http://www.rh.edu/~stodder/MacroPrinc/FinMktSpr09.htm

Masha’Allah good analysis but I would like to distract everyone with a story about Pujja, himself. :)

Pujja died some years ago and his sons now run the place. May Allah (SWT) forgive his sins and raise his status in paradise (Ameen).

A friend of mine from Karachi was in a Jamaat in Lahore and they desperately wanted to go and experience the cuisine at Pujja so they hatched a plan and convinced the Ameer to permit them to go and give Dawah to Pujja.

They went to see Pujja and talked about the greatness of Allah (SWT) for a while. Pujja was an illiterate so he listened to them for a while and then said to the students, “Puttar (Son!) I am an illiterate man all I know is that Allah (SWT) is the greatest because he created the Heavens and the Earth and everything including me and you and he runs the affairs of everything…I don’t understand your fancy talk from Qur’aan and Hadeeth…Would you like some free food since you are guests and you have come here to talk to me?”

They went “Sure”…Ate loads of free food and came back and lived to tell the story about Pujja. :)

Idli, Vada & Sambar are for goats and cows;…

dang, sister shahgul! That was an amusing comment! :)
I am neither a goat nor a cow nor any other animal, however, I enjoy Idli, vada, sambar (btw u forgot to mention Dosa) once in a while just as I enjoy nehari once in a while. A little far from where I live, there are a bunch of restaurants that sell IVDS (acronym for Idli, vada, dosa and sambar), and I assure you, none of them are populated by goats or cows. I don’t know how many goats and cows will find the smell of cooked rice and daal, blended with spices, tantalizing. It’ll be interesting to find out…

I blame greed, because deliberate intent would require a deliberate purpose of betterment in the end. And that sort of Machiavellian advantage seems unlikely in the chaos that ensued. No doubt some will be better off with the crisis than without it. But I would call that opportunism and probably fair opportunism when assets are so cheap.

The regulation and deregulation cycle is a vicious one. In 20 years, people will be clamoring for deregulation, just like we are crying for regulation now. They haven’t yet achieve balance, and I doubt they ever will.

By the way, did anyone notice what the biggest push right now is in order to restart the economy? Make the banks lend again. MORE LEVERAGE. Let’s rebubble please. We beg all our citizens to borrow again and plug the holes with more cash.

Yes, that indeed is brilliant and we should all cry!

Amad, thanks for the refresher course. I am familiar with the “crap” – securitization, CDOs, subprimes and Alt-As, and more. The nihari write-up has been making its rounds already in countless inboxes across the corporate world, albeit in the disguise of alcohol; Heidi being the proprietor of a bar in Berlin, and drinkbonds, alkbonds, pukebonds, etc. I presume that was what was being referred to in the introductory paragraph.

My thoughts are more about how certain parts of this worldwide mess were engineered by opportunistic entities – whether due to greed or by deliberate intent. An example would be Lehman asking JP Morgan for a last-ditch lifeline, and Dimon deliberately refusing simply because he knew his refusal be the final straw that broke Lehman’s back. A newly bankrupt Lehman could then be bought for $2, or $10 – dirt cheap any way you spin it. That is a recent example – there are tons of other actions taken over the past 25 years that I could point to. The words and actions of Greenspan, the repealing of various laws and regulations designed to safeguard against such a mess, and much, much more.

I’d call this a conspiracy – as well as the crisis three generations ago – if I had any concrete evidence that such actions were committed with malicious intent to consolidate power and money in the hands of the few. However, in the absence of such, I can amuse myself by listening to the growing chorus of voices calling for uniform, global regulation of the financial system. What a perfect storm.

So brilliant, one could cry.

[oh wait ... never mind]

When things were going good, everyone wanted in. You had to beat the next guy in loaning someone earning $30k/year money to buy a $300k house, because both you and the guy believed that the house would be worth $400k by next year– the guy would flip it, he’d get his $100k profit, and you’d have a “loan sale”. Another group of geniuses packaged all these loans up and decided that if we had enough crappy loans that were mixed all up, we’d have a “well-diversified” pool (structured finance) with less risk (forgetting the fact that many pieces of crap still only make a pile of crap, not a well-diversified investment). Then they securitized this pool, breaking it into small pieces so that you, as an investor, could have small piece of that original crap. So, many people had small pieces of crap but did not have the right to any one particular crappy loan, rather your piece was spread out through many crappy loans. Eventually, when the housing market froze up, the crap hit the ceiling; from the default/foreclosure to the bankrupt lender to you holding worthless well-diversified crap.

If nihari didn’t help the picture, I hope crap did? :)

Amad, thanks for the reply.

Just out of curiosity, what are your thoughts on the notion that this crisis might have been deliberately engineered? Either in part or in whole?

As a student of finance myself, I have attended talks (in classrooms and beyond) by various experts and Professors of Wharton. And I can tell you that if you had to boil down the crisis to one word, it would be “leverage”, or “debt”, whichever term you fancy. Upon this, the F.I.RE. sector (appropriate acronym for Financial industries, Insurance, and Real Estate) became so intertwined that when the mess became too difficult to handle, the entire house of cards started falling apart. Examples: F=Bear Stearns; I=AIG (everyone knows AIG now), RE=Countrywide. That’s why AIG is so “important” to save, because it is firmly in the middle.

So, yes, there are credit default swaps, prime-rate interest loans, hedge funds, CDOs, short-selling, and all the other innovative (and destructive) financial engineered tools. But boil it down, it is all about debt and its securitization. Then bets and shorts on top of it.

Finally, this story provided an opportunity to argue about nihari. It was amusing to most (not the point though). It made sense too. That’s a beautiful result. :)