Posted by Mike (WA) on March 16, 2009 at 09:41:24 from (69.10.199.245):
In Reply to: O/T Recession posted by Ben Grimes on March 16, 2009 at 07:13:35:
Through all this, I've been wondering why AIG was getting so much more bail out money than anybody else. They're an insurance company- why are they so special? Well, the answer appears to be, "credit default swaps". They, more than anyone else, insured the risk of the packages of mortgages bought and sold by Wall Street. And the scary part is, the default swaps themselves were then packaged as investment instruments and sold; Then, when everything looked like it was going in the tank, Wall Street firms started "shorting" the default swaps packages! That is, "betting" that they would fail!
The big problem here is that by allowing what amounted to unlimited "side bets", the potential liability goes far beyond the lack of security for real estate loans- its in the multi-trillions of dollars- some have estimated there might not be enough money in the world to make good on all of these.
So Uncle Sam will continue to feed money to AIG to make good on defaulting swaps. The only good thing is, there won't be a "run on the bank", because the Wall Street guys know that that would bring them all down. So everybody will keep mum about the real extent of the problem, and if real estate values can be stabilized, a large part of the problem will evaporate overnight.
If you read the link, be sure to also read the comments below it.
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