Sunday, February 03, 2008

Where Are The Regulators?

I was reading an excellent piece by Nobel Prize winer Joesph Stiglitz on his thoughts on the World Economic Forum.

One of the things that he said that is proving to be a lesson that Wall Street sociopaths, morons, idiots, scam artists, con men, swindlers bankers refuse to acknowledge (or perhaps once a swindler always a swindler) that Stiglitz said is:

Bankers – and the rating agencies – believed in financial alchemy. They thought that financial innovations could somehow turn bad mortgages into good securities, meriting AAA ratings. But one lesson of modern finance theory is that, in well functioning financial markets, repackaging risks should not make much difference.

If we know the price of cream and the price of skim milk, we can figure out the price of milk with 1% cream, 2% cream, or 4% cream. There might be some money in repackaging, but not the billions that banks made by slicing and dicing sub-prime mortgages into packages whose value was much greater than their contents.

It seemed too good to be true -– and it was.

These are supposed to be intelligent people. US and European banks are working together to try and "shore up" the the mortgage insurers. I can't help but think this anything but smoke and mirrors to delay the day of reckoning when the risk comes home. I can not help but believe it is perpetuating a further fraud on the markets.

From my understanding of what I read in a letter from one of the largest share holders of one of these companies many of these insurance contracts have time limits. They expire and new insurance contracts will not be written.

Give the appearance that everything is ok and that the nay sayers really don't know what they are talking about and more get suckered into taking this junk off the banker's hands, or get suckered in to believing that a discount is a deal when without the appearance they are insured in fact the junk may be worth zero.

Naked Capitalism thinks that the worst thing happening here is that the bankers are spending money shore the insurance companies up when they will lose their AAA rating later.

I have more sinister beliefs, they are trying to delay the inevitable for either personal interests or because of cost is less than if it enables them to get rid of more of their junk.

So, where are the regulators and how did they let this happen?

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