03-06-2016, 01:53 PM
(03-05-2016, 07:22 PM)JustWinBaby Wrote: Technically deposits are insured up to $250k - banks pay for that insurance. And Lehman and Bear weren't retail banks (I don't think), so they didn't have retail deposits.
Brokerages actually hold your certificate of ownership in stocks or bonds, so even if they go belly-up you still own that asset.
It's fair to say millions of retirees were hurt, directly, when their pensions or mutual funds took a hit on the CDS (not to mention indirectly with the entire markets tanking). But those pension and mutual fund managers were not unsophisticiated, pedigrees from elite universities, blue chip funds and usually Wall Street - they knew exactly what they were buying...and part of the scam with credit ratings was so they could chase yield while skirting requirements they can't hold below certain rated paper.
Any decent Investment manager doesn't pay much attention to ratings from agencies - they do their own analysis and don't use ratings for much more than filtering their investable universe.
You're absolutely right that we had to 'bail out" Wall Street. But it's not quite the same as, say, Chrysler in the 80's which was an actual failing business (that rebounded very nicely for some 15 years after). Lehman and Bear may have been actually insolvent, but for the others it was mostly a technical default stemming from mark-to-market and not an actual shortage of cash. But that's not to say the paper wouldn't have continued spiraling down if the Fed hadn't stepped in as a buyer of last resort.
I am not talking about deposits in banks. I am talking about investors holding derivative investments backed by mortgages these banks secured. If the banks go under then the people (or retirement accounts) holding all these investments take the hit.
Basically credit default swaps are insurance against a stock crashing. Except there are not government regulations on credit default swaps like there are on insurance companies. Lehman Brothers was basically allowed to write insurance policies on billions of dollars of stocks without having the resources on deposit to back them.
