Question for Discussion: How does the Great Bailout help
us understand the real Players behind Globalization and the Global
Financial Crisis?

Readings: Leopold, pp. 1-38; Mason, "Financial Krakatoa";

Videos: Frontline: The Warning (18:00): Fall 2009 ;
Credit Default Swaps: Fall 2009 60 minutes stories;
60 minutes: Paulson on the Bailout, Oct. 2008

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The European Debt Crisis and the G-20

• Greek PM Papandreou’s gamble on a referendum
  
  
• Greek PM scraps referendum on bailout
  
  
• What is the G-20
  
  
• BBC News - Il Pleut. Greece has poured vinegar on the G20's fries.
  
  
• G-20 Leaders Urge Europe to Quell Debt Crisis

 

Was the Financial Collapse caused by Fraud and Crinimal Conspiracy

• What are the Larger Lesons we can Learn
  from the 2008 Financial Collapse
  
  
• Scheer, Too Big to Jail (2011)
  
  
• William Black on 2008 Collapse as Bank Fraud (6:00)
  
  
• Economist: US collapse driven by 'fraud';
  Geithner covering up bank insolvency
  
  
• William Black Interview on Bill Moyers
  
  
• William Black Interview Video (2:00)
  
  
• See Paulson on the Bailout (60 minutes interview)
  
  
• Levitin, Make the Bankers Pay (2011):
  
  

   This wasn’t a freak meteorological event.  It was a man-made disaster: a housing bubble inflated by the deliberate acts of a limited number of financial institutions that profited greatly from bloating the economy with cheap and unsustainable mortgage financing. We witnessed a macro-economic crime in the inflation of the housing bubble and are living with the consequences of it.

  Those who broke the economy should pay to fix it. The federal government bailed out the banks because they are indispensable to the economy as a whole, but that doesn’t mean that the banks shouldn’t have to pay now. Simply put, there needs to be accountability for blowing up the economy. (And someone needs to go to jail, but that’s another matter.)
  
  

• Inside Job (2010
  
  
• William Black, The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry (2005)
  
  
• Simon Johnson and James Kwak, 13 Bankers: The Wall Street Takeover and the Next Financial Meltdow (Jan 11, 2011)
  
  
• Matt Taibb Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American Historyi (Sep 6, 2011)
  
  
• Matt Taibi, The Next Big Bank Bailout

Who are the Players in the 2008 Financial Collapse

• The Great Boom and the 2008 Financial Meltdown
  (All Material for this unit condensed into one lecture)
  
  
• Timeline of the Economic Collapse
  
  
• GAO Audit of Federal Reserve Bailout of Banks (2011)
  
  
• Sanders, The Fed Audit (2011):
  

  "As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world," said Sanders. "This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."

  Among the investigation's key findings is that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland, according to the GAO report. "No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president," Sanders said.

• Bloomberg, Secret Fed Loans to Banks
  
  
• Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress
  
  
• Wall Street Aristocracy Got $1.2 Trillion in Secret Fed Loans - YouTube
  
  
• Another Secret Federal Reserve Bailout, $7.7 Trillion
  This Time
  
  
• Wall Street Banks Earned Billions In Profits Off $7.7 Trillion
  In Secret Loans
  
  
• Spitzer, The 7 trillion Secret Loan Program
  
  
• Cummings Requests Hearing on Secret Government Loans
  to Wall Street
  
  
• Dylan Ratigan And Eliot Spitzer Go Off On Secret Fed Loans
  
  
• Leopold, Wall Street's Secret Government
  
  
• Kristoff, A Wall Street Banker Speaks with Regret
  
  
• The Bet That Blew Up Wall Street - 60 Minutes - CBS News:
  
  In other words, three of the nation's largest financial institutions had made more bad bets than they could afford to pay off. Bear Stearns was sold to J.P. Morgan for pennies on the dollar, Lehman Brothers was allowed to go belly up, and AIG, considered too big to let fail, is on life support thanks to a $180 billion investment by U.S. taxpayers.
  
  "It's legalized gambling. It was illegal gambling. And we made it legal gambling…with absolutely no regulatory controls. Zero, as far as I can tell," Dinallo says.
  
  "I mean it sounds a little like a bookie operation," Kroft comments.
  
  
• Credit Default Swaps: The Next Crisis? - TIME:
  
  Except that it doesn't. Banks and insurance companies are regulated; the credit swaps market is not. As a result, contracts can be traded — or swapped — from investor to investor without anyone overseeing the trades to ensure the buyer has the resources to cover the losses if the security defaults. The instruments can be bought and sold from both ends — the insured and the insurer.
  
  
  
• How Credit Default Swaps Became a Timebomb | Newsweek Business
  
  So much of what's gone wrong with the financial system in the past year can be traced back to credit default swaps, which ballooned into a $62 trillion market before ratcheting down to $55 trillion last week—nearly four times the value of all stocks traded on the New York Stock Exchange. There's a reason Warren Buffett called these instruments "financial weapons of mass destruction." Since credit default swaps are privately negotiated contracts between two parties and aren't regulated by the government, there's no central reporting mechanism to determine their value. That has clouded up the markets with billions of dollars' worth of opaque "dark matter," as some economists like to say. Like rogue nukes, they've proliferated around the world and now lie hiding, waiting to blow up the balance sheets of countless other financial institutions.
  
  
• Kuttner, Abolish Credit Default Swaps:
  
  

  You may recall that credit default swaps were the prime instrument in the nearly $200 billion collapse of AIG, which had to be bailed out by the U.S. government. AIG, the world's largest insurance company, in effect wrote insurance against sub-prime securities going bad, but without setting aside reserves against that risk.

  Reserving against possible loss is the fundamental pillar of the insurance business. AIG could get away with breaking that rule because industry has successfully lobbied for a loophole holding that a swap was not quite insurance, not quite a security, not quite illegal gambling -- it conveniently fell between the cracks.
  
  

• Leopold argues that Wall Street is a Casino:
  
  I'm worrried that Wall Street wizards have used exotic financial instruments to set up a vast game of fantasy finance ... betting with other people's money. Is it possible that a handful of bankers and traders are making huge sums of very real money by creating, buying, and selling financial products that add little to the real economy? Is this like fantasy baseball· leagues where prizes are won based on stats derived from the real game of baseball?
  
  
• CBO study shows growing income disparity - Oct. 26, 2011
  
  
• CBO U.S. Income Study -- 1997-2007 (2011)
  
  
• Top one percent gains in Income
  
  
• Productivity Graphs from Leopold Book
  
  
• What is the overall Trend in Workers Wages
  
  
• Long-Run Changes in U.S. Wage Structure
  
  
• Class War: the Politics of Inequality
  
  
• White Fish Bay Buys Synthetic CDO:
  
  - Puts up 35 million and borrows 165 million
  
  -loses all its money
  
  -Buys Credit Default Swap for RBC
  
  
• Financial Economy versus Real Economy
  
  
• Financial Economy -- using money to make money
  
  
• Real Economy -- Producing and selling products to make money
  
  
• The Financial Economy came to dominate the Real Economy
  
  
• Total Financial Losses in the 2008 Financial Collapse
  (See page 2)
  
  
• Government bailouts of the Financial Markets 1982-2008
  
  
• Bailout Recipients spent Millions on Lobbying
  
  
• Watchdog Sees Huge Bill for Banks Bailout (Oct. 2009)
  
  
• Dorgan, Reckless Part One
  
  
• Mason, "Financial Krakatoa";
  
  
• Total Cost of Bailout and Total Financial Losses
  (See Numbers on page 2 and 3)
  
  
• Timeline of the Economic Collapse
  
  
• JPMorgan to buy Bear for $2 a share -- Signs of the Times News
  
  
• Biggest Mistake of the Financial Crisis: Lehman Bros. Bankruptcy ...
  
  

What caused the Financial Collapse?