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Politics : GOPwinger Lies/Distortions/Omissions/Perversions of Truth
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To: Lizzie Tudor who wrote (140850)10/11/2008 2:06:58 PM
From: geode001 Recommendation  Read Replies (1) of 173976
 
It's my understanding that the underlying assets at Lehman being sold for 9 cents on the dollar are actual Lehman debt.

"The lower result means dealer banks that sold protection on Lehman's debt will end up paying more than they had expected -- 90.25 cents on the dollar."

The people who owe the 91 cents on the dollar are those who sold the insurance on that debt. There are too many people with too few assets who sold insurance on that debt more than once and maybe many, many times in all kinds of convoluted transactions that are still not transparent to anyone including Paulson.

Lehman sunk their money into the real estate market, that goes down, Lehman goes into default and everyone in the insuring-of-debt-default chain suddenly owes money to the people who paid the insurance premiums. Since they aren't regulated insurance companies and since this is happening all at once there isn't enough capital to cover these losses and the whole system of insurance (gambling) goes down.

At any rate, that's how I understand the problem.

So, as I understand the various bail outs, Paulson's primary focus appeared to be the insurers who were in reality just gamblers who collected premiums but who never expected to have to payout anything. It seems to me that Paulson was trying to keep this particular bubble inflated at the back end instead of trying to address the original problem: debt.

It seems to me that it would have been infinitely cheaper to arrest the rate of foreclosures which would have mitigated some of the insurance problems while simultaneously unwinding these insurance markets by regulating them.
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