60 Minutes This Sunday - Wall Street: Inside The Collapse

[brownsfan019 17]

Wall Street: Inside The Collapse

 

March 12, 2010

Wall Street: Inside The Collapse

Author Tells "60 Minutes" What Led to Wall Street Collapse and Who Predicted It

 

Wall Street bonuses in the current climate are a "very elegant form of theft" former bond trader Michael Lewis tells Steve Kroft. "60 Minutes," Sunday, March 14 at 7 p.m. ET/PT.

 

(CBS) The big banks that received billions of dollars from the U.S. government and continue to pay their executives large bonuses are engaged in a "very elegant form of theft" says former bond-trader-turned-author Michael Lewis.

 

He spoke to "60 Minutes" correspondent Steve Kroft in an interview to be broadcast Sunday, March 14, at 7 p.m. ET/PT.

 

Wall Street banks, many on the verge of collapse just over a year ago, paid employees about $20 billion in bonuses for 2009 profits. Lewis tells Kroft that bonuses paid out by big banks that were propped up by the Federal Reserve in the economic crisis were essentially a scam on taxpayers. When you are a big bank on Wall Street, says Lewis, "You have access to a zero percent loan in virtually unlimited quantities from the Federal Reserve. You can take that money and reinvest it in treasury bonds or government agency securities and you will get the spread and you could do it over and over," says Lewis. "You're essentially borrowing from the government and lending the government and taking a cut."

 

Add to that the vicious cycle of greed within the industry and the bonuses flowed, says Lewis. "Really what's going on is the people on the top of the firm want to make a lot of money and if they're going to make a lot of money, they have got to pay the people under them a lot of money," he says. "So it's a very elegant form of theft right now," Lewis says.

 

Lewis believes the political connections of Goldman Sachs played at least some role in the Federal Reserve's decision to subsidize it and other banks deemed "too big to fail." "There’s no proof but… it certainly didn't hurt that [Treasury Secretary Henry Paulson] was a former Goldman CEO…that a lot of the people at the table were former Goldman employees…that the air..everybody breathed contained the assumption that we can never do anything to harm Goldman Sachs," Lewis tells Kroft. "I can't really see how their political influence didn’t have anything to do with it."

 

In his newest book, The Big Short: Inside the Doomsday Machine, Lewis explores how a handful of Wall Street outsiders who realized the subprime mortgage business was a house of cards, found a way to bet against it and made millions doing it. He tells Kroft the people who decided to create and trade these flawed financial instruments were blinded to the danger by greed for the most part, but should have known better because that was their job.

 

Lewis says despite the fact that their dealings managed to destroy $1.7 trillion - and counting - of wealth, these people still left their companies with big payouts. "I didn't run across a single character who didn't get rich." Even richer: "And they're being paid all over again to sort through the mess…that is an age-old trick on Wall Street…people who create the disasters make a lot of money cleaning up the disaster because they're the ones who know about the disaster," Lewis tells Kroft.

 

Link to video

[statsign 10]

Americans overall are idiots.

 

They allowed the Republicans to allow free trade which destroyed the economy a lot more than derivatives.

 

They allowed Democrats (and RNC) to support illegal aliens which drives down wages and more immigration (same) when we have too many people already.

 

They allow FDA to be a joke. Some drug is the best thing for a few years, then it's a lawyer's commercial. Food grows on fertilizer infused with toxic waste. Water and toothpaste infused with neuro-toxic sodium fluoride. ...endless.....

 

Idiots will always be bent over - fact of life.

[brownsfan019 17]

ok.... that is relevant to this how?

 

Please do not turn this thread into a b*tch fest. You can start your own thread or head over to et if you need that.

 

thanks

[statsign 10]

Not bitchin - 60 Min will show how idiocy allows America to be drained as you posted.

 

This idiocy was your topic - Thus idiocy is relevant.

 

Won't reply to any of your topics again.

[brownsfan019 17]

 

Why my threads? Why does these people seem to find the threads I post in? I've been quiet on TL lately for this very reason and I post about a TV show that some here might find of interest and this person decides this is the time to start complaining about America...

[Dinerotrader 10]

Thanks for posting this. Every once and a while 60 minutes has a good piece I'm interested in but I always miss it.

[sevensa 10]

  statsign said:

Won't reply to any of your topics again.

 

You would do us all a favor to apply this policy to the whole of TL. And after you emmigrate, the US might just be a little bit less idiotic.

[brownsfan019 17]

Anyways - this one is going on the DVR. We'll see if it's a good piece or just fluff for his book. It's not often you see a piece on TV that talks about traders.

[Studog 10]

Hmm 60 minutes doing something in depth? I think not. mindless innuendo without researched facts is the usual fare. Do your own research, dont rely on proven BS-ers and be better for it.

[brownsfan019 17]

  Studog said:

Hmm 60 minutes doing something in depth? I think not. mindless innuendo without researched facts is the usual fare. Do your own research, dont rely on proven BS-ers and be better for it.

 

 

Don't watch it then. Some of us will.

[Bam-Bam 10]

PBS's Frontline has a number of very good shows they've broadcast about the Financial Crisis.

 

Here's a link to their "Global Economic Crisis" webpage. There's about 5 or 7 stand alone shows that chronicle different parts of economy (a couple on the meltdown/bailout, a couple on credit cards, one on Madoff, etc).

 

FRONTLINE: Meltdown - FRONTLINE's ongoing series on the global financial crisis | PBS

 

Worth the viewing time for those who don't make it to that part of the dial too often.

 

 

Bam-Bam

[Frank 10]

60 minutes does good job overall -- though this might just be too complex a topic to do on a broad show like this.

 

I want to see how they explain this --- firms like Goldman Sachs etc were charged interest on the loans the government to them. If you buy treasuries as Michael Lewis says, you are not guaranteed a profit unless you first clear the interest amount you owe.

 

No doubt that getting a check from the government to avoid a run on the bank is a benefit that financial institutions are awarded that nobody else gets. There is also a good reason for this. I am all FOR reducing the pay on wall street as its ludicrous -- but I will watch with interest to see how they explain this topic and see if they can do it without pandering to the mob who still believe banks like Goldman were given huge amounts of money and then Goldman took that money and paid it to their executives --- this is just too simple and its not true. Goldman Sachs, Wells Fargo, JP Morgan -- these firms all paid back the money they were given WITH INTEREST. TARP has so far shown a small profit -- not widely reported. This entire thing was so disgusting but I will watch with interest to see if 60 minutes can do this without skipping the facts.

[DugDug 10]

FYI another link today....

 

Bloomberg News

 

Personally - I blame the accountants from back in the 70s and 80s. The idea of creative accounting has always meant that you cannot believe the numbers - enron, tyco etc; I mean seriously why should accounting be creative unless you are trying to defraud and hide things. The Lehman report that just came out effectively comes to the same conclusion. People where given the incentives and the ability to do this - so should we be surprised when they do?

 

However, has anything ever really changed - anyone read "where are all the customers yachts?" - read it, look at when it was written - and realise the more things change the more they stay the same.

[Frank 10]

Links to the actual 60 minutes piece:

 

Part 1:

Inside The Collapse, Part 1 - 60 Minutes - CBS News

 

Part 2:

Inside The Collapse, Part 2 - 60 Minutes - CBS News

 

overall well done

[Dinerotrader 10]

  DugDug said:

Personally - I blame the accountants from back in the 70s and 80s. ....

 

I worked at one of the big four accounting firms for 3 years auditing major corporations and after all the back and forth about whose to blame, here is the problem. The complexities of how to account for and disclose the kind of dealings companies are getting involved with is out of hand. I have been in conference calls with some of the brightest minds in accounting and there are constant issues and no clarity about how to report the ever expanding bucket of complex business deals.

 

Derviatives have been around for a while but accounting for them and disclosing their fair value is still being changed and modified and that is not even close to as complex as the nuances that come from application of the rules regarding a companies' industry specific situation. Accountants that actually commited fraud, they definitely are to blame. But the accounting industry as a whole is always just trying to figure out a way to clearly disclose what a company is doing and what they are doing becomes increasingly more complex.

 

The deal makers are the horse, accountants are the cart.

 

Just thought I would add a CPA's perspective.

[brownsfan019 17]

I liked the 60 minutes piece. It was what I expected - gave us some info to chew on and if you want more, buy this book.

 

So for the average person, esp the non-trader, it was well done IMO.

 

The crazy analyticals out there will find holes galore in the piece.

[Frank 10]

Here is the key point in my opinion.

 

Ethical business is long-term good business. If a company strays from that and bends its standards because it is playing for short-term market share, it will end up being bad business and will hurt itself long-term. The bullshit is that all the CEOs and executives that did terrible jobs all got rich anyway -- even if a lot less rich than they could have been.

 

Credit must go to those who did a good job this cycle -- namely JP Morgan and Wells Fargo.

[james_gsx 16]

  Frank said:

Here is the key point in my opinion.

 

Ethical business is long-term good business. If a company strays from that and bends its standards because it is playing for short-term market share, it will end up being bad business and will hurt itself long-term. The bullshit is that all the CEOs and executives that did terrible jobs all got rich anyway -- even if a lot less rich than they could have been.

 

Credit must go to those who did a good job this cycle -- namely JP Morgan and Wells Fargo.

 

I agree about the ethics piece, Harvard Business Review wrote about it a few years ago if I remember correctly. But here's a problem, if it's accepted as "ethical" in the industry to do fancy accounting would you do it? You could say it's unethical, but if everyone is doing it but you refuse, chances are you'll lose your position. Is that good? Well, it depends on who you talk to I guess. If Sarbanes Oxley doesn't deem the practice ethical (I'm not accountant so don't take my word for it) then how do you tell your board it's unethical and keep your job over a sustained time frame?

 

Ethics seems to be a fuzzy area. I can't speak for all the big accounting firms, but I do know first hand that Price Waterhouse Coopers required their employees to take regular ethics courses.

 

That's not to say there weren't a slew of unethical behaviors abundant in the business. I mean, look how easy it was for the credit agencies to take a bunch of subprime loans and dub them AA or AAA debt. Then you even had some data plugged into the models that didn't include an entire business cycle, so the assumption housing prices would never fall seemed more like a fact. They took one of the safest credit products and turned them into the exotic flavor of the decade.

[DugDug 10]

Hi Dinero - I figured that might touch a nerve - always good for discussion

(While I dont actually blame accountants)

It does show that its the mechanisms that will allow or not allow such behaviour that has recently occurred.

You will always find ethics to be an issue, however ethics are a far harder area to police, monitor and even measure and define. And even then.... you will never be able to stop someone who is going to be fraudulent. Thats why you are meant to have the checks and balances in a system.

 

The point Dinero made about the complexity is very important, it implies that these things are too complex and really should be simplified....or if you dont understand them, dont trade them. When you have the banking lawyers writing these documents and deliberately making them complex, and then people actually buying into things they dont understand then you can expect a disaster. (I have seen a good study from about ten years ago showing more mining companies have gone broke due to complex financial hedging of their own products than other reasons - food for thought)

 

However ultimately if am a reductionist and believe that everything can be boiled down to some simple concepts (so bear with me here)

Everything ultimately is either an asset or a liability (and to an extent, either a future or an option) - and if people are allowed to inflate assets and hide liabilities they will. (think about it in terms of everyday events, even in someones resume) Its only natural.....so when you have an industry being paid to come with accounting rules to suit the companies they are being paid by - as opposed to the actual end users - the investors....then ultimately there will be a problem.

 

Why dont the regulators actually appoint pay the auditors? (I know this has its own issues)

This is not the first time this has occurred, and whilst everyone is blaming the bankers and the hedge funds and the regulators, I just prefer to go straight to the source. (Just for the sake of discussion and a slightly different take on it)

I guess you could always ask Harry Markopoulos about why the regulators are not much help either.

 

(ultimately its a combination of a lot of things (regulators, human nature, accounts, too much leverage, public v private money), but the knee jerk reaction to say its just greed misses the point that the vast majority of people if given the same opportunities will see a few bad apples doing it because they can)