Sunday, October 12, 2008

One More Thought on Global Meltdown

The media are beginning to sort through the debris and identify the upwards of 60-trillion dollars in bogus Credit Default Swaps as the real malignancy in today's global economic meltdown.

It's even argued that world governments should step in to make good these enormous liabilities. Yeah, that's right, a taxpayer funded SIXTY TRILLION dollar bailout.

Here's my problem with that idea. The banks, stock brokers and insurers who were trading back and forth in these Credit Default Swaps had to know they weren't worth the paper they were printed on. They had to know that they weren't good for the obligations they were selling and that the other firms weren't good for the obligations either.

So, if they engaged in this mutual, mass larceny - why the hell are taxpayers supposed to make good what was never more than scrap paper anyway?

What would happen if the world governments simply declared all Credit Default Swaps null and void? Tell all these financial sector giants that they're no longer liable on the CDSs they wrote but they won't be collecting anything on the CDSs they're holding either. It started off as a greed-driven scam, it continued as a greed-driven scam all the way until the meltdown, so why legitimize a scam by forcing the taxpayer make it good?


Anonymous said...

Good idea, at least partially if not in full.

It just defies logic that "bad players" should be fully rewarded for the bad financial packages they put together. Seems to send the message that the only thing they did wrong was not creating more faulty packages or larger ones.

WesternGrit said...

Well said! The governments should simply declare the loans/mortgages, and credit swaps null and void, let property owners keep their properties - by continuing to make payments to CMHC, or some similar body.

Let the banks die a slow and painful death! They are no-one's friends. Save the taxpayers instead.. The taxpayers who may have to default on their mortgages. Let the government body reassess the loans at a "friendly rate", and value the homes at the current deflated market cost - and let the banks eat the difference. Hey, they were reporting record profits for the past decade - and right up to this "crisis".

Don't bail out the f'n Billionaire Boy's Club..

The Mound of Sound said...

It strikes me that using taxdollars to, in effect, fund what was never funded to begin with is insane. Those who traded in the CDS's never could have had a legitimate belief that they represented actual value. Backstopping the underlying mortgages is one thing - that might bring stability to the market - treating these bogus insurance contracts is quite another. But I think that they can't hedge on this. The market has to be put on notice that these CDS's are worth exactly what they were when they were bought and sold and traded - nothing. Get that shock through the financial system and then clean out the mortgage problem.