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The Woman Who Could Have Prevented This Financial Mess Was Silenced by Greenspan, Rubin and Summers
By Katrina vanden Heuvel, TheNation.com. Posted October 11, 2008

A sad tale emerges of willfully arrogant behavior designed to undermine a wise woman's good judgment.

http://www.alternet.org/workplace/102559/ (http://www.alternet.org/workplace/102559/)

"Break the Glass" was the code-name high-level Treasury Department figures gave the $700 billion bailout; it was to be used only as a last-resort measure.

Now millions have been sprayed and damaged by broken glass.

But more than a decade ago, a woman you're likely never to have heard of, Brooksley Born, head of the Commodity Futures Trading Commission -- a federal agency that regulates options and futures trading -- was the oracle whose warnings about the dangerous boom in derivatives trading just might have averted the calamitous bust now engulfing the US and global markets. Instead she was met with scorn, condescension and outright anger by former Federal Reserve Chair Alan Greenspan, former Treasury Secretary Robert Rubin and his deputy Lawrence Summers. In fact, Greenspan, the man some affectionately called "The Oracle," spent his political capital cheerleading these disastrous financial instruments.

Telling the truth is the quickest way out of a government job.  In other news, Sara Palin did abuse her power, maybe she is a real executive after all.

Greenspan is and also has been an incompetent boob. Christ. I'm an idiot and I can tell by his television interviews that his ideas are gibberish.

In other news, Sara Palin did abuse her power, maybe she is a real executive after all.

Ah, that bastion of liberal propaganda Time opines that she has only proven her ineffectiveness at this sort of power abuse and also rather ham-handed. Needs more practice. Better finish her term as governor before trying to abuse power in Washington. Yet more proof that she's not qualified to serve at the highest level.

N~

She's not even ready to play on the 'B' team.

don't be so quick to point the finger at greenspan, there were many others involved in this financial disaster.  This whole senario was designed to happen.  Wether by conspiracy or ignorance.  When you structure a subprime home loans interest rate to reset to greater than 10% what do you expect to happen.

Audrey

QuoteWhen you structure a subprime home loans interest rate to reset to greater than 10% what do you expect to happen.

I expect people that went to High School in the United States to understand the reality of the contract and put their dreams aside till they can realistically and rationally make them happen. Too many people think that some metaphysical force is going to over ride physical reality.

people would rather pay a mortage than rent. its just that simple. If the bank says sure, then in my eyes I would go for it, whether I felt i could or not, it has nothing to do with waiting till I am ready to own a home, rather than trying to get a head in life at my own accord.

Being ready to own a home, is when the bank says your credit is good enough to give you a loan, if the bank has low standards then thats thier fault.

Marketing is propaganda. It is not in your best interest to accept marketing for they are not out for your best interest only for themselves. We have liberty in this country that means we can decide to do something, better yet not to do it. I get credit cards offers in the mail almost every day wanting to give me loans because of good credit. I could never pay the bills if I took advantage of the offers. Just because someone makes you an offer does not mean you can take advantage of it. There are no safeguards protecting you from yourself. This is called freedom and it comes with responsibilities. I would not want it any other way. Children have the protection of their parents. Adults have to protect themselves, the Government is not your parent either is any bank or corporation.

This ISNT a credit card offer though,

The choice is either I pay Rent or I can pay the same amount I would pay to rent on owning a home.

It is something we already have, not something new like a new credit line we could have if...

Its not easily simplified like that, there is no telling people to live within there means, when it means putting a roof over there head.

QuoteThe choice is either I pay Rent or I can pay the same amount I would pay to rent on owning a home.

It means you have to pay your own maintenance, taxes, insurance , are labile for someone getting hurt on your propriety, you pay for all services like water, sewer, garbage collection, home owners association, grass cutting, watering plants, etc. Owing a home is a lot more work and responsibility than renting. Plus you just can not move when you feel like. I been trying to sell mine for 2 years. The facts are very different than renting and the costs are much more for the same amount area. Most people are already living over their means in apartments. The below prime mortgages almost double within five years. Could you afford your rent doubling?

We knew in the early nineties that derivativs were bad.  Remember that this very thing happened back then, albeit on a smaller scale?  Yup.  May unions, cities, and funds tanked when the derivatives they were investing in, went south.  Seriously, no one remembers?

See?  There's the problem. We don't care to remember.  We don't even pay attention.

Yes, sub prime mortgages are part of the recipie, but it is the derivative trading that bundled them up to something unrecognizable.

The big firms took their smaller mistakes of the early nineties, cleaned up their packaging, and issued the same radioactive paper in new binders.

I am SO glad that I moved all my holdings to cash a year ago.  You see... I paid attention.

Cindi

Quote from: Cindi Jones on October 14, 2008, 06:55:02 PM
Yes, sub prime mortgages are part of the recipie, but it is the derivative trading that bundled them up to something unrecognizable.

Ah, yes, the cover-up is worse than the crime. Well, perhaps, but sub-prime was also a cover-up.

We have borrowed against the future for two decades or more, through massive government and private debt and massive trade deficits. Tricky financial instruments were just one of the many patches that kept the bubble going a bit longer. I expect that whatever is done to better regulate these kinds of deals will do little to fix the underlying problems.

Quote from: Alyssa M. on October 14, 2008, 07:12:14 PM

Quote from: Cindi Jones on October 14, 2008, 06:55:02 PM
Yes, sub prime mortgages are part of the recipie, but it is the derivative trading that bundled them up to something unrecognizable.

Ah, yes, the cover-up is worse than the crime. Well, perhaps, but sub-prime was also a cover-up.

We have borrowed against the future for two decades or more, through massive government and private debt and massive trade deficits. Tricky financial instruments were just one of the many patches that kept the bubble going a bit longer. I expect that whatever is done to better regulate these kinds of deals will do little to fix the underlying problems.

The thing is, when you borrow, you typically have a hard asset to show for it.  Our nation's borrowing however has no hard assets to show for its investment.  For all that wealth has been transferred to the upper echelons of the highest class in our society.  They actually HAVE that wealth.  I can't believe that so many of my fellow citizens are standing in line for more of the same.

I DO hope that part of our nation's "bailout" program involves a huge sum devoted to infrastructure improvements and energy development projects.  Those are hard assets.

Cindi

Quote from: Cindi Jones on October 14, 2008, 06:55:02 PM
We knew in the early nineties that derivativs were bad.  Remember that this very thing happened back then, albeit on a smaller scale?  Yup.  May unions, cities, and funds tanked when the derivatives they were investing in, went south.  Seriously, no one remembers?

Orange County bankruptcy, hopefully people remember that...and many other examples of derivatives trading. When times are good, those involved in those investment make a lot of money. When they turn the wrong way, then bankruptcy and financial collapse follow. Even derivatives traders and PhD's say they don't fully understand many of the derivatives pools. I've traded variations of them and lost a lot of money and made some good money too. In the end, if it's a personal decision and one has the $, then I say go for it. I have an issue when institutions have large pools of der. in their portfolios, but what's done is done.

Quote from: Cindi Jones on October 14, 2008, 06:55:02 PM
See?  There's the problem. We don't care to remember.  We don't even pay attention. 

The market has a short-term memory. You know there are people making tons of money right now modifying the SAME LOANS they wrote to people in the last few years. There are senior level executives running companies making money right now by buying portfolios of loans THEY packaged 2-5 years ago. So, let's see...they make 7% on a bundle of loans in 2003...the company goes under because the underlying collateral is overpriced. Then they start another company in 2008 where they buy those SAME loans back for .20 on the dollar? They hold those loans a while, get the clients to pay their payments (reduced because they renegotiated the debt with the lender) and then when the market turns a little or they find a buyer, they rebundle them and sell them again. You'll read about that in a few years I'm sure.

Quote from: Cindi Jones on October 14, 2008, 06:55:02 PM
Yes, sub prime mortgages are part of the recipe, but it is the derivative trading that bundled them up to something unrecognizable. 

I don't think they (CDO's) were that unrecognizable to people who knew what they were looking at. The problem with subprime was the insurance guaranteeing the eventually buyer of the security backed by the loans would not lose their investment. Hmm, I'm going to take a pool of 100% LTV loans (split into a first at 80% and a second at 20%) where the buyer puts NO money down in a market where values are rising 25% a year with no end in site. It was a gamble many were willing to take. You don't really foresee values dropping 50%+ in two years. 10% sure, but it's a risk you take PLUS you are insured right? Well, wrong. When every single mortgage insurance company goes under then you are in trouble...and that's exactly what happened. You could clearly understand the financial principles of what were behind the CDO's and securitized collateral. The problem was in whether those principles would stand the test of time, whether your doomsday, worst-case scenario was realistic. I was involved in many of those projection meetings and most of the #'s worst-case called for 15% depreciation. A little short, huh?

Quote from: Cindi Jones on October 14, 2008, 06:55:02 PM
The big firms took their smaller mistakes of the early nineties, cleaned up their packaging, and issued the same radioactive paper in new binders.

Kind of messed up how it happened in the 80's with S & L's (overpriced collateral and investors who didn't understand what they were buying and getting garbage in their supposedly fixed income securities), then again in '98-'99, now again, with this mess. It will happen again, just depends on how long it'll take someone to figure out how to sell the public on something "safe."

Quote from: Cindi Jones on October 14, 2008, 06:55:02 PM
I am SO glad that I moved all my holdings to cash a year ago. 

Nice move Cindi, if only so many others would have done that, but why would they? You obviously learned a lot and had a built-in skepticism, which is great! This market will, no doubt, create some skepticism and I think that's a good thing. In the end, we sit around and try to cut our expenses, drive less, don't buy so many clothes, etc. We keep our fingers crossed that we don't lose ours jobs if we have them or that we find one if we don't. We have one life, we need to learn from our past. Unfortunately, and Cindi, you really spoke to this, I have my doubts that collective society ever really does learn from it.

Quote from: lisagurl on October 14, 2008, 09:40:47 AM

QuoteThe choice is either I pay Rent or I can pay the same amount I would pay to rent on owning a home.

It means you have to pay your own maintenance, taxes, insurance , are labile for someone getting hurt on your propriety, you pay for all services like water, sewer, garbage collection, home owners association, grass cutting, watering plants, etc. Owing a home is a lot more work and responsibility than renting. Plus you just can not move when you feel like. I been trying to sell mine for 2 years. The facts are very different than renting and the costs are much more for the same amount area. Most people are already living over their means in apartments. The below prime mortgages almost double within five years. Could you afford your rent doubling?

I already maintain a rental home, I already pay water, sewer, garbage, cut the grass, water plants as well as rent.

Also taxes and HOA are built into my current rent from my landlord plus he makes $200 PROFIT on me...

Comon your not making sense here! What your saying is proposterous and IMO wrong, owning is and can be Cheaper.

Your land lord had to put an up front down payment of at least 20% to avoid mortgage insurance when he bought the house as well as points and closing costs. That money could be making money elsewhere. $25,000 at 10% return = $2500 a year or over $200 a month.

QuoteIn the end, if it's a personal decision

Every investment has risk. The expected return or loss is a matter of how much risk you are willing to take. Safe means low risk and low returns. There are too many people who do not have a balanced portfolio that are greedy and put a large portion of their portfolio into high risk investments. It is the individual responsibility to access the risk, marketing plays down the risks. Do not believe marketing. Do your own research.

Show me where I can get a 10% return per year on 25k low risk investment....

http://moneysmartlife.com/where-can-you-find-a-guaranteed-10-return/ (http://moneysmartlife.com/where-can-you-find-a-guaranteed-10-return/)

Nothing in life is low risk. Mutual funds average 12%

Prison is the only place you are guaranteed some food.

Mutual funds average much less than 12%.  If you can turn 12% consistently, then you are doing very well indeed.

Cindi

QuoteIf you can turn 12% consistently

You do not understand these are long term investments and the average return over 30 years is 12% you could lose 30% in one year and gain 40% the next. There are no guarantees just risk and time. That 12 % figure includes the crash or 29 as it will also include the resent decline by 2010 all will be normal. The problem with today's media is the beta addicted 30 second sound bite population is they can not focus on long term. Everything the consumer has to have now and is not willing to save for it as they just charge it. Then tire of it before it is paid for.

Quote from: lisagurl on October 18, 2008, 09:47:02 AM

QuoteIf you can turn 12% consistently

You do not understand these are long term investments and the average return over 30 years is 12% you could lose 30% in one year and gain 40% the next. There are no guarantees just risk and time. That 12 % figure includes the crash or 29 as it will also include the resent decline by 2010 all will be normal. The problem with today's media is the beta addicted 30 second sound bite population is they can not focus on long term. Everything the consumer has to have now and is not willing to save for it as they just charge it. Then tire of it before it is paid for.

So are you suggesting that people "tire" of thier mortages?

QuoteSo are you suggesting that people "tire" of thier mortages ?

Yes 90% of people sell their homes before they pay the 30 year mortgage. They get tired of living in the same house. It is a consumer item to be replaced by something better. Very few people in the US live in the home of their ancestors. They sell the family farm. The whole concept of art and lasting craft buy involved artist has been replaced by meaningless work preformed by laborers.

Quote from: lisagurl on October 18, 2008, 09:47:02 AM

QuoteIf you can turn 12% consistently

You do not understand these are long term investments and the average return over 30 years is 12% you could lose 30% in one year and gain 40% the next. There are no guarantees just risk and time. That 12 % figure includes the crash or 29 as it will also include the resent decline by 2010 all will be normal. The problem with today's media is the beta addicted 30 second sound bite population is they can not focus on long term. Everything the consumer has to have now and is not willing to save for it as they just charge it. Then tire of it before it is paid for.

Oh no, I understand.  That's what I meant when I used the word "consistently".  I should have been more specific.  We're on the same page.  But seriously, 12 percent is doing really well.  There are brokers that can't do that well.

Cindi

12% is awesome, if you can do that you ought to be doing it as a profession.

QuoteThe average investment club's portfolio had a 14.6 percent return compounded per year over its lifetime, vs. 12.25 percent for the Standard & Poor's index, he says

The Standard and Poor's is a unmanaged index. Professionals do not always beat it. In fact 50% usually fall short. For every winner there is a loser.

But you can buy spiders (symbol SPY) that follow the S&P index.  If you would have purchased them 5 years ago and tried to sell them today, you would have lost money.  Of course... the recent financial collapse is an oddity.  I suspect that if you were to hold them for another 5 to 10 years, you would average 10 to 11 percent over the long haul.

Of course, that assumes that our economy won't completely fall apart in the mean time.

Cidi

Quotecompounded per year over its lifetime

Quotepurchased them 5 years ago

Most long term investments are for 30 years or more. You need to look at those perspectives and plan your life accordingly. That is what you are doing with 30 year mortgages as few people realize. You should also look at it that way when deciding transition.

QuoteOf course, that assumes that our economy won't completely fall apart in the mean time.

Rome did not fall in a day and neither will the United States as Russia had a difficult time but is still chugging. Try to think beta waves in the mind rather than alfa. The fast pace TV and information jungle have bypassed human life and made us all slaves to it.

Posted on: October 21, 2008, 09:35:21 am

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Quote"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered."
Thomas Jefferson 1802

you could lose 30% in one year and gain 40% the next.

That would be a bummer. You'd still be down 2%. :(

QuoteYou'd still be down 2%.

That is why you need to look at 30 years. Funds sometimes have 4 up years to one down year. The whole illusion of being young is most can not fathom long term. They also think a few years are an eternity as they are very short sighted. The second problem is to think that having sometime in your pocket is safe. Nothing is safe when you are talking about material things.