Wall Street didn't know WTF was going on

[YTNUKLR]

Really good article...despite its length...very freaky

[Link Starts on page 5]

http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?tid=true#page5

"It’s not easy to stand apart from mass hysteria—to believe that most of what’s in the financial news is wrong or distorted, to believe that most important financial people are either lying or deluded—without actually being insane."(pp.2)

"These [subprime] guys lied to infinity. What I learned from that experience was that Wall Street didn’t give a **** what it sold.” (pp.3)

"An insurance company backed Steve Eisman with $50 million, a paltry sum. “Basically, we tried to raise money and didn't really do it,” Eisman says."(pp.3)

“I didn’t understand how they were turning all this garbage into gold,” Eisman asks.(pp.5)

“They [the regulators] were just assuming home prices would keep going up.”(pp.5)

“With all due respect, sir,” Daniel told the C.E.O. deferentially as they left the meeting, “you’re delusional.” This wasn’t Fitch or even S&P. This was Moody’s, the aristocrats of the rating business, 20 percent owned by Warren Buffett. And the company’s C.E.O. was being told he was either a fool or a crook by one Vincent Daniel, from Queens.(pp.5)

"...I was like, This is allowed?” (pp.7)

"Eisman started out running a $60 million equity fund but was now short around $600 million of various *subprime-related securities. In the spring of 2007, the market strengthened. But, says Eisman, “credit quality always gets better in March and April. And the reason it always gets better in March and April is that people get their tax refunds. You would think people in the securitization world would know this. We just thought that was moronic.” (pp.7)

"The models don’t have any idea of what this world has become…. For the first time in their lives, people in the asset-backed-securitization world are actually having to think.”(pp.8)

“It’s laissez-faire until you get in deep ****.”(pp.9)

[KFC911]

Interesting read...thanks!

[hardflex]

That is a great article. Your link starts you on page five this will get you to page 1

http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom?tid=true#page1

This paragraph sums it up for me...

That’s when Eisman finally got it. Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren’t enough Americans with ****ty credit taking out loans to satisfy investors’ appetite for the end product. The firms used Eisman’s bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. “They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford,” Eisman says. “They were creating them out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans. But that’s when I realized they needed us to keep the machine running. I was like, This is allowed?”

[Seahawk]

Excellent article...Liar's Poker is one of the reasons I lost zero money in the recent debacle.

[equality72521]

Interesting. I'd like to hear competentone's take on it.

[hardflex]

I have to wonder if our Allies or China called the US Govt out to make good on the loans or they would cease to continue financing our deficits. This action is what precipitated the whole bailout action.

I hate to think it was to bailout out these Wall St fat cats with no moral compass.

[Seahawk]

Bump.

Everyone needs to read this...if not, a lazy, stupid world indeed.

[gprsh924]

Very interesting. Paints a picture that the lenders carry more of the blame than the borrowers. That may be true but the underlying implication of this is ultimately that our society in general is quite greedy and cannot delay gratification. That and the fact that most people are really stupid.

At this point, I would like to get a new HDTV, a digital camera, and replace my 4 year-old iPod. I decided that the iPod was the thing I needed least so I cut that out of the equation. I figured that my parents would give me the camera for Christmas, so I could spend $500-$600 on a TV. Then a few days ago, my friends and I decided to go to Canada over winter break to go skiing. The trip will cost me around $600. As a result I have decided to put off purchasing the TV for now (unless I find some absolutely smoking deal on one on Black Friday). I could easily afford to purchase all of these things as I have plenty of savings in the bank. However, I am choosing to delay gratification so that in the future I will have money available for more important things than iPods and cameras.

What would the average American likely do in this situation? Probably buy everything, whether or not they could actually afford it.

[tiwebber]

[QUOTE=hardflex;4306348]That is a great article. Your link starts you on page five this will get you to page 1 QUOTE]

I've only read and page 1 (will read the rest) and its very frustrating. I pulled most my money out of the Market last year but not because I had the faintest clue what was going on. I've always known that I am so removed from what is really happening that I do not stand a f!@#%$ chance of doing well.

No more stock market for me.

[lowyder993s]

Originally Posted by KC911

Interesting read...thanks!

+1...just plain scary, and to think the people who oversee large pension funds...I see another debacle just around the corner.

[YTNUKLR]

Also watch this guy, Peter Schiff

This was in 2006.

He was amazingly spot-on...and look at how these Fox pundits, other so-called experts and money managers mock him and laugh as if he is a crazy person! Then Ben Stein recommends a buy of Merrill Lynch at $76. Merrill is now at $13. I hope he bought that stock at $76, what a dolt.



http://www.youtube.com/watch?v=2I0QN-FYkpw

[turbo6bar]

Hehe, I was going through the same mental anguish in 06 trying to unravel CDOs, ABX, and all the other crap thrown about by the financial wizards.

See the "More Bad RE News" for a play-by-play. We were discussing this very topic in 05, 06 & 07. Blogs like Calculated Risk covered CDOs extensively in 2007. It's scary when your mind tells you one thing, while the market's view is diametrical.

Reading this commentary forces me to change my outlook on bailouts for Wall Street. I once believed it was necessary to do bailouts to prevent Armageddon. However, the bailouts enable these crooked Wall St firms to stay in business and one day, steal again. The question becomes: How do we prevent this from occurring again? Are we destined to repeat it, because we are too stupid to remember?

tiwebber, until the economy stands again on firm ground, I am hesitant to put any money back into equities. Like you, I liquidated my non-retirement accounts. I'm sticking to assets or investments I control.

gprsh924, if everyone was fiscally responsible, the American economy would lose 10, 20, perhaps 30% of GDP. The growth and health of this economy is based on unsustainable consumption habits. You should be ashamed for promoting the noble concept of responsibility.
jurgen

[competentone]

Originally Posted by equality72521

Interesting. I'd like to hear competentone's take on it.

In the thread I started "Boom! The first implosion in the municipal bond markets... " I pretty much already gave my opinion:

Boom! The first implosion in the municipal bond markets...

Some of my comments from that thread:

People have been ripped off; they have been robbed. Any crash in the markets and economy that happens is only a matter of people realizing the theft.

The bailout does nothing to stop the "ticking bomb." All the bailout does is "cover it up" so people don't have to hear the "ticking" -- that is not any solution.

People have put their confidence and money with Wall Street -- not realizing that Wall Street deserved neither.

Wall Street has already robbed Main Street.

The bailout is nothing more than an attempt by Wall Street to hide the fact that the money in people's pensions, behind their insurance policies and in their retirement accounts is largely GONE!

Wall Street has their man, Henry Paulson, on the inside, trying to get money for a cover up of the losses that are already there.

[DanielDudley]

Um, Paulson may be the the last screwing we get from the last 8 years, but this crisis is the gift that keeps on giving.

Energy costs are down right now. I think this is the only thing keeping the average person from freeking out.

[Sonic dB]

Originally Posted by Seahawk

Excellent article...Liar's Poker is one of the reasons I lost zero money in the recent debacle.

dont bet on that... we are all taking it in the assss in the end.

[KFC911]

Serious question for you guys. I've taken a pretty good hit in my 401K/IRAs (I have a long term outlook for those - I'm 48), but I'm pretty much "back in" equities in all of them. I'm 100% debt free, own my own home (and a couple of other rental properties - nothing owed). I recently lost my high-tech job (outsourced), but am still receiving a decent severance package, and have opted to go ahead and begin taking my monthly pension which is a guaranteed 8.5% return for life (not a huge amount, but it will cover my health ins., all taxes, insurance, etc. and then some, indefinitely). My take has been to ride this "mess" out (in regards to equities) since I'm in it for the long haul. I'd like to hear some of your opinions on my strategy. Thanks...

[turbo6bar]

KC, if things go to hell, we're all screwed. The worst case I see is a decade long recession. If you can stomach 2 decades of sub-1000 S&P 500, let it ride. I doubt you'd be disappointed.

Now, that monthly pension with guaranteed 8.5% return for life; well, buddy, somebody is going to get screwed, and if not now, eventually.

[tiwebber]

I hear "advice" on the radio repeatedly from "financial advisors" that now is a bad time to sell. I have never heard from any advisor about the good time to sell. I suspect these "advisors" are only slightly better informed that me on events that shape the market and what is going to happen next. I remember asking one advisor about indexed funds - indexed to (in my case) the TSE 100 (Toronto Stock Exchange). My logic was they outperform most mutual funds. He thought that was a defeatist attitude and attempted to talk me out of it. Arrgh.

[TheMentat]

Originally Posted by tiwebber

I remember asking one advisor about indexed funds - indexed to (in my case) the TSE 100 (Toronto Stock Exchange). My logic was they outperform most mutual funds. He thought that was a defeatist attitude and attempted to talk me out of it. Arrgh.

... probably because he doesn't get a commission for selling you index funds.

You don't wan't to sell stocks when they are down. If you've already taken the losses thus far, and are in it for the long haul, then you may as well keep holding them.

FWIW, the time to sell stocks, is as you gradually shift your portfolio from stocks to fixed income vehicles (bonds & cash). This is a decision based on your time 'till retirement, and doesn't have anything to do with where the market is. Trying to time the market is difficult at best.

[pwd72s]

Scott...Thanks for posting this good info.