To: koan who wrote (7563 ) 1/26/2012 3:23:28 PM From: Thehammer 1 Recommendation Read Replies (1) | Respond to As I recall, what happened was the banks were bundling the loans and then selling them around the world, collateralized debt obligations (CDO's). Many of them were sub prime and were sold to Germany and Japan. Then in one day in 07/08? all of the banks quit lending to each other as no one knew what the CDO's were worth; so there was no capability for "mark to market" as no one knew what was in the collateralized debt obligations (CDO's). The bundling had been going on for many years before this. I think the root issue was that the prices folks were paying for houses was at an unsusutainable level. Housing was in a speculative bubble. The trigger events that defalted the bubble was rsing interest rates and teaser rates resetting. Soon the market went from too much demand to too much inventory. With some of the ensuing panic and there a run on banks that were thought to be in trouble - WAMU, Wachovia, Morhan Stanley etc. The day to day lending and inter bank lending did dry up. Some money market funs "broke the buck". I.e. it was impossible to tell the worth of the collateral. Yes, the underlying collateral was dropping in a day to day basis. All sellers - no buyers. To compound the problem, AIG had written multiple policies: Credit Default swaps (CDS's) on the same properties and could not pay.That is why Bush gave AIG 82 billion, no questions asked, which they then passed through to Goldman Sachs and other banks around the world .AIG wasn't the only one doing this - they just happened to be on the wrong side and one of the last to figure it out. The book The Big Short covers a lot of the detail... The theory (and I but into it) was the entire banking system was on the brink of failure. PS AIG had one office in London with 100 employees writing the CDS's with each employee making over a million a year in commissions. You may be right on this , I don't recall - they obviously needed to pay their cheif riskofficer much more than they did. In the mean time when the banks froze up and the vix sky rocketed to 4%, the fed was giving trillions to banks behind closed doors, to keep them from collapsing. Rumor has it Paulson got on his knees to plead with Pelosi for the 700 billion congress approved under bush for the banks. The banks were not required for any quid pro quo i.e. and did not pay any penalties. Still are not. Many of the banks did not want the money which actually took the form of prefreed stock that paid something like 5% interest and then 9% interest. Most of the big banks have paid it back. There was restrictions placed on the banks that took TARP. It was also rumored bush could not understand what Paulson was telling him as to why there was a need for all of this and simply went up to bed. Perhaps - though Bush did try to reign in FNMA / FHLMC and had to fight his own party to get it passed. One might add above that a lot of the bad loans were bought by FNMA. And even now the banks are getting money for near zero and loaning it out at huge profits. The banks (investment banks) caused this collapse with their gambling, but are profiting big time with record bonuses, even while mainstreet continues to flounder. Have you looked at bank earnings, dividends and share prices? Mainstreet in many instances is foing better than Wall Street - Aaple, CAT, MCD, IBM, GWW - . Even now there is over 700 trillion worldwide in hedge fund gambling with no controls. Got me And no one went to jail, even though much fraud is known What individual comes to mind? I se a ton of incompetency but not a lot of fraud. I would seriously look at Jon Corzine though as it looks to me that they violated the Securities and Exchange Act of 1934 as well as Sarbannes-Oxley...
