Michael Lewis — who wrote Liar’s Poker back in 1989 — gives a fascinating, detailed chronicle of just how Wall Street managed to cause the current financial maelstrom that’s hurting all of us these days. Much of the article focuses on Steve Eisman, who kept asking uncomfortable questions until he figured out just how screwed up the entire subprime financial market was. He kept trying to make people understand just how bad things were going to be come, but was largely ignored. He then started shorting the subprime market, that is, investing in such a way that he would get a return only if the market went bad:

And short Eisman did—then he tried to get his mind around what he’d just done so he could do it better. He’d call over to a big firm and ask for a list of mortgage bonds from all over the country. The juiciest shorts—the bonds ultimately backed by the mortgages most likely to default—had several characteristics. They’d be in what Wall Street people were now calling the sand states: Arizona, California, Florida, Nevada. The loans would have been made by one of the more dubious mortgage lenders; Long Beach Financial, wholly owned by Washington Mutual, was a great example. Long Beach Financial was moving money out the door as fast as it could, few questions asked, in loans built to self-destruct. It specialized in asking home­owners with bad credit and no proof of income to put no money down and defer interest payments for as long as possible. In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000.

More generally, the subprime market tapped a tranche of the American public that did not typically have anything to do with Wall Street. Lenders were making loans to people who, based on their credit ratings, were less creditworthy than 71 percent of the population. Eisman knew some of these people. One day, his housekeeper, a South American woman, told him that she was planning to buy a townhouse in Queens. “The price was absurd, and they were giving her a low-down-payment option-ARM,” says Eisman, who talked her into taking out a conventional fixed-rate mortgage. Next, the baby nurse he’d hired back in 1997 to take care of his newborn twin daughters phoned him. “She was this lovely woman from Jamaica,” he says. “One day she calls me and says she and her sister own five townhouses in Queens. I said, ‘How did that happen?’?” It happened because after they bought the first one and its value rose, the lenders came and suggested they refinance and take out $250,000, which they used to buy another one. Then the price of that one rose too, and they repeated the experiment. “By the time they were done,” Eisman says, “they owned five of them, the market was falling, and they couldn’t make any of the payments.”

It’s a long article, but it is very much worth reading all the way through.  However, if you don’t have the patience, though, I once again recommend this stick-figure presentation, whcih is a remarkable accurate and succinct, if somewhat…ah…pungent summary of just what went wrong.  ..bruce w..

…but the Onion, as usual, is right on target:

In The Know: Should The Government Stop Dumping Money Into A Giant Hole?

Sigh.  ..bruce w..

My co-blogger, Bruce Henderson, has spent two years now warning about the stupidities of our domestic (US) economy, based in large part on his nation-wide gathering and analysis of real-estate data on a daily basis. Unfortunately for all of us, he turned out to be pretty much dead on, and we’ve got a major recession staring us in the face, compounded by the lurching about by the US Treasury Secretary. It’s not going to be pretty for the next year or two.

However bad we may have it here in the US, however, it doesn’t begin to compare with what Iceland is facing. There, a set of high-flying (figuratively and literally) financial leaders have bankrupted an entire nation.

Here’s a lengthy discussion in the Financial Times that makes for sobering reading:

Picture a pig trying to balance on a mouse’s back and you’ll get some idea of the scale of the problem. In a mere seven years since bank deregulation and privatisation, Iceland’s financial institutions had managed to rack up $75bn of foreign debt. In his address to the nation, Haarde put the problem in perspective by referring to the $700bn financial rescue package in America: “The huge measures introduced by the US authorities to rescue their banking system represent just under 5 per cent of the US GDP. The total economic debt of the Icelandic banks, however, is many times the GDP of Iceland.”

And here is the nub. Iceland’s banks borrowed more than $250,000 for every man, woman and child in Iceland, and placed an impossible burden on the modest reserves of the central bank in the event of default. And default they have.

Voices of caution – there were many in Iceland – were drowned out by a media that became fixated on the nation’s emergence from drab pupa to gaudy butterfly. Yet, Icelanders’ opinions were divided. For some, the success of their Viking Raiders, buying up the British high street, one even acquiring that most treasured bauble of all, a Premier League football club, marked the arrival of a golden era. The transformation of Reykjavik from a quiet, provincial fishing port to a brash financial centre had been as swift as it was complete, and with the musicians Bjork and Sigur Ros and Danish-Icelandic artist Ólafur Eliasson attracting global audiences, cultural prestige went hand in hand with financial success. Icelanders could hold their heads high before the rest of the world.

Hallgrimur Helgason, well-known for his novel 101 Reykjavik, said in a letter to the nation in a Sunday newspaper on October 26: “Deep down inside we idolised these titans, these money pop-stars. Awestruck we watched their adventures and admired them when they supported the arts and charities. We never had clever businessmen, not for a thousand years, not to mention men who had won battles in other countries…”

For others, the growth was too rapid, the change too extreme. Many became uncomfortable with the excesses of the Viking Raiders. The liveried private jets, the Elton John parties, the residences in St Moritz, New York and London and the yachts in St Tropez – all flaunted in Sed og Heyrt, Iceland’s equivalent of Hello! magazine – were not, and this is important, they were not Icelandic. There was a strong undertow of public opinion that felt that all this ostentatious celebration of lavish lifestyles and excess was causing the nation to disconnect from its thousand-year heritage. In his letter to the nation, Hallgrimur continued: “This was all about the building of personal image rather than the building of anything tangible for the good of our nation and its people. Icelanders living abroad failed to recognise their own country when they came home.”

What international sympathy there was for Iceland’s plight evaporated with the dark realisation that the downfall of Iceland’s three main banks – Landsbanki, Kaupthing and Glitnir – brought with it the potential loss of £8bn for half a million savers in northern Europe, the bulk of whom were British. The shrill media response in the UK was reported extensively in Iceland. The British government’s use of anti-terror legislation to freeze the assets of Landsbanki pushed Iceland’s banking system into the abyss. It was a move viewed in Iceland as hateful and unnecessary. A few days later the one remaining viable bank, Kaupthing, went under.

Be sure to read the whole thing, including the follow-up piece below in the initial article.  Hat tip to Glenn Reynolds at Instapundit.  ..bruce w..

This segment from the movie “Downfall” may end up being one of the most reused segments ever…and this particularly reuse is one of the best done (though I still like the “Dallas Cowboys” version):

Hat tip to American Digest.  ..bruce w..

…from the ever-fascinating contemplate.us:

There’s deep meaning here somewhere.  ..bruce w..

From the up-and-coming 23/6:

Yep, that about sums him up.  ..bruce w..

[Thanks to Ace of Spades for the link!]

Over the past decade or so, astronomers have discovered over 300 extra-solar planets, that is, planets orbiting stars other than our Sun. However, these discoveries have largely been indirect, due to the planet transiting the star it orbits, or variations in the radial velocity of the star.

But now we have honest-to-goodness photographs of planets orbiting other stars.

The first here is the planet Fomalhaut b, orbiting the star Fomalhaut:

Fomalhaut itself has been blocked out in order for the telescope to take this photograph. The rays spreading out from the star are a processing artifact, but the planet is real, as is the dust ring.

Here’s the second planetary system, HR 8799:

The dots labeled ‘b’ and ‘c’ are two planets orbiting the star. Just too cool for words. Hat tip to Slashdot.  ..bruce w..

Today I feel sorry for the president elect.

Word from the UK Telegraph that Michelle Obama’s mother will soon become the “First Granny”:

Michelle Obama’s mother has reluctantly agreed to leave her lifelong home on Chicago’s South Side and move to Washington to help smooth the transition for the grand-daughters who dote on her.

The nation’s new First Granny is Marian Robinson, 71, a fiercely independent figure who regularly made the short 10-minute journey to the Obamas’ house to look after Malia, 10, and Sasha, seven, while their parents were campaigning.

The man gets elected President of the United States, possibly the most powerful single figure in the world. But he still can’t get away from his mother in law?

Here are two articles at the Rocky Mountain News website this morning.

First headline: “Poll: 72% are confident Obama will fix economy”

WASHINGTON — In one of the economy’s darkest hours in decades, it looks as if people are taking Barack Obama up on his exhortations for hope and change.

Seven in 10, or 72 percent, voice confidence the president-elect will make the changes needed to revive the stalling economy, according to an Associated Press-GfK poll released Tuesday.

Underscoring how widely the public is counting on its new leader, 44 percent of Republicans joined nearly all Democrats and most independents in expressing that belief.

Second headline: “42 percent of homes in Denver area sold for a loss”

More than four out of every 10 home sellers in the Denver area during the past year learned the hard way there’s no guarantee that a home always rises in value.

Some 42.7 percent of the homes sold in the Denver-Aurora metro area sold for a loss in the third quarter, according to a report by real estate Web site Zillow.com.

That compared with a national average of 30.2 percent, according to the analysis of 163 metropolitan areas by Zillow.

I’ll be interested to see what both statistics are a year from now.  ..bruce w..

[UPDATED 0428 MDT 11/12/08 — OK, so I’m lying awake in bed at, well, 4:20 am and I suddenly realize that I’ve forgotten the newest veteran in our family: my nephew, Darren Green. The list below is now updated; apologies to Darren.]

Last Veterans Day, Bruce Henderson and I posted a list of our relatives who have served in the Armed Forces (either American or British). Henderson himself served in the USMC (see yesterday’s post); here are the rest in rough reverse chronological order:

Bruce Webster:

• Darren Green, USMC (active) — currently in training for deployment to Afghanistan [nephew]
• Jon A. Webster, USMC (active) — serving in al Rutbah, Iraq [son]
• Heather Harris, US Army National Guard (former) — [daughter]
• Greg Barsic, USMC (former), USCG (active) — currently serving in the US Coast Guard in San Diego [son-in-law]
• Frank Wallace, USMC (former) — [married to my niece]
• Brad Poeltler, USN (ret.) — former Naval aviator in the F-14 RAG [brother-in-law]
• Robert Wendt, USN (ret.) –  former Navy pilot [former brother-in-law]
• Bill Lowell, US Army (former) — [former brother-in-law]
• John A. Webster, USN (ret.) — served in both WW II and Vietnam [my father]
• James Francis Webster, USN — served in WW II [my paternal grandfather]
• John Silas Fickes, CSM, USN — served in WW I, Mexican War (1920), and WW II [my maternal grandfather]
• John William Fickes, 1st Sgt., Co. A, PA Militia, 8th Reg. Infantry — served in Spanish-American War [my great-grandfather]
• James Edward Taylor, Pvt. Co. D, II PA Volunteer Infantry — Civil War [my great-great-grandfather]

Bruce Henderson:

• Andy Henderson, USN (active) — [nephew] Currently at sea with the forward deployed USS George Washington out of Yokosuka, Japan.
• Bruce Henderson, USMC (former) — Yes, I was a Jar Head
• Peter Anderson, USMC — My dear departed uncle Peter served with Marine Intel during Vietnam
• Jim Zimmerman, Illinois National Guard (former) — My uncle Jim served 2 tours in the National Guard
• Ian Henderson, RAF — [my dear departed father] RAF pilot who served the crown during the Battle of Britain as well the far east as a flight leader. He lied about his age to join the flight corps and was a decorated Ace for combat action.
• Ron Henderson, RAF — [uncle] RAF radio man,
• Robert Zimmerman, USN — My dear departed step-grandfather served in the US Navy during WW2
• Howard Martin, USN — My biological grandfather was a pilot who died in WWII when my mother was just a child

God bless them all, and God bless America. ..bruce w..