Wednesday, April 25, 2012

Wed Post #1: Frontline - Money, Power and Wall Street, Part 1

Episode One: Derivatives Spark a Credit Boom and the Mispricing of Risk.

A MUST watch Frontline special explaining the role of derivatives. Faithful readers will recall that Warren Buffet has called these derivatives "financial weapons of mass destruction."

Episode Two will be posted tomorrow.

Here is a summary of what this is about:
In 1994, a team of young, 20-something JPMorgan bankers on a retreat in Boca Raton, Fla. dreamed up the “credit default swap” — a complicated derivative they hoped would help manage risk and stabilize the financial system. Fourteen years later, they watched in horror as that global system — weighed down by the risk of credit default swaps tied to morgtage loans — collapsed.

The ensuing saga between that pivotal retreat and the start of the 2008 global financial crisis are “defined by daunting complexity,” writes Greg Evans in Bloomberg Businessweek today. But the first two hours of Money, Power and Wall Street, he adds, does an “exemplary job of walking viewers through [it].”

FRONTLINE’s four-hour epic on the global financial crisis goes inside the struggles to rescue and repair a shattered economy, exploring key decisions, missed opportunities and the unprecedented and uneasy partnership between government leaders and titans of finance.

“Money, Power and Wall Street is demanding — this isn’t Finance for Dummies,” Evans writes in the review. “But it’s a compact and thorough lesson.”

In the first hour, FRONTLINE takes you inside the rapid rise of credit default swaps, including the voices of those who created them. With the real estate market booming, bankers successfully tweaked the credit default swap to bundle up and sell home mortgage loans to eager investors. But despite the money flowing into banks’ coffers, credit default swaps also loaded the financial system with lethal risk. And when the housing bubble burst, the credit default swaps — originally designed to stabilize the system — brought the global economy to its knees. Regulators, who had often stood on the sideline and allowed Wall Street to police itself, saw the ugly consequences rapidly unfold before them.

In the second hour, FRONTLINE investigates the largest government bailout in U.S. history, a series of decisions that rewrote the rules of government and fueled a debate that would alter the country’s political landscape. It offers play-by-play accounts of several secret meetings that permanently altered the financial system.

“The program feels fresh and vivid — and takes no prisoners,” writes Evans. “FRONTLINE finds plenty of blame to go around (Goldman Sachs and CEO Lloyd Blankfein take a particular bruising), but is most devastating in its dissection of the chummy collusion between bankers and the government leaders who should have been watch-dogging them.”
As mentioned above, we will have Episode Two posted here tomorrow.


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  1. You should have watched the doc before this one about the 1929 crash. If you replace the word stocks with real estate you could swear they were talking about today's real estate bubble.