The Abacus sign

By Felix Salmon
October 18, 2011
Ben Furnas only has 325 followers on Twitter, but that's all it took to make this photo of his go seriously viral over the past few days.

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Ben Furnas only has 325 followers on Twitter, but that’s all it took to make this photo of his go seriously viral over the past few days. He posted it on Twitter at 5:42pm on Saturday, with no commentary other than the hashtags #ows and #win. It didn’t take long (I’m a little bit unclear about the timezone of BoingBoing timestamps) before Xeni Jardin posted it on her hugely popular blog. And from there it went, well, everywhere.

By this morning, Conor Friedersdorf, the author of the words in question, was already writing a meta-post about the photo, and how it demonstrates that OWS is “the product of the decentralized networked-era culture”. Xeni, too, had a meta-post of her own. And the makers of the sign were revealed to be Brooklynites Will Spitz and Caitlin Curran. (Sorry, they’re a couple.)

Still, the meme was far from out of juice: when I posted the photo on my Tumblr at 4pm this afternoon, grabbing it from Barry Ritholtz, it very quickly became by far the most liked and shared thing I’ve ever put up on that platform.

A lot of that is because Curran is one of those protestors that photographers dream of. And then there’s the setting — Times Square, with Starbucks in the background and the big Nasdaq sign.

But the heart of the photo is the language on the sign — language much more powerful and striking than the blog post (or even the sentence) from which it was lifted. It’s funny, on the sign — something true, and accurate, and touching, and grammatical, and far too long to be a slogan, and gloriously bereft of punctuation, and ending even more gloriously in a mildly archaic preposition. Friedersdorf has managed to encapsulate the essence and the impropriety of the Abacus deal in just 45 words, and it’s fantastic that Spitz and Curran — and Furnas and Jardin and everybody who shared this image — managed to give those words the global recognition they deserved.

And most wonderfully of all, this sign seems to resonate just as much with the general public, most of whom have never heard of Abacus, as it does with Abacus nerds like myself.

In any case, I’m very glad that Abacus is coming back. During the first Abacus-go-round, I toyed with the idea of making a self-indulgent derivative artwork of the famous quote by “Fab” Fabrice Tourre:

What if we created a “thing”, which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price?

I’d print these words in a sans-serif face on aluminum, or maybe in neon, and use them to comment not only on the futility of Wall Street, but also on the parallels between Wall Street and the art world. (William Powhida is much better at this sort of thing than I am; his show, called Derivatives, which includes my birthday present, opens Saturday at Postmasters, and you should go check it out. )

This picture is a vastly better way of bringing Abacus to the public’s attention. And it’s also a fantastic example of why it’s great that OWS isn’t a carefully-organized movement with an easily-identifiable and discrete set of demands. The fact that OWS is open-ended means that it’s much more open to the kind of creativity which went into this sign, and also means that snapshots like this one are much more likely to go viral.

The sentiment behind OWS has resonated worldwide — and I’m sure that this photo has already been forwarded all over Goldman Sachs. It’s a very healthy reminder, for squids both junior and senior, that the world will not soon forget what they got up to at the end of the subprime boom.


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The problem with these types of messages is they point out the bad group while ignoring those who are being victimized on a daily basis.

Banks require a default before they will restructure a debt. This insidious law is destroying main street on a daily basis.

The law should be “Restructuring a debt DOES NOT require a default first”.

Posted by SWARMtheBANKS | Report as abusive

Well, this is what you get when financial institutions prioritize profits to the exclusion of all else. All the general public wants is for financial institutions to behave responsibly. That they seem to be culturally incapable of doing so tells us quite a bit about how far Wall Street’s value systems have gone off the deep end.

Given the damage that the corporate and personal greed of Wall Street has done to this country, I’m actually quite suprised at how peaceful the protests have been. In most other countries in the world, people would be rioting by now.

Posted by mfw13 | Report as abusive

Remindsme of Gossage’s Fina slogan.

Posted by hansrudolf | Report as abusive

It epitomises a synthetic financial industry, which creates only risk and finances nothing.

A reference entity representing the worst of the US real estate market was created, sold to unwitting investors with the sole purpose of having a burnable house that could be insured for many times its value with other investors, so that profit could be reaped from the crash of the US housing market.

This is fraud. This destroys America and the West.

Posted by Finster | Report as abusive

This sign says so much about what Wall Street has become. And let’s not forget all those European Governments to whom these securities were sold who are now in trouble because they trusted the reputation of the US. Having made huge profits, Wall Street of course is now doing it’s second favourite thing – talking down the net worth of customers to whom they sold these worthless securities to begin with.

Posted by FifthDecade | Report as abusive

There are two explanations to the subprime crisis.

1. bankers knew about the final outcome and made everything to harvest (see photo in the post)
. Then they are genii and deserve the money because all experts, economists and general public were lost in a simple question how to get something from nothing. The answer was clear – lay people were blinded by greed.

2. bankers were like lay people and failed to predict the outcome. Then – why punished?

Posted by ikitov | Report as abusive

A sign that demonstrates just how badly mislead the general public has been by “journalists” about what happened in the bubble. Virtually every single statement in that poster is false and are lies happily propagated by the media.

Particularly ironic that the protester is assigning clairvoyance to a hedge fund – although clearly she is too ignorant to know who actually picked the securities – that recently lost over a third of its value.

Posted by Danny_Black | Report as abusive

FifthDecade, what securities were sold to European Governments?

ikitov, or there is another option which is that there was massive client demand for such instruments fed in large part by regulations. In this secret option number 3, Bankers who refused to sell said products lost their jobs, funds who didnt invest shut down and banks that didn’t pile in got taken over or had their leadership ousted.

Posted by Danny_Black | Report as abusive

“Banks require a default before they will restructure a debt. This insidious law is destroying main street on a daily basis.”

Banks do this for two reasons:
(1) They want to extract as much money as possible from you to limit their losses. If you are capable of making the higher payments, they want you to continue making the higher payments.

(2) They want shared pain. If they are taking a writedown on the loan, they want the borrower to feel it as well. The default will damage their credit rating. This also limits the number of people asking for writedowns.

Remember, the banks didn’t loan you a house. They loaned you money that you used to purchase a house. It is sad that the house isn’t worth as much as you thought it would be, but that doesn’t change the terms of the original note. It wasn’t phrased as, “I’ll pay back whatever the house is worth.” Contract law is clearly on the side of the banks in this matter.

That said, the banks were stupid to write such loans in the first place, and they need to absorb whatever losses come their way as the result.

Posted by TFF | Report as abusive

Yes, this sounds shady. But it was not even remotely the or any part of the cause of the financial crisis. In a healthy market environment, it would simply have been impossible to find anyone to take the long side of that bet. The prospective bettor on the long side would do its “due diligence,” it would take responsibility and analyze the position it was taking. Nor would it care whether Goldman itself was a pure bookie here, a bit of a gambler on the short side itself, or a bookie too friendly with the short side. After all, in any of those cases, the deal is the deal. The prospective long-side bettor could analyze the deal and make up its own mind.

In the circumstances of 2006-07, that notion of due diligence had broken down. The markets were, then, unhealthy. Why? Not through any doing of Goldman’s. It simply sought to protect itself, and accordingly its stockholders, from the repercussions of that the unhealthy condition of the markets — and it did so quite well.

Indeed, Bethany McLean and Joe Nocera, in their book on the financial crisis, All the Devils are Here, (the best single book on the subject yet written IMHO) make the point that Goldman survived the financial crisis that felled Bear Stearns, Lehman Brothers, AIG and others not by fluke but by superior risk management. They note, for example, that “Goldman was a stickler for what’s known as mark-to-market accounting, meaning that it marked its books, every day, at the price at which securities traded in the market.”

This deserves some emphasis. If a bank has a $1 million IOU from another institution — let’s call it Generic Hedge Fund — but it knows that Generic is in trouble and that the most likely result of its efforts to collect on that IOU will be that it will receive $200,000, then what is the value of the instrument? If the bank tries to sell that IOU in the marketplace, then consistent with proper disclosure it will likely get in the neighborhood of $200,000 for it, so that is the value that it will have under the practice known as marking-to-market.

It can be a scary thing, marking one’s books to market. In our hypothesis, the practice means recognition of an $800,000 loss. But a bank (or any other institution that issues stock to the general public) ought to get into that habit. Otherwise, it will end up with books that deceive the general public whose investment it is periodically soliciting. What is even worse, the management that doesn’t mark to market will end up deceiving itself.

The ABACUS deals, like the mark-to-market discipline, were examples of Goldman’s commendable corporate culture — one that focused with great intensity on the management of risks. It is an ant-like culture that brought Goldman through a crisis that killed a lot of grasshoppers, and it is more fittingly celebrated than condemned.

The fact that there was a market for such deals i.e. that through the period 2004 – 2007 it was easy to find parties (grasshoppers) so eager to be on the “long” side of anything involving mortgages, indicates that there was pathology at work, the pathology that created the risks that Goldman was successfully managing. That pathology was not “speculation.” Nor was it “leverage.” The pathology was the debasement of the currency and the artificial manipulation of credit.

Posted by Christofurio | Report as abusive

“The law should be “Restructuring a debt DOES NOT require a default first”.”

Actually, that *is* the law… Restructuring does not require a default first. But the law doesn’t prevent the banks from setting higher conditions for restructuring.

Do you mean to say something different? Perhaps you mean, “Lenders must restructure a debt whenever asked politely?” But I don’t want to put words in your mouth. Please phrase your desired law in clear and precise language so I can know what you really mean.

Posted by TFF | Report as abusive

PS Mr Salmon you know for an absolute fact that every single part of that sign is false and as such you know this sentence “Friedersdorf has managed to encapsulate the essence and the impropriety of the Abacus deal in just 45 words” is a lie.

Posted by Danny_Black | Report as abusive

Christofurio, you should check out Devil’s Derivatives. See what happens when someone who actually knows the subject matter can write. The “All the devils are here” book is pretty good and the gulf between it and the quality of what those authors write in their day jobs shows what a difference basic fact checking and a conscientious editor can make.

Posted by Danny_Black | Report as abusive

@Danny_Black: “Bankers who refused to sell said products lost their jobs, funds who didnt invest shut down and banks that didn’t pile in got taken over or had their leadership ousted.”

shorter Danny_Black: it might not be specifically illegal, so we have to do it.

DB has just made a convincing argument for a principles-based regulatory system with strong & independent regulators, and a return of utility banking and Glass-Steagall.

Posted by SteveHamlin | Report as abusive

SteveHamlin, how exactly did I do that? Would love to see you make that case.

the longer version is that not only was it not “not specifically illegal” but it was a regulatory requirement that the investments be structured this way and there were penalties if you did it differently. But as usual don’t let any actual facts get in the way…..

Posted by Danny_Black | Report as abusive

D_B: You are not smarter than Steve. You do not win any prizes if you “prove” yourself to be right.


Get over it. You have lost already: It doesn’t matter what you say.

Communication, in this case, is MORE important. Why? Given that banks own the regulators as well as the banks, your fatuous excuse holds zero water.

I hope you’re the first one given a 20-year sentence for fraud. Specifically, fraud in the inducement.

Go take a look at what happened to bankers during the Panic of 1873. And get humble, little boy.

Posted by Unsympathetic | Report as abusive

“I suspect what I flushed down the toilet just now is smarter than you”

And you would be wrong. What you flushed is smarter than *you*. And is more ethical and has better character.

Posted by jonhendry3 | Report as abusive

Thank You Thank You Thank You Actually Factually Felix!!!!!!!
Seena Hawley
AKA once upon a time “The Food Goddess”
currently heading for Bankruptcy in spite of a hard-earned credit score close to 800 courtesy of Abacus and all the Abacus-like deal promulgated by Countrywide, Fannie Mae and all their ilk. Down I go!!!

Posted by slhawley | Report as abusive

D_B: If your precious banks were so innocent, you wouldn’t have to attack me.

How do the banks own the regulators? Did you sleep through the discussions about Alan Greenspan’s policies on benign neglect as he described in 2002, or did you never bother to learn anything about the subject you’re trolling about? Since you clearly know sweet FA about using Google, try typing in “Greenspan benign neglect” and you’ll find plenty of links. He’s talking about deliberately not intervening – even though he’s the chief regulator and that’s his job description.

Rules don’t matter if the cops don’t enforce the rules.

Posted by Unsympathetic | Report as abusive

I guess my lack of google skills is why I thought the Fed was not the main regulator for investment banks in the US but rather it was a mix of the CFTC, SEC and OCC. Thanks to you I can know get my information off random morons on the internet as opposed to relying on personal experience.

I take it back you are obviously a genius who is clearly able to see through the basic facts to the higher reality. Are you Buddha?

Posted by Danny_Black | Report as abusive

I guess my lack of google skills is why I thought the Fed was not the main regulator for investment banks in the US but rather it was a mix of the CFTC, SEC and OCC. Thanks to you I can know get my information off random morons on the internet as opposed to relying on personal experience.

I take it back you are obviously a genius who is clearly able to see through the basic facts to the higher reality. Are you Buddha?

Posted by Danny_Black | Report as abusive

By the way, do yourself a favour and actually read the 1913 act which created the Fed and see what its real job is.

Posted by Danny_Black | Report as abusive

I have to assume that seena hawley is heading for bankruptcy because she borrowed too much money to buy a house and now can’t afford it. Let’s try to imagine who is most morally responsible for her sad state:
Was it
1.) People who bid up real estate to unrealistic levels
or maybe
2.) People who loaned money irresponsibly to support 1.) and lost it when r/e crashed
Because I’m feeling charitable, I’ll leave out
3.) people who borrowed too much because they were living beyond their means and speculating that their property would appreciate

which should in a fair world top the list but we’ll let it go. Accepting this demands a measure of self awareness and humility American deadbeats as a class seem to lack. And life (as seena is maybe finding out|) isn’t fair, especially to reckless borrowers or lenders.

Note that I do not list 4.) people who shorted real estate debt synthetically or 5.) their abettors since they are (by definition) doing the opposite of parties 1.) and 2.) and even to some measure 3.) But since 4.) made money and 3.) lost it during the same debacle, it must be 4′s fault that seena’s house is being repossessed, not 1.) ,2.) , or 3. Did I get this right?

Posted by AEinCH | Report as abusive

Aeinch, to be fair she might have invested in some structured product.

Also, especially in a bubble, the difference between someone who got greedy and “bid up real estate to unrealistic levels” and a genius investor is luck and a few months.

Posted by Danny_Black | Report as abusive

Someone, somewhere, in a galaxy far away rated those Abacus notes “AAA”. And every single other Struc Finance CDO or CDO squared built just like it.

And yet, not a single mention of the clowns known as the NRSRO tri-clops monstrosity. Moodys, S&P, Fitch.

There’s your regulatory capture; exhibits A, B, C. But it’s alright; ratings were/are consitutionally protected & the NRSRO existence is hard-coded into banking regs.

Posted by McGriffen | Report as abusive

McGriffen, nobody rated those notes AAA. Thanks for proving yet again what an appalling job the media did explaining this deal and others

Posted by Danny_Black | Report as abusive

Oops, the a1 note was aaa. My bad….

Posted by Danny_Black | Report as abusive

okay, so Abacus not rated. But surely you’d agree, the rating agencies were heavily invovled in rating Structured products as AAA, or AA, based on the issuer pays model ??

I’ll admit to being off on Abacus. But for a fact, CDO bonds (super senior, resi-based ABS) were indeed being AAA stamped. Routinely.

Posted by McGriffen | Report as abusive

Just double checked the prospectus and the a1 notes condition of sale was aaa rating. I assume that was the latest prospectus and as the bonds were sold that indeed they had an aaa rating.

Unless I misunderstand regulatory capture definition, this is more a case of what I was saying, ie that the regulation existed and the sole reason for the existence of these products was to comply with said regulation. Eliminate the privileged status of credit risk over others and this issue goes away.

Posted by Danny_Black | Report as abusive

McGriffen, at the risk of telling you something you already know, the idea that issuer pays model led to the AAA is at best an oversimplification. I would argue the other way round:

When credit risk was privileged in the 30s, it sort of made sense. There was little FX risk, little interest rate risk, there was little price risk because more than now people bought and held and coupons where fixed and basically the risk was you would not get paid. So truly AAA=nearly risk free.

Therefore a large number of investors – including the largest ones, pension funds – are constrained by regulation to invest in investment grade debt. Those investors are selected by their investors at the most every 3 years. So you are constrained by rating but need the highest possible yield. The rating is your “get out of jail free” card as an investor.

The rating agencies either publish their model or they have software that gives a tentative rating so when creating the new CDO you just pump the replines into the model and see if you comes out AAA or AA. If not you throw it away. Eventually you get the yield you want subject to the constraint of the rating. That is why most of the tranches sold on were AAA or AA, not some sinister ploy by agencies paid by banks.

Also the issues with the CDOs were not obvious ones when the rating models were published. Typically they consisted of two issues. Firstly, correlation between the loans went up. One of the issues of these models is that they assume either static correlations or some sort of random process to the correlation. The problem with that is the very process of putting previously diverse assets in the same investment makes a correlation between them. For example, there is no obvious correlation between Thailand and Korea except for the fact that in the mid 90s asian emerging market funds were popular and when there is an issue in Thailand then those funds find it easier to sell Korean assets than thai ones and because for end investors Asia is Asia. Secondly, the funding model of alot of the SIVs was based on short-term loans. Again regulation drove this model, because modulo some technical details any loans with a tenor of less than 365 days is considered “risk-free” and so not only can the banks lend at a lower rate but because they don’t have to put aside capital they can lend large amounts.

So rather than regulatory capture is it more a case of regulations distorting incentives.

For the record I think they should simply eliminate credit ratings, if people think the agencies analysis adds value then they can use it but it should not be a regulatory requirement.

Posted by Danny_Black | Report as abusive

Getting away from Abacus in particular, and this whole flame war as well, I thought it was interesting that the SEC chose this moment to go after Citibank for one part of the behavior described in this sign. See: 214.htm

Citigroup to Pay $285 Million to Settle SEC Charges for Misleading Investors About CDO Tied to Housing Market
Former Citigroup Employee Separately Charged for His Role in Structuring Transaction…

Posted by Setty | Report as abusive

Oh hei, I see you just posted on that. Teach me to post a comment a half-day after checking your new posts :)

Posted by Setty | Report as abusive

Danny, let’s not be silly. She couldn’t possibly have invested in these products because synthetic CDOs were not sold to individuals, and US pension funds etc were not eligible to purchase them. The ‘victims’ in this case were dumb european fund managers who thought they were getting a free lunch. By and large, the losers here fit into category 2.) when they were buying *real* debt,. Abacus-type sideshows actually prevented them from lending irresponsibly to any *real* property developers. So in my view this outrage is completely incoherent, and basically just an excuse to smear Goldman (and not Paulson?) for the crime of facilitating a bet between two equally informed parties.

In short, if anyone is to blame for running up the property bubble, it is the BUYERS of Abacus-type debt, not sellers. And frankly, it is also property buyers like Seena Hawley, whose crime (leveraged speculation) was not victimless during the good years — ask any long-term renter .

Felix is unfortunately parroting the Wall-Street-ate-my-homework narrative promoted by sulking losers at ‘casino capitalism’ aka US real estate. This class may soon realise that Wall Street doesn’t have their money; to the extent their capital ever existed, it’s gone, and the SEC can’t sue it back into existence.

Posted by AEinCH | Report as abusive

@DB: your points above are well listed.

Those sellers, of their own will, invested heavily in these very same MBS and structured finance product lines: traders, sales persons, analysts, and quantitative engineers. A few of here know full well those people don’t come cheaply either.

No one invests that amount of money into human capital to distribute these products, without expecting a reasonable return. And lest one forgets, a few of these companies thought it a GOOD MOVE to buy a Saxon mortgage or First Franklin mortgage. Pre-crisis.

why buy a mortgage company, or mortgage servicer, if you don’t believe in controlling the levers of production & origination & servicing.

Posted by McGriffen | Report as abusive

AEinCH, I am 99.9999999999999999999% certain she is a property speculator as well but there is a small chance she is a high high-net worth individual.

Again, with respect to the buysides, I think it is clear my sympathy is not with people who rolled the dice and lost. I am utterly utterly amazed that these guys not only get off scot-free but are now “victims”, especially when the biggest one of them – Frannie – is the real cost to the taxpayer from the bailout.

Posted by Danny_Black | Report as abusive

mcgriffen, after a bubble things are “obvious”. The ex CEO of Morgan Stanley tried to sit out the bubble. He was sacked in 2005 after 4 years of “underperformance” relative to BSC and LEH ( no joke, the comparison was explicitly made ). The new CEO in 2006 to dive headfirst into credit and mortgages.

Countrywide jumped in after shareholders pushed Mozilo after having his lunch eaten by more “aggressive” competitors.

cdo managers were “geniuses” etc.

Posted by Danny_Black | Report as abusive

You assume wrong, very wrong. I assume life has not taught you about bad timing. Or the folly of knee jerk assumptions. May your lucky life continue.

Posted by slhawley | Report as abusive

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