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richardhutnik on 19 December 2010
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Kasz216 said:
richardhutnik said:
Kasz216 said:
ChichiriMuyo said:

But there was absolutely no way for them to fail serperately because of credit default swaps. 


Huh?  Credit Default swaps exist specifically FOR diversifying the risk to make it less risky.

Instead of having 5 loans in Las Vegas, you have one in LV, one in Chi, 1 in NY etc.


In an regular market, Credit Default Swaps makes things safer.

In regular markets, why does one need to have credit default swaps?  Looks to me, what you with what you suggest is form interconnections that make the downside of risk far larger, when the abnormal happens.  The problem is with irregular markets taking down the entire financial industry and causing the economy to go to a screeching halt as it had been.  Do you have answers for the large number of working people who lost their jobs, and have a hard time standing a chance getting work back, because of "well, in normal times, it is safer"?  Having incremental failing in normal times enables people to be able to find work.  Cascading failure that happens when you interconnect things, does not.


You risk cascading failure when something VERY unusual happens to lower risk everywhere else. 

What do you say to people when something happens that was literally thought to be impossible?

I'm sorry, something happened that was literally thought to be impossible, by everybody... until like a year before it was going to happen.

I mean, what can be done about derivitives now?

Nothing.

Derivitives are worth more then 10 times the GDP of the world?  I mean, what do you think the effects of deflating that would be?  I can't see it being pretty.

Incompetent people find things happening they LITERALLY thought impossible to happen.  And I hate to tell you this, but just becauses MASSES of people, stuck in group think, didn't think it was possible, doesn't mean EVERYONE did.  It is interesting how in one post on offtopic, I am informed ANYONE can get rich.  But then I am also informed in another thread that EVERYONE didn't see it coming.  Really, EVERYONE?  No, just a majority sucked up in groupthink. 

Here are links pointing to people who say it coming:

* Ron Paul: http://libertymaven.com/2008/09/19/ron-paul-the-nostradamus-who-predicted-the-current-financial-crisis/1965/

“Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market,” Paul predicted. “This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

* http://www.nytimes.com/2008/08/17/magazine/17pessimist-t.html

On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.

* Roubini and other economists who predicted it: http://indistinctunion.wordpress.com/2008/12/09/economists-who-correctly-predicted-the-crash/

* Peter Schiff: http://www.huffingtonpost.com/2008/11/14/this-guy-predicted-the-fi_n_143965.html

* 5 who saw it coming: http://www.thedailybeast.com/blogs-and-stories/2008-10-28/5-big-shot-investors-who-predicted-the-crash/

This was from a few minutes of googling.  It is time for people to make excuses for powerful and rich people messing up who happen to cause much harm to a lot of people.  In this case, people did see it.