the finance industry / wall street

At the moment, the vast majority of prosecutable fraud from the mortgage bubble arises from "upstream" of the financial engineers at the Wall St. banks. Loan originators who falsified income documentation, appraisers who inflated appraisals to retain business, etc. A strong case can be made that only a few of the mortgage-back security aggregators really knew or care how bad the credit risks had become in the 2005-7 timeframe, so long as some fool in a Dusseldorf landesbank was willing to buy them.

William K. Black, one of the best sources on the lack of prosecution for credit-bubble fraud, IIRC notes that the majority of the white-collar crime investigators at the FBI and other Federal law enforcement agencies were reassigned to investigate money-laundering for terrorist organizations in the aftermath of 9/11. A budgetary request for more hires to replace them was nixed by Congress.

The subcommittee made a formal referral to the department (as did the federal Financial Crisis Inquiry Commission, chaired by Phil Angelides), and Levin publicly stated his view that criminal inquiry was warranted.

Ok, but you'd have to demonstrate criminal intent on the part of Goldman EXECUTIVES in structuring Abacus.

I mean it's not like these deals get personally signed off on by Lloyd Blankfein himself.

As you probably know, I'm not a lawyer; I'm an amateur asshole.

(just a joek, kidz)

http://upload.wikimedia.org/wikipedia/en/thumb/2/24/Poster-premiere-semi-pro.jpg/220px-Poster-premiere-semi-pro.jpg

Anyway my gripe about that line ("why haven't these guys gone to jail?") is that actionable criminal fraud makes up a tiny portion of what went wrong with our economy, and while it is often metaphorically accurate to say "these guys are crooks", it's rarely literally provably true. Further, it seems to me that the lust for a public hanging kind of distracts from the much bigger, harder systemic problems that need addressing.

if criminal prosecution leads to nationalizing the financial institutions responsible, that seems like a great step forward towards addressing the systemic problems.

how would criminal prosecution lead to nationalizing financial institutions?

if nobody's left to run it because they're all in jail, that seems like an excellent rationale for govt seizing control. i'm not sure, but can the govt be plaintiff against banks in a civil suit? that seems like another avenue to seize assets.

so not gonna happen

oh nothing good's gonna actually happen, but we have to go out Alamo-style.

Right, inflation is bad for savers of money and people on fixed income, good for people with debt, and kind of neutral for everyone else as long as it doesn't get out of control (all other things being equal, wages rise with inflation).

this is true but again, we don't really have inflation. we just have low rates, which are also good for debtors and bad for savers (but are also good for equities since it forces money [that wants returns] out of bonds and into riskier investments.). but we don't have prices increasing at a striking rate (recent episodic commodities bubble aside). and i've said this before, but i'm pretty dubious that the low rates are a result of fed policy at all, actually. There's enough demand for relatively safe assets that rates would probably be very low anyway.

Right, didn't mean to suggest we are seeing inflation, although I do think that the expanded money supply has contributed to mini-asset-bubbles. I think what it HAS maybe done is exerted enough upward pressure on prices to keep them from deflating, which is what I meant in my prior post.

That's an interesting theory about the demand for safe assets, and one I hadn't heard. But it seems like it almost has to be true that rates are lower than they would be without fed intervention. I mean the fed has spent, what, over a trillion dollars buying treasuries? And how big is the entire treasury market? 10 trillion? I can't find a clear number in my quick google search, but the additional demand added by the fed's buying would have to make a significant difference to rates, even if they'd be low anyway, I'd think.

lol "hedging": http://dealbreaker.com/2012/05/whale-sushi-on-the-menu-at-jpmorgan-executive-lunchroom-for-next-few-months/

hahaha yeah I was going to post about that

Wait, so JPM literally just did the math wrong? Like they didn't underestimate the risks of anything, but rather actually crunched numbers wrong? That's a little unsatisfying.

I don't think anyone really knows. I think it really is about underestimating the risks. Not like adding numbers wrong, but adding the wrong numbers, so to speak.

Anyway my gripe about that line ("why haven't these guys gone to jail?") is that actionable criminal fraud makes up a tiny portion of what went wrong with our economy, and while it is often metaphorically accurate to say "these guys are crooks", it's rarely literally provably true. Further, it seems to me that the lust for a public hanging kind of distracts from the much bigger, harder systemic problems that need addressing.
--Scott, bass player for Tenth Avenue North (Hurting 2)

Seriously JAIL THE BANKSTERS makes me want to throw myself off a bridge.

i don't even know where to put this:

http://www.bloomberg.com/news/2012-05-17/dental-abuse-seen-driven-by-private-equity-investments.html

almost too fucked up to comprehend

with each passing day I am more and more 'lol capitalism' (but also sad)

kind of lol but mostly smash

i know it for true that plenty of med mal lawyers really don't like to sue dentists, though medicare/medicaid fraud is beyond the scope of private lawsuits.

if i had a kid, who came home from school one day with a bunch of dental work i didn't know anything about, somebody would be taking a bat to the head by the end of that day

that story gives me freaky marathon man vibes.

Ok so I know this isn't EXACTLY within the thread, but since this has kind of become the smart-people-explain-finance-related-stuff thread, can anyone explain a bit about what a Greece Euro exit would mean?

This is one of the more provocative scenarios I've read for a Greek Euro exit:

http://brontecapital.blogspot.com/2011/09/models-for-greek-sovereign-default.html

wait i popped in here because the ows thread was getting too ideological for my taste but did somebody seriously just advocate for nationalizing investment banks?!?

nobody really knows what a greece euro exit would mean or how it would happen at the moment, i suspect. The new 'geuro' proposal (http://www.cnbc.com/id/47505085) strikes me as not completely insane and unworkable as a medium term solution that would probably just be a step towards ultimate euro exit.

can anyone explain a bit about what a Greece Euro exit would mean?

― this guy's a gangsta? his real name's mittens. (Hurting 2), Wednesday, May 23, 2012 10:22 AM (6 hours ago) Bookmark Flag Post Permalink

most likely the end of the euro and the world

http://www.slate.com/blogs/moneybox/2012/05/21/fear_contagion.html

pretty good BBC Radio4 Analysis from February about what contingency plans might be put in place and how things might shake down if there's a Euro exit: http://www.bbc.co.uk/programmes/b01bwm1h

I don't find Yglesias on finance very convincing, somehow.

What you're hearing lately from the Powers That Be about the survivability of Greece leaving the eurozone is all about liquidity contagion. They're saying that balance sheets are arranged such that the direct financial losses are survivable. But what about fear? It's harder to assess, but anyone who's sanguine about this is either bluffing optimistically or deluded. Ground zero for fear is going to be Cyprus. Most people probably don't even know that Cyprus is an independent country at all, and if they do know anything about it what they know is that it's some kind of ethnic Greek proxy state. So if Greece is gone, so is Cyprus, which is basically part of Greece. And if one island is gone, then what about Malta? So Malta's down. Now Cyprus and Malta matter even less than Greece. But once the policy rule isn't "Greece is different" but "Greece and Malta and Cyprus are all different" then who really knows. Does anyone even know anything about Portugal? Again, not really. Except it's close to Spain! And so now Spain's melting down. Not because of losses on Greek debt, but because the Greek exit and subsequent collapse of Cyprus have us new information about the limits of the German political class' level of commitment to the eurozone and now everyone's alarmed.

The only way to halt the pattern is to provide some very clear and very salient informational point separating the countries that are exiting from the countries that aren't exiting. And that's hard to do.

Like this. Not very convincing. Whose fear are we talking about? The American public? The German public? Institutional bond investors?

I mean there actually are, like, giant financial institutions who DO know something about Portugal besides it being next to Spain.

sure just like the giant financial institutions knew abt greece

but if you were to make list of people whos fear matters the most in this situation it would prob start with

1 people who have euros in greek/italian/portuguese/etc banks

then i guess

2 the people loaning money to those banks

actually I think it would be holders of sovereign debt of those countries

yes thats number 2

but people moving their euros from greek etc banks to german banks is necessary to get the ball rolling

holders of sovereign debt = people loaning money to the countries themselves

people = big institutions, mostly

corporation are people my friend

holders of sovereign debt = people loaning money to the countries themselves

― this guy's a gangsta? his real name's mittens. (Hurting 2), Wednesday, May 23, 2012 6:34 PM (1 minute ago) Bookmark Flag Post Permalink

lol rilly thx cool tip

another term for these people at this point would be 'germany'

well, to recap, you said:

but if you were to make list of people whos fear matters the most in this situation it would prob start with

1 people who have euros in greek/italian/portuguese/etc banks

― lag∞n, Wednesday, May 23, 2012 6:29 PM Bookmark Flag Post Permalink

then i guess

2 the people loaning money to those banks

― lag∞n, Wednesday, May 23, 2012 6:30 PM Bookmark Flag Post Permalink

And then I said "holders of sovereign debt"

And then you said "yes thats number 2"

And then I said "holders of sovereign debt = people loaning money to the countries themselves"

which is not the same thing at all as people loaning money to some greek banks that have euros in them, or whatever.

Also I don't think Germany is a major holder of Greek sovereign debt, it just doesn't want to help bail out Greece.

as we saw in the american finical crisis the line between government and banks can become p abstract, the same thing has been going on for a while in the eurozone, germany et al is pumping a bunch of money into the greek government/banks, the distinction is p academic at this point

germany may not want to help bail greece out but thats exactly what its doing, uncertainty as to whether they will keep doing it is whats causing the fear which is resulting in the charmingly named 'bank jog' of euros flowing out of at risk nations banks to more robust ones