Tuesday, April 27, 2010

The Dual in Congress Today

After watching the Goldman Sachs Senate hearings today I came away with the impression that I was watching a dual. An intellectual dual between two opponents, only one of which was actually armed with a brain - with predictable results.

The PROBLEM was not the Goldman traders! They were doing what they were supposed to be doing. 100% of the trades discussed today were ZERO SUM TRADES. For every winner there was an equal and opposite loser. Only the unsophisticated nitwits running the hearing and perhaps a couple percent of their constituents believe that there was no one on the other side of these trades! Or that the folks ON THE OTHER SIDE were unsophisticated widows/orphans.

If this is the tack that the government is going to take, we are all doomed. Rather than fix the really f&*^ed up system, the government appears to wish to make an example out of a few unfortunate individuals and let the system keep grinding the American people into the cement.

Way to go, Senators.

15 comments:

PioneerPreppy said...

Not being a financial pro and honestly any real knowledge of economics I have ends at about 1913 when things start getting weird. Yet I am left wondering how Gold/Sac really did anything wrong unless they are trying to say it was some insider trade type affair that G/S knew was going bad and talked their clients into buying into anyway.

Seems most of the articles I have read do not really spell it out either.

The real criminals here seem to be the legislators that started forcing banks to make bad loans and legislation that encouraged fraud and fantasy incomes.

Or that is my take anyway.

Anonymous said...

Pio,

I'll agree with that. The whole Sub-prime and Alt-A thing was about kicking the can down the road a few more years. The government wanted in the worst way to keep the bubble from bursting. It was fraudulent to the extent that the federal government co-opted the ratings agencies to give this S#!t AAA ratings, when they knew that more than half of the sub prime mortgages that were bundled would default.

The crime was not that GS shorted the securities. The question is why didn't everybody else? Perhaps GS is getting pummeled because by shorting, they broke ranks and gave light to the fact that the bankers knew all along that the CDOs were crap.

If GS is getting nailed, then so should half of the FED and SEC and Treasury and the Senate and House finance committees.

Regards,

Coal Guy

Stephen B. said...

Actually Greg, I think at least some of the senators DO know and realize that somebody took the other side of the trade. What they're counting on is that most Americans watching won't figure that out and that they, the senators, will look very good for having done something to prosecute (and persecute) those evil traders and investment banker fat cats.

As well, I'll second Pioneer's comment about the government basically coercing and forcing banks and mortgage companies to make risky loans.

Government is only partly as stupid as it looked today. The other part is very calculating, manipulating, and downright evil.

Greg T. Jeffers said...

Stephen:

Perhaps you are correct, and the Senators are not as dumb as they protest. My experience is that I cannot say that for the vast majority of folks in the lower house.... but perhaps the Senators are a step up.

It then follows that the rest of your comment is probably accurate as well.

Not that I am a big fan of GS. These guys stack the deck using the laws and regs they bought and paid for. I think they are the bleedin' anti Christ, as I have said on this blog since I began posting.

PioneerPreppy said...

Don't get me wrong Greg I have no real enthusiasm for G/S (not that you thought anyone did). It's just this whole housing market bubble thing to me goes back to the real culprits. Feminist and their lackey politicians.

If you look at the various legislation added to the community re-investment act it all favors single female households. Namely in counting child support as income, dis-allowing child care costs as expenses and forced banks to make minority loans. Minority always means women benefit more than actual minorities. The militant arm ACORN would attack any bank which refused to make bad loans (Like BoA).

I really don't think it was any coincidence that the largest growth group of homeowners prior to the bubble was in fact single women.

I am sure G/S did some underhanded, shady dealings as well but was it only a way to make the best out of the bad hand the government gave them? Thats the question to me anyway.

Dextred1 said...

“Nothing sways the stupid more than arguments they can't understand”.


Well all I can say is this s**t is all s****y (My favorite Michigan senator) he he. I called my dad today and told him to watch our senators get schooled.

The traders were just doing what the law allowed. The senators were just trying to score points by pointing out that G/S took the other side of trade. They all went out for drinks and talked about the fundraising for the next campaign cycle after. Then the dems forced another vote on financial reform to give a great big massive bailout fund to the banks. Good thing it does not create a moral hazard for large leveraged institutions. They are just trying to save us you know. I am sighing in relief, not literally sighing, but feel like it you know.

In my fantasy world I was just waiting for the G/S guys to point out that the government was selling the same s****y loans through Fannie and Freddie. I mean the private corporations Fannie and Freddie. :)

Dan said...

I would suppose a no BS investigation would utterly decimate the upper reaches of the regulatory agencies, the current administration, the last administration, congress and Wall Street. While it would seem most improbable, we just may get it. These things have a way of getting out of hand, especially when half the country is suffering due to the fraud. The thing that really bothers me is that the mob mentality is taking over and we have probably lost the ability focus the effort entirely on the malicious jackasses that truly deserve to get nailed. Regardless, it still beats the major drama we will get if these clowns manage to sweep it all under the rug.

Dextred1 said...

But really how is not illegal to buy insurance against your own securities. It was obvious watching today that they intended to profit off a portfolio of terrible debt and bet that it would go bad. Over half the loans in the tranche were chosen by them and Had AAA ratings. They knew those loans were going bad. The whole thing is a sick joke. It was legal, but not ethical.

They just need to split up the top ten banks. Like they say “to big to fail is just too big”. Break em up, sell em off, unwind the derivatives and be over with it. I believe in capitalism, not crony corporatism

Anonymous said...

Dex,

That's where the fraud is. It is HIGHLY illegal to misrepresent the quality of investment instruments. There was no need for new regulation. There was plenty of fraud going on based on existing law. The banks KNEW they were selling bad paper. However, the Federal government rearranged the way the rating agencies, S&P, Moody's, et al., so that instead of being paid by the BUYER of the bonds for the rating, they would be paid by the SELLER. That creates more than a little conflict of interest. I believe that was done for the sole purpose defrauding us all. Banks could buy a AAA rating for anything they sold.

The only thing that that bunch of DC dirt bags has cared about for decades is to keep the bubble going. We'll they did for a while. They are totally lawless. That's also been the reason for keeping the border with Mexico porous. I've heard from what I believe to be a reliable source that Fannie and Freddie have underwritten 5,000,000 loans to illegal immigrants. The unfortunate unintended consequence is that Mexico has been destroyed by the arms and drug trade that the open border encourages. Oh, well.

There was plenty of illegal stuff going on, but GS's shorting the s#!t isn't it. It makes me sick.

Donal Lang said...

In Britain in 1774 the Life Insurance Act separated insurance from gambling - before this law anyone could insure anyone else's life, and it doesn't take much imagin,ation to realise how people may 'help things along' for the strangers they'd insured!

Exactly the same is now happening with G.S.et al, and for exactly the same reasons - banking and gambling needs separating by a law of 'investment interest'.

Then all these genius people who waste their lives (and our money)on zero-sum scamming games might be encouraged to get out and do something socially useful and creative!

Dextred1 said...

Lang,

You are right about that. I understand their argument that they just drive efficiency in the capital markets, but it has went way beyond that. They are useless pariahs earning money in nefarious ways.

1. Stop all proprietary trading of financial institutions that also trade customer’s money.
2. Outlaw flash trading
3. Create new funding source for rating agencies.
4. Outlaw derivatives, Or make hold 10% capital for all derivatives and enforce transparency of derivatives market.
5. Enforce a strict capital requirement on all institutions. Say 15% for every dollar trader and money must be indigenous to trading institution. (this would stop them from using fed funds to gamble with).

Anonymous said...

PioneerPreppy-

Not sure how the housing bubble was caused by feminists.

Could you explain further?

Regards, Marshall

Dextred1 said...

Could also go on list as number

6. A strict enforcement of no front running of stock trades

Anonymous said...

Dual means two. A match between opponents is a duel.

PioneerPreppy said...

Marshal

If you read my last post, the second paragraph lists just two of the amendments added to the community re-investment act which were backed by NOW and other womens orgs.

Through various legislation they managed to make it almost impossible for a single mother to not get a home loan namely with those two changes but there were a few others during the Clinton years.

Home Ownership by single women then jumped to the single largest group outside of married couples and was closing fast on that one as well.

If needed I can even link you some of the HUD data on just who bought and now the real beginning data on just who is being foreclosed on.

As usual it is always covered up as benefits for all minorities but as usual it is women who really gain.