The Nation: The Subprime Bailout (One way or another, banks will get taxpayer help to undo the mess)

[marmar]

howl | posted November 14, 2007 (web only)
The Subprime Bailout
Nicholas von Hoffman



You've heard about Nero fiddling while Rome burned, but what if he had been playing golf? Something of that sort occurred this summer as Wall Street spiraled into loss and hysteria. The Wall Street Journal discovered this: "A crisis at Bear Stearns Cos. this summer came to a head in July. Two Bear hedge funds were hemorrhaging value. Investors were clamoring to get their money back. Lenders to the funds were demanding more collateral. Eventually, both funds collapsed."

But "during 10 critical days of this crisis--one of the worst in the securities firm's 84-year history--Bear's chief executive wasn't near his Wall Street office.... In summer weeks, he typically left the office on Thursday afternoon and spent Friday at his New Jersey golf club, out of touch for stretches.... In the critical month of July, he spent 10 of the 21 workdays out of the office, either at the bridge event or golfing, according to golf, bridge and hotel records."

Cayne is not the only CEO who is big enough not to let gigantic losses to his business distract him from his golf game. Stanley O'Neal at Merrill Lynch (losses of more than $8 billion) was also out on the greens, devoting himself to the game that is fast coming to be as much of a symbol of oligarchic excess as executive yachts and the private jets.

Virtually every major bank, brokerage and investment house in the United States and Europe is looking at the possibility of multibillion-dollar losses. Nobody knows how much. Even now the questions that have hung over the universe of subprime and kindred mortgages and loans for the past two or three years still hang in the air.

Exactly how stinky these loans are, how much was paid out for them, how much was borrowed, who owns them, what happened to them--these questions have not yet been publicly resolved. The banks and other Wall Street institutions may know and may not be telling for fear that if the facts got out, it would look as though they were on the ropes or even bankrupt. Or they may not know themselves, strange as that may seem to those of us who are compelled by circumstances to account for each and every one of our dollars. ......(more)

The complete piece is at: http://www.thenation.com/doc/20071126/howl

[whistle]

1. Central Banks and Hedge Fund gamblers are getting cash bailouts worth

....hundreds of billions of dollars while homeowners and local chartered banks are being bankrupted and homeowners are being foreclosed on their mortgages and thrown out into the streets by the tens of thousands all across this nation.

[Supersedeas]

2. rewarding incompetence....again....it's the Repig way

[DCKit]

7. Hey, it worked for the S&L scandal part I, just ask Poppy and Neil!!

re: Silverado Savings and Loan

[sicksicksick_N_tired]

3. I call it "WHORE-FARE",...unlike WELL-FARE for those who need help.

I was amazed to catch a Republican policy spokesman on CSPAN this morning firmly stating that the role of government was to create an environment encouraging human liberty, not sustaining human life, while simultaneously justifying funneling national (taxpayer) treasure to big companies because THEY ensure a job to folks.

Talk about twisted.

[HCE SuiGeneris]

4. More on hedge funds

posted before on DU: http://www.youtube.com/watch?v=SJ_qK4g6ntM

A taste of Brit humour.

[Oilwellian]

5. That was painfully brilliant

Thanks for posting.

The bailout is part of the plan. Think S & L scandal of the 80's.

[necso]

6. "What we know for a certainty is

that the mortgages were packaged by the big banks and investment houses in many different ways, then chopped up and sold as bonds of various kinds, some high-risk, with commensurate interest rates, and some low-risk."

I've been wondering about this; for real estate loans to go to zero value, generally it seems that the original loans had to have been sliced and diced, with the equivalent of second (...) mortgages being carved out for even higher returns.

And if for rating purposes, these (bundled) loans were considered as being independent risks (as opposed to all being functions of a shared root -- real estate prices), then it's easy to understand how this mess was created.

Add to this questionable appraisals/loans and "securities" investors being unaware of exactly what they were buying, then a largely unregulated feeding-frenzy of obscene proportions becomes apparent.

I do, however, think there's been some overreaction (although I expect more problems to come); and I suspect that some of the sharper players will find ways to make money from other people's losses. (Eg, if there's value left in some of what has been "written off".)

They usually do.