I don't think the blame for the financial crisis can be assigned to one particular political party or even particular individuals. It was a kind of mass psychology in which greed and selfishness drove an entire industry into near ruin. Below is my understanding of what has occurred:
A Credit Default Swap, (eg CDS), is a kind of derivative where a lender, who issues notes, bonds, mortgages, etc, swaps the risk the borrower will default on the loan to a third party, like a bank or insurance company, for a sum of money. For example, if "First Mortgage" finances "home owner", it might ask "Big Bank" to assume the risk that the home owner will default on the loans and First Finance will pay Big Bank a fee to the credit default swap. Thus the risk that the home owner will default on the mortgage is swapped to Big Bank, and First Mortgage pay a sum of money for the mortgage default protection. Another swap occurs if home owner defaults on the mortgage held by First Finance. Big Bank will pay First Mortgage the face value of the mortgage, and First Mortgage will swap, (eg sign over) the toxic mortgage to Big Bank along with the house which serves as collateral for the mortgage. The original intent of the CDS was to create an instrument that would facilitate the financing of housing by having a third parties assume the risk of loan defaults, like default on mortgages, notes, bonds, etc,, but what seems to have really happened in the housing crisis is mortgage companies and other mortgage lenders started writing risky loans; because, they had their backs covered by third parties who had assumed the risk of mortgage defaults. The housing market went through a wonderful boom, but eventually a bubble began to appear. Everyone in the housing market wanted the boom to go on forever, including builders, real estate agents, mortgage companies and banks; because, everyone was making tons of money. Towards the end of the housing bubble, mortgages were created with interest rates even below prime, (eg sub-prime mortgages). The prime interest rate is a very low, favourable rate banks charge each other for funds. During the housing bubble, sub-prime interest rate were necessary in the mortgages to get payments down to a point where the borrower would qualify for the loan, and to tease the borrower into buying a house. During the bubble, the Federal Reserve Chairman assured congress and the American people that the housing bobble was contained, even as the building industry continued to crank out houses. The sub-prime mortgages were variable rate with an interest rate time bomb that adjusted the interest rate back to normal as some point. When the interest rate time bomb went off, the borrower’s monthly mortgage payment increased substantially, even doubling or tripling, which drove many borrowers into default on their mortgages. The Housing bobble eventually burst, and borrowers began defaulting on mortgages in droves, which depressed housing values causing even more defaults in a kind of domino effect, and the housing industry had way over built even before the bubble burst. I’m sure the CDS problem was aggravated by others who really didn't’t have any mortgage loan risk to swap to third parties, but only wanted to gamble on a housing market bust, but to what extent these kind of mortgage CDS(s) factored into the financial crisis, I’m not sure. Countrywide Financial was a chain of 200 or 300 saving and loan companies, sometime called thrift institutions, located in California and Nevada. Countrywide was one of the first mortgage companies to get in trouble writing risky mortgages, including ARMs, (eg adjustable rate mortgages), which provided options where the borrower could elect to make payments on the principal only or even make payments that didn't even cover the monthly principle, but with a provision that would reset the mortgage at least once every five year to the going interest rate and a payment that would amortize the debt. When the interest rate time bombs started going off, Countrywide found itself facing bankruptcy, but was eventually merge with Bank of America, who probably held most of Countrywide's credit default swaps, so the big banks that were heavy into derivatives like CDS ended up holding the bag. Now its just a matter of getting people into the houses so the big banks can retire the old mortgages in default with new mortgages that are performing on the underlying real estate collateral. http://www.gold-eagle.com/editorials_00/ci091500.html Regards, LelandJ Michael Madigan wrote: > Let's not forget that Barney Frank's butt buddy was a bigshot at Fannie Mae. > > He was screwing him while the public was being screwed. > > ************************************************* > Barack Obama is not My President > > http://www.cafepress.com/rightwingmike > > > --- On Wed, 11/26/08, John <[EMAIL PROTECTED]> wrote: > > >> From: John <[EMAIL PROTECTED]> >> Subject: RE: [OT] How to determine if a market has hit THE bottom. >> To: "'ProFox Email List'" <profox@leafe.com> >> Date: Wednesday, November 26, 2008, 5:47 PM >> You obviously didn't hear about the Republicans, in >> 2006, including John >> McCain, who said Freddie mac and fannie mae needed more >> overight. Meanwhile, >> Obama's buddies were raping the system, and Barney >> Frank was defending >> them.... >> >> John Harvey >> >> >> -----Original Message----- >> From: [EMAIL PROTECTED] >> [mailto:[EMAIL PROTECTED] On Behalf >> Of Geoff Flight >> Sent: Wednesday, November 26, 2008 4:38 PM >> To: 'ProFox Email List' >> Subject: RE: [OT] How to determine if a market has hit THE >> bottom. >> >> Economists have been saying for 2 years that a severe crash >> and recession >> were I imminent because of the financial house of cards >> that had been built. >> Obama was right in what he said. >> >> I just don't understand how you can seriously shift the >> blame for economic >> disaster to a CANDIDATE while excluding an 8year >> presidency. Doesn't any >> part of that sound just a little bit silly? >> >> -----Original Message----- >> From: [EMAIL PROTECTED] >> [mailto:[EMAIL PROTECTED] On Behalf >> Of Michael Madigan >> Sent: Thursday, 27 November 2008 9:00 AM >> To: ProFox Email List >> Subject: RE: [OT] How to determine if a market has hit THE >> bottom. >> >> For two years Obama's campaign has been saying over and >> over again that the >> economy was the worst since the Great Depression. >> >> OF course that was a lie. 6% unemployment and possitive >> growth does not >> make a depression. >> >> So of course people bailed when the market started to >> crash. After all, it >> was the Great Depression, right? >> >> >> >> ************************************************* >> Barack Obama is not My President >> http://www.cafepress.com/rightwingmike >> >> >> --- On Wed, 11/26/08, Geoff Flight >> <[EMAIL PROTECTED]> wrote: >> >> >>> From: Geoff Flight <[EMAIL PROTECTED]> >>> Subject: RE: [OT] How to determine if a market has hit >>> >> THE bottom. >> >>> To: "'ProFox Email List'" >>> >> <profox@leafe.com> >> >>> Date: Wednesday, November 26, 2008, 5:17 PM >>> The truly odd thing about markets is that they are >>> >> drive as >> >>> much my >>> psychology as about fundamentals. That is why a >>> >> president >> >>> or Prime Minister >>> talking negatively about an economy actually drives it >>> >> down >> >>> and vice versa. >>> Same applies to well known economists etc. For reasons >>> I've never >>> understood, investors place great stock in the >>> >> opinions of >> >>> people who >>> sometimes have zero idea about what is happening. Half >>> >> of >> >>> this loss is about >>> confidence - not fundamentals. The markets are rising >>> >> and >> >>> falling in mammoth >>> swings on rumours and hints of rumours. Until that >>> >> ends and >> >>> people actually >>> use their heads and not their fears, true recovery >>> >> cannot >> >>> start. The markets >>> are one of the areas of life where optimism (like >>> pessimism) can be >>> self-fulfilling. >>> >>> -----Original Message----- >>> From: [EMAIL PROTECTED] >>> [mailto:[EMAIL PROTECTED] On Behalf >>> Of Kristyne McDaniel >>> Sent: Thursday, 27 November 2008 8:33 AM >>> To: 'ProFox Email List' >>> Subject: RE: [OT] How to determine if a market has hit >>> >> THE >> >>> bottom. >>> >>> Madigan, >>> >>> >>>> Care to explain this strange attack? >>>> >>> Not much explanation needed. You scream doom and gloom >>> >> and >> >>> then act >>> surprised when gloom and doom happen. >>> >>> Thus far, with Obama not even in office yet, the >>> >> markets >> >>> are quieting down >>> as he reveals the new folks that will be replacing >>> >> Bush >> >>> ineptitude. >>> >>> Kristyne McDaniel >>> http://www.kristynemcdaniel.com/blog >>> http://www.emryldadvantage.com/ >>> http://www.mcstyles.com/ >>> >>> Whether you think you can, or you think you >>> >> can't.... >> >>> you are right. >>> -- Henry Ford >>> >>> >>> >>> [excessive quoting removed by server] _______________________________________________ Post Messages to: ProFox@leafe.com Subscription Maintenance: http://leafe.com/mailman/listinfo/profox OT-free version of this list: http://leafe.com/mailman/listinfo/profoxtech Searchable Archive: http://leafe.com/archives/search/profox This message: http://leafe.com/archives/byMID/profox/[EMAIL PROTECTED] ** All postings, unless explicitly stated otherwise, are the opinions of the author, and do not constitute legal or medical advice. This statement is added to the messages for those lawyers who are too stupid to see the obvious.
