Saturday, October 18, 2008

The Turtle And The Mouse (and the financial crisis)

There was a turtle and there was a mouse
And earlier this year they owned a house
What you say this must be a mistake
But not so my friend not in 2008

You see for years we had created these toys
Mortgage backed securities created by the boys
Who smoke cigars and rode in sedans
And bought up the Hampton's and other fine lands

You see there were so few who understood the indentures
The complex documents that controlled this debt misadventure
That money was lent and made so available
That any borrower's credit was essential unassailable

It all started so innocently the concept was simple
You could split a mortgage between interest and principal
By moving the payments just slightly around
Then many more mortgages could ultimately be found

We built a market with these altered cash flows
Buyers all over the world would help them grow
Money would be lent even from foreigners
So no one would have to borrow from banks on the corner

In fact as the money moved around so fast
It eventually wasn't clear who really touched it last
What started out as money for a home
Turned into a way to get a free loan

Because it wasn't the house that provided security
It was money for free that was used in absurdity
Dogs were seeing therapist, and were eating pate
Cats no longer drank milk, as the now preferred lattes

People were buying anything and all
Because the loans, well they would never be called
So cars got bigger, I mean bigger than big
So large in fact that they were referred to as rigs

Everything got inflated like boats became ships
It even extending to the size of the lips
On woman who injected some poisonous things
And worked out all day to carry 10 carat rings

And this spread thru the world this debt frenzied craze
To Russia and China where cities were razed
So new buildings would be built taller than tall
And the world's biggest cranes were sent one and all

Those factories were full and built toys full of lead
Monks in Tibet were beat on the head
But no one dared to make too much noise
Where or where would we buy all our toys

We now were a nation driven by consumption
With money lent by others that was the assumption
Even Russia was strong with its oil propped up ruble
Buying half of France, they somehow even made Americans look frugal

And of course lets not forget we were on the attack
By blowing up oil fields in terrorist filled Iraq
Of course that resulted in oil prices going sky high
And well maybe we were told just a few white lies

And while our soldiers were killed and were killin'
Well we wasted somewhere close to almost $3 Trillion
But somehow I've digressed and moved a bit off the story
About how we borrowed our way to this financial gory

So all of us borrowed more than we could
Well maybe the word is more than we should
But to our rescue and to make the game even more fun
Someone decided they could insure everyone

As long that is as no one ever really failed
How would anyone know this was just a fish tale
An innocent story to make everyone feel safe
And if house prices kept going up it would all be great

So houses were built and sold with such glee
The loans got so cheap they were actually free
As strange as it seems there was even a time
When you could buy a million dollar house with less than a dime

And if you held that house for like 30 days
You could then refinance it and pretend it was paid
The loan that you knew you never should took
Was effectively sold by some not so nice crooks

Then once all the people had eventually bought
The brokers decided that animals could be sought
They should buy houses on the same silly terms
Turtles and mouse's and I even heard worms

They were living in mansions instead of outdoors
They were refinishing bathrooms with inlaid marble floors
It was amazing how much wealth had been created
Just by taking some cash flows and have them inflated

And then twisted and turned and traded between
So everyone everywhere was involved in the scheme
Bilking the poor and those without money
Loans were made and bees stopped making honey

And it all would have continued on its slick little course
If it wasn't for the unfortunate divorce
Of the turtle and mouse who bought their fine home
But needed to sell it when they went on their own

You see they had to sell it in just one night
And the value of their house well it decreased oh so slight
Never before had such a thought occurred
And all the insurers well they all demurred

They told the banks we can't really provide
Any insurance if housing prices actually slide
And the banks then decided well what was it worth
To carry all these securities of which they gave birth

So one dumped his quickly so he wouldn't get burned
and started a rumor about poor Bear Stearns
Next thing you know they got quite a reamin'
And a few months after that it was the House of Lehman

Then panic set in and everyone started to sell
Stocks and Bonds... heck everything fell
How could this happen who was in charge
How could a mess be suddenly so large

Then that's the point where the pol's got involved
Not even grasping the problem to solve
But what a great way to take a position
On how to blame the other parties condition

Uncle Ben and pal Hank tried to provide some relief
So banks would start lending based on a belief
That buying the bad loans and credit default swaps
Would prevent any more institutions from another big flop

We lost WaMu and Wachovia and more
Morgan Stanley was even almost out the door
But somehow John Mack and Goldman found a way
To make themselves banks in just one day

Wells, Citi, JP and B of A
They just sat back and picked up the scraps all day
And lest we forget the best of them all
The boys who ran hedge funds and shorted them all

No need for an uptick no need for cash
Just short those stocks until they inevitably would crash
Its just the free market and capital formation
Really no connection to a Senate Banking relation

What were these swaps and derivative things
Who was responsible for this terrible swing
And no one it seemed wanted to face the fact
That we all knew it was a game that went way back

To the changes we made in the way that we manage
The risk that we took and what we knew it could damage
But everyone was winning so big for so long
That no one can admit that it was just so wrong

We lost our focus on building true wealth
Instead we needed more crap to put on our shelves
We borrowed money to satisfy our greed
We forgot to give to those in need

And while this is hard and will cause dislocation
We have the chance for an invocation
Remember when something is too good to be true
Its just what your grandma always told you

Work hard be honest and pray for your health
Because that is the only real thing in life that is wealth
And even though they lost that house
I'm hoping that turtle gets back with the mouse

- poem by Steve

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