AlterNet: Wall Street Hustlers Built a $100 Trillion House of Cards and Stuck You with the Fallout

[marmar]

Wall Street Hustlers Built a $100 Trillion House of Cards and Stuck You with the Fallout

By Joshua Holland, AlterNet. Posted October 22, 2008.

Deregulation brought us hugely "leveraged" investments, and they brought us panicked markets and pain.



Debate over who is most to blame for the financial meltdown rages on against a backdrop of economic pain and anxiety that's unprecedented in the post-war era.

The bottom line: There was a feeding frenzy that drove housing prices far beyond what the fundamental laws of supply and demand would dictate. People certainly got in over their heads, but the ultimate responsibility for that lies with the investment bankers who cooked up exotic new ways to make risky investments look more secure than they actually were (I wrote about it recently here).

While the U.S. housing market is worth somewhere in the neighborhood of $10 trillion, it was Wall Street's wheeler-dealers -- and their lobbyists and allies who kept regulators out of their business -- who built a house of cards out of "exotic" mortgage-backed securities and other "derivatives" worth as much as 60 times that figure -- paper wealth backed by little more than the irrational belief that what goes up will never come down.

It was the investment bankers who pushed those debt-backed securities hard to investors who were looking for huge returns on their dollars -- much better than they could get putting their money in old-school investments like stocks and bonds. Their hard sell created so much demand that it encouraged lenders to write loans to just about anybody for just about anything; loans, after all, were the raw material for the alphabet soup of "exotic" investment vehicles -- the "collateralized debt obligations," "credit default swaps" and other innovative products that have now turned "toxic."

That gets to one of the hardest pieces of this whole mess to understand -- why would Wall Street want lenders to push out billions of dollars worth of loans that were inherently risky?

Here, a bit of context is crucial. The financial industry first started churning out derivatives in the early 1980s. As I've written before, that was part of a larger move away from traditional investments -- manufacturing, agriculture and (long-term) commodities -- and into the speculative economy as the returns on money put into the "nuts and bolts" economies of the advanced world began to dwindle in the 1970s. .......(more)

The complete piece is at: http://www.alternet.org/workplace/103830/wall_street_hustlers_built_a_%24100_trillion_house_of_cards_and_stuck_you_with_the_fallout/

[Blue_Tires]

1. kick

[Locrian]

2. thank you

thank you - very good article and explanation

[muriel_volestrangler]

3. And that has got me frightened - with the explanation of how much borrowing is involved

[benld74]

4. Time for GOVT to get involved fully to regulate what they used to,,,

repeal the bill put into place in 1999 by Phil Gramm and DON"T listen to the financial industry anymore, since they are ONLY interested in how much MORE money they can make!

[4dsc]

5. 76 trillion backs by 1 trillion in assets..

I heard on NPR yesterday that there are roughly $76 trillion worth of derivatives that are only back up with about $1 trillion in assets..

This article goes alone those lines.. SO the question begs when will this house of cards come crashing down..