HOUSE OF CARDS 1

HOUSE OF CARDS

(CNBC)

The business channel of NBC interviewed numerous players in the great Crash of

October, 2009. The cast and crew included ordinary consumers, bank executives, and federal officials.

Ultimately, the bottom line of the beginning of the Depression was the Collaterized Debt Obligation. To create a CDO you use mortgages that are very shaky and not worth the risk. They are called Adjusted Rate Mortgages and are loaned to folks that have poor credit. You then mix them with some very good mortgage loans. After that you tell the rating agency to make the Cod’s into AAA ratings. That is the highest safest financial instrument.

Then you take that instrument and bundle it with other CDO’s and then with even more CDO’s. Each time that you bundle, you add value to your holdings. In other words, with some very swift and clever maneuvers you get richer and richer without doing anything.

The rating agencies assume that houses that are sold will increase in value by 6% each year. The five largest investment banks have billions of these funny money bundles that are not really worth that much. Here is roughly how they various groups play their roles.

1.  Most folks don’t know what they are doing and keep buying.
2. Others partially know, but believe that Laissez fair capitalism or Free Market capitalism automatically self corrects. Free markets always make their own corrections. The last statement is taken as faith.
3. Another group keeps on with their investments and knows that it will fall, but either will get out of the way with their money or plan to drop out before the crash.
4. Another group stays in because the Feds will see that they won’t lose a lot of money.
5. Another group sells and makes commissions. They do not invest in the market.

Rather they put their money in low yield but stable market venues.

(A handful can see what is happening and they buy mortgage insurance so that when the market crashes, they make money.)

Many that were interviewed indicated that they were never interviewed and regulated by the government. The ratings were never monitored. It was an arena

where it appears that just about anything was not unlawful.

Only one person who was part of the swindle felt guilt and was visibly moved when interviewed. The rest felt that consumers should abide by caveat emptor.

That means that it is the obligation of the consumer to do all of their homework and if they lose their money, it is their fault.