Quote:
Originally Posted by MichaelR
We have nothing more to discuss.
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Oh, but I think we do. You see, both you and I know that the house:income medium multiple has historically hovered around 3.0, and when it rises far above that, a crash is inevitable. Both you and I know that the housing portion of the financial crisis was merely the part of the iceberg above the ocean's surface, that the true corruption and filth lay below and began to accumulate years before. That the transfer of wealth from the middle class to the .01% at the top engineered by the Paulson-Bernanke-Geithner-Blankfein gang would make the Vanderbilts blush and the Kennedys cry.
Don't think that I didn't immediately notice your NYC location. See, I am a child of Gotham too, born in Jamaica Hospital the son of forty-year Wall Street man who never took home more than thirty-five thousand Federal Reserve Notes per annum, who took his paycheck to the bank every Friday, deposited a good part of it and brought the rest home as a short stack of twenties in an envelope that went in the dresser drawer. And every week somehow that envelope got us through to the next week and the next and the next, without ever dipping into savings, without ever taking out a loan, without ever signing up for a credit card (when my mother finally acquired a cellphone I had to cosign as her SSN was entirely invisible to Equifax, Experian and TransUnion).
Dad took his "early" retirement at 62, squeezed as many days out of his chronically bad heart (twice stricken with rheumatic fever) as he could, and at 66 decided one morning that waking up to spend a week in the Catskills - bags of course packed the night before - was more effort than the ticker could muster. Fortunately for Mom the share of all those paychecks that hadn't come home as twenties was still there, carefully diversified across All-American common stocks, bonds, and mutual funds. Not too much - more than the President makes in a year but less than the signing bonus of Slade Heathcott, the 29th pick of the 2009 Major League Baseball draft. And within five weeks in late 2008, almost a third of it was gone. Four years later, well, the numbers on the account statements look a little better, but in light of $7,000,000,000,000.00 in central bank money creation, the losses due to real inflation (not the silly CPI that's masked price increases by dedicating 25% of its weighting to housing) more than offset the so-called gains that are merely Wealth Effect price increases rather than real reflections of value.
Anyway, I ask you not to care about the foregoing biographical tome, but to answer one simple question: Which IB do you work for, Mr. R.?
In the meantime, here's one chapter of the Financial Crisis that for some reason was left out of TBTF:
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On Tuesday, March 11th, 2008, somebody — nobody knows who —made one of the craziest bets Wall Street has ever seen. The mystery figure spent $1.7 million on a series of options, gambling that shares in the venerable investment bank Bear Stearns would lose more than half their value in nine days or less. It was madness — "like buying 1.7 million lottery tickets," according to one financial analyst.
But what's even crazier is that the bet paid.
In 2004, Bear had been one of the five investment banks to ask the SEC for a relaxation of lending restrictions that required it to possess $1 for every $12 it lent out; as a result, Bear’s debt-to-equity ratio soared to a staggering 33-1. The bank used much of that leverage to issue mountains of mortgage-backed securities, essentially borrowing its way to a booming mortgage business that helped drive its share price to a high of $172 in early 2007.
But that summer, Bear started to crater. Two of its hedge funds that were heavily invested in mortgage-backed deals imploded in June and July, forcing the credit-raters at Standard & Poor’s to cut its outlook on Bear from stable to negative. The company survived through the winter — in part by jettisoning its dips&&t CEO, Jimmy Cayne, a dithering, weed-smoking septuagenarian who was spotted at a bridge tournament during the crisis — but by March 2008, it was almost wholly dependent on a network of creditors who supplied it with billions in rolling daily loans to keep its doors open. If ever there was a major company ripe to be assassinated by market manipulators, it was Bear Stearns in 2008.
Then, on March 11th — around the same time that mystery Nostradamus was betting $1.7 million that Bear was about to collapse — a curious thing happened that attracted virtually no notice on Wall Street. On that day, a meeting was held at the Federal Reserve Bank of New York that was brokered by Fed chief Ben Bernanke and then-New York Fed president Timothy Geithner. The luncheon included virtually everyone who was anyone on Wall Street — except for Bear Stearns.
Bear, in fact, was the only major investment bank not represented at the meeting, whose list of participants reads like a Barzini-Tattaglia meeting of the Five Families. In attendance were Jamie Dimon from JPMorgan Chase, Lloyd Blankfein from Goldman Sachs, James Gorman from Morgan Stanley, Richard Fuld from Lehman Brothers and John Thain, the big-spending office redecorator still heading the not-yet-fully-destroyed Merrill Lynch. Also present were old Clinton hand Robert Rubin, who represented Citigroup; Stephen Schwarzman of the Blackstone Group; and several hedge-fund chiefs, including Kenneth Griffin of Citadel Investment Group.
The meeting was never announced publicly. In fact, it was discovered only by accident, when a reporter from Bloomberg filed a request under the Freedom of Information Act and came across a mention of it in Bernanke's schedule. Rolling Stone has since contacted every major attendee, and all declined to comment on what was discussed at the meeting. "The ground rules of the lunch were of confidentiality," says a spokesman for Morgan Stanley. “Blackstone has no comment," says a spokesman for Schwarzman. Rubin declined a request for an interview, Fuld's people didn't return calls, and Goldman refused to talk about the closed-door session. The New York Fed said the meeting, which had been scheduled weeks earlier, was simply business as usual: "Such informal, small group sessions can provide a valuable means to learn about market functioning from people with firsthand knowledge."
So what did happen at that meeting? There's no evidence that Bernanke and Geithner called the confidential session to discuss Bear's troubles, let alone how to carve up the bank's spoils. It's possible that one of them made an impolitic comment about Bear during a meeting held for other reasons, inadvertently fueling a run on the bank. What's impossible to believe is the bulls%%t version that Geithner and Bernanke later told Congress. The month after Bear's collapse, both men testified before the Senate that they only learned how dire the firm's liquidity problems were on Thursday, March 13th — despite the fact that rumors of Bear's troubles had begun as early as that Monday and both men had met in person with every key player on Wall Street that Tuesday. This is a little like saying you spent the afternoon of September 12th, 2001, in the Oval Office, but didn't hear about the Twin Towers falling until September 14th.
Given the Fed's cloak of confidentiality, we simply don't know what happened at the meeting. But what we do know is that from the moment it ended, the run on Bear was on, and every major player on Wall Street with ties to Bear started pulling IV tubes out of the patient's arm. Banks, brokers and hedge funds that held cash in Bear's accounts yanked it out in mass quantities (making it harder for the firm to meet its credit payments) and took out credit-default swaps against Bear (making public bets that the firm was going to tank). At the same time, Bear was blindsided by an avalanche of "novation requests" — efforts by worried creditors to sell off the debts that Bear owed them to other Wall Street firms, who would then be responsible for collecting the money. By the afternoon of March 11th, two rival investment firms — Credit Suisse and Goldman Sachs — were so swamped by novation requests for Bear's debt that they temporarily stopped accepting them, signaling the market that they had grave doubts about Bear.
The very next day, March 12th, Bear went into free fall. By the end of the week, the firm had lost virtually all of its cash and was clinging to promises of state aid. On Saturday night, March 15th, Schwartz and Dimon had discussed a deal for JPMorgan to buy Bear at $8 to $12 a share. By Sunday afternoon, however, Geithner reported that the price had plunged even further. "Shareholders are going to get between $3 and $5 a share," he told Paulson.
But Paulson pissed on even that price from a great height. "I can't see why they're getting anything," he told Dimon that afternoon from Washington, via speakerphone. "I could see something nominal, like $1 or $2 per share."
Just like that, with a slight nod of Paulson's big shiny head, Bear was vaporized. This all took place while Bear's stock was still selling at $30. By knocking the share price down 28 bucks, Paulson ensured that the manipulators who were illegally counterfeiting Bear's shares would make an awesome fortune. Whoever bought those options on March 11th woke up on the morning of March 17th having made 159 times his money, or roughly $270 million.
http://www.rollingstone.com/politics...indle-20100405
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But you go on and keep believing that William Hurt's brooding Hank Paulson "saved America".
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