> RoMunn wrote: > I would have preferred no bailout, but we risked systemic failure on a > global scale. As devastating as a systemic failure would have been here
Here's why our economy is so fecked right now and the $700B did nothing: There is $55 Trillion in 'notional value' of swaps out there right now. So what's that mean?? You know how you have car insurance, right? The way it works is that if you get into an accident the ins company pays to fix your car. Could be $1000, could be $40,000 but they pay. What swaps do is allow everyone on this list to bet that you'll crash your car. So, for example, let's say you do crash up that [Honda Element?] Under normal insurance, the economy's exposure is simply the cost to repair the [Element] assuming no injuries, etc. Let's say $10k. So the economy's exposure was $10k, right? But wait. If everyone on list bought a swap against you crashing your car - and we can no problem - we'd all be owed what it cost to fix your car. Thus the exposure to the economy goes from $10k to [($10K)*(num cf-listers)]. Why? Because with swaps everyone can buy insurance against something they don't own on the bet that the thing they don't own will break. If it does, then all of the buyers are owed the fix amount even though they didn't own the underlying asset. Under a Phil Gramm economy - and this is actually, literally, the case today - the economy's exposure to that single event is unknown. It could be $1B or $1T or $10T. AND all of these swaps people are connected in a big web wherein if one person can't pay on their swap contract it can take down 10s or 100s or 1000s or others. This all means that A SINGLE MORTGAGE DEFAULT can cost thousands or millions or billions or more. We don't know. So when you tell people that $700 billion makes everything ok the only people that believe that are people that don't understand swaps. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Adobe® ColdFusion® 8 software 8 is the most important and dramatic release to date Get the Free Trial http://ad.doubleclick.net/clk;207172674;29440083;f Archive: http://www.houseoffusion.com/groups/cf-community/message.cfm/messageid:276801 Subscription: http://www.houseoffusion.com/groups/cf-community/subscribe.cfm Unsubscribe: http://www.houseoffusion.com/cf_lists/unsubscribe.cfm?user=11502.10531.5
