Brooklyn Bridge swindlers took in international market traders

[willing dwarf]

Or, the chickens are coming home to roost and boy are they mad!

Ok, I might be the last person to "get it" but as the financial crisis unfolds, it's becoming clear that really there's been a swindle foisted on international markets through Credit Default Swaps. More than the subprime mortgages these Credit Default Swaps and the betting that their value would go down, has created a sort of hole in the floor of the ocean which might swallow us all whole!

And what's caused it is greed -- the same basic approach which in a more naieve time made it possible for a gullible yokel to buy the Brooklyn Bridge. Now they've cut sliced and diced the Brooklyn Bridge, together with the EMpire State Building and the Corn Exchange and thrown them all into to these little tiny packages and pawned them off on world markets where they are betting they'll go down.

But the world markets happen to own our debt. THey're not to happy about being swindled, so that's why we need to make good on these bad instruments. Like selling wet gunpowder to the guys who hold the arsenal, you're probably going to get blown to smithereens as part of the consequences of your malfeasance.

If the US is one big family, it's like some of our older siblings have been out making a mess of the neighborhood, and now we're gonna all have to pay to get it cleaned up. I don't feel like I'm related to those culprits, but the holders of these bad CDS the world over reckon I'm just as guilty as the guys on Wall Street. So when do we make them pay us back?

Here's a pretty straight forward article on the whole hole from a Yahoo Finance article by Ben Stein:

he writes:

"The crisis occurred (to greatly oversimplify) because the financial system allowed entities to place bets on whether or not those mortgages would ever be paid. You didn't have to own a mortgage to make the bets. These bets, called Credit Default Swaps, are complex. But in a nutshell, they allow someone to profit immensely - staggeringly - if large numbers of subprime mortgages are not paid off and go into default.

The profit can be wildly out of proportion to the real amount of defaults, because speculators can push down the price of instruments tied to the subprime mortgages far beyond what the real rates of loss have been... the profits here can be beyond imagining. (In fact, they can be so large that one might well wonder if the whole subprime fiasco was not set up just to allow speculators to profit wildly on its collapse...)

These Credit Default Swaps have been written (as insurance is written) as private contracts. There is nil government regulation of them. Who writes these policies? Banks. Investment banks. Insurance companies. They now owe the buyers of these Credit Default Swaps on junk mortgage debt trillions of dollars. It is this liability that is the bottomless pit of liability for the financial institutions of America.

Because these giant financial companies never dreamed that the subprime mortgage securities could fall as far as they did, they did not enter a potential liability for these CDS policies anywhere near their true liability - which again, is virtually bottomless. They do not have a countervailing asset to pay off the liability.

Now, we are about to have a similar phenomenon happen with commercial mortgage debt, debt from mergers and acquisitions, credit card debt, and car loan debt. Many trillions of dollars in Credit Default Swaps have been sold on all of this, and the prices of all of them have fallen and can be made to fall more. As I said, the pit of loss is bottomless. Warren Buffett, the smartest man of all time in the world of finance, has called financial derivatives - of which Credit Default Swaps are a prime example - "weapons of financial mass destruction." And so they are. As with the hydrogen bomb, no one thought they would ever be used to end the world. But unless someone figures a way out - and maybe the new RTC is and maybe it isn't - we are in real peril"