Straight

Greed As National Policy: How We Got Here

Hernal: Indeed! There is no such thing as perfect market information or any other kind of information, data or knowledge. Estimations, approximations, best guesses is all we have. Yet, with those we carry on our daily life, whether crossing a busy street against the light, launching a satellite or buying shares of stock. Then there are the unaccountable factors that suddenly appear from seemingly nowhere to lay waste to well made plans. Such is life. Crossing the street can suddenly turn unexpectedly into a deadly event. However such events are not in the majority and thus there are probabilities of disaster and success and these can be and are calculated very rapidly, well or poorly, depending on our individual capacities. Being able to do this allows us to leave our homes everyday feeling and thinking silently that everything will be alright.....today.

The choice an investor has is two. Do it on one's own with all decisions made by self and meditated only through a broker, personally or electronically; stock selection, entry price, share amount, buy - , stock selection, exit price share amount, sell. Pay fees and taxes. Simple.

Of course, like all things of a less than intuitive nature one must study up or be prone to failure among more adept individuals and unforgiven enviroments. In this way, one is responsible for one's financial business and knowingly enters an arena fraught with possibilites of success and failure. I prefer this way. I trust me to do the best for me since I cannot find someone to do it for me as I would for myself.

The other method is to find someone who one knows and who knows you intimately and personally, who is intelligent, capable and humane, who will tell you of all benefits and risks in clear and simple language and who will work, if employed, to personally protect your investment with integrity and wisdom. The chances of finding someone like that today where brokerages and investment firms have one person handle many small accounts are slim though not impossible. It is easily done when you command big money and can pay for such personal attention to be given.

That is the way it is. Any other way than these two, for me, is not worth the risk.

A simple example. In my TIAA-CREF portfolio, I transferred all my stock investments to real estate and the traditional annuity in September because a quarterly report showed a decline in profit for the 3rd quarter 2007. A little research showed there was not much hope in the CREF Stock or the Equity Index. They did not alert me or advise me of my losses.

Losses to the real estate account for the last quarter were also not reported as they occurred. So I wanted to move my funds to the annuity. When I tried to do this online, it was not permitted. When I called to have it done, I was told that it will be ok and if I put it in the annuity I would not be able to get it out again and the real estate market will be ok. Well, that is not my concern, the real estate market will not be fine for a while. Yet, instead of comlying with my wishes, I was told again everything would be ok. I want it there so why the blockade by someone who does not know me or my account? As you said they have their advantage to think of and work for that. It is all understandable. I just have to look out for my best interests and not expect unknown others to do that for me, especially not in America 2008.

So, I would rather fail on my own and be responsible for it than to have someone else fail who never knew me and does not care to because I am financially to them one bit of financial information in their portfolio.

Greed As National Policy: How We Got Here

Kidding about what? Just pointing out that the article missed two important points. Also, There is no need to lay blame. Blaming does not help, especially when nothing practical can result from that except blowing off steam at one's losses, financial and/or psychologcial. Waking up to reality is more like it.

It is better to understand clearly what went wrong. Think. If an individual investor puts cash money in the hands of a persons and/or financial institutions who were making extremely risky investments in subprime mortgages, credit defaults swaps, collateralized debt obligations and other risky ventures based in a changing housing market, then they were not thinking or reasoning.They were, to put it bluntly, blindly investing into what was promoted as a good buy, properly informed, but not listening and investing, informed but not understanding or simply not responsible for carefully minding and monitoring investment options, the investments themselves or the market in general by allowing others do it for them.

The overall market began a gradual decline in the last quarter of 2007 and by mid-year 2008 it was clear that the market was sliding steadily downward. The time to rethink one's investments and move to safer bets was there and before.......

These exotics worked at first because investors paid into them, knowing or not knowing what they were, to get profit. They would not have worked and would not affect individual investors in the first place if investors informed themselves of the risk so that there was no cash flowing from them to these financial institutions for risky investments. If these institutions used their own money, then they would collapse and we, the people, would not be hurt and no rescue/bailout would necessary. Let them go down. But, greed and ignorance at every level of market investment blinds and millions of ordinary people became involved, not just corporate institutions; not just "Wall Street."

The problem also stems from having trust in people and institutions that do not deserve such trust, ever. Why do you think every one of these financial persons and/or institutions they work in (Not an anonymous Wall Street) have disclosures that you must agree to and sign that put them beyond almost all legal and financial responsibilty if an investment they manage for you goes to zero. "Tough luck if things go south" is the simply summary for all of these disclosures.

One should handle their own earnings and if one gives earnings to someone else to invest, it is better to make sure that one does not get screwed by others taking unwarranted risks with your cash, pension fund and what have you. So, if one is willing to sign or agree to such an agreement that clearly states it is on your head if things go wrong; if there is a loss, it is one's own responsibility. To say that one did not know is no excuse.

Fixing what is broken requires a clear mind. Greed is not a new financial entity nor is cleverness and cunning mixed with greed something exotic when it creates complex financial instruments designed to milk profits from an unregulated market in them. It is human financial behavior.

Your introduction to credit default swaps and one must include associated collateralized debt and bond obligations are a step up in the argument that shows that the article above misses another key factor that played a central role in Lehman's downfall and a huge ripple that widened to affect all financial institutions that used the compicated financial instruments.

With that addition, we are one step closer here to understanding the complexity and responsibilty involved in the fiscal crisis.

No kidding.

And the market will rebound as it has before and will start again. perhaps with investors somewhat wiser, if realizations set in. Now is good time not to panic but to learn about investing and financial markets and to see what next can be done to regain, if possible, what was lost.

Greed As National Policy: How We Got Here

This article fails to recognize that there are primary and secondary markets for mortgages. It was the unregulated private, non-banking lenders who made 80%+ of the sub-prime morgages in the free primary market followed by banks. Fannie Mae and Freddie Mac do not make mortgages. They buy them and leverage them as mortgage- backed securities. FRE and FNM bought these risky mortgages on the secondary market after the private, free market, unregulated lenders made them. The cash received by the private, non-bank lenders allowed them to offer more subprime mortgages and to sell them again for cash. Freddie Mac and Fannie Mae in turn sold these mortgage-backed securities for cash to investment banks and other financial institutions.The financial institutions used their money and investors money to purchase these securiites and hoped they would increase in value with housing price increases. But housing prices declined. The bet was lost. So who is left holding an empty bag when homeowners defaulted on loans as housing prices declined? Anyone who lent a subprime mortgage and owns it or who owns subprime mortgage-backed securities. As the article correctly states, the loss is spread across lending banks, investment banks, financial institutions and individual investors all over the country. Sub-prime mortgages were and are a known risk, but there was money to made by lending, selling, reselling and insuring them. Those who rid themselves of these loans and securities before housing prices decreased, lending rates going up the sell off panic spread profited. Also, before September 8, 2008, the federal government did not guarantee funds to support Freddie Mac or Fannie Mae. They were not taking a risk. These were not government entities. Perhaps, the government is more at fault for being irresponsible, ignorant and unwilling to take keep a finger on the pulse of the economy or to regulate it. But is that their constitutional job? Most of them had and have no idea about fiscal and economic realities. These facts are important to get a clear picture of what happened and they are left out of this article. If one wishes to understand what lead to the crisis, getting the basic facts straight goes a long way to see things as they are and not as an opinion based on partially completed research.