May 12, 2010

But its legal!

Posted in Financial Markets, Social Commentary tagged , , at 10:02 am by Doug Brockway

This came across the e-mail today in a newsletter I read.  Its about the dealings of Goldman Sachs and their ilk in the mortgage market:  “It didn’t help, of course, that the rating agencies gave AAA ratings to many securities that were not AAA – even Enron carried an investment-grade rating days before it collapsed.”….

To me this is where one crux, at least, lies.  The sellers of CDO’s and buyers of related swaps overtly engineered high risk bonds to fool rating agencies’ standards and models and then used market pressure to get rating agencies to put their once good name on what may be legal but on the street corner is fraud.  The sellers invested a lot of time, days and weeks, in each security to do this and buyers, stupidly, made their decisions in minutes, not enough time to uncover the fraud.

My nephew the trader says they’re all big boys and should have known.  In “The Big Short” Michael Lewis shows time and again that when a bond trader calls you up to sell you something your first question is “how are they trying to f#%k me?”  But, as the hot market of the early 2000’s turned to the bubble of ’05-’07 we lost all honor among thieves.

Even if you say that’s OK, that it was “understood” (and I can’t get myself there, but leave that alone for a while), having that game played, and those risks taken based on those lies with post-Glass Stegal “main street” deposits, your and my bank deposits, is beyond disreputable.  When people suggest that its “legal” I think that so were the actions of King John,… technically….


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