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Jasmine Ding

YouTube - Lloyd Blankfein Question at FCIC Hearing 1/13/2010.mov - 1 views

www.youtube.com/watch

video Goldman Sachs financial crisis economics inquiry Blankfein

shared by Jasmine Ding on 12 Jan 11 - No Cached
  • Jasmine Ding on 12 Jan 11
     
    Goldman Sachs CEO Blankein defending the firm
Ariel Shain

AIG - A Profile of AIG Insurance - 0 views

useconomy.about.com/...AIG.htm

financial crisis what caused blame AIG

shared by Ariel Shain on 12 Jan 11 - No Cached
  • Why Is AIG Important?:AIG was a major seller of "credit default swaps." These swaps insured the assets that supported corporate debt and mortgages. If AIG went bankrupt, it would trigger the bankruptcy of many of the financial institutions bought these swaps.
  • AIG is so large that its demise would impact the entire global economy. For example, the $3.6 trillion money-market fund industry invested in AIG debt and securities. Most mutual funds own AIG stock. Financial institutions around the world are also major holders of AIG's debt.
  • How Did AIG Almost Fail?:AIG's swaps against subprime mortgages pushed the otherwise profitable company to the brink of bankruptcy. As the mortgages tied to the swaps defaulted, AIG was forced to raise millions in capital. As stockholders got wind of the situation, they sold their shares, making it even more difficult for AIG to cover the swaps. Even though AIG had more than enough assets to cover the swaps, it couldn't sell them before the swaps came due. This left it without the cash pay the swap insurance.
  • Jasmine Ding on 12 Jan 11
     
    very helpful!
Han Kyul Lee

How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital For... - 0 views

www.sec.gov/whatwedo.shtml

SEC Securities U.S. investors market economics

shared by Han Kyul Lee on 12 Jan 11 - Cached
  • The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
  • As more and more first-time investors turn to the markets to help secure their futures, pay for homes, and send children to college, our investor protection mission is more compelling than ever.
  • The world of investing is fascinating and complex, and it can be very fruitful. But unlike the banking world, where deposits are guaranteed by the federal government, stocks, bonds and other securities can lose value. There are no guarantees. That's why investing is not a spectator sport.
  • ...2 more annotations...
  • all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it.
  • The SEC oversees the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds
  • Han Kyul Lee on 12 Jan 11
     
    The description of the U.S. Security and Exchange Commission in terms of investors and the market. Used to answer a discussion question.
Han Kyul Lee

Sub-prime Bailout--banks, not homeowners - 2 views

www.skeptically.org/...id14.html

shared by Han Kyul Lee on 10 Jan 11 - No Cached
    • Han Kyul Lee
      Han Kyul Lee on 11 Jan 11
       
      The collateral crisis - the collateral on a bank's balance sheets is not performing as well as they have announced. When homeowners are not paying their mortgages, banks that do hold these mortgages are not getting all the payments that they should be getting. The more loans that are not being paid off, the more trouble caused to these banks. Any mortgage-backed securities are in trouble because of the collateral crisis.
  • But why save Bear Stearns? The beneficiary of this bailout, remember, has often operated in the gray areas of Wall Street and with an aggressive, brass-knuckles approach. Until regulators came along in 1996, Bear Stearns was happy to provide its balance sheet and imprimatur to bucket-shop brokerages like Stratton Oakmont and A. R. Baron, clearing dubious stock trades.
  • Let’s not forget that Bear Stearns lost billions for its clients last summer, when two hedge funds investing heavily in mortgage securities collapsed.
  • ...3 more annotations...
  • “Why not set an example of Bear Stearns, the guys who have this record of dog-eat-dog, we’re brass knuckles, we’re tough?” asked William A. Fleckenstein, president of Fleckenstein Capital in Issaquah, Wash., and co-author with Fred Sheehan of “Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve.” “This is the perfect time to set an example, but they are not interested in setting an example. We are Bailout Nation.”
  • But, who knows what those mortgages are really worth? According to Bear Stearns’s annual report, $29 billion of them were valued using computer models “derived from” or “supported by” some kind of observable market data.
  • And here is the unfortunate refrain.  Investors, already mistrusting many corporate and government leaders, were once again assured that nothing was wrong — right up until the very end. So is it any wonder investors react to every market rumor of an impending failure with the certainty that it’s true? In too many cases, the rumors turned out to be true, notwithstanding the attempts at reassurance by executives and policy makers.
  • Han Kyul Lee on 10 Jan 11
     
    Published March 16, 2008
Han Kyul Lee

The credit squeeze: Abandon ship | The Economist - 0 views

www.economist.com/9587542

economics financial crisis Bear Stearns homeowners

shared by Han Kyul Lee on 10 Jan 11 - No Cached
    • Han Kyul Lee
      Han Kyul Lee on 10 Jan 11
       
      A combination of very loose-lending practices and increasing interest rates created a very deep, and further deepening bust. It is a downward spiral to both the lenders and the borrowers in the housing market.
    • Han Kyul Lee
      Han Kyul Lee on 10 Jan 11
       
      Looks like housing prices can drop after all. Because of this crisis at the housing markets, both residential construction and house prices have taken a fall. There are a number of homeowners who took out mortgages at cheap introductory rates, and they are to face ever-higher payments as the loans reset. Because of all the homeowners going default, many lenders have gone out of the market, including American Home Mortgage Investment.
    • Han Kyul Lee
      Han Kyul Lee on 10 Jan 11
       
      The article also assumed that the housing prices were still yet to fall, as a combination of weak demand for homes and the stock of homes for sale being at its highest in 15 years. If lending standards were to tighten now, however, the demand would grow even weaker, thus further dropping the prices.
  • As for credit markets, the remarkable thing is the low level of spreads before the sell-off, rather than where they are now (see chart).
  • ...6 more annotations...
  • Residential construction has plunged and house prices have fallen. Mortgage defaults have soared, particularly among the least credit-worthy subprime borrowers. Home-owners who took out mortgages at cheap introductory rates face sharply higher payments as these loans reset. There have been plenty of financial-market casualties. The latest was American Home Mortgage Investment, a largish lender which this week said it would no longer fund home loans.
  • Ever since the demise of Long-Term Capital Management in 1998, regulators have worried that banks might lend too much to individual funds. But the Bear Stearns debacle shows that banks may also have to stump up capital to rescue hedge funds within their own stable. Bear had to promise an additional $1.6 billion of collateral to the funds' prime brokers.
    • Han Kyul Lee
      Han Kyul Lee on 12 Jan 11
       
      Regulators worried that there will be too many loans ever since the demise of the Long-Term Capital Management in 1998.
  • The problems at Bear Stearns triggered the current market decline. Investors were surprised by the scale of the losses and the time it took for them to emerge.
  • There, the deadly combination of loose lending practices and higher interest rates has created a prolonged, and ever-deepening, bust.
  • Credit spreads, the premium that riskier borrowers must pay over government debt, have surged since June. That is a problem for companies and banks in the middle of doing deals.
Stephen Lu

Robert J. Samuelson - Alan Greenspan's flawed analysis of the financial crisis - washin... - 0 views

www.washingtonpost.com/...AR2010032101707.html

alan greenspan financial crisis error economics

shared by Stephen Lu on 12 Jan 11 - Cached
    • Stephen Lu
      Stephen Lu on 12 Jan 11
       
      Just uber baller points by Greenspan all over. No other comments.
  • Greenspan favors tougher capital requirements for banks. These would provide a larger cushion to absorb losses and would bolster market confidence against serial financial failures. Before the crisis, banks' shareholder equity was about 10 percent: $1 in shareholders' money for every $10 of bank loans and investments. Greenspan would go as high as 14 percent.
  • First, the end of the Cold War inspired an economic euphoria that ultimately caused the housing boom. Capitalism had triumphed. China and other developing countries became major trading nations. From the fall of the Berlin Wall to 2005, the number of workers engaged in global trade rose by 500 million. Competition suppressed inflation. Interest rates around the world declined; as this occurred, housing prices rose in many countries (not just the United States) because borrowers could afford to pay more.
  • ...5 more annotations...
  • Second, the Fed's easy credit didn't cause the housing bubble because home prices are affected by long-term mortgage rates, not the short-term rates that the Fed influences. From early 2001 to June 2003, the Fed cut the overnight federal funds rate from 6.5 to 1 percent. The idea was to prevent a brutal recession following the "tech bubble" -- a policy Greenspan still supports. The trouble arose when the Fed started raising the federal funds rate in mid-2004 and mortgage rates didn't follow, as they usually did. What unexpectedly kept rates down, Greenspan says, were huge flows of foreign money, generated partially by trade surpluses, into U.S. bonds and mortgages.
  • Greenspan is in part contrite. He admits to trusting private markets too much, as he had in previous congressional testimony. He concedes lapses in regulation. But mainly, he pleads innocent and makes three arguments.
  • It was not the end of the Cold War, as Greenspan asserts, that triggered the economic boom. It was the Fed's defeat of double-digit inflation in the early 1980s. Since the late 1960s, high inflation had destabilized the economy. Once it fell -- from 14 percent in 1980 to 3 percent in 1983 -- interest rates slowly dropped.
  • Greenspan's complicity in the financial crisis stemmed from succeeding too much, not doing too little. Recessions were infrequent and mild. The 1987 stock market crash, the 1997-98 Asian financial crisis and the burst "tech bubble" did not lead to deep slumps. The notion spread that the Fed could counteract almost any economic upset. Greenspan, once a critic of "fine-tuning" the business cycle, effectively became a convert. The world seemed less risky. The problem of "moral hazard" -- meaning that if people think they're insulated from risk, they'll take more chances -- applied not just to banks but to all of society: bankers, regulators, economists, ordinary borrowers and consumers.
  • "We had been lulled into a state of complacency," Greenspan writes in passing, failing to draw the full implication. Which is: Too much economic success creates the seeds of its undoing. Extended prosperity bred overconfidence that led to self-defeating behavior.
  • Stephen Lu on 12 Jan 11
     
    Alan Greenspan's take on the financial crisis.
Han Kyul Lee

America's foreclosure plan: Can't pay or Won't pay? | The Economist - 0 views

www.economist.com/...13145239

the financial crisis economics homeownership barack obama mortgages

shared by Han Kyul Lee on 10 Jan 11 - No Cached
  • Is it that homeowners cannot afford to pay; or is it that they are declining to do so, because their homes are now worth less than their mortgages, the phenomenon known as negative equity?
  • One school thinks that, even in cases of negative equity, most homeowners will not default if they can afford the payments—not least because defaulting will wreck their credit records.
  • A second school believes that once the home is worth less than the mortgage, homeowners have a significant incentive to walk away even if they can make the payment, since in many states lenders cannot then pursue them for the shortfall.
  • ...1 more annotation...
  • If negative equity is the real problem, principal will have to be reduced to stem the foreclosures. But lenders are reluctant: they worry that many homeowners who can afford their payments will choose to default, or that investors in the loans will sue them. With house prices still falling, many borrowers would soon have negative equity again.
  • Han Kyul Lee on 10 Jan 11
     
    Published February 19, 2009 Notes - Barack Obama pledges $75 billion to reduce the mortgage payments of homeowners at risk of default - A previous effort by George Bush, whose first plan was to help up to 240,000 subprime borrowers refinance their debts into goverment-backed, fixed-rate mortgages, resulting in only 4000 doing so - A Democrat-inspired plan of $300B to guarantee up to 400k mortgages only attracted 517 applications, since lenders were bugged because they had to first write down the principal - This is an issue of whether homeowners cannot afford to pay, or that they refuse to pay, since now their homes are worth less than their mortgages - Economists divide up their opinions - First school: even in cases of negative equity, most homeowners will not default should they be able to afford the payments - Second school: once the home is worth less than the mortgage, homeowners have a significant incentive to walk away from the payment, since lenders cannot then pursure them for the shortfall - Should negative equity be the real issue, the principal for the loans would have to be reduced, but lenders are reluctant as either the homeowners would choose to default or the investors would sue the lenders - House prices are still falling, so many homeowners are ought to have negative equity again
Kripansh Sharma

Sorry for risks, bad decisions, bankers tell Congress | Business | Chron.com - Houston ... - 2 views

www.chron.com/...6812966.html

Retail_commercial financial crisis bank

shared by Kripansh Sharma on 12 Jan 11 - No Cached
  • Americans are furious and “have a right to be” about the hefty bonuses banks paid out after getting billions of dollars in federal help
  • The four bankers represent institutions that collectively received more than $90 billion in direct government assistance from the $700 billion federal bank bailout and availed themselves of billions from the Federal Reserve. Goldman Sachs received an additional $12.9 billion in bailout money that had gone to AIG.
Han Kyul Lee

Economics focus: A helping hand to homeowners | The Economist - 1 views

www.economist.com/...12470547

shared by Han Kyul Lee on 12 Jan 11 - No Cached
  • A lender may recover as little as half the value of the mortgage from a foreclosure, after legal and other costs, because abandoned homes quickly fall into disrepair and can only be sold at a discount.
    • Han Kyul Lee
      Han Kyul Lee on 12 Jan 11
       
      A lender of a mortgage is actually taking quite a risk, because abandoned property cannot be sold at full price as they quickly fall into disrepair. Thus, they may only recover as little as half the value of the mortgage from a foreclosure.
  • And foreclosures intensify house-price falls by adding to the stock of unsold houses. An enlightened bank may be better off forgiving a part of a mortgage if that persuades borrowers to remain in their homes.
    • Han Kyul Lee
      Han Kyul Lee on 12 Jan 11
       
      Foreclosures speed the drop of the housing price because the the home is added to the stock of unsold houses. Banks may do better by cutting down a part of the mortgage rather than have the borrowers default.
  • The bait for homeowners would be lower interest costs. Mr Feldstein thinks the scheme’s loans would need to have a fixed interest rate of around 2% to make a material dent in debt-service costs. In return borrowers would take on a slice of debt that they cannot welsh on: the replacement loan would not be secured on the home, but the government would have first claim on the borrower’s future earnings in the event of a default.
  • ...1 more annotation...
  • Given the extent of negative equity and the risk of a negative spiral of defaults and falling prices, efforts to keep homeowners in their homes may yet be necessary to solve the crisis.
    • Han Kyul Lee
      Han Kyul Lee on 12 Jan 11
       
      Because of the negative spiral of defaults and falling housing prices, homeowners kept in their homes may have been a solution to the financial crisis.
Han Kyul Lee

Bear Stearns Funds' Failure Opened the Door to Credit Crash - 6 views

www.larouchepub.com/...3427mbs_cdo_crash.html

shared by Han Kyul Lee on 13 Dec 10 - No Cached
    • Han Kyul Lee
      Han Kyul Lee on 10 Jan 11
       
      The failure of the two hedge funds by Bear Stearns resulted in a bailout by extending to the funds emergency loans of $1.6 to $3.2 billion.
  • the Plunge Protection Committee and Bear Stearns senior executives hammered out an arrangement, whereby Bear Stearns would fork out $3.2 billion in loans—equivalent to one-quarter of the bank's $13 billion in capital—to the two hedge funds, and thus to their creditors, rather than allow the creditors to sell CDOs, and rupture the system.
    • Han Kyul Lee
      Han Kyul Lee on 12 Jan 11
       
      The Plunge Protection Committee and Bear Stearns have arranged Bear Stearns to fork out $3.2 billion in loans to the hedge funds.
  • the Plunge Protection Committee and Bear Stearns senior executives hammered out an arrangement, whereby Bear Stearns would fork out $3.2 billion in loans—equivalent to one-quarter of the bank's $13 billion in capital—to the two hedge funds, and thus to their creditors, rather than allow the creditors to sell CDOs, and rupture the system.
  • ...4 more annotations...
  • If CDOs were shown in a large sale in the market to be worth half or less of their claimed or rated value, then this would expose the fact that most CDOs, especially those linked to subprime housing, were worth only 50 cents on the dollar. The holders of CDOs would have to devalue their holdings, and not just Bear Stearns, but all financial firms that hold CDOs. This would mean the write-down of hundreds of billions of dollars worth of fictitious CDO asset valuation, wiping out overnight the $2.6 trillion-plus CDO market, one of the fastest-growing parts of the financial bubble.
  • The failure of CDOs, and the associated credit derivatives, has the potential to rupture the $750 trillion-plus world derivatives market—a rupture which would instantaneously bring down the world financial system.
  • The failure has caused the near-freezing up of the highly risky $2.6 trillion Collateralized Debt Obligations (CODs) market.
  • On June 22, Bear Stearns investment bank announced that it intended to bail out two of its failing hedge funds, by extending to them between $1.6 to $3.2 billion in emergency loans—the latest twist in Wall Street efforts to prevent a full-blown mortgage securities market crisis.
  • Han Kyul Lee on 13 Dec 10
     
    From the July 6, 2007 issue of Executive Intellignece Review Notes: July 6, 2007 issue of Executive Intelligence Review -two hedge funds of Bear Stearns had failed, causing the $2.6 trillion CDOs market to nearly freeze up -Mortgage-backed losses caused another hedge fund by Caliber Global Investments -June 22, 2007: Bear Stearns to bail out its two failing hedge funds by extending to them in emergency loans of $1.6-3.2 billion, whose purposes are to prevent the creditors from seizing and selling the assets, and to prevent the failure of the hedge funds to trigger a systematic breakdown of the financial system -the hedge funds were the High Grade Structured Credit Enhanced Leverage Fund (HGSCELF) and the High-Grade Structured Credit Fund (HGSCF) that were invested in really risky CDOs, predominantly invested in subprime mortgages.
Kripansh Sharma

Wells Fargo, Bank of America, 15 others hit for pay during crisis | New Mexico Business... - 1 views

www.bizjournals.com/...daily47.html

Retail_commercial financial crisis bank

shared by Kripansh Sharma on 12 Jan 11 - No Cached
  • Wells Fargo & Co. and Bank of America Corp. were among 17 banks criticized Friday by U.S. pay czar Kenneth Feinberg for collectively paying out $1.6 billion in bonuses and other additional compensation to executives
  • All the payments took place in the five months between September 2008, when bank bailouts began, and February 200
  • The payments were not illegal but were “ill advised” and lacked a clear rationale, he said.
sam kopmar

Report: Consumers To Blame For Financial Crisis | Debt Consolidation Solutions - 0 views

www.debtconsolidationsolutions.net/...-to-blame-for-financial-crisis

consumers report blame

shared by sam kopmar on 12 Jan 11 - No Cached
  • The Mckinsey report blames middle-class consumers… Americans, Britons, Canadians, and others for purchasing more home than they could afford.
Liron Danovich

How To Prevent the Next Financial Crisis - CBS MoneyWatch.com - 0 views

moneywatch.bnet.com/...185

shared by Liron Danovich on 12 Jan 11 - No Cached
  • Understanding what went wrong is important because it provides a guide to the best types of legislative and regulatory responses to use to minimize the chances of this happening again
  • In assessing the causes of this crisis, one clear culprit was the failure of regulators and market participants alike to fully appreciate the strength of the amplifying mechanisms that were built into our financial system.
  • At its most fundamental level, this crisis was caused by the rapid growth of the so-called shadow banking system over the past few decades and its remarkable collapse over the past two years
  • ...6 more annotations...
  • So what should we do try to prevent this from happening again? Fixing these incentive problems is certainly a start, as is bringing the shadow banking system under the same regulatory umbrella as the traditional system
  • limiting leverage ratios (through higher capital requirements),
  • We also need to make sure that financial firms are not too big or too interconnected to fail.
  • we need to have the plans and the legal authority in place to deal with insolvent financial institutions, something that was very much needed but missing in the present crisis
  • we need much more transparency in these markets and in the assets that are traded
  • All financial transactions should either pass through organized exchanges, or be subject to some sort of strict reporting requirements to regulators.
  • Liron Danovich on 12 Jan 11
     
    Things that can be done in order to try to prevent a fainancial crisis from happening again- By Mark Thoma a macroeconomist and time-series econometrician at the University of Oregon.
Jonathan Li

Credit Crisis Timeline - 4 views

www.creditwritedowns.com/credit-crisis-timeline

Credit Crisis financial crisis Timeline

shared by Jonathan Li on 11 Jan 11 - Cached
  • Government intervention to end panic2008 09 29 B&B nationalisation is confirmed2008 09 29 Iceland nationalises Glitnir bank2008 10 03 Dutch part of Fortis is nationalised2008 10 06 Hypo Real Gets EU50 Billion Government-Led Bailout2008 10 07 UK makes massive rescue plan for banks2008 10 08 Fed Will Lend Directly to Corporations2008 10 12 Australia to guarantee bank deposits for three years: PM2008 10 13 RBS, HBOS and Lloyds to get $64 billion from U.K.2008 10 13 Fed Says ECB, Others to Offer Unlimited Dollar Funds2008 10 13 EU Nations Commit 1.3 Trillion Euros to Bank Bailouts2008 10 13 Germany Pledges EU500 Billion in Bank Rescue Plan2008 10 15 European central banks pump $250bn liquidity2008 10 15 EU backs emergency accounting changes2008 10 16 ECB Widens Collateral Rules, Slashes Required Ratings2008 10 16 ECB gives Hungary €5bn credit line2008 10 16 Swiss banks raise emergency funds to fight crisis2008 10 22 Wachovia reports 23.9 billion loss
    • Abdiwahab Ibrahim
      Abdiwahab Ibrahim on 12 Jan 11
       
      VERY, VERY NICE.
  • Jonathan Li on 11 Jan 11
     
    This site hosts a comprehensive list of timelines for every major player in the recession. It's a good source for finding hard facts about when somebody took action to do something.
Abdiwahab Ibrahim

Matt Fink Analyzes Impact of 2008 Financial Crisis on Mutual Funds - Press Release - Di... - 0 views

www.digitaljournal.com/196685

mutual funds financial crisis economics crisis

shared by Abdiwahab Ibrahim on 12 Jan 11 - No Cached
  • The Federal Reserve Board declined to crack-down on unscrupulous lending practices, and, most importantly, the Fed refused to raise interest rates to curb excessive housing speculation.
  • fared considerably better than other institutions, such as hedge funds, banks, and securities firms, that employed leverage far in excess of that permitted for mutual funds.
  • In the wake of the crisis there were calls to limit the size and activities of financial institutions. The Administration and Congress rejected this approach, and instead the Dodd-Frank Act granted regulators, who produced the crisis, even more authority. We are headed toward a world of giant financial conglomerates that are too big to manage or regulate, riddled with conflicts, and periodically in need of massive government bailouts.
  • Abdiwahab Ibrahim on 12 Jan 11
     
    More apologetic material for institutional investors (mutual funds).
Abdiwahab Ibrahim

Mutual Funds: Financial Crisis Victims - 1 views

www.mortgageloan.com/-financial-crisis-victims-2770

financial crisis economics crisis mutual funds

shared by Abdiwahab Ibrahim on 12 Jan 11 - No Cached
  • Given these facts, it's no surprise to hear that mutual funds have seen lots of money flowing in and out of their coffers in recent months. One week in November 2008, Wall Street staged a bit of a rally, and investors put $10.4 billion more into mutual funds than they took out. But the next week, fortunes reversed once again, and $12 billion flowed out of the stock mutual fund industry.Usually, when that happens, the money moves over to bond funds, because they're supposed to rise when stocks fall, and vice versa. Not this time, however. Bond funds mirrored the stock mutual funds exactly, just on a slightly smaller scale. These days, investors don't seem to trust either stock or bonds any further than they can throw them. It's almost as if they're suggesting that it's better to stuff that cash into your mattress, or maybe an FDIC-insured savings account.
  • Abdiwahab Ibrahim on 12 Jan 11
     
    Partial apologetic material for institutional investors (mutual funds)
Ariel Shain

Financial Crisis Panel Hears from AIG's Cassano, Goldman's Lewis - 0 views

www.insurancejournal.com/...111180.htm

financial crisis what caused blame AIG goldman sachs

shared by Ariel Shain on 12 Jan 11 - No Cached
  • Goldman has been criticized for benefiting from the taxpayer bailout of AIG.
  • AIG said in March, 2009, that $93 billion had been paid to banks, including $12.9 billion to Goldman Sachs, which was the most received by any bank.
  • Cassano and AIG Chief Risk Officer Robert Lewis said in their written testimony that they believed the collateralized debt obligations (CDOs) -- the loan portfolios linked to the credit default swaps -- were relatively conservative and could have recovered with time. But Lewis said the deteriorating financial environment triggered collateral calls that depleted AIG's liquidity and the federal government stepped in.
Ariel Shain

The Top 10 Worst Predictions of the Financial Crisis (AIG, AMZN, BAC, C, CSCO, GS) - 0 views

www.fool.com/...ons-of-the-financial-cris.aspx

financial crisis what caused blame top 10

shared by Ariel Shain on 12 Jan 11 - No Cached
  • 8. AIG financial products head Joseph Cassano (August 2007)"It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these [credit default swap] transactions." Those transactions nearly bankrupted AIG (NYSE: AIG) months later, in a financial nuclear explosion that pulled everyone from Goldman Sachs (NYSE: GS) to Citigroup (NYSE: C) to Bank of America (NYSE: BAC) into the mix. The lesson: Tail risk -- the really big risk that's hard to measure -- is the single most important kind of risk you can think about. Take whatever worst-case scenario you can think of, multiply it by 100, and prepare for it
  • 7. National Association of Realtors chief economist David Lereah (2006)"The good news is that inventory levels are improving and housing supply will come closer to buyer demand in 2006. We expect a healthy and more balanced market next year."  Of all the bad predictions Lereah made, I picked this one because it underscores an important aspect of bubbles. Lereah may have been right in his prediction that demand was coming in line with supply. But what he missed that demand itself was a bubble. If supply and demand are in line, but demand is being driven by a bunch of myopic idiots plowing into real estate only because they want to flip it two months later, the market is out of balance.
  • 4. Former Sen. Phil Gramm (July 2008)"[T]his is a mental recession. ... We have sort of become a nation of whiners. You just hear this constant whining, complaining about a loss of competitiveness, America in decline ..." Some downturns truly are just psychological in nature. The (very short) post-9/11 slump, for example. But what we faced in 2008 was the real deal. People couldn't pay off their debts. Banks couldn't raise capital. Companies couldn't roll over commercial paper. There was nothing mental about it. It was a real, tangible decline.
  • ...1 more annotation...
  • 2. Alan Greenspan (May 2005)"The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions. ... Derivatives have permitted the unbundling of financial risks." Finance is probably the one industry where innovation is mostly problematic. Banking should be easy: Lend money to people who can pay you back. Most attempts to complicate it beyond that are steps toward instability.
Ariel Shain

Goldman Sachs CDOs a 'Concern' for Crisis Panel, Angelides Says - BusinessWeek - 0 views

www.businessweek.com/...isis-panel-angelides-says.html

goldman sachs financial crisis what caused economics blame

shared by Ariel Shain on 12 Jan 11 - No Cached
  • Goldman Sachs Group Inc.’s sales of collateralized debt obligations are “an area of interest and concern” for the U.S. commission investigating the financial crisis,
  • Goldman Sachs was sued by the U.S. Securities and Exchange Commission for fraud tied to CDOs that contributed to the worst financial crisis since the Great Depression. The firm’s shares tumbled as much as 16 percent today and financial stocks slumped.
  • questioned Goldman Sachs Chief Executive Officer Lloyd Blankfein on the firm’s sales of mortgage-backed securities that it bet would eventually fail.
  • ...1 more annotation...
  • “It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars,”
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