Posts filed under “Really, really bad calls”

Attention Mr. Bernanke:

I Direct Your Attention, Mr. Fed Chairman, to Exhibits 1 through 10:

1. Ultra low interest rates led to a scramble for yield by fund managers;

2. Not coincidentally, there was a massive push into subprime lending by unregulated NONBANKS who existed solely to sell these mortgages to securitizers;

3. Since they were writing mortgages for resale (and held them only briefly) these non-bank lenders collapsed their lending standards; this allowed them to write many more mortgages;

4. These poorly underwritten loans — essentially junk paper — was sold to Wall Street for securitization in huge numbers.

5. Massive ratings fraud of these securities by Fitch, Moody’s and S&P led to a rating of this junk as TripleAAA.

6. That investment grade rating of junk paper allowed those scrambling bond managers (see #1) to purchase higher yield paper that they would not otherwise have been able to.

7. Increased leverage of investment houses allowed a huge securitization manufacturing process; Some iBanks also purchased this paper in enormous numbers;

8. More leverage took place in the shadow derivatives market. That allowed firms like AIG to write $3 trillion in derivative exposure, much of it in mortgage and credit related areas.

9. Compensation packages in the financial sector were asymmetrical, where employees had huge upside but shareholders (and eventually taxpayers) had huge downside. This (logically) led to increasingly aggressive and risky activity.

10. Once home prices began to fall, all of the above fell apart.

I hate having to repeat myself, but it is apparently, necessary.

>

Previously:
Bernanke Still Does Not Understand Credit Crisis (January 4th, 2010)
http://www.ritholtz.com/blog/2010/01/bernanke-cause-of-credit-crisis/

Category: Bailouts, Credit, Derivatives, Federal Reserve, Fixed Income/Interest Rates, Real Estate, Really, really bad calls

Trashing Rubin

I have regularly trashed Robert Rubin in this blog for quite some time. And while I further tarnish the name of Rubin in Bailout Nation — he is between Hank Paulson and Larry Summers in our blame list — I probably could have slapped him around even more had time and space pemitte.d No Matter….Read More

Category: Bailout Nation, Derivatives, Really, really bad calls

Double Triple Bubbles

This is a terrific chart (via Invictus) showing the past two — really three — asset bubble tops. 1. Tech/Dot.com bubble 1990s 2. Credit Bubble/Housing boom 2002-07 3. Finance collapse 2008-09 The second two are obviously related: The easy money, credit driven financialization of the economy led to two asset class peaks: Stocks and Houses…Read More

Category: Markets, Psychology, Real Estate, Really, really bad calls

Jon Stewart Busts on Apple, Steve Jobs

This is the way to start a Friday:

The Daily Show With Jon Stewart Mon – Thurs 11p / 10c
Appholes
www.thedailyshow.com
Daily Show Full Episodes Political Humor Tea Party

Microsoft was supposed to be the evil one, but now Apple is busting down doors in Palo Alto while Bill Gates rids the world of mosquitoe

Category: Really, really bad calls, Video, Web/Tech

“A Monstrous System of Guaranteeing Deposits”

Time for a good chuckle: Have a read of this excerpt from TIME magazine, circa 1933, about the evils of FDIC deposit insurance: “Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed by both houses of Congress would…Read More

Category: Credit, Really, really bad calls, Regulation

The Return of Ben Stein ?

After spending several years writing money-losing columns that were lacking in any insight into Wall Street for the New York Times, Ben Stein has returned. After his NYT dismissal for becoming the pitchman for scam site FreeCreditReport.com, enough time has elapsed that Stein seems to have landed a gig with Bloomberg owned BusinessWeek. We will…Read More

Category: Financial Press, Really, really bad calls

Rule 10b-5: Manipulative and Deceptive Practices

When ever I wrote something up, I try to show how I reach my conclusion. What are the data, facts, underlying elements used to reach an ultimate decision. In math, algebra, it was called”showing your work.” Sometimes, I don’t bother show the tiny details. I assume everyone knows 2=+2=4, understand the basic aspects of the…Read More

Category: Derivatives, Legal, Really, really bad calls

WSJ OpEd: “Material Misrepresentations? What’s That?”

I have no idea what goes on in the WSJ OpEd offices. I cannot tell you for sure that their Water Cooler is laced with LSD; I have no idea if they are drunk by the opening bell every morning. I’ve never done the research to see if key persons there played college football sans…Read More

Category: Derivatives, Legal, Really, really bad calls

Books in the Queue

Not too long ago, I finished Justin Fox’s Myth of the Rational Market. I’m about halfway through Scott Patterson’s The Quants. I have the following lined up in my queue: • Roger Lowenstein’s The End of Wall Street • Steven D. Levitt and Stephen J. Dubner’s Super Freakonomics • Michael Lewis’ The Big Short •…Read More

Category: Bailouts, Markets, Quantitative, Really, really bad calls

Are Defaults Really Driving Retail Spending?

Every now and again, I see an economic commentary that is so ass backwards, I am compelled to call it out. Today is one of those occasions. The commentary in question comes from the usually astute Housing Wire. Paul Jackson makes the case that voluntary mortgage delinquencies are driving retail sales. I disagree. ~~~ Our…Read More

Category: Analysts, Credit, Real Estate, Really, really bad calls