Insurance and Credit
I never buy the extended warranty for cell phones, TVs, or other products*. It's insurance. The problem with insurance is that your payments are certain but your coverage isn't. You're guaranteed to pay them money every month, but when things go bad they're not guaranteed to actually cover what you thought they were going to cover. Suddenly you need to show them the original receipts and it's a $125 deductable and it's already obsolete and they're replacing it with another used one that would cost you less than $125 and it's going to take then seven to ten weeks. It's not fraud since it's all spelled out in the fine print, but it feels like it.
This is more or less the same thing that happened with credit default swaps. They were insurance contracts in case your bond defaults. And like the insurance on my Sidekick everything was fine as long as nobody tried to actually claim the insurance. But when the MBSes started to default suddenly the people offering the insurance couldn't pay what they said they owed. Except in this case instead of a $125 cell phone it's trillions of dollars of overinflated mortgages. And because it was unregulated, you didn't even have to insure your own securities. That's how we ended up with ten times as many insurance contracts as actual securities insured.
Moral: Insurance is not worth anything if you can't actually collect on it.
Side Note: Billionaire Mark Cuban launched the Bailout Sleuth blog, paying investigative reporters to dig through the terms of the bailout and find anything that looks fishy. Today the SEC accused him of insider trading. Coincidence or payback? Maybe just the actions of two organizations that don't like each other very much.
* Except Applecare which is fast, easy, fairly reliable, and does not pull any funny business about deductibles. If it breaks they actually fix it, usually within a week or so. AppleCare insurance is worth something because I can collect on it.
This is more or less the same thing that happened with credit default swaps. They were insurance contracts in case your bond defaults. And like the insurance on my Sidekick everything was fine as long as nobody tried to actually claim the insurance. But when the MBSes started to default suddenly the people offering the insurance couldn't pay what they said they owed. Except in this case instead of a $125 cell phone it's trillions of dollars of overinflated mortgages. And because it was unregulated, you didn't even have to insure your own securities. That's how we ended up with ten times as many insurance contracts as actual securities insured.
Moral: Insurance is not worth anything if you can't actually collect on it.
Side Note: Billionaire Mark Cuban launched the Bailout Sleuth blog, paying investigative reporters to dig through the terms of the bailout and find anything that looks fishy. Today the SEC accused him of insider trading. Coincidence or payback? Maybe just the actions of two organizations that don't like each other very much.
* Except Applecare which is fast, easy, fairly reliable, and does not pull any funny business about deductibles. If it breaks they actually fix it, usually within a week or so. AppleCare insurance is worth something because I can collect on it.