I overlooked this one ... a good explanation for why the Economy is in the ...

[szh]

... toilet. I wish I had seen this one earlier and commented on it here.

It passed in the last days of the Clinton Admin senate, by the way.

http://www.cbsnews.com/video/w...Story

Note: this is a "time-sensitive" video ... may not be available in the future. So, see it now and weep.

Z

[S13_love]

Yes...this is true. I found this out a while back about a month ago or so.

Although the housing market crash or bad mortgages (however you like to see it as) started this whole thing...credit defaults swap were basically more fuel for the fire.

Hell, even Warren Buffett said that they were "financial weapons of mass destruction."

Damn.

I dont know much about credit default swaps...but isnt buying them like "buying insurance for a house you dont own"?

[ishkabibble]

It passed in the last days of the Clinton Admin senate, by the way.

You mean the Republican-controlled Congress...

championed by McCain's economic adviser - Republican Congressman Phil Gramm, who, like many on this forum claimed that everything was okey dokey last year. We weren't in a recession - it was just a perception created by the liberal media.

Although the housing market crash or bad mortgages (however you like to see it as) started this whole thing...credit defaults swap were basically more fuel for the fire.

CDS made it burn white hot. The mortgage situation would have caused a recession. The CDS situation is going to cause a depression. IMO.

Deregulation of Wall Street FTL. Enjoy your poverty in retirement, Boomers.

[hannibal]

No politcal spin needed...

Very interesting. I didnt realize this even existed. The betting on football example helped understand.

My impression is that is not like buying insurance for a house you dont own. Its like gamb|ing on whether someone will file an insurance claim. Basically, insurance companies determine how likely an event is to occur and charge a premium accordingly. But a CDS is like other people betting on whether the insurance will have to pay out or not.

But I dont understand who this gamblers were. A mortgage holder couldnt bet on a mortgage they own. Thats like doubling their risk. Maybe banks gambled on the mortgages held by other banks. So if the mortgage defaults, not only the lending bank loses, but also another bank that had bet on the outcome. That could explain how a relatively small number of bad loans could spread throughout the entire industry.

[smockers83]

But I dont understand who this gamblers were. A mortgage holder couldnt bet on a mortgage they own. Thats like doubling their risk. Maybe banks gambled on the mortgages held by other banks. So if the mortgage defaults, not only the lending bank loses, but also another bank that had bet on the outcome. That could explain how a relatively small number of bad loans could spread throughout the entire industry.

To address the last part of this, no, not necessarily. The bad loans were bad loans regardless of the credit default swaps, which were exacerbated by falling home prices.

Onto who these people were. Most of them were probably involved in hedge funds. Hedge funds really developed around the same time the derivatives market came around. But if a person wanted to make his home a hedge fund, he could have mortgaged his house and bet against himself in the derivatives market. Therefore if he foreclosed, he would be hedged against the loss and risk in the CDS. This is kind of like how hedge funds that invest in the dollar hedge against it with investments in oil contracts since oil essentially moves in the opposite direction of the dollar.