60 Minutes: How Some Arcane Wall Street Financial Instruments Magnified Economic Crisis

You should have watched David Asman’s (Fox News) report on the mess. He didn't leave out anyone including ACORN’s pressure on lenders & Democrats Charles Schumer, Barney Frank & Chris Dodd who blocked legislation to regulate them.

No. The repackaged subprime loans are repackaged and "renamed" - Structured Investment Vehicles - or - Mortgage Backed Securities. I am sure there are other nomenclature which bankers have dreamed up. As the piece indicated as bankers were allowed, under the repealed Glass-Steagall act, (repealed by Clinton), to buy stocks. They do not buy stock (securities) like you and me. They buy blocks of Call or Put options which are highly leveraged. Repeal of Glass-Steagall allowed them to speculate....but they wanted some insurance against loss. Soooooo.....they invented and "insurance" without calling it insurance (therefore not subject to insurance laws requiring securitization (something to back up their purchases. Sooooooo....the invented a piece of paper called a DERIVITIVE, called a CREDIT DEFAULT SWAP, and many other names to insure those stock buys. It was only paper, backed by nothing,...NOTHNING....Nothing. So when, for example Lehmans failed, Lehemans turned to AIG (who wrote the derivitive) and said to AIG, pay the insurance. But AIG did not have the money....So.......FED chairman Ben allowed Lehmans to fail and propped up AIG. Why, because if AIG failed, they underwrote most of the WORLDWIDE BANKING DERIVITIVES and that would have caused the entire global financial system to fail on Sept.16,2008...a day which will live in infamy.

But know this....the $700,0000,000,000.00 cannot cover $65 trillion in derivitive defaults which is the credit derivitive world. AIG will fail, and probably very soon. If you look at the banks in Europe, Ireland, Scandinavian coutries, Germany, Japan, New Zealand, Australia, China, Russia....all are very, very suddenly found to be in worse shape than the AMerican system. That is why Ben Bernanke, last Monday, sent $630,000,000,000.00 to the European Central BAnkers. All he did was put his finger in the dike. It will not help. The losses are on the order of magnitude of thousands greater than Bernanke sent.

This calamity is unavoidable and it will be something unlike anything you and I can imagine in its effect on our country and countrymen. It did not have to happen this way. But now that it has been unleashed, nothing short of God Himself can stop it.

Fannie Mae and smaller Freddie Mac own or guarantee almost half of all home loans in the United States

Actually the number I have is 70%. If they had 100% of the subprime loans, that would account for only 2% of the CREDIT MARKETS. The Subprime credit liquidity seizure precipitated a liquidity crisis, but accounts for 1/50th of the Credit Market debaucle. As more buisnesses cannot get credit to run their operation (salaries, raw materials, equipment) they will fall like oak leaves in November. Credit cards will cease to be allowed to be used. Auto credit will dry up ( it already is).

All caused by a willful turning of a blind eye by hedge funds, banks and other investors who wanted massive deleveraging to gamble in the stock and bond and money markets.

This bell cannot be unrung short of devine intervention.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3141428/Germany-takes-hot-seat-as-Europe-falls-into-the-abyss.html

Check out this article. It says much of what I said.

Well Done!

If the explosion of the Fannie/Freddie sub prime loans would have been controlled in 2001 or 2003 the current mortgage/housing meltdown creating the current financial mess would not have occurred. If the legislation proposed in 2005 would have passed the current financial problems would be considerably less :

In 2005, the Senate Banking Committee, then under Republican control, adopted a strong reform bill, introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it. Mr. McCain endorsed the legislation in a speech on the Senate floor. Mr. Obama, like all other Democrats, remained silent.

If the Democrats had let the 2005 legislation come to a vote, the huge growth in the subprime and Alt-A loan portfolios of Fannie and Freddie could not have occurred, and the scale of the financial meltdown would have been substantially less. The same politicians who today decry the lack of intervention to stop excess risk taking in 2005-2006 were the ones who blocked the only legislative effort that could have stopped it.

Blame Fannie Mae and Congress For the Credit Mess

They focused entirely on Wall Street's involvement with sub prime loans and failed to even mention Fannie/Freddie where the sub prime market actual started.

Of course. It is the greedy repulicans fault!

bump

I beg to differ. The "60 Minutes" piece was an excellent production. It put forward, in language the average guy could understand, the reasons why mortgage defaults by a relatively small percentage of US homeowners, have triggered a worldwide crisis. The aim of the program was not to determine who was responsible for the dispersal of easy credit to home buyers. It was to explain how this initial mistake was compounded into a financial meltdown.

As the guy on the program said, if the problem had been confined to the mortgage defaults, we'd be in great shape now. However, the problem spiraled when these mortgages were sold up the chain and then the credit default swaps were thrown into the mix. These "insurance by any other name" contracts have completely sandbagged the companies who wrote them.

Sure Fannie and Freddie screwed up. However, the reason we're now looking down the barrel of a very powerful gun lies in one place only; Wall St.

I beg to differ. The "60 Minutes" piece was an excellent production. It put forward, in language the average guy could understand, the reasons why mortgage defaults by a relatively small percentage of US homeowners, have triggered a worldwide crisis. The aim of the program was not to determine who was responsible for the dispersal of easy credit to home buyers. It was to explain how this initial mistake was compounded into a financial meltdown.

Like I said in an earlier post. I have no problem with what they said in the story. It's what was left out that is wrong.

To not mention the Fannie/Freddie mess is like failing to mention Charles Manson when talking about the crimes his followers committed.

If Sarah had been friends with Timothy McVeigh, would the MSM give her an "Ayers pass"?

Thanks for the ping.

If Sarah had been friends with Timothy McVeigh, would CBS and 60 Minutes give her an "Ayers pass"?

Thanks for the ping.