[politicket]

Ben Stein blasts it out of the ballpark in an easy to read format. I pray that people will read this and truly understand the gravity of what is actually happening. Congress and the President are not being straight with us.

[palmer]

So Stein capitulates. He has written much incoherent trash about the economy and how wonderful it was with cheap credit for everyone. Now he has realized, a bit too late, that cheap credit causes long term problems although I’m still not sure he sees the connection.

[randita]

I’m at the Economics 101 level. Can someone explain, in layman’s terms what Credit Default Swaps and derivatives are?

Thanks.

[Perdogg]

I am still confused about CDS. Is this same concept, let’s say, a collection agency buying a debt at a discount to go after the debtor?

[skeeter]

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. (In fact, they can be so large that one might well wonder if the whole subprime fiasco was not set up just to allow speculators to profit wildly on its collapse...)

According to Stein the max value of foreclosed mrtgages is 250 billion. The other 450 billion is for whom?

And we're asked to bail these guys out.

[good1]

I still don't understand it. I need someone to start with: Joe Poor wants to buy a house, but doesn't have any money or job. His bank lends him the money anyway. It seems to me that the guy who stamped "APPROVED" on his loan application just co-signed for Joe's loan.

Someone take it from here and explain the rest to me. I couldn't follow Ben's explanation.

[Kevmo]

OK, here’s a question I’ve been afraid to ask. It looks like this crisis has been building for a long time. What are the chances that the TIMING of this crisis was manufactured for most impact against republicans in this election? How would we go about verifying something like that?

[Jim Robinson]

How did it happen?

Here s one big part of the answer. 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. (In fact, they can be so large that one might well wonder if the whole subprime fiasco was not set up just to allow speculators to profit wildly on its collapse...)

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.

Now these greedy high rollers want the taxpayers to bail them out? F'em. I feel sorry for the tens of millions who are going to lose their retirements, but there are also tens of millions of us who are going to have to work until we die because we can't afford to retire. Yet they want to waste untold trillions of dollars of tax money (our money) to bailout the greedy thieves? Hell NO!!

[counterpunch]

The only answer is to outlaw financial derivatives such as Credit Default Swaps retroactively, and nullify them.

[Joan Kerrey]

Whatever but I’m still in shock and awe that so many financial gurus, world class economists, CEOs of huge corporations and CFOs the world over and all areas of government, oversight committees, regulators were caught in this debacle for so long. I ain’t got no economics degree but I was taught that 1. There is no free lunch and 2. If it’s too good to be true, it probably isn’t true and 3. You can’t get something for nothing forever. Some simple farm economic theory from my dad who didn’t finish 8th grade.

[Lancey Howard]

This is an amazing article by Ben. Thanks for posting.
I think I am finally getting a clue as to what this “bailout” mess is all about.
Should I grab my ankles yet?

[444Flyer]

After this bailout...then what? Our nation morphs into complete socialism overnight. There will be no turning back then. I'll take my chances on losing all my equity, 401k, and other investments for the sake of keeping my liberty, and the liberty of my children, thank you. I'll go hungry, I'll sew my clothes but I will not so easily hand over everything that has been fought and bled for over the last 230+years. And I certainly won't willingly just hand it over to the robber baron monkeys of Paulson and his ilk who helped to get us into this mess to begin with.

[uncommonsense]

I’ve always said that accounting and finance is a black art - witchcraft, potions, and other poisonous concoctions. Obfuscation, abstraction, and 20 degrees of separation will get any P&L or balance sheet to where the executives want it to go - regardless of reality.