The Financial Crisis: What Do We Get?

Oct 15, 2008 22:04

mackys asks What is a reasonable estimate for the ACTUAL value of the mortgage-backed "junk" securities that $810 billion of my tax dollars bought?
The answer to that question has fluctuated every few days recently, so note that everything I say could be wrong soon.

First, a timeline.
  1. US Financial System: OMG! We paid way too much for all these ( Read more... )

capitalism, financial crisis, communism, economy, sex, mortgage, humor, money, bank

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Comments 11

mackys October 16 2008, 07:33:08 UTC
Remember that money isn't the only thing in the world worth exchanging with another person.

Yeah, but as a man my bodily fluids have no intrinsic value. ;D

Thanks for a very long non-answer. ;]

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altamira16 October 16 2008, 11:43:22 UTC
At least a small piece of this has to be in metaquotes.

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dr_tectonic October 16 2008, 13:28:06 UTC
The other thing to remember is that arguably, that $8.1e+11 purchased not just a bunch of weird pieces of paper with indeterminate resale value, but a sizeable chunk of Continued Functioning of Civilization. How big a chunk is hard to say, but in my book, Civilization is worth a lot, so I'm okay with it if it turns out we don't get all our money back from reselling the abstractions later on...

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mackys October 16 2008, 19:24:45 UTC
I guess my major problem comes from not the intent, but the way it was done.

I think I read somewhere that $2 billion could have paid off all the mortgages currently in default, and $500 billion could pay off half the mortgages in the USA. Given this, it's hard (or not) for me to understand how our idiot government came up with the idea of giving away $810 billion.

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flwyd October 16 2008, 19:43:08 UTC
I think the price tag comes in large part from derivatives. If you have a $1,000,000 mortgage there could be tens of millions of dollars of derivatives floating around based on it. As Planet Money explained (or maybe it was This American Life a couple weeks ago), it's like everybody on your block taking out a life insurance policy against you. When economists talk about worries this could spill over into the "real economy," we can infer that it's already destroyed the imaginary economy ( ... )

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mackys October 16 2008, 21:32:26 UTC
The individual mortgages in default are not the main piece of the global economic crisis (though it's certainly part of personal economic crises). Assets were overvalued and so banks were undercapitalized when the bubble burst. This is the liquidity portion of the crisis. Further, investors are very leery of many of the existing assets and don't trust their lending options. This is the credit part of the crisis. So while $2 billion might stabilize a lot of mortgages, it wouldn't go very far to recapitalize the banks. (For comparison, Warren Buffet invested $5 billion in Goldman Sachs.)My uneducated opinion is that we should address the underlying cause (credit) and let the liquidity stuff work itself out. I haven't been a big fan of this WE MUST MAINTAIN LIQUIDITY AT ALL COST thing since way back when Bernake first started making noise about it this spring. Seems to me that we're fixing the short-term problem (stupid derivatives and bad financial instruments that have already proven themselves worse than worthless) and not addressing ( ... )

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grenacia October 17 2008, 00:26:05 UTC
Cool post. Some of the timeline made me giggle.

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xoxeskel October 18 2008, 03:39:12 UTC
Entertaining. Will read in more depth later...hopefully.

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