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Maybe you don't think on such a level... maybe the most you care about is whether your neighborhood bank's ATM continues working. Well, I invite all to "try" and get through this article because whether interested or not, what happens on a global level will affect you.
The article I'm inviting you to respond to is called "A Tsunami of Hope or Terror?" A commentary by Alan Kohler, Nov. 19, 2008 at 7:28 a.m.
Maybe take out a sentence or two, and just write what you think about what was written... I want to know what you think, and what you believe your responsibility is as a voting citizen of whatever country you're from.
And now for some quotes from the article:
"It is a truly great irony that the world’s banks could end up being saved not by governments, but by the synthetic CDO time bomb that they set ticking with their own questionable practices during the credit boom."
("A synthetic CDO is a collateralised debt obligation that is based on credit default swaps (an insurance policy) rather than physical debt securities.")
"About a decade later, a team working within JP Morgan Chase invented credit default swaps, which are contractual bets between two parties about whether a third party will default on its debt. In 2000 these were made legal, and at the same time were prevented from being regulated, by the Commodity Futures Modernization Act, which specifies that products offered by banking institutions could not be regulated as futures contracts."
"Here are some of the companies that are on all of the synthetic CDO reference lists: the three Icelandic banks, Lehman Brothers, Bear Stearns, Freddie Mac, Fannie Mae, American Insurance Group, Ambac, MBIA, Countrywide Financial, Countrywide Home Loans, PMI, General Motors, Ford and a pretty full retinue of US home builders."
Definitely a tsunami of terror. Mindboggling shortsighted greed has put us all in peril, no matter how responsible we have been with our personal finances.
From what I understand, the credit default swaps are not regulated, and sellers/purchasers were allowed to leverage w/o having to prove they had the capital to pay the bet if they lost. An obvious recipe for disaster, but what the hay, there was a lot of money to be made in brokering these bets. It just seems to me, cdo and cds are just made up financial instruments with nothing to back them up...except a lot of risk; cds instruments were pure gambling. Is our whole economy just one big Ponzi scheme?
I would suggest "the giant pool of money" and "another frightening show on the economy" or something like that from "this american life" NPR.
I'm going to admit I don't know why a world-wide based money is good or bad(if that's what a gobal economy evenis ) so I'll read your links (and more) and try to figure out whether or not I have an opinion.
If you never read me again, you'll know I still don't know
This thread cuts too close to the bone and is one of the real issues that will challenge us for quite a while to come. It also doesn't fall into the neat left/right dichotomy that this forum seems to enjoy. It wont get much traffic.
i dont understan them big wurds cd u xplain tem for me pls ty!
: smiles and then laughs good-naturedly : I'm just happy you responded. Sometimes it's difficult to have to be so careful when it comes to finances, particularly global finances. Material that is broad in scope, but genius enough to be expressed in layman's terms is hard to find. (Frankly, it's a means to discourage inquiry.)
Okay, so let's see if I can break some of this down. I do wish that others who work in the field of finance that read City-Data would take on the challenge of breaking down financial concepts to everyday language. After all, it is everyone's world that is affected.
: holds nose and jumps into the pool of finance :
Assets = bonds, loans, stocks, cash, real estate
Securities = anything that can be assigned a monetary value and traded (note, bond, stock, swap, derivatives-rights to ownership, etc.)
Investment grade = a rating that indicates the risk of default for bonds. (Example, AAA or AA = best credit rating. A or BBB = medium credit rating. BB, B, CCC = low credit rating or junk.)
Investment-grade security = a security rated for its ability to pay you interest plus the amount you paid for it.
CDO = Collateralized Debt Obligation = An investment-grade security backed by a pool of bonds, loans and/or other assets. CDOs do not specialize in one type of debt but are often non-mortgage loans or bonds.
======
CDS = credit default swap = (for example) We have a contract between us and I pay you a certain percentage every month, on a company's chances of going bankrupt or restructuring or the bond or loan defaulting. You collect every month if everything is okay; I collect big if things go south.
That now brings us to a synthetic CDO or SCDO. It's a packaged CDO plus the CDS, or a credit default swap and a collateralized debt obligation that stays on the originator's balance sheet. It all stays with you and cannot be transferred. This is to get around certain laws in foreign countries that forbid such transfers or make the taxes on such transfers uneconomical.
: pulls Self out of the financial pool : Whew! I hope that's all we need to know to make the article understandable.
: suddenly snaps fingers : There's a couple of YouTube videos that might make it easier to understand if you don't mind viewing them.
Definitely a tsunami of terror. Mindboggling shortsighted greed has put us all in peril, no matter how responsible we have been with our personal finances.
From what I understand, the credit default swaps are not regulated, and sellers/purchasers were allowed to leverage w/o having to prove they had the capital to pay the bet if they lost. An obvious recipe for disaster, but what the hay, there was a lot of money to be made in brokering these bets. It just seems to me, cdo and cds are just made up financial instruments with nothing to back them up...except a lot of risk; cds instruments were pure gambling. Is our whole economy just one big Ponzi scheme?
I would suggest "the giant pool of money" and "another frightening show on the economy" or something like that from "this american life" NPR.
Thank you so much for referring to NPR. I will check out your suggestions as soon as possible. I agree totally with you regarding those instruments, and the article gives an accurate history of just where they came from.
(I'm still at work but take quick breaks and came on here.)
So much I want to say but, of course, I must wait for others to speak. Again, thank you for referring to "the giant pool of money", "another frightening show on the economy", and "this american life". I'll try and find these shows as soon as possible.
I'm going to admit I don't know why a world-wide based money is good or bad(if that's what a gobal economy evenis ) so I'll read your links (and more) and try to figure out whether or not I have an opinion.
If you never read me again, you'll know I still don't know
I congratulate you Old_Cold because we the people are often robbed of rights we never knew we had. Take your time and then I really look forward to hearing what you have to say. There's no right or wrong, just I hope an ongoing dialogue of what we together have discovered.
This thread cuts too close to the bone and is one of the real issues that will challenge us for quite a while to come. It also doesn't fall into the neat left/right dichotomy that this forum seems to enjoy. It wont get much traffic.
Thank you for the warning Chauncy. You're right, Sir, it does cut too close to the bone. : ponders : I often think how would I face future children/grandchildren when I am asked why I allowed the destruction of America as we knew it by 2012. (For yes, indeed, it would not take 20 years... America is in an economic Cold War and her people deep asleep to the impending danger.)
Maybe I speak what I can because I still can. One day we all may be under the business construct of "Wal-Mart". Thank you again for responding.
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