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corysub -> RE: Frontline: Inside the meltdown (2/21/2009 12:17:22 AM)
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Frontline's documentary was well done in bringing some clarity to how the financial crisis we are living through could put us into depression. The story has yet to be fully told and financial historians will have a timeline that goes back 30 years previous to find the seeds that grew into the huge weeping willow we have today.
For a couple of decades derivative products drove the growth of real estate markets providing a "global source" of capital available to the real estate market. Huge money has an insatiable appetite for above average returns. Mortgage Backed Securities presented a dream come true...a diversified portfolio of mortgages would cushion any risk, and the strong real estate market only would serve to enhance the credit of the underlying assets, and getting an 8% yield in a 5% market wet their appetites to the point of gluttony.
Banks are always vulnerable to crashing. Their business is "lending" but now that lending could be done by investment banks with unprecedented leveraging of balance sheets..with 30-35 to one leverage. Just a 3% move in asset value...and your toast!
It is incomprehensible to me that Paulson could not have suspected that following the possiblity that Bear, Stearns counter-party issues could collapse the financial markets if a deal could not be struck, to let Lehman Brothers fail would be a multiple in terms of the impact, freeze up global credit markets, and bring trading to a grinding halt. The documentary kinda glosses over the view that maybe Paulson being "angry at Lehman's Dick Fuld could be traced to "other things in his past"..but stopped short of saying that that past was as an agressive rival of Lehman when he headed Goldman, Sachs. That is another part of the story that has yet to be told. Once the iconic House of Lehman was allowed to fail, it was like releasing vials of financial bubonic plague around the world...The system could not survive a collapse of AIG, and the resultant counter party issues that the largest insurer in the United States would present. It also happens that one of those largest parties was Goldman, Sachs!
I won't replay the entire documentary but I also feel that if one was to be fair..more pols than a Barney Frank, one of the architects of the forcing of banks to lend to people who normally could not afford to buy homes, Barney Frank, along with Maxine Waters who beat up officials whose only job was to provide oversight of Fannie Mae and FreddieMac, when they appeared before the House with a grim report on the extreme risks that those GSE's were taking with their balance sheets in the sub-prime area.
"You had a conservative secretary of the Treasury and conservative administration. There was right-wing criticism over Bear Stearns," says Congressman Barney Frank (D-Mass.), chairman of the House Financial Services Committee.
Chris Dodd gets to swing his bat too...the guy who yesterday caused the decline in the markets by his irresponsible comments about Bank of America and the banking system in general possibly haveing to be "nationalized". Here is a guy that has no clue but is just another of the political animals that survive in the jungle that is Washington. And also a guy with a sticky mortgage issue in his personal finances.
The only republican voice heard was that of Paulson. When other republicans were shown speaking from the floor of the House they were "introduced" in the documentary with the observations "all those people going before cameras to "pontificate". A bit one sided view, dontcha think.
Again, although there was a clear political message in this show overall it was well done presented an easily understood history of recent events and an explanation of MBS and CDS instruments. However, just as the seeds of the depression were sown in the early 1920's, interested observers should also do heir own research and/or wait for further historical documentaries that might be a little more balanced than one produced by WGBB, and with a timeline on this issue that goes back beyond 2008 with as full a review of how we got here.
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