Quote:
Originally Posted by Doctor Dre
And tell me what happens if the american people don't 'fix' that ?
The whole fucking world as we know it collapses...
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They went about it the wrong way.
We are not getting anywhere creating a bunch of Zombie institutions who don't lend and have to gobble up bailout money just to survive.
At the very least, null and void all Naked CDS contracts where the beneificary didn't even own the underlying security. Taxpayer is paying insurance claims to institutions who paid a fraction of that amount in premiums.
Think of it like this:
300 people on GFY pay me quarterly premiums to insure a certain security.
Out of those 300 people 20 actually own that security.
I am betting the security won't default so I profit off of the premiums.
20 GFY members the ones who actually own the security are hedging for legit reasons.
280 GFY members are simply betting the security will default so they can collect a huge sum.
The security defaults and I'm forced to payup. I can't because I never had the means to do so in the first place.
I have to get bailed out in order to pay off all the GFY members.
There are two things here that should NEVER have happened.
1) I should of never been allowed to put forth those guarantees without having the means to pay.
2) GFY members should of never been allowed to insure a security that they don't own. - Moral Hazard. Those GFY members for all we know could of done everything in their power to make sure the security defaulted.
The magic of private contracts between individual parties. Not regulated, nobody knows what your holding, the whole thing was just a loophole to evade the rules set in place to prevent this from happening.