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Taibbi Talks Turkey

Glorious Noise Upright Standing Man of the Year, Matt Taibbi I am not that bright. I have strong opinions and some people like the way I put them in writing, but I am not burning up the joint with my scary understanding of complex matters, especially those concerned with the current economic condition.

So, I look to people who are smarter and who can explain this mess in terms I understand. The President tries (and succeeds to a point) but this shit is crazy confusing. I'd normally turn to Hunter S. Thompson but he is dead. So, I look to Glorious Noise Upright Standing Man of the Year, Matt Taibbi because he reminds me of all those smart kids I knew from Kalamazoo College who smoked dope and could still kill their ACTs.

Taibbi's latest, The Big Takeover, attempts to put into simple language the myriad twists and turns of the economic disaster and later bailout by first the Bush administration and later the Obama administration. It's still confusing as hell but it's a great read and does get me a little closer to being economically literate, which is a key concern of Taibbi's piece.


Here's how Taibbi explains one of the more pedestrian bits of lingo in this story, the collateralized-debt obligation:

A CDO is like a box full of diced-up assets. They can be anything: mortgages, corporate loans, aircraft loans, credit-card loans, even other CDOs. So as X mortgage holder pays his bill, and Y corporate debtor pays his bill, and Z credit-card debtor pays his bill, money flows into the box.

The key idea behind a CDO is that there will always be at least some money in the box, regardless of how dicey the individual assets inside it are. No matter how you look at a single unemployed ex-con trying to pay the note on a six-bedroom house, he looks like a bad investment. But dump his loan in a box with a smorgasbord of auto loans, credit-card debt, corporate bonds and other crap, and you can be reasonably sure that somebody is going to pay up.

Simple, right? It is until sharpies and scam artists with MBAs figure out nobody is minding the store. Next thing you know they're carving these assets up so that only the most secure are identified and positioned to represent the entire box. They get a AAA rating and are off to the races!

Taibbi tackles the shucksters in similar, blunt force fashion. He describes AIG Financial Products numbers runner Joseph Cassano as, "a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead, [who] cut his teeth in the Eighties working for Mike Milken, the granddaddy of modern Wall Street debt alchemists." Yes, the man who made Junk Bond Trader a household word is the mentor to one of the chief villains of our current meltdown. I half expect Gordon Fucking Gecko to step out from behind the curtain.

It sometimes veers into mass conspiracy territory, but dig the whole article when you have a half hour and enough bile built up in your ducts to really give these bastards the kiss they deserve.


Another read on this topic:
Liar's Poker - by Michael Lewis, a great book and relatively easy quick read.

Its a great behind-the-scenes story of his first few years at Salomon Brothers. Salomon Brothers used to one of the bastions of Wall St. And, Lewis Ranieri was their broker who designed the first mortgage-backed securities (CDOs/CMOs -same things) and figured out a way to market/sell them. Salomon Bros. had a monopoly on these things, and was raking in $$$$. But, oddly, they didn't want to pay their brokers exhorbinant salaries, so they left to join other firms... Salomon Bros. ultimately crashed and burned for a number of reasons, but their former employees scattered all over Wall St. to take the mortgage backed securities business to all the other banks... These products are 30 years old. And, conveniently, during that 30 years, we've never had a housing market collsapse of this colossal nature. So "no one could have predicted" ...because, in fact, there was no precedent for what's going on now. I just went back to reread it because we've got a case at work where we are defending some sellers of CDOs and I wanted to figure them out. It was fascinating to read the description and concerns addressed in that book (written around 1995 or so). Ultimately, Michael Lewis left Salomon Brothers and now writes cool books like Moneyball.

Taibbi's great. Love that guy. His article slaying McCain during the campaign was awesome.

There was a piece at MSNBC (can't find it now) telling of a woman in Florida who simply stopped paying her mortgage about four years ago. She hasn't been evicted from the property because nobody can figure out who actually owns the loan - the loan had been resold and / or combined with other assets, the whole of which were sold to multiple buyers in the fashion that Taibbi describs.

NPR had a similar story but that folks who "lost" their homes ended up getting fines and even warrants for not keeping up the property. The banks never followed through on the foreclosures so technically the borrower still owned the home. Banks simply stopped sending people out to claim properties.

Amazing times...

his article is great. in-depth and entertaining. i realize the audience he's speaking to, given that it's through rolling stone, so i can forgive his snide attitude. it makes it more interesting for his core audience. at it's core, it's incredible journalism.

though, the title is a little misleading. i wouldn't say that wall street is using the bailout to stage a revolution. there was already a quiet coup that happened years ago, if not decades.

i believe the short term actions will stabilize the banking system and a major overhaul of the banking system will need to take place. i've always been a strong proponent of regulations. without them, the money master act as lemmings no matter what the outcome.

as for the people walking away from mortgages, or simply stopping paying them. i do find issue with this. it comes down to personal responsibility. i hope it does catch up with them.

there are steps to take if they want to forfeit the property without going through the arduous task of foreclosure and shoring up their short term cash flow, deed in lieu of foreclosure. sign over the deed and send it back to the mortgage provider. this would at least take liability off the hand of the people who "lost" their homes.

i appreciate the critical mass that the banks must be dealing with. the media has the tendency to focus on the individual family that is having mortgage troubles. though, a lot of the mortgages are tied to commercial real-estate properties and apartment buildings. i've had a couple interesting conversations with my landlord who provides the commercial property where I have my company. he's been working with banks to manage properties that have found their ways back into the banks hands. there are a lot of rental properties that people speculated on in chicago, especially on the southside and westside, and are now abandoning them, leaving their tenants without utilities and services. same with other commercial properties. so, the banks are constantly going through fire drills to address each of these issues. he even pointed out that there was a property they were looking to purchase, but the banks couldn't find the holder. here they were, two interested parties in a transaction, but the bank had to use a forensic accountant to figure out who to contact to complete the transaction. shocking!

"as for the people walking away from mortgages, or simply stopping paying them. i do find issue with this. it comes down to personal responsibility. i hope it does catch up with them."

Vit, the story was about people who had been foreclosed on, received eviction notices, and moved on with their lives. The problem was that the bank never showed up to actually take possession. So technically, the borrower was still responsible for it.

Speaking of responsibility...Taibbi's piece makes clear that responsibility is shared. Yes, borrowers need to take responsibility and you can bet they have when you look at foreclosure rates and the depletion of savings.

Banks are businesses, not people. So how are THEY held responsible, especially if any punishment for bad practices ultimately hurts more than the principles of those companies? Ensuring AIG fails means that anyone with holdings in that company are also punished, including those who have no idea they have an interest in AIG.

derek, i was commenting on both responses... judes about the piece on msnbc in which the lady simply stopped paying her mortgage, and also yours about people who "lost" their home, but were still exposed to liability. if the bank didn't complete the process, then the people should have found a way to complete it. yes, the banks are responsible, but until the liability is shifted, the people are still responsible for the upkeep. the quickest way to shift that liability and do and end-around on waiting for foreclosure to be processed is to do a deed in lieu of foreclosure. as soon as they went to close out their insurance on the property, this should have been discussed with their insurance agent.

traditional banks are held accountable for their actions and have stronger oversight. the issue you have at hand here is that the entities that are most in question are not banks. they are financial institutions. there's a big difference. many of them have found loopholes in the regulation to be not be held accountable as banks are. banks are regulated and must keep a certain amount of deposits on hand and paid into the fdic to insure transactions. when they fail, government has full oversight to seize these institutions, re-organize, and handle the sale of these institutions to other banks. in this case, management is usually let go, new management is put in place, they review most of the middle managers to weed out the ones that cut corners, and the new owner also further reviews and adjusts as possible.

Most of the sub-prime and teaser rate mortgages were created by financial institutions that spun off the securities to investment houses. when you look at it, none of those involved were "banks" in a traditional since and not responsible to the fdic. thus, they were able to leverage against their equity since they didn't have to maintain a proper debt to equity value on their books. aig, now that's even a different story. it's not even trying to pretend to be a bank. it's an insurer. and while their actions were reprehensible, they were well within the law. that's not an excuse for them to be unethical. i'm not forgiving them there. i believe there was another thread about the portland mayor that led to a little back and forth between jake and myself about legality versus ethics. just because it's legal doesn't make it alright. there has to be a higher standard. and if the laws don't match the higher standard, they should. though that could lead to a higher debate where you can discuss moral and ethics not only in business, but in individuals lives.

remember, businesses are made up of people. not all people are bad that are in business. there are greedy, lecherous, self-serving individuals that get revenue coming into a company. so, upper management and investors love it. i didn't hear a lot of people bitching about their 401k's growing or taking profits from the market when all this was going down. are we to hold the shareholder accountable for the actions of the company as well? all the institutional investors? the teachers and elderly that have pooled retirement accounts that bought into these companies? i don't think so.

you can't punish retro-actively for something that was legal in the first place. all we can do is rebuild the system that was fatally flawed. clean it up and impose new regulations to address what just happened. and keep a hawks eye on everything so something new doesn't bubble up to cause it to happen again.

we're not in a depression. i don't see us going to a depression. at most, it's on par with our two greatest recession over the past thirty years. it'll hurt for a bit, it'll get better, and we'll move on. though, the difference is how we address what got us into the recession in the first place. i think obama's got a team that's apt to meet the challenge.

i don't want any of the financial institutions to fail. though, i do want to see sweeping reform. while i am all for a progressive approach to governing with strong programs that benefit the people, i don't see nationalization as an option. government should provide oversight, not ownership. the markets are speaking out now asking to be regulated better. it's a golden opportunity to change the rules of the game and get more parity out there

The administration isn't talking about nationalization though, they're talking about short-term receivership, no?

We have a friend who keeps talking about all this as the death of capitalism, when in fact I think it's the only way to save it. Unbridled and unchecked free markets ultimately end up in a concentration of wealth. That's why we created anti-trust laws that discourage too much concentration, and thus, limit competition. The idea of any company too big to fail is (as Taibbi put it in an interview on Maddow) too big to exist in America.

even with government intervention you can end up with a concentration of wealth. I think the bush 2 years should us that.

in theory, unregulated markets, given enough time and working in a vacuum where all entities involved are working in the same fashion, will produce the highest standard of living for all involved. the problem with that line of thinking is it's outright utopian in every fashion. the reality is that we have a legacy of class stratification through previous government policies, both under republican and democratic administrations, government subsidies to corporate interests, and deficit spending since we abolished the gold standard.

you may point out to your friend that even milton friedman, the grand champion of free market capitalism, has stated that the great depression was directly caused by bad policy running up to the market down turn and a contraction in monetary policy exacerbated things from 29-33. in other words the money supply was cut by one third and the recession turned into a depression. even friedman says that keynes suggestions were correct in addressing the immediate needs of the downtun through increased deficit spending to spur on the economy. his only negative as to government reaction during that period was that short term solution became long term standards.

friedman agreed to short term deficit to address economic downturn, he didn't support sustained deficit spending while decreasing taxes. this is what has always got me mythed. reagan is always associated with an administration that held up friedman's principles and championed deregulation and free market capitalism, but increased the deficit through military spending during the cold war and actually increased taxes leading to an average decrease in personal wealth.

while i disagree with a lot of friedman's theories, i do enjoy one point i've taken away from him over years of researching his work... in an interview once he mockingly he stated,"(Mankind is selfish and greedy.) Therefore, we have to put power into the hands of other selfish and greedy men". We shouldn't wholly look to government for our solutions. We should keep them in check. Voting is one thing, but an informed, educated, and active constituency is another.

tell your friend not to worry, capitalism has survived many years with boom and bust cycles in america. with each boom and bust there has been a correction in policy to address the issues that drove them in the first place. gilded age gave way to the progressive era. the jazz age gave way to the new deal era. and now we find ourselves at a period of boom and bust that is ushering in a new progressive era.

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