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Ping to Lesson 2...
Thanks for the illuminating commentary. Of course, the "underlying debt" wasn't supposed to "go bad" any more so than accounted for in the models. Three things come to mind:
1. Fraud: A lot of the MBS used for the CDOs may have been created and marketed dishonestly by realtors, appraisers, LO's, bank officers and Wall Street bundlers.
2. Ratings: Even if S&P and Moodys and Fitch acted in good faith rating this stuff (not a sure bet given the incestuous relationship with the IBs, etc.) you can't model fraud.
3. Exchange: Maybe $60 trillion (notional value) of derivatives floating about, but an unregulated and opaque market at best. Getting these instruments on an exchange with rules and transparency might have discouraged excessive risk taking and would at least have kept bankers, Fed chairmen and Treasury officials from fumbling blindly in the dark.
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I need to learn more before opening my mouth. Thanks for sharing your knowledge and experience!
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??!?!?!?! I was nodding my head and not too worried until I read this line. That's insane. It's like being able to take out auto insurance on a car owned by a guy you don't like, and getting paid if he crashes because you cut his brake lines. And to make things even better, you have a nice handy CDO label of cars whose brake lines are already cut!
It is clear as mud that our 'representatives' knew that they could play the system to the tune of trillions and the only thing that put a halt on their greed was the proverbial well runnin dry...ie worthless paper...
sad fact is that the well has been essentially dry for a very long time, and I believe the smoke & mirrors couldve ran for much longer had it not been for an empty suit needing a bounce...
to me it doesnt really look like theres any 'real' value in the market, all bubble, no solid, unless you can 'bundle' ALL the property in the country to cover it...
premeditated, treasonous thievery by 'elected' scum, all of which need to be stripped of every RED cent they stole and buried under the prison...
That is, you seem to be attacking the philosophy underlying the creation & operation of the derivatives markets. If so, then it appears you are blaming "greed" & advocating greater regulation; isn't this what Barney Frank and other Dems are claiming?
The real issue isn't the derivatives markets - they should be allowed to operate in any legal manner as they choose - these are PRIVATE contracts.
The real issue was government involvement in lighting an inflationary fire. They achieved that by dictating to private markets that they abandon traditional lending principles in favor of public policy driven mandates.
You understand how the markets operates, but you're either waiting for Part 3 to reveal the true driver, or don't care to address this issue.
getting informed.
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