Frontline: Inside the Meltdown
By Heather Wednesday Feb 18, 2009 5:06pmFrom PBS:
In this sneak peek from "Inside the Meltdown," FRONTLINE revisits a pivotal moment in the fall of Bear Stearns: CEO Alan Schwartz appears on CNBC to address Wall Street rumors that the investment bank is in trouble.
In "Inside the Meltdown," airing Tuesday, February 17 at 9 pm on PBS, FRONTLINE investigates the causes of the worst economic crisis in 70 years and how the government responded. The film chronicles the inside stories of the Bear Stearns deal, Lehman Brothers' collapse, the propping up of insurance giant AIG, and the $700 billion bailout. Inside the Meltdown examines what Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke didn't see, couldn't stop and haven't been able to fix.
If you missed the show tonight it can be watched in its entirety on line on Frontline's web site.
Login or Register to post comments.
One of the best sites on the web.
They really disappointed me when they did not make the Lee Atwater program freely available on their site.
I was waiting for this one to come for a week. It describes the real dangers of putting off the bailout. You can see that there was no option. It had to happen and will continue to happen.
This crisis brought even republican legislators to their knees after seeing the writing on the wall. This is a "must see" documentary.
Tuesday nights on PBS, don't miss it.
It's Wednesday. Did I miss this show?
It was on my local PBS station at 10pm EST last night. Always check your local listings for the PBS schedule.
And you can always follow the link above. I watched it on-line today. The bonus material was very educating.
Yes online. We can watch it, together.
I'll stop the world and melt with you.
...I'd think you're a ysbaddaden sock puppet. ;^D
LOL, thanks for the compliment. Must be the pot working a similar magic because I rarely drink anymore.
pot.
and pass it on, my friend!
that long
:)
Times are so tough, I went to a Chinese restaurant the other day and my fortune cookie said "What are you doing eating out when you owe us so ruch money?"
LOL.
I had to borrow to get my fortune cookie. By the time it arrived after dinner, the value had gone up 200%. I was thrilled, until I opened it. There was nothing inside.
I went to another Chinese restaurant tonight and the bill was stuffed in the cookie.
Others at my table took different pieces of our empty fortune cookies and packaged them together for sale to the Vietnamese restaurant next door. We stamped “AAA Number One Good” on the package, so naturally they bought it. But the Chinese owners of our restaurant said since we never actually paid for the cookies, they want their pieces back. That’s ok. We kept the Vietnamese’s money anyway…
LOL Taarak. Awesome way to bring it back on topic.
I think Bernanke's strategy at Chinese restaurants is to keep playing the lottery numbers on the back over and over and over again.
.
THIS was one scary hour of Frontline....
Obviously with an enormous amount of detail bypassed, it still painted a picture of how the US came within the width of a hair on a nat's ass of just seizing up and coming to a complete halt.
The sizes of the egos involved here are truly astounding, especially Paulson in dealing with Lehman Bros. but go around the horn and everyone is to blame.....I went and opened a new bank account this morning, and moved money JUST to make sure the deposits for now and the future were at ;east FDIC insured.....
Scary stuff....
The most important issue they should have fleshed out- but didn't- was how credit default swaps are a type of insurance that's unregulated. Seems to me that's why we're in the shit as deeply as we are right now.
On edit: a vey, very risky type of insurance.
not been gutted
It is not possible to describe the entire meltdown in one hour.
Still there are several GLARING omissions and errors.
1-
The entire subprime market loss to the present is about $1 trillion. What is not stated is that the largest investment banks and insurance companies, traded heavily in Credit Default Swaps.
The program does identify Swaps, aka CDS by describing them as insurance like contracts on Mortgage Backed Securities, or the subset of CDOs, ie Collateralized Debt Obligations.
What they fail to mention and this is critical, is that the major banks et al sold MULTIPLE CDS on each mortgage backed security and that the purchaser did not need to own the security. Sometimes they sold as many as ONE HUNDRED per security.
Thus each dollar lost in a mortgage default can be multiplied by 10, 50 even 100 times.
This is an egregious omission.
In addition they fail to mention the process of replication whereby synthetic CDOs are created, are 'replicated', that is to say: made out of thin air, with the CDS as collateral.
They couldn't find enough subprime mortgages for their Credit Default Swaps which were sold on the risky mortgages, so they created them out of thin air.
This further multiplies the loss of each dollar in original mortgage default.
2-
Paulson let Lehmann Brothers go bankrupt. The program says he was not prepared to offer the same sort of backstop that he had previously with Bear Stearns. That appears to be so.
YET, the program fails to mention Merrill Lynch AT ALL which was also going bust at the same time as Lehmann Brothers.
Merrill was sold to BoA with some sort of pledge from Paulson. Within several weeks the IRS posted a note that tax code section 382 would be lifted, though only the Congress has the authority to change the law. This provided a stealth windfall for the investment banks of it was reported as $140 billion. In December BoA received a pledge of $118 billion loss backstop from Paulson.
Why did Paulson let Lehmann go into bankruptcy and not Merrill?
The program doesn't mention Merrill and it doesn't mention the section 382 change windfall for the Banks.
Paulson was the ultimate insider. They knew the accounting fraud that was to be found. They knew what would happen if Bear Stearns would have gone under. The same applied even more to Lehmann.
It was said they had been working on their 'Bailout' plan since March when Bear Stearns went down.
Yet 6 months later it was only three pages long. If they had proposed it in the spring the Congress might have held public hearings and had expert testimony.
With six weeks until the election the Congress did neither. The only conclusion that I can draw is they knew the shock of Lehmann would force the Congress to bail their buddies out.
Let us be clear, that is what is happening. The Fat Cats are being bailed out by their buddies in the Treasury and Fed at the expense of we the peons.
The bank bailout is the greatest swindle in the history of the world.
Too bad the program doesn't get to that point at all.
Great post. I read about the CDO's created out of thin air. We can only assume that they are among the assetts the treasury bought on behalf of the tax payer.
I still have yet to see evidence of the credit crunch. I believe this was a fabrication. There was a constriction in the market, but only in areas that were higher risk. Loans were still being applied for and granted. The ratio of mortgages applied for to the number of mortgages approved DID NOT CHANGE during the crisis. If there was a credit crunch, this number would have increased.
From
http://discuss.epluribusmedia.net/node/2717
Joe goes to the track and bets $2 on a horse. Two guys standing nearby get into a discussion and Fred says to Sam, "I'll bet you $5 that Joe wins his bet." Next to them are Bill and Bob. Bill says: "I'll bet you $10 that Fred welshes on his bet if he loses." Next to them is Sally. Sally says: "For $3 I'll guarantee to Bill that if Bob fails to pay off, I'll make good on the bet." Sally then goes to Mary and borrows the $7 needed in case she has to ever pay off and promises to pay back $8. She doesn't expect to every have to pay since she believes Bob will always make good. So she expects to net $2 no matter what happens to Joe. A quick calculation indicates that there is now 2+5+10+3+7 = $27 riding on the outcome of the horse race. Question how much has been "invested" in the horse race? Answer: $50,000 by the owner of the horse who is expecting to recoup his investment from the winnings of the horse and other future deals. Everyone else is gambling, not investing. The issue with the home market is that the only "investor" was the person who bought the home. All those engaged in the meaningless derivatives spun off from this are gambling. You can see how quickly the face value of all these side bets can exceed the underlying investment. Who is holding these side bets - not the homeowner? It is the people at the failing investment banks, hedge funds and similar enterprises. Notice that the bailout is being directed at them not the homeowners. The real world is, of course, even more complicated. Over the last 30 years people have been allowed to place bets on everything starting with the value of stock averages. They might as well bet on the temperature in Newark at 8:00 AM. So when you hear everybody saying this is a crisis caused by the housing collapse, be skeptical. We are in the midst of a classic pyramid or Ponzi scheme and there is no way out except for people to lose a lot of money. All that is different this time is that it is the taxpayers who are being asked for the cash.
The program made that very clear. Dick Fuld at Lehman was an arrogant slob with an entitlement mentality and basically dared Paulson not to save them, figuring there was no chance that his request would be refused. He was wrong, Paulson saw this uncooperative jackass for what he was and called him. And so Lehman went down.
My question was why one and not the other, or neither, for that matter.
To claim avoidance of moral hazard letting one go but not the other does not ring true to me. The program makes no mention of Merrill Lynch and this leaves a false impression, it is a MAJOR omission.
What you are saying is that Paulson's decision was predicated from a personal point of view.
That is the impression the program is leaving. But I believe it to be a false impression and omission of Merrill tempers my thinking.
The Economist had a reasonably good article here, given the purview at the time.
There is also a school of thought that it was because Venezuela had some $2 billion invested with Lehmann. During mid September the US and Chavez were having a spat. Elements of the Russian Navy were also in a Venezuelan port of call.
The thinking in this school has it that the Bushoviks said we'll screw Chavez never mind that the world financial system goes down.
The program does say that Paulson was unwilling to offer a backstop for the enormous liabilities on the Lehmann's books.
Yet at the very same time he did so for Merrill but the program doesn't mention Merrill.
I can't know absolutely why Paulson did what he did.
What I can construe, from what I have studied, is that he knew about the interconnectedness of the world's financial systems.
And he knew the Enronesque type accounting that prevailed at the largest Investment Banks.
He knew the losses his buddies were sustaining and would sustain in the future.
Whatever his reason it was a perfect ploy to get the Congress to hand over $700 billion on short notice so he could give it to his Fat Cat buddies.
Of that much I am sure. When the Senate Republicans got another $150 billion in pork added they went along too.
Read James Galbraith Predator State. In a normal advanced republic, the government protects the citizens from the crooks.
Is this country, when it comes to the Fat Cats crooks, the government protects THEM from the citizens.
If you missed it, be sure and watch online if you can. Very informative, fascinating and scary.
Here we had two of the ultimate insiders, with who knows what inside information of what was or was not actually going on, pulling the strings on the largest transfer of wealth in history. We are to believe from this story that they held back the collapse of the global economy by throwing cash to their friends.
I smell a mushroom cloud.
Paulson is definitely an insider, but not so with Bernanke- he was an academic. If you read the transcript of the Krugman interview on the Frontline site, Krugman- who was hired by and worked with Bernanke at Princeton- says he was surprised to find out that the Fed chairman was a registered Republican.
ignorant?
cuz i aint buying it
this was laseiz faire capitalism at its worst
now, we have crazy man peter schiff running his mouth that he predicted this....except he blames big government
the nice thing about this program, is that it points out that the mortgage crisis had very little to do with poor people getting homes...but wealthy and middle class people seeing their homes as banks
Nationalize the banks, they pay back the loans with interest, as soon as they are paid back un-nationalize them.
Regulate, regulate, regulate the hell out of the financial markets.
nationalization? Thought I heard a couple of seconds of such on CNN.
Temporarily nationalize the banks. The ones that are deemed worthy of saving. Then audit, audit,audit. After this gets back on a healthy recovery. Kick them loose.
this crash is the result of not allowing economic downturns from happening again and again. The markets should have been allowed to correct 2000 but they stopped it. Now it's a monster, sadly their efforts will not succeed, they may buy time but by 2016 at the latest if we do not return to sound money we are in a for a crash even larger than this.
Paper is not money, this was a result of paper backing paper again and again compounding the threat. Fractional Reserve Banking is at the heart of this failure, until that ends we are playing Russian Roulette. This show exemplifies why a gold standard is needed, none of this would have occurred under a true gold standard.
After your reply to me this morning in last night's Open Thread, I expected your Paulist self here much sooner.
Gold standard, huh? Who gets rich off of that? Oh, yeah, the people who are holding a lot of gold- like Peter Schiff.
Yeah, right, it has nothing to do with the lack of regulation. Not at all. Because laissez faire free-marketeers like Schiff and Paul don't believe in regulation- invisible hand, yaddayadda....Why do you bother coming to a progressive site with that regressive, robber baron bullshit?
Paulist, no Henry Paulson is part of the problem. There are two obvious undisputable lessons in this video:
Fiat currency is essentially unsupported paper; FRB allows banks to exponentially expand money loaned on fewer dollars deposited. In other words you can deposit 1 dollar and a bank can loan out 30 up to 40 dollars against the 1 you deposited. They elf’n magic money that does not exist into existence leveraging your dollar to the hilt. The very nature of FRB is exponential; it is only designed to grow. It relies on larger and larger populations to support the system, more people depositing fewer people withdrawing, in essence FRB is a Ponzi scheme, and it has to inflate.
There are a multitude of problems with this system
Why Gold? I explain here
http://crooksandliars.com/john-amato/if-repub...
I believe regulation is needed
The 10/26/08 60 minutes is a follow up to a program on 10/05/08.
Neither program touches on synthetic CDOs. Too bad. They are one of the more toxic of all assets.
But they are secondary to Swaps which are what incinerated the investment banks.
It is the greatest swindle in the world that our congress decided to make whole Fat Cats who were gambling enormous bets against working people and the system.
Gold backed currencies can also be inflated in the same fashion as fractional reserves.
Gold is another arbitrary measure, you can speculate against precious metals and inflate their value.
Gold did diddly squat to prevent previous out of control speculative periods like the roaring 20s or the gilded age. Both of which ended up in catastrophic crashes.
As long as you depend on credit for economic growth, you are always going to have bubbles. Period....
Gold vs. fractional discussions just get in the way of addressing the real problem. It is like arguing about what should be the best way of measuring climate change: Celsius or Fahrenheit. Which makes little difference...
Except for times of war, but we paid down those debts until Vietnam which has yet to be repaid. In the 1920's we were on a 40% gold exchange standard, it wasn't the true gold standard our nation was founded on. Fraction Reserve Banking existed under the 40% exchange.
Yes bubbles will happen, I agree, but they are more easily detected under a gold standard. I am advocating a true 1 for 1 gold standard. Gold can be revalued to represent the dollars in circulation and can foster sound fiduciary responsibility. Derivatives would never have been allowed to compound risk had we been on a gold standard.
Look at the FED's chart and notice our money supply was basically the same until after we detached from gold entirely.
http://research.stlouisfed.org/fred2/fredgraph?s[1][id]=AMBNS
The problem with fiat currency is far worse than a gold standard, it blurs the line between price and value so you don't even know what a dollar is worth, you have to compare asset classes against each other just to know if the dollar is gaining or losing value. It makes it very easy for our wealth to be stolen from us and not even know it. We pay interest on every dollar printed today, our dollar is a liability in and of itself. Why the hell are we paying interest to the FED on our very money? Money should have intrinsic value, right now it does not.
te problem with the system is not how wealth is meassured, but how it is created.
A the heart of the matter is credit, which right now under our system, it is the only way of creating wealth.
Problem is that it is a non sustainable system, expecting infinite growth in a world of finite resources... among other things.
Either gold or fractional reserve do little to address that issue. Heck the Gold standard did nothing to prevent the crash of 29, or the tons of economic crises that happened on the XIX and early XX centuries.
Libertarians trying to apply horse medicine, to a complex case requiring brain surgery may actually make things worse...
Foreign debt is the problem, credit is only credit until someone signs on the dotted line and makes it debt. When people put their name on the paper for that house, they created money out of thin air and it became debt. Much of that debt is now in China who has sterilized almost $2 trillion, they are just sitting on.
BTW Mortgage comes from the French word Mort meaning until death
China holds $585 billion of US debt as of November 18, 2008 reported in Bloomberg here.
They hold $2 trillion in total foreign exchange reserves, interesting to note number from November you quoted was at $585 to current at $682bn. I should have said expected.
China is right to have doubts about who will buy all America's debt
Chinese doubts about the value of US Treasury bonds highlight a crucial question: who will buy the estimated $2.7 trillion (£1.9 trillion) to $4.2 trillion of debt expected to be issued over the next two years?
http://www.telegraph.co.uk/finance/breakingvi...
They are not excited
China Needs U.S. Guarantees for Treasuries, Yu Says (Update2)
http://www.bloomberg.com/apps/news?pid=206010...
China Passes Japan as Biggest U.S. Treasuries Holder (Update1)
http://www.bloomberg.com/apps/news?pid=206010...
Corrected it is. Your Bloomberg link is the same as mine.
what exactly?
Sorry, but you keep giving tangential arguments. And always come back to the same foreign debt argument.
The gold standard does nothing to address debt or credit...
that is where I differ with many on this board. Unfortunately I believe we have passed the point of no return to pay down our national debt. Not very positive I know but were spending more when we should be spending less. What is the number now $14 $15 trillion? with $53 trillion in entitlements. I think we are in for a collapse of the dollar if not now then by 2016 to 2020. I posted on why I believe that here.
http://videocafe.crooksandliars.com/heather/f...
I thought that Frontline and PBS completely chickened out.
The only question that we need to be asking is who owns these credit default swaps. Everyone is afraid to even ask that question.
I watched it as soon as I got off work last night. Pretty much everyone knows that artificial value was created over and over again, and that it was only a matter of time before it came crashing down. I see the bailout as more of the government and wallstreet trying to reset wealth assets to their actual value. At this point, the only way the US is going to pay back its debt is by taxing the assholes who got filthy fake rich off this and nationalize the banks so they can reset more softly then in the 1930s.
I found the bit about these two prideful bastards having to do what they had been preaching for so many years against the most interesting part of the show. My thoughts have always been that these Wall Street and financial guys just needed a good punch in the face, to bring them back down to our level. Who would of thought that their crashing pyramids would be that punch.
F*cking morons...
My God! I watched in horror the whitewash that Frontline did. Not a syllable about who was driving up the price of commodities, grains, metals, and oil during the run up to the melt down. WHO did they sell all of those toxic securities. Not a syllable about the Basel II agreement that forced international transparencey by Sept 30. Washington Mutual going from a market cap of 365 billion one day being sold for 3 Billion the next. Not a syllable about where the first 350 billion vanished...It went to the same WHO that we sold all that counterfeit crap to and we had to make good. A lot of people should be going to jail and not a syllable about the rapacious criminal fraud that these monsters foisted on the world...Instead they blamed the whole thing on the bubble...and not the fraud. It should have been two hours. That would have only been the beginning. What and who were the forces that made the credit markets seize. If the Obama administration won't reveal what really happened and fairly soon, they will be tarred by the crimes of the 'bush permitted' unregulated manipulators and be accessories after the fact.
Frontline is pretty good about following up. I think they'll keep on digging, and when there's more info on camera, you'll get it, and you'll get it in sufficient length and depth.
The answer to your question is so obvious that it has eluded you.
The money all went to Bush and the Iran-Contra people. It was bribe money to leave power without a fight.
I was hoping to see this appear as a link on one of the blogs. It was surreal watching this program. I know, I know, we are living through it, living through history, but watching all of the puzzle pieces put together in an objective way and seeing how truly massive and wide-spread this is was really overwhelming. This is what happens when greed and incompetence run rampant.
Login or Register to post comments.