Quote from sprstpd:
By the way, why has nobody set up a regulated exchange for credit default swaps so that these contracts can be traded with quotable prices? It would solve the issue of transparency. The thing is, I doubt the banking system would like it as it would show everyone just how many banks are insolvent.
As for bailing out individuals, it is really hard for me to swallow as well. Except in the cases of mortgage fraud, I cannot stand the notion of rewarding reckless financial behavior (in the form of taking on a mortgage that could not possibly be repaid). It seriously makes me want to vomit.
The legislation that allowed for credit default swaps to become a $70 TRILLION DOLLAR NIGHTMARE - - - without any regulation/oversight, or the transparency of being traded on an exchange and cleared via a clearing house . . . came from none other than Republican de-regulator,
Phil "Enron" Gramm via the
Commodity Futures Modernization Act of 2000 which passed through Congress without even a committee hearing or a recorded vote.
Again, I don't think that the point is about
individuals paying their mortgages or being upside/down as much as it is about the
BANKS.
Several very LARGE banks are currently insolvent. If you stand idly bye and allow them to go under, you are going to not only subject other banks to "runs" and total panic and chaos, but also to Lehman Brothers-Part II x's 1000 due to the counter-party risk.
If they don't go under and are somehow able to stay "afloat", they will most likely become the kind of "Zombie" banks that we saw help create the
stagflation long decade of Japan in the 90's.
Some form of Govt. intervention is necessary at this point and time, in my opinion . . . and that will most likely include some form of loan modification if not an actual reduction in the face-value of mortgage principle.
To argue otherwise, is to simply say that we are willing to do nothing and stand pat - - - virtually guaranteeing a total collapse of the banking system and an economic Depression.
I fear that the comments posted earlier in this thread by Volcker and Soros are spot on.
