San Diego Housing Bubble News and Analysis

Almost done reading the Vanity Fair article. Well written. This part bothered me the most:

"A.I.G. couldn’t afford to pay Goldman off in March 2008, but that was O.K. The U.S. Treasury, led by the former head of Goldman Sachs, Hank Paulson, agreed to make good on A.I.G.’s gambling debts. One hundred cents on the dollar."

And this:

"Cassano resigned from A.I.G. F.P. early last year, but he didn’t simply leave. He continued to turn up at his desk and spend the day staring at his Bloomberg TV. The traders thought it strange; only later did they learn that A.I.G. was still paying him $1 million a month to consult."

Consult? The guy he replaced, I could see them hiring him to consult, but Cassano?

Edit: Partway through the Atlantic. Also well-written. Sure does seem like Hank and Benny bribed/threatened BOA to buy Merrill.

"The backroom dealing and arm-twisting that kept the deal moving may have succeeded in saving Merrill from immediate collapse, but only at the expense of the health and stability of the nation’s largest bank—an institution far more important, systemically, than Merrill, and one that must now be propped up, indefinitely, no matter the cost."

"Some observers are convinced that government officials crossed a line—“There’s no question there was coercion and bribery here,”

I read the article about Merrill and BoA. I have a personal interest in what BoA did. I purchased BoA shares about 3 years ago, because I wanted some exposure to TBTF banks, and I figured that of that group, they had the least exposure to bad RE loans.

Then that schmuck Lewis took on Countrywide (and actually paid a handsome price to take them on, to add insult to injury), blowing my entire strategy. But that wasn't enough for this idiot. He went on to absorb Merrill Lynch, even paying a colossal price for a firm with negative equity.

So now his protestations that he was forced into the Merrill deal sound very weak to me. He wasn't forced into either deal: he chose to go into both. He can only blame himself for that, and we can blame him too, and we should hold him accountable.

What bugs me most is that, when Lewis finally began to realize his mistakes, and considered salvaging some value by backing out of the Merrill deal, a threat from Paulson to remove him and the board caused them to roll over and go ahead with a deal they knew, or should have known, would destroy BoA shareholders' value. These folks, who are supposed to be charged first and foremost with protecting the shareholders' interests, knowingly chose their own jobs first. In a country with a proper rule of law, these folks would all be looking at the world through vertical bars.

Yes, Ken Lewis and BofA's board screwed you over. No doubt about it. But... you begged to be screwed over when you bought the stock. First of all, God himself was incapable of understanding BofA even before the Opaque Behemoth acquired Countrywide and Merrill. The company has been unanalyzable for years. The acquisitions of Merrill and Countrywide just made BofA more unanalyzable. The 25 largest banks in the country are completely incomprehensible. The largest insurance companies - more so. And the boards of most of these companies are horrible. And they have been for years. So, while your experience with BofA is unfortunate, you're really begging for trouble when you buy a publicly-traded company (over which you exercise no influence) that is virtually impossible to decifer... even from the inside of the company.

I had some idea of BoA's exposures. Not as much as I'd like, but enough to satisfy me based on the limited time I had for research (a few hours) and the dollar amount.

I do not think it's a good idea for the leadership of public companies in general, and the biggest publicly traded financial institutions in particular, to have divided loyalties. And I am unsatisfied that our system for regulating companies allows egregious examples of divided loyalty. If the only way that you could trust company management of a publicly traded company not to rip you off was sheer trust, then the entire public company route for allocating capital efficiently across the economy would be terribly, and unnecessarily inefficient.

So sure, I bear responsibility for choosing BoA stock, and I am not blaming anyone else for my own choice. But that doesn't take Ken Lewis or his board of the hook for very bad choices, and for putting themselves ahead of their shareholders improperly. To the extent that the SEC or other regulatory bodies are charged with ensuring we have the most efficient system for allocating capital across our economy, then they also failed when they permitted such behavior.

Long form journalism and the media in general are getting it wrong. Their populist bias is unmistakable. Wall Street is bad, main street is the victim. As a tax payer, I'm more angry that Fannie, Freddie, and Ginnie are being propped up by the Fed and Treasury.

$1.5 TRILLION - The Treasury and the Federal Reserve have begun buying debt and mortgage-backed securities from Fannie Mae, Freddie Mac and Ginnie Mae.

$400 BILLION - The companies were put into conservatorship and the Treasury initally pledged up to $200 billion to cover their losses. Freddie Mac has now received almost $45 billion and Fannie Mae $15 billion

Does anyone else see the bias here?

Yes.

I think it's fairly inefficient. Not horrific, but not particularly efficient. And I think the last 15 years have proven that fact.

Agree 100%. Ken Lewis should have been fired and the entire board replaced. Of course that applies to many of the largest financial institutions.

Not trying to kill the thread, but probably will by using the Hitler analogy. He demonized the Jewish bankers and the Dems. demonize wallstreet, yet voted for the bail outs! Huh? The government is the problem. Wake up and smell the corruption of both parties. Bush started it and no one is stopping it. Where is the change? Where is the transperancy?

Populist bias? Now the journalists are the problem? First of all, Fannie/Freddie aren't Main Street. They're as insider as you can get.

Second, this is not a standard business cycle. Enormous amounts of fraud took place in the financial industry. More money was lost through leverage games on 'Wall Street' than the entire sum total of all of the real property in America. It wasn't 'Joe the Plumber' flipping condos.

And while most of this 'lost wealth' was fictitious to begin with, we're socializing the losses (WELFARE for BANKSTERS) just to preserve the stability of our country. The Greatest Bank Robbery of All-Time.

High-level principals and insiders in the FIRE sector are primarily responsible for this disaster. The dislocations we're experiencing in our economy right now, orders of magnitude worse than a business cycle downturn, are the result. 'Main Street' didn't put capitalism at-risk.

ANY news, journalism, blogs, etc. that sheds light on this sordid mess, exposes the fraud, restores transparency -- that's a good thing. The bias is incidental and appropriate, because there's a concerted effort to cover things up.

Gandalf: Dude! Welcome back! I haven't seen you post in a while.

I'm curious as to your take on a couple things at this juncture. First, and most obviously, what's your take on Obama as President, and, second, what's your take on his Administration, specifically his actions on GM, Chrysler and AIG?

Not trying to stir anything up, just genuinely curious as to your thoughts. You were a proponent of Obama's, but, as I recall, you were predicating your support on his ability to govern from the center and not be a straight ticket Dem.

Welcome back G. Glad you are still around!