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Is William Cohan Right That Wall Street "Regulation" Has To First And Foremost Curb Greed?

Tyler Durden's picture


Now that the world is covered in at least $707 trillion in assorted unregulated Over the Counter derivatives (as of June 30, the most recent number is easily tens of trillions greater) and with at least one JPMorgan prop|non-prop trader exposed to having a ~$100 billion notional position in some IG-related index trade, pundits, always eager to score political brownie points, are starting to ruminate over ways to put the half alive/half dead derivative cat back into the box. Unfortunately they are about 20 years too late: with the world literally covered in various levered bets all of which demand hundreds of billions in variation margin on a daily basis, the second the one bank at the nexus of the derivative bubble (ahem $70 trillion JPMorgan) starts keeling over, it will once again be "the end of the world as we know it" unless said bank is immediately bailed out. Again.

As a result William Cohan, in a half-right narrative, suggests that instead of trying to curb derivatives this late in the game, which is a lost cause by definition as the JPMs of the world will simply change the rules to abuse the regulatory loopholes, says that regulation should be geared toward capping the potential of infinite greed to generate next to infinite losses. His suggestion is not to curb financial innovation, but to make "traders and bankers once again financially liable for what they are selling. If that were the case -- as it was when Wall Street was a series of private partnerships -- financial innovation would once again be revered and help to restore the luster of America’s capital markets." So far so good. The problem is that even in a private arrangement, those who become TBTF, whether with clawbacks or not, would still abuse the system? Anyone remember all too private LTCM, and how its legal team was frantically begging the Fed and Wall Street to bail them out, in essence launching the modern equivalent of TBTF? The truth is that modern Wall Street does have too much innovation, whose only purpose is to extract as much cash flow from increasingly worthless assets. And once the assets are completely depleted, to create synthetic assets which generate all too real cash flows out of parties close to the Fed.

From Cowan:

Ah, I can hear you scream, didn’t Milken’s junk-bond monsters bring about the stock market crash of 1987, when the Dow Jones Industrial Average lost 22.6 percent in one day, leading to the credit crunch that engulfed the economy from 1989 to 1993? And didn’t Ranieri’s little devils lead to the current financial crisis when one mortgage-backed security after another went into a tailspin? Wouldn’t an FDA-type agency, like the “pre-cogs” in the 2002 movie “Minority Report,” have seen these two train wrecks coming and prevented them?


This is beyond ridiculous, for the simple reason that there is no way to deconstruct a financial product before it goes to market to determine whether it will end up doing more harm than good. Yes, the excesses in Milken’s junk-bond market helped cause the speculation in the stock market that led to the Crash of 1987. But both before the crash and most certainly for the last 25 years the junk-bond market has been robust and vital, allowing thousands of companies access to capital while also providing investors with the sorts of risk-adjusted yields they most certainly cannot find in the overinflated Treasury market.


Much the same can be said for the securitization market, which worked brilliantly for more than 20 years before credit standards deteriorated miserably in the middle part of the last decade, sending the mortgages tied to them and the entire housing market spiraling downward. Chances are good that as we emerge from the downturn, securitization of mortgages will again be a viable and important market.


The problem on Wall Street is not financial innovation per se or the risks tied to untested products. Rather, it is a terribly outmoded incentive system that rewards -- with big bonuses -- the Wall Street armies who generate revenue by selling the array of new products without any accountability.


The key to Wall Street reform is to make Wall Street executives, traders and bankers once again financially liable for what they are selling. If that were the case -- as it was when Wall Street was a series of private partnerships -- financial innovation would once again be revered and help to restore the luster of America’s capital markets.

Alas, while superficially correct, this merely a case of revisionist history of a story that has ended well. For now. Yes: it took $20 trillion in backstops, cash infusions and guarantees from the central planners to stabilizie the system, but what happens next? What happens when the central bankers themselves need bailing out. After all none other than that modern day champion for all things right, Austan Goolsbee himself was a strong advocate of, get this, subprime back in March 2007. Just read the following sheer idiocy from a man who was Obama's economic advisor:

When Senator Christopher J. Dodd, Democrat of Connecticut, gave his opening statement last week at the hearings lambasting the rise of “risky exotic and subprime mortgages,” he was actually tapping into a very old vein of suspicion against innovations in the mortgage market.


Almost every new form of mortgage lending — from adjustable-rate mortgages to home equity lines of credit to no-money-down mortgages — has tended to expand the pool of people who qualify but has also been greeted by a large number of people saying that it harms consumers and will fool people into thinking they can afford homes that they cannot.


A study conducted by Kristopher Gerardi and Paul S. Willen from the Federal Reserve Bank of Boston and Harvey S. Rosen of Princeton, Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market (National Bureau of Economic Research Working Paper 12967), shows that the three decades from 1970 to 2000 witnessed an incredible flowering of new types of home loans. These innovations mainly served to give people power to make their own decisions about housing, and they ended up being quite sensible with their newfound access to capital.


These economists followed thousands of people over their lives and examined the evidence for whether mortgage markets have become more efficient over time. Lost in the current discussion about borrowers’ income levels in the subprime market is the fact that someone with a low income now but who stands to earn much more in the future would, in a perfect market, be able to borrow from a bank to buy a house. That is how economists view the efficiency of a capital market: people’s decisions unrestricted by the amount of money they have right now.


And this study shows that measured this way, the mortgage market has become more perfect, not more irresponsible. People tend to make good decisions about their own economic prospects. As Professor Rosen said in an interview, “Our findings suggest that people make sensible housing decisions in that the size of house they buy today relates to their future income, not just their current income and that the innovations in mortgages over 30 years gave many people the opportunity to own a home that they would not have otherwise had, just because they didn’t have enough assets in the bank at the moment they needed the house.”

And this man shaped US policy two years later? Is it any wonder America's is progressively collapsing into the worst Depression in history despite optical gimmicks that fool increasingly less of the people, all of the time?

While we agree with Cowan on one part of his analysis, we disagree that financial innovation is reasonable going forward, as all it does is take flawed exit assumptions (yes, the securitization market did work for 20 years but only because it was a hyper-levered bet on one very wrong assumption: that markets and home prices can only go up, and that the cost of money will always go down). And yet it is precisely the flaw embedded in Goolsbee's simpletonian argument that has also fooled Cowan, and all those other sophisticates on Wall Street: the ability to predict cash flow. Alas, that is now impossible, because the very cash flows depend on the level of future innovation! Yes, there may be a greater fool if even more greater fools pay Facebook $10 billion to buy companies with 13 employees which make photo filters, at a valuation that is about 50 times greater than reasonable. But one day the greater fools run out of money, courtesy of their own capital misallocation decisions. And as shown here before (read How The Fed's Visible Hand Is Forcing Corporate Cash Mismanagement), it is none other than the Fed which is now the ultimate driver of capital misallocation across the US corporate sector. When predicting the future depends entirely on reading the mind of the central planners at every given moment, what can possibly go wrong?

Well, everything.... as history teaches us over and over. And which lessons humanity, in the pursuit of its own selfish infinite greed interests, always ignores.


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Mon, 04/09/2012 - 16:05 | 2329163 mayhem_korner
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Regulation is never about curbing greed; it's always about transferring power.

P.S.  I want to know how big the reward was to the shill who came up with the catch-phrase "innovations in mortgages."

Mon, 04/09/2012 - 16:13 | 2329191 nope-1004
nope-1004's picture

Austin Goolsbee resigned because when the mortgage market started to implode, his views went with it and he lost all credibility.

Austin Goolsbee is an educated, but wholly unwise, political shill.  In my day, we just called that type of person an idiot.


Mon, 04/09/2012 - 16:24 | 2329237 SilverTree
SilverTree's picture

Curb greed...good luck with that.

It's not greed, it is the "risk of missing out on the next opportunity".

Mon, 04/09/2012 - 16:32 | 2329252 TrafficNotHere
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Regulation is about creating barriers to entry. It is about enforcing oligopolies and restricting competition. In the financial world, unhealthy greed always fails (as we have seen) as it is willing to take on to much risk. The way to solve it is: (1) prosecute corruption, (2) let failures happen and (3) make sure "Too Big To Fail" does not exist. Hold people and firms accountable - such a simple concept that has been lost.

Regulation does not solve these problems; we keep adding more and more regulations and has it helped? Thanks to the Dems and Obama (yes, mostly them this time around) the "Too Big To Fail" banks are now even bigger and then next crash will be even more painful. The only group talking about breaking up these banks is the Tea Party. But the Big Government supporting MSM have done their best to marginalize them because ideas of personal responsibility, limited government are foreign to their liberal mindset.

Mon, 04/09/2012 - 17:42 | 2329438 Stax Edwards
Stax Edwards's picture

Greed without sufficient consequence is what Cohan really alludes to, not greed in and of itself.  Certainly having more skin in the game for the masters of the universe could take the place of much regulation, Cohan has made an excellent point IMO.  Just look at what has happened to Goldie since they went public.

Mon, 04/09/2012 - 18:24 | 2329540 Hugh_Jorgan
Hugh_Jorgan's picture

The system is based on greed, most things mankind do are motivated by green in on form or another.

The real problem we have is when "Captains of Industry" and Wall St. Banksters get in bed with the reguators themselves and there is no one guarding the hen house. You will never curb greed, but you can keep the Government from legislating for those who get the Politician elected, but we are LONG way from a Government that values this kind of morality. UNtil then get used to a whole lot of pain at the gas pump and the grociery store, and a whole lot of sophistry from those who should be addressing the systemic problems we have.

Mon, 04/09/2012 - 20:45 | 2329878 Woodyg
Woodyg's picture

Half of wall street would blow up the world for an extra nickle's worth of profit......

'growth for the sake of growth is the ideology of a cancer cell' Ed abbey

Unfortunately it's sociopaths running our largest corps and the guv......

Its only a matter of time until we go the way of dinosaurs in the next Great extinction event - (which we're in the middle of)

A world blown up by debt, war, nuke pollution, global warming and Monsanto cancer....

Should be fun!

Mon, 04/09/2012 - 16:11 | 2329193 ACP
ACP's picture

So much regulation, some day Congress will be the only place where you can conduct criminal activity with zero consequences.

What's the world coming to?

Mon, 04/09/2012 - 16:19 | 2329219 Bob Sacamano
Bob Sacamano's picture

The federal government is as greedy as anyone -- and it's worst because it is always pitched under the guise of "helping" the people.  

Mon, 04/09/2012 - 16:31 | 2329248 ljag
ljag's picture

Curb greed? How about curbing FRAUD!! It is one thing to grab an extra stack from the pile and a totally other thing to grab the whole pile.......then tell the taxpayer he's gotta cough up some more or the system will come crashing down. BTW, where is that re-set button located? I wanna push it until it goes off!!!!!!!!!!!!!!

Mon, 04/09/2012 - 18:35 | 2329564 Mary Wilbur
Mary Wilbur's picture

Isn't it already?

Mon, 04/09/2012 - 16:12 | 2329196 Sandmann
Sandmann's picture

Get real - Wall Street lawyers WRITE the Regulations and draft the back-door

Mon, 04/09/2012 - 16:25 | 2329239 ACP
ACP's picture

That has a dual meaning...they write it specifically so that We The People also GET the backdoor.

Mon, 04/09/2012 - 16:26 | 2329241 InconvenientCou...
InconvenientCounterParty's picture

Transferring power is good if you are attempting to achieve stasis.

Why bother curbing greed? Humans are wired that way, why fight it?

All you have to do is reintroduce rule of law and then make whistle-blowing both honorable and financially rewarding.

Mon, 04/09/2012 - 18:36 | 2329566 lincolnsteffens
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I'll vote for that. The problem is if you have lots of Dr. of  this and Dr. of that before your name you don't know how to make something like finances simple. You have to bring in charts and studies and scholarly opinions and conferences and think tanks into the equation.  You bring in such horse shit that no one can smell anything but a lot of confusing shit. Simple and direct does not need interpretation. Fraud actually can be prosecuted. Theft actually can be prosecuted,  market manipulation can be prosecuted. All you need is someone to have enough intelligence to recognize it and the authority to put an end to it. 

The Federal Government as an entity does not want anything adverse to happen to their club or the club member's friends. It is just that simple. If you are not in the group, good luck. Screw the rest of you simpletons, pay your taxes and shut up.

Mon, 04/09/2012 - 16:06 | 2329171 The Swedish Chef
The Swedish Chef's picture

Is "ruminate" the word of the day?

Mon, 04/09/2012 - 16:06 | 2329172 CClarity
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When "debt" and "exposure"  of governments and banks actually recognize derivatives, actual mark-to-market valuations, debt of regional and local governments and banks guaranteed by sovereign governments, and liabilities to various organizations (like IMF and EU and LTRO) it will become obvious that a debt Jubilee will need to be called.  Most currencies will evaporate as method of commerce and barter and real assets will rule the very chaotic day.

The debt numbers bandied about by MSM are fantasy - which suits the Fed and TPTB just fine.

Mon, 04/09/2012 - 16:06 | 2329173 Stoploss
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Oh, like the banktards have quietly been chaining all global active fiat currencies together? So the reason Greece can't "fail", is because if it did, they all go down together? Euro, Yen, all the way through the dollar?


Mon, 04/09/2012 - 16:17 | 2329176 Mercury
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Sometimes what looks like unbridled "greed" is actually just rational risk assessment. I think you'll find that absent TBTF, government bailouts and government manipulation of risk pricing, a lot of bad behavior will simply take care of itself. 

Mon, 04/09/2012 - 16:08 | 2329180 Buckaroo Banzai
Buckaroo Banzai's picture

How about this as an idea: NO REGULATIONS WHATSOEVER.

Instead, make all investors (whether individual or institutional) read and sign a brief statement before they buy any securities, that might read something as follows.

"The securities you are about to buy are purchased under the assumption that you will lose every cent you have invested. By entering the securities marketplace and dealing with professional brokers, you are dealing with people who have vastly superior information and financial resources. You will almost certainly be taken advantage of as a result. Any money you do in fact make as a consequence of these will have as much to do with sheer unadulterated luck on your part, as investing skill-- assuming you aren't lied to, cheated, or swindled, which you probably will be. Once you sign this agreement, you will have no further recourse whatsoever. Prepare to lose everything."


Mon, 04/09/2012 - 16:46 | 2329292 cossack55
cossack55's picture

Enough with the common sense and dose of reality crap. Sheesh. How is a shill expected to make a buck.

Mon, 04/09/2012 - 17:50 | 2329461 Iwanttoknow
Iwanttoknow's picture

Mr banzai,

I gave you an up arrow.I just have one problem.Stop the government and corporations dictate what I can and cannot do with my 401/403.

Mon, 04/09/2012 - 16:08 | 2329181 LarryDavis
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The culture of Wall St. is pathological and is not tempered with anything but megalomania. Look at the divide between CEOs and employees? What the fuck does these CEO's do all day? Why is that most people with an MBA think advanced technical analysis is A FUCKING BOLLINGER BAND? Is the concept of standard deviation too advanced for Wall St.? Moreover, why can't all these math PhDs paid millions of dollars find a trading system that really works (returning 10 percent doesnt really impress me)? The answers to ALL of the aforementioned questions relates to the fact that NO ONE UNDERSTANDS WHAT THE FUCK IS GOING ON. IT IS ALL A PONZI SCAM. WALL ST. IS WAITING FOR THE FED TO PRINT MORE MONEY AND GIVE IT TO THEM? IS THAT A FUCKING MARKET? SHOULD ANYONE BE PAID WHO WORKS ON WALL ST.?

Mon, 04/09/2012 - 16:11 | 2329189 Sandmann
Sandmann's picture

why can't all these math PhDs paid millions of dollars find a trading system that really works


That isn't their job. They are there simply to priovide a marketing Gimmick to sell to suckers - the game is Making Money not Making Profits for Punters

Mon, 04/09/2012 - 18:30 | 2329559 Mary Wilbur
Mary Wilbur's picture

Incomprehension is part of the problem and the way government laws and regulations are written contribute to it.

Mon, 04/09/2012 - 16:09 | 2329182 Sandmann
Sandmann's picture

It is pointless regulating Wall Street unless you do something about OFFSHORE like London, Jersey, Cayman, Panama since the deal structure and SIVs are not on Wall Street and regulations are circumvented through London Offshore. It was through London Offshore tat MF Global re-hypothecated and Lehman traded and Merrill functioned. Forget Wall Street, it is simply a collection of buildings on Manhattan Island - the real action is with Russian andChinese money running over London with Iranian and Russian traders and City law firms

Mon, 04/09/2012 - 16:10 | 2329187 LawsofPhysics
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Precisely what fucking regulation is he talking about?  Look, it is real simple, prosecute the fraud and restore the rule of law, period.  If anything, the SEC, the CFTC, and congress have been captured by the financial sector.  The financial sector should probably ask itself what they think they will do when all of those who produce real goods and services stop taking their worthless paper.

Regulation, now that is funny stuff.

Mon, 04/09/2012 - 18:26 | 2329546 Mary Wilbur
Mary Wilbur's picture

Restore fiduciary responsibility. Right now there is none. The other problem is that finance and basic economics is not taught in public schools. The ordinary person who tries to participate in the market either by using credit cards, obtaining a mortgage, investing and/or saving has not been educated to make informed decisions. Thus, he is an easy mark for the unscrupulous to profit from his ignorance. Knowledge is power and the 99% are ignorant.

Mon, 04/09/2012 - 16:11 | 2329188 JW n FL
JW n FL's picture



Is William Cohan Right That Wall Street "Regulation" Has To First And Foremost Curb Greed?


Corruption is the Problem... not people wanting to work for MORE!!

Work Ethic / Greed / Over Production is NOT a Problem!!

Corruption!! Celebrated!!! at the highest levels of Government!

which stiffles Greed is BAD!!

If you can NOT work your ass off and have something nice to show for it?? then why would you work your ass off?

so some Lucky Sperm Club Kid can enjoy YOUR! hard work?? FUCK THAT!

Working Hard!! for MORE!! is NOT!!! the Problem!

LOBBY WHORES, Entrenched Wealth, Legislated Slavery!! for the people who work harder than the rest! is the problem!

Mon, 04/09/2012 - 16:13 | 2329199 JW n FL
JW n FL's picture



The Freedom to WORK Hard and Enjoy YOUR WORK PRODUCT! wihtout it being stolen by Government or Market Makers! and / or other BULLSHIT LIKE THAT!!!

Mon, 04/09/2012 - 16:15 | 2329190 williambanzai7
williambanzai7's picture

Neither of these two jackasses understand anything about how to control financial fraud except to say...lean over everyone.


Mon, 04/09/2012 - 16:15 | 2329204 nope-1004
nope-1004's picture

Which be Beavus and which be Butthead?


Mon, 04/09/2012 - 16:22 | 2329232 williambanzai7
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A Chinese rogue trader who 'cheated' investors on her way to losing £10m in gold trading has been sentenced to death today.
The 30-year-old Wang Caipang was handed the sentence by a court in Wenzhou in east China after she borrowed the cash between January and October 2010.


Mon, 04/09/2012 - 17:30 | 2329408 WillyGroper
WillyGroper's picture

I guess that Wang can't do wonders.

Sounds like a deterrent that needs to be adopted in the USSA. 

Mon, 04/09/2012 - 20:29 | 2329847 Hulk
Hulk's picture

Go easy on the wang guys...

Mon, 04/09/2012 - 18:53 | 2329625 Yen Cross
Yen Cross's picture

 Speechless! Eloquent!  +1 bANZAI.

Mon, 04/09/2012 - 16:12 | 2329192 insanelysane
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The first thing that needs to be regulated is the FED printing machine.  The world is a finite place with a finite amount of genuine AAA stuff to buy or invest in.  However, when you print or hyperhypothecate an infinite amount of credit, someone comes up with new virtual AAA stuff, which in the end is just useless paper or bytes inside of a database.  Stopping the madness at the source needs to be the first step.

Mon, 04/09/2012 - 16:49 | 2329297 UGrev
UGrev's picture

ABSOFUCKINGLUTELY!!! Thank you!! to further your statement.. when you come up with new virtual AAA stuff, more schemes are created to cheat you out of your cash. 

Mon, 04/09/2012 - 16:12 | 2329197 Milestones
Milestones's picture

The moving finger writes, and having writ moves on--- And did not cure or stop one friggin thing.

The moving trigger finger squeezes the colt 44 --and viola we have a solution.


Mon, 04/09/2012 - 16:14 | 2329203 vegas
vegas's picture

Any article that has Chris "sandwhich-with-kennedy" Dodd giving a quote immediately becomes bullshit. Along with Bawny Fwank this guy is a complete tool. And another thing: Milken didn't cause the crash of 1987, instititions that thought they could hedge away stock market risk through SP500 futures did. When your model says sell more the more it goes down you got a problem. Go try and sell 5,000 futures contracts [when the futures were 500 times the index] to a guy named Maury who trades a 1 lot and see how low it can go.

Mon, 04/09/2012 - 16:26 | 2329212 SheepDog-One
SheepDog-One's picture

Stop the greed....right, after all the money is gone and we're all bankrupted, we'll discuss reigning in the greed. Its not 'greed' anyway, its a lawless pirate class.

Optical gimmicks that fool less of the people all of the time. But that seems to be ALL theyve got now, just telling the broke peasantry that things are not bad, but actually good, as they face te grocery store and gas pumps again. But hey, arent you at least happy that stocks are up? Grrrrrrrr

Mon, 04/09/2012 - 16:18 | 2329217 Turin Turambar
Turin Turambar's picture

Well, there are a couple of  simple, ground-shaking changes that could curb a lot of the BS, if not downright eliminate it.

1.  Never doubt the wisdom of Thomas Jefferson.  LOL  ELIMINATE fractional reserve banking!

Okay, enough with fantasy land.  Here's a second suggestion:

2.  Restrict organization of Financial/Banking companies to sole ownerships or limited partnerships.  There'd be a heck of a lot more looking over everybody's shoulders if the net assets of all of the partners were backstopping losses like in the old days.

Now that wasn't so difficult.

Of course, you still need to address the obvious - eliminate the FED and fiat currency.


Mon, 04/09/2012 - 16:20 | 2329227 JackInTheBox
JackInTheBox's picture

I love ZH, but on this one, I disagree.  Greed is not the problem.  You can't stop people from being greedy.  The greatest check on greed is risk.  And THAT's the problem.  Risk has been removed, allowing bankers to take enough inches to add up to millions of miles.  Remove moral hazards and reinstitute risk back into banking and that's your check on greed.  Simple, smart regulations are needed, but not to curb human instincts -- a task the market is far more equipped to handle.

Mon, 04/09/2012 - 16:26 | 2329234 SheepDog-One
SheepDog-One's picture

Sure, its not 'greed' thats the problem, its 'TBTF' and 'privatize the gain, socialize the loss' culture of Wall St, banking system, and financial world, 'We're above the peons stop looking at me and get back on those oars and ROW dammit!' mentality of the politically connected 'elite' sphincters. 

Everyone could be 'greedy', no harm in that in itself, as long as its equaly as risky for everyone. But as long as we have a class that can bankrupt us, while getting rich beyond even their wildest privileged wealthy dreams, and can never break a law because of just WHO they are, it will lead to people being hanged from lamp posts sooner or later.

Mon, 04/09/2012 - 16:32 | 2329251 JackInTheBox
JackInTheBox's picture

I agree.  Greed needs to be balanced by risk as it almost always is in real free markets.  And I think we all agree, today's market is far from free.  But those looking to Washington to fix it is a waste of time.  Regulators, lawmakers, the Fed, and banks are all on the same team.  If that's not clear by now for everyone, they aren't paying attention.  For me, I continue to buy my gold and silver (physical), and marshmallows so when this system goes up in flames, I am ready.

Mon, 04/09/2012 - 16:34 | 2329263 francis_sawyer
francis_sawyer's picture

 "Remove moral hazards and reinstitute risk back into banking and that's your check on greed. Simple, smart regulations are needed, but not to curb human instincts -- a task the market is far more equipped to handle..."


Not that I disagree with POLYANNA... But WHO'S GONNA DO IT?

You? Lieutenant Weinberg?...

~Col Nathan Jessup


Mon, 04/09/2012 - 16:41 | 2329273 JackInTheBox
JackInTheBox's picture

Ha! That's actually one of my favorite quotes from a Few Good Men!  No, I don't think anyone's going to do it voluntarily, just as I don't think we are going to pay back all this debt.  Tinkering with a system that is so broken and convoluted is a waste of time.  I just assume let the system break on its own.  It's not like we need to help this system go off a cliff.  It's rolling downhill so fast, I can't keep up enough to push.

Mon, 04/09/2012 - 17:16 | 2329381 francis_sawyer
francis_sawyer's picture

 "Tinkering with a system that is so broken and convoluted is a waste of time. I just assume let the system break on its own. It's not like we need to help this system go off a cliff. It's rolling downhill so fast, I can't keep up enough to push."


"You can ignore reality, but you cannot ignore the consequences of ignoring reality"

~Ayn Rand

Note: Not trying to be a RAND-ite... but it is a great quote (assuming she said it)...


Mon, 04/09/2012 - 16:29 | 2329246 css1971
css1971's picture

Actually, thinking about it you know what. Dragging them through the courts and taking everything they own, leaving them penniless on the street would probably do the job.

Limited Liability is the problem.

Mon, 04/09/2012 - 16:43 | 2329278 ljag
ljag's picture

Courts? You must be kidding! Go ask CM bout mortgage/courts

Mon, 04/09/2012 - 16:31 | 2329249 barroter
barroter's picture

Regulation-less Wall St.  That soo makes me want to invest.  I liked Greenpan's one time comment that "...the market will take care of and stop fraud."  Sure, that was working fine. The market was catching banksters and fraudters left and right it was so wildy successful.  Oh was the Federal gov't that arrested Madoff.  Where was the market all along? Engaging in crime.

Wall St, the banks, have always wanted de-criminalize themselves. So, why stop there, let's de-criminalize it all.  Murder, arson...we can fully expect sociaty as a whole will keep these behaviors at a minimum!

Mon, 04/09/2012 - 16:38 | 2329268 francis_sawyer
francis_sawyer's picture

The system has already reached the state of 'in your face' criminality (with hardly a whimper of protest)...

It's every man for himself from here on out...

Mon, 04/09/2012 - 17:24 | 2329395 Buckaroo Banzai
Buckaroo Banzai's picture

Equating the absence of laws regulating securities markets with an absence of laws against murder, arson, etc. is a straw man argument. Purchasing securities in the open marketplace is a voluntary and avoidable act. Nobody's making you buy securities. So why should they be regulated? All regulations do is provide a securities purchaser with a false sense of comfort, thus making it easier to fleece them. In an unregulated environment, at least you KNOW that you are going to be lied to, and can act (or not act) accordingly.


Mon, 04/09/2012 - 18:09 | 2329501 Mary Wilbur
Mary Wilbur's picture

There is no fiduciary responsibility.

Mon, 04/09/2012 - 18:26 | 2329543 barroter
barroter's picture

Not now there isn't any.  So, I'd like to hear why a bank, financial interest, should convince me that I should invest in them.  Adding dishonesty, mistrust and outright theft in the contract regarding my assets? I ain't buying. NO commission for thieves!

Mon, 04/09/2012 - 18:09 | 2329504 Oldwood
Oldwood's picture

Amen! Transparency of risk. Everything that is done to insure against risk allows risk to increase. Socializing or "spreading the costs of risk around",especially when the risk is obscured, amplifies it's growth. Government and its laws simultaneously seek to protect us from all risk while enabling it's massive expansion. Risk and government, that is. 

Mon, 04/09/2012 - 18:23 | 2329537 barroter
barroter's picture

I'm not persuaded in the least by lassez faire at all.  From what I've seen, it's been a complete failure.


Mon, 04/09/2012 - 19:25 | 2329697 tamboo
tamboo's picture

legalised murder is right around the corner, it's called ww3.


DHS Purchases Bullet Resistant Checkpoint Booths
Mon, 04/09/2012 - 16:34 | 2329256 HD
HD's picture

Here's the problem. Corporate America doesn't want regulation or transparency. It wants to do whatever it wants and not disclose what it is doing. You can't have it both ways.

I'm all for 100% no regulation if 100% transparency is enforced. You want or need to keep information "proprietary" then you have to expect regulation.

I'll take transparency over regulation every time.

Mon, 04/09/2012 - 16:48 | 2329294 LawsofPhysics
LawsofPhysics's picture

"I'll take transparency over regulation every time."

I agree, unfortunately right now we have neither.

Mon, 04/09/2012 - 16:53 | 2329307 HD
HD's picture

Nor will we. TPTB like the system just how it is. Broken.  Anytime they don't like the facts they just change the accounting.

Mon, 04/09/2012 - 17:39 | 2329433 Buckaroo Banzai
Buckaroo Banzai's picture

Don't be a jackass. There is no such thing as 100% transparency. How the fuck are you ever going to get that? Only God can see everything. Thinking that goverment can, or ever will be, is fucking retarded.

So now that we KNOW that transparency is IMPOSSIBLE, what are we going to do about it? Clearly, if transparency is unachievable, then regulations are unachievable.

Mon, 04/09/2012 - 18:06 | 2329497 Mary Wilbur
Mary Wilbur's picture

How about using plain English, without acronyms, and concise prose.

Mon, 04/09/2012 - 18:13 | 2329514 HD
HD's picture

How exactly can you take my "100%" hyper-literal and denounce it as illogical then confidently state, "Only God can see everything"?



Mon, 04/09/2012 - 16:38 | 2329270 Arnold Ziffel
Arnold Ziffel's picture

In a recent interview for his newest book Aftershock, Wiedemer says, “The data is clear, 50% unemployment, a 90% stock market drop, and 100% annual inflation . . . starting in 2012.”

But Wiedemer’s outlook for the U.S. economy today makes “Doctor Doom” sound like Mr. Rogers.

Where Faber sees a 50 percent loss of wealth for some, Wiedemer sees much more widespread economic destruction.

Read more: Faber: ‘Massive Wealth Destruction’ Coming, Well-to-Do ‘May Lose 50%’ These predictions scare me.
Mon, 04/09/2012 - 16:46 | 2329287 UGrev
UGrev's picture

When you have to have a degree to understand the basic principles of "I have, you want, you pay, I give", then you know something is fucked up and your ass is being monkey raped in some way shape or form. 

The same applies to the market. Too many shady schemes to generate money when all it turns out to be is another store front for the older store that needs the money. 

Can someone tell me why it's all so fucking complicated?  other than the obvious " make it easy to fuck you in the ass, sideways..."?  Schemes and Schemers.. I will never trust the supposed purpose of the market(s) anymore. 

Mon, 04/09/2012 - 18:57 | 2329635 LarryDavis
LarryDavis's picture

Are you willing to spend almost 700 dollars on a share of APPL, a company that intends to pay less than one percent annually? Does that make sense? Here you take 650 dollars and give me two every I have to throw you 65k just to make 25 fucking dollars? Would Scott Wapner's carcass smell good but look wonderful?

Mon, 04/09/2012 - 16:49 | 2329301 buzzsaw99
buzzsaw99's picture

...restore the luster of America’s capital markets.




Let it burn, stir the ashes, let it burn some more.

Mon, 04/09/2012 - 17:03 | 2329332 redcorona
redcorona's picture

With a name like Cohan, it has to be schmuckers.

Mon, 04/09/2012 - 17:06 | 2329350 JackInTheBox
JackInTheBox's picture

The government should "do something" is what so many people want.  Well, they've "done something" alright.  So for those who want "more regulation" can have fun banging their head against the wall as government continues to use regulations to screw all of us to advance politicians' own personal agendas.  Governments launder money through banks to finance public spending.  And does anyone think the government is going to kill the golden goose, especially their own personal money launderers???  Ha!  Dream on.  Risk will return with a vengeance in the form of hyperinflation or a deflationary collapse.  I am banking on the former.  When it does, then it makes sense to discuss how a better system can be built -- you know, maybe REAL free markets complete with actual risk.  In the meantime, just let it burn.

Mon, 04/09/2012 - 17:11 | 2329372 alangreedspank
alangreedspank's picture

LOL @ "unregulated derivatives". It's not because there so many regulations that nobody knows WTF it's about that I'd say it's "unregulated".

Mon, 04/09/2012 - 17:14 | 2329376 chunga
chunga's picture

I would LOVE to see Zero Hedge do a piece on the role credit default "innovations" played in re: the foreclosure fiasco.

There are quite a few out there now saying it had nothing to do with it.

It's my personal belief that innovative mortagees make more money when mortgagors don't pay than when they do pay.

That is the reason why taking out a mortgage in the hay day could almost be done at the drive-thru window.

Mon, 04/09/2012 - 17:21 | 2329387 francis_sawyer
francis_sawyer's picture

I'd say that several dozen times a day, ZH displays a piece on what 'INNOVATIONS' do to the lives of humans on this planet...

For that I'm thankful... (& hopefully still sane)...

Mon, 04/09/2012 - 17:47 | 2329434 Turin Turambar
Turin Turambar's picture

Bottom line with the mortgage crisis, it wasn't the fancy packaging that caused the crisis.  It was the fundamental underperformance of the underlying mortgage backed securities! Everybody wants to blame the greedy banks, but the majority of the ire is misdirected.

FNMA, FHLMC, and FHA are 90%+ of the home lending market.  As such, the GOVERNMENT indirectly was setting the lending standards (underwriting criteria) for the paper the GSEs would purchase.

Now, if a private company is in the business of making widgets (loans), the company will focus on generating widgets that customers (FNMA, FHLMC, FHA) will buy.  Mortgage banks, for the most part, do not loan money (even to very credit worthy borrowers) if they cannot generate a note that an investor (FNMA, FHLMC, FHA) will buy.  It's really that simple.

What if a lender decides not to loan money to people who can't afford it, but other banks will because the GSEs will buy them?  Most of the time, they wouldn't stay in business long.  I've been in the mortgage business a long time, and if I had a lender who was more of a pain in arse than other lenders about loans, they were bumped down the list.  It's not because of greed, but rather the fact that there were OTHER market options for my loans.

Brokers don't have final say in approving a loan.  THAT decision is left to the banks underwriters, and they are guided by investor criteria/guidelines.  Again, if NOBODY will buy the note generated by the loan, the loan isn't made for the most part.

Bottom line, the underlying environment that permitted the privatizing of profits and socializing of Fannie Mae, Freddi Mac (FHA one day...count on it!) losses via bailouts, and TARP for banks is what caused the problem. 

AND the environment was created and justified by that oh so favorite term of the statists!  REGULATION!

The crime that nobody talks about now is the ADDITIONAL government regulations via Dodd-Frank that are absolutely assinine to anybody who has any experience in the industry and are killing it.  But since it's all a big political game of CYA, nobody outside the industry has a clue because of all of the demagoguery and misinformation.

Mon, 04/09/2012 - 18:22 | 2329536 chunga
chunga's picture

Thanks for the thoughtful reply.

What I am getting at is - are these pools of loans insured against default at the outcome-based appraisal value?

It's hard to use the word "insurance" in it's technical sense; because if it is called "insurance" theoretically it would regulated as such.

AIG comes to mind...

Were they peddling unregulated "insurance innovations" (without the capitalization part) knowing full well their cronies were in place at the GSEs just waiting for their TBTF card?

What did AIG do with their bailout money?

I'm just gonna do a paste here from something I put together a while back about GSE Execs. I think these guys are cut from the same cloth as Diman, Blankfein, Stumpf, etc.

FRANKLIN RAINES [D] – FNMA CEO (1999 – 2004) Raines accepted “early retirement” from his CEO position while the SEC pretended to investigate accounting irregularities. Fannie’s own OHFHEO also accused him of abetting widespread accounting errors, including the shifting of losses, so he and his fellow execs could “earn” large bonuses. The WSJ reported back in 2008 that Raines was one of several cronies that received below market rates for mortgages from Countrywide. Raines alone receive loans for over $3 million while CEO of FNMA. Raines’ compensation for his “work” at FNMA - $90 million.


DANIEL MUDD [R] – FNMA CEO (2005 – 2008) Before becoming CEO of FNMA, Mudd worked at the Office of the Secretary of Defense, was an advisor to Asia-Pacific Economic Corp., “served” on the board of the Council of Foreign Relations, “consulted” at the World Bank, and held many positions at GE Capital including president and CEO. Mudd was dismissed as CEO of FNMA when FHFA became conservator in 2008. In 2011 Mudd and other GSE execs were charged by SEC with securities fraud. After his career at FNMA Mudd became CEO of a NYC hedge fund named “Fortress”. Fortress invested in purchasing tax liens on delinquent property taxes from local governments under many benign corporate names such as “Pleasant Valley Capital” and “Travis Farm Investments”. Cozy. Mudd’s compensation for his “work” at FNMA - $80 million.

NEEL KASHKARI [R] – FNMA CEO (Tenure is murky) Kashkari was a former investment banker for Goldman Sachs, was tapped by Hank “The Shank” Paulson to lend his skills over at TARP HQ, and now rather ironically, continues God’s work as a Managing Director at PIMCO. Kashkari’s compensation for his “work” at FNMA is also murky; I’ll just assume it was too much.


HERB ALLISON [D] – FNMA CEO (2008 – 2009) The esteemed Mr. Allison was quickly whisked off to oversee the wildly successful TARP program. I didn’t find much on his compensation during his brief stint as FNMA CEO. Allison served in various positions at Merrill Lynch and became a member of the board in 1997. He was a director of the NYSE from 2003 – 2005.


MICHAEL WILLIAMS [?] – FNMA CEO (2009 – Jan 1, 2012) Mr. Williams is a 20 year veteran at FNMA. While “serving” as FNMA CEO, Williams managed to scrape by on less than $6 million in 2011 alone. This could and should be considered a hardship, given the complexities involved in purloining ~ $60 billion of Fed bailout money.



Charles (my friends call me “Ed”) Haldeman has announced his retirement plans but intends to be a good sport and stay on with insolvent FHLMC until another crony can be found to fill his wing-tips.

That might take a while. “Serving” as CEO of the ultimate backstops for the lion’s share of the MBS Ponzi is very stressful.

We’ll have to accept former Freddie exec David Kellermann’s testimony posthumously. Mr. Kellermann was found hanging by the neck in the basement of his posh Vienna, VA home in the affluent suburb of Washington. D.C. way back in April of 2009. It is presumed he had no help and local police have stated there was no evidence of foul play.


Mon, 04/09/2012 - 19:31 | 2329717 tamboo
Mon, 04/09/2012 - 22:29 | 2330208 Turin Turambar
Turin Turambar's picture


You're correct that discussing "insurance" is not so cut and dried.  Loan on an individual basis may or may not be insured.  Combination loans were popular for those who qualified because mortgage insurance was mandated for loans > 80% LTV, so rather than borrow 95% of the purchase price and pay a monthly mortgage insurance premium, borrowers who qualified would typically obtain an 80% 1st with no MI, plus a 15% 2nd at a higher rate than the first.  The key to combo financing was that the total payment for the borrowed money of a combo loan was LESS than a straight 95 with MI.

Also, there are different types of mortgage insurance, lender paid MI, and borrower paid MI.  The government issued "guarantees" on some loans like VA loans, while other have up-front premiums as well as monthly premiums - FHA loans.

The next level of risk reduction would be at the "pool" level.  This is where you are getting into the "technical" idea of insurance and not the specific type of insurance that is regulated.  I tend to think of things like options and such at this level as a way of understanding risk reduction.

I think that this is the level where the banks participated in what I would call fraud to the largest extent, and I believe it was along the lines of abuse of fractional banking, though I do not have as good of a grasp of the technical details as I would like.

As to your list, I like it a lot and wish more people were aware of it.

Mon, 04/09/2012 - 18:55 | 2329598 itstippy
itstippy's picture

Turambar: "I've been in the mortgage business a long time, and . . ."

I guessed that.  You're full of hooey.

The highly toxic Mortgage Backed Securities were not invented for sale to Fannie or Freddie.  The bullshit mortgages underlying the toxic securities did not meet Fannie & Freddie standards.  Fannie & Freddie were late to the game; eventually they begged to be able to relax their standards so they wouldn't lose the entire mortgage market.

The big mess started when Countrywide-types started packaging garbage, getting it rated AAA by crooked ratings agencies, and selling the "securities" to pension funds and other large institutional dupes.  When the con was rolling full-bore, the unscrupulous Mortgage Securitizers made it clear to all mortgage brokers that they didn't care what kind of crap they originated.  Just create mortgages, and we'll buy them and securitize them and unload them.  That free-wheeling bullshit didn't come from Fannie & Freddie.

The brokers complied.  They originated some of the worst garbage mortgages imaginable, collected their fees, and washed their hands. 

That's what happened, no matter what Rush Limbaugh says.  Did you create any no-doc NINJA loans to itinerate mariachi players so they could buy $500,000 homes?

Mon, 04/09/2012 - 21:49 | 2330035 Turin Turambar
Turin Turambar's picture

Hey Itstippy,

You're right.  There couldn't have possibly been any COERCION by the government via the CRA to pressure banks into making loans to people who couldn't afford them in order to increase the % of home ownership, so people could achieve the "American Dream."

"the unscrupulous Mortgage Securitizers made it clear to all mortgage brokers that they didn't care what kind of crap they originated."

You're a clueless dumbass.  Investors BUY the notes from mortgage banks AFTER the banks underwrite the loans per the investors' specifications.  All a broker does is submit the loan application, along with supporting documentation to the satisfaction of the mortgage banks, and follow up and monitor the process, so a proper evaluation and approval/denial can be issued from the mortgage bank based upon the INVESTORS'/BUYERS' guidelines.

Were there abuses? Yeah?  But don't kid yourself thinking that a broker just submitted a sketchy loan application and got a loan approved.  Wholesale FRAUD on multiple levels was required with multiple parties participating - realtors, appraisers, mortgage brokers, lender account execs, title companies, et. al., in varying combinations.  Oh, and let's not forget about the "innocent, unsuspecting" borrower, if there even was one, and not some straw man investor.

The crux of the matter was the removal of moral hazard via government regulatory intervention.  Once moral hazard is removed it's Katy bar the door, and the only limit to the gross abuses that will occur in an environment lacking moral hazard is the limit of the imagination of the people trying to game the system with little to no downside risk.

Look up Franklin Raines and some of his buddies who ran FNMA into the ground and let me know how bad off he is now and how much prison time he is serving. LOL  He made his 10s of millions of dollars and now is working for Obama. ROFLMFAO 

I'll assume from your NINJA comment that you're not as much of a clueless dumbarse as I think and were referring to NINA loans.  Ever heard of post hoc ergo propter hoc?  You are the master.  The niche products did not cause the financial mess.  It was the lack of moral hazard, not the products themselves that led to the bad loans.

From your comments, I take it you're not in the business, or no longer in the business.  I'll try and restrain myself from more ad hominems regardless of how wide your ignorance opens the door.

NINA, SISA, SIVA and other variations were niche products specifically designed for credit worthy people who could not otherwise qualify for a loan because of restrictions on things like income documentation.

Let's look at a little example:

How would you like to be a guy who owns his own business, makes  $10,000/month, has no debts, $100,000 in the bank, and has perfect credit, who wants to put $60,000 down on a $300k house and finance the remaining 80% and have a monthly PITI payment of around $2,500/month.

$2,500/mo out of $10k/mo income doesn't sound like something you can't afford does it?

Well, let's say you're a good businessman, and you file your taxes and take advantage of all of your deductions.  Lucky you, you've been able to legally reduce your taxable income down from $120k/yr to $42k/yr!  Wow, that's really going to reduce your tax bill.  Fantastic!  Or is it?  Again, lucky you, there's a bureaucrat out there who'll tell your bank that your a bad risk.  Since you ONLY pay taxes on a gross $42k/yr = $3,500/mo, the is NO WAY you can afford a $2,500/month housing expense because

$2,500/mo pmt / $3,500/mo income = 71.43% debt-to-income ratio

You crazy deadbeat!  Get outta here and go find something you can afford around $120k or so. LOL

Well, that'll sure get one's blood boiling - telling a guy who makes $120k/yr w $100k in the bank that he ONLY qualifies for a $120k house!  You most certainly wouldn't take that kind of treatment, so you go down to your local bank.  You don't need a GSE loan.  Heck, with your income and down payment, any bank would be happy to loan you the money directly and portfolio the loan.  OOOPS!! You forgot about those Fair Lending Laws.  We can't have any discrimination, so it's quite possible that even though you are a strong borrower that the bank might not be comfortable loaning you the money because if they stretch there guidelines a bit with common sense, the could be accused of discriminating against somebody else for whom they didn't stretch the guidelines enough to qualify them.  Obama even has new committees out there looking for exactly these types of scenarios.  Fair Lending indeed!  LOL

This is what happens in the real world, and since there are no more Stated Income, Verified Assets, I've had 2 GREAT borrowers declined for home loans in the last 5 months because of scenarios exactly like this.  Now portfolio'd loans are held by the bank directly, and it is on the hook for it, but if the loan can't be made, the public is protected from fraud because the bank will be held responsible  if the loan is bad, but can't make the loan because of possible discrimination, so it doesn't get made --- My Head Hurts, and I begin to wonder why I stay in this business!

The financial crisis was precipitated by SYSTEMIC issues - mainly loaning money to people who should never have been pronounced "qualified" by the investors and people lending the money.  These market disorting pressures were introduced by REGULATORS. 

The Black Swan Event was the drop in housing prices.  The Fed created the housing bubble, and as long as housing values infalted YOY the banks didn't have much of a problem.  However, once they began dropping, thingns got ugly fast, and well that takes us too far off topic here, and I really don't have time to go over monetary theory right now.

Suffice it to say - Keynesians BAAAAAAAAD. Austriants GOOOOOOD.

I could go on, but I'm tired.  That's the gist of it.  If you disagree with me, it's no skin off my back.  Bernanke is probably imminently more educated/intelligent/qualified than you to evaluate what I'm saying (just ask him), and I'm sure he doesn't agree with anything that I just said.  Then again, he'd be better off not saying anything and just pleading the 5th when this house of card finally collapses.

Mon, 04/09/2012 - 21:50 | 2330088 chunga
chunga's picture

Sorry, but I fly off the handle when anyone brings up the CRA canard.

In the Real Estate hay day, back when they weren't making any more Real Estate, money started looking for people. To this day, some remain stubbornly reliant on an obtuse and incomplete interpretation of the "Community Reinvestment Act" as a convenient neon red-herring on which to affix blame. To suggest (over and over again) that any politician, regardless of spot or stripe, would give a fig, lift a finger, bat a lash, or make anything more affordable for anyone other than themselves is mere cacophony.

Some will even put forth the equally absurd notion that lenders were strong-armed into making loans for fear of lawsuits from powerhouse organizations like ACORN. (Banks afraid of cute)

The money was looking for people for one reason and one reason only.

I've said this before (aided by the clarity of hindsight) but the sociopaths had the vision to see this coming and acted accordingly. Presently, there isn't anything left to steal except debt.

How do you steal money from those who don't have any?

Simple. Just give it to them.

This seemingly chivalrous and selfless act of making the "American Dream" of home ownership more affordable to minorities or the otherwise disenfranchised was actually anything but chivalrous and selfless.

It was the perfect crime.

While keenly focusing on the fact that no one was making more Real Estate, it was triple A safe to assume the value of Real Estate would never do anything but go up. This "conventional wisdom", often called "speculative", "irresponsible" and "reckless" nowadays, was repeatedly and professionally affirmed by experts in the form of property appraisals.

The zenith of all this chivalry is the appraisal and exemplifies the brilliance of the perfect crime.

Precisely at that moment, the vaporous, phantom, wealth of debt is born. Hold on to your hats all you disenfranchised minorities, you will soon be disemboweled. The money has found you and welcomes you aboard the "American Dream".

Fast forward...

There is actually plenty of Real Estate and it never does anything but go down in value. In keeping with the state of affairs we find ourselves in; we are forced to re-examine the definition of "value".

Once upon a time, the value of something was a direct corollary to what someone would pay for it.

Not anymore. Value is defined in a cell on a spreadsheet[s] and that never budges.

Enter the Credit Default "Innovation".

As chivalrous as the lenders were, way back when they weren't making more Real Estate, they had a sneaky suspicion the disenfranchized minorities they tried to help were secretly chiseling deadbeats. They had to buy "insurance" in case they didn't pay back the captured amount in all those spreadsheet cell[s].

Buying and selling this "insurance" was especially lucrative and worked like a charm for a few, but was really bad for many. You see, there was never any intention by these "insurance" companies to actually pay, much less have the ability to pay any of these claims. The only logical and prudent thing to do, absent any other possible option, was to once again foist this on the sap of last resort, the taxpayer.

Fortunately for TBTF, the taxpayers are busy pointing fingers at each other, exactly as planned. They are laughing at us. Oh, and as a bonus, all this chivalry has created clouds over millions and millions of titles and wild deeds as far as the eye can see.

Mon, 04/09/2012 - 22:16 | 2330167 Turin Turambar
Turin Turambar's picture


It's late, and I've got a long day tomorrow.  I'm just going to say that I disagree with you.  I thought about writing a reply, but after reading the following:

"There is actually plenty of Real Estate and it never does anything but go down in value."

I thought I'd be wasting my time.

Normally, I would attribute the preceding quote to an economic illiterate.  Only somebody completely clueless about basic economics could write something so ridiculous.  Then again, it's late.  Maybe you're tired, too.


Mon, 04/09/2012 - 22:24 | 2330195 chunga
chunga's picture

I am wide awake. Get some rest.

Mon, 04/09/2012 - 22:03 | 2330138 Turin Turambar
Turin Turambar's picture

LOL, I'm tired and wasn't able to edit my post, so please forgive the multitude of spelling errors towards the end.  I no longer have access to edit the mistakes.

Mon, 04/09/2012 - 21:42 | 2330065 chunga
chunga's picture

Remember this phrase?

Use it not more than once twice, not less than once never, but once.

Apply it to credit default "innovations". That's what I think is going on. Sell the collateral (somebody's home) to multiple parties.

Each party buys a credit default innovation and gets paid by the taxpayers (at the captured outcome-based appraisal value determined by lenders' agents) with the GSEs being the final conduit. 

That is why innovative foreclosure documents can be abundantly found with statements of "fact" that cannot possibly be true.

Mon, 04/09/2012 - 21:55 | 2330100 Turin Turambar
Turin Turambar's picture


You're right about that.  IIRC, London can roll over the securities almost infinitely, so the risk exposure was geometrically expanded.  While it played a huge part in the global financial crisis, it was not a mortgage lending issue per se, but rather a perversion of fractional reserve lending, which I'm completely against by the way. 

I side with Thomas Jefferson - Say not to fractional reserve banking.  I think fractional reserve banking is fraudulant.

Mon, 04/09/2012 - 22:19 | 2330183 chunga
chunga's picture

That's what I'd love to see ZH tear apart.

Imagine if you could buy "insurance" against say fire, at the full (fake) value.

Then buy 30 policies just like it.

If the holders of that paper knew they'd never pay any claims with their own money, for a fee, they would be in league with the arsons...

Burn it right down and blame the reckless homeowner.

Mon, 04/09/2012 - 22:51 | 2330235 Turin Turambar
Turin Turambar's picture


The banks weren't really buying insurance.  What they were really doing was leveraging the asset on their books.  Think of it more like the bank took your $200k note and went and secured 40 other $200k notes against your 1 $200k note.  That's $8,000,000 at the banks disposal from your 1 x $200k not secured by your 1 home!  Imagine how risky of a margin account you would have if you were allowed to trade $40 for every $1 in your trading account!  The leverage is the source of fraud and geometrically increased risk.  Next, imagine this infecting the entire financial system.  You can begin to imagine the issue with liquidity when banks begin to start writing down depreciating assets.

P.S. Look into "rehypothecation."  That's the technical term iirc for what we've been talking about.  I just remembered it.

Time to sleep.

Have a good evening.

Mon, 04/09/2012 - 23:03 | 2330273 chunga
chunga's picture

You took issue with my remark that real estate never does anything but go down in value.

That might be just a snap shot. Time (not NAR) will tell.

I enjoy spirited debate and maybe I am economically illiterate.

As a gesture and illustration of my sense of fair play I direct your attention to Bevilaqua v. Rodriguez

It's my humble opinion that all real estate brokers need to understand what the MA SJC ruled in re: Bevilaqua.



Mon, 04/09/2012 - 17:53 | 2329465 Stuck on Zero
Stuck on Zero's picture

Regulation should not be about greed.  Regulation should be about one thing and one thing only: maintaining a healthy free market system. 

Mon, 04/09/2012 - 19:05 | 2329657 UGrev
UGrev's picture

Yes, but you have to do it in such a way that it reduces complexity. You can't throw regulations on a busted system that just add more complexity. You MUST ensure that shit like chopping up a Mortgage and selling bits of it to other entities multiple times can't happen. 

Even more than that... YOU HAVE TO FUCKING ENFORCE THEM! The regulatory bodies cannot be made up of people from the industry who have many connections. (read: Goldman Sachs populated the Fed Reserve Banks etc.)

Mon, 04/09/2012 - 18:05 | 2329480 Zero Govt
Zero Govt's picture

so we've got 2 hundred thousand regulations, none of which work ...and some smarty pants thinks curbing human emotions will work?!!!!

what next, a chip in the throat to measure and regulate hormones and estrogen levels i suppose

...geez some people have just never heard of the free market, it would have sorted out (buried) JP Morgan and Goldman Sucks 70 bloody years ago ..give it try, muppets

Mon, 04/09/2012 - 23:37 | 2330344 Axenolith
Axenolith's picture

In the case of JPM, it would have buried them about 97 years ago, because we wouldn't have spent a quarter million young mens lives making sure England and France were able to pay their war loans and they'd have been BK'd and scattered to the winds.  Entering the dreamy what-if world, this would have included all of their tainted seed only finding future purchase in livestock wombs and cheesy flophouse trashcans.  The First WW would have ended in a negotiated peace, If any, the Ag depression following the war would have been negligable ('cause JPM and minions wouldn't be there to contract the money supply to prop up post war England), the Germans wouldn't have been gung ho for a round 2, and we wouldn't have had 75 years of monetary crack addiction (remember, dreamy what-if world) economy culminating in the at this time near literal destruction of the Constitution and gotterdamerung of the global economy...

Mon, 04/09/2012 - 18:18 | 2329525 Walt D.
Walt D.'s picture

Derivtives are regulated by the IDSA - (they did actually call a defualt on some Greek debt recently).

However, the ISDA is owned by the Goldman Sachs, the JP Morgam and other TBTF financial institutions.

So what we need is Governmnet regulation?

However, the Government is owned by the Goldman Sachs, the JP Morgam and other TBTF financial institutions.

ISDA regulation vs Government regulation? Same bureaucrats wasting their time watching the same pornography on the internet.

Ivan Booesky insider trading = greed.

Nancy Pelosi insider trading = altrusim.


Mon, 04/09/2012 - 18:29 | 2329556 barroter
barroter's picture

Be a sucker, demand Deregulation! Make it far easier for the scumbags of the free market to rip you off!

Mon, 04/09/2012 - 19:41 | 2329747 riphowardkatz
riphowardkatz's picture

the free market that has a central bank that controls the interest rate, prints money? The free market that has more regulations today than all the regulations that have ever existed in the history of man kind? The free market that says there are banks that are too big to fail? The free market that makes all kind of trade illegal?

Making stuff up again to fit a narrative you have manufactured in that glob of mass you call a brain.

Back to the coffee shop to type out stuff on your apple while sipping a late you got with other people's money.  

Mon, 04/09/2012 - 19:03 | 2329629 ekm
ekm's picture

I think we should be careful how we use the term "greed" and absolutely must not confuse it with "profit".

Humans are wired to make a profit. Everything humans do, they do it for a profit. A businessman starts a business for monetary profit; a man goes after a woman for sexual profit, a monk goes to solitary life in order to attain future heavenly life (deferred profit). Anything and everything a human being does, he or she does it for a profit, not necessarily monetary profit, but it is for a profit, nonetheless.


Ethical monetary profit = Good profit = Michael Jordan's income = Peyton Manning's income = Working income etc. Any income that is exchanged with one's skills as per the actual demand for that skill.

Unethical profit = Greed = JPM profit = Theft = Extortion = Bank of America profit = Foreclosures


Mon, 04/09/2012 - 19:09 | 2329662 Yen Cross
Yen Cross's picture

You obviously { don't } speak French! 

Mon, 04/09/2012 - 19:27 | 2329699 ekm
ekm's picture

Pas du tout, monsiour.

Mon, 04/09/2012 - 19:40 | 2329738 Yen Cross
Yen Cross's picture

vous avez 'ete' une abeille?

Mon, 04/09/2012 - 19:51 | 2329754 ekm
ekm's picture

Oh mon Dieu. J'ai etudier francais en ecole, mais Il'y a longtemps que je n'ait pas parlais. C'est tres dificile maintenant.

Ma reponse du question que tu as poser:


CAD is a petro-dollar. Whoever buys canadian crude must pay in CAD. Hence, will have to exchange USD with CAD hence demand for CAD.

Crude oil up, CAD goes up. Crude oil down, CAD goes down. My forecast and money is on crude oil at $50/barrell withing 3 - 6 months which would make CAD go down to 75c US.

You play it everyday, but I play it patiently with HOD on TSX. I don't have your stainless steel guts.


Mon, 04/09/2012 - 20:02 | 2329789 Yen Cross
Yen Cross's picture

 Un style de trading agressif.  Commodities sont amusants 'a jouer avec. contango.

Mon, 04/09/2012 - 20:15 | 2329817 ekm
ekm's picture

Tu es impressionant, sans doute. Ou as tu etudie le francais?

Mon, 04/09/2012 - 21:00 | 2329911 Yen Cross
Yen Cross's picture

Rest assured. I understand ( Canadian /French) and I'm not interested in Impressing you.

  I appreciate your thoughts regarding usd/cad though.

    yu es impressionate, sans doute.

Mon, 04/09/2012 - 21:47 | 2330076 ekm
ekm's picture


Mon, 04/09/2012 - 19:18 | 2329676 Coldfire
Coldfire's picture

Regulation is a canard (obviously). You cannot regulate desire for the unearned. It is boundless. What can be done is to enforce causes of action for fraud. But that requires a quality of morality that has long since evaporated. And with a system built on the manifest Ponzi fraud of an unbacked fiat reserve currency who can dare to be surprised?

Mon, 04/09/2012 - 19:38 | 2329716 Stax Edwards
Stax Edwards's picture

Just off the top of my head, some sort of 'bonding' relative to the size of the book? Might work if tbtf were broken up globally as a 700t bond is impossible. You can be as big as you can be bonded for? Works in other industies. Blow up, bond is called. Bonding backed by a basket of sovereigns where once triggered breakup and sale occurs? Brainstorming here really.

Mon, 04/09/2012 - 19:36 | 2329728 suckerfishzilla
suckerfishzilla's picture

There's no such thing as a greed-o-meter. 

Mon, 04/09/2012 - 19:49 | 2329760 Stax Edwards
Stax Edwards's picture

OT: Anybody ready to predict SLM will join siblings FNM & FRE on the pink sheets before long? Over/Under on time frame?

Mon, 04/09/2012 - 20:45 | 2329877 Milestones
Milestones's picture

There is something that is guaranteed to deregulate the system--400,000,000 guns. 

Look folks, "We the people" are in a fight for the life of this country. Doubt me--take a look at what Oblabla has proposed for this nation over the past 3 years. This not a boxing match we are engaged in; it is a frigin street fight with broken beer bottles etc.-- and we the people are fighting it as though its a boxing match. I've been in some very ugly street fights. You ask no quarter and give none.

When some M.F. says by deeds--he wants to kill me-F.U., I go for the jugular. There is no viable compromise left.

" When no peaceful revolution is possible, then violent revolution is inevitable." JFK. Think it through. Paddy cake, paddy cake baker man will not get it--not now.          Milestones

Tue, 04/10/2012 - 00:43 | 2330428 Amagnonx
Amagnonx's picture

I'm not sure why protestors in the US don't show up fully armed - doesn't the 2nd amendment give you guys the right to do this?  I'm not from the US, but I kind of thought that was the entire point of the 2nd amendment, but I never see armed protestors?

I would think even 1 million protestors armed to the teeth waving their guns around the capital would engender the fear necessary to get things set right?

Mon, 04/09/2012 - 21:50 | 2330087 Bartanist
Bartanist's picture

Nah! All that has to happen is that the laws that are on the books need to be enforced and one or two bankers need to be hanged as an example. The rest is easy.

Mon, 04/09/2012 - 22:32 | 2330219 tony bonn
tony bonn's picture

moral hazard would be an enormous step of progress to curtail the greed of financial "innovation" which is built upon infinite rehypothication models....the financial terrorists run this country and are sucking it dry by design - not by stupidity, however criminal that may be.

Tue, 04/10/2012 - 00:39 | 2330424 Amagnonx
Amagnonx's picture

Slashing fraud with the silver sword of justice, and moral hazard with a headbutt to the face would do more for world than trying to target this ephemeral concept 'greed'.  Sounds like another war on terror to me - where the targets are never really identified, and we clasp our hands together and plead that people just stop being so greedy, and share ..


What a load of bollocks - greed is fine, so long as its balanced by fear - which moral hazard, and a paid for legal system fail to deliver.

Tue, 04/10/2012 - 01:23 | 2330473 Walt D.
Walt D.'s picture

Curb Greed and you will shut down most Government - it is the mother's milk.

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