I will never, ever understand people who mistake education and intelligence for virtue. I thought about that tonight watching Steve Kroft's "60 Minutes" report on the derivatives and credit-swap market that has gotten the national and indeed the global economy to the edge of the abyss. I've embedded the report below, and I encourage you to watch it. Here's an excerpt from the print version of the story:
These complex financial instruments were actually designed by mathematicians and physicists, who used algorithms and computer models to reconstitute the unreliable loans in a way that was supposed to eliminate most of the risk."Obviously they turned out to be wrong," Partnoy says.
Asked why, he says, "Because you can't model human behavior with math."
"How much of this catastrophe had to do with the instruments that Wall Street created and chose to buy...and sell?" Kroft asks Jim Grant.
"The instruments themselves are at the heart of this mess," Grant says. "They are complex, in effect, mortgage science projects devised by these Nobel-tracked physicists who came to work on Wall Street for the very purpose of creating complex instruments with all manner of detailed protocols, and who gets paid when and how much. And the complexity of the structures is at the very center of the crisis of credit today."
"People don't know what they're made up of, how they're gonna behave," Kroft remarks.
"Right," Grant replies.
But it didn't stop ratings agencies, like Standard & Poor's and Moody's, from certifying the dodgy securities investment grade, and it didn't stop Wall Street from making billions of dollars selling them to banks, pension funds, and other institutional investors all over the world. But that was just the beginning of the crisis.
What most people outside of Wall Street and Washington don't know is that a lot of people who bought these risky mortgage securities also went out and bought even more arcane investments that Wall Street was peddling called "credit default swaps." And they have turned out to be a much bigger problem.
You can read the print version, or watch the report below. The stuff in here is absolutely infuriating. When the next Congress comes into session, there should be hearings. I hope the FBI is investigating these Wall Street people. The day may come when they count themselves happy to be in jail, because that way they'll be safe from the mob with torches and pitchforks. Bastards. I had dinner earlier this year with a high-level finance guy who got out of the investment bank business, mostly, as I recall, because he has a conscience, and knows he will be answerable to God, as will we all, for the lives we've lived. Over dinner, he told us what swashbuckling crookedness he observed in that world. I guess this is part of what he was talking about.
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I just watched the 60 Minutes segment, and it is, indeed, infuriating. If it turns out that laws were broken, of course those responsible ought to be prosecuted.
However, it seems more like laws of morality, ethics and common sense were broken, especially by those (presumably in Congress) who allowed such huge, unregulated markets as the Credit Default Swaps Market to exist.
At this moment, it doesn't look like the $700 billion dollar bailout is having the desired effect. No more bailouts are politically possible, nor should they be considered. It seems we may be in for a very deep recession, or depression, and it will be global. This is not good.
New car dealers are the same as these Wall Street types. But you will never see new car dealers before Congress because every Congressman has new car dealers in his/her district. Also, local media will never investigate new car dealers because media are dependent on the ad dollars spent by new car dealers.
Rod, how on earth can the FBI investigate when there aren't nearly enough investigators to address mortgage fraud itself, let alone Wall Street?! And that doesn't even scratch the surface of the fact that although the FBI may get the evidence, who's going to prosecute?
IIRC, the FBI does not take things to court -- the Dept of Justice is supposed to do that. And we know what a hack outfit GWBush turned that into; basically, a bunch of people with law degrees who thought it was the 'right thing' to hire ONLY ideologically pure, abortion-rights-obsessed people into DOJ? Where in all that madness was one single iota of concern about financial integrity for the largest economy the world has ever seen...? N-o-w-h-e-r-e.
Nowhere in sight.
The fact that this 'bailout bill' does not appear to have diddly squat for the FBI to add agents, nor for a rehaul and complete retooling of what's left of DOJ, speaks volumes.
I don't know much about finance, but I've observed a thing or two about human nature.
How could Congress pass a 'bailout bills' that doesn't even fund more FBI agents? Good grief (excuse me while I go bang my head against the nearest wall for an hour or more....)!!
And yes, there were a few people trying to call attention to the dearth of FBI investigators, as late as summer 2007 when it was already evident this mess would get out of hand: http://seattlepi.nwsource.com/opinion/322612_frauded.html
No wonder the wingnuts hate George Soros. He predicted much of this in his 2005/6 book, "The Age of Fallibility". Like vampires afraid of their own shadows, the free-market nutjobs screech at the very notion of George Soros, but IMHO it's because he's been right so many, many times -- plus, he appears to believe that ethical conduct is the only good foundation for a healthy business. Call me a lefty liberal all you want, but I happen to agree with him.
As for the Seattle PI hollering into the wind in July 2007, I'd sure hope a lot more US newspapers start asking all those Congress and Senate candidates what they're going to do in 2009 and beyond to fund more FBI investigators. It's sure cheaper than a bailout.
Rod and commenters, here's a book recommendation for this topic and this thread: "Demons of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation".
I stumbled on it here, which also has a very good review and some easy to read background info:
http://bigpicture.typepad.com/comments/2007/09/a-demon-of-our-.html
The next person "60 Minutes" may want to interview is Bookstaber, the author of this excellent book. It has a lot of concepts, but makes for riveting reading.
in my opinion after watching 60 minutes, and the fallout of these 'financial terrorist criminals' the only way to find out the scope and identities of the perpetrators is to have homeland security
arrest those known persons and transfer the terrorists to Guantanimo.
Using their own 'waterboarding' techniques to get all individuals that benefitted from this financially, and seize their assets to correct the problem. It should be done before the new president elect takes office, if possible. I feel that deregulation was the key
factor that allowed them access to this fraud scheme.
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