Just in case you haven't figured out why the US economy collapsed and the credit markets crashed, allow me to provide some insights and lay the blame. This dissertation is a result of my ruminating over the latest World Economic Forum meeting in Davos when only ONE (1) panelist dared to hint at the truth.
Either they don't get it, or they don't want to tell accurate reality.
The mess is related to what the Wizards of Wall Street do best:Innovate and Create financial instruments which nobody comprehends, but which they can manipulate for their own profits. The class of these financial instruments is known as DERIVATIVES. At Davos, only the Chinaman from the Chicom financial world was even willing to surface the magnitude of the problem which still exists.
He offered data suggesting that the entire global GDP is leveraged by derivatives at about 16:1. He understated the genuine situation. There is approximately ONE QUADRILLION US$ in derivatives floating around. If you add up the total global GDP, you will find that it is around One Hundred Trillion USD. The entire global valuation has been cut and diced and sold as pure speculation on the come. And nothing has been done about this practice!
Want to look at one horrible example? Reference Goldman Sachs' wizardry. Citation: GSAMP-300 of 2006. They bundled subprime residential housing mortgages with subprime second mortages. The cut up the offering into three (3) tranches and sold their handiwork all around the world. One of the reasons that they could peddle this crap which was most probably based upon nInJA loans with little, if any, documentation was that the rating agencies rated this crap AAA. By the way, you do know how the rating agencies receive their monies for doing the rating and who pays those fees, don't you?
When the American housing bubble burst, the wallpaper collapsed. Two (2) of the cited Golden Slacks tranches of the issue have lost 90% of their value and the third one has been marked to market at a huge loss, too.
Unless the hedgies and the Wizards of Wall Street have their enthusiasm curbed, they will continue to create derivatives and continue to leverage the world economy beyond any reasonable limits.
In my humble opinion, the game has to be stopped. Only actual end users of commodities should be able to engage in futures trading and must take deliveries. The Wall Street wizards are creating illusions out of whole cloth for their own profits and passing fees to all of the accomplices. The American taxpayer in on the hook for hundreds of billions of bux just to AIG because they were able to build a casino on top of a regulated insurance business.
Our financial mess stems in part from innovation and creation that has little basis in reality added and abetted by white collar criminals who sold the mortgages, arranged the creative financing, and packaged and bundled the mortage-back securities which were sold globally. We are the bagholders. Nothing is being done to change the system.
Systemic risk is what is being wrought. Systemic failure is still a scary possibility. But the Wizards received huge bonuses for screwing the honest men and women. Something is rotten in America! All IMHO.
