I will donate $1000 to the DNC now if someone explains how G-S caused Lehman to fail.

[banned from Kos]

I have watched William Black here - http://politicalvelcraft.org/2012/02/09/banksters-within-the-united-states-william-black-before-congress-tells-the-real-truth-h-r-1489-will-nullify-the-bankers-bailout-and-return-our-money-to-us/ and this jackass has not mentioned Glass-Steagall.

Glass-Steagall only allowed Lehman to buy a deposit bank - which they NEVER DID.

[Fumesucker]

1. Bless your heart..

http://www.democraticunderground.com/124078507

[banned from Kos]

3. One down. Once again - how did the repeal of G-S cause Lehman to fail?

It is a simple question.

[Fumesucker]

7. I don't know and I don't care..

I just like to say "Bless your heart"..

[karynnj]

66. The repeal of GS led to too big to fail banks being in jeopardy of failing

The way various things contributed to the 2008 crash is very convoluted. You are using a bit of sleight of hand here by making the issue "Lehman Brothers failing". Lehman failing was a function of over leveraging that was allowed by the SEC chair, Chris Cox changing the leverage rate from 1:12 to 1:44 and the fact that derivatives and credit swaps were not regulated. Consider why this was done. It was early 2004 and the economy was beginning to sag. This action was in effect a stimulus to the economy essentially creating "new" money in the market - while the high leveraging put the companies at higher risk.

That coupled with the fact that what they speculated in more than anything else were mortgage backed securities sliced and diced into derivatives, that the credit agencies scored as very safe - even though the mortgages backing them became progressively more risky. All the financial companies were competing to give high rates - so they all increased their leverage rate and bought the derivatives and insured their risk with credit swaps. The problem was when his house of cards started to fail, the derivatives and credit swaps were seen to be far less safe than expected.

So, where was the effect of the repeal of GS? It was that many of the major banks did take advantage of the appeal and they expanded into securities. It was not Lehman failing, but the fear that several major banks - allowed by the repeal of GS to enter that risky speculation - were in jeopardy that caused the fear that the US and world financial systems could fail that necessitated the bail out.

[Make7]

2. It seems very unlikely that you have $1000. ( n/t )

[ProSense]

4. A couple of points:

The repeal of Glass-Steagall and the Commodity Futures Modernization Act, both facilitated by Phil Gramm, led to the crisis.

Glass-Steagall was about separating commercial banking from investment banking:

• Banking Act of 1933 (P.L. 73-66, 48 STAT. 162).
  Also known as the Glass-Steagall Act. Established the FDIC as a temporary agency. Separated commercial banking from investment banking, establishing them as separate lines of commerce.

http://www.fdic.gov/regulations/laws/important/index.html

Commodity Futures Modernization Act of 2000

The Commodity Futures Modernization Act of 2000 (CFMA) is United States federal legislation that officially ensured the deregulation of financial products known as over-the-counter derivatives. It was signed into law on December 21, 2000 by President Bill Clinton. It clarified the law so that most over-the-counter (OTC) derivatives transactions between “sophisticated parties” would not be regulated as “futures” under the Commodity Exchange Act of 1936 (CEA) or as “securities” under the federal securities laws. Instead, the major dealers of those products (banks and securities firms) would continue to have their dealings in OTC derivatives supervised by their federal regulators under general “safety and soundness” standards. The Commodity Futures Trading Commission's (CFTC) desire to have “Functional regulation” of the market was also rejected. Instead, the CFTC would continue to do “entity-based supervision of OTC derivatives dealers.” [1] These derivatives, especially the credit default swap, would be at the heart of the financial crisis of 2008 and the subsequent Great Recession.

http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000

The Gramm connection

Aha: the Politico notices that Phil Gramm, McCain’s economic guru, can also be viewed as the father of the financial crisis.

The general co-chairman of John McCain’s presidential campaign, former Sen. Phil Gramm (R-Texas), led the charge in 1999 to repeal a Depression-era banking regulation law that Democrat Barack Obama claimed on Thursday contributed significantly to today’s economic turmoil.

….

According to federal lobbying disclosure records, Gramm lobbied Congress, the Federal Reserve and Treasury Department about banking and mortgage issues in 2005 and 2006.

During those years, the mortgage industry pressed Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages

Where have I seen that before? Ah:

His chief economic adviser is former Senator Phil Gramm, a fervent advocate of financial deregulation. In fact, I’d argue that aside from Alan Greenspan, nobody did as much as Mr. Gramm to make this crisis possible.

Seriously, the Gramm connection tells you all you need to know about where a McCain administration would stand on financial issues: squarely against any significant reform.

http://krugman.blogs.nytimes.com/2008/03/29/the-gramm-connection/

The Volcker rule reinstated the separation of commercial and investment banking:

<...>

The Volcker Rule was one of the most important reforms of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. It prohibits federally insured banks from engaging in proprietary trading, participating in complex securitizations, owning hedge funds or private equity funds, or engaging in any other high-risk activities. It also prohibits banks from taking actions that conflict with the interests of their customers.

The public comment window for the rule ended on Feb. 13. The Securities and Exchange Commission alone received more than 18,000 comments, more than 15,700 of which came from Public Citizen members and supporters. Legislators submitted 17 separate letters signed by 172 members asking for changes that would weaken the rule. Three letters signed by 20 members recommended steps to strengthen it.

http://www.citizen.org/pressroom/pressroomredirect.cfm?ID=3570

[banned from Kos]

6. Which has exactly NOTHING to do with Lehman's failure.

Lehman was an I-Bank as you mention and never was concerned about Glass-Stagall regs.


Nice try!

[ProSense]

8. Really?

"Lehman was an I-Bank as you mention and never was concerned about Glass-Stagall regs."

I mean, if the economy was shielded from the risk of investment banks, as Glass-Steagall ensured, the problems would never have escalated to the almost bringing down the entire economy.

You seem to want to ignore the facts.

[banned from Kos]

11. No, your premise is wrong. The economy was never "shielded from I-bank risks"

Glass Steagall had NOTHING to do with that!

It simply separated I-Banks from Deposit Banks. I-banks are nothing but glorified hedge funds.

[ProSense]

15. Again

No, your premise is wrong. The economy was never "shielded from I-bank risks"

Glass Steagall had NOTHING to do with that!

It simply separated I-Banks from Deposit Banks. I-banks are nothing but glorified hedge funds.

...are you intentionally ignoring the facts? I mean, if Glass-Steagall "simply separated I-Banks from Deposit Banks," clearly repealing Glass-Steagall removed that separation.

[jsmirman]

36. What?

I-banks are nothing but glorified hedge funds.

You mean except for that pesky investment banking thing?

How can you make this statement and seriously claim to understand what investment banks do?

You really understand what the "investment banking" divisions of an investment bank do? Hedge funds don't do any of these things.

[jsmirman]

5. Lehman was destroyed by the collapse of the subprime mortgage market

The subprime mortgage market reached its untenable size and valuation because the same people evaluating the pools of crap (jammed together crappy mortgages) were also the ones issuing the pools of crap.

The subprime mortgage market reached its untenable size and valuation because the same people marketing the pools of crap to their customers were also the ones issuing the pools of crap.

These things would not have been possible without the repeal of Glass-Steagall.

The boom and bust of that market destroyed Lehman, who had bet far too heavily in that market.

Thus, the repeal Glass-Steagall caused Lehman's collapse.

Will you put my name in the memo line of your check?

For further reading: http://www.democraticunderground.com/?com=view_post&forum=1002&pid=590870

[banned from Kos]

10. Garbage - Countrywide, IndyMac, WaMu and 100s others sourced loans

as they did BEFORE 1999! When Glass-Steagall was repealed.

And they all went bad!

The real estate market crashed in 1990 (S&L crisis) BEFORE Glass-Steagall was repealed! Glass-Steagall is a Trojan virus that infects innocent minds!

[jsmirman]

16. Welcher

also, troll.

Also, whatever. You're saying that because the real estate market crashed once any real estate market crash has the same cause and is the same?

Here: please show me which originators also had brokerage clients prior to the repeal of Glass-Steagall.

Good luck with that.

[Octafish]

9. Are you Charles Keating?

"Get Black....Kill him dead." -- Charles Keating.

Keating was sore because Bill Black busted his corruptions on Capitol Hill.

BTW: You watched the wrong video. Watch this one and you'll hear William K Black explain how Glass-Steagal worked:

WILLIAM K. BLACK: There were two really big things, under the Clinton administration. One, they got rid of the law that came out of the real-world disasters of the Great Depression. We learned a lot of things in the Great Depression. And one is we had to separate what's called commercial banking from investment banking. That's the Glass-Steagall law. But we thought we were much smarter, supposedly. So we got rid of that law, and that was bipartisan. And the other thing is we passed a law, because there was a very good regulator, Brooksley Born, that everybody should know about and probably doesn't. She tried to do the right thing to regulate one of these exotic derivatives that you're talking about. We call them C.D.F.S. And Summers, Rubin, and Phil Gramm came together to say not only will we block this particular regulation. We will pass a law that says you can't regulate. And it's this type of derivative that is most involved in the AIG scandal. AIG all by itself, cost the same as the entire Savings and Loan debacle.

Almost forgot: Please remember to post a copy of your canceled check, banned from Kos. No offense, but I don't think I'll take your word for it.

[lostnote12]

25. Question?.....Credit rating agencies....

........I'm curious as to how they factored into this fiasco....I won't bet on a horse that is factored over 10-1....that is the extent of my leverage....best wishes

[Octafish]

33. Guard-Dogs for the Banks: The Case Against Rating Agencies

Michael Hudson helps us understand the role of these "independent arbiters" in bankstering:

Guard-Dogs for the Banks

The Case Against Rating Agencies

By MICHAEL HUDSON
CounterPunch
August 19 - 21, 2011

EXCERPT...

Why ratings agencies oppose public checks against financial fraud

The danger posed by ratings agencies in pressing the global economy to a race into debt and privatization recently became even more blatant in their drive to give more leeway to abusive financial behavior by banks and underwriters. Former Congressional staffer Matt Stoller cites an example provided by Josh Rosner and Gretchen Morgenson in Reckless Endangerment regarding their support of creditor rights to engage in predatory lending and outright fraud. On January 12, 2003, the state of Georgia passed strong anti-fraud laws drafted by consumer advocates. Four days later, Standard & Poor announced that if Georgia passed anti-fraud penalties for corrupt mortgage brokers and lenders, packaging including such debts could not be given AAA ratings.

SNIP...

The ratings agencies’ logic is that bondholders will not be able to collect if public entities prosecute financial fraud involved in packaging deceptive mortgage packages and bonds. It is a basic principle of law that receivers or other buyers of stolen property must forfeit it, and the asset returned to the victim. So prosecuting fraud is a threat to the buyer – much as an art collector who bought a stolen painting must give it back, regardless of how much money has been paid to the fence or intermediate art dealer. The ratings agencies do not want this principle to be followed in the financial markets.

We have fallen into quite a muddle when ratings agencies take the position that packaged mortgages can receive AAA ratings only from states that do not protect consumers and debtors against mortgage fraud and predatory finance. The logic is that giving courts the right to prosecute fraud threatens the viability of creditor claims and endorses a race to the bottom. If honesty and viable credit were the objective of ratings agencies, they would give AAA ratings only to states whose courts deterred lenders from engaging in the kind of fraud that has ended up destroying the securitized mortgage binge since September 2008. But protecting the interests of savers or bank customers – and hence even the viability of securitized mortgage packages – is not the task with which ratings agencies are charged.

Masquerading as objective think tanks and research organizations, the ratings agencies act as lobbyists for banks and underwriters by endorsing a race to the bottom – into debt, privatization sell-offs and an erosion of consumer rights and control over fraud. “S&P was aggressively killing mortgage servicing regulation and rules to prevent fraudulent or predatory mortgage lending,” Stoller concludes. Naomi Klein wrote about S&P and Moody’s being used by Canadian bankers in the early 1990s to threaten a downgrade of that country unless unemployment insurance and health care were slashed.”

CONTINUED...

http://www.counterpunch.org/hudson08192011.html

Link to Naomi Klein reference above:

http://tinyurl.com/ca5begm

So how did Willie Sutton's descendants get cleared to work in, uh, finance?

[lostnote12]

39. very nice article...thanks...n/p

[Ichingcarpenter]

63. His check is in the mail along with

his realities and honesty.

I think we need to see the cancelled check don't you DU?

Good one my friend

[Octafish]

64. The crooks get away with looting the economy and the Treasury.

But, no. It wasn't because of any change in the law that had worked to prevent such criminality since the last time the warmongering sociopathic greedhead Plutocrats were in charge that prevented the crooks stealing everything that wasn't nailed down. It's because the poor people brought down the banks by failing to pay off the inflated mortgages on their new home.

Apart from Teddy Bullmoose Roosevelt and a handful of Democratic administrations, how few the Just years have been over the last century. Thank you, Ichingcarpenter, for standing up to Them.

[MannyGoldstein]

12. If I answer... can you send it to Elizabeth Warren's campaign instead? nt

[Lucky Luciano]

13. I'll try, but I don't have patience for long posts.

G-S let BAC, C, JPM, etc get involved in the game. Once they were in the game, the market for these derivatives exploded - and it was impossible for LEH and BSC to sit idly by while the big balance sheet banks were crushing it. Therefore, G-S fanned the flames of an all engulfing market that all had to play. No G-S means those big banks don't play which means the mortgage derivatives market would not have become what it did become - and LEH/BSC would still be here.

[MannyGoldstein]

14. Agreed

It unleashed capital looking for risk, which caused assets to be bid up and thus a bubble was created.

And bubbles pop.

[jsmirman]

17. Also very true

without question Lehman got crushed because it made big bets trying to keep up with the competition.

I can't imagine anyone who is not a complete joke arguing that this did not happen.

[banned from Kos]

18. That is absolute garbage! LEH and BSC failed because of FORECLOSURES & BAD LOANS!

not derivatives!

If homeowners paid their mortgages BSC and LEH would be here now.

(also, they were over levered and had liquidity issues).

Derivatives were just a way to play big and not the root cause.

[MannyGoldstein]

19. And were they unable to pay their mortgages

because they had mortgages that they could not afford?

[jsmirman]

20. What the hell are you talking about?

The stuff that was on their balance sheet that they said was worth something was actually worthless.

That completely changes the reality - or people's awareness of the reality - of how leveraged you are.

They had liquidity issues? Do you fucking understand anything about derivatives? Do you understand that these products, besides often being worthless, can see their trading markets completely dry up, thus being... illiquid?

You are trolling.

[banned from Kos]

22. Their balance sheet was corrupted because of debtors who did not make payments!

A mortgage always has positive cash flow as long as it is PAID. People lost jobs and failed to pay. Its that simple.

I understand everything about this business. I consulted for the largest mortgage software company in the US (as a FTE). Derivatives only lever a position or hedge one. That is it. Nothing else.

The underlying asset was a basket of mortgages. When enough rotten apples in a basket rotted the whole thing did!

Every loan/mortgage has a positive earnings stream UNTIL default!

[MannyGoldstein]

23. Were there more subprime loans

at that time than in the past?

[banned from Kos]

29. Absolutely! And mortgage originators steered naive people into subprime

with teaser rates, Option ARMs, and balloons.

The fees collected were higher on sub-prime. The originators like Countrywide and WaMu were motivated by ruthless acceptance practices and high appraisals.

What they did was unethical and in some cases worthy of fines and state bans on future business. The term is predatory loans. They were PREDATORS.

[MannyGoldstein]

31. Were loans like that widely available prior to the early 2000s? nt

[jsmirman]

26. What the hell is your point?

I also don't know why you keep saying lever and levering, when the terms are leverage and leveraging.

And why you don't acknowledge that anything that can increase the size of your bet increases the destructiveness of that bet.

And why you don't acknowledge that peeling apart mortgages into different potential cash flows completely changed the mortgage market and the world of mortgage products.

I worked with the guy who created the very first CDO ever. What that spawned changed everything.

I really have no idea what you're driving at, why you are driving, or if you have a car.

[Lucky Luciano]

37. People do often say "levering up" etc. I say it all the time

...with regard to finance.

[jsmirman]

45. Must be a new-fangled thing

once you all started making these insane leveraged bets.

I left the business in early 1998. Also, only ever traded for my own book. And because they don't bail out solo investors, never was insane enough to "lever" up.

If only I had, I would have never had to work again after the three years I had, lol.

[sabrina 1]

27. Too bad Bush took the FBI off the case when they let him know in 2005 that there was a huge problem

with corruption in the Mortgage business which could have disastrous effects on the economy. Why do you think the FBI thought there was so much corruption in the Industry? And why did Bush protect that industry?

I know, you want so badly to blame the 'people' for everything that happened. They kicked people out of their homes who should not have been kicked out, because they were betting on them failing, and they couldn't have them succeed could they, with all that money at stake??

And they insured themselves, sometimes with more than one company, how many times did they collect on one failed mortgage? We don't know, do we, because no one has investigated this massive crime so far.

Eg, my friend lost her home, she could have paid a slightly reduced mortgage, after her husband's death then picked up again in a year or so. They wouldn't even talk to her, why? We could not understand it at the time, it made no sense, but NOW WE DO. NOW, they have tried to contact her, to 'make a deal' and so has the government. But now SHE'S not interested, she wants her day in court and she's going to get it. Not to mention, her situation has vastly improved and she has the means and the time to get justice. In each case like hers, and there are millions of them, more of their crimes are revealed, the forged documents they used to push people out of their homes, eg.

Stop trying to cover the crimes, they are being exposed despite all efforts to prevent that from happening. They created too many victims, and for decades those victims are going to be demanding justice.

You are fooling no one. We know too much already, and learn more each day about what caused this meltdown.

And yes, the repeal of all the regulations put in place to stop this, was a major reason why it happened despite all your denials to the contrary.

[jsmirman]

30. And their balance sheet was corrupted because they lied

about the health of those underlying mortgages!

They also were able to misrepresent mortgage-based products that they created and that they owned, products that were defective because piling together a bunch of crap creates a tranche of crap, because the rating agencies weren't doing their jobs/weren't capable of doing their jobs.

I seriously have no idea what your purpose is here or what your point is.

[banned from Kos]

47. My POINT is that Glass-Steagall had nothing to do with the mortgage crisis

and you helped me prove it.

Because only a fool would think that G-S would have prevented all this crap we have argued about.

[jsmirman]

52. You are crazy pants

let me explain this clearly: I worked at Lehman Brothers before it went insane.

I know how the company was run, and I know why it had a period of great success after it told Shearson to go fuck off.

The Lehman Brothers I worked at would never have tolerated the insane risk and would never have made the wild bets that it made in the last half of the last decade. Part of that is because a man named Allan Kaplan died, and part of that was because Lehman was caught up in a mad, mad world.

Another clue: you will notice that Lehman just happened to be left holding the bag. Everyone was engaged in making crazy bets built upon foundations of illiquid slushy crap - Lehman just bet more desperately than some and was more unlucky in its timing than all.

The madness of everything you have posted can be summarized like this: you seem to acknowledge that a world was created by securitization and CDOs that supported a housing bubble, toxic balance sheets, and an avalanche of doomed bets. The world that was created was the necessary predicate to everything that happened. And yet you seem to think you can leave the underlying genesis of that world out of causation. That is madness.

As to the point you seem to be making in this specific post - what are you trying to say? That people have lied on Wall Street at a variety of times in our history? So what? The 1929 crash had its own causes. This crash was caused by an untenable housing bubble. This housing bubble could not have existed without securitization. It would not have existed without securitization. No one was pushing for anything approaching the eventual levels of origination prior to the securitization boom.

Now back to Glass-Steagall, the abuses of the mortgage market could never have taken place without the failures to evaluate the junky mortgage products. It has also been explained here, repeatedly, that Lehman and others scrambled to keep up with players brought into their competitive space by Glass-Steagall, and made disastrous bets in doing so. You also had originators involved in not only creating their crap, but also in evaluating this very same crap and selling this very same crap to their customers.

These were the causes of this crash.

So, again, what is your point? That because something else could have caused some other crash at some other time, the repeal of Glass-Steagall is absolved of all responsibility? Once again, madness.

[banned from Kos]

56. Ok, slowly for you. Glass-Steagall did not regulate mortgages nor did it have anything to

do with securitization of such (which came along in 1938 with Fannie Mae).

It had NOTHING to do with this at all.

All Glass-Steagall did insofar as Lehman is concerned was PREVENT them from combining with a Deposit bank. That is it. I have had enough of your misdirection.

You need to CITE the statute in Glass that pertains to securitization of mortgages before I respond to you again.

[jsmirman]

59. You really are trolling

It has been explained to you repeatedly how the changes brought on by the repeal of Glass-Steagall created all the conditions for Lehman's collapse and the overall crash - both in 1) the creation of size in the market that led to wild irresponsibility - size that would have been impossible without the entry of the commercial banks and 2) in the entry of competitors into Lehman's space that Lehman went bust chasing after.

Now I really am sick of repeating my damn self, and am going to sleep, so if the not responding to me again thing is a promise, not a threat, that would be smashing.

And btw, for another element of Glass-Steagall's repeal damaging Lehman - one which has not been brought into the conversation yet - that repeal cut into the investment banking profits of Lehman and the other I-Banks, as yabbos like Chase got healthy pieces of the i-banking pie from companies that relied on Chase as their commercial banker. They got cut in not because they brought one lick of i-banking knowledge to the deal, but because as they liked to say, "The Right Relationship is Everything."

I know, because I saw it first hand.

Now buzz off.

[mmonk]

21. There has always been foreclosures and bad loans.

However, many of the sub prime loans were bundled, given investment grade status, insured and sold on that basis. Many bought them as investments because they could get a higher interest return than bonds.

[banned from Kos]

24. Sure. But 2007-2009 saw a record rate of defaults.

That is the whole problem in a nutshell.

[Lucky Luciano]

28. Dude...I am more involved in the game than you think.

Instruments that never would have been conceived of were made. They were derivatives. Players loaded the boat on hundreds of billions of super senior crap - that slicing and dicing was derivatives. The players were not charged an appropriate cost to fund their trades and they tried to collect carry for free and a large bonus along with it. That is what blew them up and it all came tumbling down.

The vanilla pools and the TBAs might not have caused the crisis, but the other bundling methodologies where the players sold correlation (of mortgage defaults) too cheap thru CDO tranches fucked things up impressively.

These products never would have existed with G-S.

Why do you choose to sell free options? I always got a bid for free options.

[jsmirman]

32. We are speaking the same language here

http://www.democraticunderground.com/1002590906#post26

http://www.democraticunderground.com/1002590906#post30

I really do not get what he is up to in this thread.

[banned from Kos]

34. You're talking securitization. I am addressing the ROOT cause - origination and valuation

If home values had kept going up then derivatives would never have paid off.

[jsmirman]

38. This is madness

securitization is what created the instruments for people to bet on - instruments that neither investors, nor ratings agencies understood or cared to understand.

Without securitization there cannot be anything approaching a remotely similar level of origination.

A clue: I worked in origination/asset-backed securitization.

[banned from Kos]

43. Securitization did not cause defaults and foreclosures!

WaMu failed in 2008. They choked on their own bad paper and risk practices on mortgage loans. Their failure had nothing to do with securitization.

As of June 30, 2008, Washington Mutual Bank had total assets of US$ 307 billion, with 2,239 retail branch offices operating in 15 states, with 4,932 ATMs, and 43,198 employees. It held liabilities in the form of deposits of $188.3 billion, and owed $82.9 billion to the Federal Home Loan Bank, and had subordinated debt of $7.8 billion. It held as assets of $118.9 billion in single-family loans, of which $52.9 billion were "option adjustable rate mortgages" (Option ARMs), with $16 billion in subprime mortgage loans, and $53.4 billion of Home Equity lines of Credit (HELOCs) and credit cards receivables of $10.6 billion. It was servicing for itself and other banks loans totaling $689.7 billion, of which $442.7 were for other banks. It had non-performing assets of $11.6 billion, including $3.23 billion in payment option ARMs and $3.0 billion in subprime mortgage loans.

(Wiki)

WaMu was the largest bank failure in US history due STRICTLY to their own lax credit standards.

[jsmirman]

46. This is just completely wrong

See How Securitization Killed WaMu

What do you think created the lax lending standards at WaMu and Long Beach?

The fact that banks were willing to snap up whatever crap they pumped into the pipeline and pushed them to pump more and more crap.

These same lax standards turned their own balances sheets into big old shit lagoons.

[Lucky Luciano]

48. I don't think our friend's trade will settle properly.

He is losing his bet by a mile and squirming trying to defend himself.

[banned from Kos]

51. But no one here is talking Glass-Steagall because my wager required that

someone prove that it caused Lehman's demise.

Which is obviously ludicrous by now.

[banned from Kos]

50. How dishonest. You mistitled the article which is really titled

'WaMu's Gruesome Autopsy'.

WaMu SOLD mortgages for securitization as I noted. They did not create MBS/CDO themself. They were simply an originator and fee collector and scam shop.

Lehman was NOT an originator. Along with Bear and Merrill they created the securities.

[jsmirman]

55. Wha? I gave it a descriptive title to tell you

what you were looking at.

I gave the link that title, because that topic is extensively discussed in that article.

The beginning of the end, as the Senate's investigation suggests, came in 1999, when WaMu snapped up a subprime lender named Long Beach Mortgage Company. Long Beach was a major player in the booming securitization business—the origination of loans to be bundled into bonds backed by those pools of loans. These mortgage-backed securities were then sold to Wall Street banks and the two government-sponsored housing corporations, Fannie Mae and Freddie Mac. In 2006, Long Beach injected a staggering $30 billion in subprime loans into the securitization machine, a sixfold increase from only three years before...

This cutthroat, purely profit-driven philosophy meant WaMu and Long Beach increasingly pushed their employees, in the early 2000s, to focus more on volume than quality—selling more and more loans with little regard for the underwriting or potential success of those loans. "WaMu built its conveyor belt of toxic mortgages to feed Wall Street's appetite for mortgage backed securities," Levin said. "To keep the conveyor belt running and feed the securitization machine on Wall Street, Washington Mutual engaged in lending practices that created a mortgage time bomb."

...the pressure to churn out more loans was "tremendous." Salespeople were told to do "whatever it took" to pump out more loans to feed WaMu’s securitization frenzy. "In WaMu's loan business, volume was king," Sen. Carl Levin (D-MI), chair of the investigations subcommittee, said... ...The full-steam-ahead mentality to subprime lending, both in WaMu's prime lending operation and Long Beach's subprime machine, inevitably led to shoddier and grossly fraudulent practices within WaMu... The damage, though, had already been done, and both Long Beach and WaMu's prime and subprime assembly line and shoddy lending practices sowed the seeds of the $300-billion bank’s demise...

http://motherjones.com/mojo/2010/04/washington-mutual-senate-investigation-levin-killinger-failure-autopsy-april-report

There's even more in the rest of the article. Nice empty accusation.

[girl gone mad]

49. WaMu failed because there were two large runs on the bank..

then regulators moved in to prevent FDIC losses.

You are completely off base as usual. WaMu sold off most of their crappy home loans to third party securitization firms, but once the market for this paper crashed, WaMu was left holding the bag on some $70 billion worth of subprime loans.

http://www.bizjournals.com/seattle/stories/2009/09/28/story1.html

[jsmirman]

57. Correct on the holding the bag part

from the same article I quoted extensively above:

Not only did the losses incurred by Long Beach damage the bank, but the collapse of the securitization machine meant WaMu's housing profits all but dried up.

Mother Jones Article - Apparently Telling Banned From Kos What Is In An Autopsy Constitutes "Dishonesty" LOL

[Lucky Luciano]

40. If home values just kept going up, the bubble would have gotten bigger.

That securitization market got huge because C, JPM, etc would buy any crappy mortgage they could find and play musical chairs with it. The other sub primers like CFC (now BAC), Golden West (now WFC by way of WB), and New Century BEEDED the big banks to be involved like they were - They were only involved because of G-S.

[banned from Kos]

44. Sure, securitization pulled in bad origination practices.

No-docs, NINJAs, liar loans, ARMs, etc.

The ROOT problem was at the retail level as I have said.

People with a 580 FICO were getting $600,000 3/27 ARMs with no supporting docs. It was a RETAIL problem at its core.

[girl gone mad]

53. You have your cause and effect reversed.

Wall Street drove the demand for bad loans. The big banks were making hundreds of billions repackaging subprime, Alt-A and option ARM loans and pawning them off onto unsuspecting investors. They couldn't buy up mortgages fast enough. I remember when the joke was that anyone who could fog a mirror should get a loan. I guess even that requirement was dropped at some point since many dead people were given loans. It was this intense demand from the big banks that led to increasingly lax lending. Think pyramid scheme. Every time they started running out of qualified borrowers, people up the chain pushed for lower standards, and then just bribed the ratings agencies to stamp AAA on increasingly toxic junk.

[banned from Kos]

58. Its chicken and/or egg. They both fed the mill. But once again Glass-Steagall did NOTHING

to prevent this charade.

That is my point - Glass Steagall (the part overturned in 1999) is meaningless. It is why sensible people never tried to reinstate it.

[girl gone mad]

60. Then you're in agreement with Phil Gramm..

from a statement which Barry Ritholtz called the dumb quote of the day:

“I’ve never seen any evidence to substantiate any claim that this current financial crisis had anything to do with Gramm-Leach-Bliley. In fact, you couldn’t have had the assisted takeovers you had. More institutions would have failed.”

[girl gone mad]

62. It's not a chicken and/or egg issue, btw.

People weren't paying cash for houses, they were taking out mortgages.

Without banks make piles of money repackaging, selling off and leveraging loans, there would have been no bubble. Period.

[mmonk]

41. Investment houses created the market.

The market drove sub prime lenders to keep going.

[JackRiddler]

54. "If home values had kept going up" is an insane statement.

Home values were pumped up aggressively by the subprime vultures flogging unaffordable scam loans to millions of suckers who would have never received them prior to 1999. The environment in which participation in this became compelling and from Lehman's viewpoint necessary was created by the Glass-Steagal repeal, that allowed the deposit banks to get into the game. Inevitably the last buyer would be found and the peak was going to be reached. It's like you're wishing for more planets, or rivers of ice cream. Furthermore if Lehman had failed under the Glass-Steagal rules it wouldn't have mattered. An investment bank goes down, tough shit, but it doesn't affect all the deposit banks who have been allowed to move into the investment banking market.

Either you're an idiot or worse: Larry Summers.

[upi402]

35. G-S squishy magic juice splashed on them

So dump G-S becasuse why...?
Because you can't make an association with absolutely every situation? Therefore dumping G-S if fine? Your demand that someone prove this is funny.

Why?

[lostnote12]

42. I don't have a clue, but I'm curious as ...

to your take on the circumstances other than ethereal market causation.....thanks in advance

[Fresh_Start]

61. I was going to hazard that Goldman Sachs shorted Lehman

assisting its rival to its grave.

I agree that Glass-Steagall was not a material factor.
However the deregulation of Investment banks which allowed the I-banks 1) to increase their leverage and 2) to use their own models to assess risks and capital requirements was a substantial contributor

[LiberalAndProud]

65. Some reading for you.

Blame The Subprime Meltdown On The Repeal Of Glass-Steagall

http://consumerist.com/2008/04/blame-the-subprime-meltdown-on-the-repeal-of-glass-steagall.html

I would be interested to understand how the practice of subprime lending was not a direct result of G-S repeal.