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Politics : GOPwinger Lies/Distortions/Omissions/Perversions of Truth -- Ignore unavailable to you. Want to Upgrade?

To: Lizzie Tudor who wrote (138910)	9/27/2008 8:06:36 PM
From: geode00	Respond to of 173976

In theory there are loans made on actual homes and in theory those homes are worth something. However, as far as I can tell: 1. Some of those homes have negative worth. They are so worthless that it takes more to pay the back taxes, pay all the various fees, probably bulldoze and then rebuild them etc. than they are actually worth. Banks are now refusing to even take possessions of some homes because they simply do not want them on the books. I have heard that 1/10th of all homes built since 2000 are empty. I can imagine that includes entire developments in places like California's interior and Las Vegas. 2. While the original bank loans were made to actual people with actual homes, the derivatives are only based loosely on mortgages. They are also based on commercial mortgages, credit card debt, auto loans, commercial paper, etc. 3. If this were just the home mortgage market, it would appear to be a $1 TRILLION in-default-right-now problem. We have already ponied up $200 billion or so to guarantee 1/2 of all mortgages in the USA when we nationalized Fannie and Freddie. We also put $30 billion or so into BS and another $85 billion into AIG. Therefore, on the face of it, there are perhaps another $500 billion of in-default mortgages out there still to be covered. If that is the case, why is there a need for $700 billion? 4. As far as I can tell the really big problem isn't so much the mortgages which have (usually) hard assets behind them. The real problem is the speculative derivative insurance market that is only loosely based on real debt of all sorts including residential mortgages. Through hook, crook, fraud and utter stupidity these banks borrowed money like crazy in order to play with these instruments that do not appear to have a marketplace. an exchange, for buying and selling. No one knows what value, if any, these things have. Perhaps it is too simplistic to say that the really big problem is the amount of money that has gone into these instruments that are now illiquid (bloom is off the rose) and that may be originally worth as much as $60 trillion. That kind of problems dwarfs our $14 Trillion GDP, our soon to be $11 Trillion national debt and anything else on this planet. As far as I can tell, that is the real problem that has Paulson and Bernake in a dither, not the residential mortgage/housing problem. That isn't good either but it doesn't begin to approach the much larger bubble. ==== As for valuation, ML sold for 22 cents on the dollar. Who knows what anything else is worth. If the economy is in recession, it is worth less. If we keep borrowing like this, the dollar sinks as well. "When Merrill Lynch (MER, Fortune 500) on Monday sold a $30.6 billion portfolio of risky mortgage debt for 22 cents on the dollar, it took a big - though by no means final - step toward providing the sort of transparency that will have to sweep through the financial sector before any sustained rebound can take place. That's the good news. The bad news is now that investors can see the picture a little more clearly, it's pretty ugly." money.cnn.com