Comments on: The Bet That Blew Up Wall Street
Steve Kroft On Credit Default Swaps And Their Central Role In The Unfolding Economic Crisis
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- One of the basics of insurance is that the person buying the insurance must have an insurable interest in what the insurance covers. While I can buy insurance on my own life, I cannot buy insurance on someone else''s.
Another very basic principle of contract law is there must be consideration paid for an agreement. As far as I can tell in what I have been able to find out about the credit default swaps, no money ever changed hands. If there was no consideration paid for the swaps, there can be no penalty for default because there is in fact no contract.
Therefore, it stands to reason that there is an argument to be made that not only is this a house of cards, it has been built in the air and if it falls down, no one is the loser. - Reply to this comment
- It is remarkable how the story distorts the picture by not covering the the very root of the problem. Why was it that so many saw the housing boom, the bubble, as a never ending sure bet? What sent out that incorrect signal to so many?
What sent that signal? So many people buying homes. Why was that happening? The federal reserve was fixing interest rates very low, it was creating money hand over fist. This mislead people into thinking that housing would only increase in value, that they were betting on sure thing.
It wasn''t with just credit default swaps either. It was with builders, banks, businesses, and so on. Millions of people who never heard of credit-default-swaps saw the market the same wrong way. All got the wrong idea about the market conditions. How did that just happen? It was because of conditions created by federal reserve policy.
Then there is this nonsense about Greenspan being libertarian. Libertarians don''t believe in central banks and fiat money. They see them as Jefferson did, a threat to liberty. No libertarian can be employed by the Fed, let alone be its chairman. Greenspan stopped being a libertarian somewhere after his essay on gold in the 60s and before he took a job at the fed. - Reply to this comment
- "Nice to see Steve Kroft tried to make up for his previous report on the financial meltdown (Oct 5), where he threw viewers a hanging curve, mentioning the outstanding value of CDS''''s was estimated anywhere from $50 to $60 TRILLION (four times the US GDP)." Posted by THeller09
He wasn''t wrong, the value of the defaulted mortgages so far is estimated at close to a trillion, subject to change as more and more people are laid off from jobs.
The 56 trillion (actually twice the entire world''s annual GDP) is the estimate of all the "side bets" that these banks and other financial services firms around the world placed upon the paper based on these mortgages, without actually having the money to pay their bets.
As far as legality, at one time slavery was legal, and many people practices it, that did not make it right, as was Nazi-ism, genocide of "Native Americans" and other such anti human activities.
Wall Street deserves to collapse, as it is built on a similar house of cards, rated by agencies paid by the companies they rate, with it''s member firms cooked books, and other corruptions, it is a wonder any idiot still puts money in the hands of those thieves. - Reply to this comment
- From Wikipedia:
The "Commodity Futures Modernization Act of 2000" (H.R. 5660) was introduced in the House on Dec. 14, 2000 by Rep. Thomas W. Ewing (R-IL) and cosponsored by Rep. Thomas J. Bliley, Jr. (R-VA) Rep. Larry Combest (R-TX) Rep. John J. LaFalce (D-NY) Rep. Jim Leach (R-IA) and never debated in the House.[2]
The companion bill (S.3283) was introduced in the Senate on Dec. 15th, 2000 (The last day before Christmas holiday) by Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Chuck Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD) and never debated in the Senate.
Given the above-stated chronology, it would appear that the House and Senate versions of the bill were introduced just prior to the Christmas holiday in December of 2000, following George W Bush''s (first) election (in November of 2000), while then-President Clinton was serving out his final days as President. The bill was never debated by the House or Senate. The bill by-passed the substantive policy committees in both the House and the Senate so that there were neither hearings nor opportunities for recorded committee votes. In substance, it appears that the leadership of the Republican-controlled Senate and House incorporated the deregulation of credit default swaps into an omnibus budget bill (without hearings or recorded votes)at a time when the outgoing president was in no position to veto anything. - Reply to this comment
- Nice to see Steve Kroft tried to make up for his previous report on the financial meltdown (Oct 5), where he threw viewers a hanging curve, mentioning the outstanding value of CDS''s was estimated anywhere from $50 to $60 TRILLION (four times the US GDP).
The following day, the Dow quickly lost ~500 points. I hope he took a great deal of *** for leaving an impression that a HUGE and totally unexplained time-bomb was yet awaiting investors.
Tonight''s report made up a bit for leaving that gaping hole unexplained. But he neither acknowledged his error nor evidenced any embarrassment.
But tonight''s report still struck me as stilted, an attempt to characterize CDSs simply as "illegal betting". That''s an easy critique, but short-sighted in my view.
To be sure, CDSs were contracts (OK, "bets") that were bought and sold with alacrity on Wall Street, accompnaying the mortgage-backed securities Wall Street firms were peddling. But there%u2019s betting undertaken daily in virtually every market I can think of - the NYSE, Nasdaq, CBOE, NYMEX, etc.
The criticism that these bettors didn''t own any of the mortgages against which the CDSs were written is an off-base criticism, too. Put and call options are bought and sold daily without a requirement to own the underlying security. So too with commodity markets, such as oil.
Maybe Mr. Kroft should sit in on some Finance classes at the Stern School or Columbia It just might serve the nation. - Reply to this comment
- "One has to ask if bad mortgages were not written thanks to prodding of financial institutions..." Posted by singitwb
One has to answer no. The CRA was made to make mortgages available to lower income earners, but there was absolutely no requirement to structure them as adjustable rate, interest only, or other shady loan shark type deals, and no requirement to steer people who qualified for normal loans to these shadier loans because of the higher fees made by the agents.
It also did not force these shady loans to be bundled into CDOs and CDOs squared, nor did it force real estate developers to build McMansions only, while neglecting to build affordable housing.
Remember it wasn''t the default of the loans that caused credit to freeze, it was the fact that none of the institutions had the money to back up losing bets worth thousands of times more than the mortgages that were bet upon.
Go back to the real root, if you are going at all, the decimation of the middle class as the result of Reagan''s trickle down economics, created the situation where there were no longer enough middle class borrowers to sustain the industry. - Reply to this comment
- RIGHT NOW banks are increasing (adjustable rate mortages) ARMs. Foreclosures continue until the banks address the impact of the ARMS. People pay until they can pay no more and then they foreclose. All of these exotic loans are not subprime. We lump it like its only some poor or lower middle income person. The rest of the people are too embarassed to admit they have an ARM; or some hold on and pay increasing mortgage payments each month until they have no more left to pay then walk away from their dream and life''s investment. Often an upside down investmen; not because the homeowner''s dowm payment. Everyone cannot own a home they say. Yes if their mortgage was not escalating they might. So most people thought that in 2 or 3 years when the ARM came due they could qualify for a mortgage with the same credit that was good enough to get the loan in the first place. Not so much now. If congress wants to stop forecloses. FREEZE ADJustable mortgages from escalating and allow revisiting of these loans to make a situation where the home owner can stay in their home. The alternative is a continous flow of foreclosures until the bank takes a good look at its own practices.
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- Sen Dodd ? how come not blamed by CNN ?
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- singitwb, do the math. The 7% of defaulted mortgages could be paid of with the $1 trillion that we are giving to financial institutions.
DERVITIVES, DEREGULATED in the Commodities Modernization Act (2000) are the house of cards.
The derivatives market is estimated at $60 trillion--banks don''t make cheap bets! - Reply to this comment
- From Wikipedia:
The "Commodity Futures Modernization Act of 2000" (H.R. 5660) was introduced in the House on Dec. 14, 2000 by Rep. Thomas W. Ewing (R-IL) and cosponsored by Rep. Thomas J. Bliley, Jr. (R-VA) Rep. Larry Combest (R-TX) Rep. John J. LaFalce (D-NY) Rep. Jim Leach (R-IA) and never debated in the House.[2]
The companion bill (S.3283) was introduced in the Senate on Dec. 15th, 2000 (The last day before Christmas holiday) by Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Chuck Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD) and never debated in the Senate.
Given the above-stated chronology, it would appear that the House and Senate versions of the bill were introduced just prior to the Christmas holiday in December of 2000, following George W Bush''s (first) election (in November of 2000), while then-President Clinton was serving out his final days as President. The bill was never debated by the House or Senate. The bill by-passed the substantive policy committees in both the House and the Senate so that there were neither hearings nor opportunities for recorded committee votes. In substance, it appears that the leadership of the Republican-controlled Senate and House incorporated the deregulation of credit default swaps into an omnibus budget bill (without hearings or recorded votes)at a time when the outgoing president was in no position to veto anything. - Reply to this comment
- Sen Dodd and Rep Barney Frank forced banks to make "affordable" loans to minorities and others not able to pay the monthly due. Dodd got millions from Banks while "running for Pres. nomination" ? he petitioned to transfer to Senate funds, which he gets to keep !
Biden''s son is "consultant" with banks, at age 28 ! getting millions.
This world problem as been caused by these greedy Democrats. - Reply to this comment
- Alan Greenspan saw this same thing happen in the 90''s when derivatives were tied to treasuries and interest rates. When the rates fell the securities collapsed and Orange country pension fund went into bankruptcy. When people wanted to regulate derivatives Alan Greenspan said no. Now he admitted this week he was wrong on regulation. Additionally I have been hearing the no-tax line from the Republicans for 40 years. It is pure bull. Here are the results; Ronald Reagan largest deficits in history; George Bush "no-new taxes" Senior - record deficits and raised taxes; Bill Clinton budget surplus and economic prosperity; George Bush Jr - record deficits and worst economic crisis since the great depression. The Republicans are economic morons. Their save the rich and big business at all cost has crashed our economy. It''s the deficits that have tanked the dollar. Anybody that believes the Republicans know what they are doing with the economy must have brain damage.
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- As usual 60 minutes stops one or two items from the root cause. One has to ask if bad mortgages were not written thanks to prodding of financial institutions by people like Obama. And then there is Fannie Mae and Freddie Mac, thanks goes to Chris Dodd and Barney Frank. In 1995, Bill Clinton signed the re-authorization of CRA 1st created in1977 pressed the gas pedal to the floor. Thanks Dems
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- Thank you PaulGa2! Why did CBS not bring this out? Come on Steve, do a follow up on these two members of the Wrecking Crew and investigate what they got out of this. I watched Senators on CPAN giving witness hell over this, but not one of them stepped up to say what their role in this was.
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- Thank you PaulGa2! Why did CBS not bring this out? Come on Steve, do a follow up on these two members of the Wrecking Crew and investigate what they got out of this. I watched Senators on CPAN giving witness hell over this, but not one of them stepped up to say what their role in this was.
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- The "Commodity Futures Modernization Act of 2000" (H.R. 5660) Introduced in the House on Dec. 14, 2000 by Rep. Thomas W. Ewing (R-IL) and cosponsored by Rep. Thomas J. Bliley, Jr. (R-VA) Rep. Larry Combest (R-TX) Rep. John J. LaFalce (D-NY) Rep. Jim Leach (R-IA). The bill was never debated in the house.
The companion bill (S.3283) was introduced in the Senate on Dec. 15th, 2000 (The last day before Christmas holiday) by Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Chuck Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD) and never debated in the Senate. - Reply to this comment
- The bill was introduced in the house by Rep. Tom Ewing(R) among others and in the senate by Senator Gramm(R). both were introduced the day before the christmas break. Neither bill was discussed on the floor and the law was sign by Bill Clinton. A real bipartisan screwup
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- Who wrote the legislation? Who introduced it and co-sponsored it? How do you possibly do this story without examining that?
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