I'm not an economic idiot -- I remember what "elasticity of demand" means -- but I may be an economic special-needs person. Even so, there's one fact about the current credit meltdown that seems to be escaping a lot of attention. I know President Bush wants to solve the problem, and leave the process of finding out how the problem came about for later (maybe four months down the road?), but my needs aren't that special.
So here goes: the key to the process of wrapping questionable mortgages together in fancy financial packages and selling them to financial institutions far away was making those packages attractive. What better way than to turn them into bonds rated AAA, the same rating given to bonds issued by our strongest corporations and best-managed cities? But how does that happen? It would seem to be like turning dross into gold, the old alchemists' trick.
Enter the bond-rating agencies, the folks whose job it is to signal to investors which bonds are golden and which are junk (even junk bonds had their day, although it was in the 1980s). So what possibly convinced these normally sober ladies and gentlemen that financial instruments that basically turned slices of questionable mortgages into "securities" deserved a triple-A rating? I'm all ears.
Maybe Carly Fiorina could explain it to me.
Danger is imminent. Action is required now. There is no time for debate. There is no reason for oversight.
We are still mired in a war without end in Iraq from the last time Bush and his stooges demanded immediate, unlimited authorization. What will it bring this time?
I vote NO. Bring us a better plan.
No amount of regulation or deregulation can reign in creating money out of thin air.
"Allow me to control and issue a nation's money and I care not who writes its laws!". Amshell Rothschild.
we have a left wing and right wing socialist plutocracy. they're just fighting over which arm to thrust the needle into.
meanwhile we wear our red and blue capes and argue over who can save us. they answer to the same new world order bosses.
we're seeing it unfold.
peace
This"
http://www.villagevoice.com/2008-08-05/news/how-andrew-cuomo-gave-birth-to-the-crisis-at-fannie-mae-and-freddie-mac/2
if I give my good real hard-earned bucks to pay for the stuff inside the box,
if the seller takes my money and hands me the box with the stuff inside,
And if when home I open the box and find sh*t in it,
I won't call the seller an alchimist, but a liar and a thief.
In civilized democracies, those who lie and steal for a living and on such a large scale are sent to jail.
over the money.
One of the most shocking statements I recall from the ratings agencies was that irrespective of the rating assigned to any product rated by them, those ratings were not guaranteed for investment purposes (please insert my bugged out eyes here!)
Until there is sufficient reform of a) the ratings agency role and b) the regulatory oversight required of financial institutions, I would not drop a dime on any of these firms.
On another note, if anyone thinks 700 billion will be enough, think again. Our Treasury Department thought 85 billion would be enough last Tuesday to backstop AIG, by Friday it was talking 1 trillion. Cleary, those in charge are no better than feces slinging monkeys. Sorry for the visual.
So, the smartypants whiz kids of Wall St. snuggled up into bed with Moody's and S&P and said, "Here's the underlying calculations." Fifty pages later, with their eyes rolling back in their heads, Moody's and S&P said, "Well, this looks good on the surface, but..." Then the smartypants whiz kids handed them lots of money to do the analysis, and it started to look better.
And, so it went, until Uncle Hanky came to the rescue after he saw that US housing prices can actually fall down all at once - especially when demand artifically pushed prices higher at an unsustainable trajectory.
So, nite nite, little Harry, and sleep well, won't you?
Well, Harry dear, you must dig just a shovel or so deeper to see that the premise for going into to the mortgage business in the first place, was that at no time (before now) had the value of US residential real estate gone down simulaneously. Using that premise, you see, investment bankers could go into the mortgage banking business, package loans, and slice them up into tranches and sell them as AAA-rated instruments based on the fact that they were comprised of geographically diverse pieces of US real estate - that, as we mentioned before, had never gone down all at once.
You see, when New England real estate goes down, surely Florida will go up, and all those little positive corollaries will certainly offset any regional difficulties.
And, hey, wait! You know what? We can outbid those stodgy bankers for mortgages - with their 20% down, no more than 30% of gross income, blah blah blah underwriting standards - and get THEIR business, too. Here's how it will work. Since the underlying value will always be rising (on a national level), even 100% financing is not risky, because the asset value is going up. Hey, we don't even need to check borrowers' income. And we'll design low initial payments that will adjust upward, too. Heck, their incomes will rise; and even if they don't, the real estate value will rise, and they can sell at a profit.
Anyway, the best explanation of this whole fiasco that I've heard yet was on This American Life - the show is called "The Giant Pool of Money" (don't know the show number, but you can find it in the archives). They covered this issue in the show.
The conflict seems pretty obvious. You have to wonder why the idea of simple regulation is so unpalatable to people.
CSWSGOB #1: "You sure this will work B.S.?
CSWSGOB #2: "Hell yes. Dubbya says he's on board. Besides, Karl says give him a couple weeks and we won't even need the paint to convince people this is BULLion.
No bail out without reinstatement of all previous oversight laws plus some extras. Severe limits to CEO salaries. No golden parachutes. You fail, you get less money--not more. This is our money--return any monies recovered to the taxpayers. Break up these big money corporations much in the way Ma Bell was taken apart, but even more so. Too many eggs in too few baskets.
BTW any comparison between some poor average Joe over extending himself on his house payment, and this Wall Street debacle of greed and ineptitude is ludicrous.
EXTRA IDEA #1: We'll need considerable extra monies for our returning veterans. Ask the war profiteers such as Halliburton to ante up private funds to help veterans programs. Shouldn't those who profited so greatly be glad to help those who gave so much? The private sector could show their patriotism here. Dick? Dick Cheney, are you there?