Wall Street Coup | 19 comments (19 topical, 0 hidden)
paper vs property (none / 0)
There is two sides to this coin. One side is the paper and bets traded between banks, brokers, AIG and the people who bought the CDO's. The other side is the actual commercial and residential real-estate. The triggers for the CDS payouts were tied to underlying asset values of both.

When the mark to market rules changed, it created a margin call thus a fire sale on the real estate market for commercial property owners and home builders, as well as the banks. The banks went from requiring 5 or 10% equity to requiring 20 or 30% regardless of your payment history. In other words, as short sellers were driving stock and equity assets into the ground the victims had to liquidate devaluing assets in a falling market to maintain capitalization or margins. 
This forced downward spiral wiped out all the operating margins and reserves for most companies as well as states. Don’t forget, that it was the very same short sellers and brokers that drove oil to $140 barrel putting the final nail in the coffin of the economy.
The whole thing has been manipulated to create artificial lows and highs. The same leverage that was used to drive the bubble was used to devalue it. It is long standing Goldman practice.  Due to naked short selling, the leverage on the way down was much greater than on the way up since you did not actually have to buy the stock or wait for an uptick. Hence the quick collapse. As the insiders changed the rules through Paulson, Cox and Bernanke they placed their bets accordingly.






by sisco66 on 02/09/2010 07:35:28 PM EST

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I didn't know this: (none / 0)
"The banks went from requiring 5 or 10% equity to requiring 20 or 30% regardless of your payment history."

While I can understand that if the banks changed that requirement abruptly it could cause some inconveniences and cause some borrowers to drop out of the market, isn't that a good thing overall?

by EveningStarNM on 02/09/2010 10:44:59 PM EST

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Ya Great, for Goldman Sachs (none / 0)
You have to look at how all the pieces fit together. Not to be smart, but you do know what a margin call is, right?

When a 100,000 commercial property owners have to start dumping properties into the real estate market at the same time, while rates were high and values were already declining it creates a massive downward spiral on property values. Fire sales, and that is if you can actually sell the property.

At the same time this was going on, you had more or less the same process happening in stocks, corporate bonds and CDO's due to short selling, all triggering CDS payouts to the very people doing the short selling and creating the margin calls. Not to mention making money on the shorts. Oil as well. Behr, Merrill Lynch and Lehman were all neck deep in oil at $140 a barrel, even Buffet.

Not only did the developers and speculators get caught with their pants down in real-estate, they lost everything they had in the stock market as well. The fire sales happened so fast that people instantly started walking away from their home, particularly if they got trapped into having 2. Our builder sold the model with all the upgrades and fully furnished for 100k less than the base price of the house the year before, he needed the money.

So to answer your question. No it's not a good thing to force people to sell at the bottoma, unless your Goldman Sachs.

by sisco66 on 02/10/2010 10:36:49 PM EST

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one more step (none / 0)
Many of the people who purchased with ARMs or sub-primes but could have probably afforded a 30 year fixed were unable to refinance without paying PMi insurnce once the rate expired or reset, due to the loss of equity. PMI on a 400k house is probably close to an extra $400 a month. That's a lot of cash when gas is $4 a gallon and all your credit card rates are 30%.

It was an across the board assult on the a American people, a true act of terrorism. And it was done and continues to be done to us by our government on behalf of  Goldman Sachs, JP Morgan, Citi and BOA.

Note: The bankruptcy rule changes only applied to people, not corps. It would have been very easy for the OTS (office of thrift supervision) to shut down AIG's thirft or bankrupt it without killing the insurance company, as Cenk suggested.

by sisco66 on 02/10/2010 10:50:31 PM EST

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Wall Street Coup | 19 comments (19 topical, 0 hidden)