Unregulated Credit Swaps More Than World Income
In previous notes, I have been saying that current financial problems are too big to bailout, that a trillion dollar bailout could tank the US government, here's why:
"BOB MOON: OK, I'm about to unload some numbers on you here, so I'll speak slowly so you can follow this.
The value of the entire U.S. Treasuries market: $4.5 trillion.
The value of the entire mortgage market: $7 trillion.
The size of the U.S. stock market: $22 trillion.
OK, you ready?
The size of the credit default swap market last year: $45 trillion.
KAI RYSSDAL: That's a lot of money, Bob."
As in three times the whole US gross domestic product, Bob. And the truth is that Moon probably underestimated. The unregulated and poorly reported credit default swaps may have actually passed $70 trillion last year, or about $5 trillion more than the GDP of the entire world.(Devilstower at DailyKOS)
The "too big to fail" theory does not work, when there is no one big enough to come to the rescue!
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Too big for bailout?
are you aware that Democrats in congress are trying to add even more debt to the bailout bill?
Democrats want pay limits, loan aid in bailout.
I don't think anyone will argue that if the government is going to "invest" in the mortage market that taxpayers do not have the right to demand an end to "goldern parachutes".
But is spending even more a good idea?
Actually - that is a root cause fix
As long as there are rotting houses, we have a huge financial problem. Putting people in the houses and back to paying for the houses is fixing the root cause problem. So actually we should pay for that first! The rest is just allowing the rich to get free money for stupid decision making.
Fixing the root won't help if the tree is already dead
you are missing a piece of your puzzle. unless they can pay cash on the barrel head, people can't be put back into their houses unless there is someone out there to hold the loan.
if you allow the mortage banks to go under, and personally i think they should be allowed to go under, a bankruptcy court will have to liquidate all of the assets to pay off the creditors (the stock holders. you and me). like it or not, that's the law. that means that every mortage that is held by those banks will become due and payable immediately which means that everyone that can't come up with the cash, gets put out.
see, things are not as cut and dried as your trying to make them. Newtonian physics has it's counterpart in finance, ie: for every action, there is an equal and opposite reaction.
That not true
Loans get transferred all the time without becoming due immediately. Part of our current mess is the transferability! So yes on liquidate - which means selling the loans!
Sell them to who?
that's what i'm saying. if we let the mortage banks fail, there won't be anyone to buy them.
that is just what happened during the dust bowl years of '31-'39.
farmers use mortages of their land to pay for equipment and raw materials. unfortunately, it didn't rain so the crops died. so the next year, the farmers mortaged more land to keep going. after five years of no rain and depleted soil the banks started to foreclose on the mortages.
because of the stock market crash in '29, there wasn't anyone left in business to refinance those loans, so the banks sold the land to big agribusinesses that paid pennies on the dollar and then consolidated all of those little farms to make a profit.
the government is in essence stepping in to buy those mortages which will keep them from beinig foreclosed on.
Separate Acts
Yoo hoo, the action on the loan and who owns the loans are separate acts. So if we stepped in and stopped the foreclosures early, then we would have people paying funds and houses still in good shape.
However at this point, we as the government should not pay full price for the foreclosed loans, no one should. A foreclosed loan with no one paying, no market and a trashed house is not worth anything!
We should rescue real people not stupid decisions!