Some of you may find some of the language a bit tedious - finance speak is tough to learn for many - but the site is a great source for those looking to understand the forces behind the financial currents. If you've read my book - and like it - you will love this site. Have fun.Credit default swaps (CDS) are insurance-like contracts that promise to cover losses on certain securities in the event of a default. They typically apply to municipal bonds, corporate debt, and mortgage securities. They are sold by banks, hedge funds, and other market players. Like anyone who purchases car insurance those who purchase CDS contracts make payments on a regular basis. In return they get peace of mind, knowing that losses will be covered if a default happens.Can you imagine buying car insurance and then having your insurer say, "Sorry, we're out of money, we only wanted your premiums ..."? This is essentially what has happened with the CDS market. The problem with the CDS market is that it gave investors-speculators a false sense of confidence. It helped them believe that their products and portfolios were insured. This encouraged them to write and invent even more complex financial instruments, which only fed the cycle that led to market collapse.
The process is supposed to work similarly to someone taking out car or home insurance to protect against losses from fire and theft. Except that it doesn’t. Banks and insurance companies are regulated; the CDS market is not. This explains why credit default swap contracts were traded — or swapped — from market player to market player without any oversight. Most market players simply wanted the income stream from the “premiums” paid.
Not surprisingly, many buyers did not have the resources to cover losses if the security that they insured failed. This is what happened in 2007 and 2008. Like small insurance companies who hoped they never would have to face claims from a regional earthquake or a Katrina-like event, market players who provided insurance for investment and derivative portfolios weren’t properly capitalized and could not pay out claims when their markets collapsed.
SARAH PALIN and Al Sharpton don’t ordinarily have much in common, but they achieved a rare harmonic convergence at Michael Jackson’s memorial service. When Sharpton told the singer’s children it was their daddy’s adversaries, not their daddy, who were “strange,” he was channeling the pugnacious argument the Alaska governor had made the week before. There was nothing strange about her decision to quit in midterm, Palin told America. What’s strange — or “insane,” in her lingo — are the critics who dare question her erratic behavior on the national stage.So, what makes Palin the star of the party? In a few words, her ability to tap into the Republican's sense of resentment and victimization.
The essence of Palinism is emotional, not ideological. Yes, she is of the religious right, even if she winks literally and figuratively at her own daughter’s flagrant disregard of abstinence and marriage. But family-values politics, now more devalued than the dollar by the philandering of ostentatiously Christian Republican politicians, can only take her so far. The real wave she’s riding is a loud, resonant surge of resentment and victimization that’s larger than issues like abortion and gay civil rights.What makes this development so dangerous, according to Rich, is how reality flies out the door when it comes to evaluating Sarah Palin and what she supposedly represents.
The politics of resentment are impervious to facts. Palinists regard their star as an icon of working-class America even though the Palins’ combined reported income ($211,000) puts them in the top 3.6 percent of American households. They see her as a champion of conservative fiscal principles even though she said yes to the Bridge to Nowhere and presided over a state that ranks No.1 in federal pork.There's more (the article is longer than a standard op-ed) but Rich makes it clear that the key to understanding why the Republicans have come to embrace Sarah Palin is how she puts a pretty face on the very ugly politics of resentment.
In television interviews she was out of her depth in a shallow pool. She was limited in her ability to explain and defend her positions, and sometimes in knowing them. She couldn't say what she read because she didn't read anything. She was utterly unconcerned by all this and seemed in fact rather proud of it: It was evidence of her authenticity. She experienced criticism as both partisan and cruel because she could see no truth in any of it. She wasn't thoughtful enough to know she wasn't thoughtful enough. Her presentation up to the end has been scattered, illogical, manipulative and self-referential to the point of self-reverence. "I'm not wired that way," "I'm not a quitter," "I'm standing up for our values." I'm, I'm, I'm.
If everyone in the country were required to have insurance, the industry says — a mandate that Congress is contemplating — the costs and risks of insurance would be spread over a large enough pool of people to let insurers provide full, affordable coverage even to people with pre-existing medical conditions.I can hear the republicans now, "How much is this going to cost?" I can tell you one thing. Government "vouchers" (the proposed Obama plan) and competition from government hospitals (discussed in last week's program) would go a long way in making us more competitive while putting a bite in the 15.3% of GDP that we are currently spending on health care in America (which not even the "socialist" countries are spending). Put another way, we need national health care.
The economic crisis, created largely by America’s behavior, has done more damage to these fundamental values [democracy & capitalistm] than any totalitarian regime ever could have. ...For those of you who have read my book, or taken my International Relations (PS 304) or International Political Economy (PS 404) classes, the argument will not surprise you: Hypocrisy in the face of failure does much to undermine your ideals.
Back in 1987, when I started working on housing finance issues, I wondered this very thing. So I spoke with the person in charge of secondary market business for a Wisconsin Savings and Loan called First Financial (I wish I could remember his name now).I'll discuss this on the program after our discussion with Professor Thoma.
He had a crisp explanation: Fannie Mae was a Savings and Loan for Mortgage Bankers ... This was in fact the reason for their original existence. Fannie has been around since 1938, and it became private in 1968, and its purpose was to raise money from capital markets to fund mortgages originated by mortgage bankers. Between 1938-68, its business was entirely FHA and VA loans; thereafter it could fund private sector loans.
Freddie was chartered in 1970 at least in part in response to regional differences in the availability of mortgage credit. At that time, around 60 percent of mortgages were held by Savings and Loan Associations. These S&Ls were local businesses, who could not lend outside of their communities (I will need to double check, but my recollection is that they could not lend more then 150 miles away from their front door).
As young people migrated from the Northeast and Midwest to the sunbelt, leaving their parents and grandparents behind, there was a geographic mismatch between the location of deposits and the demand for mortgage credit. Freddie was invented to buy loans from S&Ls, turn them into securities, and sell them in the secondary market. This allowed money to flow where it was needed.
The distinction between the two institutions disappeared in 1992, with the passage of the Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA). I am guessing that the reason we kept two around was to have some competition in the MBS issuance market.
