The Monster That Ate Wall Street

I think you're being a bit extreme Jeff. Some bankers still have some integrity, but a majority do not in my opinion. As the article says, they are still extremely useful when properly used. They should in fact be carefully regulated, but an out right ban is perhaps unwise. They do increase a banks "lending power." Leveraging is finance speak for it, but they need to have a clearly recognized risk quotient and a clearly recognized value.

The model structure of the product was good. Rating agencies looked the other way because they weren't examining the product in depth. Think of going to the produce store, where they place the good fruit on top of the bad and sell the package. When you get home you have the culls on the bottom. Mortgage lenders got very greedy and began to scam all borrowers they could with ARM loans, pre-pay penalties, etc. It was a set-up for failure when the loans reset and people who couldn't afford them in the beginning really couldn't afford their notes. Mortgage brokes pocketed thousands under the table, payoffs from the mortgage lender, to bait and switch loans with the buyer or borrower not discovering the truth about his loan until the closing table. Many then did not understand what they had bought because the broker was telling them they could refinance in a couple of years with the market rising and avoid the reset. Predatory brokers were paid more to switch loans to ARMs, higher rates, pre-penalty loans. It was lender greed that translated to more money for those selling these products through big lenders like Countrywide, WashMU, Century, American Home, etc. Some of these companies are already gone but we are buying out the others. Don't kid yourself that it is a lack of money that is forcing us to buy up these toxic mortgages. It is an industry wanting to play another day. Bank of America and JP Morgan Chase are buying up banks like crazy. Every time someone asks Paulsen why and what if, he juist says it will be worse if we don't. Well, I have to say, worse for WHO? Lawmakers have bought the scam of which Paulsen is the Pied Piper for the industry he represents. We can't buy off this mess, we are just transferring it to taxpayers giving the mortgage giants a parachute. Don't worry about the CEO, we are saving the whole company. It will backfire. Many of these giants go down anyway because you destroy the economy for the taxpayer, he isn't going to buy your product anyway.

amen. The blame game and all this vituperitave verbage gets us nowhere. Could we please look at it this way?: This is the problem. These are possible ways to solve the problem. Which will be the most effective?

What caused the problem was making risky loans that bolstered the home building boom. We must blame both the idiots who thought they were getting something for nothing, a home with zero down, no payments until next year, interest only on a balloon ARM to be refinanced before the payment ballooned, etc.; and the lenders who assured the idiot buyers that the worst that would happen if they defaulted on their mortgage would be that they would lose the house they couldn't afford in the first place.

Credit default swaps are little more than a way of spreading the risk. As the article notes, the problem arises when defaults start operating like dominoes because of the CDS market, triggering a widespread failure that would not have occurred if banking regulations had been imposed on the investment companies, and they had been held to the capitol requirements banks have always been held to.

When investment companies come up with something new like CDS, it is hard to figure out how and why and even if the new investment product should be regulated, and maybe Congress should have recognized this problem years ago.

But ultimately it boils down to someone making risky credit decisions and talking people into buying something they can't afford, and fools thinking they can get something for nothing.

That does not mean that action is not required, however. What has happened is that the CDS device has tied up so much capitol, and made it so illiquid, that it has impaired the flow of cash. Think of it as a fountain which recycles the same water perpetually. As long as everything is flowing, there is plenty of water. But if one tier freezes, and another shuts off it's valve and hoards the water it holds, eventually there isn't any water flowing anywhere.

I don' t know if 700 billion will get the CDS market to thaw out, get the fountain flowing again, but something has to happen or industry in America will come to a dead halt. Auto manufacturers that have capitol wrapped up in autos on showroom floors that they can't sell won't have capitol to retool to make the new hybrids we need to become energy independent. Construction companies that have capitol wrapped up in homes they can't sell won't buy lumber from companies that have warehouses full of 2x4s they can't sell that will have to shut down too, and not only will people lose jobs, but new low income housing won't be built because there won't be any investors who would be willing to put up the capitol to build them. Farmers won't find the credit to buy seed and food costs will soar. Trucking companies won't have cargo to deliver, stores will close, etc., etc., etc.

Credit must flow for a capitalist system to work.

My only debt is a house I have owned for $20. I own a 9 year old car. I always vote. I am active in organizations that have tried to expose how greed and corruption are destroying this company. I rarely buy anything new and my furniture is mostly 28 years old. My business is likely to go belly up because of greed. How is this my fault?

Why lie? Houses trippled-quadrupled in price fo 5 years because of mass greed. Too many middle-income morons were involved in this mess.

Enter Your CommentNo, and they aren't going to. You forget this is left wing radical media. Anything goes except the truth.

When are you people going to realize that many of our neighbors are just as responsible for this mess as are our "leaders" Where is personal responsibility here? Are there that many dopes out there who don't know that they cannot afford to borrow more money than they can ever afford to pay back? What about those millions who default on their credit cards, file for bankruptsy then the rest of us are left holding the bag. We live in an entitled world and if Obama gets in, watch everyone come at him, demanding their government handouts. You think we are in trouble now, consider this a warning for you people who think you are so entitled - you are NOT. Start living responsible, no one owes you anything!