The Incredible Shrinking Harvard?

You also overlook the fact that the financial meltdown was triggered when Merrill tried to get AIG to produce collateral for its CDS obligations as a counterparty and could not do so because it was so leveraged. The leverage was possible only because it didn't have to be disclosed to the public (thanks to Gramm's clarification that CDSs were not securities).

Sunshine is the best disinfectant. The investing public would have pulled their money out of AIG if they had known what was going on. Were it not for Gramm's opacity, the financial meltdown would not have been nearly as extreme.

No doubt, a clearinghouse would have served to increase transparency. But, I believe the point he's making is that none of this shit would have even been possible without the government providing the ammunition and manufacturing the "collateral." And that's what makes this so disgusting, particularly the hypocritical, self-righteous condemnation in Congress. As I said, blame stretches far and wide. Bear and Lehman deserved to go under. So does "C," even though some of its entities have value and should be divested. Instead, we are mummifying these banks, bandaging and enabling the walking dead, which will comeback to haunt us in the not-too-distant future. Barney Frank, along with Franklin Raines, should be serving an extended prison term, and yet, miraculously, they're still prominent figureheads.

But, you are right, sunshine is the best disinfectant. Too bad the government on BOTH sides of the aisle chose to further obfuscate reality. The market was never truly free. Because if it were, this NEVER could have happened.

Living in the Past wrote:

Sunshine is the best disinfectant. The investing public would have pulled their money out of AIG if they had known what was going on. Were it not for Gramm's opacity, the financial meltdown would not have been nearly as extreme.

Too bad the investing public, unlike the rest of the world which is slowly realizing that US paper is sub-prime, can't pull their money out of the US government if they "knew what was going on." And I'm not even referring to those off-balance sheet, special purpose entities like medicare.

The free market depends on the availability of information to work properly. Gramm's "deregulation" was as flawed as California's electricity "deregulation" scheme in the 1990s, which led to rolling blackouts. Gramm basically allowed AIG and others to act like Enron.

SO VERY WRONG. This meltdown occured when Goldman Sachs was hours away from going out of business in the early summer because they had the largest exposure to AIG in the world. The govenment couldn't allow Goldman to go out of business and therefore bailed out AIG. ML and everyone else were just pawns.

You're making my point for me. You can't regulate one side of the market and de-regulate the other side and expect it to work properly. Enron, like many of these financial engineers were the sharks, pursuing their own charters and chasing yield, and the government chummed them. Well-intentioned, but misguided regulation NEVER works. It only camoflauges and transfers risk. You think it was a good idea for the government to facilitate a rtaings cartel? The old ratings model worked properly.

I'm not exonerating Gramm, because you have some valid points. But, as someone already referenced here, the ramifications of his work were the "second" derivative. Not possible without the first derivative.

xcrunner5 wrote:

SO VERY WRONG. This meltdown occured when Goldman Sachs was hours away from going out of business in the early summer because they had the largest exposure to AIG in the world. The govenment couldn't allow Goldman to go out of business and therefore bailed out AIG. ML and everyone else were just pawns.

Also very true. But I take issue with the word "couldn't." Wouldn't is more like it...

You are correct Sagarin and I agree with you almost 100%. I disagree entirely with our other friend who speaks as if he is an academic with very little knowledge of what is actually ocurring in closed door meetings.

That's what they get for grade inflation. I work for a company that hires lots of ivy league grads and you can't tell the difference between the guy that aces everything and the guy who cruises along barely getting by, because everyone has at least a 3.5 (ok so I've seen a few applicants with a 3.1 or 3.2 but they're rare). And don't start with that "well they're all smart so they should all get good GPA's" bullshit. GPA isn't supposed to be an absolute measurement, it's supposed to show how you did relative to everyone else at your school. If a school gives everyone A's it has failed its job of differentiating within their classes. Most of the Ivy League sucks for this but Harvard is far and away the worst. Harvard, Princeton, and Yale students are basically identical and receive basically identical education. Princeton's average GPA is between 3.2 and 3.3... Yalies hover around 3.6... Harvard takes the cake with almost 3.8

Right, Princeton is by far the best of the three.

xcrunner5 wrote:

I disagree entirely with our other friend who speaks as if he is an academic with very little knowledge of what is actually ocurring in closed door meetings.

Nice personal attack. That's a lot easier than responding to my point regarding Phil Gramm's bill allowing the CDS racket to expand out of control and both trigger and worsen the financial meltdown.

Sagarin wrote:

You're making my point for me.

As are you for me.

My point is, how can you possibly expect to cure the disease with MORE of the same remedy? There is a massive transfer of wealth and power going to the government now that is not only prolonging and ultimately, exacerbating the problem, but it will merely serve to ensure underemployment and sub-potential growth for years to come. Let the undeserving fail, let the real suppliers and demanders of capital determine the PRICE of capital, and quit focusing on more, rather than smarter, regulation.

And, by God, if you have never even taken one class in financial innovations, let alone studied it in depth or worked in the field, keep your mouth shut.

Living in the Past wrote:

As are you for me.

STFU already Billy boy.

Sagarin wrote:

And, by God, if you have never even taken one class in financial innovations, let alone studied it in depth or worked in the field, keep your mouth shut.

That was meant as sarcasm, right? If people outside the industry don't read articles about what happened, it just lets these guys have more sway with Congress. All I know is what I got from reading articles in the WSJ and Forbes and online sources like Wikipedia. It doesn't take a specialist to understand the basic flaws in the mortgage industry and the related legislation. I know enough to understand that B. Frank and P. Gramm both played a role in the financial train wreck. It's the people who blame Frank rather than Gramm, or Congress rather than the finance industry, who have it wrong. It was a perfect storm of factors, and you don't need a graduate degree in finance to read the WSJ or Forbes or Wikipedia.

That comment wasn't necessarily aimed at you. But it would be like me coming on here and pretending to be an expert in constitutional law because I read a compelling NY Times article about it and decided to regurgitate the most salient points. 6.022 times 10 to the 23rd power would have me for lunch. Just because you can throw around the terms tranche and option-adjusted spread doesn't mean you don't have an extremely myopic view of the world.

Jeez, please point to where I claimed to have to be an expert on the subject? I merely posted on the level of someone who reads newspapers. (The WSJ did a pretty good job of covering the crisis.) I haven't used any terms on here that don't appear in the newspaper or Wikipedia.

My main point is that Gramm is as much to blame as Frank. But I can be persuaded otherwise by a clear argument. Instead, I'm told to just go away. Nice.

You're taking this too personally. I never said YOUR opinion wasn't valuable.

Ok, you simply "replied" to me since I mine happened to be the last post on the thread. Likewise, my point about not even pretending to be an expert was directed--not at you--but at "xcrunner5."