The Big Short

[g5000]

Let's say twenty people bought insurance on your house and it burns down.

Now, instead of losing $200,000 the insurance company is out $4,000,000 on a $200,000 asset.

You have 20 people with $4 million more and 1 insurance company with $4 million less.

Why does that amplify the GLOBAL consequences of a $9 trillion mortgage market?

You don't see a problem with a $4 million risk on a $200,000 asset?!?! Really?

The companies which sold the insurance did not have the $4 million to pay out. They did not set aside any reserves or take any offsetting positions.

Boom!

 

[Toddsterpatriot]

You don't see a problem with a $4 million risk on a $200,000 asset?!?! Really?

The companies which sold the insurance did not have the $4 million to pay out. They did not set aside any reserves or take any offsetting positions.

Boom!

You don't see a problem with a $4 million risk on a $200,000 asset?!?! Really?

One party lost $4 million; 20 other parties gained $4 million. Really.

The companies which sold the insurance did not have the $4 million to pay out.

Yes, they fucked up.

They did not set aside any reserves or take any offsetting positions.

I know. And how much did they lose?

 

[iamwhatiseem]

When Lehman collapsed, the same dipshits in Congress asked him how the CRA had affected Lehman's collapse.

His answer: "De minimus."

The broker-dealers were not subject to the CRA. Goldman, Lehman, Merrill, Bear, JP Morgan, Morgan Stanley.

The vast majority of "crappy mortgages" were happily and willingly created by the mortgage brokers and the broker-dealers. In fact, they worked very hard to get the US government to get out of their way so they could make more and more crappy mortgages.

And the damage caused by those mortgages was exponentially amplified by the derivatives built around them.


Anyone who says otherwise is totally ignorant.

Enter - Larry Summers, Robert Rubin and Alan Greenspan.
The perfect storm.
Summers - the "King of Derivatives" is the mastermind. Rubin, the task master and Greenspan the soulless genius who would gladly bankrupt his own mother if the practice increased investor profits.
Greenspan is the creator of "debt as income" mentality, both as government practices and individuals.