I'm trying to process this financial disaster, like everyone else.
A few key items seem to lead to the answer, and I'm afraid our legislators are missing the big picture.
- A recent diary (or a few) pointed out that the mortgage market, in total, was $7 trillion. Meanwhile, the financial derivative market totalled $47 trillion. That makes no sense, on it's face. Right?
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- Inky99, points to a Ben Stein article explaining that a lot of these derivatives are betting against the mortgages getting paid, with huge payouts. Here: http://www.dailykos.com/...
- This could explain the collapse much better than late or missed mortgage payments. The companies were booking future payouts from these high-payoff gambles, and the value of the securities were increased based on those expectations. However, no one can possibly payout those bets -- when they materialize.
So, now we have securities who are expecting to collect AND PAY OUT huge bets against and for mortgages.
My question is this: Is the government buying junk assets, or huge debts? If these securities do have exposure to the insurer side of these contracts imbedded in them, then they could be far worse than worthless.
Long story short, THE GOVERNMENT SHOULD NOT AGREE TO PAYOUT BETS AGAINST THE MORTGAGE MAREKT!!! All of these items should be stripped from these securities before you buy them. This could be a huge timebomb, and it's the only reason I can figure that the derivative market around housing could possibly be worth 7 times the mortgages themselves.
Be careful, dems. Be very, very careful. Don't be the biggest suckers in political history! You better be damn sure of what you are buying, before you buy anything.