World News Blog

US, NY to investigage credit default swaps market

The US government and New York attorney general will investigate the credit default swap (CDS) market to see if short sellers violated any laws.

Interestingly, many are blaming the CDS market for the Wall Street meltdown. The Bush administration claimed the taxpayer needed to purchase "toxic" mortgage assets to save these financial companies. It may be that rumors helped cause a collapse in credit default swaps used to insure banks against mortgage defaults. When these swaps failed, the mortgage-related securities also failed.

StarPhoenix
US, Cuomo Open Credit Default Swap Investigation (Update1)
Bloomberg - 1 hour ago
Cuomo has been investigating whether credit-default swaps were manipulated by short sellers to spread false rumors about financial companies. ...
US, NY Probing Credit-Default Swaps Wall Street Journal
US probing credit-default swap market International Herald Tribune
Joint US-New York Inquiry Into Credit-Default Swaps New York Times

Labels: credit default swaps, mortgage crisis, stock market meltdown

Comment: Bailout Smoke and Mirrors

The administration told people first that it had 24 hours to approve their $700 billion bailout package or the apocalypse would ensue.

Then it was by the end of the week to prevent absolute Armageddon. Now, supposedly lawmakers have until Sunday before Asian markets open on Monday to approve the whopper bailout or else...

Now this bailout, they claim, will calm things down and "save" the American, or even the world, financial system. But that's what they claimed when they sold earlier bailout claims for Bear and Stearns and AIG. Well, those bailouts did not appear to have much effect.

What is happening is that the same folk who got everyone into this mess are now the "experts" telling lawmakers they need to act and they need to act now! Obviously they neither know whether their plan will actually work or how soon it is needed to stop whatever gloomy consequences they are envisioning.

I have stated before that some type of plan will pass simply because the government has to at least look like it's trying to solve the situation.

So why not help those who really need help like the families struggling to pay their adjustable rate mortgages on their single dwelling homes? These families do not lose track of the number of homes they own unlike financial corporation executives, since they only own one -- the one they live in.

A grassroots relief plan has as much chance as solving the problem as any other. There are still tens of millions of mortgages that are expected to fail over the coming years regardless of any corporate bailout. These failures will drive down prices of surrounding homes in their neighborhoods creating much more of the same damage that is causing the current crisis.

These families faced with tough financial times tend to cut back on their spending and some even stash money away in shoeboxes for rainy days because they have lost trust in the system. There are so many ways that their financial decisions can impact the overall economy. Without assistance,for example, they may have to scrap plans to send their kids to college, which can have further repercussions on the workforce in the future.

Trying to mend things from the bottom up might not work either, but at least the government, in passing a sure-thing response to the crisis, is giving aid to those who really need it.

Labels: financial bailout, grassroots, main street, mortgage crisis, wall street

Comment: Should U.S. taxpayers bail out financial companies?

The price tag is $500 billion, but many analysts think the final cost for taxpayers could end up somewhere closer to a trillion dollars.

Should the taxpayer bear this burden with interest to the lenders in order to "save" the financial system. Why didn't the government come to the rescue of millions of Americans who lost their homes in foreclosures, many obviously the victims of a predatory lending system? Now many of these same people will have to share the burden of bailing out the some of the same companies involved in their home loans.

Will the financial system "melt down" if the government doesn't step in? Unfortunately the people making the decisions are likely to be those most effected by the current crisis. They are the ones with the large and often risky stock portfolios.

As the mess was caused mainly by the bad mortgages in the first place, wouldn't saving those homeowners first have averted this situation in a more desirable fashion? Now the U.S. taxpayer is stuck with borrowing more money on top of an already record deficit to cover the bad lending practices of these deregulated institutions.

One could argue that the financial collapse of millions of American families over a short period of time is just as risky as the bankruptcy of several Wall Street firms. Aren't there other companies capable of picking up the slack?

Another thing to remember is that the quasi-governmental Federal Reserve Bank is made up of members that are commercial lending institutions and are unlikely to become any less richer whenever the government borrows money directly from the Fed.

The only lesson we seem to learn from this crisis is that financial companies will now know the government is there to rescue them if they are so large and important that they supposedly cannot be allowed to fail to avert various doomsday scenarios. The person on the street, unfortunately, is to expendable to expect similar treatment.

Labels: bailout, deficit, mortgage crisis, u.s. financial companies, u.s. treasury