Business Insider got hold of an AOL document laying out the company’s “master plan” for its content farm. I think I see smoke coming from the Hamster Wheel:
AOL asks its editors to decide whether to produce content based on “the profitability consideration”…
In-house AOL staffers are expected to write five to 10 stories per day.
Here’s how AOL editors are supposed to figure out whether to cover something or not—and this is the order in which AOL presents them:
Revenue/Profit
Turnaround Time
Editorial Integrity
Business Insider also gets what I’ll nominate for early Quote of the Year in media reporting. I’m taking the liberty of removing BI’s dashes and printing the full cuss:
“AOL is the most fucked up, bullshit company on earth,” says one (journo), who joined AOL in what he calls, “the worst career move I’ve ever made.”
Big wheel keep on turnin’:
Nice scoop by Biz Insider.
— Tom Adams and Yves Smith over at Naked Capitalism ask why the Financial Crisis Inquiry Commission didn’t ask why there was such demand for bad loans. Contrary to what the gubmint/poor people did it axis would have you believe, there was more demand for toxic mortgages than there were people to take them out.
So why, with the trouble obvious in the 2005 time frame, did the market create even worse loans in late 2005 through the beginning of the meltdown, in mid 2007, even as demand for better mortgage loans was waning? It’s critical to recognize that this is an unheard of pattern. Normally, when interest rates rise (and the Fed had begun tightening), appetite for the weakest loans falls first; the highest quality credits continue to be sought by lenders, albeit on somewhat less favorable terms to the borrowers than before.In other words: who wanted bad loans?…
Yet the FCIC learned from Gregg Lippman of Deutsche Bank, who was arguably the single most important individual in developing the market for credit default swaps on asset backed securities (which allowed short bets to be placed on specific tranches of mortgage bonds) and related “innovations”, such as the synthetic CDO (a collateralized debt obligation consisting solely of CDS, nearly all of which were on mortgage bonds) that he helped over 50-100 hedge funds bet against bad mortgages. Didn’t it seem obvious to anyone at the commission that this information meant that a tremendous amount of money was invested in the market failing? What was the impact of this pile of money?
Dozens of warning signs, at every step of the process, should have created negative feedback. Instead, the financial incentives for bad lending and bad securitizing were so great that they overwhelmed normal caution. Lenders were being paid more for bad loans than good, securitizers were paid to generate deals as fast as possible even though normal controls were breaking down, CDO managers were paid huge fees despite have little skill or expertise, rating agencies were paid multiples of their normal MBS fees to create CDOs, and bond insurers were paid large amounts of money to insure deals that “had no risk” and virtually no capital requirements. All of this was created by ridiculously small investments by hedge funds shorting MBS mezzanine bonds through CDO structures.
Might have been something to check out.
— How about some good news?
The Wall Street Journal reports that state tax collections are up 7 percent from a year ago, which might help avoid some of those muni defaults Meredith Whitney is going on about.
State tax revenue grew at the fastest rate in nearly five years during the fourth quarter, as the steadily improving economy and higher taxes in some states propelled strong growth in income- and sales-tax collections.
Even better, income-tax collections are up even sharper, which bodes very well for the trajectory of the economy four years after the recession started.
And corporate income taxes jumped fastest, naturally, up 15 percent.
I thought that the demand for bad loans became internal to wall street since these guys built a structure out of burger flippers made big shots based on mark to market bonus compensation. That structure needed to be fed or else the bonuses wouldn't be delivered. To the traders, these were IBGYBG company-be-gone products.
When the investor demand for loans began to slow, and when AIG pulled out of the MBS default swap game, the machine was kept going by Lehman Brothers and others who hung on to the securities and built default swaps with themselves. The heads didn't care, and maintain plausible deniability that they didn't know, about the risk because the activity was boosting their bonuses and stock options as well.
As detailed here:
http://www.vanityfair.com/politics/features/2009/08/aig200908
"The more subtle change inside A.I.G. F.P. occurred not long after Cassano assumed control. In 1998, A.I.G. F.P. had entered the new market for credit-default swaps: it sold insurance to banks against the risk of defaults by huge numbers of investment-grade public corporations. As Gillian Tett tells it in her new book, Fool’s Gold, bankers at J. P. Morgan, having invented credit-default swaps, went looking for an AAA-rated company to assume the bulk of the risk associated with them, and discovered A.I.G...
In the run-up to the financial crisis there were several moments when an intelligent, disinterested observer might have realized that the system was behaving strangely. Maybe the most obvious of these was the effects of U.S. monetary policy on borrowing and lending. The combination of the dot-com bust and the 9/11 attacks had led Alan Greenspan to pump money into the system, and to lower interest rates. In June 2004 the Fed began to contract the money supply, and interest rates rose. In a normal economy, when interest rates rise, consumer borrowing falls—and in the normal end of the U.S. economy that happened: from June 2004 to June 2005 prime-mortgage lending fell by half. But in that same period subprime lending doubled—and then doubled again. In 2003 there had been a few tens of billions of dollars of subprime-mortgage loans. From June 2004 until June 2007, Wall Street underwrote $1.6 trillion of new subprime-mortgage loans and another $1.2 trillion of so-called Alt-A loans—loans which for some reason or another can be dicey, usually because the lender did not require the borrower to supply him with the information typically required before making a loan. The subprime sector of the financial economy clearly was responding to different signals than the others—and the result was booming demand for housing and a continued rise in house prices. Perhaps the biggest reason for this was that the Wall Street firms packaging the loans into bonds had found someone to insure against what turned out to be the rather high risk that they’d go bad: Joe Cassano.
A.I.G. F.P. was already insuring these big, diversified, AAA-rated piles of consumer loans; to get it to insure subprime mortgages was only a matter of pouring more and more of the things into the amorphous, unexamined piles. They went from being 2 percent subprime mortgages to being 95 percent subprime mortgages..."
Then along came Gene Park:
“We were doing every single deal with every single Wall Street firm, except Citigroup,” says one trader. “Citigroup decided it liked the risk and kept it on their books. We took all the rest.” When traders asked Frost why Wall Street was suddenly so eager to do business with A.I.G., says a trader, “he would explain that they liked us because we could act quickly.” Park put two and two together and guessed that the nature of these piles of consumer loans insured by A.I.G. F.P. was changing, that they contained a lot more subprime mortgages than anyone knew, and that if U.S. homeowners began to default in sharply g
#1 Posted by Thimbles, CJR on Tue 1 Feb 2011 at 11:12 PM