At a 7 to 8 percent return why can't the market fix the problem? $700 billion is just about 3.5 percent of 20 trillion dollars if I calculated correctly.
As for the CDS problem (AIG, et al) one Internet source explained the insurance ignorance:
"'Any one house burning down doesn't increase the likelihood that lots of other houses will burn down,' Davidson said. 'That doesn't apply to bond insurance.'
"In the case of bonds, one default can create a domino effect. Investors lose confidence in the market. Interest rates spiral. Borrowers can't find new capital to stay afloat." [End quotes]
Obviously the youngsters who came up with CDS have never been through a business cycle downturn -- or maybe companies used summer interns to come up with CDS. It turned out to be a gold mine. The market will never fail. Up! Up! What a deal!
Yes, with the market handling the problem some segments may suffer a recession -- it's happened before. They'll recover. They always did in the past -- unless they roll over and "die."
These so called "youngsters" made millions in salary and bonuses for coming up with these derivatives and making them work. They could care less about a downturn. All they cared about is the money they took away from the casino table