What Cooked the World's Economy? It wasn't your overdue mortgage.

The Village Voice ^ | James Lieber

[Tempest]

The basic story line so far is that we are all to blame, including homeowners who bit off more than they could chew, lenders who wrote absurd adjustable-rate mortgages, and greedy investment bankers.

Credit derivatives also figure heavily in the plot. Apologists say that these became so complicated that even Wall Street couldn't understand them and that they created "an unacceptable level of risk." Then these blowhards tell us that the bailout will pump hundreds of billions of dollars into the credit arteries and save the patient, which is the world's financial system. It will take time—maybe a year or so—but if everyone hangs in there, we'll be all right. No structural damage has been done, and all's well that ends well.

Sorry, but that's drivel. In fact, what we are living through is the worst financial scandal in history. It dwarfs 1929, Ponzi's scheme, Teapot Dome, the South Sea Bubble, tulip bulbs, you name it. Bernie Madoff? He's peanuts.

[familyop]

"1.2 trillion doesn’t cause this level of problems in a global economy!"

But imagine the base of an enormous pyramid, where that 1.2 trillion is the portion at the tiny top. And consider the mentions of bucket shops, boiler rooms and "insurance" again.

[Post Toasties]

20%? That's terrible.

A much better article posted in FR than this one is "A better way out of banking morass" written by Ira Stepanian who proposes a workable solution, not this article written by some Leftard with zero financial credentials who wants to keep the disastrous subprime mortgage lending structure intact and suggests throwing people in prison and getting rid of all derivatives the latter of which particularly is nothing but an ignorant pipe dream.

[Tempest]

Wow you didn’t even read the article. You’re just like an attack muppet.

[A message]

I believe it is.

CRA - loaning money to those you know can not pay it back.

Hedge Funds and derivatives — ready to reap the rewards of the defaults.

This administration won’t put a stop to it. 0bama has just reshuffled the deck of cards with his cabinet appointments.

Isn’t it just amazing( /s )that Geithner, a Rubin protege, is also a tax cheat too. But oh our lice ridden congress couldn’t come up with a reason not to confirm him.

[xtinct]

If AIG based itself in London in order to avoid U.S. regulation of the insurance industry... then why were they given any bailout money.

U.S. government, it seems to me, should have let AIG go down in flames.

Appreciate it if someone who's financially saavy could explain why the U.S. bailed AIG out... :o)

[Post Toasties]

How's this? Let's concentrate on fixing our own economic problems first, which are not equivalent to the whole world's, as I'm sure you would agree.

It's basically silly, not to mention impossible, to try to fix the world's problems for them. They wouldn't let us if we tried, on top of that.

And even you apparently agree that the dead ender author of this piece doesn't have any workable solutions to offer. Mostly because he doesn't have a clue in the first place.

*sigh*

[neverdem]

OK, Bloomberg is at the root of derivatives, collaterized debt obligations(CDOs) and credit default swaps(CDSs). It's not a total loss, so far.

What Cooked the World's Economy? I'm trying for the printer friendly link.

Losses have been estimated at almost $600 trillion. This is beyond absurd.

[SeeSharp]

It also emphasizes how large the issue is and how free market deregulation opened up a can of worms.

Nonsense. What free market deregulation? The financial services industry is one of the most heavily regulated industries ever to have existed. Government regulation and currency inflation crated this mess. The market had nothing to do with it and is our only hope now.

[Post Toasties]

To: Post Toasties Wow you didn’t even read the article. You’re just like an attack muppet.

Wow that's not true. I read the whole effed up thing.

It wouldn't surprise me if you continued to attack me personally which is not advisable in this forum.

[meadsjn]

not this article written by some Leftard with zero financial credentials who wants to keep the disastrous subprime mortgage lending structure intact and suggests throwing people in prison and getting rid of all derivatives the latter of which particularly is nothing but an ignorant pipe dream.

"Throwing some people in prison" would be far too merciful. Governments are collapsing, several nations are experiencing massive civil unrest, and most likely many people will die because of this financial mess.

What would restore some confidence in the markets and governments is hanging the corpses of these corrupt bastards from every lamp post up and down Wall Street and all over Washington, DC, and leave them hanging for the next few centuries.

[expat_panama]

We need to stop spending, start saving, pay off our debts, and become far, far more productive.

That's what most people say after reading leftist rants from the Village Voice.  Reality is that Americans are already saving --too much.  Last Friday's BEA report on the GDP has spending dropping by twice the drop in incomes and this has become a major part of the problem.   

However the biggest part was foreign trade: exports are down 20% (imports are down too but that drop raises the gdp).   Of course, we won't see that in the Village Voice because they're a bunch of lefty protectionists whimpering about "deported jobs with NAFTA".

[Tempest]

Bloomberg agrees with the assesment of a 500 trillion dollar value for the CDO market.

http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aYdE4_qKZF94

You see attacking you with “facts”.

Please continue with your conjecture...

[tallyhoe]

You better start looking at Congress! Charles Schumer, Chris Dodd, And Barney Frank to name a few! They are the ones that help come up with the idea that everybody could afford a house if they had a job or not. Don’t discriminate!

[Vet_6780]

The credit cycle is irrepressible because through the federal reserve system the economy can create debt but not enough interest to entice investors.

Credit levels increase until there is not enough money to pay the interest then investors back off and credit levels unwind.

The faster the cycle ends the faster the next cycle can begin. Unfortunately government intervention is prolonging the cycle as it did in the 1930s and most recently in Japan.

[RegulatorCountry]

You do understand that the sub-prime mortgae default rate is less than 20% don’t you???

This topic has been argued at length on FR. Subprime mortgages are just a small fraction of the "problem," yes. But, they just so happen to be the "problem" that caused the whole mess to start tumbling down.

Subprime mortgages, Alt+A mortgages and conforming mortgages were sold, divided up into tranches, sold, and resold again. There was insatiable demand for mortgage backed securities. When the backing for these securities could no longer be properly valued, due to declining values in real estate, as well as the inability to calculate an income stream from mortgage payments, everything began to freeze up.

So, subprime mortgage defaults did not so much cause the economic nightmare we're in, as they put the whole thing into motion. The straw that broke the camel's back, so to speak.

There are very informative articles and discussions here on Free Republic, as I mentioned.

[bluejay]

What would make you think that Village Voice has anything intelligent to say?

The free market system is designed to punish mistakes. It works. The writer of the article wants to remove free market and replace it with authoritarian government-controlled enterprise where mistakes, or perceived mistakes, will be punished by criminal code.

It did not work any where it has been fully implemented. Soviet Union perished. China realized that it has to liberalize or perish. Europeans are trying to do it half-way and got consistent 2-digit unemployment and growth rate half that of United States. Why would we want to emulate Europe, Soviet Union or pre-liberalization China?

[dixjea]

OMG this makes me angry! It needs to be sorted out and aggressively prosecuted! Where is our AG? These derivative sellers and “counterparties” need to give back. Especially in cases where there was “replication”.

Obama has sooooo much money, given to him during the election, much of it from financial Wall Street types. Man, I hope he is not so beholden to them to not prosecute.

And, yes, the Clinton signed, CMFA (Commodities Futures Modernization Act) of 2000 needs to be repealed.

I want to see Joseph Cassano in cuffs and Brooksley Born as Attorney General, with Black as his first assistant.

These names need to become household words.

[samtheman]

I’ll have to print this out for later study.

Interesting that you say this. I too want to set aside some time later today to read this whole article. And in the past I too would have printed it out.

But nowadays, my transformation to a screen-head is complete. I will read this whole article, but I'll read it on my screen, much more comfortably (especially since I'll be able to look up things easily when I want to) than if it were printed out.

Sorry for the off-topic but I couldn't help noticing what you typed. I'm not criticizing you, I'm just noting the change in myself.

[UCFRoadWarrior]

Thanks for posting...

The VV is a liberal rag...but this author does make some points.

It is quite obvious that the housing market crash was not the main reason for the financial collapse. With all the bad loans...you are looking at 300 billion, at most....which does not explain the over 1 trillion loaned...and the trillions more proposed

I agree that the best solution is to let the banks fail. There are financial institutions that are not bad and they will assume the assets...without govt subsidy

The fact that we are now subsidizing the world’s financial system is scary....Marx couldnt have envisioned such govt takeover so quickly

[Roscoe Karns]

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