More Financial Stuff

1. It is not just the toxic assets, it is the CDSes.

2. The Formula that killed Wall Street.

3. An explanation of just what was so pernicious about the Formula that killed Wall Street.

4. How the CDS revived the bucket shop, banned in 1907.

5. The author of the CDO creation software tells his story.

A lot of reading, but good reading.

The Daily Dish: View from your recession

Andrew Sullivan has an occasional "The view from your recession". For some reason this one "got" to me.

Here are some others:
#55

#61

Even #63 did not move me as much.

Simon Johnson: The Quiet Coup

Here.

Quoting the official blurb:

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

Goose

Matt Taibbi in Rolling Stone

Read it here.

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

Untitled

PS: the mellow light Rajan mentioned in the comment was on the trees as follows (facing east; the pic above is facing south):


PPS: trial crop - perhaps a telephoto would have been good here, because the structure of the trees is mildly interesting :)

The Real AIG Scandal

While the firestorm rages about the bonuses for the very individuals in that one unit of AIG that brought down the whole company writing toxic CDSes, the real scandal is that AIG was used as a conduit to give Goldman Sachs, JP Morgan Chase, Bank of America, etc., 100 cents on the dollar on their worthless assets. Elliot Spitzer reminds us of this (via dkos)

The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

Who are the parties really benefitting? The usual suspects: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, etc. etc.

The same parties who had ALREADY milked us for billions.

They are now getting MORE billions through AIG.

Why did Goldman have to get back 100 cents on the dollar? Didn't we already give Goldman a $25 billion capital infusion, and aren't they sitting on more than $100 billion in cash? Haven't we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn't they have accepted a discount, and couldn't they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed?

Satyameva Jayate!

Truth alone triumphs — this is proclaimed by the Upanishads, and is India's national motto. However, here is a contemporary view of the truth (from a letter on salon.com)

...Jeb Bush {George W Bush's brother}, allegedly speaking to retired Naval Intelligence Officer Al Martin:

“The truth is useless. You have to understand this right now. You can't deposit the truth in a bank. You can't buy groceries with the truth. You can't pay rent with the truth. The truth is a useless commodity that will hang around your neck like an albatross -- all the way to the homeless shelter. And if you think that the million or so people in this country that are really interested in the truth about their government can support people who would tell them the truth, you got another think coming. Because the million or so people in this country that are truly interested in the truth don't have any money.”

- (cited by Uri Dowbenko in Bushwhacked, Sept. 2002).

The US is ruled by Israel

Glenn Greenwald.

In the U.S., you can advocate torture, illegal spying, and completely optional though murderous wars and be appointed to the highest positions. But you can't, apparently, criticize Israeli actions too much or question whether America's blind support for Israel should be re-examined.

American R&D crisis?

From Light Reading:

MOUNTAIN VIEW, Calif. -- A lack of emphasis on basic research could make it harder for the United States to climb out of the current economic crater, according to some Silicon Valley experts from the research community.

The result is that the country lacks a trove of big-deal technologies at a crucial time. "We have come off a major cycle, and we do not have the wherewithal to kick into the next cycle," said Judy Estrin, former Cisco Systems Inc. CTO and Packet Design Inc. founder.

She was one of the speakers at a panel discussion titled, "The Innovation Economy: R&D and a Crisis," put on by the Churchill Club and hosted by the Silicon Valley offices of Microsoft Corp.

Scholes on Over-The-Counter

Bloomberg reports:

March 6 (Bloomberg) -- Myron Scholes, the Nobel prize- winning economist who helped invent a model for pricing options, said regulators need to “blow up or burn” over-the-counter derivative trading markets to help solve the financial crisis.

The markets have stopped functioning and are failing to provide pricing signals, Scholes, 67, said today at a panel discussion at New York University’s Stern School of Business. Participants need a way to exit transactions and get a “fresh start,” he said.

The “solution is really to blow up or burn the OTC market, the CDSs and swaps and structured products, and let us start over,” he said, referring to credit-default swaps and other complex securities that are traded off exchanges. “One way to do that, through the auspices of regulators or the banking commissioners, is to try to close all contracts at mid-market prices.”

Scholes also recommended moving the trading of credit- default swaps, asset-backed securities and mortgage-backed securities to exchanges to allow for “a correct repricing” of the assets. The securities are currently traded between banks and investors, without any price disclosure on exchanges.

Further:

A total of $531 trillion in outstanding derivatives contracts traded over-the-counter as of June, according to the International Swaps and Derivatives Association. They were mostly interest-rate swaps, but also included CDS and equity derivatives.

“Take the pricing mechanism from the desks in banks, which have made a huge amount of profits over the last number of years, and facilitate price discovery,” Scholes said.

.....

Among other recommendations, Scholes urged changes to the accounting rules to give better disclosure on risks, said that banks should focus on their return on assets instead of return on equity, and said central bankers shouldn’t try to quell market volatility, which provides a natural brake on risk- taking.

QOTD

Frank Rich in the NYT

...in the bubble culture, money ennobled absolutely.

(context:
"In a class apart is the genteel Walter Noel, whose family-staffed Fairfield Greenwich Group fed some $7 billion into Madoff’s maw. The Noels promoted themselves, their business and their countless homes by posing for Town & Country. Their firm took in at least $500 million in fees (since 2003 alone) for delivering sheep to the Madoff slaughterhouse. In exchange, Fairfield Greenwich claimed to apply “due diligence” to every portfolio transaction — though we now know Madoff didn’t actually trade a single stock or bond listed in his statements for at least the past 13 years.

But in the bubble culture, money ennobled absolutely. A former Wall Street executive vouched for his pal Noel to The Times: “He’s a terribly good person, almost in the sense of Jimmy Stewart in ‘It’s a Wonderful Life’ combined with an overtone of Gregory Peck in ‘To Kill a Mockingbird.’ ”)

PS: from here:

"In this country, more than any other, esteem is based on wealth. Talent is trampled underfoot. How much is this man worth? they ask. Not much? He is despised. One hundred thousand crowns? The knees flex, the incense burns, and the once-bankrupt merchant is revered like a god."

--Baron de Montlezun, a French expatriate travelling in the United States, as written in 'Voyage fait dans les annees 1816 et 1817'

Ketaki Gulab Juhi

Sorry, translation is beyond me.