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Politics : Formerly About Advanced Micro Devices
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To: TimF who wrote (420923)9/30/2008 2:29:31 PM
From: TigerPaw1 Recommendation  Read Replies (2) of 1572096
 
The cause of the economic problem is not bad mortgages.
The cause is that the debt-backed securities that "own" these mortgages are not clearly tied to the mortgages themselves. All of the securities were marketed alike even though some have a great risk, and others are a really good set of loans.

It would be bad enough that the securities are more risky than thought, but then they could just be written down and life would go on. What makes it a crisis is that the securities are bought on credit, and then options on the securities are bought on even more credit. For each mortgage dollar there is 100 dollars of credit that isn't really based on any tangible asset.

The correct answer will be to require the investors and hedge funds that are buying the debt obligations and especially the options based on them to put up real money, not just leveraged promises. The ignorant answer is to slow down the underlying mortgages which add to real economic growth.

TP
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