One more thing which ought to be pointed out is that all local real estate markets are not created equal. Southern California got seriously overheated, as did some others. Las Vegas, possibly some in Florida. Others moderately overheated, but not too many. So there is a lot of decent paper out there from non-bubble markets in the midwest, most of the South, possibly the northeast, etc. It's not all like Irvine.

At the same time some places may be actually worse than Irvine, particularly some of the most far-flung LA basin suburbs like the ones out near Palm Springs. Values seem to be down 50% in some of these places. Places with extremely long commute to large metropolises seem very hard-hit, closer in localities less hard hit.

The culture of the IB's is a very curious one. The traders are the Masters of the Universe, software engineers and maintenance guys are the scum below their feet. They do pay well but the price to be paid is getting screamed at pretty constantly and very low status in the workplace. Very high stress.

Software engineers can get much higher status (at somewhat lower pay) in other industries, with much less stress. Or they can go consultant and raise their pay - elsewhere.

With that kind of pressure and competition - very little gets written down. Writing stuff down can help out your competitors in a hypercompetitive atmosphere such as I-banking. Plus no credit is given for writing documentation - only new systems.

It should surprise no-one that they were unable to retain what should have been valued employees or to get new ones to fix their model under these working conditions.

I should not overclaim my personal expertise. I live in London and have worked in banking, but not for an I-bank. But I know quite a few people who do. Get a couple beers into them and the stories which come out are - interesting. Hairy-breasted machismo in Armani suits.

I've interviewed for I-bank slots and nothing in my experience contyradicts the stories I hear.

Fact is that the development jobs (creating the models) can be quite rewarding if stressful. But maintaining the code is much less prestigious and even more stressful, particularly when you consider the impact of a boo-boo. In such environments the most rewarding strategy can be endless procrasitination, whinging, and delay. This because you will rarely or never get rewarded for accomplishing anything but if you screw it up the hammer comes down.

So if you never deliver they keep on employing you and the billion £ shithammer never comes down. At least until they chuck whatever Big 5 consultantcy is currently ruining the project and hire the next one to ruin it in another way. Then a few heads may roll. But then you just move to nother floor at Canary Wharf and repeat, probably with a pay rise.

It;s not fraud however. Incompetence, yes. I-banks aren't known for their management style. They don't need to - anytime they need to change they can fire their current set of monkeys in suits and hire a new group of monkeys. And that is precisely how they look at it, also. Not that that attitude is confined to I-banks - one sees it all over.

Several reasons, Joerg.

The events this week have been so overwhelming that everyone doesn't yet know what to make of it. We may have seen the beginning of a depression - or dodged it at huge cost. Huge cost anyway, but we don't have the slightest idea whether it's 100 billion or ten times that.

Who Angela Merkel blames seems kinds small compared to that. Who knows, she may have been right. I don't think so, not because she wasn't right about more regulation being needed but because regulation last year was much too late to avert the bad loans problem. In 2004 or 2005 would be more like it. It was the 100% financing which did it along with a bunch of other things. The ratings & insurance agencies, etc.

David is correct about a lot of this I'm surprised to admit. There are a lot of free-loaders in this 'deal', and not just Wall Street bankers.

There are a lot of stakeholders here, and not only in the US. Everyone should have to pony up, perhaps even to the point of IMF and/or World Bank involvement.

The dog that didn't bark in the night.

What dog? Consider. whenever a fiscal crisis brews up internationally the first thing which is done is the US is asked to contribute support - either directly or through support in the IMF and/or the World Bank.

Over the past decade or so we've been seeing a new thing - wealth is accumulating in sovereign wealth funds globally. Capital has shifted globally. Last week the US had it's own crisis & the dog didn't bark. All those funds based in Dubai benefit from US policing of the international waterways do they not? And in many other ways as well. But they saw no necessity to help the US in this crisis. It was in fact - unthinkable, wasn't it?

Without anger or bitterness let me point out one crucial fact - what this crisis is showing is that the strength of the US is not infinite. People have been taking certian things for granted that they cannot imagine a world in which the US doesn't do certain things free gratis.

The US did many of those things not out of altruism but because the US benefitted more from those things than anyone else did.

That is no longer true, yet it is still the US only which patrols the sea lanes, guarantees Europe's security (almost only, at least 70%), and bears more than it's share of keeping the international financial markets liquid an stable.

People have been pointing out for decades that the US hegenomy is eroding. Well last week we saw a major erosion - and nobody stepped in. You hear me, China? Lula of Brazil did contribute some schaudenfreud:

"And what have we heard from the new centers of wealth and power - China, India, Brazil, Russia, the Gulf states - about America's financial agony over the past week? Zilch. Well, not quite. When asked about the crisis, Luiz Inácio Lula da Silva, the Brazilian president, said: "What crisis? Go ask Bush.""

Listen people. The tectonic plates are shifting. The US is going to have to give up doing certain things. If you want to get those services you're going to have to pay them -and man them - yourselves. It's going to have to be a sharing arrangement, the fecklessness of the past decade just won't do the job. Blaming Uncle Sam won't keep the train on the tracks. In fact it's causing the train to go off the tracks.

http://www.iht.com/articles/2008/09/21/opinion/edcohen.php

Another issue the Congress is bringing up are the taxpayr getting warrants for shares in the participating banks, which I think is utterly necessary. If the public is going to hazard $700 billion there should be the possiblity of the public making a righteous profit from it's risk - like any good capitalist.

Excessive executive compensation puts such gains at risk. There is a serious moral hazard risk here. Why should executives be able to cream off billions of any gains before the public gets it's return? Should not the public shareholders have the right to limit executive compensation as private shareholders can (in theory)?

How much of this is going to be high stakes, high risk do you think?

I think that it's going to largely be a matter putting this all together and reorganising this into a form which makes more sense to the market. A large part of the crisis is that the information of what these securities are has been lost. I suspect that the real work will be to put the information back into the product. It should be easier for one entity to do with millions of these bonds than for scattered owners to do.

What they may do is end up selling first mortgage bonds at a small discount and "gambler's" bonds (seconds, etc) at higher discounts. Much of the seconds in some areas (California, parts of Florida, Arizona, maybe New Mexico) may be virtually worthless because of steeply declining house prices. Even the firsts in these areas may sell at a steep discount. Othr areas of the country will have stronger local housing markets and the securities will sell at better prices.

But this is information-gathering, not a high risk thing if you get the information first.