Sixty Minutes

Sixty Minutes had another program this evening on those credit default swaps that are causing all the problems in the economy right now. Credit default swaps are totally unregulated. They were also completely illegal for most of the twentieth century. It was in the year 2000 when the very rich convinced congress to make them legal. It was called the Commodity Exchange Act of 2000.

Credit default swaps were a kind of derivative… a side bet. The bet was whether people would default on their mortgages. The rich didn’t have to actually buy the mortgages to make money on them. Instead they bought the swap..which was the same thing as insurance except it couldn’t be called insurance because the insurance industry is regulated.

Then the mortgage market began to fail. Everyone wanted to get paid on those credit default swaps. But there was nothing backing up the swaps. So with such great demand, the markets really began to fail. There was no money behind the "insurance".

The previous regulation was put in place following the great depression. Bucket shops were the latest thing then and people, with a mind to make some fast and easy money, bought stocks with very little down and the rest on credit. This problem today is very much like that one. Now we know why the regulation was put in place initially.

Deregulation., according to Alan Greenspan, was one of his mistakes. In order for deregulation to work, he said recently, you must have honest people and too many of these people who made their fortunes since 2000, had no ethics. Bill Clinton and Alan Greenspan, who was the most powerful man in Washington at that time, both thought deregulation was a good thing. But Jim Grant of Grant's Interest Rate Observer said Greenspan also said there was not enough oversight for it to work. A free market only works when folks are honest.

What are hedge funds? They are an investment company that uses high-risk techniques, such as borrowing money and selling short, in an effort to make extraordinary capital gains. Hedge funds are personal opportunities for only the rich...they are called the Credit Opportunities Fund. They are casino capitalism and let’s face it, capitalism is greed driven. There was a complete lack of transparency in these transactions.

So now who is paying for these rich folks mistakes? We are. The middle class will be paying for the rich's mistakes. Do you think they will suffer for them? Not on your life. It's the pension funds of folks like you and me that will suffer. And our grandchildren will be paying off this enormous debt.

Three years ago, while Bob was gone on a disaster, I decided something unsavory was going on to drive the market up the way it was going. I knew this country had a major recession every twenty years and it was past due. I took what little I had left out and just put it in a CD at 4% interest. At least I still have that.