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rhett o rick

(55,981 posts)
Thu Jan 21, 2016, 06:11 PM Jan 2016

The subject of the movie, "The Big Short" is a conversation we should be having related to the Demo

Primary.

Those in power (Democrats as well as Republicons) have been systematically deregulating the banks and Wall Street for years. In 2008 the housing bubble (read housing Ponzi scheme) burst and in effect $5 trillion dollars was taken from the lower classes (the 99% ) and given to the American Aristocracy (the 1%).

Let me know how you feel.








6 votes, 0 passes | Time left: Unlimited
I liked the movie and believe that both Sen Sanders and H. Clinton want to enforce stiff regulations on the bankers and Wall Street.
1 (17%)
I liked the movie and believe that Sen Sanders wants to get tough with the bankers and Wall Street and H. Clinton wants to get by with some light admonishments.
5 (83%)
I didn't like The Big Short and think the bankers and Wall Street financiers were unfairly portrayed.
0 (0%)
None of the above. I will explain below.
0 (0%)
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The subject of the movie, "The Big Short" is a conversation we should be having related to the Demo (Original Post) rhett o rick Jan 2016 OP
I'm really not even sure Hillary will admonish them. Punkingal Jan 2016 #1
I agree but wasn't sure how to describe giving lip service (rhetoric). nm rhett o rick Jan 2016 #2
Anyone who hasn't seen this flic,should. Go Vols Jan 2016 #3
Excellent, accurate film according to my bank auditor contact Divernan Jan 2016 #4
Two points. We definitely need more regulations. But equally as important (possibly more) rhett o rick Jan 2016 #5
You hit the nail on the head re ALL govt. regulations. Divernan Jan 2016 #7
Thank you for posting that. You should make it into an OP. nm rhett o rick Jan 2016 #8
Hillary might wag a finger at them Motown_Johnny Jan 2016 #6

Divernan

(15,480 posts)
4. Excellent, accurate film according to my bank auditor contact
Thu Jan 21, 2016, 06:56 PM
Jan 2016

It highlights that 3 of the 4 "too big to fail" banks are even bigger than ever, and are now happily pushing a slightly altered, but just as exploitative and lethal version of the CDO labeled "Bespoke Tranche Opportunity".

Bespoke Tranche Opportunity: It’s déjà vu all over again
Investment Firms Create the Next Risky Financial Product à la Collateral Debt Obligations

We’ve been there before. The movie “The Big Short” explains how and why the financial services industry helped to bring down our economy during 2007-2008. Banks took home mortgage loans that were made based on shaky credit and pooled them into a basket of mortgage-backed securities (MBS) that were backed by the homes. These were sold to unsuspecting investors including other financial institutions (think Lehman Brothers) that wanted to receive a steady stream of cash flows from mortgage payments. Little did they know the underlying assets were all-too-often worthless because they were based on subprime loans. So the investors hedged their bets by finding a sucker to buy off the MBS through a collateralized debt obligation (CDO). Now, as the movie portrays, these investors grew nervous as some prognosticators preached doom and gloom causing the investors to approach other financial institutions (think AIG) to hedge their risk by betting against the very instruments they bought by acquiring credit default swaps (CDS). Confused! Go see the movie it cleverly explains the process.

That was in the early 2000s as the stock market was booming and financial institutions became greedy wanting higher and higher returns on their investments even if it meant purchasing risky investments. Of course, some weren’t aware of the risk and some figured another financial institution would bail them out, as did JPMorgan Chase that bought out the failing Bear Stearns. Lehman wasn’t as lucky as the government drew a line in the sand as more and more financial institutions teetered on the edge of disaster.

Well, as the great Yogi Berra said: “It’s déjà vu all over again.” Along comes the “bespoke tranche opportunity”, which allows investors to place wagers on the outcome of various loans, bonds, and securities in which they are not directly invested. “The “bespoke” version flips that CDO business dynamic around. An investor tells a bank what specific mixture of derivatives bets it wants to make, and the bank builds a customized product with just one tranche that meets the investor’s needs.

Bespoke CDOs are a relatively new instrument in the financial world. They allow investors to target very specific risk/return profiles for their investment strategies or hedging requirements. In reality, the arranger demands a good deal of input into the selection of the reference portfolio. Most investment managers control their risks by buying and selling protection on a single-name CDS or by linking losses to a corporate credit index like the CDX or iTraxx; therefore, they usually avoid taking positions in CDSs that cannot readily be traded.

A logical question is why would investment managers tread lightly in an area similar to one that has burned them before? The answer is that interest rates have been kept low by the Federal Reserve so investment banks are becoming impatient with not being able to make what they deem to be enough profit off corporate and Treasury bonds, and therefore have started playing in the “financially structured product” game.
It goes deeper than that. Only one high-profile participant in the financial disaster has been sent to jail – Kareem Serageldin, an executive at Credit Suisse who once earned nearly $7 million a year. This has created a moral hazard effect where investment bankers now figure the worst that can happen if they cross the line is a financial penalty with no jail time. So why not jump into the choppy waters of structured financial instruments once again?

The financial crisis and its aftermath created a hole in the moral ozone that is supposed serve as a check on excessive, risky behavior by investment bankers. It is a breach that, in my opinion, is irreparable absent any dramatic steps to better control the risk appetite of some in the financial services industry.

This saddens me because the last thing we need is more government regulation. Unfortunately, it may be necessary because the very ethical standards that are supposed to protect the public under capitalism have broken down. Adam Smith in his iconic The Wealth of Nations stated that: By pursuing his own interest he [the capitalist] frequently promotes that of the society more effectually than when he really intends to promote it. His theory no longer describes the way our free market economy works and its breakdown explains, in part, the economic gap in our society.
http://www.ethicssage.com/2015/12/bespoke-tranche-opportunity-its-d%C3%A9j%C3%A0-vu-all-over-again.html
 

rhett o rick

(55,981 posts)
5. Two points. We definitely need more regulations. But equally as important (possibly more)
Thu Jan 21, 2016, 07:42 PM
Jan 2016

is we need regulators that are independent and well funded to enforce the regulations.

Pres Clinton was partially responsible for the crash. He signed away Glass-Steigall which, in spite of H. Clinton's protestations, was instrumental in bringing on the crash. His Admin also encouraged Fanny Mae to take more risks including subprime mortgages. Fanny Mae was to help the People get home loans but the Clinton Admin wanted them to make more profits via risky mortgages.

And H. Clinton, along with defending the repeal of Glass-Steigall, has some pretty flimsy proposals to avert another collapse. Robert Reich says in a recent column, "Most of Clinton's proposals could already have been put into effect by the Fed and Securities Exchange Commission, but they haven't been - presumably because of the Street's muscle."

It might be folly to think that electing Sen Sanders would solve the Wall Street problems but electing HRC will only continue the status quo in which we are heading for another crash.

Divernan

(15,480 posts)
7. You hit the nail on the head re ALL govt. regulations.
Thu Jan 21, 2016, 08:43 PM
Jan 2016

They don't mean fuck-all if (1) they don't include major financial and/or criminal penalties and (2) the state doesn't provide sufficient numbers of properly trained inspectors to do the job and vigorously prosecute offences.

It was the dirty not-so-little secret I learned about Pennsylvania state government when I worked for the state legislature for 10 years. Part of my job as a legislative staff attorney (for the Democratic caucus) was to painstakingly review regulations governing various state agencies. In addition to the outright loopholes and gaps, there were also the mealy-mouthed regulations which provided ZIP financial or criminal penalties or meaningful enforcement requirements.

For example, the Department of Public Welfare was charged with licensing and regulating privately funded group homes for the mentally retarded and mentally ill. The ONLY time the staff of one of these "homes" had to provide information to family members was if the resident DIED.

If said resident ran away, wandered away, was arrested/tried/convicted and/or imprisoned, was missing, was beaten or raped by anyone (another resident, a staff member, somebody wandering in off the street), was injured and/or hospitalized for illness or injury, was pimped out by staff for sexual services, became impregnated, was photographed for porn purposes, etc. the family was not told. The state purposely assigned residents to the other end of the state (which is over 300 miles wide) from where their family lived to discourage visits or observations by family members.


The regulations were SO cleverly written. Bill ("it depends on what the meaning of is "is&quot would have been so impressed. For example, annual inspections? Oh, yes, "Pennsylvania has annual inspections." BIG .. . . .FUCKING . . . .DEAL!!!! The state was required to inspect 30% of the facilities per year, BUT it could inspect the same facilities year after year, such that many were NEVER inspected. PLUS, the operators were given ample advance notice of when inspections would occur. Isn't that just super? The operators could make sure everything was clean and sanitary, and temporarily assign the required number of workers.

Worst case scenario, a group home operator caused serious bodily injury to 5 residents, when one of the employees failed to lock up the cleaning supplies cabinet, and the 5 mentally retarded men drank the bright blue cleaning fluid, and had to be air-lifted out to hospital. Well, the patients may have suffered permanent injury to their digestive systems, but since none of them actually DIED, the families weren't told so there were no civil law suits. And of course the state attorney general did not pursue actions for criminal negligence against either the individual employee or the corporate owner of said group home. Of course, under state regulations, the group home operator's rating was reduced from A to B. Big fucking whoop! There was not one dollar in fines; that particular residence remained open and operating at full capacity.

I dutifully reported my findings to a bipartisan oversight committee. Nothing was done to strengthen the regulations - because, you see, there were no lobbyists on behalf of the mentally ill or mentally retarded. Senator Bob Casey was State Auditor then, and he did a performance audit of the situation, which backed up my report, but again, neither the governor (Tom Ridge) nor the legislature took any action.

 

Motown_Johnny

(22,308 posts)
6. Hillary might wag a finger at them
Thu Jan 21, 2016, 07:58 PM
Jan 2016

But only while their backs are turned.

She would need to finance a reelection campaign and then "refill the coiffers".


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