1 Boring Old Man

A couple of weeks ago it seemed okay for me to say "I don’t know much about the economy," or so I thought. As things are playing out, it was anything but okay. Up until a few weeks ago, I knew that lending institutions had allowed people to buy property who had no money to pay for it – getting loans that had strange names and deferred payback schemes. So I knew enough to know what the problem was, but I didn’t know why they made those loans, or how they were allowed to make those loans.

A couple of weeks ago it wasn’t so clear to me that when John McCain said "I don’t know much about the economy," he was leaving out his direct and indirect involvement in the sequence of event thats lead us to the door of financial collapse that stands before us now. If he doesn’t know much about the economy, what’s he doing hanging around with the "Keating Five?" Why is Phil Gramm his "Financial Advisor?" John McCain is chairman of the Commerce Committee, for God’s sake!

Three Times is Enemy Action by Devilstower
Connect The Dots by DarkSyde

So why would lending institutions want to make bad loans? That makes almost no sense. It’s because it gives them something that looks like it has value. With deregulation, mortgages became a commodity – something of presumed value to trade. Disconnected from the actual loaning institution and property, they have been traded like baseball cards – having a value disconnected from their origin [bubble gum]. But they’re supposed to have value, so they’re insured. But then the loan insurance becomes a commodity disconnected from the loans and the liability, and the insurance is traded. All of this trading generates a lot of money for the traders. So long as these loans have value, and their insurors have assets, things are fine in a rising market. But when the bad loans default and the insurors have no assets to cover the defaulting loans, and the banks have hidden their liabilities in something called "debt transfers," the house of cards collapses.