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100 Comments
- inactive, on 09/29/2008, -5/+31future15tbd:
They were all making the same bad bets because these loans were bundled into funds (stocks) that were getting false high ratings. You can thank deregulation legislation by the Republicans for that too.
But, the original lending banks should never have made the loans, right? Well you can thank Republican deregulation legislation for that too. They set up a system where mortgage brokers & loan officers would lie to borrowers & falsify loan information to get the loan through, so they would get their commissions & bonuses, then the crappy loan would get passed onto Wall Street with a high rating which was false. And you can't blame the borrower, because they were told by the lender that they could afford the note & that the note would not change drastically.
I know the real estate lending industry & have seen this coming for years.
It all started with about four pieces of deregulation legislation by Republicans that made predatory lending practices the norm & then it was passed on to our stock market as overvalued stocks, way overvalued. And the bubble became huge, it was essentially supporting our economy, & now its time to stop the crash to create what's called a soft landing, which has never been done before in any country in history (& won't be done).
We're blindly throwing approximately a trillion dollars at a bad debt of 60+ trillions dollars of bad debt without trying to fix the problems.
And the blame falls squarely on the shoulders of the Republicans for their "free market" deregulation policies. The regulations were wisely but there over many decades to prevent this from happening.
- inactive, on 09/29/2008, -5/+27Gee, wasn't that legislation written by Republicans in Congress? Didn't they champion it too? In fact wasn't McCain's head economic adviser the key person who wrote & pushed that bill?
- cutlerite, on 09/29/2008, -1/+21article without the noise (print version): http://www.newsweek.com/id/161199/output/print
- inactive, on 09/29/2008, -5/+18Finally, rewriting the loans is a win-win-win-win-win low cost solution, not a bailout:
1) This would help the real estate market prices level out & even go up eventually.
2) This would not cost the taxpayer almost anything.
3) People would not lose their homes, ruin their credit, & become destitute.
4) This would help the companies that hold the mortgages, because they would start to see an income again because people would be making their mortgage payments.
5) All of the above would be good for the economy & for wall street.
6) This would not be for real estate speculators/investors, it would only be for owner occupied loans.
Why the GOP blocked this is pretty clear, they want to transfer about a trillion dollars of our country's wealth into a few of their friends hands before they leave office. That's the only thing that makes any sense. Just like we have never ending wars based on their lies where they insist on no-bid cost-plus contracts for their buddies' companies (war profiteering) & privatizing the military. They are milking this country in every way they can think of. Next they want to privatize roads, schools. & even water (including rainwater)! Plus they want "free markets" aka more deregulation. - future15tbd, on 09/29/2008, -1/+10Anyone recall the various companies driven to bankrupcy because of "rogue" traders? Societe Generale? Barings? Allied Irish Bank? Anyone remember these derivative losses? Unfortunately, every bank was making the same bad bets.
- inactive, on 09/30/2008, -4/+13Oh. Now that the god damn economy has been wrecked by malfeasance digg decides to pay attention and start front paging articles about credit default swaps. Of all the ***** things....
Too little, too late. Next time pay attention before things go to *****.
Sincerely,
Ron Paul was (and still is) right - Pinkertinkle, on 09/30/2008, -1/+9Let them burn!!
- digggggggggg, on 09/30/2008, -1/+9It's hard to believe that people are being paid millions of dollars for the sole purpose of trying to find loopholes and get around financial regulations. It's even harder to believe that a trillion dollar industry based on these loopholes has flourished.
I hope that these "investment bankers" and anyone else who makes a cushy living shoving around piles of hot money in hopes of quick profits will find themselves out of their positions. Hopefully they'll learn to do actual work like the rest of us do. - fireashes, on 09/30/2008, -0/+8Nice article. Very well written. Explains what CDS are and how were they created. I knew home foreclosure was the cause of wall street failure. It explains what happens in every step and its history and how to deal it in future.
- paintgrl, on 09/29/2008, -1/+8The congress will never do anything that sensible. I was just watching CNN and the report was saying that the republicans
voted against the bail out mainly because Pelosi got up on the floor and reminded the Republicans that Clinton had left a surplus and Bush blew it. I am really pissed that both parties can't stop pointing fingers and try and figure this ***** out before the credit market freezes and business won't be able to make payroll. Both parties need to stop acting like children and fix this huge monster of a mess. - ncsifsf08, on 09/30/2008, -0/+6and who gave these investment banks the right to act as they did......?
- Wosat, on 09/30/2008, -2/+8You're full of ***** Heartland. The subprime market was grown at the direction of Democrats through the GSEs. Is it any wonder Freddie and Fannie were exempt from Sarb-Ox?
If the Republicans did allow all these financial shenanigans, why haven't the Democrats reversed it? They've had 2 years! What have they done??? - RiskAffine, on 09/30/2008, -4/+10If you are looking for someone to blame in this mess, blame the investment banks who hired physicists to run trading desks. There are entire programs at well respected institutions that make it their business to turn 40 year old engineers into quantitative traders ("financial engineering"). As a result, people who had never traded a share in their lives were tasked with running billions of dollars. These financial children were given the keys to the family flatbed truck which was then loaded with gold. They were told to drive 200 mph at what they thought was an even bigger pile of money and when they all rolled over at credit crunch curve we act surprised.
- Wosat, on 09/30/2008, -0/+5FTA: Although he believes credit default swaps have been "dramatically misused," Duffie says he still believes they're a very effective tool and shouldn't be done away with entirely.
So, how is this government's fault again? They didn't invent credit default swaps. They didn't force these companies to misuse them. Why is this Bush's fault??? - inactive, on 09/30/2008, -1/+6I was reading that almost all members of the government have gotten millions in contributions from these banks.
Both Presidential candidates have also received substantial contributions.
We can't be sure who our government serves.
When will we stop trusting the government? - ozel01, on 09/30/2008, -0/+5Um, I don't see anywhere in the article where congress voted onanything to create credit default swaps. Evidently JP Morgan started the process with the assistance of insurance companies.
- inactive, on 09/30/2008, -2/+7Love to see this -- so sick of people blaming "minorities" (***** code word for "*****") for "loans they shouldn't have taken out."
Total outstanding mortgages = 100 billion
Total outstanding derivatives = 1.5 quadrillion (sic) - inactive, on 09/29/2008, -6/+10Anyone who disagrees with me, just vote Republican.
McCain admitted a few months ago that he does NOT make the policies that he spouts, he is told what to say. And he has tons of Bush people & hundreds of lobbyists creating the policies that come out of his mouth.
Just vote Republican & see what happens, again.
- poprocksandsoda, on 09/30/2008, -0/+4People, to highlight the most important point in this story:
CDS free capital locked down by Government ratio requirements. In many ways, third-party guarantees on the nominal are not the real reason to obtain CDS during standard market operations. It basically allows you to take huge chunks of capital from lockdown to do other things. This means that lots of freed capital may be at risk under the covers that we've yet to hear about. - Wosat, on 09/30/2008, -2/+6Credit default swaps are not the root cause of the financial crisis, and it's certainly not the government's fault they were misused. Freddie and Fannie, on the other hand, were created by the government and played a large part in creating this crisis.
- poprocksandsoda, on 09/30/2008, -0/+4Does it really matter who voted or didn't vote or support the market? Both parties sat around and let the fat cats get bigger at our expense. It's time to vote them all out and put some new ideas in the White House and Congress.
- browntiger, on 09/30/2008, -0/+4I disagree. CDS are the primary root cause of this crisis. We bought our house in 2003, from the builder. They wanted to move properties. So I visit builder financial arm and viola: in less than 2 hours 300k NO DOC LOAN, next day house was ours (builder also owned a title dept).
Had it not been for Credit Default Swaps banks would likely be more careful in issuing those loans. If it hadn't been for CDS banks would have been required to keep large cash deposits (in event of default). If it hadn't been for CDSs mortgage securities would not have existed. We would not had 30:1 bank leveraging (also I place blame for that were it belongs: nasty republican party that pushed threw bill to allow it) .
CDSs allowed securities rated and sold as AAA. After all how can they not be AAA? They back by AIG. And AIG is AAA. - LilRabbitFooFoo, on 09/30/2008, -1/+5Some of us have been telling you that Bush has been lying and grafting the American people for 7 1/2 years.
Cheney's buddies got their trillion from Iraq.
Now, Bushy's Boys want their cut before they lose their puppet in the White House.
No bailout. Not one dime. - Taiyoryu, on 09/30/2008, -0/+4When you witness an event like this, I can understand where the criticism against fractional reserve banking comes from. Even after the banks managed to have fractional reserve banking, they still want to find a way to lend the reserves they're required to keep. Take that train of thought to its ultimate conclusion and what bankers want to do is lend money they don't have and pocket all the interest. I understand the appeal, but I'm appalled by the lunacy of such an idea.
- ncsifsf08, on 09/30/2008, -2/+6Nice try Heartland, keep working on those Lib talking points. Remember, practice practice practice. Perhaps you should go back to the "Palin bashing" or "McCain is old posts" and cut your teeth on those first. These stories with real facts are just going to confuse you and hurt your feelings.
- locojones, on 09/30/2008, -1/+5These speculative backroom investment schemes like credit default swaps are clearly among the root causes of the current economic problems facing this country. Yet nothing I read regarding the now defunct bailout legislation offered anything to correct the underlying causes, remaining content that simply throwing money at the problems would somehow fix them. It's hard to call legislation a solution to a crisis if all the legislation does is take the toxic debt while freeing up firms to continue with the same bad behavior that got them in that position in the first place.
I hate being told that a bailout is the "only solution" in existence, when alternate plans like enjoining credit and derivative swaps or rewriting mortgages to reflect current values don't even get discussed, especially when those alternate plans attack the root causes of the problem. - taosbob, on 09/30/2008, -0/+4Exactly, the Commodity Futures Modernization Act of 2000, spearheaded by Phil Gramm, specifically banned regulation of credit default swaps, along with providing a loophole for Enron, exempting over the counter energy trades from regulation. Gramm is a key advisor to McCain. See Wikipedia for the nitty-gritty on this disastrous piece of legislation.
- Hangly, on 09/30/2008, -1/+5You have that backwards. It's Keynesian market-fixing and the Fed that created the bubble, not deregulation. In a completely deregulated economy this bubble would have burst almost a decade ago. Attempts to prop it up got us to where we are now.
- PhilLesh69, on 09/30/2008, -0/+3It fell.
already.
Read the article, or just wake up. - anaesthetica, on 09/30/2008, -0/+3That's actually not hard to believe at all. People will always try to game a system, whether it's min-maxing their D&D character, crapflooding Digg to control the front page a la MrBabyMan, or finding every legal loophole in financial regulations so that you can make an extra buck and pass off the risk to other people.
- inactive, on 09/30/2008, -1/+4@wosat
Eat a bag of *****. Heartland has been on my friends list for a whole 30 minutes. I added him because he tried to make an actual argument, unlike you, you partisan hack *****.
You have the brains of a small soap dish. Grow a sack, then come back and play with the big boys.
I DARE you to claim you are right. Then, after you jerk your own chain, I will post the links that show you are a pud pulling *****.
I look forward to your ass handing. Try some chap stick now, because you are going to get chaffed... - inactive, on 09/30/2008, -3/+62 years, after 14 straight? You are ***** kidding, right? You want the D's to re-write 14 years of *****, at the drop of a hat?
The R's set this up, and the D's were happy to play along. Then, the ***** hit the fan, and both were caught off guard. Now, let's play the blame game.
Quit sucking partisan dick. You might learn something. Go back to 77, then move forward. Education is a good thing. Blind partisan allegiance is for *****. - tekgnos, on 09/30/2008, -0/+3I am so glad the republicans finally remembered that they stand for a free market, and voted this bill down. The democrats bent over and were ready for the Paulson plan.
But partisanship aside, the real problem was when the FED lowered the rates down to about 1%, making this incredible economic explosion possible. Banks had to find ways to lend money.... oh, and they did. They lent it to people who could never pay it back. But you have to do this kind of stuff when money is so damn cheap, at 1%.
All this bickering is blaming the drugies when you should be blaming the drug dealer.
And who regulates the FED? As Ron Paul has said, he can get more information about the CIA than he can about the Federal Reserve. First we need oversight, and then we will probably realize that we need to abolish it. - poprocksandsoda, on 09/30/2008, -0/+3What's important that this article illustrates is that Government oversight is not enough to control the Wall Street beast. Perhaps we should let them all go under and start from scratch.
- paintgrl, on 09/30/2008, -0/+3Ok how big a pair of balls are we talking, and can they be fuzzy? I like fuzzy:)
Good points all also, but I do listen to more then CNN. I also watch/listen MSNBC, BBC, NPR, World News on Sirius radio and Air America. I tried watching FOX, but my eyes and ears kept bleeding form all the evil. - jakkyl, on 09/30/2008, -1/+4I may not be a RP supporter, but I tell you what, you are spot on!
well said and point efficiently made :) - PhilLesh69, on 09/30/2008, -0/+3It's sort of like a reverse "October Surprise".
They figure this is the last chance to use fear and uncertainty to accomplish a goal. - ncsifsf08, on 09/30/2008, -1/+4I differ slightly from Wosat, I don't think you are full of *****...I just think you are a *****!
- Meadow113, on 09/30/2008, -0/+3The credit default swaps are exactly the root of the cause here as much as some of you want to blame only the poor who got loans, and btw it was far from being only the poor, you are ignoring the house flippers entirely and also people buying second and third homes, who agreed to the price when prices were high and simply walked off when the real estate prices dropped.
Bad mortgages made up only about 4 percent of all mortgages written, the problem is the bets against Americans to that so many were making, maybe it would help you to read this article instead of the one posted above, it is a much simpler version to explain this: http://www.opednews.com/articles/CREDIT-DEFAULT-SW ... - PhilLesh69, on 09/30/2008, -1/+4Wosat...
"So if I told you most of the prison population votes Democrat..."
You'd be a misinformed fool.
Unless you are in prison for a misdemeanor or petty crime (in which case you'd more likely only be in jail, not prison), you have lost your right to vote because you were convicted of a felony. Felons cannot own guns or vote. Look it up. Ask G. Gordon Liddy. - Hangly, on 09/30/2008, -0/+3Dugg for mentioning the derivatives. The mind reels.
- predakon, on 09/30/2008, -0/+3It's like art. It's beautiful.
- PhilLesh69, on 09/30/2008, -1/+3Yeah, most of the people I know who watch Fox News are saying it's all the fault of those minorities and poor people buying houses they couldn't afford.
I always ask in retort, "What's worse? Someone who makes a mistake because an expert tells them it will be alright and they'll always be able to refinance before their ARM readjusts? Or an expert knowing it is a mistake and doing it anyway, hoping he'll make a lot of money and hoping if he fails, he'll get bailed out by the stupid, foolish taxpayers?"
They then call me a hippie liberal communist terrorist loving socialist who wants to crash the economy because he hates us for our freedoms. Or something like that. Some sycophantic *****, whatever. - LilRabbitFooFoo, on 09/30/2008, -0/+2You're paying for these piles of junk one way or another. If you think that those Fat Cats are going to be looking out for OUR interests with this money, you're most naive.
PS My money's just fine, thanks. - skealoha86, on 09/30/2008, -1/+3Why doesn't Digg care about this - shouldn't this be THE top story?
- jakkyl, on 09/30/2008, -0/+2give me a break!
ankle bone connected to the knee bone....
this is econ 101. - oldgal, on 09/30/2008, -0/+2The two biggest obstacles to crisis management are hysteria and finger pointing. Unfortunately these are the two predominant characteristics of our current government.
- SundayBrunch, on 09/30/2008, -0/+2it is a good job, the result is as it should be. unless for some idiotic reason the gobament decides to prop up the deflated balloon into a circus tent, then please don't blame the market.
- SundayBrunch, on 09/30/2008, -0/+2if the gobament does loan them all this money, and they fail once again, wouldn't the government then get the actual bad debt and therefore the actual house, so atleast we'll get the some kind of value for our money, all those foreclosed houses. then just sell them at market value, they gotta be worth atleast 400 bil. atleast that's something. It's really not as bad as it sounds, really.
- ncsifsf08, on 09/30/2008, -1/+3Come on Wosat, it's ALWAYS Bush's fault!! Can't stray from the Lib talking points.
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