One Place With No Bank Failures, Few Foreclosures, and Still Working

I am totally amazed at knowing this, but there is only ONE country in all of the developed group of nations that is not facing any bank crises, closures, or banking bailouts, as well as few mortgage foreclosures or personal bankruptcies. ONE

This country has strong legislation on banks that demands a much higher ratio to loans vs. deposits, so the money within the system is higher. In fact, these banks are posting profits, albeit lower than previous years.

This country has strong federal legislation over the ratio of down payments to the total mortgage amount, so that unless you have saved at least 20% of the purchase price of a house or condo, you cannot get it.  The lenders are NOT allowed to issue sub-prime mortgages, are NOT allowed to turn the mortgage papers over to others to be used in credit default swaps, and each bank must keep track of the mortgage within their books. Housing prices have dipped, not dropped, losing maybe 18% overall, with some markets remaining stable.

So, there is a solution for other countries to follow.

Add in the fact that this same country has a national health care system, and it is also one of the major trading nations in the G8 and the G20 and there is a huge number of people all over the world wondering how this one country managed to avoid the meltdown and crises affecting them.

Basically one country is a total anomaly to the whole financial mess. Weird but true. Yes, one or two of the banks within this country did get bitten by their transactions in the U.S., but only in a minor way and the deposits and other investments were more than enough to cover the losses.

Where is this place? Straight north of the U.S., Canada.

There are those who use the word “socialism” without knowing the truest meaning of that word, but for years Canada has been labelled as a socialistic society.  The government was seen as overbearing, intrusive, even too conservative to allow free markets to thrive. Taxes are only slightly higher in Canada than elsewhere.

If that is the picture of stability, then perhaps it is time some of the world governments and banks, investment houses and other agencies learned to be far more conservative, even boring.

Going Down? How Long Do You Think This Will Last?

Books to read, and a previous post that should be referred to when devising any solutions. Click here

Jobs going out the window, literally. Companies going under, literally. Houses and foreclosures happening so often now the news services no longer cover this issue. Wow! Like watching a huge ship sink, except this is in very slow motion.

My question here is how long do you think this is going to last?  I thought it may last a couple of years, but when I look at this like an injury to a body, with the bleeding so profuse, and the cuts all over, the outlook for this patient is tentative at best.

So, what do you think? What treatments are out there to stop the bleeding, the damage still happening? The more minds working on this, the better, is my thinking here.

President Obama used words like “Catastrophe, disaster” and, by looking at the damage even now, I have to agree with this.

Solutions! We will work through this, there is no other choice. But how? Come on, give it a go!

My somewhat brief understanding of CDS and loans that sank the banks. Click here.

Obama, Slam Those Salaries, Now!

I knew at least two months ago that the CEO’s and other fat cat exec’s would find a way to circumvent the ceiling on their bonuses, their income, and get the money.  Quelle Surprise!

They made over 100 of the upper echelon in one company “partners” to get around this,in others,  they just thumbed their noses at the taxpayer, the government and took the money anyway.

I have yet to see anything to get those damned Credit Default Swaps under control, and with the serious lack of legal recourse, the fat cats are eating out on the taxpayers of the entire world. Remember, most of the banks do have international branches or connections.

President Obama, put those ceilings into law, harsh penalties if they violate, and make damn sure they do give you full disclosure on every damn cent of taxpayer monies they are spending. No excuses, no hiding, nadda.

If necessary, put a full investigation using every federal agency, including the IRS, the FBI, and the Wall Street agencies. Stop this abuse of trust now.

As for our own government here, there is an equally apalling lack of investigation, oversight, accounting, so I can gather the same is happening in Japan, Korea, the U.K., Belgium, Germany, and virtually every country tied to this disastrous mess.

Here is where diplomacy comes in, there MUST be an international cooperation, an international accounting, and definitely an international effort to kick these guys where, obviously, they need it, in the wallet.

Damn this is a mess!

Corporations, Banks, Others Way Too Big Now?

This may sound like a simple question, but with all the bailouts and over 7.7 TRILLION dollars spent in the US alone, which amounts to $24,000 dollars per adult and child, I am really wondering if international linkages and businesses have gone beyond reasonable limits.  The reasoning for bailing out AIG was that “it is too big, too involved, to allow to go under” and now Citibank and subsidiaries along with the Big 3, Ford, Chrysler, General Motors are all in that same basket, all “too big, to much an integral part of the economy” to be allowed to fail too.

Maybe one of the plans or regulations or restrictions of some kind should be put on corporations that get to the point where the failure will create a massive disaster. I don’t know, but one thing I do know is the old saying, “The bigger they are, the harder they fall“. I suppose the corollary to that is the deeper the hole they create when they do fall.

Wal Mart is another part of the huge economic downturn. How on earth can I say this? Well, if most remember, when Wal Mart moved into communities, small shops, business, suppliers all died off. What most people want are lower costs, true, but at what detriment to their own communities. Each small business in town paid separate taxes, school, road, etc. as well as creating jobs for the owners and the employees in that small business. When a store like Wal Mart appears, the tax base goes down, not up. The wages for businesses who supply smaller stores are usually better than those paid by the big box stores, and most owners try to provide benefits for themselves and their employees. Wal Mart is well known to buy goods produced overseas, sending the money to foreign suppliers along with jobs.

Yep, people may get some things cheaper, but overall the economy loses. Businesses that worked in tandem with their neighbours often worked more efficiently, and became an integral part of the community, with problems dealt with on site. Again, is this type of business “too big to be barred”?

If people want to have work, decent work, then maybe it is time for the small business owner to be allowed to thrive without dealing with the big box stores. Each of the big box stores hire fewer employees and pay them as little as possible. Employment goes down, not up. Imagine trying to get a foothold in business when you have to deal with those who have the funds to undercut you at every turn. Tough to make a decent living with that going on, yet people want work!

Some of the Wal Mart stores have been unionized. Yep, they have been. Yet, Wal Mart tried to make a case for closing the first store to become unionized by closing it and opening another close by. Hmm not a good way to be a decent employer or neighbour, or one that I would, personally, want to have nearby.

Yes, I do shop at one of the big box stores here, but I will never work or buy from Wal Mart. The way the company treats the general public, employees, and especially their suppliers is a methodology I cannot support. So, I speak with my dollars. I will shop at other stores that compete with Wal Mart instead.

Big banks, with many arms into all kinds of financial realms, can make a very shakey structure if one part is weakened. Citibank is one of those, with a multiplicity of arms. GM even got into mortgages, instead of maintaining the focus on automotive innovation.  AIG got into some financial areas it should never have, so when it got into trouble, out goes the tax man to pay up. AIG was supposed to be an insurance company, backing mortgages. See a theme here? Corporations did not keep their focus, did not keep their area of expertise intact, and others, like Wal Mart, have removed small businesses all over the country, even internationally. The effects are now being seen as people are either worried about jobs, or out of the workforce, maybe for a long time now.

Bigger is defninitely NOT better, when bigger can crater economies.

Tax Money, Whose Is It?

Town council, city council, state, province, federal, even tax for schools and roads, all depend on someone having to pay up. Lately I have noticed a laissez-faire attitude toward the spending, the use of those tax dollars, as if the supply will always be endless and plentiful. Bad attitude!

Whose dollars are those? Whose pounds, yens, pesos, are those? Often they come from the pockets of the poor, the fastest growing segment of most societies. This means children are often eating poorly, going without new shoes, clothing, so the taxes can be paid. Those taxes are coming from families with single parents working part-time, paying for daycare, rent and all those other daily expenses. Tax dollars come from the people who work in minimum-wage stores with no health plan. Tax dollars come from the small shops who make or sell things. Tax dollars come from welfare payments, retirement income, the small trust funds of children who have lost a grandparent. Tax dollars are seldom gained from those who live in the high-income brackets, because there are write-offs, tax deductions for stock losses, and other means to avoid paying taxes. For every 100 tax dollars, less than half of 1 % is from those who make the most.

Poverty bashing has been a growing game, with those who are forced to live on food stamps, unemployment payments, and welfare the people targeted for derision, scorn.  “Get a job!” “Come on, get off your butt and get out there, earn your own way!” “Stand on your own two feet, I am tired of you sitting there and collecting money, tax money, from my hard earnings!” Take a look at almost every industrialized country statistics and you will find a very ugly trend. Poverty is growing. One in ten children now live in poverty in countries that have huge wealth, why? Wages for single parents are usually low, college, university, even health care courses are all well out of the range for any children of single parents. Costs have risen consistently at all those higher education sites, putting the squeeze on money. How could any of those children even consider getting out of the poverty black hole? Food banks are a common sight now, when once, food banks were only seen in cities with huge populations.

This is where Barack Obama had it right, START AT THE BOTTOM! The real bottom. The middle class has virtually disappeared because of the huge gap between those earning the high wages and income and the lower. The middle class is quickly becoming part of the poverty class, the lowest rung on the ladder.

When the 3 auto makers showed up in Washington, for example, there was a severe public relations gaff they made. People were aghast that those CEO’s showed up via private jets to ask for the tax money. Hmm not a good plan, guys! This showed a complete lack of understanding and even comprehension about tax funds, where the money comes from.

This current shakeup is, in a way, ironic. Those who “invested” in CDS, who played funny-money with others hard-earned money, have lost a huge chunk of their own income from the stock market collapse, the losses in the real-estate speculations, the property bought as “investment” for rental. So, no longer are those people walking around looking like they “own” the world. But, those people are the very ones who distained the ordinary working person, the money and taxes from the growing poverty class, and spent like a lottery winner. CRUNCH!  Now maybe some people will realize that every person who is going hungry, who lives in misery, is directly connected to all of us, and in ways we don’t see, we are the ones who are hungry and miserable too.

The bottom line here is respect. We need to relearn respect for ourselves, to do what we know as well as we can. We need to have those who want to have our tax money learn to respect the work required.  Maybe, just maybe, we can then learn to respect those who live with the hardest struggles, those who have been scorned and derided, the Vietnam veteran, the father, the mom, the sister, the son or daughter who live on the cold streets.  Yes, they deserve respect too.

Most of all, we all need to respect our own lives, to realize that we do all have unique abilities, skills, and underneath, we all are sacred, no matter what religion or belief system we use. We also have to respect our world, making sure that we don’t create such a mess that animals starve or get sick and die from poisons we add to the world.

Every being alive looks for a better future, wants to create a better world, and every one of us is capable of doing that. What the definition of “better” is, is where we have to put respect, honour and care into choosing what we do.

Child and Family Poverty Growing in Canada

Little Change For 20 Years in Poverty Rates

Welsh Children and Families living in poverty

National Center on Child Poverty, Letting Poverty Remain Costs All Of Us

State by State Cost Of Child Poverty in the U.S.

As long as we all believe that we MUST be compared to others, we all lose perspective. Poverty WILL grow now, with job losses, houses foreclosed, debts rising, and support systems being slashed.

Credit Default Swaps and Banking Screwups Killing Economies

60 Minutes on These

I finally got some information on these and now perhaps it is time to make someone aware of how totally unregulated these were and are. The show “60 Minutes” put up one very simplified but complete explanation of what CDS are and how they were used to make some banks and people millions on the backs of mortgages, loans, and other money transactions.

In layman’s terms the CDS is essentially an unregulated insurance policy. It guarantees the performance of a security instrument , e.g., a mortgage. The buyer of the CDS pays the maker a fee or “premium” (think insurance) for protection against a loss. Historically the US Treasury has not classified derivatives as “insurance,” and therefore they trade free of any government regulations. Because of that, the firm selling the CDS is not required to set aside any reserves from the premiums received to insure against possible future loss claims. This obviously makes the sale of the Credit Default Swaps extremely profitable and default loss payments very expensive.

These were made against banks themselves, by banks, and if the Swap moves around, banks may end up with Swaps against themselves as well as having other banks “owning” Swaps against each other!  With no regulation, no means of tracking these, they remain hidden, still able to take down corporations, banks, and virtually everything with a loan on it, including mortgages still being paid today!

Basically the banks, Bear Stearns, Lehman Brothers and Citibank, along with virtually every bank in the US, along with a few international banks got caught with their hands in the cookie jar, bringing down a really nasty recession on everyone.

Swaps ARE insurance, but because insurance IS  regulated, the banks and investment houses used the term “Swap” to blatantly circumvent insurance regulations.

On September 23, 2008, Christopher Cox, Chairman of the U.S. Securities and Exchange Commission, placed the worldwide CDS market at $58 trillion, and stated it was “completely lacking in transparency and completely unregulated.” The U.S. Office of the Comptroller of the Currency reported the notional amount on outstanding credit derivatives from reporting banks to be $16.4 trillion at the end of March 2008. (For reference and perspective, the U.S. GDP for 2007 was $13.8 trillion, while the world’s GDP for 2007 was estimated at $54.3 trillion)

See the problem here? Playing high stakes poker, literally, put the bets beyond the ENTIRE world Gross Domestic Production!

What happened is that the mortgages were turned into “Swaps”, even good mortgages, the resold over and over again, until the hidden market was well over the actual value of the entire world GDP. What is truly scary is that there is absolutely no way of knowing EXACTLY how much of this toxic paper is out there, or the true value of any of it, BECAUSE it is a hidden, secret market.

Why am I reiterating this now? Well, those very “instruments” are now being put on the market this week, and there are still no regulations on creating more right as I am posting this!

“It is an insurance contract, but they’ve been very careful not to call it that because if it were insurance, it would be regulated. So they use a magic substitute word called a ’swap,’ which by virtue of federal law is deregulated,” according to Michael Greenberger, a law professor at the University of Maryland and a former director of trading and markets for the Commodity Futures Trading Commission.  The deregulation of the swaps market is thanks to provisions in The Commodity Futures Modernization Act of 2000. Who was President and Secretary in the US at this time??

One large difference between credit default swaps and insurance, is you do not need to own the bond or instrument being insured in order to obtain insurance on it. If the bond fails, then, theoretically, you get paid, possibly along with many others. Yet the “insurer” of the bond is not regulated and the transaction is beyond federal or state regulation. This allow speculators to make money by purchasing insurance on a company’s bonds and then shorting the stock of the company in great quantity and getting a payoff that exceeds their risk of shorting if the price of the company’s stock increases. The fact that you need not be a party to owning the bond also explains why the total value of credit default swaps is so high, indeed higher than the total value of the bonds issued.

Translation of bafflegab to ordinary language? You and I do NOT even have to put any money or have a stake in this to be paid off! Speculators all cashed in here!

AIG sold them, bought them, moved and split them, and some banks are still making, moving, splitting them right now.

Until the banks can declare openly what they have in CDS, what they risk, and where their money is being invested in, this will be open season on the government funds, central banks all over the world, and I have yet to see any demands on ANY banks to disclose their swaps.

Obviously this has yet to come out with any transparency, any real idea of what kind of real trouble we are all in, all because of some sneaky, coniving, greedy banks, investment houses, speculators, and the government officials who KNEW these were out there and did absolutely nothing.

This is the End of an Era

The Government is NOT doing what is necessary, there is a better way.

Well, after watching a huge number of news broadcasts, reading until I feel like putting every written word into a huge pixel black hole, I have come to see that the way things have been working for the last 25-30 years is over, done like our Thanksgiving turkey this weekend.

People have had the expectation that they could borrow up to 6% over their income and still keep going. That is bizarre to me. Spending 106% of your income and expecting to keep things going is expecting yourself to become more than you can ever be!

Housing prices have risen so fast that the costs have ballooned way over the true price, the real value, of those same houses. Speculators, agents who took fees to sell off the bundled mortgages managed to make the whole market balloon to the point where things went BANG!

Make no mistake, just like Milken, et al , the agents had no compunction about taking the fees, and putting ordinary mortgages into a highly risky place, leaving those who were the original lenders and the house purchasers in a position where it became impossible. There became a distance between the lender, the mortgage and the purchaser. The agents did not care, do not care, and will not care who the purchaser is or was, and furthermore the agents have their money and can walk away without even blinking.

The Paulson idea of taking out the toxic sludge is never going to work. Why? Because it is impossible to put a value on paper that is basically completely impossible to unwind again.

The markets should go down again this week. Why? Because the toxic sludge from the collapse of Lehman Brothers is going to be due. Those who were tied into that sludge are going to have to take some huge losses again.

There has to be a complete understanding from main street here. No longer can we use credit to solve problems, no longer can anyone expect to have a charge card without realizing they are literally borrowing money at exhorbitant interest without that interest being a huge balloon that also goes BANG! The worst thing that older people can do right now, in my opinion, is to take out a reverse mortgage. Why? Because they may end up with a home that is never going to be worth what they are borrowing against, and end up being forced to repay instead.

Whether this all ends up being a very long, very harsh road, or a bumpy ride that is shorter depends on how banks deal with the mortgages that are not in default, yet, and the people who have taken those mortgages out rewriting the mortgages to reflect the true price of the houses in THIS current market.It also truly depends on how the various administrations in the US, Europe, Britain, Hong Kong, Australia and others deal with this. They can either make it a hell of a lot worse or shorten the drop. My gut feeling is that, unfortunately, the advice that most of the governments, administrations and other are getting is wrong, totally wrong.

Unfortunately I have been watching this all happen and, some years ago, realized the way things were going would end up dropping like a huge boulder on house at the bottom of the hill. In other words, although this seems surreal, I am not all that surprised. The idea that capitalism is self-regulating is just flat silly. Greed cannot be regulated, only controlled, using laws and regulations. Yes, there are flaws to what humans do, but at least we all SHOULD be learning WHAT NOT TO DO!

This could get very, very ugly.

Toxic Debt, Banking, Greed and Stocks

Well it seems the banks who currently have toxic debts on their books want to keep them. Why?  Apparently the upper echelon want to make sure they keep their fat pay cheques, their bonus structure, and their ability to use “golden parachutes”. If the Secretary puts up a reverse auction (bidding starts high, then goes down) that would allow the government to be involved with the banks and cut the income, collapse the “golden parachutes” and put a limit on the bonuses or pay cheques.

What happens when the banks keep the toxic debts? The depositors have their money in an unhealthy bank, the stability of the bank is undermined. All in the name of greed, apparently.

Last night the candidates were asked what they would do first when they got into office. Personally, my agenda would be to find those very upper echelon people, investigate them using these refusals, and if possible persue charges. The other thing I would do is go into the books of Fanny Mae and Freddy Mac for some of the information on shady trading that is documented there and follow that up. Names of companies, traders, etc should be there, so find them, follow the paper trail and do what is necessary to take those same greedy, self-centered, narcissistic people out of the system, if only by taking away any licenses etc they may have.

Second on my agenda is those damn lobbyists. Kick them off the fat-cat train, get them out of the halls of the House of Representatives, the Senate, and off capital hill.  If necessary, create a law that makes lobbying highly limited. Yes, there are some lobbyist for education, schools, social issues, and they need to have a voice somewhere, but there are some lobbyists that want to promote greed, capitalism and money interests and those must be dealt with severely.

The entire world has now been sucked into this whirlwind. I can bet that a lot of people around the world are looking at the very shady business practices and cursing out loud. This is one mess that must be cleaned up, starting with those who pushed for the change in regulation in congress, in the banks, in the investment houses, and put those people out of power. That will include Paulson, because as an executive in Goldman Sachs he pushed for the opening of the door to creating some of these same toxic financial papers now choking the entire world banking system.

I can bet a lot of the people who played this pyramid scheme, ponzi game, whatever you want to call it, are now becoming aware of just how much damage they could cause. I can also bet that the impulse to find those people is growing. Let the law, the FBI, do that job.

I have read so much financial information in the last two weeks I almost feel like a banker myself. Good grief! Maybe this will, pardon the pun, pay off later. What I have found out is that putting trust in the stock market, the investment companies, is often betrayed. That betrayal is fast turning to anger, outrage, and frustration.

Obama needs to alleviate some of the frustration as quickly as possible. Find the players who played with lives, played with jobs, played with the stock markets by selling empty, toxic papers bundles, and abusing the trust of not only the American people, but the banks and people over the entire world. This will not be easy, mostly because the banks will demand privacy. Phooey! When you wreck an economy, cause people to loose homes, put self-centered greed and interest ahead of anything else, you have become a public figure, in my opinion.

Economists have no clear idea where this is going, mostly because this is unique. Yes, banks caused some recessions, Savings and Loan fiasco caused some serious losses, but this has become unique because it involves the world now. It started in the US, it started with the CEO’s and upper echelon, but it is going to finish off a huge number of jobs, good companies, and maybe a far longer list of decent neighbourhoods too.

Hang in there, this is going to be going where no man or woman has ever gone before, without the spaceship. We all live on one small planet, so maybe this is the time to truly become neighbours.

Recession, Depression, Whatever You Call It

John Kenneth Galbraith has authored a number of books, “The Crash of 1929″ and others on political economics. He has been an ambassador, a writer of books and he has a solid take on the ways American influence has affected the world, good and bad. Ironically, he is a Canadian. If you want to read some enlightening books on economics and the world, find his books. They may have been written years ago, but they are certainly relevant now. If you want to cut to the relevant part here, go to around the 43 minute mark on this video. You will be astounded at how much things are almost duplicated then, and now! Bloody scary, bloody ridiculous!

There is an impression that if left alone, the government to stay out of the market that the financial markets, by some God given power, will solve the problem.

This is from the years just before the  Great Depression Do these words sound like some of the current Congressional leaders? The Senators? Even the President himself? Take a look at how Eisenhower, Roosevelt managed to deal with economics, the withdrawal of the US in unpopular war (Korea) and realize how much history has to teach the current administration and any administration to come!

Even if they manage to pass the bill facing the US right now, the economies of the world are NOT going to be in any kind of rosy state for quite a while. This bill, in whatever form it takes, will NOT solve the problems, it is just a start. Period.

The massive consumption of goods is not going to continue. I figure that this will affect all of us for at least 5 years, maybe more, so if any of us figure that we can resume spending, borrowing using credit cards and other lines of credit, we are WRONG.

There are going to be jobs lost in Asia, China, the US, and Europe, but what this bill may do is to keep those losses to a lower level, not stop them. Business will not resume as it did before the banks and  the toxic waste they devised became known. What is really mind boggling is that most of the very banking “experts”, the economists, and the ordinary people don’t even understand this. Most of us, including the banking and economics experts find this far too complicated, far too extensive, far too large in scope to figure out.

Regardless of how this comes down, I am going to see property prices drop more, although here the property prices are still way over the true level in value anyway. The foreclosures in the US will continue, they will rise and so will bank failures.

Get the idea? This bill is NOT a cure, not a way to solve the problem, just a small beginning, with pain still to come. The international news knows this, why on earth do the Americans in the administration, including Paulson and Bernanke not know it, nor the President?

Tough Times

Most people know the news in the US and around the world has not been good this week.

Well, it seems that some banking institutions have done what most of us know is stupidity displayed.

I had to read several explanations to understand what in hell was going on.

So, I am going to try to put it into simple terms here, if only to clarify my own thinking.

A friend approaches me for some money to borrow. (read bank here)

I have some money set aside, but not quite enough to cover the entire loan. (read liquidity in bafflegab banking terms)

I ask why they want to borrow, and they say , ” Well, ya see, I just started working (read they are a bit of a risk to repay) and I want to borrow the money for a car.”

Now, if I were one of the banks that went under, at this stage, I would not even check out what make, model or year, but put my own interests (pun definitely intended here) and my own greed into play.

“Sure, I can lend ya the money, and you will have to just pay me a very low interest, but if you don’t pay it back ( I will use weeks here to represent years) then after 2 weeks the interest changes. I won’t bother to tell you right now what will happen, we will see then.”

Friend is anxious enough to borrow, to have the car for ego buffing, and has no intention of saving up for the same car. So, they agree.

We sign off an agreement.

What my friend does not know is that I don’t have all the money.

I get another phone call, asking to borrow money too!

So, I make a call.  Someone I know is interested in being a silent lender (read investment banker), and has taken steps with an insurance company to cover bad debts, sort of like betting that the debts will not get repaid.

I mention I have two people who want to borrow, but I am not “liquid”, and would my “investment” person back me with some funding. Of course they want interest on their money, but again, they have taken out insurance against failure. Either way they get paid.

What I don’t realize or am told is that the “investor” has no money at all, but they are “selling” this debt bundle to someone else! (read insurance or another investment dealer with no regulations overseeing all of his or her finances)

Sound complicated?? Yep, it is.

BUT! Here is the catch in the whole thing. The investor really does not have the money, the backer of the investor uses some paperwork to show a bundle owing, but has no money invested.

So, where does the money come from for me?

On a note to a bank from the backer.

The money is sent to the backer, then to the investor, then to me, then to the friends who borrow.

Is the picture getting clearer now?

Well, surprise of all surprises, friend pisses off his boss, loses the job, and instead of selling off the car, approaches me.

I have two choices, here. Take possession of the car (which I now find out is basically a wreck) and try to get what I can from it, or demand payment.

Friend cannot repay, so I am in a financial bind here (banks over-extending on sub-prime or high risk loans) so I talk to my silent friend (investment banker) who has the insurance.

But…. the debt is higher than the collateral is worth (wrecks go to the wreckers, right?) and the insurance does not cover the entire debt.

So… he goes to the backer!

Backer has taken out a paper on the debts and now is finding out that they should have investigated the original worth of the collateral and the ability of my friend, myself, my investor, to repay, but they did not.

The backer’s bank calls in the papers, the investor is facing some serious money problems, and I am now broke!

I can seize the car, and put it into the auction, but after doing that, I get maybe 10 cents on the dollar.

And, of course, my friend is out a car, has to declare insolvency (tells me they are totally broke, again) and I get told to sell of what I can to cover the debt I owe the investor. Damn!

So off I go to the pawn broker and sell off something.

Well, all is not rosy for the investor, because they have to pay the backer and I am broke too. Sorry.

They end up selling off some items because the backer has charged them interest on a larger amount, because the insurance company put the “investor” into a higher risk category now.

They end up with some money, the rest of us………. go to second jobs.

Basically this tale is what happened on wall street, with secret loans and bundling of loans to another level, with some of the insurers turning around and getting papers on the debts.

I did not check out the car, did not check out how often my “friend/s” repaid their loans or even how many hours they would work!

Neither did my “investor” , nor the backer, nor the bank who drew up papers check out the risk, the collateral worth, the trustworthiness of the layers below them.

I paid all my debts, so I would be a good risk, but I put my money on a debt that was high risk with someone who had trouble balancing a bank cheque and balance each month.

But, I put my own financial stability on very shakey ground.

Here is the bottom line.

Banks in the US should have always put money into savings, like I did, but neither of us put ENOUGH money into savings.

Instead we relied on credit, lines of credit and the greed.

If a bank is stupid enough to lend money without knowing the people, without checking out the area of town they people are buying houses in, and without having a truly secure basis for understanding the loans (read mortgages) here would be paid, then as far as I am concerned, they should get slapped.

Now, remember the original conversation?? Where I did not happen to mention that the interest would change to a definite amount??

Bubble interest, rising rate, whatever you call it, the banks who lent money to a hell of a lot of people did not happen to mention that the interest rate on the mortgages would rise, significantly.

The analogy here would be that I did lend my money at 3% for 2 weeks, then, if the debt was still there, no matter that it was all of it, or some of it, I would demand repayment at 8%.

Now my friend was budgeting on his repayment for 3%, right? I did not disclose that I would basically up the rate to over double the rate in 2 weeks!

No wonder he could not repay it! He overextended his own money, in the first place, then I hit him with a huge jump in payments.

This is why so many people got their home foreclosed on.

The banks used bubble mortgages on the loans.

So, yes, the shit has hit the fan, but perhaps the whole story boils down to a very simple, very obvious thing.

IF YOU CANNOT BUY IT NOW WITH CASH, YOU CANNOT BUY IT WITHOUT RISKING SOMETHING