The End of Wall Street's Boom

Take the time to read this:

http://www.portfolio.com/news-marke...2008/11/11/The-End-of-Wall-Streets-Boom#page1

The author of the story interviewed the people that knew this was going to happen and their investigation into uncovering the truth.

Very worthwhile read.

Thanks for sharing! Just gave me a better understanding of the financial fiasco we're in!!! We should have people like these working at the SEC.

Scary good! And now it looks like we're starting it all over again with bailout $$$ being thrown into the abyss, with little, or no, accountability!

A friend of mine had sent me this when it first appeared and it was as fascinating reading it this time as it was then.

Folks should go to jail over this sort of thing.

Alan, I'm nervous about bailout dollars too. I believe that the first round of bailouts really were doled out with no accountability. Obama at least seems outraged and intent to hold institutions accountable for all future dollars handed over. All I know is that if the average American on the street were to try to pull some of those thypes of manouvers in their own business or personal life they'd certainly loose their jobs and possibly spend time in jail.

A few quotes from the article above:

...There’s a simple measure of sanity in housing prices: the ratio of median home price to income. Historically, it runs around 3 to 1; by late 2004, it had risen nationally to 4 to 1. “All these people were saying it was nearly as high in some other countries,” Zelman says. “But the problem wasn’t just that it was 4 to 1. In Los Angeles, it was 10 to 1, and in Miami, 8.5 to 1. And then you coupled that with the buyers. They weren’t real buyers. They were speculators.” Zelman alienated clients with her pessimism, but she couldn’t pretend everything was good. “It wasn’t that hard in hindsight to see it,” she says. “It was very hard to know when it would stop.” Zelman spoke occasionally with Eisman and always left these conversations feeling better about her views and worse about the world. “You needed the occasional assurance that you weren’t nuts,” she says. She wasn’t nuts. The world was.”…

…He’d call over to a big firm and ask for a list of mortgage bonds from all over the country. The juiciest shorts—the bonds ultimately backed by the mortgages most likely to default—had several characteristics. They’d be in what Wall Street people were now calling the sand states: Arizona, California, Florida, Nevada. The loans would have been made by one of the more dubious mortgage lenders; Long Beach Financial, wholly owned by Washington Mutual, was a great example. Long Beach Financial was moving money out the door as fast as it could, few questions asked, in loans built to self-destruct. It specialized in asking home*owners with bad credit and no proof of income to put no money down and defer interest payments for as long as possible. In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000...

It's always us folks that get screwed by Wall Street. They did it during the dot com boom where they manipulated IPOs and the market as a whole, now they did it again in the housing boom. Shareholder interest is taking a back seat over greed in Wall Street and Washington. It's just appalling!

I think we should order a few dozen of these, and just park them outside every stock exchange and brokerage house in the country, just to make a point...

http://jalopnik.com/tag/china/?id=5151065

rtagle said:

It's always us folks that get screwed by Wall Street. They did it during the dot com boom where they manipulated IPOs and the market as a whole, now they did it again in the housing boom. Shareholder interest is taking a back seat over greed in Wall Street and Washington. It's just appalling!

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"Us folks"? "They did it"? C'mon guys. It isn't "us" vs. "them". We are all Americans and are all responsible in different ways for these bubbles. You don't think average Americans like you and me helped fuel the dot.com bubble by speculating in the market to try to make some quick profits? I know plenty of average Joe's who did just that. Heck, during that time day-trading became a hobby of many, many people all across America. While folks were making money hand over foot, no one complained. When the bubble burst (as the ALWAYS do), everyone blames those guys on Wall Street.

And what exactly did the folks on Wall Street have to do with the housing bubble? Sorry, but that was caused by a lot of speculation by folks just like us. My sister is a prime example. For the last five years, she was flipping houses in the Tampa area and making a killing. I warned her it was a bubble and things would eventually turn south. Now she is defaulting on a mortgage on her current home that is multiple times the home's current value. She wasn't screwed by Wall Street, as rtagle implies. She was a victim of her own lack of caution in a volatile market.

Bubbles will always happen and people will always get screwed in the aftermath. They happen because of a group psychology of greed and a complete lack of caution, not because of a few wealthy people manipulating Wall Street. Not to say that there isn't plenty of fraud and abuse, from Wall Street to Main Street. That will always happen too. And there are lots of innocent victims, to be sure. But there are also lots of victims that have only themselves to blame. If someone is promising you above-average returns but can't show you what they are investing your money in, then you are a fool for giving it to them and deserve to lose it, in my opinion (referring specifically to the Madoff and Stanford frauds).

Rich said:

Bubbles will always happen and people will always get screwed in the aftermath. They happen because of a group psychology of greed and a complete lack of caution, not because of a few wealthy people manipulating Wall Street.

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One of my finance professors said that the recurrent cycle of "Bubbles" is simply due to the mentality on Wall Street of "this time it will be different." It is never different but Wall Street and by extension the public keep believing that things will keep going up.

A friend bought a lot of silver years ago as silver was rapidly approaching $50 an ounce. Many of us told him that the price would fall and fall far as the market was horribly and artificially inflated (thanks to the Hunt Bros.), he still owns that silver at an avg. of over $40 an ounce.

A good read about this is Niall Ferguson's The Ascent of Money Penguin Press, for a detailed historical look at previous bubbles and other financial ideas.

my statement said that my average return was 26.90%

risabet said:

One of my finance professors said that the recurrent cycle of "Bubbles" is simply due to the mentality on Wall Street of "this time it will be different." It is never different but Wall Street and by extension the public keep believing that things will keep going up.

A friend bought a lot of silver years ago as silver was rapidly approaching $50 an ounce. Many of us told him that the price would fall and fall far as the market was horribly and artificially inflated (thanks to the Hunt Bros.), he still owns that silver at an avg. of over $40 an ounce.

A good read about this is Niall Ferguson's The Ascent of Money Penguin Press, for a detailed historical look at previous bubbles and other financial ideas.

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I'll have to check that book out. Also Malkiel summarizes many of the bubbles in his Random Walk Down Wall Street book.