60 Minutes: Economy Is In A Fragile Situation

[TJ_98370]

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A 60 Minutes feature well worth your time IMO; video and transcript;
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My favorite quote regarding the "mark to model" business plan -
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"Well yes, a level of financial exotica ensued, which boggled the mind and which almost everyone involved didn't understand,"- Roger Altman, Deputy Treasury Secretary under Bill Clinton
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......"Has he (Paulson) saved the country?" Pelley (60 minutes interviewer) asked Roger Altman, who was number two at the Treasury in the Clinton administration and now runs an investment firm.
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"We don't know yet," Altman replied.
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"There's a very long list of financial institutions that are not sure whether they can get through this. Very long list," Altman said.
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Asked if he's talking about more than a dozen such institutions, Altman said, "Oh, I would say so around the world sure, sure."
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Altman says one of the biggest problems is uncertainty about how much bad debt Wall Street has hidden away.
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"You know I have heard that some of these financial institutions were hiring mathematicians and physicists to write the mathematical formulas that underlied some of these investments, and pretty soon nobody understood what was going on any more," Pelley said.
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"Well yes, a level of financial exotica ensued, which boggled the mind and which almost everyone involved didn't understand," Altman replied.
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Federal agencies that regulate Wall Street didn't understand, and neither did the companies that rate the quality of investments.
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"You're telling me that the credit rating agencies didn't understand these investments?" Pelley asked Altman.
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"We had the first instance, at least in my memory, where AAA rated instruments, the highest rating, actually defaulted while rated AAA. Now there's something wrong with that," he replied.
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While people wonder what's coming next, many are asking why experts like Paulson didn't see this coming.
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"A year ago, last April, you said this, and I'll quote, 'I don't see subprime mortgage market troubles imposing a serious problem. I think it's going to be largely contained.' Why did this seem to take you by surprise?" Pelley asked Secretary Paulson.
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"Well, again, hindsight's 20/20. When I came to government, I said, 'You know, we are about due for some kind of market turbulence.' I didn't expect quite this. But I said to the team, as we worked, 'You never know, when there's a lot of dry tinder out there, you never know what spark is gonna light the tinder,'" he replied.
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"The regulators should have been suspicious that something very strange was going on," remarked Joseph Stiglitz, a Nobel Prize winning economist who warned of danger two years ago.
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Asked if this was not unforeseeable, Stiglitz told Pelley, "Oh, not only was it foreseeable, it was foreseen. Now, economists aren't very good at predicting the precise date in which the whole thing is gonna unravel. But that it was unsustainable was perfectly clear." ....
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