Tuesday, Sep 23, 2008
why not try, for once, a trickle-up approach?
The Mortgage Lender: The Great Financial Do-over
If we're going to start handing out Free Money, is this the only way to do it? If the problem is the collapse of the housing market, leading in turn to a collapse of these absurd credit default swaps, why not try, for once, a trickle-up approach? Spending nearly a trillion dollars to reduce foreclosures and homeowner debt would have a huge economic impact for the general public -- and it would help teetering credit default swap owners by increasing the value of those assets, or at least limiting the exposure from them.
Posted by malct @ 04:56 PM (383 views) Add Comment
9 Comments
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1. jonb said...
Why not?
Because it rewards people who borrowed too much money, and also stops the houses being repossessed and sold off cheaply.
2. inbreda said...
jonb is right. It is absurd. But not as absurd as giving the money in a trickle-down fashion. And as for giving it as a reward to the wealthy bankers who created the mess!!!!
I think people are starting to realise the absurdity of the situation. Never know - maybe this time the apathetic public will say enough is enough and let the rich drown. The world would be a better place for it.
3. drewster said...
Nice post. The blogosphere is getting really p*ssed off about the proposed bailout! Will it have any effect on Congress?
Also interesting to see that Phil Gramm, the same senator who repealed the depression-era Glass-Steagall Act (designed specifically to prevent a repeat of such events), is now a vice-chairman of UBS. The entire US political system is corrupted by big business.
4. jimmy_joe said...
> why not try, for once, a trickle-up approach?
For ONCE?
All of capitalism is trickle-up. The reason we're so screwed is that there's so little left to trickle. They only call it trickle-down because their chart looks like this
PEASANTS
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BANKERS AND POLITICIANS
5. mark wadsworth said...
What Jon B says.
I probably agree with Jimmy Joe as well.
6. shipbuilder said...
Well said Jimmy_joe, I think.
7. Toto said...
I think people shouldn't talk about what they don't know. There is no relationship between credit default swaps and housing problems. May be the author wanted to talk about CDO instead of CDS, but even if the acronyms are close, the letters "CD" mean something completely different: Collaterized Debt Obligation in the first case and Credit Default Swap in the second.
Sometimes peopletalk about the total sum of CDS notionals, saying it's a huge amount, but you have to realize that a CDS is just an insurance for bonds. It's as if you were looking at the total amount of insurance for cars, houses, jewelry of a country. It is big too, and what does it mean? nothing.
Believe me, I am working in CDS trading, and that's a very active market currently, and you should be happy to have it in order to fund projects that create your jobs.
8. shipbuilder said...
Toto - what happens when the insurance must be paid out, but can't? I think that's what people are concerned about. My understanding of it comes mainly from the article below -
http://www.financialsense.com/fsu/editorials/amerman/2008/0502.html
Are you saying this is wrong?
9. goweresque said...
Toto - the difference is that my car is insured once, by me. The CDS system is the equivalent of me crashing my car, claiming on the insurance, and loads of other people getting the same payout as well. And the insurance company discovering that people crashing their cars is a lot more likely than they thought. Too much debt was underwritten by CDS when the risk of default was considered almost zero. Now, well, we know better. Many companies thought the CDS fees were money for old rope. Now that rope is returning to hang them. AIG was one such company. It won't be the last either............