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Live Chat: Robert Scheer on the Financial Crisis

Posted on Apr 15, 2010

(Page 2)

3:11 Robert Scheer

April 15, 2010 3:11 PM


3:12 Comment From GilreathM

April 15, 2010 3:12 PM

mrfreeze methinks u’ve got it right

3:12 Robert Scheer

April 15, 2010 3:12 PM

But they couldn’t done it without the greed for a peculiar set of
government beurocrats who parlayed their political power into enormous
personal game. The mixture of the private and the public here was toxic.

3:12 Comment From mrfreeze

April 15, 2010 3:12 PM

Robert, who is holding all the toxic assets now? And what’s ultimately
going to happen to that “fake capital?”

3:13 Robert Scheer

April 15, 2010 3:13 PM


3:13 Comment From mrfreeze

April 15, 2010 3:13 PM

Gee Thanks!!!!!!!!

3:13 Comment From GilreathM

April 15, 2010 3:13 PM

no Mr Sheer “we are”  YOU own a piece of this too!

3:13 Robert Scheer

April 15, 2010 3:13 PM

The tax payers, because it is the federal reserve and the treasury
department that have stepped in to guarantee in effect, trillions of
dollars of these toxic derivatives. You, meaning the rest of tax
payers, will ultimately be paying the bill.

3:13 Comment From Debbie McCormick

April 15, 2010 3:13 PM

To your knowledge, did Barney Frank ever acknowledge that Mr. Falcon
was the hero in this mess, or one of them?

3:14 Comment From Bluepunk

April 15, 2010 3:14 PM

What about the change in state laws that allowed these bad loans
“loan-sharking” to go on?  Did it not created this time-bomb?

3:15 Robert Scheer

April 15, 2010 3:15 PM

No, not to my knowledge and I believe that Barnie frank, acted in a
totally shameful and otherwise irresponsible manner, as regards Falcon.
He and a number of other progressive, including Maxine Waters, from
California, claimed to be protecting the interests of working and poor
people and expanding affordable housing, but in fact allowed a
situation in which the most vulnerable people in society, were the
ultimate tragic victims, losing life savings, homes and their jobs.

3:15 Comment From mrfreeze

April 15, 2010 3:15 PM

The one commentator mentioned above that the Obama Administration is
trying to keep a lid on any substantiative investigations of these
crimes. I think that’s a mis-characterization of the president. I would
like to know what can really be done to prevent this activity in the
future. What do you think?

3:16 Robert Scheer

April 15, 2010 3:16 PM

(responding to Bluepunk) Your absolutely correct that the preemption of
state lending laws in all areas - housing, credit cards, etc, demanding
by the financial industry, lobbyist in Washington, destroyed consumer
protections that existed in any state, including CA where I happen to

3:17 Comment From Guest

April 15, 2010 3:17 PM

We know that crimes were committed.  
What’s  being done about it?

3:18 Robert Scheer

April 15, 2010 3:18 PM

well I think that Fannie and Freddie should not be allowed to go back
to business as usual and that we do need a public mechanism for
creating liquidity in the housing market, we do generally accept that
access to housing is desirable, a source of stability and indeed
justice in our country, but it should be done, as we are now doing,
thanks to Obama, with student loans, taking the profit out for it to be
a straightforward accounting procedure. Fannie and Freddie should not
be allowed to make more and they were allowed to make 15 million more
than they should have.

3:18 Comment From Debbie McCormick

April 15, 2010 3:18 PM

When you say we tax payers will pay the bill, what do you mean
exactly?  What will that look like?

3:18 Comment From GilreathM

April 15, 2010 3:18 PM

If the States failed to protect their citizens what exactly was the
Federal Gov’t to do in this instant?  I really want to know.

3:20 Comment From Ian

April 15, 2010 3:20 PM

I spend a lot of time reading Simon Johnson on Baseline Scenario as
well as reading Christopher Hedges on this site. To different degrees
they both see the influence of financial corporations (Fannie Mae ext.)
as the cause and as a roadblock to meaningful reform. Do you feel that
this congress can actually produce legislation that will have a
meaningful effect.

3:20 Robert Scheer

April 15, 2010 3:20 PM

First of all, we are already paying the bill because the economy has
suffered as a consequence of the balloon bursting. WE’re run up our
deficit in order to prevent further collapse. The overall debt has
increased dramatically. But what i was alluding to was that the federal
reserve and treasure have assumed an enormous suspect of collateral
mortgage obligations, and those obligations are continuing to go sour
as the foreclosure rate has increased rather than decline and housing
prices have tanked.

3:21 Robert Scheer

April 15, 2010 3:21 PM

The only reason we have a chance of getting decent legislation is
because the public is aroused and we have a narrow window here in which
the president and leader of congress of both parties might feel
sufficient heat that they will turn against the lobbyist from which
they otherwise seem to slavishly serve.

3:22 Truthdig

April 15, 2010 3:22 PM

Repeating GilreathM’s question: If the States failed to protect their
citizens what exactly was the Federal Gov’t to do in this instant? I
really want to know.


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By David Vognar, April 18, 2010 at 8:02 pm Link to this comment
(Unregistered commenter)

Scheer, money goes to kill people in other countries. How is this a good thing?

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By Vincent OBrien, April 17, 2010 at 1:59 pm Link to this comment
(Unregistered commenter)

I keep hearing how some people got very rich “betting” against this or that stock, fund, or whatever. I have tried in vain to find out how this works. This much I know about betting. You make a wager and someone has to fade you. If you win the bet you keep the money. If you lose, the one that took or faded your bet keeps the money.
  My question is: Who fades the bet ? How do you place such a bet ?

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By Tim Trevathan, April 16, 2010 at 9:48 pm Link to this comment
(Unregistered commenter)
Insight: SEC gets tough on Wall St tribalism
By Gillian Tett
Published: June 25 2009 16:52 | Last updated: June 25
2009 16:52
In recent years, Henry Hu, a finance professor of
Texas University, has often been a thorn in the side
of the banking world. In his academic research, Hu
has repeatedly highlighted the systemic risks created
by credit derivatives and other complex instruments.
Most recently, he has expressed alarm about the so-
called “empty creditor” problem – or the fact that
lenders, such as banks or hedge funds, are
increasingly using credit derivatives to hedge in
ways that create perverse incentives to tip companies
into default.
More columns by Gillian Tett - May-28

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By Christopher C. Currie, April 16, 2010 at 6:27 pm Link to this comment
(Unregistered commenter)

Wall Street’s “Credit Default Swap” SCAM!

This is my take on Wall Street’s near financial collapse in the fall of 2008, based on the situations and points revealed in Simon Johnson and James Kwak’s book “13 Bankers—The Wall Street Takeover and The Next Financial Meltdown.”

PROBLEM:  Wall Street firms liked to pedal Credit Default Swaps as if they were ”insurance policies” to “hedge investors’ bets” against any potential default on a loan,  bond, or in some cases other “financial instruments” created by Wall Street firms.  But unlike insurance companies which were required by law to maintain adequate “statutory reserves” to ensure that they will have adequate cash on hand to pay up when the insured liability materializes, the issuers of Credit Default Swaps rarely (if ever) maintained such reserves.  They got away with this, because Credit Default Swaps are considered to be “derivatives” that are created, sold, and traded in Wall Street’s unregulated “shadow banking” markets.  Being “backed up” only by their issuer’s reputation, I believe it would be more accurate to call them “unfunded liability swaps” or “insurance scam swaps.”  Nevertheless, they were very popular, because even if the Credit Default Swap creators kept the large commissions/fees that they received in a “statutory reserve” of some kind, those reserves would probably not have been sufficient to cover the corresponding default risks, so the purchasers of Credit Default Swaps thought they were getting a “really good deal” for their money.

IMPACT:  The fact that Credit Default Swaps are inherently fraudulent in nature is bad enough, but the destructive role that they play gets even worse.  By using Credit Default Swaps to create elaborate interlocking financial dependencies among themselves (and by using their alleged “hedge your bet” capabilities to create an illusion that they are far more “financially solvent” than they really are), large Wall Street firms have created a situation whereby the bankruptcy of even just one of them will create a chain reaction of “pay up” requirements that will bankrupt ALL of them (unless our government quickly “bails them out”)!  This is what happened when Lehman Brothers went bankrupt, because the US Treasury Secretary couldn’t find any other firms who were willing to “buy them up” (unlike the case with Bear Sterns).  The resulting chain reaction of “pay up” requirements created primarily by the interlocking (and crumbling) “house of scam-cards foundation” of Credit Default Swaps quickly brought the rest of the “Big Banks” to a point where they were technically bankrupt as well.  But rather than declare bankruptcy, their CEOs essentially decided to simply stop trading altogether and wait for our government (and US taxpayers) to bail them out.  And as Paul Harvey used to say, “The rest is history.”  The impact of Wall Street’s Credit Default Swap Scam on America’s economy (and the economies of many other nations) has been PAINFUL, to say the least.

RECOMMENDED SOLUTION:  So because they are essentially fraudulent in nature, and because they have been playing such a key role in making “Wall Street Banks” seem to be “too big to fail”, Congress should OUTLAW ALL CREDIT DEFAULT SWAPS, but give those Wall Street firms about a year to “unwind” their interlocking “house of scam-cards foundation” in a way that will enable them to remain solvent and functional.

Christopher C. Currie

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