i notice it failed to mention their base pay...
Posted on 12/25/2008 2:24:43 AM PST by dennisw
Derivatives consultant Janet Tavakoli is onto something. In a note to her clients, she says the biggest Ponzi scheme of all may be the one that brought the world financial markets to its knees. That’s the scheme that united Wall Street bankers with mortgage lenders in a bid to funnel more and more money into the market for supbrime homes loans. She says packaging of iffy home loans into securitized bonds that could be sold to insitutional investors—many of them relying on borrowed money—was a system born to fail.
“The largest Ponzi scheme in the history of capital markets is the relationship between failed mortgage lenders and investment banks that securitized the risky overpriced loans and sold these packages to other investors—a Ponzi scheme by every definition applied to Madoff,” says Tavakoli. “These and other related deeds led to the largest global credit meltdown in the history of the world.”
About a year ago, BusinessWeek made a similar point in an article about the two Bear Stearns hedge funds that collapsed in June 2007 and helped spark the credit crisis. The story focused on a novel type of collateralized debt obligation that the managers of the Bear funds used to tap funding from money-market funds. The CDOs which were widely copied on Wall Street helped fuel the market for these esoteric securities, along with the underlying housing boom.
In that article, BusinessWeek likened the new market that the Bear funds helped inspire a pyramid scheme. Or, as Tavakoli says, a Ponzi scheme.
Hallmark of Ponzi scheme is an investment vehicle that generates consistent, steady returns. This discourages investors from pulling too much money out of the fund—the event that ulimately causes a Ponzi scheme to collapse. Wealthy people showered money on Madoff because his fund generated predictable returns—rain or shine.
(Excerpt) Read more at businessweek.com ...
It's never worked, long-run, before. There has never been any reason to believe that it could work, long-run, here and now.
As the eugenicist nihilist homosexual Keynes said, though, in his advocacy for government stimulus using a debt-based currency "in the long run, we're all dead".
Unfortunately, although Keynes did not reproduce, heterosexuals continued to do so, the long run is here, and we're not all dead.
So, we have to live through the inevitable unraveling of the money system, the collapse of the dollar, the loss of all savings, and the resultant social unrest.
We now must choose whether to empower producers or consumers of value.
The American people, weaned from mother's milk on consumption without production, have chosen a communist to lead us through this crisis.
He will, of course, fail.
Within two years (or less), power will, as they say, be lying in the street. Will we be ready to pick it up?
I know that but I think people will smell a rat especially in this lousy economy
It's very hard to make people believe that a real cold winter is caused by global warming
Donate "more" to what? We don't pay SSN for children now, it that what you are saying? I guess anything is possible, but taxing children will cause the scheme to collapse even more quickly.
ping
i notice it failed to mention their base pay...
sorry bout my last post#45, i reply'd to wrong thread... my bad.
What I’m saying is making “parents” pay in more from each paycheck for each child they have, taxing them for having children.
It used to be that mortgages were the safest thing to buy. Making them risky investments was the first step. Had this not occurred, the derivatives of them would not have been such a house of cards, ready to fall when housing prices inevitably stop their rapid rise.
So, it’s the combination of causes. Had these derivatives been based on solid mortgage lending, then their rating would have been proper and the collapse avoided.
IMHO, of course.
I don't think so, the no regulation and no over sight republicans, led to 500+ trillion derivatives out of how much in mortgages. The financial companies after Gram leach were creating money with no backing.
What's the backing when a bank makes a loan? It's "creating money" too. There's a risk and interest involved. My understanding of derivatives is that they are basically ways to further spread out the risk, charging interest, etc.
As for lack of regulation or oversight: Certainly many of the mortgages shouldn't have been made, and they were further over-rated; the whole thing was held up by increasing home prices allowing re-financing on increasing "equity" and a snowball effect - until the housing prices eventually stopped their rapid rise, which was inevitable. Oversight was lacking throughout, on purpose in the case of the mortgage instruments which government bears the majority of the blame for, by requiring bad loans to be made - somehow.
My point is there is a chain of events here, starting with what used to be a solid investment (derivative or not), mortgages, becoming a "risky investment" as the article refers to.
Each link is required to make the chain that finally broke. Each link shares in the blame.
thanks for your reply...
I should add in the AIG piece, the “insurance” on the top of the chain. Way bad.
However, again, had much of the underlying debt, the bad mortgages, not been crap held up only by rising housing prices, the “insurance claim” would never have come due, and the collapse avoided.
Each piece is required for the collapse, but all rest upon the first piece: the risky mortgages.
The way you say that using the word “more”, implies that we already pay a tax for children. I don’t see any evidence of that.
The people behind this should be jailed - NOT bailed out.
You would think, but then I never thought oblama had a prayer of winning either....
10% of $7 Billion sure sounds about right.
There are some interesting conclusions drawn from this posted earlier on this thread.
However, the cascading growth of money, from banks that lend out more than they have, and borrowers depositing this lent money, which gets lent out more than it’s value and so on, is a characteristic of the system - an underlying default topples more than its asset value.
If you wish to regulate that away, then you’d have an economy a fraction of the size.
To be briefer: that an increase of 5-10% in the default rate could cause major havoc in credit markets is not surprising. Particularly when coupled with panic and/or loss of confidence. This doesn’t change the circumstances causing or the reason for it occurring.
I believe, and it’s only a belief, that we are at the point where psychology, specifically fear, panic, loss of confidence, is becoming the major factor prolonging the economic downturn.
I have to remind that defaults are part of the collapse. Remember there’s links in this chain. These instruments were also over valued, and they are marked to market. In addition to total loss, in a default, you have a crashing of value of the remaining assets, in this case extremely high loss, extremely quickly.
10%- That's what I have read too
I've read the sub rime mortgage mess is/was relatively containable at one trillion dollars to clean up
Now we are at 8.4 trillion in bailouts and it to contain derivatives disaster which is mostly credit default swaps
Credit default swaps are Wall St mischief that have nothing to do with mortgages....
Except that both took place during a manic era
**** When the tide goes out you find out who's been swimming naked -- Warren Buffet
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