Which Presidential candidate can address this WITHOUT anything more than a one-time, $700 billion bailout?
Everything You Wanted to Know About the Credit Crisis But Were Afraid to Ask (by Ben Stein)
http://finance.yahoo.com/expert/article/yourlife/109609
In other words, if this is TRULY a “bottomless pit” (e.g. $56-59 TRILLION IN CREDIT DEFAULT SWAP *LIABILITIES*, per the below), WE MUST ENSURE OUR ELECTED REPRESENTATIVES DO *NOT* MAKE OUR DOLLAR WORTHLESS. They *might* be able to avoid a fiasco if they make this bailout contingent on:
a. NO FUTURE BAILOUTS, NO MATTER WHAT! (Holders of credit default swaps need to be told that the writer of the swap is BANKRUPT and their payoff is NOTHING!!!)
b. Any CEOs that take government money in this bailout get no more than the average taxpayer’s salary;
c. No bank or mortgage company can offer a mortgage with less than TWENTY PERCENT (20%) down and proof of 3 times the income of a monthly mortgage payment (P&I); the ONLY exception should be for those who can show proof of being at the same employer for the most recent five years AND makes 6 times the income of a monthly mortgage payment (e.g. a minimum 10% down would be allowed in this case).
KEY EXCERPTS:
The headlines scream doom. There are endless references to the economic situation being “the worst since The Great Depression.” Immense names in finance have collapsed and sunk beneath the waves of the financial crisis. Please allow me to try to explain a bit of what’s going on.
First of all, all you have to do is look around you to see that in terms of daily life, we are not anywhere near The Great Depression. Unemployment is barely about six percent. It was 25 percent at the nadir of The Great Depression. Real per capita incomes adjusted for inflation are at least five times what they were during The Great Depression. Airplanes are full. High-end restaurants are full. Prices are painfully high for food. These are not signs of a Great Depression.
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First, the alert reader will notice that Ben Stein said many times that the amount of money at risk in the subprime meltdown was just not enough to sink an economy of this size. And I was right…to a point. The amount of subprime that defaulted was at most – after recovery in liquidation – about $250 billion. A huge sum but not enough to torpedo the US economy.
The crisis occurred (to greatly oversimplify) because the financial system allowed entities to place bets on whether or not those mortgages would ever be paid. You didn’t have to own a mortgage to make the bets. These bets, called Credit Default Swaps, are complex. But in a nutshell, they allow someone to profit immensely – staggeringly – if large numbers of subprime mortgages are not paid off and go into default.
The profit can be wildly out of proportion to the real amount of defaults, because speculators can push down the price of instruments tied to the subprime mortgages far beyond what the real rates of loss have been. As I said, the profits here can be beyond imagining.
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These Credit Default Swaps have been written (as insurance is written) as private contracts. There is nil government regulation of them. Who writes these policies? Banks. Investment banks. Insurance companies. They now owe the buyers of these Credit Default Swaps on junk mortgage debt trillions of dollars. It is this liability that is the bottomless pit of liability for the financial institutions of America.
Because these giant financial companies never dreamed that the subprime mortgage securities could fall as far as they did, they did not enter a potential liability for these CDS policies anywhere near their true liability – which again, is virtually bottomless. They do not have a countervailing asset to pay off the liability.
… This is what all of the big investment banks and banks and insurance companies missed. This is what the federal government totally and utterly missed. This is what the truly brilliant speculators in these instruments did not miss. They could insure a liability they could also create and control. It is as if they could insure a Cadillac for its value upon theft – but they could control what the value the insurer had to pay off was. The insurer thought it might be fifty thousand dollars – but it was manipulated into being two million.
This is the whirlpool ******* down finance.
Now, we are about to have a similar phenomenon happen with commercial mortgage debt, debt from mergers and acquisitions, credit card debt, and car loan debt. Many trillions of dollars in Credit Default Swaps have been sold on all of this, and the prices of all of them have fallen and can be made to fall more.
As I said, the pit of loss is bottomless. Warren Buffett, the smartest man of all time in the world of finance, has called financial derivatives – of which Credit Default Swaps are a prime example – “weapons of financial mass destruction.” And so they are. As with the hydrogen bomb, no one thought they would ever
By: datediscrete
About the Author:
September 14th, 2008 at 4:30 am
Więc nie jestem pewien czy kandydat może zapewnić to miejsce dla Ameryki. Prezydent nie może zmusić przedsiębiorstwa do mądrze decyzje. (Dlatego wolałbym im poczuć ciepło nieco dłużej) Pytanie brzmi czy chcemy wolnego handlu, czy też nie? Jeżeli możemy połykać rozporządzenia będziemy potrzebować, aby rozwiązać ten problem (i mam nadzieję, że będziemy mogli), a następnie może będą musieli zrezygnować z naszej definicji, co jest wolnym handlu.
September 17th, 2008 at 1:18 pm
Als hij over de economie, waarom didn' zo slim is; t hij voorspelt de afsmelting? De bijziende terugblik met een verklaring is nauwelijks nuttig bij deze kritieke verbinding op de rand van het economckloof.
Aanhalen van economische statistieken van de hoogte van de Grote Depressie om met het begin van de Volgende Grote Depressie vergelijkbaar te zijn is opzettelijk misleidend, wat een specialiteit Neocon is. Het zou moe aangewezen zijn om de economische statistieken te vergelijken van in 1928, toen de immobiliënmarkt sterk was, werkloosheid was laag, en de mensen leenden geld 10 centen op de dollar om voorraden te kopen.
Als de instorting van de markt van hypotheekderivaten de enige bron vandaag van economische zwakheid was, M. Stein' s dichtbij optimisme zou kunnen worden gerechtvaardigd. Maar hij negeert de gelijktijdige instorting van de immobiliënmarkt, de nAFTA-Gevoede groeiende handelsonevenwichtigheid, en de schuld die door twee oorlogen op twee belastingsbesnoeiingen en twee aftrek wordt opgelopen te bestrijden. Dan worp in gezondheidszorgkosten die veel sneller dan een andere sector, afhankelijkheid bij het buitenlandse olie verkopen bij > opblazen; $100 een vat, de infrastructuur die zijn veronachtzaamd aangezien Reagan iedereen om vertelde te gaan schroef zelf, en een begrotingstekort de rente waarop zelfs de Republikeinse olifant zou versperren, en u hebben een explosief mengsel dat rond de pijlers van de economie wordt geplaatst die het allen kan verlagen.
De zekering is lit geweest. Nu wat zijn Neoconmen en het Woedende Recht die over het gaan doen? Schuld Barney Frank voor het dwingen van de banken om leningen aan krediet-unnworthy te maken? Schud ons al beneden meer tijd, zodat zij hun rijkdom kunnen voor de kust overdragen naar rekeningen en in buitenlandse bedrijven minder investeren die waarschijnlijk zullen afsmelten om van de gevolgen van hun hebzucht te isoleren? U gelooft het beter.
De Stenen bierkroes van Ben en zijn ilk willen u in de markt lang genoeg voor hen aan contant geld uit zonder catastrofaal verlies blijven. Geloof zijn optimistische, zelf-dient meststof bij uw eigen risico.