for bonds over the next decade is really terrible.”
…
Even so, he says, long-term investors must hold stocks, because risky as the market may be, it is still likely to produce better returns than the alternatives.
For investing, Jack Bogle is right on the money. But, when it comes to savings, the stock market is the last place you want your money to be. Too risky. Way too risky.
The difference between savings (money you don’t want to lose) and investments (money you could lose) is big enough to drive a truck through.
Will the Libor scandal lead to financial innovation?
Legal/Regulatory
August 12, 2012, 8:57 pm Comment
Libor Case Energizes a Wall Street Watchdog
By BEN PROTESS
Gary Gensler, the chairman of the Commodity Futures Trading Commission, in his office in Washington. Peter W. Stevenson for The New York Times
Months after he arrived in Washington in 2009, Gary Gensler knew he had a big case.
Huddled around his assistant’s desk with a colleague, Mr. Gensler, then Wall Street’s newest regulator, listened to a taped telephone call of two Barclays employees discussing plans to report false interest rates. When the brief recording ended, Mr. Gensler realized the gravity of the wrongdoing.
“We need to make this case even more of a priority,” he told his colleague at the Commodity Futures Trading Commission, Stephen Obie, who already had been investigating Barclays for more than a year.
The Barclays case has now thrust Mr. Gensler — and his once-obscure agency — into the spotlight.
In June, the commission reached a settlement with Barclays in the rate-manipulation case, which produced the largest fine in the agency’s nearly 40-year history. The deal is expected to be the first of many, as Mr. Gensler’s team leads a global investigation into rate-rigging at more than a dozen big banks.
It is a new role for the agency, the industry’s smallest regulator. For years, it was viewed as the Rodney Dangerfield of the regulatory world, with a light touch and little respect.
When the agency first opened the rate investigation in 2008, some banks dismissed the regulator, telling it to narrow the focus to a particular time period or trading desk. Barclays questioned whether the American regulator had the authority to examine a British bank, according to people with knowledge of the matter.
Now, Wall Street is taking the commission more seriously.
Along with the inquiry into rate manipulation, the agency is playing a central part in several prominent investigations, examining the blowup of MF Global and the multibillion-dollar trading loss at JPMorgan Chase. Mr. Gensler has also aggressively — some say obsessively — pushed the agency to adopt dozens of new rules under the Dodd-Frank law, the financial regulatory overhaul.
“The change is night and day,” said Representative Barney Frank, Democrat of Massachusetts, the co-author of the sweeping law that bears his name.
“It was a toothless agency,” he said, but when “Gary became chairman, he was very aggressive.”
…
The problem with overcrowded trades is that they tend to rapidly reverse with no warning.
A former poster here who called himself Hoz suggested these reverse Treasury products about four years ago. I never went for them, as I doubted they would pay off any time soon.
So far, I have been right.
Options Trading ‘Explodes’ in Bearish Treasury Bond ETF
August 10th at 2:08pm by John Spence
Investors are flocking to an inverse Treasury ETF to position for higher yields and lower bond prices.
“Yesterday we saw literally an explosion of call buyers in leveraged inverse product ProShares UltraShort 20+ Year Treasury Bond (NYSEArca: TBT) as more than 100,000 call options exchanged hands,” Paul Weisbruch at Street One Financial said in a note Friday.
“We have pointed out institutional piling into inverse (bearish) Treasury Bond products for some time now, and with equities stabilizing and iShares Barclays 20+ Year Treasury Bond (NYSEArca: TLT) falling precipitously of late … the TBT trade has become even more popular with call buying in TBT as well as TLT put buying with similar motivations,” he said.
Yields on the 10-year Treasury note climbed above 1.7% on Thursday after bottoming out below 1.4% in July.
The recent pullback in TLT suggests the incredible amount of fear built up in markets may be unwinding.
Earlier this week, the Treasury ETF dropped below its 50-day simple moving average for the first time since April.
Nervous investors have herded into Treasury bonds on concerns over the Eurozone debt crisis and a sluggish U.S. economy. As a result, Treasuries are seen as one of the most overcrowded trades in the market.
…
Nothing against Bismark ND but if you have to move there to get a decent job then this country is in even worse shape then I thought?