This is a very good program on the inside story of the global financial crisis. See it on the Frontline web site. Pay close attention to the segment that explains of how CDO’s (collateralized debt obligations) developed and Credit Default Swaps proliferated. Also, there is a brief appearance by Brooksley Born who in the 1990’s headed the Commodity Futures Trading Commission (CFTC). In 1998 she proposed regulation of the growing market in swaps, financial instruments that are traded over the counter between banks, insurance companies or other funds or companies, and thus have no transparency except to the two counterparties and the counterparties’ regulators, if any. However CFTC regulation was strenuously opposed by Federal Reserve chairman Alan Greenspan, and by by Treasury Secretaries Robert Rubin and Lawrence Summers. Under heavy pressure from the financial lobby, legislation prohibiting regulation of derivatives by Born’s agency was passed by the Congress. Born resigned in 1999 after having issued the first, official and clearest warning that derivatives could sink the financial markets and therefore the economy. She made the right call before anyone. Click here to watch.
Royal Wedding with 2 billion people watching, lifting the British national mood and putting on an amazing display of pageantry for the world
Appreciating Steve Jobs. While there will never be another like him, he is already inspiring the current generation of entrepreneurs. His legacy and products will continue to inspire future generations. Thanks Steve.
A good friend who works on the Street responded to my last post:
Just came across this email again.. My position doesn’t change. Wall Street was certainly a part of the equation but Barney Frank and his merry band of pranksters coupled with a willing and extraordinary irresponsible material driven populace are also complicit in the meltdown. Its easy to blame the “Banker” but let us not forget the power hungry “Politician” and the short sighted and often time fraudulent “Borrower” for they are equally at fault. Where’s the outrage about the massive pensions and gold plated health care that so many municipal workers have landed over the past 20yrs? Where’s the outrage about the tax payer funded loans the auto industry took and has yet to pay back. The same auto industry that for 20yrs was warned about fiscal discipline to no avail and negotiated with unions “job banks” to protect their workers while loosing money all the while? Where’s the rational discussion about the Feds role in strong arming the banks into funding low income (some might call sub-prime?) loans in order to increase home ownership to the highest levels in this country’s history. Where is the outrage beyond the “Banker”??
By the way, I am not vilifying successful Americans. I am an entrepreneur after all. I actually believe there ARE good bankers out there. And I am certainly not saying we should nationalize the banks or dismantle the free market system. Those aren’t good ideas. And neither is raising taxes. But a famous management guru once wrote: “People do what they are paid to do.” (i.e. “All economic activity boils down to incentives.”) WS folks got rewarded when they did things that weren’t always good for their firms in the long run, weren’t always good for Borrowers & Clients, and strayed over the line in terms of risk. Today they are still rewarded when they take risks with other people’s money (client’s, Main Street’s, government’s). As William Cohan wrote in the NY Times: “…the fact remains that the Dodd-Frank Act does nothing to change the terribly warped incentive system that continues to reward Wall Street bankers and traders for the revenues they produce by taking risks with other people’s money. It does nothing to hold bankers and traders responsible for their actions where it really matters — in their pocketbooks.”
My point is that bankers and traders should be held responsible for what they do. Just as Borrowers should be…and Auto makers…and Unions. We all should be. And of course at the end of the day we absolutely need the financial system, but can’t we ask for the same accountability from it that we expect from other sectors? I was interested in Bernanke’s comment in Congress this week. He said Americans were justifiably angry that bankers “who drove their companies into a ditch walked off with lots of money.” A simplification of the events, but perhaps a simple truth nonetheless.
As for credit being available…I don’t see it. Banks are not freely lending — at least not yet. Neither to small businesses nor consumers.
Yes it did. I mention this because I have had interesting conversations with Wall Streeters lately about the mortgage mess and the financial meltdown. I have asserted that media and marketing played an important role in the disaster, as the promotional engine the financial sector used to entice people to take out loans they couldn’t repay. My point? Financial institutions aggressively marketed interest-only loans, HELOCs, negative amortizing loans and the like. I bring this up when my Wall Street friends complain that (i) politicians coerced the banks to extend the “dream of home ownership” to people of questionable means and (ii) consumers themselves were to blame for signing loans that they could never repay. At the end of the day we are BOTH right. Banks did aggressively market toxic loans, but it was to some degree a response to Washington pushing them to provide sub-prime mortgages to millions of under qualified Americans. And yes …consumers were all too happy to take the money being offered.
The tough thing is this: many parties WERE guilty in creating the bubble. We can agree on that. But Wall Street is back in the black and Main Street is still hurting. Bonuses on the Street soared in 2009. Some say they will be high again in 2010. And yet people living and working on Main Street are another year into the deepest recession in decades. Ask a small or medium size business owner you know — sales are soft and way off of where they were pre-recession. Ask someone who has been out of work for a year or more. I’m sure some of them would love to be able to borrow money from the Fed Funds window at 0% and then buy Treasuries and make an automatic, guaranteed profit. Like the big banks do.
We can’t blame Wall Street 100% for the mess. But there are those who find it hard to watch Wall Street making the big money again. And media and marketing? It factored in only as a tactic, a part of the larger dynamic that was played out from 1993-2008.