need to add title here

Wall Street's Shadow Market

October 6, 2008 5:04 AM

Steve Kroft looks at some of the arcane Wall Street financial instruments that have magnified the economic crisis.

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by iguanatshirt October 9, 2008 4:37 AM EDT
Part 4
Derivatives are not to blame. The root of the problem is the access to credit was too easy. Fannie and Freddie (at the prod of the Government) set up credit programs for people who could not afford homes. It goes back to so called predatory lending on mortgages in the sub-prime days of old. Apparently these loans were correctly priced.
Poor Job on covering the crisis. You are only adding to the public%u2019s fear. I have lost all respect for your news program.
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by iguanatshirt October 9, 2008 4:35 AM EDT
Part 3
You did show:
* You directly mentioned floors, ceilings and collars; these are the least complicated derivative securities. The value of these securities can be calculated with a pocket calculator.
* You showed only the result of some shady broker taking advantage two people who obviously were not qualified to be making investment decisions for themselves much less a school system
* You made a credit default swap sound like rocket science by comparing it with complex derivatives used in currency trading (A credit default swap is underwriting: If the borrower defaults you pay me; if they don%u2019t default, I pay you. Wow! That is complex!).
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by iguanatshirt October 9, 2008 4:34 AM EDT
Part 2
You failed to mention any of the following:
%u2022 Risk/ Return trade-off (The more risk you take on the larger the potential reward and the greater the loss )
%u2022 The fact that the mortgage crisis is a direct result of the Federal Government%u2019s (Not a political party%u2019s) attempt to encourage home ownership. (Market risk aversion)
%u2022 Role of the change in the bankruptcy in multiplying the number of subprime foreclosures
%u2022 Role of energy prices in accelerating the rate of subprime foreclosures
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by iguanatshirt October 9, 2008 4:33 AM EDT
Part 1
I have just watched both the story on "Shadow Market" and "Derivatives." You should be ashamed at the one sided slant you present. Most derivative securities are simple and the values can be calculated by any undergraduate finance student. Derivatives are the instrument of choice to hedge away risk in a direct covered investment.

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by sdpauly October 9, 2008 2:30 AM EDT
I would disagree that nobody saw this coming until now. I have been reading about the derivatives mess and subprime mess from various sites on the internet for the past 5 years or so. This was nothing but a get rich quick scheme by the elite of wall st. cleverly cloaked embezzlement that paid them very well for years. I think they paid themselves out of the money that was supposed to have been held in reserve to pay in case of default. Taxpayers should''t have had to foot the bill when the top executives walked away with billions. I believe crimes were comitted here and the payment for the failed financial institutions and such should be taken out of all the bonus money they paid themselves. our government is no less responsible for this because the Fed provided the underlying credit. Since the Fed and the treasury is made up of former executives from the same companies that are involved in this mess there is a major conflict of interest there. and now that it''s all blown up, their friends in government commit the taxpayer to paying it all off. despicable.
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by pl9341 October 9, 2008 1:45 AM EDT
Derivatives can really be a hazard to someones health... Can someone say more Risk Management!! Take the advice of roger lowensteins book " when genius failed" The smartest people from harvard cant even mitigate risk! Sometimes the average college graduate is better then the harvard grad... The duration or percentage of interest rate risk should have been closely followed! I guess next time investors will be more conservative!!!!!!
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by mpbryk October 8, 2008 3:25 AM EDT
60 Minutes might consider a side/sister program just to expose this entire scandal from the Clinton years. So much is covered up, in hopes truth will be buried.

Correct me if i am wrong, but didnt former president Clinton remove the reserve clause from banks?
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by mpbryk October 8, 2008 3:21 AM EDT
Where is any action to put ALL of these perps in jail?

Try conspiracy to defraud...conspiracy...etc.
"Conspiracy cases are defined as cases in which two or more persons agree to commit a crime or to perpetrate an illegal act." Regulators and auditor/invesigator(s) were kept in the dark over many of these intstruments....The federal maximum penalty for conspiracy is five years in prison" ...Criminal Law - Federal Crimes & Consequences

Page 6 of 33

Criminal Conspiracy - Federal Crimes & Consequences

What if the charges included each transaction? This should solve future attempts for similar actions.
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by roseklar October 8, 2008 3:03 AM EDT
I can not believe these people have gotten away with the murder of the economy, it is amazing to me that no one in the Congress or the State has been able to do anything about this. Did they not learn their lessons from Mr.Keating of the great S & L game. Wow! Who can I vote for that will just keep one promise they claim.......who can we trust anymore? The last 30 years are a joke on us. NOT ONE PRESIDENT has paid attention to us little people, not one.

Keep up the great news programs that keep us informed.
I love your programs, they make us realize where we are.

Rose Dominguez
Las Vegas, NV
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by ntxpologuy-2009 October 7, 2008 10:52 PM EDT
I simply find it incomprehensible that Wall Street "fat cats" have placed the general population in the middle of the most convoluted financial quagmire since the Great Depression. The "Hedge Fund" elite have only exascerbated the situaion. With the market crashing down around our ears and our retirement savings flying out the window faster than these financial ''giants'' can pull the rip cords on their ''golden parachutes'' any rationlly thinking individual must be (and rightly so) completely beside themselves. And with the US Government and Wall Street playing Russian Roulette with our, I reiterate, OUR monies, one can feel not whit of confidence that the funds aforementioned will even BE there when we - the people that voted for these clowns - actually NEED our money !! Pull out now, and take a HUGE tax hit, or stand by as we are being told today by our illustrious President - "The market will rebound." PLEASE !!! Does Washington and/or Wall Street REALLY believe that the American people just fell off of the proverbial ''Turnip Truck'' yesterday? My answer? "NO! We did not!" We sat at our desks watching our future evaporate like the morning fog !! SIMPLY APPALLING !!!

Neil Alderman
Highland Park, Texas

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by kasewines October 7, 2008 3:50 PM EDT
Isn%u2019t changing the name of an insurance instrument to a %u201Cswap%u201D to avoid regulation like changing a molecule in your meth recipe to avoid prosecution? Oh wait, a meth dealer doesn''t have a lobby to enact change in the verbage of the law to support his illegal endeavors
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by realist327 October 7, 2008 3:50 PM EDT
The practices of the so-called "Shadow Market" are simply criminal. I cannot understand how this type of behavior was allowed. A sixth-grade elementary student possesses enough intelligence to understand the mathematics used in these business deals simply do not work.

These "business men" new very well what they were doing was ignorant and wrong. Everything was done with the purpose of filling their own pockets no matter what the outcome is.

A recent article in a local paper discussed placing the responsible CEO''s in prison. That''s the best idea I''ve heard in years.
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by realist327 October 7, 2008 3:43 PM EDT
"NEOCON DEPRESSION"
"THANK YOU REPUBLICANS"

Some seem to forget the DEMOCRATS have controlled congress for the past TWO years. The Dems have been making all the decisions. That being said, how are the Reps to blame? They aren''t...
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by coldinokla October 7, 2008 10:44 AM EDT
I think these big business execs who took such large salaries and perks while their business were taking such large risks should have to sink their life savings back into their business. That''s what small business must do when times get tough. Many times we have to forego take home pay inorder to keep the doors open.
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by jayrjay-2009 October 7, 2008 9:33 AM EDT
One of the most critical underlying issues related to the economic failures is the loss of quality jobs. When we started outsourcing American industry and millions of middle class Americans lost their jobs they could no longer afford their home payments. This created a target rich environment for the predatory lending practices that led to Freddie and Fannie and ultimately to this financial/investment instruments described in this report. We can bail out Wall Street all we want but if we don''t address the real problem of lack of good paying jobs, job security, credit restraint and real regulatory oversight we are going to be in worse trouble in the not so distant future. When the middle class prospers America prospers, the economy grows and the world economy follows suit. We need to hold the countries we do business with to the same stands of labor rights, worker rights, environmental regulations to which American companies are held. Competition on the global stage needs to be a level playing field for our trade. A trade deficit should only exist because a product is clearly superior not because it can be made cheaper by using slave labor, at depresssed wages with no human rights protections and dumped freely on our markets. We need to create a vibrant manufacturing base again to employ millions of workers that generates a good quality of life so they can afford homes, afford college, have investments and plan for a relatively secure retirement.
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by savannah1118 October 7, 2008 3:21 AM EDT
McCain is also on the board for developing alternative fuel( Environmental and Energy Study Conference)which is the prime objective in what this country needs to be self sufficient. His experience may not have always been "perfect" but I don''t know of any one who has always made the right decisions,but the difference is did you learn from your mistakes?
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by dolise October 7, 2008 3:12 AM EDT
The politicians who supported and voted for the Wall Street Bail out need to be fired immediately. None of them deserve our support or our votes. Henry Paulson had an obviouus conflict of interest. Placing former CEO Paulson in charge of this bail out is like putting a fox in the henhouse.
There were other options available. But the problem was not all about bad home loans, it was really about Wall Street greed and how insurance on risky investments were sold through using a Credit Default Swap instead of using respected insurance companies. And how CEO''s sold mass amounts of stocks in their companies and sent the stocks spiraling downward.
Why didn''t our politicians have enough sense to tell the companies needing the bailout that the American people would be happy to match them dollar for dollar and charge them 10% interest on any loans so that these companies would have a little skin in the game? All CEO''s and managers who are currently involved or have been involved in this scam should be held accountable and fined the amount of their ill gotten gains. We can start with the 50 million that Henry Paulson walked away with from Goldman Sachs before he became the Secretary of Treasury. Certainly a man with the net worth of 700 million can donate a little money to help his buddies on Wall Street.
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by savannah1118 October 7, 2008 3:11 AM EDT
McCain voted against Fanny Mae and Freddie Mac many years ago, preventing them from giving loans to people that should not have them, but he was voted down by the greedy people looking to make a quick buck. I do not have any empathy for these greedy people, only for the middle class that are losing there homes because of it. I personally think that what is happening is a good thing for this country, though it might not seem like it right now, it is an eye opener for people that are living beyond there means to keep up with the "Jones"
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by ajbuzz October 7, 2008 1:25 AM EDT
Deregulation and unregulated banking practices are what got us to where we are today. Does anyone remember the Keating Five??? John McCain engaged in the same sort of schemes in his role in the savings and loan collapses and subsequent bail out... Sound familiar? McCain still advocates for deregulation in banking in his role as a senior member of the powerful Commerce Committee. Some people don''t learn from their mistakes and continue to exercise poor judgement.
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by lextec October 6, 2008 10:44 PM EDT
We really need to examine the officers and employees who sold "short" as their company''s stock crashed. These managers are some of the smartest people on Wall Street, and no one is checking to see how they lined their pockets in gold as the stocks were crashing. What did they know, who sold short, and when did they do it?

Mike
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