Mind Over Market

At Bernanke's behest, in response to early tremors foreshadowing the financial crisis, Federal Reserve board members and staff engaged in  a process of idea generation and brainstorming. The effort was aimed at finding creative ways to provide emergency short-term lending and guarantee programs to extinguish the potential fires of financial panic and restore collapsed financial markets.  This blue sky thinking was well underway by September 2007 and prepared the Fed for what Bernanke calls "the dark abyss" at the height of the panic and pushed the limits of the Fed's authority in the bailouts of Bear Stearns and AIG.  By Robert Stowe England October 30, 2015 Before former Federal Reserve Chairman Ben Bernanke came up with an array of lending facilities to put out the fires of financial panic that broke out in 2007, he laid the groundwork inside the Fed with a brainstorming effort he called blue sky thinking. “We had ongoing conversations that were like a doctor...

Class Lecture Carey School of Business Johns Hopkins University Washington, D.C. Campus April 17, 2012 By Robert Stowe England For most Americans, a thick fog still shrouds the origins of the financial crisis. This is true despite the fact three years have past since the crisis burst on the scene in September 08 with the bankruptcy of Lehman Brothers. Finding the answer to what went wrong is what compelled me to write Black Box Casino. In the end, it was a detective story where even a list of important actors could run into the hundreds. At the center of origins of the crisis is a single industry – the mortgage industry. As senior writer for Mortgage Banking magazine since 1988, I have reported on the vast changes sweeping through the industry for more than two decades. We’ve come a long way. In the early 1990s, the mortgage industry was disciplined by the free market. It was flexible and innovative. New loan products would appear and market players would experime...

Remarks Made at a Book Party and Signing for Black Box Casino Event Hosted at 3101 Chain Bridge Road, Washington, D.C. 20016 November 10, 2011 By Robert Stowe England I’m here tonight to shine a spotlight on the causes of the financial crisis of 2008. If you are like me, when this crisis broke, you were shocked and outraged. Something had gone terribly wrong to deliver us into the world of Mad Max, where the norms vanished that we thought necessary to sustain our way of life. Financial institutions were crashing all around us while authorities seemed powerless to do anything about it. It was the worst financial crisis of modern times. As a journalist writing for Mortgage Banking magazine for more than 20 years, I covered the mortgage industry at the heart of the crisis. In January 2007, I found myself on the frontlines of the crisis reporting on a multitude of institutional and market failures than were just beginning to get underway. By August 2007, fully half the $11 trillion mortgag...

This video clip from CNBC's early morning Squawk Box show features James Chanos, President of Kynikos Associates and Bill Ackman of Pershing Square Capital Management LP. The two were interviewed April 27, 2010. Quote from Chanos: “Until we find out what happened (with AIG and Lehman), we’re not going to be able to reform the system."

AIG in a filing with the Securities and Exchage Commission has finally released a detailed list of the derivatives contracts covered by bailout funds provided in the fall of 2008 to AIG by the federal governement. The payouts went through AIG to holders of credift default swaps against underlying Collateralized Debt Obligations (CDOs) worth $62 billion. By Robert Stowe England January 30, 2010 American International Group, Inc. (AIG) released Friday a schedule of Collaterized Debt Obligation (CDO's) that were made public two days earlier by a release of the same information by Rep. Darrell Issa (R-CA). The list includes all the derivatives contracts in a federal bailout of AIG to make whole $62 billion in CDOs at big Wall Street firms and large banks around the globe who had purchased Credit Default Swaps from AIG as insurance against the CDO's. Many of the CDO's were loaded with mortgage-backed securities written on pools of mostly subprime loans. Under an agreement broker...

In emails from the New York Fed obtained by California Republican Darrell Issa's office, the New York Fed told AIG not to disclose the payments AIG was making to counterparties when the Fed was bailing out AIG. By Robert Stowe England January 7, 2010 Officials from the New York Fed in emails in December 2008 pressured AIG not to disclose how much was paid to counterparties in the federal government bailout of AIG earlier that year. Normally, such information would be disclosed in an 8-K filing by AIG. The emails were obtain by Representative Darrell Issa, California Republican, and released to the press yesterday. Under a bailout deal overseen by then New York Fed Chairman Timothy Geithner, the government agreed to provide 100 cents on the dollar for credit default swaps that were worth considerably less. Through the bailout, full payment on the notional value of the credit default swaps were made by AIG to Goldman Sachs, Societe Generale and other counterparties. The actual emails...

When the New York Fed renegotiated its original $85 billion deal to bail out AIG last year, it "effectively" transferred tens of billions dollars of cash from the federal government directly into the coffers of the AIG’s counterparties, according to an audit by TARP Inspector General Neil M. Barofsky. The New York Fed pursued a negotiating strategy that failed to get the counterparties to accept anything approaching market value for the toxic assets taken off their books by the deal. This raises the question of whether or not this was a “backdoor bailout” of the counterparties, the audit suggests. By Robert Stowe England November 17, 2009 By November 2008 the emergency rescue of the giant insurance company AIG, engineered by the New York Fed two months earlier, was in trouble. Timothy Geithner, President of the New York Federal Reserve Bank, had played a leading role in that rescue, authorized by the Federal Reserve’s Ben Bernanke and then Treasury Secretary Hank Paulson, a f...