What's Going On???

You know, with the economic meltdown I've tried to understand what in the heck is truly going on, and I've read many sources trying to explain it.  The one I just read seems to explain it more succinctly than most.    And, reading it, I can only shake my head and wonder WTF were people doing?! 

Credit default swaps can be thought of as an insurance policy - if you own a loan or a bond worth $1 billion, you buy a CDS that will pay you $1 billion if the loan or bond defaults.  Under normal circumstances, this hedges your risk.  If a loan defaults, your insurance policy - the CDS - ensures you lose no money. (Don't ask me why someone would issue that kind of insurance, except that they made a gazillion dollars in fees for doing so.)  Frequently, the issuer of the CDS would buy a separate CDS to "insure" against having to pay on the CDS, and this enmeshed all of the banks, investment firms, and insurance firms behind the scenes.

Glass' explains, however, what really happened to make this so bad: people who did not own a loan or bond started betting that someone else's loan or bond would default, by buying a CDS that would pay a third party $1 billion if the first party's loan or bond defaulted.  As he describes it, this is pure speculation - no different than if ten of your neighbors each take out a life insurance policy on your life (which is generally illegal in most states, as it creates the incentive to make sure you die as soon as possible).  That means lots of bets are riding on your one life.  This speculative investment in CDS products meant that for every $1 trillion in actual loans or bonds, something like $60 trillion was taken out in CDSs.  To go back to the example - you have a $1 billion loan or bond and a CDS insuring you if that loan or bond defaults, but others have $60 billion in bets that your loan or bond will default [...] The point is that this speculative trading in CDS wasn't backed by anything of value - no capital, no assets, etc., beyond the collateral for the underlying loan or bond.

All it took was a major player to go down (think Bear Stearns) for the entire system to wake up and realize that none of these bets would pay off, or at least, no one could be sure whether or not they would pay off.

The problem is that CDS are entirely unregulated - in fact, Phil Gramm pushed a law that prohibited their regulation, meaning that they are not traded on an exchange or regulated as insurance products, so no one knows who owns what and how much risk (and real losses) they are facing. [...] No wonder banks have seized up and don't trust one another.  The real frightening part is the size of the CDS market - estimated to be somewhere north of $60 TRILLION.

Seriously, how on earth was this ever allowed to be legal?!

What's Going On???

You know, with the economic meltdown I've tried to understand what in the heck is truly going on, and I've read many sources trying to explain it.  The one I just read seems to explain it more succinctly than most.    And, reading it, I can only shake my head and wonder WTF were people doing?! 

Credit default swaps can be thought of as an insurance policy - if you own a loan or a bond worth $1 billion, you buy a CDS that will pay you $1 billion if the loan or bond defaults.  Under normal circumstances, this hedges your risk.  If a loan defaults, your insurance policy - the CDS - ensures you lose no money. (Don't ask me why someone would issue that kind of insurance, except that they made a gazillion dollars in fees for doing so.)  Frequently, the issuer of the CDS would buy a separate CDS to "insure" against having to pay on the CDS, and this enmeshed all of the banks, investment firms, and insurance firms behind the scenes.

Glass' explains, however, what really happened to make this so bad: people who did not own a loan or bond started betting that someone else's loan or bond would default, by buying a CDS that would pay a third party $1 billion if the first party's loan or bond defaulted.  As he describes it, this is pure speculation - no different than if ten of your neighbors each take out a life insurance policy on your life (which is generally illegal in most states, as it creates the incentive to make sure you die as soon as possible).  That means lots of bets are riding on your one life.  This speculative investment in CDS products meant that for every $1 trillion in actual loans or bonds, something like $60 trillion was taken out in CDSs.  To go back to the example - you have a $1 billion loan or bond and a CDS insuring you if that loan or bond defaults, but others have $60 billion in bets that your loan or bond will default [...] The point is that this speculative trading in CDS wasn't backed by anything of value - no capital, no assets, etc., beyond the collateral for the underlying loan or bond.

All it took was a major player to go down (think Bear Stearns) for the entire system to wake up and realize that none of these bets would pay off, or at least, no one could be sure whether or not they would pay off.

The problem is that CDS are entirely unregulated - in fact, Phil Gramm pushed a law that prohibited their regulation, meaning that they are not traded on an exchange or regulated as insurance products, so no one knows who owns what and how much risk (and real losses) they are facing. [...] No wonder banks have seized up and don't trust one another.  The real frightening part is the size of the CDS market - estimated to be somewhere north of $60 TRILLION.

Seriously, how on earth was this ever allowed to be legal?!

What's Going On???

You know, with the economic meltdown I've tried to understand what in the heck is truly going on, and I've read many sources trying to explain it.  The one I just read seems to explain it more succinctly than most.    And, reading it, I can only shake my head and wonder WTF were people doing?! 

Credit default swaps can be thought of as an insurance policy - if you own a loan or a bond worth $1 billion, you buy a CDS that will pay you $1 billion if the loan or bond defaults.  Under normal circumstances, this hedges your risk.  If a loan defaults, your insurance policy - the CDS - ensures you lose no money. (Don't ask me why someone would issue that kind of insurance, except that they made a gazillion dollars in fees for doing so.)  Frequently, the issuer of the CDS would buy a separate CDS to "insure" against having to pay on the CDS, and this enmeshed all of the banks, investment firms, and insurance firms behind the scenes.

Glass' explains, however, what really happened to make this so bad: people who did not own a loan or bond started betting that someone else's loan or bond would default, by buying a CDS that would pay a third party $1 billion if the first party's loan or bond defaulted.  As he describes it, this is pure speculation - no different than if ten of your neighbors each take out a life insurance policy on your life (which is generally illegal in most states, as it creates the incentive to make sure you die as soon as possible).  That means lots of bets are riding on your one life.  This speculative investment in CDS products meant that for every $1 trillion in actual loans or bonds, something like $60 trillion was taken out in CDSs.  To go back to the example - you have a $1 billion loan or bond and a CDS insuring you if that loan or bond defaults, but others have $60 billion in bets that your loan or bond will default [...] The point is that this speculative trading in CDS wasn't backed by anything of value - no capital, no assets, etc., beyond the collateral for the underlying loan or bond.

All it took was a major player to go down (think Bear Stearns) for the entire system to wake up and realize that none of these bets would pay off, or at least, no one could be sure whether or not they would pay off.

The problem is that CDS are entirely unregulated - in fact, Phil Gramm pushed a law that prohibited their regulation, meaning that they are not traded on an exchange or regulated as insurance products, so no one knows who owns what and how much risk (and real losses) they are facing. [...] No wonder banks have seized up and don't trust one another.  The real frightening part is the size of the CDS market - estimated to be somewhere north of $60 TRILLION.

Seriously, how on earth was this ever allowed to be legal?!

SNL on Thursday

What the fuck was the story about the aliens? I mean... er... WTF? I don't even get the joke or what it's in reference to. It was just strange

SNL on Thursday

What the fuck was the story about the aliens? I mean... er... WTF? I don't even get the joke or what it's in reference to. It was just strange

SNL on Thursday

What the fuck was the story about the aliens? I mean... er... WTF? I don't even get the joke or what it's in reference to. It was just strange

Eek! My Baby Has Fleas!

My cat is a 100% indoor cat. She never goes outside. I have no other animals. No other animal has been in my house. So when she started scratching recently, I thought 'maybe an allergy?" "Maybe dry skin?" But I was petting her tonight and pushed back her hair and flea! So the poor baby has had fleas for a couple of weeks! And that means I could have fleas in my house (and those are a bitch to get rid of!) I'm not even sure how to protect the house from fleas. I have no obvious ones, but the eggs can produce a slew of them any time. And I didn't find the fleas on her until after PetCo was closed for the evening so the poor dear will have to have fleas one more night.

Poor thing. And poor me. How in the heck am I supposed to protect from fleas in the carpet?!

Eek! My Baby Has Fleas!

My cat is a 100% indoor cat. She never goes outside. I have no other animals. No other animal has been in my house. So when she started scratching recently, I thought 'maybe an allergy?" "Maybe dry skin?" But I was petting her tonight and pushed back her hair and flea! So the poor baby has had fleas for a couple of weeks! And that means I could have fleas in my house (and those are a bitch to get rid of!) I'm not even sure how to protect the house from fleas. I have no obvious ones, but the eggs can produce a slew of them any time. And I didn't find the fleas on her until after PetCo was closed for the evening so the poor dear will have to have fleas one more night.

Poor thing. And poor me. How in the heck am I supposed to protect from fleas in the carpet?!

Eek! My Baby Has Fleas!

My cat is a 100% indoor cat. She never goes outside. I have no other animals. No other animal has been in my house. So when she started scratching recently, I thought 'maybe an allergy?" "Maybe dry skin?" But I was petting her tonight and pushed back her hair and flea! So the poor baby has had fleas for a couple of weeks! And that means I could have fleas in my house (and those are a bitch to get rid of!) I'm not even sure how to protect the house from fleas. I have no obvious ones, but the eggs can produce a slew of them any time. And I didn't find the fleas on her until after PetCo was closed for the evening so the poor dear will have to have fleas one more night.

Poor thing. And poor me. How in the heck am I supposed to protect from fleas in the carpet?!