Bear in mind now, that underneath this all are subprime mortgage loans and pool of subprime mortgage loans in which only eight percent have to go bad for the whole CDO to be worth zero.
NPR Interveiw with Lewis Author
Submitted by Ron Ryan, Esq. (Tucson) with the following comment:
The story broke on 60 minutes last week and on NPR Tuesday about people getting filthy rich from buying multiple CDS, which was a large cause of the economy almost sending the world into Apocalypse. While so far they got that part right, they are selling it like there were just some smart people that noticed that the the pools were doomed to “fail,” meaning there would be a moment when the trigger defining failure would surely hit (8% default rate), what they are missing is that this was pre-planned as part of a grand scheme.
Editor’s Note: I agree with Ron. These people were obviously not stupid. They walked away with trillions. The task of homeowners, litigators, forensic analysts, and experts is to explain the counter-intuitive nature of this scheme — to engineer as large a pool of cash or cash equivalents in exchange for zero value; that means by definition creating inherently defective loan products and selling them to unsophisticated homeowners who were not in a position to know the difference.
In economics it is called asymmetric access to information. On the other end, the investors were led to purchase inherently defective bonds thinking they were backed by mortgage loans, which collectively created a low-risk pool.
Only the middle-men knew the truth. So only the middlemen purchased credit default swaps betting against the very loans they created and against the securities they sold. And only the middlemen presented claims that were satisfied by the Federal bailout under the false representation that THEY were holding toxic assets when in fact it was the the homeowners and investors that were holding toxic assets.
Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: asymmetric access to information, CDO, credit default swaps, inherently defective loan products, Lewis, NPR, pool, subprime mortgage loans, TARP, toxic assets | 3 Comments »