Goldman Sachs Knows All About "Money, Power and Wall Street"

Yesterday I watched the first two parts of Frontline's "Money, Power and Wall Street."  The program raised a few questions in my mind:  Why was so much time spend showing how women originated and used derivatives while scant time was spent explaining how one woman, Brooksley Born, warned about the dangers of OTC derivatives and was treated shabbily by Summers, Levitt, Rubin and Greenspan?  Why did the program seem so blase, insipid and shallow?  Why did it seem blithely unconcerned with the fraud and unethical and immoral behavior of the banks?

As comments at the end of the article suggest:  It was all so much propaganda favoring the banks.

Progressive Radio Network's Richard Martin has important things to say about "Money, Power and Wall Street" in an audio broadcast found here.

Yves at Naked Capitalism has some interesting comments about Frontline's program:

Frontline's Astonishing Whitewash of the Crisis
By Yves Smith - Naked Capitalism

The first segment is particularly troubling. It heavily cribs from the Gillian Tett book Fool’s Gold, which to be blunt was not very well received by reviewers. Fool’s Gold discussed the development of the credit default swaps market from the perspective of JP Morgan executives and staffers, with the result that it verged on hagiography. Oh, those great, intrepid, innovative bankers who just wanted to make the world better, and maybe make a buck or two in the process.

The book at least explained that the reason for the creation of the CDS was to solve a rather big problem for JP Morgan, that it was carrying a ton of loan risk and could use a way to lay it off (the broadcast, by contrast, made it sound like this was a market just waiting to happen, as opposed to one JP Morgan, and later its competitors, cultivated).

And no one clearly explains that CDS, as currently used, are certain to produce periodic blowups of undercapitalized guarantors (the monolines and AIG are prototypical). Tett and pretty much everyone in the segment perpetuates the industry PR that CDS are derivatives. A derivative is an instrument whose price “derives” from an actively traded underlying instrument. CDS, by contrast, are the economic equivalent of unregulated insurance contracts. The pernicious feature of CDS is that the CDS protection writers (the guarantors) aren’t regulated for capital adequacy, the way other insurers are. They instead are required to post collateral to reflect the current value of the contract. But that is no guarantee that the CDS protection writer will be able to pay out. When a default or other credit event occurs, the price of the CDS spikes up, and the guarantor may not be able to make good on the new, higher collateral posting. And requiring CDS protection writers to put up enough margin to allow for “jump to default” risk would make the product uneconomical.

Read the whole article here