This whole bail out thing mystifies me. Something has seriously gone wrong and no one is telling us what it is.
If I loan 10 people $200,000 for a mortgage and 2 of those people (20%!) default and their houses are now worth 160,000 (20% less!) and I have to eat the $80,000 loss (assuming that they had no downpayment) my net loss on my investment so far is 4%.
Banks loose 4% of their investment and we have to bail them out? No way. Something else is going on.
So they talk about default credit swaps but in the above instance that would help me. It would be the people who are on the other side of the swap that would be out some money BUT they would have made money on the 8 mortages that didn't default. So how can that be the case?
I have heard that some of the arms of the banks borrowed money at a 30:1 debt to asset ratio. They borrow the money from the Japanese at 2%.
Now if you take a 4% hit and get hit with currency devaluation, maybe I can see this happening.
Real banks have strict rules on asset to debt ratios. These investment banks have none....might as well let them fail. Interestingly, a few months back we had five major investment banks. Now we have none.
The whole thing makes me sick and they just are not telling us anything. Iraq War Part II is how I see it.