Posted on 04/19/2010 7:46:39 PM PDT by NormsRevenge
BFL
What is the relationship, if any, between Paulson and Cohen?
I had a neighbor and some customers who were in the mortgage broker business. And the 20-something daughter of one of my coworkers. You could hardly believe the amounts of money that they were dealing in, it was like watching drug rings in operation. I used to pump them for information on how the operation worked since outsized returns don’t make economic sense and don’t last long. It took me quite some time to get a handle on how the money was moving around.
I was convinced that it would all fall apart but it lasted a whole lot longer than I thought it would. And while I thought the wreckage would be big I have to admit that it has been even more impressive than I imagined. When I heard that the derivatives had values of over a trillion I should have realized that this was going to be 9 plus on the Richter scale.
Data on the five-fold growth of derivatives to $516 trillion in five years comes from the most recent survey by the Bank of International Settlements, the world's clearinghouse for central banks in Basel, Switzerland.
While that is one of the reasons, loans to people with bad or no credit had been around for decades. That was just used as one of the weapons.
What really caused this disaster what mainly deregulation acts like repealing glass-steagall and Phil Gramms idiotic “Commodity Futures Modernization Act of 2000” which greenlighted all these companies to leverage themselves to the hilt and made it actually illegal to regulate credit default swaps. Thus the big players developed a thirsting for more mortgages to package as investments, even subprime garbage, like a vampires thirst fresh blood. And with all those deregulation moves, they could keep a lot of it “off-books” to hide the real carnage going on.
I count those events as the defining moments that set this disaster truely in motion.
It was a demand pull situation. Wall Street made its insatiable demand for mortgages well known. So the mortgage brokers gave any warm body a mortgage. There was and is no punishment for making idiotic mortgages and selling them to Wall St/Banksters to bundle up.
From what I can tell the independent mortgage brokers (most who are gone now) were doing this a lot more than banks. I have a feeling that lots of bribes and kickbacks were paid to these brokers to send newly minted mortgages to Lehman (for example) instead of a rival. There was fierce competition on Wall Street to assemble and sell mortgage backed securities
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