(no subject)

[rm]

Right. So for those of you who don't know part time job is doing media analysis on US politics and the banking and financial industries. It's been a rough week.

Right now, I'm working on data about the "collapse" of Canary Wharf.

That is, the inevitable financial real-estate mess as all its tenants go bankrupt. But really? I have to do this? And I can't drink coffee? Are you fucking serious?

Comments

[sethg]

The Community Reinvestment Act only applies to banks; banks generated a lower proportion of subprime mortgages than non-bank entities, such as mortgage brokers.

From what I've read, the not-so-short summary of How We Got Into This Mess goes something like this:

(1) Financial wizards come up with ways to bundle lots of grade-B debt into packages and sell pieces of the packages a grade-A debt, on the assumption that even if some borrowers in the packages are certain to default, they're not all likely to default.

(2) Insurance companies check the financial wizards' math and say "yes, this is grade-A debt, so for a very small fee we will guarantee your customers against default".

(3) The crowd goes wild. Everyone wants a piece of this action. They're even willing to borrow money to invest in these securities.

(4) The demand puts pressure on various not-entirely-savory parties, such as mortgage brokers, to create grade-B debt, so that it can be packaged. Therefore lots of people with dubious credit get grade-B mortgages. And some people with good credit get grade-B mortgages, because they don't realize that they qualify for grade-A mortgages, and the brokers get a higher commission for the grade-B stuff.

(5) Because of various hiccups in the economy, a lot of people with the grade-B mortgages stop being able to pay, all at the same time, which is the sort of thing that the financial wizards and the insurance companies thought couldn't happen. Now all these big investment firms are holding onto paper whose true value is totally uncertain. (If we knew they were worthless, then we could escape from this mess in a more orderly fashion.)

(6) Now we have the modern equivalent of a run on the bank--many deep-pocketed prestigious Wall Street firms suddenly have to pony up cash. Except that they did all of these investments with borrowed money. Which means that not only are they at risk of becoming insolvent, but their creditors are at risk of becoming insolvent, and their creditors' creditors are not feeling too safe themselves...and if you play "six degrees of Lehman Brothers" then you've pretty much covered the entire world financial infrastructure.

(7) The central banks, which unlike all the other players in this game have the power to print money, say OH SHIT.

[lllvis.livejournal.com]

Ah. Thank you, that is very helpful. So very much like calling in leveraged purchases and such and actually having to deal in cash rather than assets.

Thanks much!