The End of the Financial World as We Know It

Re:The End of the Financial World as We Know It by ctkrohn on Sunday January 04, 2009 @03:10PM (#419459)

<i>Richard Fuld, the former chief executive of Lehman Brothers, E. Stanley O’Neal, the former chief executive of Merrill Lynch, and Charles O. Prince III, Citigroup’s chief executive, may have paid themselves humongous sums of money at the end of each year, as a result of the bond market bonanza. But if any one of them had set himself up as a whistleblower had stood up and said "this business is irresponsible and we are not going to participate in it," he would probably have been fired. Not immediately, perhaps. But a few quarters of earnings that lagged behind those of every other Wall Street firm would invite outrage from subordinates, who would flee for other, less responsible firms, and from shareholders, who would call for his resignation. Eventually he’d be replaced by someone willing to make money from the credit bubble.</i>

And yet that's exactly what upper management at Goldman and JPMorgan did. Goldman never bought massive quantities of ABS CDOs for portfolio. Chase never originated a single option ARM. Not all of Wall Street was so cravenly focused on short-term profits.

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Re:The End of the Financial World as We Know It by bilbo0s on Sunday January 04, 2009 @05:20PM (#419615)

Is this a joke?

Uhh ... you do realize Blythe basically INVENTED the CDS right?

Maybe I am misunderstanding what you are trying to say, but ALL of the big investment firms were in on this. In fact, the system would not have failed if any one of the investment banks had not played their role.

If you are a quant we can get into arguing the fatal flaw of uncleared counterparties. But from my perspective when everyone is a counterparty, and EVERYONE was, there is nowhere to run when things go bad.

Could you clarify what you mean for me please?

Incidentally, the quote is correct, the heads of everyone from Bear to Goldman would have been summarily dismissed if they had failed to play their roles. All because of the 'innovation' of one, as it turns out, not so bright quant at JPMorgan. Astounding isn't it?

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Re:The End of the Financial World as We Know It by ctkrohn on Sunday January 04, 2009 @05:53PM (#419669)

I wasn't talking about CDS, and I am aware that Blythe Masters is credited with inventing the CDS while at JPM. I think it's still too early to tell if CDS are good or bad on the whole. Ultimately, they're just insurance contracts, which have been around for hundreds of years. But that's another discussion.

I'm talking specifically about subprime. JPM and Goldman explicitly decided at the very highest levels of management to remain uninvolved in certain areas of the subprime mortgage market. Chase did originate subprime loans, but it did not securitize them and for a long time, did not make a market in subprime bonds. Chase also stayed away from certain areas of alt-A lending, in particular option ARMs, which have become one of the most toxic forms of mortgage debt. Also, JPM didn't purchase billions upon billions of subprime bonds and subprime-backed CDOs, like Merrill, UBS, Citi, and other banks did. That's why JPM has taken "only" $6bn in writedowns over the past 18 months, vs. over $30bn each for Citi, Merrill, and UBS. And yet Jamie Dimon remained CEO of JPM through the mortgage lending boom, despite staying away from its most lucrative areas.

You might find the following article interesting: http://money.cnn.com/2008/08/29/news/companies/tully_jpmorga...

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