For Those Interested,

PBS's Frontline has a documentary on how the hell this country ended up in the mess it is in. In large part, it has to do with derivatives.

60 Minutes covered some of the same territory.

Watch the video here. Or watch it here:

Economy Commentary

No, "we" are not to blame for the current financial mess, which is nothing short of a scandal.

Derivatives play a major role in the meltdown:

Credit derivatives—those securities that few have ever seen—are one reason why this crisis is so different from 1929.

Derivatives weren't initially evil. They began as insurance policies on large loans. A bank that wished to lend money to a big, but shaky, venture, like what Ford or GM have become, could hedge its bet by buying a credit derivative to cover losses if the debtor defaulted. Derivatives weren't cheap, but in the era of globalization and declining American competitiveness, they were prudent. Interestingly, the company that put the basic hardware and software together for pricing and clearing derivatives was Bloomberg. It was quite expensive for a financial institution—say, a bank—to get a Bloomberg machine and receive the specialized training required to certify analysts who would figure out the terms of the insurance. These Bloomberg terminals, originally called Market Masters, were first installed at Merrill Lynch in the late 1980s.

The Crappy Economy

60 Minutes looked at the Wall Street mess:




CBS many years ago reported on derivatives and their riskiness. This clip of a longer report was from 1995:


Watch CBS Videos Online


link

The Economic Mess

Another major culprit in the mess we are in is Ayn Rand devotee, former Fed chair, and husband of Andrea Mitchell, Alan Greenspan:

But others hold a starkly different view of how global markets unwound, and the role that Mr. Greenspan played in setting up this unrest.

“Clearly, derivatives are a centerpiece of the crisis, and he was the leading proponent of the deregulation of derivatives,” said Frank Partnoy, a law professor at the University of San Diego and an expert on financial regulation.

The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.

If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman from 1987 to 2006, many economists say, the current crisis might have been averted or muted.

Over the years, Mr. Greenspan helped enable an ambitious American experiment in letting market forces run free. Now, the nation is confronting the consequences.

What kills me is this Friedmanite religion (which is nothing more than Randroidism among economists) was so against what we have ALL known has worked in this economy, yet the Friedmanites didn't care. Government was evil, unless to bail out the financial elites when they invariably fucked up with their greed and incompetence, business was God no matter how crooked or how much they hurt workers, and to hell with the truth or reality.

Believe me, the article notes Greenspan's fanaticism:

A professed libertarian, he counted among his formative influences the novelist Ayn Rand, who portrayed collective power as an evil force set against the enlightened self-interest of individuals. In turn, he showed a resolute faith that those participating in financial markets would act responsibly.

An examination of more than two decades of Mr. Greenspan’s record on financial regulation and derivatives in particular reveals the degree to which he tethered the health of the nation’s economy to that faith.

Most Randroids grow up and see the light, but Greenspan never did, much to the grief of the U.S.