Inside job - Must watch

[Euler]

Hadn't seen this documentary until this evening, but it's a well made documentary and explanation on the sub prime financial crisis.

http://www.youtube.com/watch?v=iFfTcAcGjcU

[superfrank]

It's a good film, and I hope as many people as possible see it, but it told me nothing I didn't already know.

It was a Ponzi scheme, and those that ran it have been largely been bailed out and are still in power enriching themselves at the expense of governments and thus ordinary people.

Goldman Sachs is the biggest scum organisation of the lot - but they are still in business today because of their influence in Washington. They were insolvent and should have been allowed to fail along with every other 'investment' bank.

I know that Buffet is a hero of yours, but I lost respect for him after he bought into GS - yeah the argument is that he bought a distressed asset and it was a good deal, but I suspect he was really buying influence and information because they feared the worst and wanted to know what to do.

Anyone that can't see that the system is totally corrupt does so because they have a vested interest in not seeing it.

It's a shame Obama couldn't match his words with action.

[Euler]

I thought film lost its way a bit at the end but is was a good watch and revealing for those that were not aware of the detail. I've never agreed with Greenspans laissez faire attitude to free markets especially when it's clear massive bubbles are inflating. Better to puncture them than let them cause the havoc they have.

[superfrank]

The problem is that no one has the will or power to puncture the bubbles.

When house prices were going up 20%pa the vested interests were so strong that nothing was done, even though a few people like Roubini warned it would all end in tears...

Banks loved it - making fortunes from lending.

Governments loved it - increased tax revenues, 'growth' and popularity.

Business loved it - people borrowing and spending.

People loved it - homeowners thought they were getting rich.

Every time they say the same thing - "it's different this time" (i.e. this time it won't collapse), but it never is.

Idiots like Brown thought they were economics geniuses. At least Mervyn King hinted at problems to come when he said: "House prices are a matter of opinion, whereas debt is real."

This is a great little history book.

[Euler]

Long ago I settled on a true investing approach to the markets. One of the reasons was that is served me well and gave me a true underlying value (of sorts). A lot of the speculation I could see was based on the premise that it could be offloaded to some greater fool at a better price. If a way was found to do this then that was bad enough but leveraging that so much was always going to be completely catastrophic. People soon forget history don't they?

http://en.wikipedia.org/wiki/Long-Term_ ... Management

I hadn't seen this presentation before and it's an all time classic: -

http://www.scribd.com/doc/14090894/Whos ... Management

But the problem is that people don't want to hear about problems. I have seen it all through my career. The tool of management can be very blunt at times.

If was at the Buffett AGM in 2004 that I first learnt about some of the sub prime stuff and complex instruments and that got me worried. The last article I wrote for a financial magazine was having a go at the banking system for being completely incomprehensible and it was probably the article I wrote! (With hindsight)

[nomadic]

But the problem is that people don't want to hear about problems. I have seen it all through my career.

And further to your point, no one bonuses those who throw up road blocks. Doing a deal generates a bonus. Thwarting a bad deal does not. And as long as there continue to be incentives rampant in the system to ignore problems - and no incentives to flag them - can anything truly change?

[CaerMyrddin]

I'm looking forward to watching this movie, I was even going to watch it monday, but my wife and I decided to watch Gasland and Another Year instead, but it most be close now.

When I look into this kind of stuff (books, movies, whatever) I'm always somewhat resistant, I've been noticing that there is a growing grudge against capitalism. It's a mistake imho. We've been facing ethical and moral issues, but capitalism is still the best economic system we know. I would even dare to say that many of the problems we've been facing are political based, many issues aren't market related, they are politics related. When mr Bush decided to help Fanny May and the likes, he went against the market rules and the rules of capitalism. Offsetting the problems by nationalizing debts is going to be a headache for many years...

[hgodden]

I've been noticing that there is a growing grudge against capitalism. It's a mistake imho. We've been facing ethical and moral issues, but capitalism is still the best economic system we know. I would even dare to say that many of the problems we've been facing are political based.

Exactly. Capitalism just needs to be properly regulated by an independant entity that isn't itself part of it. The trouble is that the politicians etc who are supposed to be policing the thing rely on the richest elements of society (and often those who need the most regulation) to get them into power in the first place.

[Euler]

I agree.

Socalism has surely lost, but capitalism hasn't won just yet!

[nomadic]

When mr Bush decided to help Fanny May and the likes, he went against the market rules and the rules of capitalism.

The problem there, though, is that capitalism, while being the "least-bad economic system" we know of, is indeed flawed. And insisting on adhering to it on a pure basis would have meant the unraveling of the entire system. In the end it ultimately came down to AIG essentially, who had "insured" all of the risks. If one had insisted on sticking to "pure capitalism" and let AIG fail, then basically every financial institution that had bought insurance from AIG would have become insolvent.

Speaking of books/movies, "Too Big to Fail" did a pretty good job illustrating the "thought" process (for lack of a more apt adjective) that occurred within the U.S. financial system in 2008.

Capitalism just needs to be properly regulated by an independant entity that isn't itself part of it.

I agree with that. But the most difficult thing seems to be getting some sort of consensus opinion on what the definition of "properly" should be in this instance. Over-regulation can bring its own set of problems as well... And you're indeed right that the biggest barrier is that the politicians that need to be doing the regulating are beholden to others.

[pt9091]

cheers for the link, watched the first part on youtube and decided it was worth the dosh to buy it, looks like a great flick! so will wait for it to arrive in the post to watch the rest, looking forward to it though!

[CaerMyrddin]

In the end it ultimately came down to AIG essentially, who had "insured" all of the risks. If one had insisted on sticking to "pure capitalism" and let AIG fail, then basically every financial institution that had bought insurance from AIG would have become insolvent.

There was another way that wasn't considered and was way fairer (can I say that?)

Let them fail and use the use the huge amounts that were spent to refinance the 'true' economy by creating special credit lines. It would come as a shock wave but should have been settled by now. What we are seeing now in the US and in the Eurozone is that the money is missing somewhere. And in the end everyone's paying the bill anyway...

[nomadic]

Let them fail and use the use the huge amounts that were spent to refinance the 'true' economy by creating special credit lines.

Or let them "fail" in a way that bank regulators could have simply declared many banks insolvent, seized ownership of all shares of insolvent banks, re-capitalized those banks with taxpayer money, and then sold those shares back onto the market. At least if taxpayer money was going to be used to bail out banks, then the taxpayer should get ownership of the shares.

But to my point, the idealism of trying to adhere to "pure capitalism" prevented using this technique since it would be labeled as "nationalization" (even if only temporary). The fact that it was proven to have worked in "socialist" Sweden in the early '90's probably didn't help matters either...

[superfrank]

In the end it ultimately came down to AIG essentially, who had "insured" all of the risks. If one had insisted on sticking to "pure capitalism" and let AIG fail, then basically every financial institution that had bought insurance from AIG would have become insolvent.

There was another way that wasn't considered and was way fairer (can I say that?)

Let them fail and use the use the huge amounts that were spent to refinance the 'true' economy by creating special credit lines. It would come as a shock wave but should have been settled by now. What we are seeing now in the US and in the Eurozone is that the money is missing somewhere. And in the end everyone's paying the bill anyway...

+1.

But never gonna happen because, as the film said, it's a Wall Street government.

In the mainstream media the consensus is that allowing Lehman to fail was the big mistake, and that somehow everything would have been Ok had it been bailed. Complete rubbish, but unfortunately the sheeple believe what they're told.

[CaerMyrddin]

In the mainstream media the consensus is that allowing Lehman to fail was the big mistake, and that somehow everything would have been Ok had it been bailed. Complete rubbish, but unfortunately the sheeple believe what they're told.

I wouldn't be so sure about that. I think many people are aware of what happened and its consequences, the massive bonus, etc.

But to my point, the idealism of trying to adhere to "pure capitalism" prevented using this technique since it would be labeled as "nationalization" (even if only temporary). The fact that it was proven to have worked in "socialist" Sweden in the early '90's probably didn't help matters either...

This view is very interesting imo. There is no such a thing as pure capitalism or free markets. When a government intervenes in such a massive way, can you by any means talk about 'pure capitalism'?