sklinkaware
New member
debt obligations (CDOs) the major? cause of the current economic situation?
The mortgage default rate, those facing foreclosure or more than 30 days behind, is less than 10% of all mortgages. This alone could not conceivably cause the current situation. CDO's are basically 'protection' or insurance purchased by financial institutions to protect them from loss if the packaged derivatives go into default. They are bought with a defined length of time, usually five years. Problem is that because of the risky loans packaged in these derivatives as well as good mortgages, credit card debt, student loans, when one fails the entire derivative loses value. By plunking down millions of dollars, a hedge fund or investment bank could reap billions once these fatally constructed securities plunged. Again, the funds did not need to own the securities; they just needed to pay for the derivatives—the insurance policies for the securities. And they could pay for them again and again. This was known as replicating.
At almost $600 trillion, over-the-counter (OTC) derivatives dwarf the value of publicly traded equities on world exchanges, which totaled $62.5 trillion in the fall of 2007 and fell to $36.6 trillion a year later.
So we should thank Alan Greenspan, former Chairman of the Federal Reserve, Robert Rubin, Treasury Secretary in the Clinton administration, his deputy, Lawrence Summers, Bill Clinton for signing the Commodity Futures Modernization Act into law and the 106th Congress for passing the act?
Should we have heeded the warnings of Brooksley Born, who headed the Commodity Futures Trading Commission (CFTC) at the time and Warren Buffett who warned of the ultimate collapse, calling these 'financial weapons of mass destruction?
grob, I did include the entire 106th Congress of which Gramm was a part.
The mortgage default rate, those facing foreclosure or more than 30 days behind, is less than 10% of all mortgages. This alone could not conceivably cause the current situation. CDO's are basically 'protection' or insurance purchased by financial institutions to protect them from loss if the packaged derivatives go into default. They are bought with a defined length of time, usually five years. Problem is that because of the risky loans packaged in these derivatives as well as good mortgages, credit card debt, student loans, when one fails the entire derivative loses value. By plunking down millions of dollars, a hedge fund or investment bank could reap billions once these fatally constructed securities plunged. Again, the funds did not need to own the securities; they just needed to pay for the derivatives—the insurance policies for the securities. And they could pay for them again and again. This was known as replicating.
At almost $600 trillion, over-the-counter (OTC) derivatives dwarf the value of publicly traded equities on world exchanges, which totaled $62.5 trillion in the fall of 2007 and fell to $36.6 trillion a year later.
So we should thank Alan Greenspan, former Chairman of the Federal Reserve, Robert Rubin, Treasury Secretary in the Clinton administration, his deputy, Lawrence Summers, Bill Clinton for signing the Commodity Futures Modernization Act into law and the 106th Congress for passing the act?
Should we have heeded the warnings of Brooksley Born, who headed the Commodity Futures Trading Commission (CFTC) at the time and Warren Buffett who warned of the ultimate collapse, calling these 'financial weapons of mass destruction?
grob, I did include the entire 106th Congress of which Gramm was a part.