You Want $700,000,000,000 for What?

So, let us get this straight. Spreading risk infinitely by bundling packages of mortgages then slicing those up and selling as securities is fine when the market keeps going up; the reverse is true when markets crash and this spread of risk gets multiplied 10 fold because no one knows how widespread it is or what percentage of those bundles is truly bad debt. This falls into the realm of perception; good mortgages and bad mortgages were packaged together, what percentage of any slice of these securities is more good than bad; more bad than good? Nobody knows but everyone is afraid that these securities are worth less than they think.

When the value of real estate kept escalating, this type of securitized debt was a goldmine. Everybody made money and all was right with the world. The greater the risk, the higher the reward. Greed will make you forget the rules of the game; you start chasing the money-maker like a gambler caught up in the belief that if you bet more, you will win more. Soon you find yourself over-leveraged, your investors/backers get scared and call your debt but you don't have the capital to back it all. Las Vegas or Wall Street? Bear Stearns, Merrill Lynch, Lehman Brothers and others forgot the rules and ended up overexposed when mortgages started defaulting and the value of housing started to tumble. Investors got spooked and any perceived value in these bundles plummeted. To make matters worse, these securities were insured by insurers such as AIG giving us a house of cards situation. Ever tried to insure a bad asset? It is like having a pre-existing condition when you shop for health insurance.

How is the average American supposed to understand this? How are they supposed to understand that despite the greed, the big bonuses and rewards, we still have to bailout these be-ast-turds? Why? Perception. There is a complete lack of confidence in the financial markets. It is possible that some of these assets are worth more than we think, after all most of these mortgages are still backed by a real asset; brick and mortar construction. Real estate may lose value but rarely is anything worth zero. Perception is 9/10ths just like possession.

Who knows how this will all shake out. All I know is that for the average American to understand these complex credit instruments and to make a choice about anything based on this knowledge is impossible when the experts don't know what to make of it all. Treasury Secretary Henry Paulson spent 30+ years on Wall Street and he is running to the government for an emergency loan of an unprecedented $700,000,000,000. What the hey? We are all supposed to figure this out by Friday? Good luck with that, taxpayer. Whatever the outcome, we will be fleeced!