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J.P. Morgan at Work

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Friday, 06 August 2010 04:40
For those wondering what those Wall Street boys do to earn tens of millions a year in salary and bonuses, the NYT has part of the answer. The Wall Street boys rip off school districts and other governmental units who pay them high fees for creating complex financial instruments that they don't understand.
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written by zinc, August 06, 2010 7:12
I remain mystified why there are no remedies available from the courts. Clearly, Denver was sold a bill of goods by the bankers who should be on the hook for breach of fiduciary responsibility. It was obvious in 2008 that the municipal debt market was in severe stress and the derivatives were a WS trojan horse.


I wonder what the local political hacks serving on my city's "Boards of Supervisors" are brewing up for us.
Third Party Predators
written by izzatzo, August 06, 2010 7:57
Once upon a time, back in the days when supply and demand worked much better, it was possible for individual buyers to buy only what they wanted to buy, and for individual sellers to sell only what they wanted to sell, largely because there was little between that sold and that bought, particularly the absence of swarms of third party agents.

For what was supposed to be efficiency reasons, small groups of concentrated buyers and sellers emerged to conduct transactions on behalf of everyone else, and gradually realized that by shifting market risks onto everyone else as well, they could get a free ride on the phony free markets they propagandized, enhanced greatly by obscuring the nature of the transaction itself.

Consumer sovereignty, that bastion of free markets that once reigned from the demand side to impose market discipline onto the supply side, can now be viewed in museums hosting shows on Free Markets, Before and After the Rise of Third Party Predators.
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written by skeptonomist, August 06, 2010 10:38
Well, I didn't understand the deal either as the Times told it. Denver got an ARM in early 2008, payments on which should have gone down if they were tied to federal funds or market rates (if they were due to go up anyway then Denver knew exactly what they were doing). If Denver was also buying credit default swaps, then it was just gambling. Rather than blame the croupiers or the suckers, the fault should be assigned to the system that allowed and still allows credit default swaps.
The initial misstep
written by diesel, August 06, 2010 11:09
And, Denver, like many public agencies struggling to cover pension payments got into this mess because of a prior "misunderestimation". Acting on unrealizable projections of future earnings from their investments, many pension funds reduced the contribution taken from employee paychecks during the bubble years. This made both the employees and the accountants happy since the public entity saved their portion of matching funds paid into the retirees account, which freed up money for other uses or allowed them to lower taxes--another reason to turn a blind eye and ear to the prognostications of bubble bursters.
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written by jiffy, August 06, 2010 12:42
The Pa. Auditor General named in the article has laid out a number of agencies, authorities and government units in Pa. who have very large exposure to complex derivatives. The Phila. Water Authority shipped 30 million dollars or so to Wall Street; the DRPA has shipped another 250 million dollars and the Pennsylvania Turnpike has a multi-billion dollar exposure. No wonder why Wall Street does not want to pay higher taxes to government ... they know better than anyone that some banker is just going to steal it from the government by conning these local school boards and authorities.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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