Sunday, October 5, 2008

Credit Crunch

Anyone who watched Sixty Minutes this evening heard the interviewer interview some very astute financial experts as they explained exactly how the unregulated markets got into the mess they are in right now. This is a shadow market believed to be worth around 50-60 trillion dollars. This is 4 times the national debt.

They bundled the very worst of the sub prime mortgages and tried to sell these risky packages off to buyers. In order to insure the sale, they also sold something called credit default "swap". This was really an insurance but it could not be called insurance because if they called it "insurance" it would be regulated. So they named it "credit default swap". There were no capital reserves to back up these swaps.

Those we know who participated in this unethical behavior were the CEOs of AIG (with their 85 billion dollar rescue), Citigroup, Lehman Brothers, Merrill Lynch, Bear Stearns, and Morgan Stanley. There may be others who have not surfaced yet.

This Shadow market is hidden from the public, the government and even government regulators. These CEOs were dealing with sums and packages of sub prime loans that they did not even understand and had hired physicists to try to explain them with formulas. These CEOs, who were paid multimillions of dollars were not very good at their jobs and in order to enrich themselves, were taking huge risks without any capital to back them up at all.

Now, we are spending $700,000,000,000 of foreign borrowed, taxpayer money to bail these people out. Does anyone see any sense in this entire bailout mess? I do not think it will work and I believe we will be asked for even more money at a later date and I believe these CEOs, our foreign lenders and foreign banks who bought into this mess , will end up getting the bulk of the money. Mark my words!

2 comments:

Judy said...

Margie, I think this is only the beginning. When the money is gone we will be right back where we were and the same practices will be practiced. I got online to find out if my representatives voted for or against this bailout. Our congressman, Ben Chandler, voted against it both times and this is what he put on his website: "The US Congress stands ready to spend an unprecedented amount of taxpayer money with absolutely no assurances that this plan will work. The people responsible for this situation, including big Wall Street investors, are the very same people who are demanding immediate action paid for by the American taxpayer. Instead of taking the time to discuss alternative solutions, I am worried that all we are doing is kicking the can down the road. I am deeply concerned what this burden of massive debt might mean for middle-class, hard-working Kentuckians and their children and grandchildren.” He is a democrat, too.
Mitch McConnell, Senate Republican Leader from Kentucky voted for it both times. He is up for re-election right now. He will not be getting my vote!!

Margie's Musings said...

I think Rep. Chandler is absolutely right. This is only the beginning of the mess. The European markets are falling all over the place. I am afraid our days of being a major power are gone...along with all our prestige.