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View Diary: Our Economy: MASSIVE FRAUD By Mortgage Industry. (269 comments)

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  •  Or worse yet... (12+ / 0-)

    Mr. A takes some subprime loans and rolls them into toxic bonds.

    After buying te bonds, Mr. B also gets a Consumer Debt Swap from Mr. C, as insurance against the bond.  Mr. C thinks he's ahead, because AAA bonds don't fail, so the premiums are free money (that he doesn't have to reserve to cover the policy).  Mr. B is happy because at this point, he can't lose.

    Then, because Mr. C can sell as much of these "free money" instruments as he wants, and anyone can buy them, whether they actually own the bonds or not (all thanks to our good buddy Pkil Gramm), Mr. A then buys three CDS's from Mr. C (since he knows the bond is shit).

    The bond fails, now Mr. C is out a ton, Mr. B can't get his payout, and Mr. A is owed far more than he ever risked (of course, without even the collateral to back it up).

    But Mr. A could have orchestrated the whole thing just for the end payoff on the consumer debt swaps.  But since Mr. C doesn't have the money, he's broke, Mr. B is broke, and Mr. A will never see the money he thought he would get.  And no honest person can come by and borrow from Mr. C, because he's tapped, but e won't admit it as long as he can cook his books to make it look better (wich he can only do until he sells the toxic waste, in order to have cash to lend, but that would end him as a lender).

    Zombified by Mr. A's greed.  But hey, greed is good, right?

    "If the horse you are riding has died, beating it will not make it go any faster."—h/t to teacherken

    by MooseHB on Wed Feb 25, 2009 at 05:42:24 PM PST

    [ Parent ]

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