How Wall street thieves took down the economy

http://www.alternet.org/economy/150741/ ... e_stopped/

Longish article, but well worth the read if you want to get a handle on how this happened. It succintly summarizes the findings of the senate investigation into Wall Street practices that led to the collapse.

Here's an excerpt:

The first case study focuses on Washington Mutual (WaMu), the nation’s largest savings bank, and its overt strategic decision to go big into selling high risk, high profit mortgages. Here you will find a detailed description of every type of dangerous mortgage foisted onto the public. Your blood pressure also will climb when you read how the bank used focus groups to help its mortgage brokers find better ways to sucker customers into risky mortgages even though the applicants had qualified for and wanted safer fixed-rate mortgages.

The report also details outright fraud committed by brokers – forging documents, making phony loans, stealing money – who then got rewarded again and again by the bank for their high sales records, even after they were caught! Nobody cared because the loans quickly were sold to Wall Street – the riskier the loan, the higher the interest rates and the more Wall Street would pay.

Here's another:

The second case recounts the pathetic tale of the Office of Thrift Supervision, the regulatory agency that was supposed to halt WaMu’s shoddy and corrupt practices. The report shows that OTS knew of these deceptive practices in great detail for five full years and still failed to stop the pillaging. Why? Because OTS’s top regulators didn’t believe in regulations. Banks should regulate themselves.

And another:

The third case study which focuses on the two largest rating agencies (Moody’s and Standard and Poor’s) is a story of prostitution. Here we learn how the rating agencies turned trick after trick for the big Wall Street banks, doling out favors (AAA ratings) to thousands of “innovative” securities based on the junk mortgages that WaMu and others originated and packaged. Then when it became obvious to everyone that the crap was still crap, the whores went virtuous by drastically downgrading thousands of toxic assets overnight.

And perhaps most maddening:

The report accuses them (Deutsche Bank and Goldman Sachs) of packaging and selling toxic securities while, at the same time, betting that those securities would fail. Furthermore, the report argues forcefully, that “Investment banks were the driving force behind the structured finance products that provided a steady stream of funding for lenders originating high risk, poor quality loans and that magnified risk throughout the U.S. financial system. The investment banks that engineered, sold, traded, and profited from mortgage related structured finance products were a major cause of the financial crisis.

Due to the discount brokers, Wall Street wasn't making as much money, so they needed to find new sources of income.

Personally I was smart enough to stay away from the ARM's and I sure wasn't buying mortgage debt when we were having a huge price bubble in real estate.

In financial markets, it has always been caveat emptor but now the spin is the Wall Street smart guys taking advantage of the gullible.

Consider this, if it was such a winning strategy, why did these firms fail and have to be bailed out?

Anytime you sell a security or an option, you think it is overvalued, otherwise you would hold onto it.

SS109 wrote: Due to the discount brokers, Wall Street wasn't making as much money, so they needed to find new sources of income.

Personally I was smart enough to stay away from the ARM's and I sure wasn't buying mortgage debt when we were having a huge price bubble in real estate.

In financial markets, it has always been caveat emptor but now the spin is the Wall Street smart guys taking advantage of the gullible.

Consider this, if it was such a winning strategy, why did these firms fail and have to be bailed out?

Anytime you sell a security or an option, you think it is overvalued, otherwise you would hold onto it.

Even the principle of "Buyer Beware" doesn't excuse outright fraud.

And in answer to your question of why did the firms fail, largely because the ratings agencies suddenly "went virtuous" and downgraded all their crap to the crap rating it deserved and they were suddenly stuck holding a lot of toxic crap they could no longer unload.

Just wondering, are you seriously trying to defend Goldman Sachs and it's ilk?

SS109 wrote: Due to the discount brokers, Wall Street wasn't making as much money, so they needed to find new sources of income.

Oh, and this is priceless! It's like a defense attorney pleading that his clients all got laid off, so they needed to find new sources of income and decided to rob banks.

Not trying to defend GS and others, but not trying to place all the blame on them.
Too many people were qualifying for loans they couldn't pay back, especially per Fannie & Freddie, the goverment was foolishly pushing home ownership, both Dems and Repubs, so this created absurd prices because of the increased demand, which decreased people's ability to pay off the loans.

And I also think Bernanke and Greenspan combined with the executive branch keeping interest rates artificially low also screwed the pooch, but if you want to blame the whole thing on Wall Street, you go right ahead.

Just like wars can't be blamed on only one thing, neither can recessions or depressions.

AspenValley wrote:

SS109 wrote: Due to the discount brokers, Wall Street wasn't making as much money, so they needed to find new sources of income.

Oh, and this is priceless! It's like a defense attorney pleading that his clients all got laid off, so they needed to find new sources of income and decided to rob banks.

I am not trying to justify their actions, just explaining them.

And do you believe Wall Street was the only reason for the Great Recession?

The bailout was even worse than that. We paid bankers to foreclose on mortgages instead of working with homeowners to save their houses (still going on and will be another record year). These bankers got full price from the bailout and then turned around and sold the house again for profit. The housing prices are going down because the banks are able to sell houses for 50% ans still make a nice profit thanks to Bush and Paulsen. Think about what that has done to your house's price. Obama came along and doubled down on that strategy. He's not a man of the people - he's bought and paid for. All of these people should be locked up.

SS109 wrote: Not trying to defend GS and others, but not trying to place all the blame on them.
Too many people were qualifying for loans they couldn't pay back, especially per Fannie & Freddie, the goverment was foolishly pushing home ownership, both Dems and Repubs, so this created absurd prices because of the increased demand, which decreased people's ability to pay off the loans.

And I also think Bernanke and Greenspan combined with the executive branch keeping interest rates artificially low also screwed the pooch, but if you want to blame the whole thing on Wall Street, you go right ahead.

Just like wars can't be blamed on only one thing, neither can recessions or depressions.

I know the right-wing canon would have it that it was all caused by poor people taking out liar loans, who should have "known better". Right. I'll pass over that for now, because it's too dumb an argument to waste breath on. Ditto the argument that it was all somehow caused by the government "pushing" banks to make loans to poor people. As if any bank would have enthusiastically pursued such a course unless it was raking in obscene amounts of money doing so.

Greenspan and Bernanke do have some role in this, however, especially Greenspan. His policies certainly helped inflate the housing bubble. But it wasn't the housing bubble that took down the economy, it was a toxic credit bubble. And that's what the article is about.

Do you want to talk about the article or do you want to keep deflecting as much blame as you can from Wall Street?

SS109 wrote:

AspenValley wrote:

SS109 wrote: Due to the discount brokers, Wall Street wasn't making as much money, so they needed to find new sources of income.

Oh, and this is priceless! It's like a defense attorney pleading that his clients all got laid off, so they needed to find new sources of income and decided to rob banks.

I am not trying to justify their actions, just explaining them.

And do you believe Wall Street was the only reason for the Great Recession?

No. The recession started well before this happened. But it certainly served to push us deeper in.

I have many issues with the garbage that's gone on within the Wall Street elite, including my tax dollars going to 'bail out' companies when a nice chunk of that went to bonuses. How our government ever passed legislation for a bail out without including language which regulated how the money (i.e OUR TAX DOLLARS) was allocated is a bigger crime in my eyes than what some of the Wall Street Elite were guilty of doing.