Blogs » Politcs Plus » It's beginning to make sense

Subscribe


Image

After our invasion of Iraq, a country that had nothing to do with 9/11, I vowed never to take the printed word of a national newspaper as fact, without checking other sources. It's funny how the truth can be imbedded in books for months, without being mentioned in the mainstream media. We have become a media driven country that likes its news in small sound bites; unfortunately some take it a step further because they prefer filtered media. Now that I'm satisfied with what I've learned of Iraq; I started another personal fact finding mission: The financial crisis of 2008.

I started my personal fact-finding mission with a 539 page book titled “Too Big to Fail" by Andrew Ross Sorkin. It took me a long time to read this book but after I completed it, I got to know a little about the various players that were involved and their roles. I came away surprised of how much Secretary Treasury, Hank Paulson, knew of the day today dealings of the Wall Street giants. It’s as if they were in the same office. Mr. Sorkin went into detail of that unforgettable weekend when the United States was literally only hours away from a total economic meltdown. All the Wall Street giants were going to tumble leaving a domino effect of total financial collapse; unless the treasury secretary could convince Congress to allow taxpayer money to bail out Wall Street. "The Troubled Asset Relief Program (TARP) was announced publically in September 2008 - but the author learned that a similar program had been discussed by the Treasury Department in a secret memo in April of that year.” We were surprised but there were those in government that were not. Other players such as the Fed quickly lowered the rate it charges to loan directly to banks by a quarter-point on that Sunday night - two days before its scheduled meeting Tuesday. The central bank also set up a lending option for firms, including many non-bank financial services firms, to secure short-term loans for a broad range of collateral.

I was watching a congressional hearing when I heard a senator reading pages from a book called "The Big Short" by Michael Lewis describing the scandalous potential of the subprime swaps market and how it related to Wall Street. I went out and bought the fascinating book that gave a look into the market through the eyes of a character named Michael Burry, a physician turned stock picker with an antisocial personality (later diagnosed as Asperger's) who becomes the first money manager to buy a credit default swap on subprime mortgage. Want to know how lucrative the derivatives were?" In December 2006 and January 2007, Deutsche's Greg Lippmann paid an insurance premium of 0.28 percentage points to take out insurance on $4 billion of triple-A-rated bonds from Morgan Stanley's Howie Hubler. Less than a year later, that $11 million bet paid off to the tune of a whopping $3.7 billion. I'll save you the math: that's an annual return of more than 33,000%."

http://www.washingtonpost.com/wp-dyn/content/article/2010/03/12/AR2010031202291.html

http://irnglobal.com/?p=6868

As luck would have it, I started my fact-finding mission in reverse order. I started with the events after the 2008 financial meltdown; its players and roles; the second book gave me an insight of what some hedge managers were doing, so now I'm ready to learn how all this came about. I received a book as a birthday gift about the hidden history of the financial crisis called " All the Devils are Here" by Bethany McLean and Joe Nocera....Bethany McLean interviewed many of the players in the Enron scandal for the book " The Smartest Guys in the Room." For those of you who think Barney Frank had a dominant role in the financial crisis; the three books I mentioned are not for you. In “All the Devils are Here", Barney Frank is only mentioned once, then as an attendee at a conference. I just started reading the book but so far, it lives up to its billing. The author's claim this crisis was inevitable because it got its start in the 1930s when home-ownership was synonymous with the "American dream." Since that time, government and banks were bound and determined to help the middle class achieve that dream. Other than Denmark, we are the only country that offers a 30 year fixed mortgage designed to allow middle class families to afford monthly mortgage payments. It started with stringent credit requirements and ended with Robo-signers and low- wage workers.

Have a great Thanksgiving