Thanks .. This part is enlightening.
>>AIG's largest trading partner wasn't a nameless European bank. It was Goldman Sachs.<<
In a nutshell .. Neither the Bank nor the Insurer had to Place Reserves on Deposit to Satisfy either Obligation. The CDO nor the Swap. So the Beanstalk Grew into the Clouds .. Magically.
>>Basel II regulations. These regulations determine how much capital a bank must maintain in reserve. AIG appeared to offer banks a way to get around the Basel rules, via unregulated insurance contracts, known as credit default swaps.<<
Enter Phase 2 ... The Insatiable Consumer funded by the HELOC.
America's allocation of wealth is as concentrated as ever. In 2004, 10 per cent of America owned 71 per cent of its riches. But thanks to the HELOC, the ordinary householder could pretend to be better off. The Home Equity Line of Credit, a smaller second mortgage against the appreciated value of the house, paid for big screen TVs, new cars, house extensions, distant holidays and pressing credit cards. Consumption went mad on it, because a house bought for $250,000 might easily have been valued at $400,000 three boom years later, and could supposedly support a second mortgage of at least $100,000.
The pattern began decades ago, but exploded in the past five years. Home ownership hit 69 per cent as mortgages were made available to anyone with a credit score and a pulse, as one former mortgage broker put it. The subprime market - those who should not have got loans - tripled, and by 2006 accounted for one in five home loans.
Now, in a country with 75 million home owners, 10 per cent are behind on repayments or have foreclosed. Urban decay and contraction is everywhere, a reversal of a 50-year cycle. "The American narrative always includes growth," says Hunter Morrison, of the state university at Youngstown, where abandoned streets are being bulldozed to make open space. "No one wants to talk about shrinkage. That's too threatening to politicians, civic boosters and chambers of commerce."
Modern America was predicated on abundance and certainty: of food, fuel, safe and navigable roads, of housing, of the world's currency financial standard. Underpinning it, seemingly, was a labyrinth of investment and reinvestment - a system of on-selling mortgages, of bundling mortgages, of insuring mortgages, of securing the future price of mortgages - so corrupt its inventors and manipulators face FBI investigation, and so complex they scarcely understood it. They didn't really need to, so long as it turned over.
[Is this phase 3 or part of 2?]
This endless, heedless spending manifested itself in ridiculous excess, from the civilian Hummer to shopping space of 1.876 square metres per head of population, compared with Britain's 0.232.
bunbury.yourguide.com.au
Loose Change: Lenders pull back on home equity lines
Home-equity lines being reduced
Planning to cover the college tuition this fall by tapping into an existing home-equity line of credit? You could need to turn to Plan B.
Big-name lenders are reducing or shutting off existing home-equity lines of credit. One of the latest moves was by Morgan Stanley.
Lenders are taking action in some cases because borrowers don’t have a reasonable shot at repaying all that money since the home isn’t worth all that much anymore.
This month, Morgan Stanley, the second-largest U.S. securities firm, told thousands of homeowners that it would unilaterally close their home-equity lines of credit.
Its letter to homeowners stated: "Our recent review showed that your home value has declined significantly since the time you opened your HELOC." Some homeowners had barely tapped into their existing lines. Consumers are required to continue to pay at least the minimum payment due, if any, each month.
Some homeowners did say they were later told they’d be given a chance to appeal through a "walk-by reappraisal" within 30 days.
— Detroit Free Press
star-telegram.com |
