The US Congress is getting close to passing new financial regulation, attempting to rein in our friends on Wall Street. Pending legislation would limit Investment Banks’ ability to trade for their own accounts, and effectively bar them from trading derivatives.
The bankers are pushing back.
The big banks argue that the Volcker proposal is misguided, for several reasons … the banks assert that the financial crisis of 2008 was a lending-based crisis caused by reckless loans made to unqualified home buyers. It was not, they say, a trading crisis.
This is not quite the truth, or even a close approximation to the truth. It’s an outright lie.
- Investment banks packaged, securitized and re-sold the fraudulent loans made by originators, ‘enabling’ them to keep the hustle going.
- Investment banks deliberately ‘gamed’ the rating agencies so that sub-prime loans were magically converted to investment grade bonds.
- Investment banks invented new vehicles to peddle (trade) their products called Special Purpose Vehicles.
- Investment banks obfuscated what they were doing by re-branding (renaming) the slime that was inside these investments; for example No-Doc (Liar) loans became known as Alt-A loans.
And to say that the crisis was lending based? Get this. When Investment banks ran out of loans to repackage and sell, because their suppliers couldn’t make them fast enough, they invented a totally new class bonds called Synthetic CDOs that didn’t even require real mortgages at all!
It was truly breathtaking.
If you read only one book exposing the underbelly of Wall Street, get a copy of The Big Short by Michael Lewis. If you have an audible.com account, I can highly recommend the audio version read by Jesse Boggs. Listen while you are in the gym, and the adrenalin rush when you hear about these Wall Street thieves will definitely improve your workout.
If you are not familiar with the term “wood”, then here is your link to the Urban Dictionary. Caution, this link is not rated GP.