Prescient Beings, Dirty White Horses, Happy Pale Riders

originally posted 2008-10-10 03:16:07 - bumped - cho

There were ample indications the foundations that subprime built were in danger long before they became anchors to be leveraged. ProPublica mentions three:

Regulators who saw the crisis coming:

Long before the financial crisis claimed headlines, U.S. regulators and law enforcement officials had begun sounding alarms about dangerous lending practices and Wall Street’s headfirst jump into the subprime market. Some were brushed off by their superiors. Others led agencies like the Federal Deposit Insurance Corporation and the Treasury’s Office of Thrift Supervision, which at least one lawmaker has accused of acting sluggishly to avert the crisis.

No mess this large is capable of a rapid cleanup, especially in times when the sky-fallers dominate the ledes. But over the long-term (for the nano-second-attention-spanners that means years or decades) to the extent fault may be found, lawyers in both private and public practice will have a field day introducing Richistani-wanna-be's to Povertyland:

Sue Reisinger/CorpCounsel: Former Gen Re Lawyer Could Face Life in Prison:

Robert Graham, a former senior lawyer at General Re Corp., faces life in prison for doing what his defense attorney calls a "few hours work" on a fraudulent deal. Prosecutors want to sentence Graham to a "substantial" term -- up to 230 years behind bars -- for his role in a sham insurance deal with American International Group Inc.

Tony Pugh/McClatchy: For legions of lawyers, bad markets are good business:

The filing frenzy is likely to continue as more bank failures are expected. . . That means "new waves of litigation could still emerge," said Jeff Nielsen, who heads Navigant's financial services disputes and investigations section. .. "One lesson of the S&L crisis is that while a bank can be seized and even reconstituted over a weekend, the resulting litigation can linger for years."

Crisis management of late is like trying to repair the brakes as the train gathers speed downhill. In a marginally rational world a good mechanic would have pulled the engine out of service for a few days to make repairs before it left the yard.

Now would be a good time, as I've suggested many times before, to simply shut the thing down until the proper repairs are made. Or we can continue to watch a runaway train.

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A Crisis of Confidence

They need to shut the idiot and -- the more I consider it, the better a stopgap it seems -- the markets up.

I didn't mean "stopgap" as a pun, I think I now understand the origin of that word after the Dow gapped down a thousand points at the open.



"So your party is the only party that can save the country from the mess that your party created?" - attrib. Jon Stewart

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"I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country." - Thomas Jefferson

Gathering support for an idea, one Group W bench at a time. :-)

David Jolly/IHT: Oil price drop below $78 a barrel as energy agency cuts demand forecast

So it turns out the suppliers, oil companies, and even government agencies were right: about 30 - 40% of the price rise was speculation. Hard to believe people would be willing to forecast, analyze, and publicize a "spike" for the benefit of their own pocket. Worth repeating here:

"In a market system based on trust, reputation has a significant economic value," Greenspan told the audience. "I am therefore distressed at how far we have let concerns for reputation slip in recent years." [Peter Goodman on Greenspan - IHT/9 Oct]

they will follow rba's advice from several weeks ago and not open the markets on Monday.

Berlusconi is denying rumors that he is circulating a plan to close all of the markets (I assume world wide) for several days while a comprehensive and coordinated plan is put together.

Next few days are going to be nuts.

I can recall hearing four years ago from my friends in the know here in Financeland NC that this train wreck was a surety as the fraudulent derivatives and mortgage backed securities and elaborate credit default swaps were being hawked like so much snake oil at the county fair. It was well known that this stuff was junk. And the selling of it was fraud. Four years ago. But the Titans of Finance went ahead with it anyway. Fraud. And I can think of a whole lot of people who should be doing hard time for what they have done to the global economy--crimes against humanity.

All day long I fielded calls from distraught citizens who have been told So Long Jack from their employers--after 22 , 30 years of flawless service. Government employees who thought their jobs were always safe. Bankers, restaurateurs, waiters, landscapers, real estate attorneys and their secretaries etc etc etc. All day long, I have listened to them sob, feel like failures afraid to go home to their families to tell them the awful news. From the biggest fraud ever perpetrated upon the public. I wanna see some hard time done.

..

Last time Mueller (Bueller?) testified on the issue the count was 1400 cases and rising for a variety of "white collar" crimes, including mortgage fraud. The State AGs case against of B of A/Countrywide resulted in a freeze on all foreclosures and a mandated mortgage rewrite.

Long way around to point to the above statement that it will take decades to litigate out of this mess. Unfortunately most of the people directly involved will have long since filed for bankruptcy (bidness folk ya know), and will likely have no assets to attach.

Just sayin'. The Fat Lady is on a bicycle from LA to Charlotte, so she won't be singing anytime soon.

business stuff.

But, I just have to report this from a Republican talking point I heard this week. The almost exact words were something something to the effect:

    Congress has appointed a special prosecutor (just this past week) to investigate the firing of 9 US Attorneys... which didn't really hurt anyone but the families of the 9 Attorneys.

    But they haven't done anything to investigate the fraud of the CEO of Freddie Mac or Fannie Mae.

The speaker, who will probably be running for something under the Republican banner next year, went on to mention about the 16 and 14 million dollar salaries of the CEOs of Freddie Mac and Fannie Mae (ignoring mention of the salaries of Lehman, AIG, etc. etc.). He also ignored the fact that the forced resignations (at least the telephone calls) occurred on Pearl Harbor Day 2006 -- and the special prosecutor wasn't appointed until 2008.

So one can't really make that comparison... otherwise we would need to wait until 2010 to see if a special prosecutor is appointed.

I like Michael Thomas's idea of Polluter Pays... they polluted (like the Exxon Valdez) our financial pool. They should pay for the cleanup. From their compensation, their parachutes etc. They can start by selling off a couple of their 14 or so houses.

Ryan Chittum's audit column w/link to Barry Ritholtz's piece calling F&F a "smokescreen". Davis actually tried to push the same garbage in Waxman's hearings this week. Didn't stick.

Have fun, stay sane-ish wherever you're going. :-)

but it will be a feast when I get back!