Hmmm ... what has not been discussed in any length is that for the first time (in a long while at least), the Banks got caught 'holding the bag' ... the sub-prime racket was a neat number whereby AAA,BBB,CCC asset-backed securities were bundled (CDO's) and sold off into a world awash with US fiat and petro dollars.
The snag in the racket was the 'honeymoon' interest rates designed to draw in the suckers during a rising property market that contained 'resets' at 24-60 months ranging up to 11% effectivly doubling monthly repayments for many mortgagee's ... remembering this racket was the Greenspan property-bubble excess loaning US$trillions to those with little or no ability to repay.
The one thing nobody thought would happen was that despite the obvious calamity that ahead, that PROPERTY PRICES WOULD GO DOWN !!!
Now for the hypocrisy ... as property prices declined and mortgagee's fell into arrears, the Banks were more than happy to use 'fair-value' or spot property prices to protect their position ... with little or no regard for the plight of mortgagee's who lost everything.
Now with stressed balance sheets, Banks are now arguing ... " oh no we don't want be held to 'fair-value' or 'mark to market' prices for securities ... we want to be able to use 'historical prices' as fair-value.
As usual, the Capital side of the equation always ensures that the 'fix' is always in place so that no matter what they win and you lose. The 'house of cards' where the house always wins.
If you want another example: Why did Black and Scholes (Merton) use Implied Volatility (the Capital side 'fix'...) instead of Historical Volatility in BSOPM ??? Go think about it ... I have ... 'fair-value' in this context is an oxymoron.
Why was JP MorganChase given US$60billion to buy and salvage collapsed hedge-fund Bear Sterns ???
Time we understood that the US is merely a couple of clicks short of 'anarcho-capitalism' and hopefully come November much needed change will occur.
