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21 March 2016


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This isn’t over by any means. All the bad debt from the 2008 crash has never been written down. Financialization is still going strong. The current push is to take a stream of public money and sell financial products on the monies. The higher the churn the greater the financiers’ cut. This is the basis for the push for Lexus Lanes, Charter Schools, or the forever wars: Private – Public Partnerships. A recent example is Maryland’s Purple Line Light Rail Plan.

The contract is too complex to understand. CAF, the Spanish manufacturer’s DC Metro rail cars are the least reliable and their contract with Amtrak for Viewliner cars has run into major problems. When there is no direct public control and if the goal is to get the connected rich (not to provide affordable, safe and convenient transportation) what could go wrong?


"the expanded trade with China cost the United States at least 2 million jobs. "

True, a flood of Chinese imports over the past 15 years has cost hordes of U.S. jobs. In a recent paper, three respected economists — David Autor of the Massachusetts Institute of Technology, David Dorn of the University of Zurich and Gordon Hanson of the University of California at San Diego — estimated the loss of manufacturing jobs at 985,000 from 1999 to 2011.

But this large number needs context. Over the same period, all U.S. manufacturing jobs dropped 5.8 million; the share caused by China was a bit less than one-fifth. When the economists added China’s impact on non-manufacturing firms, the job decline more than doubled to 2.4 million. Still, that’s less than 2 percent of total payroll employment of 131 million in 2011 and 143 million now. A more powerful job destroyer was the Great Recession (8.7 million jobs lost over two years).

In addition, there are export jobs. With U.S. exports about 80 percent of imports, they offset most — though not all — of trade-related job loss. In 2014, exports supported 11.7 million jobs, says the Commerce Department: 7.1 million for goods (aircraft, medical equipment) and 4.6 million for services (software, films).

Robert Samuelson, today's WAPO.

Mark Logan

Mr Sale,

I will suggest that a full understanding of the situation must include the part of who benefited the most. Although the traders wetted their beaks beyond all dreams of avarice they barely pecked at the fire hose stream of defrauded, stolen money spewed at the American public. All that money fed an economy which could not be sustained, yet we feel entitled to still. We still largely set the bar of recovery where it was when people could use their unpaid for houses as practically bottomless ATMs.

There was nothing altruistic in the motive, certainly. Please don't get me wrong there. I hold the actions if the traders in the same contempt and agree with everything you've reported about them. Embellishing, not arguing, but let's not make the mistake of scapegoating. The enabling factors of piracy must be embraced.

A humorous metaphor....they were nowhere near as ethical as this guy...but....


Mark Gaughan

This is from Moon of Alabama's archives. b was on top of the CDS issue back then.

William R. Cumming

Some facts might be of interest!

Disclosure: Employed in the GC office of HUD from July 1, 1974, to September 10, 1979 as an attorney adviser.

1. Mortgage bankers and mortgage originators largely unregulated.

2. Most housing policy set by the IRC not by HUD.

3. HUD has little direct regulatory and FHA still the guts of HUD.

4. Housing is a roof over your head not an investment.

5. The HUD legislative charter is the provision of decent, safe, sanitary housing for all Americans. IMO it has not accomplished this mission.

6. The Federal Reserve officers and staff do not understand housing or energy sectors.

7. Buying a home [almost never paid off] is an emotional event.

8. An unlimited mortgage deduction completely distorts governmental and private capital to a largely unregulated market.

9. FDI [Foreign Direct Investment] in real estate, commercial and residential, largely untracked.

10. Building codes at all levels of government while often well-intentioned are largely unenforced. The federal government and States largely exempt their construction from building codes which are managed by local governments. Of the almost 100,000 units of local government most do not have even one full-time building inspector.

IMO over 1/3 of residential real estate even now overvalued due to depreciation of the improved real estate, lack of compliance with local building codes, rising sea levels, obsolete mechanical systems, such as HVAC, and lack of insulation. And constructive or actual fraud often perpetrated on innocent homeowners, in particular the elderly.


Ah, the Procrustean solution. Not too big to fail either.


Richard Sale writes: "The bond sellers took giant pools of home loans and carved them up to pay debts made to homeowners into pieces called tranches. Such loans carried government guarantees."

Subprime mortgage loans usually didn't come with Government guarantees (Fanny Mae and Freddy Mac.)

There was a successful effort by banks, before the bubble burst, to lobby these corporations to lower their standards somewhat in approving mortgages. But their bankruptcy was caused not mainly by subprime loans gone bad, but by ordinary mortgages going bad due to the housing value crash, financial crisis and the recession.


I too watched "The Big Short" several days ago, Then this antidote arrived via Cryptogon:


It's 45 minutes long and deserves your avid attention.

"The Big Short" was produced by Arnon Milchan, an Israeli intel guy who was deeply involved in arms trade, especially things nuclear. Arnon also produced the movie "JFK" with Kevin Costner. He is revered and rewarded by Israeli power.

All hail AIPAC. All hail the Rothshcildian octopus.


If one is a graduate of Harvard or Yale & of the political class look right
into the camera & tell your loyal subjects, "Wall Street & the banks have paid
back all of the money with interest." No harm no foul.



The mortgage credit crisis and the Big Short are just vignettes to the larger credit story. I think to get the full picture one has to cover the role of Fannie & Freddie how they went to gargantuan balance sheets and to future generations holding the bag and the role of legislation in creating the NRSROs. One cannot overlook the role of the Fed who played a central role in the blowing of the bubble.

Many on the left claim it was capitalism gone amuck without for a moment considering the outsized role of government in inflating credit. Just to understand the scale total system debt doubled in the 90s to around $25 trillion. The GSEs securities grew from $1.2 trillion to end the decade at $4 trillion. So there was already tremendous momentum in GSE credit inflation as we entered the 21st century. By the time the tech bubble went bust, the lefts favorite economist Paul Krugman who only promotes unlimited government spending in both good and bad times had this to say in a NYT oped.

"The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance.To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

Greenspan took that advice to heart. You should know the rest of the story with the GSEs and how they inflated their on and off balance sheet exposure to stupendous proportions in the first decade of the new century.

Similarly, prior to goverment interference, ratings organizations made their living by selling research to the buyside. Those that actually purchased securities. If they did a lousy job and buyers lost money they had to look for another job. Then government ostensibly to regulate and insure quality deemed that a cartel would be perfect and sellside issuers would pay a fee to rate their security. We know how that worked out as corruption ran away.

This story is worth pursuing if you would like to understand the financialization of our economy and insider dealing of using the power of the state to curb competition and create a fee based and speculation based financial system where profits are privatized and losses socialized. I urge you to investigate this as it is not what many think.The days of the Wall St partnership where partner's capital was always at risk is long gone. Wall St & government and the politicians that run it are in a symbiotic relationship where regulation is called for each time the working folks are screwed but such regulation only entrenched the oligarchy further.


Their reason = their stated reason. What was their reason for canceling The Hour?

I think BBC was "transitioning" into the Borg during that time - and emerged as Banality Buggery Cant.


Yes, the criminals--indirectly, in most cases, a bit more heavy handed in others...control the justice system. And know how to play it, for the most part. Its like being a very, very, good test taker, with a very, very, friendly and sympathetic Professor grading the test.

And the prime *mechanics* of this--not great minds behind this, i.e. "this" being financial deregulation, but grunt workers for it, a necessary prerequisite for all to follow, were/are the Clintons. One of whom I believe Richard will be voting for.

William R. Cumming

Actually manufacturing segment of American economy began to drop in late Fifties. Now down to about 11%!

William R. Cumming

Thanks for this great insight!

William R. Cumming

And no regulation of CDOs and/or CDSs? And no taxation? Or of Derivatives?


If you read the comments that follow the article by Yves Smith you will see that a lot of people disagree with her. The fact is that Michael Lewis is an extremely good writer and Yves Smith is an extremely boring and turgid writer. She also has a nasty side to her. I have her book and I found it unreadable. Thanks to Lewis' book and the film many people are getting a basic understanding of the subprime crisis and that can only be a good thing.


those that benefited the most?
would they be the poor souls who were told that teaser loans were a safe bet and that the interest rates would never be reset and even if they did, they could sell the house for double the price -- it was a"no-brainer"? Lots of reasonable people were conned.

Richard Sale

very droll. thank you.

Richard Sale

Richard Sale

Will do.




That was my impression when I looked into matters. Way too many may have been involved in the end.

On the other hand, when the disaster finally happened it reminded me of stunning return offers in the US real estate fonds market surfaced over here too, many, many years before the final crash. Was this an attempt at loss dilution?

When I looked into Enron and comparative matters, I stumbled across arguments that feel similar to your argument in the first passage. They too to the extend I recall, outsourced their losses to other firms, an elaborate branch network?

Are you suggesting, the different market/speculation tools kind of balance each other out, and thus should prevent this type of disaster? But do they? Did they historically?

i looked into some type of organized crime business network over here around the same time frame. A rather exquisite business scheme that used the European market "to bury" firms in Spain. The player, who had drawn my attention sold his firm twice. I have studied not only his business records, but also a series of shady connections that surfaced there or elsewhere. ... He wound up in one of two central court cases here in Cologne.

Case matters, or the overall network apparently was way too big to handle by authorities. ... I could have given them some hints concerning this special actor. But he went away free apart from a little "community service" he had to do. From what surfaced in his business papers, including history, everyone over here can look into, it seemed clearly and very, very easy to see was a criminal case of bankruptcy. Never mind, the authorities did not know, what I could have told them.

As you may imagine, in his specific case a lot of artisans that did work for him, paid heavily. So yes, one can ask is there something like a system?


Lots of issues here just ignored by the article and the movie. From my perspective as a person who's 25+ year career has been in the institutional investment mgmt:

- stupid institutional investors were happily buying up as much structured product as Wall St. could generate even as spreads they would earn for owning this stuff over plain vanilla alternatives successively compressed to silly low levels;

- stupid banks like Citi and AIG sold as much CDS as they could even as they pushed premiums down on CDS to silly low levels in 2005/2006 (meaning they were increasingly selling insurance on bonds and getting paid terribly little for such);

- stupid homeowners increasingly became ridiculous in thinking that everyone could be a real estate magnate;

- leverage in the system was huge by 2008 -- many proprietary trading desks and big hedge funds owned structured product on a highly levered basis (borrowing in the repo market to finance their owning far more than was their capital)

- when things started to go sideways in latter 2008 and risk managers took control of the investment banks, leverage was cut very suddenly and repo markets stopped functioning due to concerns of repo lenders over collateral. This led to all leveraged investors (i.e., prop desks and hedge funds) suddenly having to dump their positions of structured product on to the market or see their capital wiped out to zero.

- when levered investors dumped positions on the market, there were no natural buyers, which caused MASSIVE price destructure

- credit worthiness of subprime, Alt-A, etc. loans were certainly overestimated by ratings agencies and stupid investors (as was the possibility that they all become bad credits at the same time), the price destruction in much of the structured space was vastly over done. Proof of this is that eventual default rates were no where near what they were implied by prices in early 2009. Further, opportunistic investment strategies that sprung up in order to buy some of this stuff at huge discounts to part tended to be HUGE homeruns.

- I buy the market monitarists' argument that the Fed made things FAR worse by still being worried about non-existant inflation even as markets were melting down. By letting nominal GDP go negative the Fed made the situation far, far worse than it would have been had they been resolved to prevent this. A world with negative nominal GDP growth, is a real killer for financials and any other levered entities.

William R. Cumming

Realtors also not exempt from blame.


Hank P,

There were a lot of bad actors, and a lot of people got burned. I watched the crisis from the corporate side. No one cares, but ordinary companies got hurt by this too.


CDOs and CDS's are both "derivatives." Neither is regulated. The income from a CDO is taxable. The issuer, however, is usually offshore (in a mailbox somewhere), so they don't pay taxes from selling them. I don't know much about the tax structure of CDS's. I'm not as familiar with them.

Richard Sale

I thank you for this. I was simply attempting a brief review of Lewis' book. I am still gathering data.

But this helps me to understand more.

Richard Sale


Cart, horse. Advocacy vs Analysis. Beating the messenger.

It was very clear at the time to anyone listening to McCulley (and Krugmans coverage of it) that he was describing what Greenspan was doing.

You really believe they were advocating a bubble and calling it a bubble? When they called the dot-com a bubble, they were advocating it?

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