The BIG Bailout

[RedCherry]

Originally Posted by Bill

The crisis occurred (to greatly oversimplify) because the financial system allowed entities to place bets on whether or not those mortgages would ever be paid. You didn't have to own a mortgage to make the bets. These bets, called Credit Default Swaps, are complex. But in a nutshell, they allow someone to profit immensely - staggeringly - if large numbers of sub prime mortgages are not paid off and go into default.

The profit can be wildly out of proportion to the real amount of defaults, because speculators can push down the price of instruments tied to the subprime mortgages far beyond what the real rates of loss have been. As I said, the profits here can be beyond imagining. (In fact, they can be so large that one might well wonder if the whole subprime fiasco was not set up just to allow speculators to profit wildly on its collapse...)

I just see a bunch of people standing around a craps table that has 2000x odds betting on the no pass line when someone is rolling loaded dice.

All I want in this is a free-up of the credit market. I'm afraid if banks / businesses / joe blow's ability to get credit dries up, we are going to have an economic slowdown that is hideous in this country.

Ok, maybe it is a market correction and should be allowed to happen, but I think if sub prime speculation had been regulated, the market would have corrected over time, and not hit us all at once like it is now with the banks failing.

I don't know enough about all this to know what the best plan is, but I hope whatever they do, they leave the "insurance" aspect in this plan so that within 5 years if the companies bailed have made money, the taxpayer gets a slice of that profit.