As someone who understands this pretty much forwards and backwards, I'm still kinda scared. I'll be honest.
Most of what you hit on is pretty much correct, although trying to blame "the republicans" or "the democrats" is little more than misdirection. If you really want someone to blame, blame joe six-pack for lying on his mortgage application to get a loan for a home twice as valuable as he can realistically afford. Or blame the [now effectively debunked] mortgage broker industry, for, in essence, not requiring potential applicants to even so much as prove their net worth. A mortgage broker, just like any other, makes all of his money at the point of sale, and is exposed to no risk doing so - if the lender borrowing from the bank declares bankruptcy tomorrow, the broker still wins.
To be fair though, the late 90's - early 2000's were a time of some of the easiest credit in American history. For creditors to make money, they need to make business, and for creditors to make business, they need to lend money out.
For a (somewhat poorly drawn, if not highly) accurate description of exactly what went down, click here [Google Docs Powerpoint]
[Note that the "Liar's Loan" actually does exist, though it's not called that for obvious reasons]
This correction (and that's really what this is) is the simple end result of people being overly greedy and, to be blunt, setting themselves up the bomb. Those AAA tranches you speak of were garbage, and something tells me everyone knew they were garbage, but when you've got people like Fitch giving them the AAA's, other people are going to buy them anyway. The only thing really left to say is that I'm taking bets on how low this goes.
AIG going under will likely cause a worldwide response, but it's definitely not the end of the picture. Bank of America just shot itself in the foot in a way it may never fully realize with its inexplicable purchase of Merrill at this point...ffs, if they waited until the end of today, they could have bought it for 30bb instead of 50bb, and one can only imagine where it will be tomorrow...
And don't get me started on Citigroup and HSBC. The ugliness involved in the failure of either of those two groups is indescribable.
On that note, I'll get off my soapbox. *huggle* -- Gerardo
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timeasmymeasure
no subject
Date: 2008-09-16 12:14 am (UTC)Most of what you hit on is pretty much correct, although trying to blame "the republicans" or "the democrats" is little more than misdirection. If you really want someone to blame, blame joe six-pack for lying on his mortgage application to get a loan for a home twice as valuable as he can realistically afford. Or blame the [now effectively debunked] mortgage broker industry, for, in essence, not requiring potential applicants to even so much as prove their net worth. A mortgage broker, just like any other, makes all of his money at the point of sale, and is exposed to no risk doing so - if the lender borrowing from the bank declares bankruptcy tomorrow, the broker still wins.
To be fair though, the late 90's - early 2000's were a time of some of the easiest credit in American history. For creditors to make money, they need to make business, and for creditors to make business, they need to lend money out.
For a (somewhat poorly drawn, if not highly) accurate description of exactly what went down, click here [Google Docs Powerpoint]
[Note that the "Liar's Loan" actually does exist, though it's not called that for obvious reasons]
This correction (and that's really what this is) is the simple end result of people being overly greedy and, to be blunt, setting themselves up the bomb. Those AAA tranches you speak of were garbage, and something tells me everyone knew they were garbage, but when you've got people like Fitch giving them the AAA's, other people are going to buy them anyway. The only thing really left to say is that I'm taking bets on how low this goes.
AIG going under will likely cause a worldwide response, but it's definitely not the end of the picture. Bank of America just shot itself in the foot in a way it may never fully realize with its inexplicable purchase of Merrill at this point...ffs, if they waited until the end of today, they could have bought it for 30bb instead of 50bb, and one can only imagine where it will be tomorrow...
And don't get me started on Citigroup and HSBC. The ugliness involved in the failure of either of those two groups is indescribable.
On that note, I'll get off my soapbox. *huggle*
-- Gerardo