On Mon, 13 Apr 2009 15:21:55 GMT, blake murphy
> wrote:

>On Sun, 12 Apr 2009 17:48:25 -0500, modom (palindrome guy) wrote:
>>
>> The capitalist line is that banks and other financial institutions
>> create jobs by aggregating savings and lending money to start-ups,
>> entrepreneurs, and established businesses seeking to grow. Looks to
>> me like they are only making dollars. They care not for jobs, goods
>> or services, except that they can buy them with their dollars.
>
>there's something to be said for that. but after the first loan is made to
>a business or homeowner, the debt/loan is sliced and diced, sold and
>re-sold, with each transaction making a heavy fee for the repackager. i
>don't see the utility in that.
>
From the POV of the the lending institution, the utility is getting
the loan off their books in exchange for cash to lend to another
sucker -- er, customer. The same pot of cash can be re-lent many
times if they can sell the debt to Goldman Sachs with a debt guarantee
(CDS) underwritten by AIG and a AAA rating from Moody's. All you
gotta do is use your math numbers to show that the senior tranches of
the CDOs you're cooking up have a statistical probability of paying
out that's high enough to score an investment grade rating.

The argument is that banks will be able to lend more and at better
rates if they can work that way. The problem is that they built a
giant house of cards working that way. And none of it added to the
general well being of the people, except for letting unemployed meth
users buy houses they couldn't afford.

The first huge bailout of AIG got distributed to its CDS
counterparties to a large extent. Goldman landed $12 billion after it
passed through the rotting guts of AIG. What's outrageous to me is
that they were repayed 100 cents on the dollar for the value of
derivatives essentially identitical to ones that other institutions
were trading for ca. 22 cents on the dollar at the same time.

And don't get me started on Phill Gramm's employer, UBS.
--

modom