70% of voters are home owners, and they have been delighted to participate in the scheme.”

Well, half-right. Those homeowners were also sold a bill of goods that wasn’t honestly represented. And some were greedy, some were stupid, no doubt. As a former insurance underwriter, I have to wonder about the sanity of the mortgage underwriters (or, more likely, their managers). We were taught to think ahead as to the ramifications of taking on the risk presented before us. Ignoring long-proven rules was taboo.

This was our economic line of defense that was breeched.

What to do now? The largest fraud will require the largest bright ideas and actions to overcome it. In all good conscience I can’t see leaving it to the same short-sighted reptiles that got us into this mess. Nor do I trust Paulson or Bernanke. Look at Mr B, he is in fear. If I was at a card table with him, I’d smile every time, knowing I would be leaving with his money. He’s the schmuck who’s behind on his payments, hasn’t found the productive solution to his predicament, and decides to go down with his last few bucks and win big. But desperation rarely makes a mistress of luck.

I would request of our dear Yves to pose this question: What would your Bright Ideas be for this economic situation? Doesn’t matter if you think they will actually get used, just go for it. I think our lot here can come up with better answers than we’ve seen thusfar.

But they are very different types of real estate loans, as the Gses were relatively conservative until recently, and most of those loans are old.

The really big deal with Lehman and the others is that until the cost of money was made negative by Greenspan and the rating agency CEOs discovered that they could become wildly wealthy by selling investment banks AAA ratings, investment banks were not in the mortgage business because it was boring and unprofitable.

So the percentage of toxic in the Gse portfolio is much smaller than that in the investment bank ones, because the latter’s is much more recent.

«It looks to me like it is the American taxpayer (as of last weekend) who has the most skin in this ponzi scheme.»

70% of voters are home owners, and they have been delighted to participate in the scheme.

It looks to me like it is the American taxpayer (as of last weekend) who has the most skin in this ponzi scheme.

But “firms” don’t have any incentive, they don’t exist. The question really i

“what incentive is there for the beneficiaries of the bonus pools of the 10 firms to waste their shareholders’s money?”

Now such an incentive exists, and it is very strong: that in order to maximize their personal income, all these guys want to avoid reporting huge losses, which would happen if they marked to market the values of their derivatives following price discovery ensuing a Lehman collapse.

Then using your shareholders’ money to prevent price discovery and collecting a few more months/years of compensation looks like a good deal.

The “iterated prisoner’s dilemma” problem has been been solved thousands of years ago by politicians/businessmen/gangsters, using political/business/gangland logic.

The best strategy is elegantly simple:

Give some strong incentive for the other guy to choose “cooperate” by threatening him or promising him something (like “salvation in the afterlife”), and then always choose “defect/betray”.

The current Republican leadership and electoral strategists have elevated this to an art form.

Apparently, they are still using that same EXCEL spreadsheet.

The toxic derivatives are not wholly contained in banks/ibanks. AIG, for example, can take the whole system down through not being able to cover CDS. Foreign entities that our government CAN’T bailout (thankfully) can also contain toxic derivatives.

Again, bailing out LEH won’t/can’t be the end of it, so why should these banks pony up any of their precious $?

I don’t know what to think, and increasingly I don’t think ‘they’ know either.

This is the problem with doing anything preventive in this country. The majority is so mathematically illiterate that they have no understanding of the concept of risk. Everything is either 100% right or 100% wrong.

The odds of the surge overcoming the sea wall were very, very good. Only a last minute shift and some weaking kept the surge down (and at another 4 feet it would have gone over). But luck is treated by the American people as “experts are completely wrong and the models are useless”.

This is why nothing will ever be done until it is too late.