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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (44095)	12/19/2008 11:25:53 AM
From: Hawkmoon	2 Recommendations Read Replies (1) \| Respond to of 217689

i am interested in the end-story - i.e. does madoff get serious jail time, say 3x what milken got. I'm more interested in who else he implicates in this case. He couldn't have carried on this charade and tossing that kind of money around without some complicity on the part of other scoundrels. As for who this is impacting, I suggest you revisit that thought. The manipulation of the MBS markets (both upward and downward) has dramatically hurt J6P. First, it put them in a position of having to purchase new homes in an artificially inflated marketplace (regardless of whether the loan was sub-prime, Alt-A, or Prime), and then it brought down the house of cards square on top of their heads via an arbitrary application of FASB 157. We have any number of people we can blame for this, but in the end it comes down to the credit rating agencies (RA) failing to provide objective analysis in assigning their ratings. They worked in collusion with the IB's to package and rate these mortgage securities and the monolines were DENIED the ability to assign the appropriate insurance premiums that might have kept a lid on this bubble. Higher insurance premiums would have made them less financially attractive and provided a necessary check and balance on the system. But the RA, by assigning exaggerated ratings to them, forced the Monolines to assign a premium far lower than what should have been the case. They charged AAA premiums when they should have charged far higher for the risk that was implicitly involved. And then the FASB pulled the rug right out from underneath them by implementing M2M on the products. There would have been far fewer problems involved if the junk had not been mixed in with the good stuff (regarding MBS and CDOs). At least investors would have have the option of buying AAA securities without being forced to swallow the toxic stuff as well. This impacted EVERYONE TJ.. People who put down 20% and played by all the rules now find their home value declining. The monolines don't have the capital to insure anyone's mortgage. Banks that purchased these MBSs/CDOs, believing they were equal in quality to the underlying debt, suddenly find their capital structures severely impaired (regardless if the instrument is still paying as designed). Furthermore, the banks don't want to lend against a deflating collateral (the home). But those homes will continue to deflate until people's confidence (eg: jobs) is restored and the financial mechanisms that promote and enable home ownership are restored and rehabilitated. Madoff and all of those who have perpetrated similar frauds (which I believe many still remain to be uncovered) have affected all of main street. Sure, some wealthy investors have been taken, but now the rest of us taxpayers have to come up with more than 17 Billion to make for the tax revenue losses, and SIPC and the Fed may find themselves in the position of making whole on Madoff's obligations to counterparities. But even greater than that, financial and economic confidence has been severely shaken and it's unleashing those "animal spirits" which are instilling fear and apprehension, the best friends of deflation. If you're afraid for your future, you don't spend, or you look for the cheapest bargains when you do have to spend. And the only way to counter that fear is to give reason for a hopeful future (jobs and opportunity). Hawk