[wasp]

I just want to clear any confusion I may have aroused. I do feel sorry for the likes of Gammajammer (to a degree) but NOT those who orchestrated and allowed the ludicrous mortgage lending.

[thrunner]

There are bankers and there are bankers.

The majority of bankers making $US 100 thousand or less probably had no idea what risks their banks were taking on, while most of the CEOs, CFOs probably did and were willing participants. Margins take on risks as well as potential profits and the CEOs were eager to have their big payday and many did and some were smart to get out as Hank Paulson, the present US Treasury secretary did in 2006 with a take of more than $US 500 million from Goldman Sachs (tax free, because US laws allow tax free divest selling of stocks when you enter US government by appointment).

In 2004, the SEC allowed the major US investment banks to take on debt much higher than previous levels after the 5 major IBs lobbied for the rule change:

They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.

This is probably the single most damaging change in regulation that prompted the ultimate collapse or reorganization of all the US investment banks. Initially, their earnings exploded upwards, but no parabolic market is sustainable. Only 3 short years later the market collapsed and basically they all got margin calls, together with many of their partners in the hedge funds.

The present situation would have been a lot more manageable if they only took on debts at less than 10 to 1 instead of the 33 to 1 or even some at 60 to 1. So it is not the mortgage lending that directly led to their collapse, but the leverage that they took in the collateralized lendings.

[Kiwi]

Borrowed from jacarob1 in the joke of the day thread. Too funny.

YouTube - The Credit Crunch Song

[Kiwi]

Damn youtube; I've lost my interest in the markets; these are good:

Every breath he takes

Damn It Feels Good To Be A Banka

If you're feeling sympathy ... you have to watch the second one. LMAO.

[MidKnight]

LOL - man that was funny! Thanks for the laughs.

My best,
MK

[torero]

Well, if you're the top brass, it's a like a crap shoot knowing you'll walk with a bonus if even things don't pan out (golden parachute), so why not go for broke? Think about it. If they risk, everyone loses, but still walk with a insurance policy to keep you unemployed for a few years if not a lifetime. If you win, everyone's is happy and he get even a bigger cut. So it's win-win situation. That's the kind of backward, f-ed-up incentive and message the financial or corporate breeding we endorse? Doesn't make sense for the longest time, now the consequences are playing out, guess what? People fix things only a tragedy has happen, not before. We deserve what we got. You ignore the problem long enough, it'll come back as a massive snowball.

The other thing that's convinced me over time is no matter how smart you are, greed still own you. All these ivy leaguers who run the show in Wall St. are only human. We worship them because of the brain power. They create all these new markets using complex math formulas, wow indeed. But when it comes to greed, nothing to envy, guys. Hell with the formula, take the bigger risk and go for the gold. In the end, they can't control greed either, just like the average joe.

[zdo]

No.
But we should understand - Commercial banks had no choice. “In a time of state-sponsored easy credit all projects get financed by incautious banks with cheap, centrally supplied money. There is no market for cautiously lent money, priced correctly for the risk involved. Why would anyone pay more for funds from a cautious bank when cheaper funds are available from easier sources?” Paul Tustain. Compound that with ‘bureaucratic’ / ‘legal’ pressures to make loans to anyone who wanted to own a house… Heck, under those circumstances, I can’t even blame top level execs for demanding ‘no – lose’ compensation packages.

[james_gsx]

I voted yes, then realized most of you were talking about CEOs.

As for the guys who lost their job and were really just doing what they were told, that sucks. It's devastating to get laid off, and I can't imagine how the guys at LEH must feel after their company went bankrupt. It's not like they were running around like Tarzan taking retarded risks and knowing about it. Of course they know theres risk involved, that's the nature of this business. But I sincerely doubt any of them knew the outcome. It's probably pretty rough on those with families.

It's very easy to sit back and point out the blame, even at CEOs. I think it's stupid, because none of us really know the whole story. Even those of us who have done a lot of research, you will still never know the entire story, therefore it's pointeless to sit back and judge - especially in hindsight. And as traders, I'm kind of surprised so many of us are taking that route.

I hope we all realize how hated even we are on main street.