60 Minutes: A Look at Wallstreet’s Shadow Market

October 05, 2008
CBS News

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

It began with a terrible bet that was magnified by reckless borrowing, complex securities, and a vast, unregulated shadow market worth nearly $60 trillion that hid the risks until it was too late to do anything about them.

And as correspondent Steve Kroft reports, it’s far from being over.

Part I

Part II

A Look At Wall Street’s Shadow Market
60 Minutes: How Some Arcane Wall Street Financial Instruments Magnified Economic Crisis

2 thoughts on “60 Minutes: A Look at Wallstreet’s Shadow Market”

  1. Capitalism’s “finest” hour indeed. The great US example that T&T’s government’s have followed to the letter. And lets us not forget to include the UK in this mess as well.
    When you have companies like Witco making $93,000.000 in Profits, a 25% increase in gas, a rising inflation rate of 13.5% and counting, due to the ill advised peg to the unstable US dollar coupled with skyrocketing food prices due to a lack of regulation, corruption, the looming “self destructive” Free Trade Agreements and a minimum wage to deal with all of this insanity thats only $9.00TT per hour. It will certainly be down hill from this point onwards T&T. Brace your selves.

  2. Here is what I do not understand; why everyone keeps blaming poor people, who because they were conned into accepting adjustable rate mortgages, with criminally high (as in loan shark style) adjusting rates, when it seems that they represent less than 6% of mortgage defaults out of 100%.

    The truth is back in the 90’s when African-American Homeowners (always the Canaries in Cages) were being conned out of their homes by predatory lenders not many people cared. Remember African-Americans represent about +/-10% of the U.S. population. These were people who were already homeowners; many already retired and living on fixed social security incomes. These Banks came into their neighborhoods and stole their homes out from under them by means of “reverse mortgaged equity lines.” Ofcourse everyone blamed the home owners for being stupid, after all they were merely poor and under-educated, African-Americans.

    I remember one bank in Los Angeles; Aames Home Loans, was found guilty after an investigation of predatory lending practices. Can’t say I recall what punishment was meted out for the crime. On the heels of this travesty, a new trend grabbed the spotlight “House Flipping” Anyone, ever heard of “Flip this House” its a serial on one of the cable channels in the U.S. The idea is that investors (not homeowners) could purchase abandoned and dilapidated residential property for little or mostly no money down, spend a few dollars on sprucing, then quickly turn it around for a profit. Anyone with a minor exposure to economics should recognize this as market manipulation as there is no corresponding demand for the supply. Well one person, I forgot whom, got rich off this little scheme and decided to make videos and present lectures to the public on how to satiate their greed, and thus there was an explosion. I remember one African-American activist (Dick Gregory) advising African-Americans in impoverished inner city neighborhoods (the preferred locations) not to sell their homes. They were selling their homes which in most cases they owned free and clear, at a depreciated value, then were forced to buy some artificially inflated suburban home. Enter the new client base for the Banks creative mortgage instruments.

    But that represents only a small portion of the scheming that brought down the worlds’ financial markets. Late, but right on time for the money train came the residential home developers. Bouyed by the access to cheap labor supplied by rising illegal immigration, they began acquiring any unoccupied landspace. In fact one developer constructed a residential development on an old U.S. Army target site, on which the new residents continue to find unexploded munitions in their backyards. These developers began erecting residential housing developments in every town, city, and state within the U.S. no one questioned them about the demand for this housing. So they kept building, and the Banks kept providing them with investors’ money.

    In order to provide a return on these initial investments further creative financing was required; there were Banks that were financing these development projects, then selling creative mortgage instruments (sub-prime) to unqualified buyers (some homeowners, some house flippers); then another arm of their organization would package these instruments to more unsuspecting investors. Still another extension was providing insurance to both the developer investment and the creative (risky) mortgage security. Even your simple homebased accounting software knows to reject this circular argument. (equation)

    But here’s the kicker, in most cases its not the exploited homeowner who is defaulting on their mortgage payments, a homewoner would sell their blood to keep their home; its the investment speculators, the market manipulators who are defaulting. According, to a real estate insider, the foreclosed properties in many neighborhoods represent a second, third, or fourth property of a speculator, who could afford to lose a non-primary residence. Add to this fact Steve Croft’s expose of Credit Default Swaps and we have the reason why many banks are refusing to renegotiating loans; its easier to have the property owner foreclose, the Bank still gets paid from the insurer of these creative investment securities.

    We’ve only just begun to experience the fallout from this unmitigated greed.

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