cougarblue wrote:
To be sure, homeownership should not be a right, but a privelege. FRE/FNM facilitating this "right" (
https://query.nytimes.com/gst/fullpage.h ... A96F958260) coupled with cheap money a la Greenspan and complicit investing foreign governments, created the dangerous environment. Bankers, as all other rational economic actors would be expected to, took advantage of the situation to their benefit. I don't blame banks' "ludicrous" derivatives. These, when understood and used properly, are a net positive for investors, companies and society in general. However, I do believe that nobody, except maybe Paulson (not the Treasury Secretary), understood the risk underlying these securities/derivatives as well as they should have.
Re mark-to-market, i.e. fair value, accounting. I don't think a less transparent method of accounting is going to solve the problem, nor is it the catalyst for these recent events. The principle is a good one, and investor friendly. However, I recognize that mark-to-market, when there is no market, is pro-cyclical. Thus, the banks, regulators, and rating agencies should be able to understand the underlying value (if different from market value.) Isn't that why we pay them to analyze, oversee and rate these companies/securities? If we, as investors, only needed to look at the marks, then we could just do away with the analysts and rating agencies altogether.
I definitely agree Greenspan shares a lot of the blame for the easy monetary policy that fueled the mis-allocation of investment resources. Actually, I can point to a number of financial experts who were calling the OTC derivatives meltdown a couple years ago before we started seeing the recent tremors in the financial system. One is Jim Sinclair. Another is Peter Schiff. Another is Warren Buffett. And there are many more. Here are several reasons why OTC derivatives are "ludicrous" in their current form (according to Jim Sinclair):
OTC derivatives generally have the following characteristics:
1.Without regulation.
2.Without listing on public exchanges.
3.Without standards.
4.Therefore not in the least bit transparent.
5.Therefore without an open market of the bid/ask type.
6.Dealt in by private treaty negotiations.
7.Without a clearinghouse.
8.Unfunded without financial guarantee of any kind.
9.Functioning as contracts of specific performance.
10.Financial character or ability to perform is totally dependent on the balance sheet of the loser in the arrangement.
11.Evaluated by computer assumptions made by geek, non market experienced mathematicians who assume religiously that all markets return to their normal relationships regardless of disruptions.
12.Now in the credit and default category alone considered by accepted authorities as totaling more than USD$20 trillion in notional value.
13.Notional value becomes real value when the agreement is forced to find a real market for ending the obligation which is how one says sell it.
(
www.jsmineset.com)