Morning Bell

Lewis via BBW: If you happen to be sitting on the Goldman Sachs bond-trading floor, life must feel horribly unfair. You did nothing worse than live by the ethical assumptions of your market—any money-making event short of obviously illegal is admirable—and now your own grandfather thinks you're some kind of monster... You're probably wondering: What next? What will the angry rabble—all those ordinary people who can never really understand your business—now demand that you explain to them, so they can disapprove of you all over again?

Here, for a start, is what the world beyond Wall Street is entitled to:

Full knowledge of the inner workings of your proprietary trading desk. In particular, the moment-to-moment dealings of your correlations traders from late 2004, when they first exploited AIG's idiotic willingness to sell cheap insurance on pools of subprime mortgage loans, until the end of 2007, when they would have taken most of their profits from the total collapse of the subprime bond markets...

Morgenson and Story via NYT: One of the mysteries of the financial crisis is how mortgage investments that turned out to be so bad earned credit ratings that made them look so good.

One answer is that Wall Street was given access to the formulas behind those magic ratings — and hired away some of the very people who had devised them.

In essence, banks started with the answers and worked backward, reverse-engineering top-flight ratings for investments that were, in some cases, riskier than ratings suggested, according to former agency employees...

Morgenson via NYT: Unfortunately, the leading proposals would do little to cure the epidemic unleashed on American taxpayers by the lords of finance and their bailout partners. The central problem is that neither the Senate nor House bills would chop down big banks to a more manageable and less threatening size. The bills also don’t eliminate the prospect of future bailouts of interconnected and powerful companies.

Too big to fail is alive and well, alas. Indeed, several aspects of the legislative proposals sanction and codify the special status conferred on institutions that are seen as systemically important. Instead of reducing the number of behemoth firms assigned this special status, the bills would encourage smaller companies to grow large and dangerous so that they, too, could have a seat at the bailout buffet...

Warren via WNYC (May 11, 2010): The rules are still the same at every point along the line... This is the central question for America... Can you stop the collateral consequences?... So no more Jamie Dimons and Lloyd Blankfeins having survived near death...

Roubini via WNYC (May 12, 2010): In 2006...we knew that we were at the tipping point... Everyone was living in a bubble. And once you live in a bubble, you lose all sense of reality.