Comments: A small amount of Evidence. (In which, the end of banking and the rise of markets is suggested.)

I had gone back yesterday and was reading "Two Trillion Dollar Meltdown"

from early '2009 ... Kindle edition is only $2.88 ....

and theme is quite complimentary (with quite a bit more detail) to above (even tho it didn't have details of how much money FED has been pumping in).

Posted by Lynn Wheeler at December 4, 2010 09:14 AM

some other detail ...

Ford, BMW, Toyota Took Secret Government Money

Posted by Lynn Wheeler at December 5, 2010 09:47 AM

The designed use of securitization was for the effective transfer of cashflows from loans to investors. This design was breached in that the bonus paid to the originator of the loan and the securitization package became so great and bifurcated within the institutions that they purchased their own packages to float their bonuses along with fluffy the mark to market pricing of those securities. There was a considerable amount of effort in getting the first lost traunche holder i.e. the equity traunche so that these deals could be be floated in many cases the equity traunche holders where offer rates of return close to 30% per year with the expectation of taking a loss within 5 years due to the short fall in the securitization packages collection on the debts. If one had the representations offered to the equity traunche then one would known the lack of quality in the loans used to securitize. These offerings where private and the resulting securitizations where both public and private without the buyers of the other traunches having knowledge of the equity traunche insider risk assessments.

Posted by Jim Nesfield at December 5, 2010 11:07 AM

two trillion meltdown book went into lots of the slight of hand that was rampant contributing to the whole mess ... from fudging the numbers that complex calculations were done on (i.e. past references to the inputs were fiddled until the business people got the outputs they wanted) to fake trades between institutions to maintain the mark-to-market valuations. it also went thru how some of the leveraging was actually around to 100:1 ... when slight of hand being represented as 10 or 20 to one.

other tidbits ... was toxic CDOs that were going for 22cents on the dollar ... the FED started buying at 98cents on the dollar; 20% of loans had been unregulated ... but had grown to 80% by 2006.

book sort of ended with recommendation to create barrier around regulated depository institutions (at least glass-steagall) ... and let all the rest live or die.

trivia ... car companies in order to write loans had to have chartered bank ... either a national charter that comes under FDIC or 50 state charters, with a different one for every state. there was a loop-hole with ILCs, mostly from Utah ... that were allowed to operate ... BMW is in the follow list:

Posted by Lynn Wheeler at December 7, 2010 06:00 PM

But there is also a big negative. The banks' margins were driven down in the 1990s and early 2000s by competition from new lenders, who derived much of their funding from securitisation: selling bundles of our mortgages to investors, and reinvesting the proceeds in new loans.

The global financial crisis began when this market was poisoned by American banks filling their securitised bundles with bad mortgages. As they went bad, the market for securitisation collapsed - even for Australian lenders, whose bundles remain good. And as it collapsed, so did the new lenders.

The big banks swooped, bought up their weakened rivals, and regained their lost market power. The four big banks now hold 80 per cent of all loans. The other banks have 17 per cent, and all credit unions and building societies, just 3 per cent. They're to be our fifth pillar? This will be a long wait.

We got here partly because the GFC wiped out securitisation and the new lenders, but also because in good times and bad, governments and competition regulators have allowed the big banks to gobble up their rivals.

Posted by TheAge on the Aussie experience... at December 14, 2010 06:12 AM
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