We may be toast.
Posted on 09/23/2008 11:09:15 PM PDT by dickmc
On Main Street, insurance protects people from the effects of catastrophes.
But on Wall Street, specialized insurance known as a credit default swaps are turning a bad situation into a catastrophe.
When historians write about the current crisis, much of the blame will go to the slump in the housing and mortgage markets, which triggered the losses, layoffs and liquidations sweeping the financial industry.
But credit default swaps -- complex derivatives originally designed to protect banks from deadbeat borrowers -- are adding to the turmoil. . . .
The rest of the article is here and is well worth reading to better understand the proposed buyout and issues.
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It appears that much of the problem is not the bad debt itself as much as the credit default derivatives which can be many times larger than the debt losses due to the way they were sold multiple times by hedge funds. For an understanding of what these are see Credit default swap in Wikipedia.
It would seem, however, that if the Fed were to simply guarantee the present batch of subprime loans (and based on this analysis at http://www.freerepublic.com/focus/f-chat/2088954/posts which might cost $100 billion in future payments for actual defaults), then the $700 billion problem would seem to go away. (Or perhaps I don't understand all this very well.) (This also based on the assumption that you introduce controls to assure that no more subprimes are added to the mix of future loans. Perhaps you also need something to cancel the current derivatives and prohibit the sale of multiple derivatives on the same loan batch? )
What have I missed, or gone wrong, or misunderstood in the above analysis?
(Excerpt) Read more at reuters.com ...
and what’s more, Raines and Gorelich need to be in orange jumpsuits ASAP
The markets weren't allowed to work in 1929 (or before or after). Since we aren't allowed to have a 19th century style panic, our future is serious inflation or a Japan style on and off recession for a decade or two. I don't like any of those choices either, but those are the only choices.
Yes. I think that's why Paulson's legislation said "mortgage-related" and not "mortgage backed" or something more specific. That said, if Treasury is clever enough they can leverage 700B to buy a couple trillion in face value while still protecting the financial system. But the taxpayer tab could still end up being a few trillion regardless.
Democrat Buffett is enriching himself at the expense of the taxpayer bailout.
We may be toast.
Words To Give You Pause On Today’s Economy ( Can we both fix the economy and punish....)
Many on this thread say,...bring it on:
//////////////////////////////////////////////
X ACT LEEEE
after...
25billion FORD GMC ..wasn’t enough, need more
30billion BEAR .....wasn’t enough, need more
85billion AIG .....wasn’t enough, need more
138billion LEHMAN...wasn’t enough, need more(they tried to hide that one)
200billion FANNIES...wasn’t enough, need more
770billion WHO ELSE? and no one will ask the question,” Will this be the last dollar we have to spend”? ....
...........Because it won’t be.
Spend $700 billion, 5 percent of our gross domestic product?
After all this, I say Hell yeah, BRING IT ON.
RUN ON THE BANKS AND STOCKS and show the demonrats and their wallstreet allies who has the power!
Take your money from THE BANKS AND STOCKS
before
THE BANKS take your money from you.
Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves.’’
I intend to rout you out and by the Eternal God I will rout you out. If the people only understood the rank injustice of our money and banking system, there would be a revolution before morning.” —Andrew Jackson,
Friends of Angelo get new invitations — to a federal grand jury ( Lender to Sen Dodd....)
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