

The Monster That Ate Wall Street - known
http://www.newsweek.com/id/161199

======
kurtosis
"Like Robert Oppenheimer and his team of nuclear physicists in the 1940s,
Brickell and his JPMorgan colleagues didn't realize they were creating a
monster."

Comparing a JPM MD to oppy? huh?

This is why I don't read newsweek. argh!

------
sanj
Here's the bit I don't quite understand. It seems to me that CDSs are fine as
long as you only have one degree of separation.

Example: if JPM loans Ford $1B, it can buy a CDS from AIG for that loan.
However AIG cannot then buy a CDS for for the loan that JPM owns.

Doesn't this solve the issue?

~~~
inerte
Maybe it does, but then you would be pissing off the 'free market'.

\- AIG should do whatever it wants with its papers! Why do you hate my
freedom?

Kidding aside, it's easy to think back and see what went wrong. But the truth
is that a LOT of daily financial transactions, small to large, have several
layers of buyers, sellers, lenders and buyers.

For example, in your example, why did Ford needed $1B? To sell cars to people
and companies. And where do all these people and companies get money to buy
cars? They borrow.

So what's the last layer? How many are allowed? What's its depth? All this
stuff is interconected. Maybe it's one degree from a financial institution...
what's a financial institution? Hedge, pension, banks? A company doing 49%
hedge and 51% consumer savings is what?

And believe me, not matter how many locks we put, the finance people will find
holes. They will do it because that's where new money is. It's their jobs to
find it.

The issue then becomes how to identify, mitigate the damage, and close these
holes. Which has its theories 100% in economics and its practices 100% in
politics. Awesome.

But I ramble...

