I want to thank Gretchen and Josh for coming here today, and everyone on the thread for their great questions!

I hate to speak for Gretchen, but I’m told by other journalist that the access discipline is absolute in DC, you don’t get to see anyone if you don’t play by the officialdom’s rules. By contrast, in New York, a lot of the key people are more accessible (and some in finance are egocentric enough to think they can win over skeptics).

They aren’t now, but the mortgage litigation is gonna kill them unless they BK Countrywide, and they still have fraudlent conveyance problems, it won’t be a clean out. They have to BK Countrywide, but it won’t end the cloud over the bank

Most of the old farts I know are outraged. One of my buddies is friends of the Weinberg family (Sydney turned the Goldman into a powerhouse, and his son John was a co-chariman in the 1980s) and they are apparently distraught at what has happened to the firm.

What do you think is going to happen when BofA goes terminal?

Dodd Frank restricts TARP-style bailouts, and I don’t see this Congress (or any successor with enough Tea Party representation) falling for the Paulson on bended knee to Pelosi routine.

IMHO, they aren’t gonna stop voluntarily. We are gonna have another financial crisis. It’s inevitable with the bad industry structure (too much tight coupling) and all the bad incentives towards undue risk taking in place. Look at how the industry is howling over (and trying to roll back) paltry and inadequate increase in capital requirements. You need really massive capital buffers if you don’t fix the structure and the incentives.

I would assume it had a lot to do with their constituencies. Shelby has been anti-Wall Street, pro small and medium sized banks, and skeptical re innovation. He can still be an industry tout, but he is a lot less bad than most.

Yes, subprime 1.0 as you call it was a small market. But I thought the real reason it blew up was the CDO ponzi blew up. IIRC Chris Ricciardi then as later managed to jump ship right before the first gen CDOs (which admittedly weren’t as heavily subprime as the later versions, they had mixed collateral, but the flip side is they didn’t need to take as much to keep the smaller party going) blew up a bit later than that….and I dimly recall the first gen CDO market died later than 1998.

It was the reverse. GSEs were first, private label paper started in the late 1980s, really ramped up in the mid 1990s.

OK, I’m gonna be bad and quote ECONNED:

But opacity, leverage, and moral hazard are not accidental byproducts of otherwise salutary innovations; they are the direct intent of the innovations. No one at the major capital markets firms was celebrated for creating markets to connect borrowers and savers transparently and with low risk. After all, efficient markets produce minimal profits. They were instead rewarded for making sure no one, the regulators, the press, the community at large, could see and understand what they were doing.

I worked off and on in Wall Street in the 1980s. People were greedy and cut corners now and again, but most people, and the people in charge at the big firms knew there were limits. John Gutfreund and three other senior guys were forced to leave Salomon in what, 1992?

By contrast, the corruption is stunning. And it extends well into what is now called the elite (notice if you had used the word “elite” three years ago, you’d be seen as at least an Alex Jones level crank). Look at how many journalists and bloggers engage in what amounts to Administration and banking industry stenography.

My extremely limited dealing with Geithner lead me to believe he is too smart not to know that a lot of what he peddles is tripe…and that leads you to the conclusion that he’s a sociopath. But he’s charming and wily enough that few people take that possibility seriously.

Read Bill Black’s The Best Way to Rob a Bank is to Own One. If I recall, he was either kicked out of one regulator or transferred to a different office as a sort of punishment. And that was when regulation was taken pretty seriously.

There is a March 2007 speech of his on financial innovation which is very revealing. He claimed that you couldn’t roll innovation back and (basically) regulators could not supervise. No joke. It’s all very balanced and thoughtful-looking, but that was his bottom line, suitably coded.

And Taylor Bean was ripping off bigger players in the system, so this wasn’t even to protect the public.

Obama did a huge bait and switch in general, and in the financial arena. Remember when he was campaigning, how he made much of the fact that Paul Volcker was a big advisor, and by implication was going to have an important role of some sort? The he appoints Geithner as Treasury secretary and relegates Volcker to an equivalent of Siberia committee.

Do you think any of the reforms actually made/will make matters worse?

My pet belief is that the Fed is dominated by monetary economists. They don’t get their hands dirty (everything is reduced to pristine models), and I would imagine they look down on the sort of people who do enforcement.

But they aren’t sound. BofA is insolvent if you value its litigation liabilities and its second liens realistically. Wells is seriously impaired too. And as Josh indicated, there is no way they can earn their way out. So their bank friendly model isn’t working. It sounds as if this goes beyond merely being bank friendly. It’s at least serious denial, and it looks like corruption.

Both you and Josh speak to regulators. Do they really not understand that what they are doing isn’t working? Are they captured, stupid, or corrupt?