A True Drama of Wall Street 9 comments
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When I think about the present market difficulties, I think about both the situation as a whole, and the personalities involved. We might look at Bernie Madoff as a poster child for the current distress, but back during the Great Depression. we might have considered Richard Whitney.
Though the conditions are different, when conditions move from boom to bust, cheaters get revealed — those who were relying on good times in order to make good on promises gone wrong. Both Madoff and Whitney had sterling reputations as well, and they both played a significant role in the trading of the market.
Perhaps big frauds require seemingly upright men who command trust from their peers. Practices that can be gotten away with during a bull phase of the market will fall flat during the bear phase.
Aside from the Whitney story, Once in Golconda tells the story of boom and bust for the financial economy as a whole. Taking chances ramped up, supported by a too-easy monetary policy. After the peak, opportunities were few, and few had the spare capital to invest in ventures that were seemingly rich, as measured against boom conditions. Such is the nature of scarce liquidity after a boom.
This is a fun book. You can see the gathering storm as liquidity grows, and markets boom. You can see the increasing furor nearing the peak. At the peak, you can’t hear much. During the fall you can hear investors go through the five stages of grieving as they watch their investments die.
This is a good book, well-written, and appropriate for our era. I recommend it.
If you want to, you can buy it here: Once in Golconda (Wiley Investment Classics)
P.S. — Remember, I don’t have a tip jar, but I do do book reviews. If you enter Amazon through a link on my site and buy things from them, I get a small commission, and you don’t pay anything extra. Such a deal if you wanted to get it anyway…
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This article has 9 comments:
One of the terrible consequences of power of any kind is that you become the prisoner of the high expectations or your peers.
The con man is trapped by his shills because he is forced to live up to their high expectations of him (or skip town.)
The con man typically begins by creating a false impression of already possessing what he wants. If it is money then he pretends to already have it, by a serious of lies and subterfuges. The process perpetuates itself into a 'Ponzi-like' scheme which often collapses, spectacularly.
There have been many brilliant books written about such people. The Wizard of Oz is the most well-known, of course.
It is said that P.T. Barnum built a career on the observation that 'a sucker is born every minute' but it was actually a competitor, David Hannum, who made the statement.www.historybuff.com/li...
Whoever said it, it is as true today as it was then, at least in America.
In the past 60 days,the feds just spent (without hearings) 4 times as much covering up the banking / credit default swap scandal as they did for all the wars and all the social programs in the first 75 years of the twentieth century .
The velocity of that change is staggering when presented in graphic form
Source Commodity Research Bureau ISBN 13 978 0 471 78443 2
The Subprime Lending Bias
By INVESTOR'S BUSINESS DAILY | Posted Friday, December 19, 2008 4:20 PM PT
Media: If, as they say, it's journalists who write history's first draft, then future texts will be riddled with errors about the origins of the subprime disaster, teaching future leaders the wrong lessons.
----------------------...
Read More: Media & Culture | Economy
----------------------...
Just how did Americans come to lose $10 trillion in real estate and stock wealth? And why are our children and grandchildren on the hook for as much as $8 trillion in federal bailout money? These are some of the most important questions of our time. Yet the mainstream media, plagued by monopartisan bias, are not providing the public honest answers.
Take, for instance, a recent front-page article in the Washington Post, under the headline, "How HUD Mortgage Policy Fed the Crisis." The piece correctly fingers HUD for helping fuel risky lending at Fannie Mae and Freddie Mac. But the newspaper starts its analysis in 2004 (in fact, the first sentence begins, "In 2004 . . . "), making it seem as if the Bush administration crafted "affordable housing" policy and created the subprime market.www.youtube.com:80/wat...
The Post knows better. The Bush HUD merely continued a politically correct policy launched by the Clinton administration. For the first time, President Clinton ordered HUD to set quotas for Fannie and Freddie to buy huge portions of Community Reinvestment Act loans and other low-income mortgages made to borrowers with poor credit. The Post failed to mention this key fact.
By 2000, fully half of the mortgage giants' portfolios consisted of these risky loans, most of them subprime mortgages. In effect, the Clinton HUD set a time bomb that would explode years later with the collapse of home prices, which happened to occur on Bush's watch.
At the same time, HUD pressured the federally subsidized giants to lower their loan-to-value ratios and other underwriting requirements to accommodate minority borrowers. HUD Secretary Andrew Cuomo even admitted that the administration was mandating a policy of "affirmative action" lending (his words, not ours).
And it was Clinton who initially spread the subprime rot to Wall Street. To help Fannie and Freddie reach their "affirmative action" lending quotas, HUD in 1995 let them get affordable-housing credit for buying subprime securities that included loans to low-income borrowers.
Less than two years later, Freddie partnered with Wall Street investment banker Bear Stearns to issue the first securitizations of low-income CRA loans.
There's even a press release still available on the Web that memorializes the historic deal, which dumped hundreds of millions of dollars in the risky loans on the market — a down payment on the hundreds of billions that were to follow.
The Post left all of that out of its story, even though the deal marked the beginning of the boom in subprime securities.
Of course, providing such background to readers would ruin the impression that Bush and Republicans were responsible for the crisis, an impression the Post and other liberal media elites hope will stick in the public's mind and become conventional wisdom. And conventional wisdom, once galvanized, is a powerful thing in Washington. Whole agendas and coalitions are built around it.
The Post also provided just one side of the data in its story. The paper said that Bush "ratcheted up" the affordable-housing goal for Fannie and Freddie, from 50% to 56%. But it left out the fact that the previous president, the liberal Democrat, institutionalized the quota and ballooned it up to 50%. Which move do you think had a greater impact on the subprime market?
A recent story in the Associated Press was equally tendentious. It blamed Bush for not cracking down on loose lending standards that had become the norm in the mortgage industry, while completely ignoring the systematic dismantling of those standards during the previous decade under Clinton.
"The administration's blind eye to the impending crisis is emblematic of its governing philosophy, which trusted market forces and discounted the value of government intervention in the economy," wrote AP Washington correspondent Matt Apuzzo.
Reality check: "Government intervention" is what planted the seed to this whole crisis. As we've noted, Clinton in 1995 revised CRA regulations to pressure banks into adopting "flexible" lending standards to increase minority homeownership. In a 1,389-word story, AP cited that easily verifiable fact not a single time.
Make no mistake: It was Clinton who forced banks — most importantly, Fannie and Freddie — to go into the subprime market to serve the targeted populations that HUD and other Clinton banking regulators wanted them to serve.
In effect, the media are blaming Bush for Clinton policies. Whoever controls the debate in Washington controls the truth. Right now, it's Democrats and their press courtiers. And so far, they've managed to shade the truth about the root causes of this epochal financial crisis.
hotair.com:80/archives.../
----------------------...
us1.institutionalriska...
" I blame the mutation of the securitization industry into a toxic, damaging thing on Fannie and Freddie. These organizations lost their moral compass and began to do things in the marketplace that eventually caused them to get into such difficulties that the CEOs were removed and all sorts of new restrictions were placed on the GSEs. Wall Street said halleluiah and proceeded to dive headlong into subprime mortgages and all the rest. The banks loved it as did the Democrats on the Hill, who are always looking to make hay about affordable housing. "............
..........If Wall Street had simply stopped and packaged the subprime loans into a conventional pass through security, there would be no problem. It would be the world's most boring business. But no, instead they created pools of dissimilar collateral and derivatives and then, with the full complicity of the rating agencies, sold this stuff to adolescents in the investment community, the new rich of Asia and the Middle East. And they bought big chunks of this stuff as did their banks. But the really incredible thing is that not a few of the dealers in New York themselves did not understand this paper and a couple eventually went bust because this very paper became practically worthless or close to it. They have no idea what it means when the Street cannot reverse engineer a deal
Roundtable with Roger Kubarych and Richard Whalen
www.tavakolistructured...
JANET TAVAKOLI ...watch the 6 minute video on the 'bail out',you'll be glad you did.
The Reckoning - From Midwest to M.T.A., Pain From Global Gamble - Series - NYTimes.com
The Reckoning - How Merrill Lynch Faltered and Fell - Series - NYTimes.com
Firms underwriting the C.D.O.’s generated fees of 0.4 percent to 2.5 percent of the amount sold. So the fees generated on the $316 billion worth of mortgage- and asset-backed C.D.O.’s issued in 2006 alone, for example, would have been about $1.3 billion to $8 billion.
www.nytimes.com/2008/1...
The Reckoning - From Midwest to M.T.A., Pain From Global Gamble - Series - NYTimes.com
"You hear about all these millions of dollars that have been lost, and you think, that’s got to come out of somewhere.”
www.nytimes.com/2008/1...
A Question for A.I.G. - Where Did the Cash Go? - NYTimes.com
“When investors don’t have full and honest information, they tend to sell everything, both the good and bad assets,” said Janet Tavakoli, president of Tavakoli Structured Finance, a consulting firm in Chicago. “It’s really bad for the markets. Things don’t heal until you take care of that.”
www.nytimes.com/2008/1...
Ms. Tavakoli said she thought that instead of pouring in more and more money, the Fed should bring A.I.G. together with all its derivatives counterparties and put a moratorium on the collateral calls. “We did that with ACA,” she said, referring to ACA Capital Holdings, a bond insurance company that was restructured {out of court} in 2007.
Fair Game - They’re Shocked, Shocked, About the Mess - NYTimes.com
something more may be at work. And that something centers on trust and credibility, which have been lacking in corporate and government leadership in recent years.
www.nytimes.com/2008/1...
Is it any surprise that virulent mistrust seems to own the markets now?
Janet Tavakoli, a finance industry consultant who is president of Tavakoli Structured Finance, said the stock market’s gyrations are a result of a severe lack of confidence in the very officials who are charged with cleaning up the nation’s mess.
What Ms. Tavakoli means by common sense is a plan that will force institutions to get a fix on what their holdings are actually worth.
"It is not enough to throw money at a problem; you also have to use honesty and common sense," Ms. Tavakoli said. "In fact, if you leave out the last two, you are wasting taxpayers' money. If you are going to hand out capital, you have to first revalue the assets or take over so that you can force a mark-to-market. Force restructurings, mark down the assets to defensible levels and let the market clear.
HENRY KAUFMAN on the credit crisis
Says the Fed is responsible for the financial crisis
video.aol.com/video-de...
Untangling credit default swaps
www.youtube.com:80/wat...
On Dec 20 02:20 PM BLITZ wrote:
> In a bull market we all look like heros and feel so smart.
what I don't understand is why the american people are so surpprised?
During the the election year.. on a judical watch type blog the people there actually went thru the FEC filings for Obama, they wrote a Perl script to pick out anyone with a name with consecutive letters ("ppp"...etc) and also looked for people who gave over the 2300 limits, by giving smaller amts over mulitple times.
They were stunned that closed to 150 million dollars were gotten this way... they pleaded with the FEC to investigate... they are still to this day asking the FEC to investigate.. of course the FEC 2 months ago declared they will not investigate Obama's campaign money.. the blog even sent a copy of their findings to the FEC to no avail
and this doesn't even account for the campaign contributions that came from overseas to Obama's campaign money.
so, like Madeoff's PONZI scheme, things like that happen when the government no longer cares even when the citizens are pleading and begging for authorities to look into frauds..... it happened with Madeoff and it happened with Obama
And I am not a dem or repub, just someone who wanted the truth and someone in governement authorities to care about the truth...yet not one MSM source went into these HUGE funding inconsistiences.. for Madeoff or for Obama...
this is why the trust is gone.. wall street is corrupt, washington is corrupt and the press is corrupt
And the sad thing, people do not even know they are being duped, the only reason I became aware is I now only get my news from international sources now.... if I watched american media, I would learn none of this.. not about Obama's corrupt fundraising, not of his lack constitutional qualifications to be pres. and his hiring 3 law firms to cover up all his school records and birth certificate.
I suppose this, the Obama fraud, will all come out in a few years.... and just like with Madoff, people will be like "how did this happen??" and "why didn't authorities do anything??", all the warning signs are there.. there is just complacency to not care ..
to the author: great article! I'll be sure to read the book
And yet there are those naive and ignorant Americans who accept all these chaos and deceit in the name of Capitalism.
Any attempt to correction is viewed as Socialism!!
On Dec 20 06:05 PM RTF 360 wrote:
> www.bloomberg.com/apps...;sid=aGvwttDayiiM&...
>
>
> In the past 60 days,the feds just spent (without hearings) 4 times
> as much covering up the banking / credit default swap scandal as
> they did for all the wars and all the social programs in the first
> 75 years of the twentieth century .
>
> The velocity of that change is staggering when presented in graphic
> form
> Source Commodity Research Bureau ISBN 13 978 0 471 78443 2
> The Subprime Lending Bias
> By INVESTOR'S BUSINESS DAILY | Posted Friday, December 19, 2008 4:20
> PM PT
>
>
> Media: If, as they say, it's journalists who write history's first
> draft, then future texts will be riddled with errors about the origins
> of the subprime disaster, teaching future leaders the wrong lessons.
>
>
>
> ----------------------...
> Read More: Media & Culture | Economy
>
> ----------------------...
>
>
> Just how did Americans come to lose $10 trillion in real estate and
> stock wealth? And why are our children and grandchildren on the hook
> for as much as $8 trillion in federal bailout money? These are some
> of the most important questions of our time. Yet the mainstream media,
> plagued by monopartisan bias, are not providing the public honest
> answers.
> Take, for instance, a recent front-page article in the Washington
> Post, under the headline, "How HUD Mortgage Policy Fed the Crisis."
> The piece correctly fingers HUD for helping fuel risky lending at
> Fannie Mae and Freddie Mac. But the newspaper starts its analysis
> in 2004 (in fact, the first sentence begins, "In 2004 . . . "), making
> it seem as if the Bush administration crafted "affordable housing"
> policy and created the subprime market.www.youtube.com:80/wat...
>
> The Post knows better. The Bush HUD merely continued a politically
> correct policy launched by the Clinton administration. For the first
> time, President Clinton ordered HUD to set quotas for Fannie and
> Freddie to buy huge portions of Community Reinvestment Act loans
> and other low-income mortgages made to borrowers with poor credit.
> The Post failed to mention this key fact.
> By 2000, fully half of the mortgage giants' portfolios consisted
> of these risky loans, most of them subprime mortgages. In effect,
> the Clinton HUD set a time bomb that would explode years later with
> the collapse of home prices, which happened to occur on Bush's watch.
>
> At the same time, HUD pressured the federally subsidized giants to
> lower their loan-to-value ratios and other underwriting requirements
> to accommodate minority borrowers. HUD Secretary Andrew Cuomo even
> admitted that the administration was mandating a policy of "affirmative
> action" lending (his words, not ours).
> And it was Clinton who initially spread the subprime rot to Wall
> Street. To help Fannie and Freddie reach their "affirmative action"
> lending quotas, HUD in 1995 let them get affordable-housing credit
> for buying subprime securities that included loans to low-income
> borrowers.
> Less than two years later, Freddie partnered with Wall Street investment
> banker Bear Stearns to issue the first securitizations of low-income
> CRA loans.
> There's even a press release still available on the Web that memorializes
> the historic deal, which dumped hundreds of millions of dollars in
> the risky loans on the market — a down payment on the hundreds of
> billions that were to follow.
> The Post left all of that out of its story, even though the deal
> marked the beginning of the boom in subprime securities.
> Of course, providing such background to readers would ruin the impression
> that Bush and Republicans were responsible for the crisis, an impression
> the Post and other liberal media elites hope will stick in the public's
> mind and become conventional wisdom. And conventional wisdom, once
> galvanized, is a powerful thing in Washington. Whole agendas and
> coalitions are built around it.
> The Post also provided just one side of the data in its story. The
> paper said that Bush "ratcheted up" the affordable-housing goal for
> Fannie and Freddie, from 50% to 56%. But it left out the fact that
> the previous president, the liberal Democrat, institutionalized the
> quota and ballooned it up to 50%. Which move do you think had a greater
> impact on the subprime market?
> A recent story in the Associated Press was equally tendentious. It
> blamed Bush for not cracking down on loose lending standards that
> had become the norm in the mortgage industry, while completely ignoring
> the systematic dismantling of those standards during the previous
> decade under Clinton.
> "The administration's blind eye to the impending crisis is emblematic
> of its governing philosophy, which trusted market forces and discounted
> the value of government intervention in the economy," wrote AP Washington
> correspondent Matt Apuzzo.
> Reality check: "Government intervention" is what planted the seed
> to this whole crisis. As we've noted, Clinton in 1995 revised CRA
> regulations to pressure banks into adopting "flexible" lending standards
> to increase minority homeownership. In a 1,389-word story, AP cited
> that easily verifiable fact not a single time.
> Make no mistake: It was Clinton who forced banks — most importantly,
> Fannie and Freddie — to go into the subprime market to serve the
> targeted populations that HUD and other Clinton banking regulators
> wanted them to serve.
> In effect, the media are blaming Bush for Clinton policies. Whoever
> controls the debate in Washington controls the truth. Right now,
> it's Democrats and their press courtiers. And so far, they've managed
> to shade the truth about the root causes of this epochal financial
> crisis.
>
> hotair.com:80/archives.../
>
>
>
>
>
>
>
> ----------------------...
>
>
>
>
> us1.institutionalriska...
>
>
>
>
> " I blame the mutation of the securitization industry into a toxic,
> damaging thing on Fannie and Freddie. These organizations lost their
> moral compass and began to do things in the marketplace that eventually
> caused them to get into such difficulties that the CEOs were removed
> and all sorts of new restrictions were placed on the GSEs. Wall Street
> said halleluiah and proceeded to dive headlong into subprime mortgages
> and all the rest. The banks loved it as did the Democrats on the
> Hill, who are always looking to make hay about affordable housing.
> "............
>
> ..........If Wall Street had simply stopped and packaged the subprime
> loans into a conventional pass through security, there would be no
> problem. It would be the world's most boring business. But no, instead
> they created pools of dissimilar collateral and derivatives and then,
> with the full complicity of the rating agencies, sold this stuff
> to adolescents in the investment community, the new rich of Asia
> and the Middle East. And they bought big chunks of this stuff as
> did their banks. But the really incredible thing is that not a few
> of the dealers in New York themselves did not understand this paper
> and a couple eventually went bust because this very paper became
> practically worthless or close to it. They have no idea what it means
> when the Street cannot reverse engineer a deal
>
> Roundtable with Roger Kubarych and Richard Whalen
>
>
> www.tavakolistructured...
>
> JANET TAVAKOLI ...watch the 6 minute video on the 'bail out',you'll
> be glad you did.
>
> The Reckoning - From Midwest to M.T.A., Pain From Global Gamble -
> Series - NYTimes.com
>
>
>
> The Reckoning - How Merrill Lynch Faltered and Fell - Series - NYTimes.com
>
>
>
> Firms underwriting the C.D.O.’s generated fees of 0.4 percent to
> 2.5 percent of the amount sold. So the fees generated on the $316
> billion worth of mortgage- and asset-backed C.D.O.’s issued in 2006
> alone, for example, would have been about $1.3 billion to $8 billion.
>
>
> www.nytimes.com/2008/1...;_r=2&ref=busi...
>
>
>
>
> The Reckoning - From Midwest to M.T.A., Pain From Global Gamble -
> Series - NYTimes.com
>
>
> "You hear about all these millions of dollars that have been lost,
> and you think, that’s got to come out of somewhere.”
> www.nytimes.com/2008/1...;_r=1&sq=janet...
>
>
> A Question for A.I.G. - Where Did the Cash Go? - NYTimes.com
>
>
>
> “When investors don’t have full and honest information, they tend
> to sell everything, both the good and bad assets,” said Janet Tavakoli,
> president of Tavakoli Structured Finance, a consulting firm in Chicago.
> “It’s really bad for the markets. Things don’t heal until you take
> care of that.”
>
>
> www.nytimes.com/2008/1...;ref=business&...
>
>
> Ms. Tavakoli said she thought that instead of pouring in more and
> more money, the Fed should bring A.I.G. together with all its derivatives
> counterparties and put a moratorium on the collateral calls. “We
> did that with ACA,” she said, referring to ACA Capital Holdings,
> a bond insurance company that was restructured {out of court} in
> 2007.
>
>
>
> Fair Game - They’re Shocked, Shocked, About the Mess - NYTimes.com
>
>
>
>
> something more may be at work. And that something centers on trust
> and credibility, which have been lacking in corporate and government
> leadership in recent years.
> www.nytimes.com/2008/1...;scp=4&sq=tava...
>
>
> Is it any surprise that virulent mistrust seems to own the markets
> now?
>
> Janet Tavakoli, a finance industry consultant who is president of
> Tavakoli Structured Finance, said the stock market’s gyrations are
> a result of a severe lack of confidence in the very officials who
> are charged with cleaning up the nation’s mess.
>
> What Ms. Tavakoli means by common sense is a plan that will force
> institutions to get a fix on what their holdings are actually worth.
>
>
> "It is not enough to throw money at a problem; you also have to use
> honesty and common sense," Ms. Tavakoli said. "In fact, if you leave
> out the last two, you are wasting taxpayers' money. If you are going
> to hand out capital, you have to first revalue the assets or take
> over so that you can force a mark-to-market. Force restructurings,
> mark down the assets to defensible levels and let the market clear.
>
>
>
>
> HENRY KAUFMAN on the credit crisis
> Says the Fed is responsible for the financial crisis
>
>
> video.aol.com/video-de...
>
>
>
> Untangling credit default swaps
>
>
>
> www.youtube.com:80/wat...
Same think we have in colleges
Same Problem we have in the Academia. Colleges and school pays the accreditation agencies annual fees and membership.
The Accreditation Agencies for schools (LAW, Science,Business, Public Health, and so on)
Do not care about the quality of the faculty degree and backgrounds or the abuse by the administrators against students and faculty. The accreditation site visit ask the faculty as a group what do they think about the administration. In such public form the answer is always positive to avoid retaliations.
It is a Joke. The Accreditation body is looking for new members and to renew membership. the victims are the faculty and students.
The fact is many people have never known really evil times but soon I think most will get what mass Depression means and god help us all when that day comes.
Madoff is only one of many others and we will all become the real victims of not only this little rat but of many rats who live on the darkside.