"Fresh Air", available on local PBS station WLRN, has a terrific segment with New York Times financial journalist and business columnist Gretchen Morgenson about the enormous jeopardy to the US economy and taxpayers by Big Banks obstructing substantive reform of their most profitable business line: those derivative debt instruments that started the economic crisis in the first place. I agree with Morgenson, 100 percent: that the failure by first Bush and now Obama to deal decisively with the problem has opened the economy to risk of an even greater downturn in the near future. When President Obama says "we are not out of the woods yet", what he fails to add is that the Big Banks that have received hundreds of billions in direct subsidies by taxpayers want more. Morgenson makes this difficult-to-understand topic easily accessible: don't miss it! You can listen to the archive, by clicking here. And when you do, remember our archive "housing crash" details why Miami is the epicenter of the collapse in home market values: this is the place where local and state politics lined up from Wall Street finance to local zoning councils to convert wetlands and farmland into housing tracts that now lie virtually worthless in pools of mortgage backed securities whose costs Morgenson describes so clearly.
4 comments:
It went over my head, but I tried.
This American Life had another in their excellent Planet Money series last weekend, dealing with botched regulation and ratings for derivatives:
http://thislife.org/Radio_Episode.aspx?episode=382
Let me try to make it simple.
Banks made a lot of money from derivatives.
Derivatives are not traded on an exchange, where transparency is required.
As a result, banks could trade just about anything with each other, in the form of debt obligations tied to housing mortgages, without really revealing the true risk behind the underlying mortgages.
It was called a shadow economy, and its size dwarfed the regulated stock exchanges.
These bets depended 1) on the complicity of rating agencies and 2) the notion that housing values would always go up.
When housing values began to fall-- because of lack of demand and vast oversupply-- it suddenly became clear that all this debt that the banks had purchased was worth only cents on the dollar.
To keep the banks afloat, the US taxpayer is spending a couple of trillion dollars.
But the banks are continuing to trade in risky derivatives of questionable value without regulation or transparency.
This is leading both to a loss of confidence in the financial sector and a rising awareness that the US economy could be in for a much rougher ride when the banks come looking for a taxpayer bailout, again.
Why is such reckless behavior tolerated? Because a small group of people make a TON of money from it.
"Fresh Air" is is heard on WLRN via NPR (not PBS). Granted, WLRN is both a public radio (NPR plus others) and public TV (PBS plus others) station. Just know for listeners on 91.3 and 91.5 it NPR. Kudos for posting the archive though!
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