Saturday, Mar 07, 2009
Desperate attempt to keep the plates spinning
Washington Post: U.S. to Invite The Wealthy To Invest in The Bailout
The government is seeking to resuscitate the nation's crippled financial system by forging an alliance with the very outfits that most benefited from the bonanza preceding the collapse of the credit markets: hedge funds and private-equity firms.
The initiative to revive the consumer lending business, outlined by officials this week, offers these wealthy investors a new chance to make sizable profits -- but, thanks to the government, without the risk.
Posted by devo @ 12:40 AM (482 views) Add Comment
9 Comments
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1. devo said...
From the comments:
Why would the government lend money to these outfits if they are supposed to have "huge cash piles" that can be put to work?
What is wrong with the government, and more importantly, with the American people. When are they going to say ENOUGH?
This is supposed to be a government of the people, for the people, not corporations.
Banks can create loans using the fractional reserve system. there are tons of solvent banks and credit unions out there that could do much more with any money from the government than f*g hedge funds, who'd probably bet it all on the government failing.
This is taking the desire to save a dying system to ridiculous lengths.
2. devo said...
off topic (sort of)...
The current NOTIONAL (face) amount is likely around $1.4 QUADRILLION for ALL types of derivatives. Yes, these are just like term insurance and the premiums are usually in the 1% to 2% range of nominal value, which is precisely why NULLIFYING THEM AND RETURN THE ORIGINAL PREMIUMS cleanly and simply and very inexpensively reduces the potentially explosive mound of derivates to a mere molehill in one fell swoop - and nobody loses.
The only loss from this approach is a transfer of the risk insured by the derivatives back to the original parties of the dodgy contracts (such as CDS and CMO contracts) which is where the risk should have remained in the first place. Without risk, people who engaged in these instruments had no discipline. With risk on their backs, it is doubtful they would have engaged in doing this securitization in the first place.
It needs to be noted that many derivative contracts (perhaps a majority) have been issued to people with no "insurable interest" whatsoever in the underlying transaction. That itself is a huge problem with derivatives. In a life insurance contract you cannot buy a life insurance policy on a person that is not you or in which you have no insurable interest (valid extensions would be a family member, company employee / key executive, et al.). You cannot buy a life insurance contract on an unrelated person. But in derivatives this is exactly what was done en masse, and I would say that itself should have been (and should be) absolutely prohibited.
3. devo said...
Source for post 2:
http://www.marketwatch.com/news/story/
The-700-trillion-elephant-room/story.
aspx?guid=%7B024DB809%2D8506%2D4AA9%2D83BB%2DB053FD4E1C11%7D&dist=SecMostRead
4. crunchy said...
3. devo
How does it feel to be a doomed asset?
5. devo said...
. crunchy said... 3. devo How does it feel to be a doomed asset?
Plus ça change, plus c'est la même chose
6. crunchy said...
I can see clearly now the rain is gone
I can see all obstacles in my way
Gone are the dark clouds that had me down
It's gonna be a bright bright bright bright sun shiny day
It's gonna be a bright bright bright bright sun shiny day
Oh yes I can make it now the pain is gone
All of the bad feelings have disappeared
Here is that rainbow I've been praying for
It's gonna be a bright bright bright bright sun shiny day
Look all around there's nothing but blue skies
Look straight ahead there's nothing but blue skies
I can see clearly now the rain is gone
I can see all obstacles in my way
Here is that rainbow I've been praying for
It's gonna be a bright bright bright bright sun shiny day
It's gonna be a bright bright bright bright sun shiny day
Bri-ri-ri-ri-right
Bright bright bright bright sun shiny day
Oh yeah
It's gonna be a bright bright bright bright sun shiny day
It's gonna be a bright bright bright bright sun shiny day
It's gonna be a bright bright bright bright sun shiny day.
Jimmy Cliff................ Yeah right!
7. Tenyearstogetmymoneyback said...
devo said
"You cannot buy a life insurance contract on an unrelated person."
I was thinking about this after reading the "Elephant in the Room" article yesterday.
Of course you CAN take out an insurance policy against Chelsea winning the FA cup,
Lewis Hamilton winning the F1 championship, or Tukish Surprise winning the 13:10 at Kempton today.
I believe it is called gambling.
On a more serious point I doubt if Ladbrokes would be very happy if you wanted to put £100million on Turkish Surprise.
:- Duncan
8. timmy t said...
Same story was posted last night - through Reuters. Like I said then, why does the govt need to lend 1 trillion to the wealthy for this if it's their money they're lending? And as I also said, the govt are going to borrow 1 trillion dollars to lend to the wealthy so they can lend it to the poor. As a solution to a problem created through excess lending and borrowing, this is utterly mind-boggling in the sheer scale of its stupidity. Either that or I've misunderstood.
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