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deelix
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Location: Norway
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Parallax_
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Location: Norway
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 Posted: Fri, 23rd Jan 2009 16:35 Post subject: |
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Just watch Zeitgeist Addendum, it explains the monetary system perfectly.
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spankie
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Posts: 2958
Location: Belgium
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| Posted: Fri, 23rd Jan 2009 20:25 Post subject: |
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yeah yeah, just watch MTW and you know we are fucked.
As long as those yuppies in college keep "maxing out" credit cards and think they are spending money we are fucked.
USA thinks credit is a readily available pocket you can grab from to buy some luxury to keep the economy pumping. Oh and lets drop the rates to 1-2%...
It doesnt need a lot of rocket science brains to realize that in the end, someone has to pay for the debts...
Well in the past, it was easy. Just pack your debts together and use some houses you bought as collateral. Ah no problem, defaulting on the payment? Just sell the house, prices of houses always go up *cough cough*.
Than there were some smart wall street guys. Heeeeeeeeeeeey, let's get a loan, buy some houses with it. Use the houses to get a second (bigger, houses always go up you know...) loan and buy a company with the money. The first loan, no problem, we will pay it back later.
Than there were some retards in Wallstreet, called the obligations insurance companies. Heeeeey prices of houses always go up. So they said to the company that issued the loans, we have a genius businessplan. "We dont know the risks of the loan, because we dont know who is lending money from you, but just give us 0.5% of the loand and we garantue you that there will be no defaulting. We put an insurance on your loan". And everybody was happy and making money.
But it was not enough. Than came the even more genius thing called the CDO. Whats so genius about it? Well you can keep it of your balance, ooooh wonderful. That is just wonderful for the short term oriented Harvard bussiness school yuppy type that has stock options expiring in 3 years, punp the stock, run away, and when the CDOs are finally worth 0 they come on the radar....
Whats a CDO? Well, hang on, it sounds stupid, because it is. You first create an SPV or SIV special purpose vehicle, special investment vehicle, whatever you want to call it. The SPV needs money and will issue obligations itself, called the senior, mezzanine and equity tranches. Once the SPV has the cash, they buy some shitty mortgages and credit card loans from other companies. Instead of getting the money over time, the bank takes the money at once, but reinvests it again in the SPV, the SPV will do all the work in collecting the money.
Now comes the 'genius' part.
Those CDOs often have 100 billions! in loans outstanding, off balance, because you are not really invested. You have sold 100 billion worth of loans and invested them back in the SPV.
Ok so what happens over time? You have invested some billions and they have your loans. The SPV collects the monthly mortgages. People with a senior tranche get a fixed, low return. There will be (hopefully) money left, they pay that to the mezzanine tranche investors. And the equity tranche, well thats the equity tranche. Some months they have some more than other months.
So what happens? Everybody pays his credit card loans and mortgages: everybody happy. Senior, mezzanine and equity tranche are happy.
Some minor troubles, some people are not paying back their loans, and thus the SPV is losing money. Who gets paid? senior and mezzanine tranche.
So you invested like 40 billion in a CDO equity tranche and you get a whopping 0 return. You can hide it for some time, because, well yeah, off balance 
Until last summer... And it becomes even better when banks used those CDOs as collateral to get new loans and sold them to europe...
I guess you guys figured that we all got screwed by some "smart" moneymakers because "houses never go down"...
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