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Monday, April 28, 2008

Wall Street, Run Amok

The great Ben Stein explains the "heads I win, tails you lose" self-regulation fiasco that is directly linked to the sub-prime mortgage credit crisis.

Posted by Terry O'Neill on April 28, 2008 in Current Affairs | Permalink

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"It looks to me as if the inmates are running the asylum. One truth, that deregulation is sometimes a good thing, has been followed down so long and winding a road that it has led to an immense lie: that deregulation carried to an extreme will not lead to calamity." Ben Stein

It looks to me as if Stein has completely misread this situation and has formally abandoned his tenuous tie to the free market community.

Posted by: Matthew Johnston | 2008-04-28 10:39:59 AM


Brought to you by the greatest con man of the ages . Allan Greenspan . A plan designed for , and aided and abbeted by , American piggishness.

Posted by: daveh | 2008-04-28 10:41:21 AM


Here is a "financial expert's" speech on the "free market." SJG.
Speech by Mr. B.S. Baloney, CEO of Financiers Unlimited
By Stephen J. Gray

Many of the experts of the financial world are assembled to hear one of their own speak. The speech begins.

“I am very pleased to appear before you today to update you on the financial crisis affecting us all. Let me say this, it is not, and I stress the word not, a time for gloom and doom. This is a time to renew ourselves and take advantage of the system we call the free market. The market is wallowing in cash, thanks to billions of taxpayer dollars supplied by governments. Whoever said, ‘Get the government out of the marketplace,’ was perhaps a little unkind. Our kind of people are only to happy to accept government welfare, oops I mean help when the need arises. And boy are we ever in need.( much nervous laughter ensues and some mild applause takes place.)

"We are in need because of our global greed, oops I mean need. We tried to help people. ( some cynical people might question that statement.) We gave them mortgages they could not afford. Then we sold this mortgage debt to each other through our financial institutions. Of course there were the usual inducements, finders fees, sellers fees, promotional fees, fees for fees and whatever fees one could incorporate into the deals. Some of us made huge profits and others say they took huge losses. The losers were those suckers, oops I mean the financial wizards who got to greedy and held on to the useless paper, oops I mean the debt packages for to long.

But, I digress. Anyway, some financial ships started taking on water and were in danger of sinking until some governments bailed them out. And the good news is, some of the captains of these sinking financial ships got multi-million dollar severance packages. They profited from a massive loss, and of course that kind of “expertise” must be paid for. Now if that isn’t a plus for the system out of so many minuses, I don’t know what is!

"What is so encouraging is how our free enterprise system adapts to this kind of financial crisis. With the steady hands of some of our financial alumni working for the central banks of some governments, help was available from their taxpayers monies. Billions were lost ( notice no mention of billions in profits made) and taxpayers are paying the cost. This is how it should be. Every few years the system has to be milked and boy did we milk it good. The taxpayers came to the rescue. So, let’s hear it for the taxpayers. (A huge thunder of applause fills the room and a standing ovation ensues)

“Anyway, as I said earlier the free market is a wonderful system. Mind you, there are some big losers in this situation. They are the people who have lost the equity in their homes and are now being evicted because they cannot afford the mortgages. But, there is a bright side to this. We should be able to pick up this depressed real estate at bargain basement prices. Then we can start all over again to finance and sell these assets as a good buy.

There are some people who want the government to subsidize or finance this real estate for the people being evicted. (Cries of shame and let the marketplace decide are heard from the assembled) This, I believe is a dangerous precedent. You cannot have governments interfering in the free markets because there is no free lunch.

"Thank you and don’t forget to pick up your income tax break receipt for attending my luncheon speech on the wonder of the free market”

Stephen J. Gray
March 15, 2007.
[email protected] website: http://www.geocities.com/graysinfo

Posted by: Stephen J. Gray | 2008-04-28 11:59:07 AM


Breaking News. Organized Crime has decided to go legitimate. SJG.
The Godfather Decides To Go Legitimate
By Stephen J Gray

The Godfather has gathered all the mob families together for an important announcement. He waits until all the heads of the various families are in their seats. Then he begins his talk.
The Godfather: “I have been reading the financial news and watching the financial experts on T.V. and I have come to the conclusion we have to go legitimate. I mean, why are we wasting our time in robberies, rip-offs, money-laundering, prostitution, loan-sharking and other rackets when we can make money honestly, and with very little risk.?”

Big Tony: “What do you mean Boss?”

The Godfather: “Tony you always were a slow thinker, stop interrupting and listen. We are going into the Business of Finance. We are going to promote Asset Backed Company Paper (ABCPs.)”

Big Tony: “Hey Boss, this sounds like a load of toilet paper to me.”

The Godfather: “Tony shut your big mouth and listen. This is your last warning.”

The rest of the family chime in, “Shut up Tony.”

The Godfather: “These ABCPs will be sold through some financial institutions and their subsidiaries in the financial world. There will be finders’ fees, sellers fees, companies fees, controller’s fees, fees for fees and other fees that are respectable in the business world. We will borrow money from the banks and other financial institutions and circulate our prospectus just like other financial institutions. We will have financial experts who know the free market and who are steeped in respectability to sell our products. These people will promote them for us and sell out of them for us at the same time. We will make massive profits while others make massive losses [the taxpayers]. But the great thing about it is, we will be making our money honestly.”

Big Tony: “This sounds too good to be true. At least when I stiff somebody, I can see the blood.”

The Godfather: “Tony, I am losing my patience with you. Forget all that blood stuff. Respectable financial businesses don’t operate that way. They are much more honest and sophisticated.”

Big Tony: Okay then, give us some examples why we should go legitimate?

The Godfather: “Here they are, and no more interruptions until I am finished talking. As I said earlier, I have been following the latest financial news. Governments have been bailing out the financial markets with billions of taxpayers’ dollars. Respectable financial institutions were selling debt packaged as assets; so we could do the same thing. Some of the CEOs of these respectable financial institutions got multi-million dollars in severance packages even though their institutions lost billions of dollars. This tells me that honesty is the best policy. And hard work pays off. No cops, no investigations. Just excellent rewards for hard work! And here is the clincher if we become respectable: any losses will be covered by the taxpayers in the form of government bailouts. So this is a win-win situation for us. No more worrying about cops or doing jail time, we will be in an honest business. So what do you think boys? All those in favour raise their hands. I see it’s unanimous, so let’s all head for Wall Street, mingle with the boys and get down to business.”

Stephen J. Gray
March 31, 2008.
[email protected] website: http://www.geocities.com/graysinfo

Posted by: Stephen J. Gray | 2008-04-28 12:12:41 PM


Stephen J. Gray makes me want more of Stephen J. Gray. He should write a book.

Posted by: dewp | 2008-04-28 7:41:59 PM


It looks to me as if Stein has completely misread this situation and has formerly abandoned his tenuous tie to the free market community.

Posted by: Matthew Johnston | 28-Apr-08 10:39:59 AM

So,

what is the reason for this current debakel then? Too much Government Regulation?

Posted by: Snowrunner | 2008-04-28 7:45:00 PM


Free markets don’t create market distortions. Regulations create market distortions. And in this case, Fed policy also creates market distortions.

Posted by: Matthew Johnston | 2008-04-29 1:48:10 PM


Free markets don’t create market distortions. Regulations create market distortions. And in this case, Fed policy also creates market distortions.

Posted by: Matthew Johnston | 29-Apr-08 1:48:10 PM

So to sum it up: Greed is Good, Greed keeps the markets in Balance?

Or how exactly is the free market prevented from tilting in one direction too much? What magic prevents one party (or serveral large ones) to divide markets up between themselves?

Posted by: Snowrunner | 2008-04-29 2:05:42 PM


Snowrunner, are you asking what prevents market collusion and consolidation? I don't see any collusion or consolidation in the subprime mess. In fact, the long list of financial institutions involved in some ways suggests a fragmented financial sector to me.

The basic problem as I see it is a lot of cheap money created by the Fed looking for a place, any place, to call home in an economy driven by consumption and debt and not production and saving.

I find it funny that governments spend their time creating laws, regulations and programs to force banks to lend to poor people – and then spend their time lecturing these same banks for predatory practices toward the poor when they do lend.

Posted by: Matthew Johnston | 2008-04-29 2:17:54 PM


The basic problem as I see it is a lot of cheap money created by the Fed looking for a place, any place, to call home in an economy driven by consumption and debt and not production and saving.

Posted by: Matthew Johnston | 29-Apr-08 2:17:54 PM

I don't think we can get to the bottom of this in a comment section on a blog, this would require several evenings of discourse to even scratch the surface.

Having said this, the fact that everybody was doing it doesn't really show a "fragmented" market, rather one that movies in unison. Hey, Ford has several different brands, but under the logo they are all the same as well.

But yes, the debt driven society clearly is a big part of the problem.

As for the Fed, it IS a private enterprise, the banks actually own the Fed, which is a rather "strange" arrangement if you ask me. The Fed, on the one hand, is the Gatekeeper to US currency (though there is nothing preventing anyone to create their money) while at the same time being a private enterprise. Now if that isn't Free Market, what is?

-----------------------
I find it funny that governments spend their time creating laws, regulations and programs to force banks to lend to poor people – and then spend their time lecturing these same banks for predatory practices toward the poor when they do lend.

Posted by: Matthew Johnston | 29-Apr-08 2:17:54 PM

What law has been created in the US that forces banks to lend to poor people? Yes, they did create agencies like Fannie Mae etc. which are offering mortgages to less fortunate ones, but no bank has been legislated to hand over money to someone they don't think should get it.

Posted by: Snowrunner | 2008-04-29 2:52:46 PM



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