"They built a castle to rip people off"

The changes were camouflage.  They helped distract outsiders from the truly profane event: the growing misalignment of interests between the people who trafficked in financial risk and the wider culture.

If you haven't read this article on how and why the Wall Street boom fell apart, and what it was built on and why, go read it now.  Subprime lending is just the tip of the iceberg.

One of the most telling paragraphs is this one:

That’s when Eisman finally got it.  Here he’d been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets.  Now he saw.  There weren’t enough Americans with shitty credit taking out loans to satisfy investors’ appetite for the end product.  The firms used Eisman’s bet to synthesize more of them.  Here, then, was the difference between fantasy finance and fantasy football:  When a fantasy player drafts Peyton Manning, he doesn’t create a second Peyton Manning to inflate the league’s stats.  But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original.  The only difference was that there was no actual homebuyer or borrower.  The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs.  Eisman, in effect, was paying to Goldman the interest on a subprime mortgage.  In fact, there was no mortgage at all.  “They weren’t satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn’t afford,” Eisman says.  “They were creating them out of whole cloth.  One hundred times over!  That’s why the losses are so much greater than the loans.  But that’s when I realized they needed us to keep the machine running.  I was like, This is allowed?”

(Emphasis mine.  Original pointer from wcg.)

I've been saying for at lest about ten years now that the stock market — all of Wall Street — is a sham, a giant fraud kept afloat by massed voluntary suspension of disbelief.  Financial traders, investors, speculators on Wall Street, the Bourse, the Nikkei, play ever more abstract financial games trading money and assets that only exist on paper.  A few strokes of a pen and a willingness to look at it from another angle turns a liability into an asset — on paper.  If you've ever seen the movie Wall Street, it doesn't begin to come close.  Compared with most of the big financial movers and shakers, the fictional Gordon Gekko was scrupulously honest, a model of integrity.

Prior to reading this article, I was of the opinion that we should allow the banks to fail, let the crows come home to roost, throw the big financiers who did all this in jail and let them spend twenty years or so in a cell thinking about what they've done.  But this article explained to me quite a few of the inner workings of some of these securitized derivative instruments that I hadn't really fully grasped before.  The full magnitude of the kleptomania, the scale and the depth of the compulsive gambling with other people's money, has become clear to me, and I've changed my mind.

I no longer think we need to throw all these financiers in jail.  Now, I'm more inclined to say they should just be taken out and shot.  Because, in knowingly repackaging BBB loan packages as AAA securities and knowingly lying about the ratings, in knowingly fabricating assets out of whole cloth, in constantly knowingly averting their eyes from what they were doing even when they no longer understood what they were doing, these people knowingly engineered the collapse of the world's banking systems.

And it's still a long way from being over.