Friday, October 17, 2008

Thanks Phil Gramm! (The Architect of the CDS market)

I had no clue what a CDS was 2 months ago. Now, with my home having lost 40% of it's value (which I bought at the peak of the local Phoenix bubble in Aug 2007) and a worthless mortgage with negative equity, I know what they are and despise their very existence. All those times my mortgage was sold and resold to other lenders... it wasn't just me, it was every freakin mortgage in the US being swapped and traded. 'Not my problem if the home owner doesn't pay it back, I sold the damn thing!' the original lender could claim. I understand better now, how they became such a massive over-indulged fiscal orgy by the deregulation Republicans who amended the bill that started the feeding frenzy. MBS swaps look like venial sins in an environment of CDS Caligula-esque blood lust. Thank's Phil Gramm!

It's asinine. Matt Taibbi states is very well here in refuting the National Review's Byron York:
"The CDS market, this market for credit default swaps that was created in 2000 by Phil Gramm's Commodities Future Modernization Act, this is now a $62 trillion market, up from $900 billion in 2000. That's like five times the size of the holdings in the NYSE. And it's all speculation by Wall Street traders. It's a classic bubble/Ponzi scheme. The effort of people like you to pin this whole thing on minorities, when in fact this whole thing has been caused by greedy traders dealing in unregulated markets, is despicable."

"S.3283, co-sponsored by Gramm, along with Senators Tom Harkin and Tim Johnson" ...and "the 262-page amendment Gramm tacked on to that bill that deregulated the trade of credit default swaps."

Look it up. It's despicable. Yeah, I'm just "a whiner". "Our economy's never been stronger". Grrrrrrrrrr.


  1. Economists are a stodgy bunch. The "professional" economists are either paid to be free market demagouges or are so narrowly focused on one small sector of the economy so as to be worthless when we need normative statements like "This is a bad idea." And 30 years of neoliberal economics within the political realm have significantly thinned the ranks of the truly progressive economists in the field. You don't make a lot of money speaking truth to power.

    Economists today are like junkies...they know the free market is bad for them, but they need it so bad that they'll suck the dicks of the Wall Street robber barons to get more.

  2. CDSs are not the same as mortgage-backed securities. That repackaging and reselling you're talking about is not the CDS market. CDSs are nice ways of obliterating the financial system, but not, fundamentally, the cause of your house price decline. You admitted you bought at the peak of the phoenix bubble (which wasn't august 2008, I assumed that year was a typo). Lots of people were calling it a bubble. By the time it burst there was so much depending on the price of US homes, and it was leveraged so much, that the bubble collapse had a hugely magnified effect.

    CDSs are evil, but you're conflating two different evils. The mortgage-backed securities craze is what helped cause the housing bubble and what accelerated its collapse due to removing risk from everyone's calculations and distributing that risk, opaquely, like a contagion through everything. CDSs are what helps the impact of company struggles or collapses be magnified by orders of magnitude (Warren Buffet famously called them "weapons of financial mass destruction", although more correctly this would have been "weapons of mass financial destruction"). But remove CDSs from the equation and you'd still be fucked. The housing bubble wasn't caused by CDSs, you bought at the top of one of the frothiest most bubblicious places in the world, and the bubble burst. CDSs, since I work in the financial industry, are helping to make sure *I'm* totally fucked, too. If that's any comfort :-)

    On economists, there are plenty that have been naysayers and doomsayers. Krugman, for example, a now nobel-winning economist, has been talking about stuff like this for a long time. Nouriel Roubinin, another economist, has been even more regularly a voice talking about doom and gloom, since well before everything imploded. And calculatedrisk had been sounding the warning bell early as well.

    All the above worth bookmarking if you want progressive economics analysis of current events.

  3. Phoenix was so bubbly it has long had its own "flippers in trouble" list:

  4. thank you my friends, for the inputs and links. The foreclosed homes around me, that I can see from my driveway, are nearly all Fannie and Freddie mortgages, which have helped to cloud my rational thought. That, combined with the "3 to 5 offers a week" Dr. Desert Flower and I would get in the US mail to refinance, and my reading of too many things yesterday gave me a severe case of "irrational un-exuberance". I stand corrected now, with a perspective shift. It's good to have smart friends. =)

  5. Rest assured, your assessment of Gramm that he is a complete and utter prick is fundamentally sound.


Note: Only a member of this blog may post a comment.