12-14-2020, 03:12 PM
(12-14-2020, 01:56 PM)Goalpost Wrote: My understanding of why institutions were selling these loans amidst themselves was because Fannie and Freddie was in on this also providing leadership and providing security in it. Turns out Fannie and Freddie were a house of cards also.
Credit Default swaps are just insurance against stocks dropping in price.
Many 401K funds are limited to investing in only AAA or other very high rated stocks, but these safest stocks don't generate as much return. So companies like Lehman Brothers started selling credit default swaps which were insurance to cover losses against lower rated stocks. Retirement fund managers started buying lower rated stocks to get higher returns but they also paid for credit default swaps that would cover their asses if the stocks dropped too much. So when all these mortgage backed securities started crashing the fund managers asked Lehman Brothers to cover their losses and there were no funds available.
Basically lack of market regulation let investment backs sell insurance with no capital to back up the policies.
"Regulations" don't just materialize out of thin air. They are usually promulgated for a reason to address a specific problem. But when Republicans start talking about "cutting regulations" the rubes don't even ask "Which regulations?" they just support "cutting regulations" no matter what they are or what problem they were designed to prevent.
