The PBS
series frontline has always released exciting, interesting and most importantly
well researched documentaries. They have kept up this uncanny series with the
most recent installment correctly named “Money, Power and Wallstreet”. The
documentary is a no holds barred tale of all of the events that led up to the
Great Recession of 2008-09,how it was temporarily solved, and how Capitol Hill
is dealing with the repercussions of the
bailout, an initial solution that is now an even bigger problem.
As one of
the millions of Americans that watched the economy fall into shambles just a
few short years ago, it is captivating to step back and watch unbiased,
topnotch reporting on an event bigger than the people who are suppose to
control it. A story of greed, confusion, and unwarranted forgiveness ensues on
an event that will influence the country will live in, forever.
The 4-part
series begins with an in-depth explanation of how the banks got themselves
backed into a corner in the first place. It all started with JP Morgan having a
company retreat weekend at a swanky Boca Raton resort during the early 1990s, in
which young ambitious employees’ pondered ways to leave their mark on such a
lucrative business.
In-between
gulping down martinis and meetings in cramped conference rooms, the bright, new
faces of the company came up with a solution to a problem that had been around
since forever, Risk Management. “I went into the pool fully clothed,” says former JP Morgan
Co-Chief Exec Bill Winters. “So did my boss.”
Their quick
fix you ask? Credit default swap.
Credit
default swap allowed banks to sell risk, so that in the event that a loan could
not be payed back in full, the loan dealer will still recoup their investment. It
is basically insurance against default because
buyer of a CDS might be speculating on the possibility that the third party
will indeed default.
I found
this section of Part 1 the most interesting because it changed the way banks
did business, and helped ignite more human greed than ever. The development if
this new found system and its effect on the existing banking system is truly
captivating. Financial consultant Satyajit Das stated “We were just moving the
risk from one party to another party.”Before this, banks were required to have
a certain amount of cash on hand, so that just in case loans defaulted the bank
could cover their losses. But even more important to banks, it allowed them to
loan more capital instead of keeping it in reserve.
Banks, almost
immediately went from having to have capital stashed away, to being able to
loan money until their hearts were content. What made it even more lucrative, is
that anyone can purchase a Credit Default Swap. The most eager of the JP Morgan
employees was Blythe Masters, she also brokered the world first CDS with the
worlds largest oil company,Exxon.JP Morgan’s profits immensely increased, and
other banks began to take note, and therefore followed suit.
The amount
of available credit skyrocketed, and with such a crazy amount of credit being
thrown around, predatory lending increased. Banks preyed on people who they
knew wouldn’t be able to keep up with mortgage payments, still giving them
loans. Banks often convinced homeowners to-be, to sign off on unfair terms and
agreements “You could just about drive by a bank and they’d throw a loan paper
in your car as you passed by,” says Roy Barnes, Georgia governor. Images of
boarded up neighborhoods in Atlanta ended the first hour of the series, on a
sour and sad note nonetheless. Scenes and quotes like this are strategically
placed for impact even after some hard hitting facts are revealed.
In the second hour, Michael Kirk examines the 2008 bail-
out, beginning with the implosion of Bear Stearns & Co. Bear Stearns invested heavily in subprime, ran
out of cash and was the first to dig themselves into to deep a hole to recover
with no help. There situation was so bad that the company had a Federal Reserve
team in their office inspecting the books at the early hour of 1am.
Tim Geithner, the current Secretary of the Treasury was in
awe at the situation, and fell to the conclusion that Bear Stearns was “to big
to fail”. Geithner quickly got this message to then Secretary of the Treasury, Hank
Paulson. The solution was for the Fed to shell out $30 billion to JP Morgan. The
dominoes began to fall, and next was Lehman Brothers who were burning a
whopping $250 billion a day to just stay afloat. Unlike JP Morgan, Paulson let
Lehman brothers fail, a fallout ensued as the stock market plummeted.
Due to this crisis
occurring in an election year (2008), Senator John McCain used it as a chance to
gain some votes, albeit by randomly suspending his campaign, volunteering his
help in Washington. This proved to be one of the most interesting parts of the documentary,
as McCain suggested to President Bush that both candidates be summoned to Washington
for their input.
McCain was unaware that Obama had close ties with people
about the current economic situation. This is one of the few instances in
politics where connections, resourcefulness, preparedness and raw knowledge can
be seen in such quick instance. Obama presented a well researched argument, and
more importantly, a plan to help the economy get back on its feet. Obama asked
McCain what he thought about the situation, who wasn’t nearly as well versed as
Obama. McCain could barely keep his hand steady enough to read from his cue
cards, which held no real substance anyway. Bush left the meeting, but not
before comically whispering to House Speaker Nancy Pelosi “You guys are going
to miss me.”Tidbits like this add oomph to the entire situation, and was
inserted in the documentary at the
perfect time
A bailout amount of $700 billion was passed, and it was
time for Obama to put his words into action. After a landslide victory, Obama
needed to hit the ground running, as Citigroup was the next to go under. He was
faced with choosing his Secretary of Treasure, Larry Summers who called for
radical reform or Tim Geithner would didn’t believe in something so dramatic. After
choosing Giethner, he decided to do a stress test to determine the stability of the economy.
The journalistic integrity can be found here, questioning
Obama’s original intentions of bad mouthing the banks, but privately wanted
their help. McCain’s wrong doings were initially mentioned due to his unpreparedness,
showing a fair and even portrayal of both parties.
Geithner announced this plan to the nation, and it was his
first major press conference. Though his public speaking has much improved
since then, he came off as nervous and a novice, subsequently the stock market
dropped 200 points. However, after the stress test was implemented and plenty
of checks and balances occurred, the banks were then authorized to pay back
their loans. Geithner was now the hero.
Part 4 of the documentary was a more in-depth look at the
Credit Default Swaps, including how they were packaged and who their biggest
borrowers were. As expected, one of the biggest victims was Greece. The
documentary did a great job explaining all of the intricate details in an easy
to understand way, and it was evident that many CDS’s were deceptive. An
explanation of CDO’s or Collateralized debt obligations were put in laymen’s
terms, and even once you delve into the
details about their value, investor demand, and statistical methods, it became
extremely complex, yet somewhat understandable..One of the interesting pieces
from this section include that even after the major bailout, nothing seemed to
change on Wallstreet. It was also shocking to find out that an entire country
(Europe) was cooking its books. Overall the documentary has been able to
accurately replicate the chronological events of the Recession and bailout, and
even the origins of both.
Occupy Wallstreet was developed by the self proclaimed 99%
of America in response the those events, those who believed that banks
shouldn’t have been bailed out. The protest was formed around the idea that
normal American citizens were treated economically unequal, and that greed and
corruption were being overlooked. These issues still exist today, as the
government must overcome another looming economical hurdle, the fiscal cliff.
