Michael Lewis on 60 minutes on credit crisis

http://www.cbsnews.com/video/watch/?id=6298084n&tag=contentMain;contentBody

I watched it - fascinating piece. So true too imho.

It's not just borrowing at 0% and buying treasuries. it's also forcing your counterparties to cough up collateral and investing that money as well.

http://www.businessweek.com/news/2010-03-15/goldman-sachs-demands-derivatives-collateral-it-won-t-dish-out.html

March 15 (Bloomberg) -- Goldman Sachs Group Inc. and JPMorgan Chase & Co., two of the biggest traders of over-the- counter derivatives, are exploiting their growing clout in that market to secure cheap funding in addition to billions in revenue from the business.

Over the last three years, Goldman Sachs has extracted more collateral from counterparties in the $605 trillion over-the- counter derivatives markets, according to filings with the SEC.

The banks get to use the cash collateral, said Robert Claassen, a Palo Alto, California-based partner in the corporate and capital markets practice at law firm Paul, Hastings, Janofsky & Walker LLP.

%u201CThey do have to pay interest on it, usually at the Fed funds rate, but that%u2019s a low rate,%u201D Claassen said.

While true, the interview (and I suspect the book) focuses solely on the mis-deeds and unethical behavior of Wall Street. And even Lewis himself says so at the beginning of the interview as that makes the best story and creates the most emotion and drama.

Every link in the chain had bad actors...borrowers who knew they couldn't afford the loan, mortgage brokers who put folks into loans they knew they couldn't afford (long term), regulators who forced lending onto unqualified borrowers (and complained when the loans weren't made), ratings agencies who didn't understand (or didn't are to understand) risk, investors who relied too heavily on the wall street firms and ratings agencies, and the FED who watched it all happen without doing anything.

Essentially the FED did a great job of stabilizing inflation and lowering rates. Along with 'rolling down the yield curve' made all lending products perform extremely well and the volatilities and many other risk measures registered remarkably low readings. However, what was lost on the entire system, was the fundamental valuation of income/cash flow versus debt servicing. Not unlike the internet bubble of 1999-2000 when many in the market were under the false belief that tech earnings would rise at 30-40% per annum in perpetuity. And then they didn't....

This wasn't a subprime problem. Subprime was too small to have caused it. This was a problem with over-leverage in the financial system(world wide)

I didn't realize he also wrote Moneyball. I'm gonna buy the book. Good tip.

I knew he wrote "Liar's Poker", but apparently he also wrote "The Blind Side".

Once again, I question the role of the "foot soldiers" in all of this. The real estate agents pushing up prices (and commissions). The mortgage brokers. The appraisers. The local lending institutions. All tied to one another by incestuous inside deals / fee splitting. And let us not forget the gullible / greedy / childish borrower. 0 % down. No interest. Refinance, rinse, repeat. At least the agents, brokers, bankers had "ethical guidelines" they were supposes to follow. So, in the end, everyone gets a free ride. Bonuses keep on coming. Everyone keeps their commissions. Home"owners" perpetually occupy pending foreclosures. The taxpayer foots the bill and continues to look at inflated home prices. Ah, another rainy Monday.

michael lewis is a dik....