I have no sympathy for Madoff. But the fact is, his alleged Ponzi scheme was only slightly more outrageous than the “legal†scheme that Wall Street was running, fueled by cheap credit, low standards and high greed. What do you call giving a worker who makes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 home, and then bundling that mortgage with 100 others into bonds  which Moody’s or Standard & Poors rate AAA  and then selling them to banks and pension funds the world over? That is what our financial industry was doing. If that isn’t a pyramid scheme, what is?
Far from being built on best practices, this legal Ponzi scheme was built on the mortgage brokers, bond bundlers, rating agencies, bond sellers and homeowners all working on the I.B.G. principle: “I’ll be gone†when the payments come due or the mortgage has to be renegotiated.
What’s missing, here? Could it be any mention of . . . Congress?
Oh, wait. USA Today gives them two lumps of coal (h/t Insty), as though that were legal.
UPDATE: At Salon, Mr. Anxious, Mike Madden asks, Dude, where’s my $700 billion?
Dude! They’re printing it as fast as they can!
It’s so much more attractive
inside the moral kiosk
That plus calling out Fannie and Freddie by name.
That’s the problem with politicizing the actions of Wall Street and money center banks by selectively blaming, you guessed it, Dem politicians. That’ll backfire on you because it’s mostly nothing more than a partisan finger-pointing game.
Wall Street and the appointed regulators of Wall Street need a major overhaul. Soon deregulation will be one of those laughed at buzzwords of the past.
I agree with geoff. Friedman’s goal here is to inoculate Fannie and Freddie and the sick Democrats who mandated and put their imprimatur on irresponsible lending practices. You want a Ponzi scheme metaphor you don’t have to look any further than Social Security and Friedman knows that but he’s a hack. A lazy New York Times hack. This is what happens when you don’t have a challenging work environment.
Maybe he’s corrupting Frank Rich with those icky free-market values. Lucky for us, Frank is incorruptible.
Whatever happened to “If you can make it there you can make it anywhere”? I suppose it’s not Stuart Smalley enough for the NYT where they sing “I’m nice enough, I’m smart enough, and gosh darn it people like me” every morning to start the work day.
No mention at all of Fannie Mae, Freddie Mac, or the CRA; all of which motivated the behaviour of the fianacial institutions that Friedman spoke of…
He tries to pass as a centrist, but is a Democrat apologist. To him, bi-partisan means giving the Left what they want. Friedman is a propagandist that backs the global connivance of AGW and is now seemingly branching out to economics…
Besides, the I.B.G. principle is the one that congress has been operating under since WWII…
As I was reading to the end of the article, I noticed it read, at the end, “Maureen Dowd is off today.”
I thought, “Oh really, I couldn’t tell.”
Topper, I missed the part where Friedman was pointing the finger at Democrat Congresscritters. I’m sure they’ll drum up a committee and get to the bottom of their complicity. Not.
Meanwhile, they’ll spew partisan rubbish like the Levin Report . . .and the MSM will hold their feet to the fire, right?
Isn’t congress still busy investigating steroids in baseball? I mean how do they have the time to investigate trivial matters like this.
Topper, I missed the part where Friedman was pointing the finger at Democrat Congresscritters. I’m sure they’ll drum up a committee and get to the bottom of their complicity. Not.
Of course not. Nor will the Affirmative Action nature of the “deregulated” financial collapse be mentioned. Because it’s just so racist to insist on Eurocentric concepts like loan to income, or creditworthiness.
Because it’s just so racist to insist on Eurocentric concepts like loan to income, or creditworthiness.
Oh. OK. I see where you’re going with this. What’s next? You should be able to afford a big screen before you get one with no money down? I suppose then you’re gonna tell us that the payments are mandatory?
Swing lo, swee………….
Why not just
Congress isn’t elected to audit Wall Street. The S.E.C. and others are appointed to perform that responsibility, and other the copmliance bodies include industry self-regulation, the NASD and others, and the even the exchanges themselves have a role in regulating compliance of their rules. Maybe it’s too multi-tiered, who knows
Very ineffectual is what we have now. But very far away from the isp bwarney fwanks’ fault squeakers does the re-writing and re-organization of out regulatory bodies need to begin. Reality, not Rush Limbaugh, is what is called for, even Newt Gingrinch has stated these obvious points. It’s importance is past that of flippant partisanship.
Spook, far from flippant partisanship, I’m thinking all these people, of whatever party, have to be thrown out for non-feasance, and that, for example, the ill-gotten gains of GSE officers, just for starters, have to be, um, repatriated, to send a message. Does that work for you, or not?
RACIST!
um, Raines did pay a fine.
Yeah, amounting to about a quarter of his bonuses. Harsh.
Ah, it looks like thor is playing Rotating Screen Names again. Spook for sure, not positive about Topper.
Reality, not Rush Limbaugh, is what is called for,
Limbaugh in fact understands the whole thing and strongly condemns Rino’s and bureaucrats, though he will certainly engage in partisanship if the gauntlet is thrown down – as in blaming a simple “lack of regulation” or “Republicans” for this debacle.
In other words, I see your swipe at Limbaugh as not merely gratuitous, but actually an example of the very thing you say you decry – “flippant partisanship”.
I would put 100 bucks on him having exactly no idea what Rush’s take on this is. I sure as hell do not either other than I would expect him to say Barney Franks name alot.
Yes, I’m for having many heads roll. But it’s not that simple, the rules by which they (the regulating bodies) could even perform an audit on a brokerage firm or bank and the power to enforce existing and, hopefully, new regulations has to be reviewed. Wall Streeters (some, not all) have laughed in the face of the regulatory bodies for a long, long time. It’s the same shit, different branch of gov’t. SEC attorneys are fairly good but they’re newbies or middle-ager middle-of-the-roaders. I’ve seen some persons who I could not believe were allowed to continue in the business but did so because of their high-paid counsel’s abilities. Wall Street’s a place where if there’s money involved much is forgiven and many a head is turned.
I don’t have all the answers but I know what’s not working, and I also know we – you and I – are on the hook for all those ill-timed CDO and CMO and default-swaps that those supposedly smart entrepreneurial capitalist mantra-spewing dickweeds on Wall Street filled their portfolios with. There’s plenty of blame to go around for the toothless regulators but the bulk of the blame is on those who we just gave a trillion dollars to, namely Wall Street and the banks. Don’t kid yourself, those fuckers did it for the kwan, the commissions, the fees, for their “gross,” as the Street calls it. 1987, 1999, the dot.com bubble, the housing bubble, the commodities bubble, when are you going to see past Barney Frank and Jamie Gorlick and a few dicksuckin’ CEO’s and call for the whole money-speculator’s game to be better regulated and better organized? All this bubble-shit keep repeating for a reason.
Dammit, goons like Friedman can oversimplify that way, but we shouldn’t. Among other things it leaves an opening for for the ideologues.
The premise of Affirmative Action is that some people get left out for irrelevant reasons. A properly administered AA program forces employers or lenders to consider people they would not otherwise let in the door for reasons that have nothing to do with job performance or ability to pay. If those people are then held to the same standards as other employees or borrowers must meet, the program benefits the people (via access to jobs or lending), the employers and lenders (by providing more employees or customers), and the society as a whole.
The whole “tranche” business was (and remains) an implementation of that principle in its purest form. It assumes that many, perhaps most, of the borrowers will in fact “perform” — pay their notes off. It is, however, impossible to predict which borrowers will pay and which will not. You handle that with statistics: combine all the notes together in one pile, then sell rights to the pile (or, rather, to the aggregate income resulting from those borrowers who pay their obligations) according to a scheme which is much simpler than it looks.
Investors pay high for the first fruits. As I said, many borrowers will pay; the income from all the notes is pooled, and the people who paid a lot for their “tranche” get paid back. Investors pay less for the second, third, and later chances. At the bottom, investors paid very little for a long chance. They don’t get repaid at all unless everybody pays; if there isn’t enough money in the pool of payments, they get nothing.
It is, precisely, parimutuel betting. In horse racing the payment is the same but the payoff varies: a $2 bet on the favorite only returns two dollars and a few cents, but if a no-hoper crosses the finish line first that two bucks may turn into hundreds. In this, the payment varies but the payoff is the same — $1000 worth of first-fruit payback will cost maybe $950, whereas the same thousand from the lowest “tranche” might only be $200. The principle is the same. If the hot chance comes through, those who bet on it get a modest payoff. If Sparkplug wins by a nose, the ones who bet on him get a fortune.
The “bond ratings” are nothing more than handicapping — deciding what the odds are likely to be for each level of payback, certain down to glue-factory bait. Bitching about “AAA Ratings” is stupid. If the premise of Affirmative Action is true (and it is), the “first fruits” really are “sure things” — some borrowers will pay, and that money goes to the people who paid high for a “AAA” chance. It’s the ones who paid only a little for a “D” chance who have to suck wind.
Trouble comes when the premise of Affirmative Action is violated. If an employee hired under that aegis is not held to the same standards as other employees, the scheme turns into simple wealth transfer — that “job” is in fact a “position”, a burden on the employer for which he receives no return: a tax. An honest society would group such people as “Micawbers” (or, worse, “Collinses” — from the Austen character, not Our Guest Host). Everyone concerned suffers, including the employee in question, although the negative effect may be subtle and not even recognized.
In this case, it would appear that the promoters of the scheme regarded it as a vehicle for simple wealth transfer. It was irrelevant whether any of the so-called “borrowers” ever paid anything back or intended to pay anything back, and it might have been a disadvantage (from the point of view of the promoters) if anybody ever paid anything back. That brings Rule Three into force: The ants find the sugar. Since the scheme was clearly intended simply as wealth transfer, there was no moral or ethical reason why anybody who could get access to it shouldn’t share some of the pie, including but not limited to the politically appointed managers of it, the people supervising the tranching-and-rating system, opportunists using it to finance “flipping” schemes rather than seeking a place to live, and the politicians who enjoyed the kickbacks (<ahem> campaign contributions) resulting. In the end the parasites killed the host, and we now get to listen to the ticks each complaining that the other is too engorged. Meanwhile the original, nominally intended beneficiaries of the scheme get dick, and the rest of us get to pay for it. Forever.
Lovely.
Regards,
Ric
Well anyone want to comment on the elephant in the room? You know, the multi-trillion dollar entitlement bubble that is hanging over all our heads? I can not wait until that bill comes due. It has me thinking about reupping so I have some job security.
Ric, your narratives are so mixed it’s har dto believe someone as intelligent really believe what they type.
How about pre-refunded bonds, Ric, should they get a AAA rating? Or is the fact they have money to pay off at maturiey in an escrow account just a handicapper’s scheme involving affirmative action?
The last tranch is priced accordingly and the PSA speeds are published, btw, so the whole risk vs. reward is calculable in the “free-market.” Ha! Don’t blame the gun, blame those who used the gun to play Russian roulette with your money, pal.
It’s sad when you can’t separate bitter political harping from the real issues. AA, give us/me a break.
Mr. Pink, If you need someone to admister the oath, let me know. We’ll be gald to have you back.
Can you do me a favor and stop switching your name thor. It is annoying trying to ignore the comments of 6 different names.
Ha! You guys make me laugh about job security in the military. Everybody knows that now that when Obama’s President nobody will dare threaten American interests, for fear of being labelled a RACIST!!!
Also, because of the hazard to unicorns.
I am seriously thinking about it Major. At least signing back in to a reserve unit. I just bought a house and if I get laid off it would be nice to be able to get some orders for 179 to at least have some time to try to find another job. I was thinking about switching over to the chairforce though.
Face it: armed conflict is so BOOOOSH-retro.
Nope. My name will change as often as I want it to. As long cowardly Darleen allows my name for free use I have no choice.
Matter of fact, I think Darleen will be seeing a lot of Darleens. Some only learn hard lessons.
I dunno, Dan. Those Chinese Embassies aren’t going to accidently bomb themselves.
AA, give us/me a break.
Sounds like you’ve already received just that kind.
Mr. Pink – the USAR, please. If you go to the Chairforce, I may have to stop speaking to you… well, OK, maybe not. Heh.
I suppose we could all change our screen names to Thor. Too large a chance he would find gratification in such a scheme. ISP publication would probably help, of limited utility of course, but good for figuring out who to ignore and whom to pay attention to.
Matter of fact, I think Darleen will be seeing a lot of Darleens. Some only learn hard lessons.
But, as in your case, stupid is obviously clear to the bone. And, btw, thanks, but no thanks.
So who has permisison to change settings to show ISPs in the header of posts?
Heh. Only reason I am thinking about it is that 6 months sounds alot better than 15 months of deployment.
I don’t have all the answers but I know what’s not working, and I also know we – you and I – are on the hook for all those ill-timed CDO and CMO and default-swaps that those supposedly smart entrepreneurial capitalist mantra-spewing dickweeds on Wall Street filled their portfolios with.
Gee, thorbump, when the gov’ment not so subtly compels Affirmative Action loans, and then “sanitizes” them with the backing of Fannie and Freddie, and launders this trash throughout the entire system like a virus, well gee whiz, what did you think would happen? And then you give the lisping Barney Frank a pass.
Mr. Pink – Alot of the Air Force folks I ran into in Baghdad and Tallil were on 12 month orders…
well, if on of RTO’s recent new guys is any example it’s much easier to go Army to Chairforce than the other way round. They were giggling because he was not pleased with the accomodations at a school they sent him to.
Why the redumbs are in full political retreat takes no imagination to figure out. Swollen glands, deep fatigue, unresolved stress and with bloating bladders is no way to go through life.
Even sock-on-hand therapy has not proven itself a remedy for redumblification.
Whiff some Lemon Pledge while glossing the wood furniture and see how that goes.
Maggie, Indeed – we did hear a bit of sniveling about how bad it was as far as living conditions went. I think I must have gotten a bit of an angry gleam in my eye, as when I stared at the Airmen making such complaints, they sort of backed away. Heh.
Yeah I heard that too Major about some MOS’s. They probably were SF’s if I had a guess.
John if you want to hear something that will really piss you off the people in the Airforce unit that I know sleep in hotels when they go to training schools. Yes not barracks, hotels. As an officer you might not have that problem but every damn school I went to I was waking up next to Private ThievingMcSmellyBastard and taking a shower with 20 other guys.
Not to mention the chow halls. I am not sure if they improved the Army ones since I have been there but the chow hall for the Airforce guys in Balad had a “make your own” omelette line, while the Army one was in a trailer.
There is a shortage on Lithium, somewhere …
I have a chocolate donut ring around my nose from trying to tongue Baracky’s chocolate starfish …
Jesus, you’re an arrogant stupid fuck, thor. Wall St is ovewhelmingly, astonishingly populated by…Democrats. Quit peddling your fucking ignorance. The political donations from this election cycle alone demonstrate the staggering amounts of money given to The Messiah. Guess what? They’ve always given more to Dems by a factor of 20. There are damn few Republicans working on wall St.
Well I keep getting told there are no evil Republicans left WTF? I guess they still do exist, only in evil places doing the evil things they do. Those evil bastards.
/Lumpy McBitters
QED, already: “stupid is clear to the bone”, ok?
Bullshit. (Not you, kelly.)
Things fall down. Now, we all know it’s more complicated than that — but General Relativity includes Special Relativity as a special case, and Special Relativity includes Newton’s Laws when conditions are simple enough, and if you let go of a rock it falls down. Just because there’s complexity in there doesn’t stop the fundamentals from happening.
Where there is roadkill there are buzzards. Where there are food scraps there are cockroaches. If you leave sugar out the ants will find it. It doesn’t matter whether you were on your way to Pittsburgh or Peoria when you hit the possum, it doesn’t matter whether you were making meatloaf or something complicated and French when you left the food scraps out, and it doesn’t make any difference to the ants whether you were sweetening your tea or making a wedding cake when the sugar got spilled.
If you have a big pile of money and power it will attract people who want money and power regardless of the ostensible purpose. You can bluster and whine all you like about the details, but the fact of the matter is, this was a huge pile of money and power, and it attracted all the Usual Suspects. And you can enact more and more complicated regulations, with more and more bloodthirsty penalties for non-compliance and more and more bureaucrats to check up on it, and all you will accomplish is to change which opportunists you attract — just as you can spend a fortune on Black Flag and exterminators, but if you consistently leave food scraps out on the counter you will have cockroaches. Things fall down, and will continue to do so no matter how much you howl.
The Founders understood that. They tried to set up a system in which the Government had little enough money and power that the opportunists wouldn’t be seriously attracted, and the ones who were attracted couldn’t do much damage. In the last decades we have totally abandoned that principle. Yes, yes, I know. It’s kindness. It’s compassion. It’s an attempt to provide unfortunate people with some assistance, and to make up in part for past injustices. It doesn’t matter a damn. It’s a big pile of money and power, and if the opportunists don’t find one way to get into it they’ll find another or start making ways, and the intended beneficiaries of the largesse will always end up sucking hind tit. It has always happened that way, it happens that way today, and it will still be happening as long as there are identifiable human beings involved in the process, “singularity” or no. The only way to prevent it is not to have the pile of money and power in the first place.
Regards,
Ric
How does Sarbanes Oxley (the bane of my existance these days) factor into all of this?
Swollen glands, deep fatigue, unresolved stress and with bloating bladders is no way to go through life.
And, btw, Lumpy!, like ants to the sugar, I can’t resist a case, you know, such as the one you just projected: clearly, you done got the hiv illness, which might also explain the strong encephalitic component!
No charge. But Progressivism explained? Hello, Nobel.
Thanks for the exclusion, Ric. It simply astounds me how durable the “Wall St. = Greed = Republican” meme really is. Anyone think Robert Rubin is a Republican? Henry Paulson? Or, for that matter, Warren Buffett?
Special Relativity? I thought that was the rule they invoked to make Caroline Kennedy eligible to be a senator..
Good point though, Ric.
#21 Ric:
I think it is related to the same mentality that produced ‘sinecures’. Those were positions with a salary attached that required little to no work for the salary. They were rewards, ecclesiastical and government, that were given out to friends, family members, and party supporters.
The person would get the ‘sinecure’ and draw the salary, but was expected to just have the real work done by those further down the line. The problems happen when: the person receiving the sinecure actually tries to perform in that office, too many positions are made into sinecures, and so forth. And then there were those surprises that actually could do the job, did it well, and interrupted the whole play-to-pay system by being competent and energetic.
I recall e-mailing Jeff that he may have to go to a registered commenter system. He didn’t want to do that, but now that there are stalkers here again, it may be necessary.
#51 Ric:
An example I recall from Bill Mauldin’s ‘Up Front’ was winter gear for the troops on the line. They didn’t have enough because as these good boots and coats and gloves came in rear-area troops would pilfer them (they were cold, too). But there wasn’t enough to go to everyone, just the guys in the front-lines. So the guys who were supposed to benefit, really didn’t benefit. Other ants got to the sugar.
Well I had just got out of the County Prison
Doin’ ninety days for non-support
Tried to get me an executive position
But no matter how smooth I talk
They wouldn’t listen
to the fact that I was genius
The man say, We got all that we can use
So I got them steadily depressin’
Low down mind messin’
Workin’ at the car-wash blues…
Croce wasn’t worth the contemporary hype, but he did hit an occasional nail square on the head.
Regards,
Ric
I agree with your primes about the pile of money attracting flockspiles of the usual vultures. But no, you can regulate the banks and brokerages, and though it makes for a more sterile system (less exotic derivatives) that’s better than the loss of investor confidence in the system after all these collapses.
It simply astounds me how durable the “Wall St. = Greed = Republican†meme really is.
Demonize, Demonize, Demonize, then refer to it later as “fact”, courtesy of “The Elite”.