like this one: "More than 200 years after it was born at the base of a buttonwood tree, Wall Street as we have known it is ceasing to exist."
The massive credit-default-swap market became so complex that in some cases firms lost track of their stakes. AIG, for example, pleaded for capital from several private equity firms over the Sept. 13-14 weekend. After scouring the insurer's financials, the firms balked at a deal, concluding that even AIG management didn't know where all the skeletons were buried, according to a person familiar with the situation."
Peter Newcomb of Vanity Fair comes closest to explaining it in an almost understandable way."Let's say you own and operate and a small lending company called Good Loans. In January, Good Loans extends a $1,000 line of credit to Greasy Eats, a popular neighborhood diner. By the end of March, you notice that the parking lot at Greasy Eats has been a lot less crowded than it used to be. You also realize the diner has maxed out its credit line.
As the owner of Good Loans, you're not feeling so great anymore about your loan to Greasy Eats. In May, you persuade a local investment boutique, Got Yer Back Brothers, to buy the Greasy Eats loan for $900. So while you lose $100 in the transaction, you free yourself of a potential headache. Meanwhile, Got Yer Back has taken on $1,000 in shaky credit for a $100 fee, and the dubious prospect of getting paid back in full with interest.
Now repeat that process again and again, but this time on a much grander scale—to the tune of $45 trillion. That's how much some analysts are estimating is parked (off the balance sheet, of course) in the credit swaps market. Even if only 10% of these swaps default, trillions of dollars will have to be written down.
As this article in the New York Times describes it, "Used judiciously, derivatives can limit the damage from financial miscues and uncertainty, greasing the wheels of commerce. Used unwisely—when greed and the urge to gamble with borrowed money overtake sensible risk-taking—derivatives can become Wall Street's version of nitroglycerin."
I'll leave you all to unpack the idea, relate it to subprime mortgages and decide how screwed we are. And if you're feeling as lost as I am, don't worry, the subprime in-and-outs are so ridiculously byzantine that even Alan Greenspan had trouble figuring it all out. Back in 2005, he was asked by Sen. Jim Bunning, R-Ky., why he only raised concerns over Fannie/Freddie's home mortgage securitization packages relatively recently even though those portfolios grew throughout much of the 1990s. Greenspan conceded it had taken him some time to understand the company's complicated structures, and the risks to the companies and the nation's financial systems posed by the concentration of mortgages in their holdings. "It's taken me quite a good bit of time to disentangle the complex structure," he said. "I didn't fully understand when I first looked at them.It's only fairly recently that it finally became clear to me," he added. "It was a revelation in certain respects."
Anyway, the question of the day now is, who are YOU going to Prom with? Morgan Stanley got The Call from Wachovia. Meanwhile, Washington Mutual (whose shares have cliff-dived 94% this year!) remains a wallflower. (I wonder if we should find a new bank?) And what of Goldman Sachs? Apparently everyone is nervously wringing their handkerchiefs.
The New York Times' Dave Leonhardt puts this bailout in the perspective using the lens of the Chrysler auto industry bailout of 1979-- how did that play and how has Chrysler fared since? "The Chrysler bailout may have saved the company, but it did nothing, after all, to stop Detroit's long, sad decline."
Obama's official release on Monday said what I'm certainly suspecting, that
the current crisis is related to deregulation. "Eight years of policies that have shredded consumer protections, loosened oversight and regulation, and encouraged outsized bonuses to CEOs while ignoring middle-class Americans have brought us to the most serious financial crisis since the Great Depression."
Call it "talky" and "unsexy" if you like, but
I LOVE Obama's new ad.It has, as
Wonkette notes, actual words and thoughts! (By the way, I was curious as to what languages Obama speaks, and uncovered this one I missed,
a Spanish language ad he recorded in May. BTW, he doesn't speak Spanish-- other than English he speaks Indonesian.)
Meanwhile, an editorial from the Liberal Bias rag, (aka the New York Times), has a few none-too-kind words about McCain's perspective on the current financial crisis." As for Wall Street, Mr. McCain blamed the meltdown on 'unbridled corruption and greed.' He called for a commission to find out what happened and propose solutions. His diagnosis and his cure are misguided. The crisis on Wall Street is fundamentally a failure to do the things that temper, detect and punish corruption and greed. It was a failure to police the markets, to enforce rules, to heed and sound warnings and expose questionable products and practices."
McCain is still jostling with the fallout from his "from the gut" assessments earlier this week. Remember my comment about his pat statements opposing an AIG bailout with taxpayer dollars? Now the Caucus reports that "Senator John McCain acknowledging that a failure to intervene on the insurance titan's behalf would have jeopardized retirement incomes, savings and perhaps would have led to further turmoil." And apparently I wasn't the only one steamed by his glib superficial approach.Says Huff Po's Rachel Sklar, "McCain's answer yesterday on AIG was not an accident. Put bluntly, I can't see any evidence that he knew what he was talking about; nor any evidence that he wanted to try. This is a blatant moment, on tape, under urgent questioning from the media at a moment of crisis, and not only was his lack of preparation apparent but his attitude spoke volumes."
So congratulations. If you've made it this far in my Rant, you've probably spent more time learning about the world of derivative trading than John McCain has.
For Pete's sake, in yesterday's editorial page, even the Wall Street Journal took McCain to task with a cringe-inducing (even for me) jab at his ignorance (sadly not available online): "It sounds like this week's version of a McCain presidency would be more about restructuring private financial markets he doesn't understand, than fixing the Washington he knows." Ouch.
In the "Read-this-One Dept.": More conservatives are landing on the side of "McCain has lost his marbles." I know that the world has run mad when I'm agreeing with the likes of Pat Buchanan, George Will and Conservative NYTimes columnist David Brooks who observes, quite rightly, "Conservatives stood against radical egalitarianism and the destruction of rigorous standards. They stood up for classical education, hard-earned knowledge, experience and prudence. Wisdom was acquired through immersion in the best that has been thought and said....Surely the response to the current crisis of authority is not to throw away standards of experience and prudence, but to select leaders who have those qualities but not the smug condescension that has so marked the reaction to the Palin nomination in the first place."
Gosh I always thought I was Liberal, but perhaps I'm actually Conservative.
Even Elizabeth Drew, who wrote the pro-Johnny Mac book Citizen McCain in 2002, is now weighing in with her piece on Politico "How John McCain Lost Me." "McCain's recent conduct of his campaign – his willingness to lie repeatedly (including in his acceptance speech) and to play Russian roulette with the vice-presidency, in order to fulfill his long-held ambition – has reinforced my earlier, and growing, sense that John McCain is not a principled man. In fact, it's not clear who he is."
Next week, Katie Couric of CBS is slated to interview Sarah Palin (airing Monday Sept 29 on the evening news). Could there be any hope that she'll actually ask all the questions that would be considered "too sexist" for a male journalist to ask?
BTW, seems like the Governor's daughter has had her shot-gun wedding, quietly, and if her Facebook entry is to be believed, she is now Bristol Palin-Johnston. (What? No copters from Us magazine hovering overhead to deliver us aerial snaps of the ceremony?)
We haven't seen a lot of reporting on what Joe's been up to, but Andrew Sullivan points out that he's been serving up some barn-burners. Joe goes off on what the Republicans don't talk about. "The silence on jobs, on healthcare, on the environment was deafening...Do any of you recall either candidate of the Republican ticket utter the phrase 'middle class'?... What do you talk about when you have nothing to say? What do you talk about when you cannot explain the last eight years of failure? You talk about the other guy."
So that' it for today. I'll head back to policy comparisons tomorrow --I just couldn't make my brain do any more after the credit default swap---zzzzzzttt...pffft. [Lights out]
A reminder that although they raised $66 million last month (!!), Obama's campaign says their goal is to have 50,000 new donors by Friday at midnight.
