Thanks, selise. That quote you lead with certainly puts Greenspan in position as lead architect. Great find!

“the efficiency of markets to enlarge standards of living” –spit
Only when those standards are raised across the board does the country win, and that only occurs when there is meaningful oversight.

morning jim. the last few weeks i’ve been occasionally googling around to find out more about the history of why the lack of regulation for oct derivatives (and CDSs in particular). greenspan, imo, has been a key figure. there’s an amazing amount of really stupid greenspan quotes in the record.

nice heads up selise, am looking forward to his mia culpa

greenspan, imo, has been a key figure. there’s an amazing amount of really stupid greenspan quotes in the record.

*gets popcorn, waits to read*

Thanks Selise
did I miss Greenspan

i had pulled a few in preparation for today’s hearing – but waxman has done it better. will add some as time permits.

greenspan has already made his opening statement. questioning now – but only one panel so hopefully there will be plenty of time.

greenspan “huge surge in credit default swaps” from 2%-10%

Rep Maloney tried to close “energy derivative”loop holes.
Feinstein also tried. Greenspan refused. Go Maloney

re the discussion on cdss regulation:

November 9, 1999 – President’s Working Group on Financial Markets (Treasury, Fed, SEC, CFTC) submitted their OTC Derivatives Report to Congress. The report recommended:

Creating an exclusion from the CEA for swaps agreements that are bilateral agreements between eligible parties on a principal-to-principal basis. (The exclusion does not extend to agreements involving non-financial commodities with finite supplies).

Creating an exclusion from the CEA for electronic trading systems that limit participation to sophisticated parties trading for their own accounts. (Again, the exclusion does not apply to systems used to trade contracts that involve non-financial commodities with a finite supply.)

the next year congress passed the “Commodity Futures Modernization Act of 2000″ – in effect preventing hte CFTC from regulating OTC derivatives as had been proposed (for discussion only) when Born was head of the CFTC, for example by requiring reporting transparency and some level of reserves.

Press Release from the CFTC:

Congress, in passing this law, has effectively implemented the recommendations set forth in the President’s Working Group on Financial Markets’ Report on Over-the-Counter Derivatives Markets and the Commodity Exchange Act

Maloney taking them out one by one neither Greenspan or this guy can remember her efforts to close loopholes. What is this guys name?

For background see the recent reports from the NYT

That New York Times piece is an excellent overview of how we came to be where we are. Required reading for anyone who wants to understand the current economic crisis.

Greenspan..Fannie and Freddie fall on the economic crisis ” a significant factor, not the primary cause”

A few weeks ago On David Gregory’s program “Race for the White House” Former Secretary of the Treasury Paul O’neil said that ” over2 years ago 30% of the folks who had been granted sub prime loans were not making their very first payments”. He said those loans should have been shut down then.

Fannie and Freddie’s fall and its effect on the economic crisis “a significant factor, not the primary cause” The other two panelist agreed.

Chairman of the SEC Mr. Cox ” we do not have authority over credit default swaps”

If there’s a “primary cause”, it was the creation of a totally unregulated and obscure shadow banking system and, in particular, the monumental CDS insurance scam.

Does anyone here really understand this? My understanding is just by changing the names of normal loans that banks and other lending institutions operated completely outside of normal oversight. By changing the names of defaulted loans to “credit default swaps” lenders, buyers and those who bet on these loans were able to pass the responsibility of backing these loans onto the next guy or insurance agencies until the bottom fell out? Am I close?

This reminds me of how Addington and others in the Bush administration were able to change the language and call Prisoners of War to “enemy combatants” and then operate outside of the Geneva convention

Greenspan sounds like he does not think anyone should go to jail for fraud
and other crimes committed. Greenspan “the market has all ready punished many of the individuals”

Kucinich nailing Greenspan

Kucinich sticks Greenspans words back at him “U.S. has not experienced housing slumps.” Kucinich “When did it occur to you that there was a housing bubble”

Kucinich “When did you realize there was a housing Bubble?” Greenspan finally answers “2006″

Does anyone here really understand this?

In a nutshell, CDSs are insurance policies. Normal insurance companies are regulated and must back their guarantees with a reasonable level of liquidity. But the CDS market is totally unregulated and their is no liquidity requirement whatsoever. Read the NYT piece. It’s long, but very clearly written.

Another Rep asking “Is anyone going to jail” SEC Chairman Cox “lawbreakers are being held accountable and hopefully being brought to justice”. Cox backs off of holding those responsible for breaking the law and bringing the economy to its knees ACCOUNTABLE. He starts saying we need to move forward and make sure these things can not happen again. HORSESHIT Hold these banking criminals ACCOUNTABLE. Throw their asses in prison.

Now Greenspan is making excuses for the banking thugs and thieves. Thoroughly investigate…Hold them accountable and then move forward. They just left the American taxpayers holding bag. Paulson just conducted an inside Treasury heist job for Wall Street

just went quickly through the list of members on waxman’s committee and compared it to the roll call vote for the Commodity Futures Modernization Act of 2000. this is the bill that prevented regulation of the cdss by the cftc.

waxman – “not voting”
towns – yes
kanjorski – yes
maloney – yes
cummings – yes
kucinich – no
davis – yes
tierney – yes
clay – “not voting”
watson -
lynch -
higgins -
yarmuth -
braley -
holmes norton -
mccollum – yes (?)
cooper -
van hollen -
hodes -
murphy -
sarbanes -
welch -
speier –

davis – yes
burton – no
shays – yes
mchugh – yes
mica – “not voting”
souder – “not voting”
platts -
cannon – no
duncan – no
turner – yes
issa -
marchant -
westmoreland -
mchenery -
foxx -
bilbray – “not voting”
sali -
jordon –

i

thanks I will read that piece. Did they pass the “credit default swaps” onto Insurance companies like AIG

some of the cdss were used as (bogus) insurance. but they have also been used a pure bet with no insurance purpose whatsoever.

and i should point out that the senate passed this bill by UC.

Greenspan, Cox, Waxman, all keep talking about the future instead of holding people accountable for how we got here…even making it clear how congress was also sitting on their hands

Wonder if Former Secretary of the Treasury O’Neil will ever testify?

Greenspan “unfair and deceptive practices” in predatory lending practices. “10%” That sure seems damn high.

I wish the hell they would allow Greenspan to finish a sentence

some of the cdss were used as (bogus) insurance. but they have also been used a pure bet with no insurance purpose whatsoever.

Most of the CDSs had no real insurance purpose, no? But, in effect, they amounted to insurance contracts, just really, really risky ones for which the issuer had insufficient liquidity to back them. The whole thing was a big crap-shoot based, in large measure, on the continually inflating value of housing.

During one of the economic crisis hearings last week Senator Harkin called the deception that brought us to this crisis “casino capitalism”

IMO that’s a pretty good characterization.

sounds like Greenspan is making excuses for those responsible for economic crisis

I thought this skit on Saturday Night Live seemed to cover the sub prime loan story.
http://www.snlbailout.cx/

I did not know there was so much controversy about this SNL skit
http://latimesblogs.latimes.co…..ge-me.html

Former Secretary of the Treasury O’Niel’s comments a few weeks ago seem to completely contradict Former Fed Chairman Greenspan’s claims that no one could see this coming. O’Neil said on “Race to the White House” that “2 years ago 30% of the sub prime loan borrowers were not able to make their very first payment” O’neil went onto say that faucet should have been shut off then.

Greenspan sure seems to be trying to stop the calls for ACCOUNTABILITY

When will they have O’neil come testify?

Let Greenspan finish all ready. These constant interruptions when Greenspan tries to answer a direct question are really obnoxious

that was Congresswoman Norton who would not allow Greenspan to answer her question. She let him get in one sentence.

This is my understanding of how the unregulated CDS market works. I’ll use housing as an example, but credit default swaps can be written to back an income stream generated from any asset.

Let’s say you buy a bundle of house mortgages. This purchase entitles you to an income stream provided by the people who bought the houses and pay the mortgages. For your investment, you get, in return, a steady stream of income. That is, unless, the homeowner defaults.

You become worried about your investment and you decide to take out some insurance. I agree to sell you a credit default swap. For this CDS, you will pay me a premium. In return, I guarantee to cover your original income stream in the event that the homeowner stops paying his mortgage.

But, how do you know I have the wherewithal to make good on my guarantee? In an completely unregulated market, you don’t. You come to me seeking to make good on your “insurance”, but I tell you, “sorry, I don’t have the money and now my company is bankrupt”. In a well regulated market I would not have been allowed to sell you the insurance in the first place unless I had the liquidity to back it up.

Greenspan talking about medicare shortfalls for the boomers. “medicare is underfunded by half, we would have to cut benefits by 50%” “we’ve promised far more than we can deliver”

Back to Ron Susskinds book the “Price of Loyalty”. This is the book that the Former Secretary of the Treasury O’neil said that he and Greenspan had plans to take a sizable amount of the Clinton surplus and roll it over to the upcoming Social Security and Medicare shortfalls for the boomers. That surplus is gone. Man oh man they are still going to try to privatize social security

Great explanation. It sounds like those bundles of loans were sold numerous times and then the betting on those packages as they are passed on has me confused too. Senator Harkin questioned the betting on those bundles.

Bilbo has an excellent grasp of the insurance component of the CDS pyramid scheme. Note that the AIG collapse was key to the panic at Treasury. That collapse followed upon the mortgage securities secondary market implosion which ensued when the housing bubble burst. The enormity of it all, leveraging upon leveraging as regulators looked the other way, is what now threatens the global economy.

The CDSs were certainly sold and resold, both in whole and in part. This makes it difficult, if not impossible, to find the party responsible for making good on the swap. I suppose the securitized mortgages themselves may have been resold as well. All this adds to the opacity of the entire market.

How many experts were warning that this economic crisis was coming? I know I heard Joseph Stigletz on several occasions on Democracy Now, C-span.

Sarbanes “the excuse that no one could see this coming. You had the tools to avert this economic crisis if you had used those tools”

Sarbanes (I like his pace, clear, on point) questioning Greenspan again about foresight

Harkin said that people who were not involved with setting up the sub prime loans, bundling or selling them were betting on those loans I don’t get what the betting part outside of the original loan agreements, bundling and then passing them on is all about?

How many experts were warning that this economic crisis was coming?

What’s an expert? Many of the economic problems we’re currently faced with were foreseen and been discussed, in depth, on forums such as Calculated Risk for years. The MSM, however, gets their grist from the experts, not the blogs. The blogs, they have conveniently ignored. I think maybe this is starting to change a little however.

I would really like to see O’neil, Greenspan, Stiglitz and Naomi Klein on the same panel or conference.

Economic experts. Folks who have PHD’s in Economics or a great deal of experience with the economy

The issuance of housing backed credit default swaps, without the ability to back up those swaps in the event the mortgage went bad, constituted “betting”. It was a bet that mortgage holders wouldn’t default on their loans. And with ill-considered home loans having been issued willy nilly and with housing values plunging, it was a pretty lousy bet. By the way, there’s plenty of blame available for those who arranged for and sold the sub-prime and Alt-A loans too. And the liar-loan homeowners aren’t guilt-free either.

Economists are social scientists, studying the behaviors of large numbers of actors. The financial markets experts on CDSs are apparently mathematicians and physicists from MIT.

Greenspan “who was buying” 73% held by hedge funds…this is who created the problem Greenspan “smartest people involved”

So why would Greenspan not want these hedge funders held accountable?

Bilbo have you ever watched the SNL skit on this crisis?
Go check out those links at 34

The Anatomy of a Financial Crisis discusses the crisis using the recent 60 Minutes segment on the topic as a take off point. In it, Lumbert mentions that the agencies that rated the securitized mortgages,

… relied upon a twenty-year bull market in real estate (brought on by duel working families, the lowering interest rates enhanced by a generous Fed policy), complex algorithms developed by geeks trained at Harvard, Stanford, Cal Tech and MIT who had chased the big bucks on Wall Street. They also relied upon the word (and the historical practices) of Fannie Mae and Freddie Mac.

cspan video archives of today’s hearings:

House Committee on Oversight and Government Reform: Federal Regulation of Financial Markets

Senate Committee on Banking, Housing and Urban Affairs: Regulatory Response to the Credit Crisis

I think I had seen the “reissued” SNL version. The trouble with the original, it seems to me, is that it creates worst-case stereotypes and passes them off to uncritically thinking viewers as the “whole story”. Reality, as always, is far more nuanced.

That’s a very interesting summary, covering a wide range of points. Thanks for the link.

A point there about banks being insolvent: by definition, banks as we know them are insolvent, even in ordinary cases. They’re always hedging that the capital they have on hand will aways at any given moment be sufficient to cover day-to-day debits from their books. There’s a fed minimum they are obliged to adhere to, but most banks stay above that minimum. Nevertheless, in a strictly accounting sense, banks are by definition bankrupt as a matter of course. It’s just that they manage to stay at least one step ahead of the grim reaper.

FINANCIAL CRISIS: THE MUSICAL
The economy is no laughing matter. But this parody about the economy is.
Check it out at: http://www.youtube.com/watch?v=henMX35nkJg

SEE MORE AT http://parodyandson.blogspot.com

Does anyone here really understand this? My understanding is just by changing the names of normal loans that banks and other lending institutions operated completely outside of normal oversight. By changing the names of defaulted loans to “credit default swaps” lenders, buyers and those who bet on these loans were able to pass the responsibility of backing these loans onto the next guy or insurance agencies until the bottom fell out? Am I close?

This reminds me of how Addington and others in the Bush administration were able to change the language and call Prisoners of War to “enemy combatants” and then operate outside of the Geneva convention

Same bunch of nuts/criminal/neocons/Ponsi-schemers, etc.

I don’t get what the betting part outside of the original loan agreements, bundling and then passing them on is all about?

Somebody thought the mortgages would fail (because anybody with sense would know that) and got a bunch of CDSes, like an investment, like a bet for 10% down and 100% payoff when the mortgages/CDOs failed. Just a bet like a short sale on stock. Like betting a $1 on a horse to NOT win for a payoff of $2.

Of course, someone who didn’t own an asset has no business getting insurance to cover it’s loss.

A few random observations that belong here.

A 60+ trillion market with no regulation is the very definition of insanity.

Why Congress is fiddling as the hedge funds continue to burn is way beyond me. In today’s environment it’s far, far easier to make money from fear than greed, so no matter what people say I’m convinced in their last ditch efforts to make money before the inevitable sunlight (regulation) shines into their darkened lairs, they are shorting the hell out of any stock they can get their hands on from 3-4pm everyday.

Until Congress grows a pair and regulates these a-holes, the volatility in the equity markets will continue, and the average investor (who is essential to orderly markets) will stay on the sidelines.

How Greenspan can go before Waxman’s committee today and say he didn’t see this coming is bullshit.

Waxman pointed out he had over 200 Ph.D.’s on a staff of 400 at the Federal Reserve, but he had no clue.

Greenspan even offered he still doesn’t exactly know what went wrong.

Really?

Spending a couple of days around here would be a good start.