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Largest ever bank heist


supercat

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Well, it looks as though the Senate is going to buy a getway car for the worlds' most expensive bank robbery. Unless Congress can stop it, the U.S. may commit economic suicide in the next couple days. STUPID STUPID STUPID STUPID!

 

The novel-length Christmas-tree piece-of-Sith legislation the Senate just passed will do nothing to resolve the effects of toxic paper in the credit derivatives marketplace, but will cost us about a trillion dollars. As a result of its passage, the crash will be worse than it would have been without it, and we'll have a trillion dollars less of credit to deal with it. :mad:

 

On the other hand, at least people who want to buy a toy bow and arrow for their kid won't have to pay an excise tax for the arrows. I guess maybe that's a good thing. :x

 

And McCain--what's up with him? He promises that he'll reject any pork-laden legislation that crosses his desk, and he'll name names. So when a bill with more pork than all the world's sausage factories combined crosses his desk, does he reject it and name names? Nah, he simply approves it. How can he expect to win with leadership like that!? STUPID STUPID STUPID STUPID!

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You realize that chinese investors started bailing out of this early on as soon as they realized what was going on right? ;)

Can't bame them for that, right? :(

 

To keep them staying, provide them a stable, steadily growing economy.

 

I agree. Hopefully the americans will do that for us Canadians as well. Unfortunately our economies are too closely tied that we can't just bail as easily as other countries. ;)

 

However as it's been pointed out, there's been nothing done to try to keep this from happening again, or to make the people who caused it pay for what they've done.

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However as it's been pointed out, there's been nothing done to try to keep this from happening again, or to make the people who caused it pay for what they've done.

I suppose (and hope) the former will be done, after the crisis has been analysed completely. E.g. the kind of utterly greedy investment banking which we had during the last years, will not be possible anymore. There have been warning about the system being doomed for at least 10 years and politicians ignored them. Now they HAVE TO react.

 

And I am afraid the later won't happen as long as the profiteers simply played by the rules which where made by politicians. You cannot punish anyone for using existing laws and you cannot punish politicians for making bad laws.

 

And since we live in a democracy, everytime we look into the mirror, we see someone who is to blame too. We elected them, and I am afraid we will reelect the same type of politicians (no competence, but looks good on TV) over and over again.

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From another thread: a primer on the scam:

 

Allow me to explain the scam. Dollar figures are somewhat arbitrary; I don't know how the conspirators actually divide the loot.

 

Adam (house flipper) has a house that's worth $50,000, and he'd like to earn some serious cash. So he and Bob ("lender") offer Charlie (random guy) a deal: sign a slip of paper and get $50,000 of free money and a place to live for a few months. Bob declares that the house is worth $400,000 and writes a $440,000 mortgage for Charlie. Charlie doesn't care that the house is being sold for many times its worth, since he's never going to pay for it anyway. He just knows he gets $40,000 of free money.

 

Anyway, Bob cuts Charlie a check for $40,000 and Adam a check for $400,000. Adam and Charlie know the house isn't really worth $400,000, but it behooves them to say it is, so Adam give Charlie a kickback so the house really only costs $200,000. At this point, Adam has made a $150,000 profit and Charlie has made a $40,000 profit, but Bob is $240,000 in the hole. He does, however, hold a mortgage with a $440,000 face value. No sane person would buy that a mortgage for anything near $440,000 or even $240,000, since there's no way it will bring in anything, but that's where David comes in.

 

David runs a credit-default-swap business. It's a little like insurance, except without the pesky regulations. David, who has a few tens of millions of dollars in assets, makes a deal with Bob: Bob pays David $100,000 up front to "insure" the mortgage, and in exchange for that David agrees to pay up to $440,000 if the borrower defaults. Now Bob has an "insured" mortgage, which he can sell for near face value. Bob was behind $240,000; if he spends $100,000 for insurance and sells the mortgage for $400,000 he'll come out $60,000 ahead. It would seem Bob's going to leave David in the lurch, but David has a plan of his own.

 

If David were to write just one of those policies, he would stand to lose about $300,000 (he was paid $100,000 to start with, and the house would likely have some residual value afterward). But if he writes a thousand of them, he'll take in $100,000,000 (which quickly gets sent overseas). Outsiders holding David's CDS (credit default swap) agreements see that his assets are large relative to the agreement they hold. There's no way they can know that he's got a few tens of millions of dollars backing up $300,000,000 worth of bad bets.

 

Sure enough, the mortgages go into default, and the holders of them come to David for reimbursement. David, however, has no intention of paying them. He's pocketed their payments, and simply points them to his few tens of millions of dollars to fight among themselves.

 

There's a bit more to it than that, but that's the basic gist.

 

How hard should it be for the government to recognize all the fraud going on and put a stop to it?

 

There's a very simple principle in economics: the only way someone can turn a profit without either generating wealth or improving the efficiency of resource allocation is if someone else loses money. In the above example, Adam, Bob, Charlie, and David all profit handsomely, but none of them does anything to generate wealth or improve the efficiency of resource allocation. It may be difficult for regulators to see exactly what's going on, but it should be obvious that Bob is giving Charlie free money for no sane reason. If one assumes that Bob is in business to make a profit, clearly Bob is using Charlie to scam someone else.

 

If Hank Paulson couldn't see that, he's an incompetent fool. If he could see that but didn't act to prevent it, he's a crook. In neither case should he be entrusted with $700B.

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The apparent crisis is going to increase further, regardless of what the government does, because the real crisis has already grown much larger than is immediately apparent.

Agreed. But unlike you, I am convinced that strong, efficient counter measures are possible.

 

Some damage control measures could reduce future damage, but a huge amount of damage has already happened but isn't apparent yet. No countermeasures can "prevent" that damage.

 

Consider the First National Bank of Pottsylvania, run by Boris Badenov....

Of course it's not worth to put any money into that bank. And I strongly doubt this is done with the bailout money.

 

I would suggest that a lot of the bailout money is going to find its way into the black hole of fraud-laden markets. What's needed is not an injection of cash, but the prosecution of the crooks involved.

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Aren't the current actions supposed to be meassures to prevent general bank runs, which would kill any bank, even a healthy one?

 

E.g. the german government extended a guarantee to all private savings accounts yesterday.

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E.g. the german government extended a guarantee to all private savings accounts yesterday.

 

The U.S. government has provided such guarantees for holders of accounts at commercial banks and credit unions for the last 70+ years.

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If nothing is done to stop the crisis from further increasing, eventually all banks will be affected. They will fall like dominoes.

 

If a company promises me $1,000,000 but the promises it has made to people total ten times as much as its assets, what should happen? I may not be able to afford losing 90 cents on the dollar, but that doesn't give me the right to foist the loss onto taxpayers or anyone else.

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E.g. the german government extended a guarantee to all private savings accounts yesterday.

 

The U.S. government has provided such guarantees for holders of accounts at commercial banks and credit unions for the last 70+ years.

Up to which limit?

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If nothing is done to stop the crisis from further increasing, eventually all banks will be affected. They will fall like dominoes.

If a company promises me $1,000,000 but the promises it has made to people total ten times as much as its assets, what should happen? I may not be able to afford losing 90 cents on the dollar, but that doesn't give me the right to foist the loss onto taxpayers or anyone else.

Looks like I didn't make myself clear enough.

 

The money is not meant to support those banks your repeatedly talk about (even though unfortunately they will profit too), but for those banks who are doing their job solid. If we don't do anything now, those banks will stop working too. There will no credits given anymore, to nobody! Which means economy will stop and stall! And in the end, that would cause taxpayers waaay more more than 700 billion dolars.

 

Your reaction is like saying, there is a fire in our house, but I won't call the fire brigade, because some flats belong to people who deserve to get burnt.

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If a company promises me $1,000,000 but the promises it has made to people total ten times as much as its assets, what should happen? I may not be able to afford losing 90 cents on the dollar, but that doesn't give me the right to foist the loss onto taxpayers or anyone else.

 

Well sure, sometimes I'm also for unleashing the lynchmob. But maybe first the current crisis should be get under control?

 

And of course the Tax payer will pay in the end, who else? Crucifying a couple of people won't bring any money back.

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(post edited by mistake--I can't find it in my cache. Sorry.)

 

Why are you editing my posts at all, John? :(

 

;)

 

It's a lot worse for me with moderating powers, about once in 2 months I mistakenly hit edit on a post I just wanted to reply/quote. Thanks heavens I managed to properly restore most of them so far ;)

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E.g. the german government extended a guarantee to all private savings accounts yesterday.

 

The U.S. government has provided such guarantees for holders of accounts at commercial banks and credit unions for the last 70+ years.

Up to which limit?

$100k per deposit is the guarantee per the FDIC, but they try to cover the full amount if it's more.

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$100k per deposit is the guarantee per the FDIC, but they try to cover the full amount if it's more.

In Germany it is now raised to unlimited too.

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IMO the US bailout was a bad bill that won't solve the real issues, and only indirectly even deals with them, but...

 

now there are much bigger fish to fry. Ever see a country go bankrupt? :(

 

Right now my biggest fear is war. I don't think it is likely, but...

 

look what happened w/ Germany vs. Austria: Germany insured deposits, so then Austria had to match to prevent a run on their banks. (Correct me if my USA news is way off, but that's what I've read happened). I don't expect Germany and Austria to go to war, but what about Pakistan, which is near default? Or what if Russia makes a huge loan to Iceland.

 

I'm afraid of situations where an entire country go bankrupt and blames it on other countries...;) Or if Russia makes that loan, Iceland still goes under, and Russia thinks someone (US?) is to blame for them losing 4B Euros.

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look what happened w/ Germany vs. Austria: Germany insured deposits, so then Austria had to match to prevent a run on their banks. (Correct me if my USA news is way off, but that's what I've read happened).

 

It's not dramatic. Germany wasn't the first to insure private deposits and Austria wasn't the last. Most European countries followed by now.

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Right now my biggest fear is war. I don't think it is likely, but...

Due to their latest war record and whom the crisis affects most, I would be most afraid of the USA.

 

But fortunately there is an election soon and currently things look bad for war mongers.

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