Connecting the dots on the credit crisis: Qui bono?

Just some facts that might be connected...add on...& correct any errors...



1. Who's responsible for the demise of Glass-Steagall?

Contrary to prevailing opinion, neither Clinton nor Congress seem to be primarily responsible. According to this timeline, it was big banks who lobbied for loosening of restrictions - in particular, Citicorp, J.P. Morgan, Chase Manhattan (now JPMorgan Chase) and Bankers Trust (now merged with Deutsche Bank).

And it was the Fed, mostly under the tenure of Alan Greenspan, who loosened them, making the final 1999 Congressional vote more or less the acknowledgement of a fait accompli:

http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html



2. What precipitated the crisis?

So far as I can tell, the downturn in real estate markets: there's been a steady drumbeat of bad news since. Yet - supposedly, non-performing/foreclosed real estate is a small fraction of total mortgages - less than 5%. (I had a link but lost it, if someone could fill in...). Thus, simply by paying off non-performing loans, if this is the root of the problem, it could be ended at relatively low cost - certainly less than the cost of the war in Iraq/Afghanistan, for example.

But there's more...



3. What about derivatives?

Wall Street wrote a bunch of derivatives on real estate & who knows what, setting up a chain of dominoes. The top three players were Morgan-Chase, Citi, & Bank Of America. In fact, Morgan alone is said to hold about 1/2 of them.

http://www.occ.treas.gov/ftp/release/2008-74a.pdf (p. 22)

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4144089&mesg_id=4144089

This is reputedly the source of the fear in the credit markets: the fear that corps have this stuff on their books, so aren't credit-worthy.

Thus, supposedly, the change in the LIBOR...



4. What's the LIBOR?

http://www.investopedia.com/terms/l/libor.asp.

"An interest rate at which banks can borrow funds...from other banks in the London interbank market...derived from a filtered average of the world's most creditworthy banks' interbank deposit rates for larger loans with maturities between overnight and one full year. The LIBOR is the world's most widely used benchmark for short-term interest rates. It's important because it is the rate at which the world's most preferred borrowers are able to borrow money. It is also the rate upon which rates for less preferred borrowers are based...Countries that rely on the LIBOR for a reference rate include the United States, Canada, Switzerland and the U.K."

So, supposedly the LIBOR is rising & credit freezing up, banks won't lend to each other, & thus the economy - including your paycheck - is also endangered.

http://www.bloomberg.com/apps/news?pid=20601082&sid=aBxs213UjqjA&refer=canada

Thus the supposed need for a bailout. But...



5. Who sets the LIBOR, again?

"a filtered average of the world's most creditworthy banks"

Well, which banks? So far as I can tell, these:

http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=145&a=13777&artpage=all

Notice some of the names: JPMorgan Chase, Bank of America & Citi, as well as other leading players in derivatives like HSBC. These are the "most credit-worthy" banks?

No, they're the BIGGEST international banks. Not necessarily the same thing. But because they have rate-setting power, they have the power to affect the fate of everyone else.

So this is why the frantic pleas from DUers, politicians, pundits: "Credit is freezing up! We need a bailout to save the economy, pronto!" But...



6. How's the bailing-out been managed so far?

There seems to be some good evidence it's been managed to benefit some, & destroy others. So far, JP Morgan-Chase, Citi, & Goldman Sachs seem to be among the winners - though with those derivative overhangs, it's not clear why.

Here are a few relevant threads & articles:

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4151446&mesg_id=4151446

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4152306&mesg_id=4152306

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4151446&mesg_id=4152743

http://www.vanityfair.com/politics/features/2008/08/bear_stearns200808?currentPage=1

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=132&topic_id=7256498&mesg_id=7256498



Qui's bono-ing?

Your posts are always well thought out, you always provide links for anyone doubting your claims, or for more reading.

I also like the topics you choose to discuss and your unique point of view.

Some on DU may not appreciate them, but I do, and it's people like you who have an original mind that makes DU interesting and worth visiting.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4138042&mesg_id=4138042


also specifically for Washington Mutual


Who Takes Park Place - BSC, WM and JPM

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4153867&mesg_id=4153867

Excellent work, Hannah Bell. I think that is very clear and understandable. People have been so conditioned to think that this is all so technical and esoteric that it takes a degree in economics to understand anything. Who benefits from convincing people they are not smart enough or educated enough to have any opinion on this?

when they aren't deliberately obfuscated with specialists' language & attempts to shame people for not being specialists.

People are intentionally made to feel stupid about money. Easier to fleece them if they are confused.

Message removed by moderator. Click here to review the message board rules.

:kick:

the spoils.

are getting a little more quid pro quo before the golden goose returns to Kennebunkport in January.

All those derivatives have to be worth more than nothing! /sarcasm

I don't mean to diminish his thread or its intellectual content at all, which is great. I was just questioning the Latin, which I learned as "Cui Bono?", who benefits.

The genitive singular of quis, "who"? Cui is the sing. dative true, but bono is also dative and is the actual indirect object... hmmmm

(I had to take 2 years of Latin before I could take French or Spanish in high school). And I am in my 60s, so memory is "hazy" to say the least!

Latin prof here:

The construction is the dreaded (LOL) double dative...at least my Latin students generally dread it...

It is a dative of reference (cui = to whom) with a dative of purpose (bono = for good).

It doesn't work literally in English because it means "for good to whom."

In a sense, the dative of reference (cui) is like a dative of the possessor.

The general translation is "for whose benefit," but it is not a literal translation. This is one of those cases where a literal translation doesn't quite work and when you are reading it in Latin you just know what it means. Interesting really.

This is a good way to teach the double dative that I had not thought of before (using cui bono), so thanks for the idea!

:thumbsup: