Ray, you are correct. We are already witnessing the next irrational investment bubble on Wall Street inflating with lightning speed. I am a software consultant with 30 years of experience, most of it on Wall Street. I've had most of the major players as clients at one time or another, so I've watched (in horror) for years as the runaway train of complex derivatives, representing irrational risk with other peoples' money, massive rewards if you win, and no disincentive if you lose, build up to the collapse that started in September of 2007.
Ironically, although I can no longer stomach working for companies like Merrill, BofA, Goldman Sachs and the lot, over the past couple of months I have been bombarded with inquiries about returning to these companies because of my previous experience designing software used to set prices and calculate risk on derivatives like the notorious MBS (mortgage-backed securities) as well as CMBS, CMO, CDO, etc. They're back to monkey-business as usual.
The Wall Street investment houses and hedge funds have figured that they've weathered this storm (primarily by sucking trillions in taxpayer money from the FED and the TARP funds - like a vampire sucking the life's-blood from the neck of the American public).
They figure they've beaten Obama and his crew of insider advisors (mostly ex-Goldman Sachs execs), who have yet to enact a single meaningful or effective regulation; the Congress, which knows that Wall Street can make or break anybody in Congress with its money and power; and the American people, whose righteous anger and rage flares and then fades just as fast.
These companies have quietly began re-marketing REMICS (Real Estate Mortgage Investment Conduits), which include MBSs, as RE-REMICS, with brand-new AAA ratings. These are really just resecuritized toxic mortgage investment conduits re-bundled, and are 'safely' outside of any jurisdiction of the SEC.
A new highly distasteful form of derivative is now becoming popular. Instead of pooling mortgages as the underlying security of a derivative contract, the industry is pooling individual life insurance policies. They buy up life insurance policies from desperate elderly people for pennies on the dollar and then bundle them and then consolidate them into derivatives and sell them to investors. Given the nature of how they work, they are nothing but a monstrous Ponzi scheme that would make Bernie Madoff gasp. The sooner a policy holder dies, the greater the payoff, while the longer you live, the returns go down and can even pass into negative territory. No wonder Wall Street is so hostile to health care reform ;). Just imagine investors all over the world praying for a monstrous swine flu epidemic.
This threatens to do to the life insurance industry what MBSs did to the mortgage industry.
So, its back to business as usual, except that the situation is materially worse right now, with the promise of the next collapse making this one look like a ladies' tea party. Instead of 10 or 12 major financial institutions controlling the financial economy, there are now something like 4, most of which used some of their TARP money to buy up weaker sisters and grow even bigger - now TOO, TOO BIG TO FAIL. The most dangerous are Goldman Sachs, Bank of America, Wells Fargo, and JP Morgan Chase.
In fact, on of my friends still heavily involved on Wall Street tells me that the joke going around is that at the end of the year, the country is changing its name to the United States of Goldman Sachs.
