An Unusual Source
03-18-2009, 07:36 PM
#2
Gets Weekends Off
Joined APC: Jan 2006
Position: Student Pilot
Posts: 2,277
Derivatives.
I haven't read the whole article....just down to the part that started with Clinton.
Derivatives. I always wondered what they were. Seems like in lay terms that it's an insurance policy on something that you know is going to fail and when it does you collect big. WOW. It's like it's the ultimate scam of scams.
Yeah....Madoff is peanuts compared to that.
atp
I haven't read the whole article....just down to the part that started with Clinton.
Derivatives. I always wondered what they were. Seems like in lay terms that it's an insurance policy on something that you know is going to fail and when it does you collect big. WOW. It's like it's the ultimate scam of scams.
Yeah....Madoff is peanuts compared to that.
atp
03-18-2009, 07:45 PM
#3
With The Resistance
Thread Starter
Joined APC: Jan 2006
Position: Burning the Agitprop of the Apparat
Posts: 6,191
It is very much like an insurance policy, the bet was made on the failing mortgage markets, it isn't that derivatives are evil(just like insurance) but that too many people betting one way, and being right, can kill the value of the "policy".
Poor judgement in calculating the amount of risk to the downside was also a factor.
Poor judgement in calculating the amount of risk to the downside was also a factor.
03-18-2009, 08:33 PM
#4
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Joined APC: Feb 2006
Position: 767A (Ret)
Posts: 6,248
Post time!
03-18-2009, 09:34 PM
#5
With The Resistance
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Joined APC: Jan 2006
Position: Burning the Agitprop of the Apparat
Posts: 6,191
Horse-racing tracks handle this danger by adjusting the payoff inversely to the amount bet on that outcome. Why couldn't Wall Street do the same? Some will argue that the analogy is flawed, since betting on the ponies is purely gambling, and that type of activity is rife with crooks and cheats. Ahem.
what do we suppose the outcome will be?
03-19-2009, 07:32 PM
#6
Gets Weekends Off
Joined APC: Feb 2007
Posts: 105
Interesting article... but it seems to me there would be no crisis with the derivatives contracts if loan defaults hadn't been greater than expected, and that wouldn't have happened had there been better lending standards, and had housing prices not increased 20% per year while incomes were increasing 3%. Moreover the need for mortgages to be securitized in the first place is driven by insufficient personal savings. I understand how the derivatives were the vehicle, but these economic fundamentals are what drove it off the cliff.
03-19-2009, 08:33 PM
#7
Gets Weekends Off
Joined APC: Jan 2006
Position: Student Pilot
Posts: 2,277
Interesting article... but it seems to me there would be no crisis with the derivatives contracts if loan defaults hadn't been greater than expected, and that wouldn't have happened had there been better lending standards, and had housing prices not increased 20% per year while incomes were increasing 3%. Moreover the need for mortgages to be securitized in the first place is driven by insufficient personal savings. I understand how the derivatives were the vehicle, but these economic fundamentals are what drove it off the cliff.
This is a major contributing factor. The Japanese figured this out years ago.
atp
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