AAA should be safe. This is all the FED's doing! I saw this...

AAA should be safe. This is all the FED's doing! I saw this program the other day which explained just what's going on.

In the US if you have a home loan and your house has fallen in value considerably, all you have to do to escape the capital loss is to default on your mortgage. Yep! Then you apply for the the fed's rescue package which enables you to walk away from your home with nothing owing on it.

So say you paid $450K for it, borrowed the lot, and now its only worth $190K. Well thanks to the FED its all the banks loss. If its a US bank it gets subsidized for its loss by the fed. But if it is some other sucker bank, who got fooled by the AAA ranked CDO's - tough luck!

So everyone is getting in on the act by hiding their money, pretending they are hard up, and walking out of their homes to escape the capital loss.

Of course this exacerbates the problem by flooding the market with vacant houses for sale. This drives the house price down further, making more people want to walk out of their home to escape the capital loss and high mortgage repayments, etc etc etc...

The fed knows by propping up its own banks the loss is being born by overseas banks who own these CDOs, not the US banks and not the US citizens. They remain debt free, cashed up and shopping for a house + contents. This fuels the next boom -> housing lead recovery.

Its really pretty smart when you think about it! Bernanke, might seem irresponsible for printing trillions, but at least he knows what he is doing. In 6-12mths the US economy will overheat from this. But theres plenty of time to put the foot on the break.

Think about it!!!