The Money Pyramid - How the Money Supply has Grown

Kev09

chrisweb wrote: »

I sort of get it but its still not clicking - I think maybe cause some of the practices with CDS's were a bit illogical to begin with.
Recommend any background reading?

Hindsight is a marvelous thing but the people who thought up the CDS's and are now sunning themselves in the Caymans are the only winners here the banks acted like complete mugs. Here is my understanding of why it is such a mes!

A man with no job or money wants a loan to buy his house, so he goes to the bank, say RBS, the bank says, no way, we can't lend to you! So he goes to honest joes finance who give him the loan and take there big whopping fee (the fee bit is important) this loan is then tarted up a bit like you would do an old car, this is the CDS bit, and sold back to the very bank who knocked it back in the first place and someone takes a big whopping fee for acting as intermediatery. Now the bank has just bought a worse proposition than they had been offered in the first place as people had been taking fees off for their "work" and they have the original loan. This isn't the end of the story though the security that honest joes finance took was the mans shed for 250k in a Detroit suburb, now the man has no money so inevitabley he cant pay his loan back but now his shed isnt worth anywhere near how much he borrowed, the reason its price has rocketed as there was so much finance and demand around around, thats all stopped, so now its only worth 90k, so the man gets evicted he loses, the bank get security worth nowhere near their liability and have to write down the losses! they lose. The economy goes into reccession, we lose!

The only winners here are the guys who took the fees, the banks real crime was that the people in charge were so stupid they did not know what it actually was the were buying.

I know this might now really explain CDS's but the entire motivation for creating them was to make big massive fees out of re-selling very dodgy debt and making it look all nice and rosy, the same with any rogue trader, dodgy salesman, it was a scam on an enormous scale. The banks were happy to buy them as it made them all look great and they could give themselves big bonuses and the real vilians here are the people selling what they new to be "dodgy loans", who wanted to get their 0.1% of billion dollar deals for an extra yacht.

harryhound

To sum up:
There was a huge casino at work in centres such as London.
Everyone was scraping off commissions.
The wheel has stopped turning, regardless of the level of bad debt in the underlying securities.
So the members of the casino are out of a job and the rest of the world is significantly poorer.
The amount of "easing" is peanuts in comparison to the slump in the money supply,
Welcome to a collapse in asset prices and slumflation in taxes & real goods needed for day to day living.
Solution: nobody knows.
Response: grow your own vegetables.