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(Bloomberg)   Cool: Former Citibank employee blows the whistle on bad mortgages, gets $31 million for her efforts. Sad: She says the case did nothing to fix the situation   (bloomberg.com) divider line 54
    More: Hero, Citigroup, Federal Housing Administration, Neil Barofsky, O'Fallon, berg Markets, about:blank  
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4199 clicks; posted to Business » on 19 Jun 2012 at 2:46 PM (2 years ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2012-06-19 11:42:32 AM
The most interesting part of the article?

President Barack Obama invoked the JPMorgan loss as more evidence of the need for tighter regulation of Wall Street. Mitt Romney, the presumptive Republican presidential nominee, has meanwhile continued to call for the repeal of Dodd-Frank, the law Sherry Hunt followed when she blew the whistle on her employer.


Wow, Romney really DOES care about the little people.
 
2012-06-19 11:53:59 AM
Learn? From our mistakes? Don't be ridiculous.
 
2012-06-19 12:30:53 PM
My first UX job was at the O'Fallon office. Worked with a lot of awesome people out there, and the jeans badges were great. The funds go to a good cause, and you get to dress down every day. Not everyone there is as evil as TFA makes it out to be, and despite the large cube farm, there is a good sense of teamwork in there.

It was pretty tough to watch when the downturn hit though. Whole wings of the building were emptied out in a matter of weeks - teams of processors/auditors, CSRS, etc. would be called into a team meeting. While they were being informed of their instant lay-off, their PCs were being turned off and removed from their desks, and their access was being cut. Most of the time, they were given a few minutes to pack their things, then escorted out the door. I knew some of those folks too, and they were nice, hard working people, just trying to keep up and take home their pay.
 
vpb [TotalFark]
2012-06-19 12:52:36 PM

tukatz: The most interesting part of the article?

President Barack Obama invoked the JPMorgan loss as more evidence of the need for tighter regulation of Wall Street. Mitt Romney, the presumptive Republican presidential nominee, has meanwhile continued to call for the repeal of Dodd-Frank, the law Sherry Hunt followed when she blew the whistle on her employer.


Wow, Romney really DOES care about the little people.


Yep. Hates 'em.
 
2012-06-19 01:41:01 PM
I thought it was cool that the lady had integrity and stood up for what's right but... wow.... $31 million?
 
2012-06-19 02:48:08 PM
The HERO tag and the SAD part of the headline don't really mesh.....
 
2012-06-19 02:52:20 PM

vpb: tukatz: The most interesting part of the article?

President Barack Obama invoked the JPMorgan loss as more evidence of the need for tighter regulation of Wall Street. Mitt Romney, the presumptive Republican presidential nominee, has meanwhile continued to call for the repeal of Dodd-Frank, the law Sherry Hunt followed when she blew the whistle on her employer.


Wow, Romney really DOES care about the little people.

Yep. Hates 'em.


Not true some of his friends own them
 
2012-06-19 03:13:12 PM
Citigroup behaving badly as late as 2012 shows how a big bank hasn't yet absorbed the lessons of the credit crisis despite billions of dollars in bailouts, says Neil Barofsky, former special inspector general of the Troubled Asset Relief Program.

"This case demonstrates that the notion that the bailed-out banks have somehow found God and have reformed their ways in the aftermath of the financial crisis is pure myth," he says.

Hey idiot. They didn't learn BECAUSE they were bailed out. Why would they learn from being bailed out?

This is exactly the reason they shouldn't have been bailed out. The firm should have gone under and the execs and board sued into bankruptcy by the employees, shareholders, and debt holders.
 
2012-06-19 03:14:49 PM

Cythraul: Learn? From our mistakes? Don't be ridiculous.


No one said anything about it being a mistake.
 
2012-06-19 03:15:36 PM

tukatz: I thought it was cool that the lady had integrity and stood up for what's right but... wow.... $31 million?


Whistleblower rules. If you can contribute to a case that ends up in a settlement, you get a portion of the government's loot.

Disproportionate in some instances, but the rationale is it'll provide more incentive to come forward.
 
2012-06-19 03:18:54 PM

tukatz: The most interesting part of the article?

President Barack Obama invoked the JPMorgan loss as more evidence of the need for tighter regulation of Wall Street. Mitt Romney, the presumptive Republican presidential nominee, has meanwhile continued to call for the repeal of Dodd-Frank, the law Sherry Hunt followed when she blew the whistle on her employer.


Wow, Romney really DOES care about the little people.


Well, Dodd Frank is a farking disaster. Regulation is necessary, and improving regulation should be a goal. But Dodd frank is an overly complicated ineffective pile of crap.
 
2012-06-19 03:31:21 PM

MugzyBrown: Citigroup behaving badly as late as 2012 shows how a big bank hasn't yet absorbed the lessons of the credit crisis despite billions of dollars in bailouts, says Neil Barofsky, former special inspector general of the Troubled Asset Relief Program.

"This case demonstrates that the notion that the bailed-out banks have somehow found God and have reformed their ways in the aftermath of the financial crisis is pure myth," he says.

Hey idiot. They didn't learn BECAUSE they were bailed out. Why would they learn from being bailed out?

This is exactly the reason they shouldn't have been bailed out. The firm should have gone under and the execs and board sued into bankruptcy by the employees, shareholders, and debt holders.


I'm not a financial expert in ANY sense of the word but wouldn't bailing them out, then breaking them up, be a better approach? Just letting them die would have been worse for EVERYONE. I would have liked to seen a temporary nationalization of them, then broken into the appropriate pieces, then slowly eeked back into the private sector.
 
2012-06-19 03:35:31 PM

tukatz: The most interesting part of the article?

President Barack Obama invoked the JPMorgan loss as more evidence of the need for tighter regulation of Wall Street. Mitt Romney, the presumptive Republican presidential nominee, has meanwhile continued to call for the repeal of Dodd-Frank, the law Sherry Hunt followed when she blew the whistle on her employer.


Wow, Romney really DOES care about the little people.


and as someone who's more to the right of the aisle, it's observations like that which make it much easier for me to cast a vote to re-elect President Obama.

/need to check on that one, as I didn't realize it before
//plenty of other stuff keeps me from supporting Romney
///still... he's not as bad as my Congressional Reps. who are also Republican. Voting against them as well
 
2012-06-19 03:47:25 PM

DirkValentine: MugzyBrown: Citigroup behaving badly as late as 2012 shows how a big bank hasn't yet absorbed the lessons of the credit crisis despite billions of dollars in bailouts, says Neil Barofsky, former special inspector general of the Troubled Asset Relief Program.

"This case demonstrates that the notion that the bailed-out banks have somehow found God and have reformed their ways in the aftermath of the financial crisis is pure myth," he says.

Hey idiot. They didn't learn BECAUSE they were bailed out. Why would they learn from being bailed out?

This is exactly the reason they shouldn't have been bailed out. The firm should have gone under and the execs and board sued into bankruptcy by the employees, shareholders, and debt holders.

I'm not a financial expert in ANY sense of the word but wouldn't bailing them out, then breaking them up, be a better approach? Just letting them die would have been worse for EVERYONE. I would have liked to seen a temporary nationalization of them, then broken into the appropriate pieces, then slowly eeked back into the private sector.


That's what we made other countries do back in the 90s (I think most of the Scandinavian ones; I'd have to check). It worked pretty damn well.

So of course we wouldn't do that here because soshalism, duh...
 
2012-06-19 03:55:36 PM

DirkValentine: I'm not a financial expert in ANY sense of the word but wouldn't bailing them out, then breaking them up, be a better approach? Just letting them die would have been worse for EVERYONE. I would have liked to seen a temporary nationalization of them, then broken into the appropriate pieces, then slowly eeked back into the private sector.


Bailing them out is what caused us to have these giant, undercapitalized, zombie banks we have today holding empty assets on their books
 
2012-06-19 04:17:28 PM

MugzyBrown:
This is exactly the reason they shouldn't have been bailed out. The firm should have gone under and the execs and board sued into bankruptcy by the employees, shareholders, and debt holders.


If these we were somehow able to freeze society so that the damage the banks did when they failed was nullified I might agree with you. However, as has been discussed ad infinitum on these and many other boards, the f*ckers have their tentacles in so much other sh*t that if they fell they would take us all with them. It's their interconnectedness with other segments of our economy, out civilization that make things run so well when times are good and f*ck up so badly when times are worse.

These banks, when they fail, are like cancer. The lawsuits can happen when the dust settles... time was not on the governments side when the bailouts happened. Whatever was going to happen had to happen NOW and could not wait the years it might take for lawsuits to wind their way through the courts.
 
2012-06-19 04:20:13 PM

Debeo Summa Credo: tukatz: I thought it was cool that the lady had integrity and stood up for what's right but... wow.... $31 million?

Whistleblower rules. If you can contribute to a case that ends up in a settlement, you get a portion of the government's loot.

Disproportionate in some instances, but the rationale is it'll provide more incentive to come forward.


and it's a pretty safe bet she'll never find work in the banking industry again.
 
2012-06-19 04:24:31 PM

Mr.Tangent: Debeo Summa Credo: tukatz: I thought it was cool that the lady had integrity and stood up for what's right but... wow.... $31 million?

Whistleblower rules. If you can contribute to a case that ends up in a settlement, you get a portion of the government's loot.

Disproportionate in some instances, but the rationale is it'll provide more incentive to come forward.

and it's a pretty safe bet she'll never find work in the banking industry again.


She's up 31 million. if she plays her cards right and doesn't go nuts, then finding a job will be low on her priorities list
 
2012-06-19 04:30:14 PM

MugzyBrown: DirkValentine: I'm not a financial expert in ANY sense of the word but wouldn't bailing them out, then breaking them up, be a better approach? Just letting them die would have been worse for EVERYONE. I would have liked to seen a temporary nationalization of them, then broken into the appropriate pieces, then slowly eeked back into the private sector.

Bailing them out is what caused us to have these giant, undercapitalized, zombie banks we have today holding empty assets on their books


I'm pretty sure it was the Grahm-Leach-Bliley act that Clinton signed that allowed the investment banks to merger with commercial banks.

ie. LACK OF REGULATION
 
2012-06-19 04:31:13 PM

Unoriginal_Username: She's up 31 million. if she plays her cards right and doesn't go nuts, then finding a job will be low on her priorities list


I think you missed the point, but you are correct about her current situation.
 
2012-06-19 04:45:35 PM
The fraud will continue until the punishment exceeds by a multiple of the profit gained through the fraud. Right now companies pay a portion of the profit, which isn't a disincentive at all. If it isn't a disincentive, it means that the government is either just getting their cut and/or, as I believe far more likely the case, trying to give the appearance of legitimacy. The reason I can't imagine the government is running a protection racket is the government can give a poop less what kind of gap they have between spending and revenue.
 
2012-06-19 04:47:10 PM

lockers: The fraud will continue until the punishment exceeds by a multiple of the profit gained through the fraud. Right now companies pay a portion of the profit, which isn't a disincentive at all. If it isn't a disincentive, it means that the government is either just getting their cut and/or, as I believe far more likely the case, trying to give the appearance of legitimacy. The reason I can't imagine the government is running a protection racket is the government can give a poop less what kind of gap they have between spending and revenue.


This would not be significantly different than if the penalty for robbing banks were to give 10% of the money back if you're caught. A lot of people would begin doing it, I'd wager.
 
2012-06-19 05:02:53 PM

Unoriginal_Username: Mr.Tangent: Debeo Summa Credo: tukatz: I thought it was cool that the lady had integrity and stood up for what's right but... wow.... $31 million?

Whistleblower rules. If you can contribute to a case that ends up in a settlement, you get a portion of the government's loot.

Disproportionate in some instances, but the rationale is it'll provide more incentive to come forward.

and it's a pretty safe bet she'll never find work in the banking industry again.

She's up 31 million. if she plays her cards right and doesn't go nuts, then finding a job will be low on her priorities list


Not sure but that might have been Mr. Tangent's point. The whistleblowing "rewards" have to be enough that people are willing to come forward even if they feel it would blackball them from whatever industry theyre in.
 
2012-06-19 05:09:11 PM

tukatz: I thought it was cool that the lady had integrity and stood up for what's right but... wow.... $31 million?


Is she single?
 
2012-06-19 05:10:11 PM
still flaunting federal law in 2012...years after the bail out and no one has gone to prison yet?
 
2012-06-19 05:44:55 PM

Mr.Tangent: Unoriginal_Username: She's up 31 million. if she plays her cards right and doesn't go nuts, then finding a job will be low on her priorities list

I think you missed the point, but you are correct about her current situation.


That is a possibility, it is Monday part 2
 
2012-06-19 06:02:31 PM

MugzyBrown: Citigroup behaving badly as late as 2012 shows how a big bank hasn't yet absorbed the lessons of the credit crisis despite billions of dollars in bailouts, says Neil Barofsky, former special inspector general of the Troubled Asset Relief Program.

"This case demonstrates that the notion that the bailed-out banks have somehow found God and have reformed their ways in the aftermath of the financial crisis is pure myth," he says.

Hey idiot. They didn't learn BECAUSE they were bailed out. Why would they learn from being bailed out?

This is exactly the reason they shouldn't have been bailed out. The firm should have gone under and the execs and board sued into bankruptcy by the employees, shareholders, and debt holders.


No, we absolutely needed to bail out those banks. And then we needed to chop them up into smaller banks that wouldn't need to be bailed out because they'd never be big enough to hold the world's economy hostage again.
 
2012-06-19 06:18:10 PM

Debeo Summa Credo: tukatz: The most interesting part of the article?

President Barack Obama invoked the JPMorgan loss as more evidence of the need for tighter regulation of Wall Street. Mitt Romney, the presumptive Republican presidential nominee, has meanwhile continued to call for the repeal of Dodd-Frank, the law Sherry Hunt followed when she blew the whistle on her employer.


Wow, Romney really DOES care about the little people.

Well, Dodd Frank is a farking disaster. Regulation is necessary, and improving regulation should be a goal. But Dodd frank is an overly complicated ineffective pile of crap.


So is the Republican't party, but they could improve by not crushing the common folk underfoot.

(From a Wisconsinite who watched her state recently purchased by billionaires.)
 
2012-06-19 06:23:14 PM
vpb


tukatz: The most interesting part of the article?

President Barack Obama invoked the JPMorgan loss as more evidence of the need for tighter regulation of Wall Street. Mitt Romney, the presumptive Republican presidential nominee, has meanwhile continued to call for the repeal of Dodd-Frank, the law Sherry Hunt followed when she blew the whistle on her employer.


Wow, Romney really DOES care about the little people.

Yep. Hates 'em.


Analogy:
Dodd-Frank is to banking regulation as a sledge hammer to your crotch is to birth control.
 
2012-06-19 07:33:44 PM

Debeo Summa Credo: tukatz: The most interesting part of the article?

President Barack Obama invoked the JPMorgan loss as more evidence of the need for tighter regulation of Wall Street. Mitt Romney, the presumptive Republican presidential nominee, has meanwhile continued to call for the repeal of Dodd-Frank, the law Sherry Hunt followed when she blew the whistle on her employer.


Wow, Romney really DOES care about the little people.

Well, Dodd Frank is a farking disaster. Regulation is necessary, and improving regulation should be a goal. But Dodd frank is an overly complicated ineffective pile of crap.


Thanks to bank lawyers and lobbyists. Fark Dodd-Frank it is a mess. We should reinstate Glass-Steagall and be done with it.
 
2012-06-19 07:50:39 PM

Zombie Butler: Debeo Summa Credo: tukatz: The most interesting part of the article?

President Barack Obama invoked the JPMorgan loss as more evidence of the need for tighter regulation of Wall Street. Mitt Romney, the presumptive Republican presidential nominee, has meanwhile continued to call for the repeal of Dodd-Frank, the law Sherry Hunt followed when she blew the whistle on her employer.


Wow, Romney really DOES care about the little people.

Well, Dodd Frank is a farking disaster. Regulation is necessary, and improving regulation should be a goal. But Dodd frank is an overly complicated ineffective pile of crap.

Thanks to bank lawyers and lobbyists. Fark Dodd-Frank it is a mess. We should reinstate Glass-Steagall and be done with it.


Glass steagall, FWIW, wouldnt have done anything to prevent the last crisis.
 
2012-06-19 08:37:45 PM

Debeo Summa Credo: Zombie Butler: Debeo Summa Credo: tukatz: The most interesting part of the article?

President Barack Obama invoked the JPMorgan loss as more evidence of the need for tighter regulation of Wall Street. Mitt Romney, the presumptive Republican presidential nominee, has meanwhile continued to call for the repeal of Dodd-Frank, the law Sherry Hunt followed when she blew the whistle on her employer.


Wow, Romney really DOES care about the little people.

Well, Dodd Frank is a farking disaster. Regulation is necessary, and improving regulation should be a goal. But Dodd frank is an overly complicated ineffective pile of crap.

Thanks to bank lawyers and lobbyists. Fark Dodd-Frank it is a mess. We should reinstate Glass-Steagall and be done with it.

Glass steagall, FWIW, wouldnt have done anything to prevent the last crisis.


No, but it would have limited the crisis to investment banks. What really would have prevented the crisis was regulation of the derivatives markets including (especially) an open exchange of the financial tool.
 
2012-06-19 09:41:45 PM

YoungLochinvar: So of course we wouldn't do that here because soshalism, duh...


Funny how today's so-called Republicans would consider Teddy Roosevelt to be a "socialist."
 
2012-06-20 03:05:15 AM
does anyone know if in the entire history of the consumerists crappy existence they have written an article that provides any more biographical information about the subject of an article than their first name?
 
2012-06-20 04:26:38 AM
The IRS and the SEC absolutely HATE whistle blowers. They force them to actually do their jobs.
 
2012-06-20 07:57:40 AM
Fixed her situation, didn't it.
 
2012-06-20 07:59:13 AM

Land Ark: Cythraul: Learn? From our mistakes? Don't be ridiculous.

No one said anything about it being a mistake.


Indeed. Goldman Sachs "mistaked" their way to billions in profits.

Mistake my ass.
 
2012-06-20 08:32:16 AM

Grand_Moff_Joseph:

It was pretty tough to watch when the downturn hit though. Whole wings of the building were emptied out in a matter of weeks - teams of processors/auditors, CSRS, etc. would be called into a team meeting. While they were being informed of their instant lay-off, their PCs were being turned off and removed from their desks, and their access was being cut. Most of the time, they were given a few minutes to pack their things, then escorted out the door. I knew some of those folks too, and they were nice, hard working people, just trying to keep up and take home their pay.



Little Eichmanns
 
2012-06-20 09:52:53 AM
So... who's in prison for this right now? Clearly people were responsible for financal fraud here. Widespread even. And there's a whistleblower.

So why isn't anyone in jail?
 
2012-06-20 09:55:35 AM

MugzyBrown: Citigroup behaving badly as late as 2012 shows how a big bank hasn't yet absorbed the lessons of the credit crisis despite billions of dollars in bailouts, says Neil Barofsky, former special inspector general of the Troubled Asset Relief Program.

"This case demonstrates that the notion that the bailed-out banks have somehow found God and have reformed their ways in the aftermath of the financial crisis is pure myth," he says.

Hey idiot. They didn't learn BECAUSE they were bailed out. Why would they learn from being bailed out?

This is exactly the reason they shouldn't have been bailed out. The firm should have gone under and the execs and board sued into bankruptcy by the employees, shareholders, and debt holders.


Yes, yes, and YESSSSSSSSSSS.

The myth that the world would have ended had we allowed them to go bankrupt needs to end. It might have been rocky, but the world keeps spinning, always. New people who know how to run businesses scrupulously would have started new banks, and took the business the terrible banks failed.

And definitely the people responsible would have been sued into bankruptcy instead of getting golden parachutes, effectively killing them. (as money to these people is everything)

It's a travesty, one allowed because those who run the largest banking entities also run the federal government.
 
2012-06-20 10:20:50 AM
When the penalties for malfeasance and criminal actions are less than the profit to be made, the penalties are meaningless

/Ric Romero signing off!
 
2012-06-20 10:38:16 AM

DirkValentine: I would have liked to seen a temporary nationalization of them, then broken into the appropriate pieces, then slowly eeked back into the private sector.


The FDIC already does that with consumer banks; it's called "receivership". While the bankruptcy is meandering through the courts with all these angry rich men squabbling to get their fat hands in the pot of money, the government runs the bank so there's no impact to consumers. When it's all sorted out, the FDIC hands ownership back to the private sector. Now, that's a deliberate oversimplification so I'm sure some asshole is gonna nit-pick that, but long story short, the government getting heavily involved with a troubled bank is nothing new. . . as long as it's a small, private bank.

Investment banks are different, of course. We have to throw money at them with no strings attached. And if the public is so angry that we can't give them no-interest loans in broad daylight, we'll take over their biggest debtor (AIG) and funnel piles of money through that to meet their CDS obligations dollar for dollar.

Again, think of why the government took such an insanely indirect route. Instead of taking the investment banks into receivership, they let Goldman Sachs' biggest competitor go under, then took over an insurance company that owed GS a shiat-ton of money, then paid back those financial obligations dollar for dollar. As a means of stabilizing the financial markets it's terribly inefficient and wasteful. It's much better to just take AIG (if it was really that necessary) AND the investment banks into receivership and nullify all the transactions; the biggest reason to get the government involved is to re-negotiate bad contracts that have significant public impact. It is, however, a particularly slimy way of laundering unthinkably obscene piles of Treasury money to campaign contributors.
 
2012-06-20 10:51:33 AM

dragonchild: nullify all the transactions;


thanks for the response. Didn't know all that.

As to the part i quoted - can you "oversimplify" that, too? Is it just the transactions between the insurance company and the investment bank?

Which brings up another point I have failed to grasp during this whole debacle - insurance on investments...is that like homeowners insurance but for bankruptcy? It doesn't make sense that these big banks can insure their transactions and people can't insure their house from foreclosure (or can they? I rent, i have no clue).
 
2012-06-20 01:21:34 PM

DirkValentine: Which brings up another point I have failed to grasp during this whole debacle - insurance on investments...is that like homeowners insurance but for bankruptcy?


Not bankruptcy, per se. If I was to make a laughably deceptive sales pitch to you, it's to hedge against losses of your own bets, which aids small businesses. For example, say you're interested in investing in a small start-up, but the odds of this business going under (based on raw history) is 80%. Most people wouldn't touch that. But if you bought insurance against the loss, then the start-up can get its capital infusion and you can minimize your losses if it goes under. Your big money bets ON the start-up, but you also "hedge" against it. The bank makes money by assessing the odds and pricing the insurance accordingly -- actuarial math 101. Over time, as businesses succeed or fail, they should make a decent profit. You're protected, start-ups get their capital, bank makes money, everyone's happy.

OK, you can stop laughing now. There's nothing inherently wrong with them, mind you. It comes down to who's selling what. The original purpose (derivatives) wasn't to prevent against losses, but for price stability. For example, if you're a shipping company, you need fuel. If you don't know how much fuel is going to cost 1, 6, 12 months from now, it makes it impossible to budget and if (like most competitive industries) you rely on short-term credit and/or slim profit margins, a single price shock can drive you out of business. So you buy a contract to buy oil at a fixed price. If the price of oil skyrockets, you save a TON of money. But if it collapses, the derivatives guy makes a TON of money. The guy who sells it to you is basically betting against you, but this isn't a zero-sum game. The "win-win" here is that you're willing to take a calculated loss in exchange for instability, because the guy (not being a charity) will price the derivative based on calculations and estimates that you'll slightly overpay for the oil. Ideally both sides understand the risks. . . IF it was a perfect world.

The real world, of course, is not perfect. Note the honest derivative assumes the guy selling the contract has neither the means nor inclination to manipulate the price of oil directly. So what if the "guy" selling the derivative is a gigantic multinational bank with trillions of dollars in assets that can not only sell derivatives, but also buy oil futures and price out competition? Now it's like trying to stop a hitman by hiring him as a bodyguard. The guy can assess how much the bodyguard contract is worth vs. the hitman contract, play up fears on both sides and at the end of the day whether you live or die depends letting yourself get screwed more than the person who wants you dead. He can't lose, and you're screwed either way.

Same with the bank. The banks do buy and sell insurance against investments; but it's more accurate to say they sell bets that their investments will fail -- to other investors. This is sort of like insurance IF you buy the investment AND the bet, but only if you assume they're honest. In reality, it's a scam because they can control their own risks. Take the CDS. The terms "buyer" and "seller" get mixed up often because people have little idea of who's buying and selling -- because no real product or service changes hands. It's basically a bet between an optimist and pessimist over a debt (CDSes are unregulated as shiat so you can make unlimited bets on a debt you're not even remotely involved in). The pessimist pays the optimist regular payments as long as the debt's good. If it defaults, the optimist has to pay the pessimist a big sum of money. One key here is that the unregulated nature means you can be an optimist AND pessimist, many times over, and whether you make money depends on how much of either side you buy/sell. In the Goldman Sachs - AIG fiasco, AIG was the optimist. Here's the thing, though -- GS was also buying a crapton of bad mortgages and selling them as financial instruments -- mortgage-backed securities. They don't make much money if the mortgage stays good or prices stay flat because they've already cashed out. They HAVE, however, shed themselves of the risk if the mortgage goes bad. If the real estate market were to collapse, well. . . they don't have to eat any bad mortgages, they've made their money up front AND AIG owes them a pile of money. So to make the most money, these loans had to be as crappy as possible -- so crappy that a real estate bust HAD to happen.

Basically, GS was selling a product that isn't insurance against its investments, it's selling you a bet that pays you to insure GS against its own failures. You can see how there's a massive, MASSIVE conflict of interest here. The only way they were innocent of fraud is if the guys buying these UBER-crappy mortgages had NO idea their employer was betting against them. Does anyone seriously believe that? Anyway, the two keys here are that they HAD to sell both the crappy MBSes AND the CDSes for this scheme to work, and that to sell this insanely WTF product, they HAD to get them rated AAA (as safe as U.S. Treasuries). . . which turned out to be just a simple matter of bribing the ratings agencies. Then institutional funds (pension funds, endowments, insurance companies like AIG, etc.) with a crapton of money, a requirement to buy AAA investments and serious pressure to increase returns from their perilously underfunded accounts could buy these mysterious little presents (MBSes that drove the bubble and CDSes that bet it would burst) that offered healthy returns. It's both brilliantly clever and easily a 10/10 on the unethical scale. Would you accept an offer to provide fire insurance to an arsonist??

It's easy to get bogged down in these details, but here's a final thought: Giving the banks every last benefit of the doubt that they didn't deliberately deceive investors and just made smarter bets. . . Can you see at any point how this results in "efficient allocation of capital", which is the de facto stated mission of Wall Street (as it's essentially the phrase they resort to when defending their existence)? Because I sure as hell don't. Bear in mind a lot of these investment products they were selling up to the crash was based on residential real estate. These types of transactions did NOT get factories up and running except by the most indirect means; they had their hands buried in properties and commodities that consumers needed on a daily basis. When you follow the money to the source (selling bets to both sides on everyday consumer needs like land and oil), this was nothing other than a gigantic machine to siphon wealth from the working class.
 
2012-06-20 01:58:10 PM

dragonchild: DirkValentine: Super detailed explanation


thanks for all that. interesting to read. I keep piecing together little bits and pieces about all of it and that was a pretty good amalgamation of many facets concerning insurance/banking industry.
 
2012-06-20 02:18:52 PM

DirkValentine: thanks for all that. interesting to read.


NP, to be honest I'm surprised anyone on Fark is left with genuine curiosity.

As for how Citigroup was involved. . . I mentioned that investment banks (and Fannie Mae and Freddie Mac) were buying crappy loans. They were buying them from banks like Citigroup, no questions asked. And because they asked no questions, Citigroup was under insane pressure to approve as many loans as possible, as fast as possible -- there was no risk to them, so anyone who got in the way (like a whistleblower) was an enemy.
 
2012-06-20 07:50:32 PM
FTA: "In a Nov. 3, 2007, e-mail, he alerted Citigroup executives, including Robert Rubin, then chairman of Citigroup's executive committee and a former Treasury secretary..."

Heh, heh... the same guy who brought us the fictitious "Clinton surplus." What a surprise.
 
2012-06-20 07:54:43 PM

turtleking: still flaunting federal law in 2012...years after the bail out and no one has gone to prison yet?


That's what happens when you vote for Democrats or Republicans.
 
2012-06-20 11:19:16 PM

DirkValentine: dragonchild: DirkValentine: Super detailed explanation

thanks for all that. interesting to read. I keep piecing together little bits and pieces about all of it and that was a pretty good amalgamation of many facets concerning insurance/banking industry.


Not to take away from Dragonchild (because that was an amazing read) but you also might want to check out this Frontline episode it has some amazing interviews. I learned a ton from it even though I've been following this crisis since I was laid off in 2009 (back at work now). For instance I didn't know that credit default swaps were created by bankers from JP Morgan . I always thought they were created by Fannie Mae and Freddy Mac (stupid lame stream media.)

Dragonchild- awesome post Favorited.
 
2012-06-20 11:22:02 PM
If I earned 31 million blowing the whistle and it SHOCKINGLY didn't make a difference nobody I know would hear from me again.

Except the laughter rolling off the hills, that is

/775k a year for 40 years, before taxes, etc...my paycheck isn't near that and neither is yours
//BuuuuhBYE
 
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