Pam Martens has an excellent analysis of the credit crisis/mortgage meltdown/bank credit crunch at Counterpunch (Jan 3, 2008, The Free Market Myth Dissolves into Chaos, also posted on The Daily Scare):
...Collectively losing $70 Billion in a matter of months with projections of ongoing losses climbing to as much as $400 Billion globally sounds like serious trouble to me. And, it's very uncharacteristic of Wall Street to lose billions of its own money....
...Before we break out the bubbly over Wall Street finally getting a taste of how it feels to be mauled, reflect on what it might mean to average Americans if the least knowledgeable market participants own the banks that hold their savings, money market, car loan, credit card, mortgage; and these firms' stocks are loaded up in 401(k) plans....
...The rating agencies, Standard and Poor's, Moody's and Fitch gave the indigestible concoction a AAA rating based on that whipped cream. That the rating was requested and paid for by the issuer of the CDO was no trifling matter, as future events would expose....
...The Citigroup translation goes like this: we've been buying the AAA-rated super senior tranches all along because we were told by the physics brainiacs that these securities were walled off from losses by over collateralization. Our pat answer for how we got $25 billion of CDOs back on our balance sheet this summer is going to be a "liquidity put." We are standing by the position that we gave our buyers the right to "put" the securities back to us without losses under certain conditions. (How that complies with securities laws banning guarantees against losses has yet to be addressed. How one can make an arms length sale of a security and still be contractually bound to take it back on the balance sheet has also not been addressed. Stockbrokers would lose their job, livelihood and licenses if they used this defense. This raises the additional question of regulatory passes for the privileged, another serious contributor to inefficient markets.)
Stan O'Neal's answer on behalf of Merrill Lynch is, on its face, very humble and simple: mistakes were made; errors of judgment. Recent articles, however, have raised suspicions that Merrill was not only holding the AAA tranches because they thought they were safe from losses because of over collateralization, but was also making hedging bets against the very subprime debt they were selling to customers; in other words, Enronomics: heads I win, tails you lose....
...the securitization market has no Federal and State banking regulators to monitor its behavior. The only bodies that provide oversight or implicit regulation are the NRSROs [rating agencies] -- bodies that are inherently biased towards their paymasters, the securitization [Wall Street] firms....
...Efficient markets need transparency and alert cops on the beat. Why is that so difficult to achieve? Because opacity and rigged markets produce the desired goal of enriching the one percent who now own 44% of the wealth of the nation. This one percent, in turn, keeps Congress on a short leash by holding the purse strings to campaign funding....
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