Via a skeptical Naked Capitalism, this:
Investment banks, including Goldman Sachs and Barclays Capital, are inventing schemes to reduce the capital cost of risky assets on banks’ balance sheets, in the latest sign that financial market innovation is far from dead.
The schemes, which Goldman insiders refer to as “insurance” and BarCap calls “smart securitisation”, use different mechanisms to achieve the same goal: cutting capital costs by up to half in some cases, at the same time as regulators are threatening to force banks to increase their capital requirements.
BarCap’s structures involve the pooling of assets from several clients into a secured financial product that can be sold on to other investors and rated by a credit rating agency, potentially reducing the capital allocated against the assets by between 10 per cent and 50 per cent.
These new mechanisms are in some respects similar to the discredited structured products, which were widely blamed for fuelling the financial crisis. But the schemes’ backers argue there are two significant differences. First, they involve the securitisation of banks’ existing assets, rather than of new lending. Second, bankers argue that the new products do not disguise the transfer of risk.
Am I the only one who gets a pit in my stomach when I see the words “innovation” and “financial market” used in the same sentence?
C Nelson Reilly
Let the free market work its magic!
Face
Terminator 2 was better than the original, IMO.
linda
no, you are not. these f*cking pigs have inflicted more pain and distress on people and communities across the globe than osama and pals ever could have imagined.
and until there’s a comparable action on this side of the pond, the banksters are guaranteed to prevail:
group of well-to-do pensioners who lost their savings in the credit crunch staged an arthritic revenge attack and held their terrified financial adviser to ransom, prosecutors said yesterday.
The alleged kidnapping is the latest example of what is being dubbed “silver crime” — the violent backlash of pensioners who feel cheated by the world.
“As I was letting myself into my front door I was assaulted from behind and hit hard,” the financial adviser James Amburn, a 56-year-old German-American, said. “Then they bound me with masking tape until I looked like a mummy. I thought I was a dead man.”
He was freed by 40 heavily armed policemen from the counter-terrorist unit last Saturday. The frightened consultant was in his underwear, his body lacerated by wounds allegedly inflicted by angry pensioners.
http://www.timesonline.co.uk/tol/news/world/europe/article6565206.ece
MattF
What’s the problem? Spinning gold out of shit is just a day’s work. And– let me just go talk to the manager, and maybe I can get you a discount because you’re such a good person and I like you so much.
JackieBinAZ
Don’t worry, the ratings agencies will tell us if it’s safe or not.
JK
Not true.
The Godfather Part II is the best movie I’ve ever seen, while The Godfather is the second best.
Fulcanelli
No.
I think the sooner we face the fact that the predatory capitalism practiced by our largest financial institutions is a bigger threat to the American way of life than any terrorist threat, then the better off we’ll be. The enablers on both sides of the aisle in Congress just grease the skids and should be shot.
Hey just wondering, that ad on the the left for the Filipina mail-order brides… Isn’t that how Our Lady Of Perpetual Outrage snuck into the Workers Paradise of America?
linda
‘aliens’ was pretty damned good… ;-)
Death By Mosquito Truck
This is like starting a totally different ponzi scheme to support your currently failing one so it’s all good.
cgp
Don’t worry! I’m sure that pooling the risk into large groups will generate zero systemic risk. This is financial engineering at it’s best!
Why is it that I can’t buy a car without anyone checking to see if there is a lien against it, yet we’re allowing the largest financial institutions in the world to package huge insurances that are designed to sell assets as collateral for a number of different parties?
The Raven
Me, I think of food.
demimondian
@Fulcanelli: Nope. OLOPO was born here.
Her *parents* were illegal.
Fulcanelli
@demimondian: Why am I not surprised. Fruit of the poisoned tree and all that…
Legalize
Evil Dead 2 was better than the first one.
Ash Can
@Fulcanelli: Yep — an anchor baby of illegal immigrants, who grew up to despise anchor babies and illegal immigrants. Now that’s a healthy scenario.
maya
To more clearly understand what “Innovation” in the “financial market” means , just picture adding 000, 0000, 00000, 000000, 0000000, 00000000 and 000000000 to a roulette wheel.
Fulcanelli
@Ash Can: Yet another “pull-the-ladder-up-behind-them conservative republican”. No one could have predicted.
The Moar You Know
Silly Cole. These people went to college, and not that stupid hippie kind of college where people learn how to smoke pot and vote Democrat. No, these…I hestitate to call them men…these Gods Of Industry, these Titans Of Finance, went to business college, where they learned at the feet of the Masters Of The World and received the sacred M.B.A.
Don’t question them. You are but a mere mortal. They are gods who grace us with their presence. I dare you to name one mistake they have ever made. You can’t do it!
Thomas Levenson
Two — well really one cheer — for financial innovation. It works and it always carries risk, which is why each new innovation needs its own specific regulatory framework. Go back to the seventeenth century (my territory) and you see the same stuff at work: London financiers inventing (or really adopting and turbocharging (forgive the anachronism)) debt for equity swaps, leverage, fractional reserve banking, a bond market and so on… a finanicial revolution that created funding mechanisms that would go on to support an enormous amount of wealth-creating activity (and ultimately an empire, some decades/centuries down the road).
Oh yeah…and on the way, leading to the first great stock-market/debt securitization bubble, fraud and collapse in the 1720 South Sea Bubble (and much more besides).
As my man Isaac Newton said, “Credit is a present remedy against poverty & like the best remedies in Physick works strongly & has a poisonous quality.” He went on to add that good doctors do not therefore forbid themselves such a useful tool, but learn to employ it without killing their patients.
He was right — which did not prevent him from being one of the losers (and a big one) in the South Sea debacle.
Comrade Sock Puppet of the Great Satan
Did these fuckers sleep through the bit in finance class covering Modiglani-Miller equivalence?
scav
that’s not a pit you’ve got there, that’s a black hole and it’s 100% the correct response.
Sarcastro
X-men 2.
You guys ought to check out this week’s Top Gear. They take the cheapest, crappiest cars they can buy to London’s economic district and show all the traders what cars they’ll be driving soon.
“It’s either this Proton or flinging yourself out a window.”
A Mom Anon
Can’t there just be a separation of”investment banking”and plain old checking/savings banking? If you could wall off and separate those two things I would think it would solve alot of issues.
I don’t know why all this crap has to be so obtuse and complicated either. Simplify and regulate and let there be consequences for violating the rules. No loopholes.
Jesse
Innovation is THE goal of all the big dreamers on wall st. That’s always been where the real money is.
Markets have a feedback loop and do balance themselves (somewhat). Given a constant playing field, inequalities will tend to level out. it’s only when new (and hopefully complex) avenues are discovered that there is real opportunity to get ahead (read: take advantage) of other people.
gypsy howell
“schemes” seems like the perfect word for this.
Scheme:
n.
an elaborate and systematic plan of action
dodge: a statement that evades the question by cleverness or trickery
adj.
scheming – calculating: used of persons; “the most calculating and selfish men in the community”
scheming – designing: concealing crafty designs for advancing your own interest; “a selfish and designing nation obsessed with the dark schemes of European intrigue”- W.Churchill; “a scheming wife”; “a scheming gold digger”
***
They better at least give us free fucking health care while they rape and pillage us.
par4
This is what happens when you reward criminality instead of prosecuting it.
Political Pragmatist
Like I get with the words Goldman-Sachs?
“We’re from Goldman-Sachs and we’re here to help.” Those are really scary words.
PaminBB
Am I the only one who translates this as “We are stealing the money in broad daylight instead of behind closed doors”?
Rick Taylor
I wish I could remember the exact quote or when he said it, but I remember Paul Krugman saying something along the lines that years from now when people hear the words “financial innovation”, they’ll run away screaming.
Louise
F*ck these f*cking f*ckers. May they all rot in a hell filled with one-bedroom apartments and no laundry facilities. There’s no justice, is there?
I want to hurt someone.
Aaron
“Innovation” in the financial sector seems to be code for “We are doing things that the regulators haven’t figured out how to prevent yet.”
Rick Taylor
This isn’t the quote I remembered, but it’s similar. Krugman:
Montysano
Matt Taibbi: The Great American Bubble Machine. Also.
bago
Any engineer will tell you that shuffling money around is not a particularly innovative product. Are you using a slide rule to figure out how to situate the gaps in the fuel tank so that as thermal expasion filters through the structural body so that as an operating airframe it will change dimensions to form a complete aircraft after flying for an hour? No. Are you proposing a method of sending out semi sentient spiders to canvass all of the public information known to man so that you might index it and enable search? No. Ae you processing trillions of bytes of data so that you can create a time scaled index to predict inventory space on a major website with hundreds of targeting parameters? No.
You’re buying insurance on a pitiful peice of stock. That’s not innovation. Thats just wearing a good suit and sweet talking idiots.
As an engineer I am sick and tired of these people claiming innovator status. Buying insurance on a stock sale is not “masters of the universe” smart. Crafting a self updating and healing enterprise system to do ad traffic analysis in a remote datacenter is a bit harder. In short, you’re not a rocket scientist unless you build a bot that orbits 4 planets in a solar system on your first try.
ricky
At the risk of being accused of innovation, couldn’t that term be a synonym for “lock ’em up, and throw away the key.”
ricky
And I argue that pigs really can fly. I happen to sell flying pigs, but don’t let that weaken my credibility.
bago
Link for post 34.
2th&nayle
“innovation + financial market” gives the same feeling in the stomach as “root + canal” or “Barium + enema”. Not good! Very bad!
liberal
@ricky:
LOL!
Brick Oven Bill
He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their Acts of pretended Legislation;
President Obama, in the name of transparency, should issue an Executive Order requiring hedge funds to disclose their short positions. Global financial players have the power to manipulate markets. If they destroy other’s value to increase their own, they should be held accountable in the court.
Who withdrew those $500 billion in money market funds last September, sending the market into the tank ahead of the election? This person or group remains undisclosed to my knowledge. Soros has bragged of the profits he made during the crash.
Read Montysano’s link for more.
John Hamilton Farr
Time for R.L. Burnside again…
Dennis-SGMM
Someone correct me if I’m wrong. Aren’t some of of those “existing assets” our savings accounts and CD’s? If so, brilliant. First they went after the mortgages and when that well ran dry they decided to go after the savings.
So, when this one blows up because it’s been leveraged and CDO’d to the value of the GNP of half of the world the bankers will be back at the government trough lest those foolish enough to save with them get wiped out too. This isn’t innovation, it’s figuring out a new way to put a gun to our heads.
jvill
@The Moar You Know: “Silly Cole. These people went to college, and not that stupid hippie kind of college where people learn how to smoke pot and vote Democrat. No, these…I hestitate to call them men…these Gods Of Industry, these Titans Of Finance, went to business college, where they learned at the feet of the Masters Of The World and received the sacred M.B.A.”
As someone who both attended a hippie college and is getting his MBA.. You know, we’re not ALL bad. Some of us actually believe in the importance of real innovation in management, products, services and processes. Some of even believe that’s the key to our future, and that we need to pull the curtain back on the financial shenanigans.
If it makes you feel any better, most of my classmates pretty much ridicule our finance classmates in nearly every class. And yes, the phrase “financial innovation” is pretty much a sure laugh line in any class (except finance). I know it’s not much, but don’t underestimate the power of ridicule and social sanctin.
But that doesn’t change the fact that the army of Ph.Ds with no where to go ended up employed at the Goldman’s of the world, tantalized by riches well-beyond any teaching or research gig. So finance people are doing what finance people do — wringing every last dollar out of any possible transaction, regardless of why, when or how.
What did people expect?
“Beware of geeks bearing formulas.” — Warren Buffett
gnomedad
Financial innovation == inventing new names for things the law is supposed to stop you from doing.
ET
Modern day bankers never learn. Innovation got them into this mess, more “innovation” just means digging the hole deeper.
Death By Mosquito Truck
@Brick Oven Bill: It seemed a lot funnier when John proposed it.
radish
I don’t think you need to worry about this particular “innovation” John. These guys are trying to sell something that a government program couldn’t give away.
What GS and Barclays are talking about is basically a hacked-up, scaled-down, unsubsidized, unregulated, private-sector version of what the government already tried to do with the PPIP/LLP. That was designed to gradually transfer all of the residual risk to the taxpayers (the only institution willing and able to take it on), and it provided what amounted to a small cash subsidy up front, and much to my surprise it still didn’t find enough takers to get off the ground.
GS and Barclay’s may be hoping desperately that somebody out there is ready to pay big bux for big shitpile, but if those people existed, why wouldn’t they have bought these same assets when the taxpayer was buying like 80% of the downside in exchange for 20% of the upside? The reason the banks have a capital requirements problem in the first place is that the assets in question are “toxic.” They aren’t going to be able to sell them at anywhere near the prices they’re asking unless they do figure out a way to conceal the risk. Which seems unlikely.
TenguPhule
Here we go again.
Jager
While in Boston last week I stayed at the Marriott Copley Place…there was a meeting of bankruptcy attorneys going on. Drinking and watching the Sox during my stay I was drawn into conversation with one of the attorneys attending the meeting, after chatting about baseball he went on a rant about the “assholes” he is dealing with in bankrupcy court, he said these guys have such a sense of entitlement, they think they can “shitcan” a business, put people out of work, have investors lose money and have to pay no personal price what so ever…he said he has never seen anything like it in over 30 years of practice. He said the “models” these guys have learned in B School are in his lawyerly term, “Bullshit”…
James Gary
As my man Isaac Newton said, “Credit is a present remedy against poverty & like the best remedies in Physick works strongly & has a poisonous quality.” He went on to add that good doctors do not therefore forbid themselves such a useful tool, but learn to employ it without killing their patients.
Really? FYI: about a hundred and fifty years or so later this guy named Louis Pasteur–you may have heard of him–developed something called the “germ theory of disease” which actually led to “remedies in Physick” that actually produced verifiable results. However brilliant a mathematician and physicist Netwon might have been, his assertions regarding medicine were unsupported, conjectural, and completely wrong.
RememberNovember
ah, these new euphemisms…”innovations”, Credit default swaps, Mutual Mental Monetary Masturbation…
Smart securitisation….
lipstick on a swine with a silk purse full of sh*t.
They’re writing checks with their mouths they expect to cash with our Ass-ets.
scarshapedstar
I’ll say this, I can totally understand the Ron Paul gold standard fetish. The paper/electronic economy exists only in the human imagination, yet these guys act like its wealth is more akin to a vast oil deposit and once we write the perfect mathematical function to exploit it then there will be a big ol’ gusher of cash that solves all the world’s problems.
It’s magical thinking. It’s a goddamn religion.
J. A. Baker
Perhaps it’s time to consult BartCop’s Second Law:
Death By Mosquito Truck
@scarshapedstar:
It used to be called chrysopoeia. Modern science has reversed the process and now can turn gold into worthless paper.
gypsy howell
Oh they learned alright. They learned that the US taxpayer is the biggest mark ever, and will be suckered into covering them on the next con just like we did on the last one. Sorry to tell ya, we are the ones who never learn.
Wile E. Quixote
@John Cole
Whenever I hear the words “innovation” and “financial market” used in the same sentence I reach for my gun.
Political Pragmatist
You can’t stop greed, only tax the sh_t out of it.
Kallistie
@ A Mom Anon: There WAS such a separation, called the Glass-Stegall act. It was repealed in the 80s or 90s under Greenspan and it was PREDICTED this shit would happen. Lo and behold.
@scarshapedscar: kindly explain why the gold standard is any different than regular fiat money? I mean, I can assign different values on the same amount of gold just as easily as I can print more money.
Also, isn’t this crap akin to the mortgage games the banks were playing that got us into this whole mess? Pretty sure it is.
An Outhouse
Just get AIG to insure the “innovation’ and we’re golden
Dennis-SGMM
@Kallistie:
Glass-Steagal was repealed in 1999 by the Gramm-Leach-Bliley Financial Services Modernization Act. The next year the Commodity Futures Modernization Act was passed. One if its authors was, wait for it, Phil Gramm. The CFMA, among other things, removed products offered by banks from regulation.
Neither act has been repealed nor have I heard of any plans to repeal them.
Andrea
Nope. SATSQ. And I like the reaching for a gun idea.