Things I Don’t Understand

The worst thing about this financial meltdown is the sheer volume of issues that I do not understand, and probably never will understand. Like, for example, the request of Morgan Stanley and Goldman Sachs to become Bank Holding Companies. Again, I do not understand the intricacies, but for an acknowledged financial idiot like me, the chain of events looks like this:

1.) Massive widespread panic on the markets last week. Several of the “immortals” fail.
2.) Goldman and MS get caught up in it, despite having good earnings reports.
3.) Short-sellers prey on MS and Goldman.
4.) Short-selling stopped, ginormous bailout proposed.
5.) MS and Goldman, under the cover of the short-selling ban, rush to change their status so they do not go down.

Am I missing anything? It sure looks to someone on the outside that MS and Goldman knew, internally, that they were not solvent, either, and rushed to get out while they still existed, unlike Lehman. What do they know that we do not? What does the Fed know that we do not? According to this NY Times piece, the Fed and SEC has had teams of regulators at the investment banks since March. If I were Matt Drudge, looking at what I see, I would have a red siren up stating that it is pretty obvious that Morgan and Goldman were going to fail this week.

Am I missing something? Am I way out in left field on this? Again, I know nothing about this sort of thing, I can only look at what is published officially and the reaction people have to come to my conclusions. Am I just completely wrong because this is stuff I admittedly do not understand?






51 replies
  1. 1
    srv says:

    We are all derivatives now.

    It’s like the dot-com era. People try to explain to me what their company does, and I still don’t get it.

  2. 2
    lilly Von Schtupp says:

    I’m not understanding much of this either. Seems like for a chosen few, the rule is there are no rules. Nice work if you can get it.

    I don’t think Paulson should be allowed to pee without asking first.

  3. 3
    NCProsecutor says:

    Paulson’s obvious conflict of interest is never mentioned. I mean, he’s going to be out of a job in January 2009 — where do you think he’ll be looking for work?

  4. 4
    Eric U. says:

    there is nothing to understand. This only works if everything is done in secret. The assets are worthless, this is a simple wealth transfer from the government to wall street.

  5. 5
    jake says:

    Of course they knew they weren’t solvent. A lot of the major corps will even report the amount of their debts as assets. Try that if you want a loan for a car. Go on, we’ll watch.

    GS (and possibly Lehman Bros.) has been busted for naked shorting in the past but a few months ago naked shorting began to be a problem for companies that had previously been to big to bother. As crooks became more desperate for funds (since NSing of smaller companies – the usual vics – just couldn’t provide enough cash). They started on the bigger companies with a vengance. Anyone who knew how many stocks a company had and how many were being traded daily could see it was happening and knew if it continued at a certain pace for long the company would fail.

    I think the big companies were relying on another bailout or they would have been screaming at the SEC to stop the bleeding.

  6. 6

    John – Robert Scheer has been making a hell of a lot of sense on this issue. Heard him on NPR this morning spelling it all out. Btw, he is speaking tonight in the Santa Clarita Valley (So Cal) for those lucky enough to be in the area.

    Economic Meltdown: Don’t Say We Weren’t Forewarned

  7. 7
    Chris says:

    From what I can gather on this, and IANAE, MS and GS are looking for protection and flexibility, because they foresee worse times a’comin’. This moves lets the government insure some of their assets, and it also lets them open a local “Morgan Stanley Bank” in your neighborhood, so they can take your money as deposits (a huge source of revenue). Instead of WaMu Free Checking, you can get MoSta Free Checking!

    Since opening banks takes time, they get a loan from the government to cover the costs of the transition. So, MS and GS get a loan from the government, and their assets are insured, whereas Investment Banks are not insured by the government.

    It’s an interesting move, because you can’t be sure, and probably should be wary, if they’re actually looking to open banks to add a new source of revenue, or reap goverment loans and insurance to prevent some huge corporate disaster.

  8. 8
    Doctor Gonzo says:

    My ex-wife works for MS, and she told me that although everybody acted as if it were literally the end of the world last week over there, MS was NOT in danger of failing. MS, unlike the other investment banks, was more conservative in their investments and their balance sheet looks pretty good. However, since nobody has valued all of those mortgage-backed securities properly, nobody knows how good these banks’ balance sheets really are, and the prevailing mood is one of pessimism. That’s why all of the investment banks’ stocks were being hammered.

    I don’t think MS and Goldman would have failed this week (MS probably would not have, don’t know enough about Goldman), but it was inevitable that they would be sold to somebody. Perhaps this allows them to have a bit more say over the transition from investment bank to commercial bank?

  9. 9
    Sock Puppet of the Great Satan says:

    “It sure looks to someone on the outside that MS and Goldman knew, internally, that they were not solvent, either, and rushed to get out while they still existed, unlike Lehman.”

    A cousin who’s high up in MS finance/accounting dept. hinted that they were in need of a big chunk of change this week. [It may not be a matter of solvency, just liquidity, though.]

  10. 10
    Edmund Dantes says:

    Roubini has an OP-Ed on the collapse of the Shadow Financial System. Part of the answer lies there

  11. 11
    Punchy says:

    The longer this drags out, the better things seem to look for the Dems reforms, safeguards, and oversight. Cuz when the Dems can slow things down, they usually get their way….

    Wait, what? What did you say? FISA and wiretapping? Oh…yeah….nevermind.

    We fucked.

  12. 12
    w vincentz says:

    Just a couple of more pieces to help put the puzzle together:
    1) Paulson owns roughly 600 million in Goldman Sachs stock, that he took as part of his package when he left (he was CEO donchaknow). Now that his holdings aren’t sliding as much, he’ll do fine.
    2) Rick Davis drew 35 thousand a month for the past five years as lobbyist for Fannie Mae favors.

    “Foxes” meet chickens. Or should I say “weasles”?

  13. 13
    SGEW says:

    Why do I suddenly miss Ron Paul?

  14. 14
    SnarkyShark says:

    It was one huge con game like Enron. A lot of Pols are complicit including the Dem leadership.

    The con is unraveling and the perps know the very future of the USA is at stake now. The kinda sorta knew that before, but they smugly thought that as masters of the universe, gravity was not the boss of them. Now that they are down to the last hundred feet or so, everybody is looking for a parachute.

    The royal courtesans are still demanding theirs be made of gold.

    We get cake.

  15. 15
    SpotWeld says:

    I think it’s someting like this

    In our ecomony a number of business were able to be created that made profit not from the value of thier products themselves, but from the rate at which they were able to “move money”

    It’s like an oil company was able to make money not from the selling the oil itself, but by the number of gallons they’ve pumped.

    So a bunch of businesses sunk money into building more and more pumps. Sunddendly someone realized, hey, what we’re pumping is mostly air and there’s almost now oil here. The market stopped paying for moving oil and started to switch back to being based on the value of the commodity itself.

    So now they have a huge facility of pumps. A few actually are moving some sellable oil, the rest are mud or worse, something toxic (and will actually cost money to get rid of). How much oil is there?

    No one knows. So now, I guess, the idea is to sell all the pumps to the government… but the oil will still belong to the companies in question?

  16. 16
    Napoleon says:

    My guess is that Paulsen flat out told Goldman and MS over the weekend that they convert or that they were taking them over come Monday morning.

  17. 17
    John S. says:

    Why do I suddenly miss Ron Paul?

    Because the media have swept him under the rug lest they present a narrative of a divided GOP.

    Remember, wealthy Democratic donors that won’t support Obama are BIG STORIES. Sitting GOP members of congress that won’t support McCain aren’t worthy to mention.

  18. 18
    Jim says:

    It is difficult to follow why this proposal is the one being offered. IF we’re going down this road (and its modeled after Mussolini’s fascism, not socialism) then why don’t we:
    1. Order all regulated banks and other institutions to suspend all dividend payments.
    2. Order all regulated banks and other institutions to issue additional equity (stock, preferred stock, warrants, etc.) worth, say, 25% of existing equity, of which …
    3. 10% of new equity will be purchased by the Treasury.

    Wouldn’t such a scheme (please, no quibbles with details) not re-capitalize otherwise solvent institutions, wring value out of the hands of existing shareholders, while giving the taxpayer at least a fighting chance of getting their money back eventually?

  19. 19
    nicethugbert says:

    My view is that we had too much investment banking, particularly of the retarded kind. So, I say good riddance to it and make it so it never comes back.

    While, yes, this could be the next Great Depression, at the moment it is not. What we have here is an implosion of investment banking(of the retarded kind) and the exposure of short selling, including it’s manipulation of markets.

    This is essentially dot com for the wealthy. Good for them, not my problem. Where were they when my bright future evaporated along with dot com? Oh, they were right beside me, trying to drown me in kool-aid.

    Right now, it seems to me that the bailout is entirely unnecessary. The only offer worth making is an AIG-style-offer++. Lend them some operating cash in exchange for the overwhelming stake in the company, then break them apart and feed them to the wolves, at a profit. Competition is good and there is no free lunch, they say in the business world, or they used to until they drowned in their own kool-aid.

    X-mass is around the corner and consumer spending has increased throughout all these years of financial nonsense. Let businesses do their job and work for our money.

    Too Big To Fail = Too Expensive To Bailout.

    P.S. WordPress is a piece of shit!

  20. 20
    w vincentz says:

    Part of the huge bailout goes to foreign banks like UBS, yaknow, the one that Phil Gramm is a registered lobbyist for, the same guy that slipped in the repeal of Glass-Seagleman so that deregulation could happen starting in 1999.
    Oh, and on the subject of bailouts, you might want to have a look at the Bush family history…
    http://newsforreal.com/

  21. 21
    Nylund says:

    Yes, you are missing some things. First of all, the change to MS and GS makes them have to obey stricter rules and more oversight. IE, their ability to be highly profitable is much lower now. This comes with the benefit of getting some gov’t protection.

    And, to the above, a debt as an asset is NOT a weird thing. If you own the debt, that means that the person paying the debt, owes you. To make your analogy complete, its like going to the bank and saying, “I don’t have any money, but lots of people owe me money so when they pay me back, I can pay you back.” For little guys like us, I doubt this would work well but its not hard to see how people owing you money can be considered an asset. Its a steady source of income (provided the people who owe you money actually pay you what they owe you). If you don’t understand this concept, then this whole issue is way over your head. The problem here is many people aren’t paying those debts off, so the value of owning them is dropping. Of course, these debts went through the blender and got mixed and matched and divided at given credit ratings and all that, but thats the basic idea. Hopefully a debt as an asset makes sense now.

  22. 22
    Jeff Eaton says:

    All I know is that I asked a friend working for an investment company why we needed to spend a trillion dollars to bail out the financial sector. He said that the situation was so bad that any other response would destroy everyones’ trust and trigger a recession.

    I asked him whether the financial industry as it stands DESERVES our trust, and he said that of course it does — this is just the normal cyclical nature of things.

    So I asked him why, if this is normal, we need to spend a trillion dollars to stop the cycle. He said the situation was so bad that any other response would destroy peoples’ trust…

  23. 23
    SGEW says:

    P.S. WordPress is a piece of shit!

    Leave WordPress alooooooone!

  24. 24
    NonyNony says:

    It sure looks to someone on the outside that MS and Goldman knew, internally, that they were not solvent, either, and rushed to get out while they still existed, unlike Lehman.

    Eh, it could be. Or it could be that MS and Goldman both know that the perception is that investment banks are not worth a bucket of warm spit right now, and that if they want to be taken seriously they need to give the investors something to trust again. Hence, putting themselves under the regulatory regime of a depository bank gives an injection of confidence that someone external is looking at the company and making sure the i’s are dotted and the t’s are crossed.

    The stock market is one of those areas where faith and reason collide. There are all kinds of good reasons for stocks to move up and down, but there are also highly irrational reasons as well. If you think that the public perception of your bank as a “cowboy” institution with no one checking your work is driving your stock price downwards, the best thing you can do is eliminate that perception ASAP. More regulation is actually a good thing with the market in turmoil right now because it restores investor confidence in the market.

    This is another reason why the Treasury plan is idiotic – they refuse to let go of their ideological blinders and understand that unless some serious regulatory reform is placed on the market it’s going to continue to slide. Regulation isn’t always a bad thing – no matter what we’ve been told by free marketers for the last 30+ years.

  25. 25
    gopher2b says:

    I’ve been saying this for days: this is all about saving Goldman Sachs and not the economy at large.

  26. 26
    Napoleon says:

    It is difficult to follow why this proposal is the one being offered.
    . . .

    Wouldn’t such a scheme (please, no quibbles with details) not re-capitalize otherwise solvent institutions, wring value out of the hands of existing shareholders, while giving the taxpayer at least a fighting chance of getting their money back eventually?

    The difference between what you propose and the Republicans propose is that you are, presumably, sane and want what is best for the country. That is why your proposal roughly hits on the points critics have offered to the Republican plan.

    The Republican plan, meanwhile, is being offered by complete ideologues who care nothing about a pragmatic solution to the countries problems but instead see this as an opportunity to push their extremist agenda again.

    Remember this same general group handled the occupation of Iraq by not sending a bunch of people who knew what they were doing but instead political operatives and Heritage Foundation dweeps to turn Iraq into winger fantasyland.

  27. 27
    slip says:

    So I asked him why, if this is normal, we need to spend a trillion dollars to stop the cycle. He said the situation was so bad that any other response would destroy peoples’ trust…

    Your friend is Milo Minderbinder, right?

  28. 28
    Mylegacy says:

    Firstly, I am SURE I am wrong.

    However, putting that little caveat aside for a moment… You CANNOT buy up $700 billion WORTH of financial STUFF if you don’t KNOW the value of the underlining asset. In this case houses, businesses, land, etc. The VALUE of the ASSET has to FIND its REAL LEVEL and THEN you can can buy it. To buy an ASSET at a price the seller SAYS is the VALUE is INSANITY. When the market has DECIDED (not the “Decider” the Market) THEN we will know the REAL VALUE and THEN we won’t need the bailout because THEN those VALUES will be REAL and banks etal will be willing to LEND again BECAUSE they will KNOW the VALUE of the ASSET they are lending against.

    Seems simple to me. LET IT FALL – where it lands is its REAL VALUE. THEN if there is Government intervention it is to subsidize people pensions, incomes etc. NOT prop up VALUELESS PAPER MONEY.

    I KNOW I am WRONG. But somehow it feels like I’m right on. Mind you I felt RIGHT ON about my first wife as well … and that turned into a whole different basket of pears and apples.

  29. 29
    Scott H says:

    the change to MS and GS makes them have to obey stricter rules and more oversight.

    And here’s your alert. The first thing they will start doing is lobbying to get bank regulations gutted.

  30. 30
    TenguPhule says:

    1. Order all regulated banks and other institutions to suspend all dividend payments.

    Heeheehee!

    You could do that and see the biggest bank runs in history.

    Inflation would mean the value of those accounts would drop.

    International banks would have a field day scooping up all of those savings to their interest paying accounts.

    Or are you suggesting we try and ramrod the rest of the world’s banks too?

  31. 31
    nicethugbert says:

    Jeff Eaton Says:

    All I know is that I asked a friend working for an investment company …

    I wouldn’t call him friend, Professor Emeritus of Propaganda yes, friend no.

    Incidentally, isn’t Paulson basically asking us for a fourth branch of government with it’s own budget but without all that messy democracy stuff? Isn’t that a step toward a Constitutional Monarchy of sorts?

  32. 32
    Napoleon says:

    You could do that and see the biggest bank runs in history.

    Inflation would mean the value of those accounts would drop.

    International banks would have a field day scooping up all of those savings to their interest paying accounts.

    Or are you suggesting we try and ramrod the rest of the world’s banks too?

    I don’t think you understand what he is saying. He is not saying quit paying depositors there interest earnings, but quit paying shareholders their dividends. Most companies try to never cut dividends if at all possible, and there is nothing in the proposed bailout deal keeping them from continuing to make payments to the shareholders. The proposal is that if the US is putting up a bunch of money then the insitution we are bailing out has to hang on to all excess cash to help keep them liquid.

  33. 33
    montysano says:

    Via Think Progress, Dubya goes to bat for his Wall Street budz:

    We certainly understand and are sympathetic to the sentiment regarding the pay of CEOs and senior management of these firms, but we have to focus on the problem, and the problem is that we need these firms to participate in the program and sell us this debt. Having punitive measures would provide a disincentive for firms to participate, and that would make the program much less likely to succeed.

    CEO compensation and corporate governance in public companies are very important issues — especially when receiving taxpayer support — but we need to be focused on fixing this problem in our markets right now. We can and should return to those issues once we get this legislation passed.

    Pitchforks. Torches.

    And for whatever the fuck it’s worth, call your representatives.

  34. 34
    Tsulagi says:

    I think Goldman and MS are just applying for a credit card.

    In the unitary form of government fashionable these days with an absent Congress, earlier the Fed expanded its emergency loan authority from just to commercial banks to also investment banks when it backed the takeover of Bear Sterns. Some questioned that so the Fed said it was granting itself the authority on an emergency, temporary basis. Yeah, right.

    In becoming bank holding companies, Goldman and MS would have the same unquestioned access to emergency loans from the Fed as commercial banks. Another bonus would be the ability to take commercial deposits. Some companies getting a bit nervous about the liquidity of their current banks as they’re running through millions each month. And as a bank holding company rather than an investment bank, there would be less regulatory hassle if they were to merge with or take over a bank on the edge like a WaMu.

    Why do I suddenly miss Ron Paul?

    I hear you. Saw him on CNN this weekend talking about this mess. He was panning McCain’s call for a new agency to handle this. Yeah, we need another Homeland Security. It’s worked out so well. Really love those fiscally responsible, small government Republicans.

  35. 35
    OniHanzo says:

    So has anyone else heard the latest pile of wingnut bullshit? Democrats conspired to hack Palin’s account!!

    It’s all Obama’s fault… we just can’t prove it yet! Nevermind that we never gave a shat about privacy until it happened to one of ours.

  36. 36
    Brian J says:

    It’s an interesting move, because you can’t be sure, and probably should be wary, if they’re actually looking to open banks to add a new source of revenue, or reap goverment loans and insurance to prevent some huge corporate disaster.

    I should say that while I worry about what John described above, perhaps this is both a good move for the position they are in and a good move regardless of what position they could be in. All of the American firms that have bought out the investment houses have retail banking units. Perhaps this is a way for them to have a solid base through traditional savings and checking accounts but also be in a position to still reap the rewards of risky investments without losing everything if something goes wrong.

    Is there really a reason to be wary of this? If it helps the banks survive, then what’s the problem? To this amateur, this move seems better than a bail out from the government.

    I’m curious about what’s going to happen to some of the regional players. I know very little about the market for banks, but is it possible that something like Commerce or Capital One could grow into the role of a big but safe firm both in retail banking and on Wall Street?

  37. 37
    John says:

    TenguPhule – dividend payments, not interest payments. Dividend payments go to shareholders, not depositors. What are you talking about?

  38. 38
    The Moar You Know says:

    Mylegacy: Government intervention to subsidize people’s pensions and incomes is communism. Communism is like totally evil and stuff. Are you a communist? You sound like one with this insane talk of “subsidizing people’s pensions”. What a ridiculous notion.

    On the other hand, government intervention to preserve executive salaries, stock prices, company valuations and golden parachutes is the sworn duty of every patriotic citizen even if it leaves you personally in debt for the rest of your life. And it is NOT corporate welfare. That term is unpossible and unpatriotic.

  39. 39
    NonyNony says:

    Scott H Says:

    the change to MS and GS makes them have to obey stricter rules and more oversight.

    And here’s your alert. The first thing they will start doing is lobbying to get bank regulations gutted.

    No, not the first thing. That comes later. Right now they just want to point at the shiny regulations they’re now living under and tell investors “see – we’re a great deal! The Federal government is checking our work to make sure we aren’t screwing you over! We have to conform to standards! And regulations! Please buy some of our stock!”

    The gutting of bank regulations comes later. The next time there’s a bull market, probably. Because regulations cap the ability of companies to take full advantage of bull markets and so they see all that potential gain “wasted” because of “lousy DC regulations” (nevermind the fact that good regulations also set a floor as to how badly the companies will be damaged during a bear market – security doesn’t matter so much when there’s lottery winnings to grab. That’s the American Way these days…)

  40. 40
    Its me again says:

    In a nutshell, Investment Banks like GS and MS operate in a highly leveraged way, i.e., they borrow lots of money in order to make their money. What’s happened is that the ability to borrow has basically dried up (liquidity crisis, etc.) and now they have all these assets on their books and now way to deleverage themselves to keep making money. By becoming a Bank Holding Company (or really a Financial Holding Company vis-a-vie Graham, Leach, Bliley since they will continue their investment banking business), They put themselves under a stricter oversight regime under the FED and higher capital to debt ratio requirements. Why would you ask would they do this? Two main reason, 1. To continue to use the FED to finance their business after the temporary regs expire in Jan. and 2., and most important, allows them to go out and buy a commercial bank and get acces to “retail” deposits much like the JP Morgan Chase’s, Wachovia’s and BofA’s of the world do.

  41. 41
    Scott H says:

    Okay, I just called Rep Mollohan’s (WV) office in DC. Completely painless. Such a nice young lady on the other end of the line. We chatted away.

    She did say, oh yeah, they are fielding telephone calls on this thing.

    Call, please. Get your numbers here.

  42. 42
    curtadams says:

    I suspect the move is to get better access to Fed Reserve credit. As treasury bill dealers, they have access to a Fed Reserve loan window opened after the Bear crash, but it’s only overnight. As real banks, they have access to the Fed’s newish (2007) auction facility, which has 1 month and 3 month loans. If they face a run and need money, it would be a grave strain to refi each and every night.

    FWIW, Roubini is predicting the imminent demise of the hedge funds. The hedge funds are big depositors and borrowers from the investment banks, including MS and GS, and big collapses and freezes on their part will put exactly the kind of liquidity squeeze MS and GS would desperately need the auction windows for, even if they’re solid as rocks in solvency.

  43. 43
    gex says:

    Having punitive measures would provide a disincentive for firms to participate

    If a firm can safely afford to opt out of the bail out to avoid receiving punishment for their misdeeds, THEY DON’T NEED A BAILOUT. Beggars can’t be choosers.

    I hate everyone right now. My girlfriend’s brother always used to brag to us liberals that the conservative movement has been winning since Reagan. The movement won, America lost, and he doesn’t f*ing care.

    Pity, he was about to retire too, but is thinking about working 5-10 more years now. Can’t afford health care til Medicaid, 401K not quite what it used to be…

  44. 44
    PeterJ says:

    Paulson’s obvious conflict of interest is never mentioned. I mean, he’s going to be out of a job in January 2009—where do you think he’ll be looking for work?

    With $700 billion he won’t need to look for work ever again.

  45. 45
    Brian J says:

    I hate everyone right now. My girlfriend’s brother always used to brag to us liberals that the conservative movement has been winning since Reagan. The movement won, America lost, and he doesn’t f*ing care.

    I wonder what Thanksgiving and Christmas are going to be like with some of my Republican family members this year.

  46. 46

    It appears the late Douglas Adams might of been describing Wall Street when he wrote of the Marketing Division of the Sirius Cybernetics Corporation as “a bunch of mindless jerks who’ll be the first against the wall when the revolution comes.”

  47. 47
    fish says:

    GS and MS recognized that the old business model of investment banking was dead in the water, even though their balance sheets were (relatively) okay. Instead of waiting for that aspect of the market to collapse on them, they converted to real banks with depositors (both already had some real banks as part of what they owned, but relatively small potatoes). They don’t get to make the mountains of cash they used to make, but they don’t die either. It is a survival move based on the new financial realities. They can do this because they were (again relatively) clean beforehand.

  48. 48
    TenguPhule says:

    I don’t think you understand what he is saying. He is not saying quit paying depositors there interest earnings, but quit paying shareholders their dividends

    You’re right. That’ll teach me to post before the first cup of coffee.

    Sorry, Jim.

  49. 49
    Sammy says:

    The two main ones already covered are they get access to he Fed lending (which is the big one short term since so many of their prime brokerage clients wanted $$$ back) and can get more “bank” deposits. The third one is a lot of the “stuff” on their balance sheets can go from mark-to-market accounting to accrural accounting. Thus their capital ratios also get a boost.

    For GS there really wasn’t a downside since they’re capital ratios (for instance their Tier 1 capital, the most secured was 11.6% of their assets, which is high even for a commericial bank…JPM’s was 9.2% after the BSC deal or BBTs which is 7.3%) already exceeded the Fed requirements so they can get liquidity cheaper now and not have to worry about counterparty risk (ie LEH, AIG, etc.). There’s nothing that says they can’t keep doing what they’ve been doing since so much of their business where they make money (i-banking, clearing, regular brokerage activity) is relatively capital insenitive.

  50. 50
    JC says:

    Someone help me understand what a “credit default swap” is.

    As this Devil’s Tower link shows, those things are responsible for insanity:

    BOB MOON: OK, I’m about to unload some numbers on you here, so I’ll speak slowly so you can follow this.

    The value of the entire U.S. Treasuries market: $4.5 trillion.

    The value of the entire mortgage market: $7 trillion.

    The size of the U.S. stock market: $22 trillion.

    OK, you ready?

    The size of the credit default swap market last year: $45 trillion.

    KAI RYSSDAL: That’s a lot of money, Bob.

  51. 51
    Brachiator says:

    The worst thing about this financial meltdown is the sheer volume of issues that I do not understand, and probably never will understand. Like, for example, the request of Morgan Stanley and Goldman Sachs to become Bank Holding Companies.

    BBC News reporter Robert Peston has the skinny on this one:

    In the US context, for example, there’s the official insurance provided for deposits. And, more importantly, there’s access to the Federal Reserve for day-to-day and emergency funding – which Goldman and Morgan Stanley will be able to access in full, now that they are formal “Federal Bank Holding Companies”.

    So the conversion into banks by Goldman and Morgan may perhaps be redolent of the greatest failure of global financial regulation over the past decade or so.

    The original separation of investment banking and retail banking was designed to prevent ordinary savers from being damaged by the collapse of a Goldman Sachs or a Morgan Stanley.

    But Goldman Sachs and Morgan Stanley have been permitted to grow so enormous, and other banks which look after our savings have become so inextricably dependent on them, that even they are now too big to be allowed to fail.

    Becoming a bank holding company is a little like being a high roller at Vegas, but being able to have the House pick up your gambling tab instead of breaking your knees when you tried to run away from your losses.

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