| Kasz216 said: For those who don't understand what derivitives are, think of them as "loan insurance." One bank pays another bank to cover the risk for a package of loans that it has, carefully crafted with deals from with morgages from all over the country, because up until the national housing bubble, there has NEVER been a nationwide crash. Housing bubbles are pretty much always localized in one or two cities... because cities fortunes rarely change togther and people are moving SOMEWHERE. However what happened was, due to the aforementioned subprime loans and other loans in general, the number of "risky owners" was waaay too high, and default rates started to be waaaay to high, nationwide, because nationwide loaning being too loose was the cause of the bubble. Now this caused failures that caught that banks off guard because the failures were so paramount they had more debt then they had money. So they had to start calling in other loans raising the interest rates, rates that lots of people weren't able to pay, and the whole thing collapsed hard. (Hence why the number of sub prime loan defaults is a small amount, they started the avalache they weren't the avalanche.) Were there not such agressive measures for EVERYONE to own a home there would of been no problem... ever. |
If people were smart, and not greedy, they would of seen this coming. You had Wall Street ending up leveraging off bubble growth numbers for housing prices going up. They were unsustainable, but no one was paying attention. Where I am had a microcosm of that. Shoot, the entire Hudson Valley area of NY is a microcosm of America at this point.
What irks me here is that you have politicians from one party wanting to turn a fact finding mission into a partisan piece to pitch a certain agenda that doesn't cover all the facts. They wanted the words "Wall Street", "derivatives", and "shadow banking" not to be used? How do you report on something that did impact Wall Street without using those words? And how can one say derivatives weren't a problem, when they were? The derivatives and the leveraging off them were a problem. The size of the derivative market go to be like over 10 times time size of the world economy. If that isn't a problem, then what is?
