thx 123, let me clarify a couple of points, only because I am friends with a relatively famous economist who has studied the crash of 08 in such detail that he has been quoted hundreds of times and took a sabbatical from his teaching gig because he was in such demand on the speech circuit and as an international consultant for a couple of years, ie 2010-2011. He is now back to teaching.
Here, in brief, is how he told me things went down.
Hanky pank Paulson in spring of 08 shortly after leh went down, went to goldman, specifically blankfien and asked him what was going on to roil the credit markets so severally. Blanfien did not come clean at this point.
The credit markets continued to dry up into the summer and the chit was hitting the fan big time. He went to blankfien again and asked why all the disorder in the markets. This is when blanfien came clean and told paulson about all the chit synthetic cdo's that were in the market with little or no collateral to back them up.
Primarily, what goldman and jpm and several others were doing (NOT WAMU, NOT WELLS FARGO, NOT THE SMALL MOM AND POP BANKS) but all the big "investment banks" were colluding with the credit rating agencies, primarily standard and poors and rating theoretical derivatives triple A and selling them to china as triple A mortgage backed securities, the problem was they were not mortgage backed but were based on the theoretical default rates of mortgages based on zip code, yes zip code.
At the time, China was buying any debt that the u.s. would sell them rated triple A. In total, over a Trillion dollars worth.
Soo, back to paulson, once goldman came clean blankfien explained what was going on and paulson was stunned. Paulson at this point knew this was really really bad because if mortgage default rates went up marginally, the failure rate of the synthetics would go up exponentially. Blankfien told paulson that they were insured by AIG, thus the reason AIG was bailed out. It was a direct pass through to goldman sachs, almost the whole amount given to AIG went to goldman. That's why it was so critical to bail out aig, could you imagine what would have happened if goldman went under.
He then went to dimon and asked him the same thing, who are your synthetics insured by, because whom ever they were, paulson was going to bail them out as well. uh oh, dimon had to tell paulson that they decided the risk was low so they self insured.
This is when, dimon got so, so fing lucky. JPM needed cash and dimon knew in detail how much cash and assets wamu had. Thus, to save jpm, wamu was seized to shore up jpm's books. This is why wamu was immediately seized. It prevented a direct bail out of jpm by the feds. dimon was so lucky that they made an offer for wamu months earlier so they knew that wamu was golden compared to them, goldman, citi, anyone playing in synthetics.
Actually, my friend said that wamu in theory should have been the one to have taken over jpm because they were in better financial shape, but they were not a fed reserve bank and were not connected because they were not part of the inner circle. Wamu saved jpm from bk.
The spin is the best part, all the sub prime mortgagers were blamed even though the collateral of bricks and mortar they held on their books was so much better collateralized then jpm, goldman, citi. Why, they had zero synthetic derivatives on their books. The synthetics had leverages of several hundred to one, the sub prime lenders were around 50 to 1. This was the best mis direction play ever.
So lets move to recent times, jpm survives, goldman survives and the feds fine them 10s of billions for what they did but no one cares and no one goes to jail.
Wamu was the sacrificial lamb for jpm to survive.
One last point, once China figured out they the were the ponzi that were livid and basically told the feds they are not taking the fall, pay us back or else. What is the what else. China threaten to devalue the u.s. dollar. The threat worked and China was made whole.
This is all my opinion and mine alone based on what I have been told and what I have read.
Back into hiding for awhile but I thought it was worth posting this info periodically to get the truth out there.
AI
