

The Confidential Memo at the Heart of the Global Financial Crisis - qubitsam
http://www.vice.com/en_uk/read/larry-summers-and-the-secret-end-game-memo

======
kcg
I stopped reading at "toxic assets like financial derivatives." That sentence
either suggests that the author has very little understanding of finance or
has a sensationalist motive. Either way, there are much better articles and
books to read about the financial crisis than this junk.

~~~
fantnn
The comments on reddit and the article itself almost make me support the NSA's
surveillance programs; people can be convinced of anything given the right
emotional rhetoric. Literally the left wing equivalent of the tea party, and
more terrifying.

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DamnYuppie
While an entertaining, if not terrifying, read it offers up no supporting
evidence to confirm that this memo exists and is authentic. Not saying I can't
image this actually happening, I easily can and often do, yet some tangible
evidence would be nice.

~~~
wmf
I figured surely one of the many links must be to the actual memo, but I
couldn't find it either.

~~~
yuxt
Here is a mirror
[http://i.imgur.com/EZvryfO.jpg](http://i.imgur.com/EZvryfO.jpg)

~~~
shawn-furyan
After reading the memo... The article, and even calling it the "end-game" memo
seems rather sensationalist. I guess that's Vice's MO (not that they don't do
some compelling stuff, but they do seem to have a particular flare for the
theatrical), but the memo seems utterly banal and only ominous after Palast's
shrill interpretations of context. I'm not saying necessarily that such
shrillness is unwarranted, but Palast doesn't remotely give the reader the
information to connect the dots independent of his interpretations, which on
the whole don't come across as level-headed objective analysis.

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damian2000
Not sure how much if this is for real. I believe the fact Brazil happened to
thrive during the financial crisis was due mainly to the China led resources
boom and Brazil's plentiful supply of iron ore. Same reason Australia also
thrived.

~~~
malandrew
Reducing Brazil's success to external factors and natural resources would be
doing a great disservice to many of the other internal factors that have
greatly aided the economic success since the implementation of the Plano Real.
What has happened in Brazil is far more complex than what you can see
happening from outside.

In fact, Brazil is surprisingly well-insulated from the rest of the world
economically. After many years of horrible financial crisis, it's adopted very
conservative and heavily regulated banking practices. It's got an
astronomically high risk-free rate making the cost of capital high enough to
discourage reckless borrowing domestically. Even borrowing cheap money
internationally was shown to be risky after the exchange rates changed sharply
around 2000 causing the "órphãos do cambio". Most economic success has been
captured by those with access to cheap money through family and friends. Our
"Rockefellers" and "Mellons" got a lot richer because they had access to
enough cheap capital to go after opportunities that few others could meaning
that there was little to no competition in many major industries. The Bolsa
Familiar did a lot to stimulate economic activity that more equitably spread
across the society (it's an interesting analog to the notion of a universal
livable wage and the rest of the World should take some time to study it's
impact at both the macro and microeconomic level". We're also fairly well
insulated trade wise from the rest of the world by our own incompetence at the
governmental level. Brazil has been remarkably short-sized when it comes to
essential infrastructure. Most big projects are poorly planned if at all. We
lack decent shipping infrastructure internally and our ports and airports
leave a lot to be desired. We could probably have done even better if we
actually had the infrastructure internally to move more of our natural
resources abroad.

All in all, Brazil in the last 20 years is a country capitalizing on a lot of
its potential that it couldn't capitalize on prior to the Plano Real. All the
external trade like iron ore and agriculture largely served as a buffers from
instabilities as we developed lots of industries internally.

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rstrecker
This is so lame, in 1997 Brazil's president wasn't "Lula" he took office in
2003. Lies and lies...

~~~
ewzimm
He doesn't say that Brazil's refusal occurred in 1997 but rather shortly after
he was elected.

~~~
malandrew
Refusal or no refusal. Many in Brazil's banking system didn't even care about
the global derivatives markets. There was enough legitimate growth
domestically from 2000 onwards that you probably wouldn't look beyond the
country's borders except for arbitrage opportunities involving ADRs. Our main
interest in global markets was basically limited to finding institutional
investors abroad that were interested in purchasing Brazilian securities.

FWIW, I worked as a mid-level analyst at one of Brazil's largest broker
dealers from 2007-2009 and have known people involved in Brazil's banking
industry going back to the day I was born (my father). I was pretty much the
only one in the São Paulo office following details of the crisis from before
it started to well after because I was the only one who had grown up in the US
and knew what was going on. Until the big crash in 2008 most Brazilians in
banking had no idea what was going on with derivatives in the rest of the
world. We simply missed that boat due to greater opportunities domestically.

I would describe the general impact of the global financial crisis in Brazil
as "Look, it's raining outside. I'm glad I'm here inside where it is toasty
and dry."

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001sky
Completely mis-placed argument, although an interesting data point. Janet
Yellen is fighting a massive PR battle to win the fed job. This article is
clearly a PR plant, its obvious because there is no discussion or culpability
attributed to Clinton or the Democratic party or other operatives (president
directly is responsible for the WTO via the executive). The co-incidental
exclusion of the predisent and the treasury secretary (presumably to protect
Ms Clinton's 2016 political position) is the hallmark of a pro, not a
reporter. What kind of PR uses vice.com to support a candidate for the FED?

____________________

[http://www.economist.com/news/finance-and-
economics/21583276...](http://www.economist.com/news/finance-and-
economics/21583276-what-does-it-take-run-americas-central-bank-summers-v-
yellen)

The Economist: _HOW to choose someone for the most powerful economic job in
the world? With name-calling and innuendo, it seems._

[http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/20/w...](http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/20/why-
the-white-house-is-uneasy-with-picking-janet-yellen-as-fed-chair)

 _Why the White House is uneasy with picking Janet Yellen as Fed chair_

[http://www.washingtonpost.com/business/economy/summers-
yelle...](http://www.washingtonpost.com/business/economy/summers-yellen-
allies-wage-behind-the-scenes-effort-to-win-federal-reserve-
nod/2013/08/20/5d7a3dfa-09a2-11e3-8974-f97ab3b3c677_story.html)

[http://www.economist.com/news/finance-and-
economics/21583276...](http://www.economist.com/news/finance-and-
economics/21583276-what-does-it-take-run-americas-central-bank-summers-v-
yellen)

 _New York Times Goes HARD After Larry Summers In Aggressive Editorial
Supporting Janet Yellen For Fed Chair_

[http://www.businessinsider.com/new-york-times-endorses-
janet...](http://www.businessinsider.com/new-york-times-endorses-janet-
yellen-2013-7)

------
onebaddude
>Second, the banks wanted the right to play a new high-risk game: “derivatives
trading”. JP Morgan alone would soon carry $88 trillion of these pseudo-
securities on its books as “assets”.

1\. Derivatives trading wasn't new; they've been traded for a long time. And
derivatives aren't inherently risky or evil. There's nothing mystical about
them.

2\. $88 trillion in _notional value_. Derivatives deals should net to zero.

>payments have raised Summers’ net worth by $31 million since the “end-game”
memo.

How much did "payments" increase Mark Pincus' net worth as he sold stock at
inflated prices while his employees couldn't, and billions in wealth was
destroyed by Zynga (as a familiar analogy)?

More alarmist tripe.

~~~
rsync
"1\. Derivatives trading wasn't new; they've been traded for a long time. And
derivatives aren't inherently risky or evil. There's nothing mystical about
them. 2\. $88 trillion in notional value. Derivatives deals should net to
zero."

As long as a reasonable amount of derivatives are created for the purposes of
"legitimate hedging activities" (whatever that means) then that may indeed be
the case.

However, as you create more and more derivatives ... as the value and volume
of the derivatives increases beyond the value and volume of the underlying
securities, they begin to distort the value and prices of the underlying
securities. In the real world, where they affect real people.

The more you distort those underlying values and prices, the more violent the
snapback is.

You may indeed be able to tie up the derivatives ecosystem into a tidy little
box in theory, but real people get hurt when derivatives distort underlying
prices. AIG and credit default swaps is a perfect (and very recent) example.

~~~
onebaddude
>they begin to distort the value and prices of the underlying securities. In
the real world

I disagree. I don't believe the problem was price distortion. Instead, it was
caused by there being no means of seeing counter-parties to most of these
transactions, and hence no way to measure (and hedge) the risk.

If I'm going into a deal with AIG, I have no way of knowing what other deals
AIG had done, and hence no way to put an accurate price on their default risk.

If there was a "derivative" clearing house, most of the problems go away.

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dreamdu5t
Why is it that after uncovering regulatory capture, people think the answer is
to hire someone else? Larry Summers isn't the problem... his position is.

~~~
grey-area
Or perhaps the lack of rules governing moving from positions in government
into industry?

~~~
robbiemitchell
The best would never take gov jobs if they couldn't freely go back to private
work after.

~~~
grey-area
It's a certainly a difficult problem, but people moving freely from industry
to regulator and back means almost inevitable regulatory capture.

~~~
foley
I think of regulation as a constant negotiation between the regulators and the
regulated industry. By putting measures in place to bar those with industry
experience from working at the regulators you are decreasing the information
available to the regulators.

The decrease in information directly decreases the regulators negotiating
power, leading to greater regulatory capture.

Would this be more than regulatory capture caused by the revolving door? I
don't know - but it does swing both ways.

~~~
Peaker
There are examples of both kinds of systems, afaik it swings one way far more
strongly than the other.

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alexeisadeski3
This is quality journalism on the level of the NY Post.

