#16 | Posted by Corky at 2008-10-06 12:15 PM
-The biggest culprit here, the enabler, is the government and social engineering activists.
Yes, don't pay any attention to the men behind the curtain who had to use physicists to package these products,then use insurance by another name to avoid regulation and sell them.
Honky Johnson don't.
Corky, the people who contrived the scheme that provided the opportunity to the slicksters, were the social engineers motivated to accomplish a goal of creating housing assets without recognizing what would occur. Money was piped in and prices rose.
The mechanism, the removal of prudent lending policies by government mandate, mandatory lending to minorities and the poor with coercion of the lenders, was initiated by the social engineers. There were loans made without deposit of any equity by buyers. Loans were made without verification of income, and without evaluation of ability to repay, as a government mandated procedure.
The social engineers undoubtedly were shortsighted, and did not anticipate that the influx of capital would result in increased prices of housing. They also did not anticipate the consequence of their programs as in their zeal and with their sense of euphoria, they were oblivious to systemic contraints on what they initiated.
What to do with only partially secured paper that Fannie Mae and Freddie Mac purchased without regard to its value. Hmmm.
This paper was on the market and accorded a worth far above what should have been its actual value, and the smart boys then contrived ways to market it and trade it as if it were worth more than it was with promises of excessive returns and other inducements.
It reminds me of a probably apochryphal story of an old ship that was permanently berthed in the harbor in New York with a cargo of canned sardines in its hold. The players traded the product for some 30 years, and then some novice bought into the ownership chain. He immediately went down to the harbor to view his purchase, and sampled the product. Well, the sardines were spoiled, and stank when the cans were opened. They were not a fit comestible.
The irate novice buyer went to the seller and addressed him with a string of profanities, anticipating an abject apology for the vending this worthless product and expected a willingness to return his purchase price. Instead, the novice buyer received a barrage of reciprocated invective with the seller raging, "You stupid so and so, don't you know that them sardines is for trading, not for eating."
Them securities were worth far less then was apparent, and were created for trading, Corky, and never were intended to represent real value among the cognoscenti. Unfortunately, reality intruded and the little game is at an end. But why bail anyone out in this futile effort to mitigate loss and pretend that the impact can be dampened. It may be delayed for a short time, but the hit will need to be absorbed. Let it be felt by these traders and knowledgeable purchasers of these mortgages, not others.
