Sunday, November 30, 2008

Credit Default Swaps

The Bush Administration started explaining the current Financial Crisis as one that was caused by the Home Boom going Bust. As usual with the Bush Administration, that could not be further from the truth even if the truth dwelt seven galaxies away from earth. The Bush Administration tried to claim that because 5% of the home mortgages in America were in default the Banking System was collapsing, does anyone believe that if 5% of Mortgages are not being paid while 95% are being paid on time that the 5% would outweigh the 95%?

The real problem and the cause of the economic collapse is Credit Default Swaps. The Financial Wizards of Wall Street starting using Credit Default Swaps as a trading hedge which they were never meant to be, and because legislation by Senator Phil "Americans are Whiners" Gramm, and signed by Bill Clinton as part of a larger spending appropriations bill, Credit Default swaps were kept unregulated. The unregulated Credit Default Swaps meant that they were also kept "off" the books of most financial institutions, therefore institutions are not able to know who is holding what, this leads to their reluctance to loan each other money.

Now the fragile financial system has collapsed under the weight of these Credit Default Swaps which have no intrinsic value. The Executives at the Financial Institutions that are now seeking Federal Bailouts rewarded themselves with multi-million dollar bonuses when they were making excessive profits trading these worthless instruments that they created and kept from being regulated and reported. They have left the Federal Government no choice but to bail them out or face the collapse of the entire U.S. Financial System. The Federal Government has accommodated in order to prevent the instant collapse of the entire monetary system. No one can deny that something needed to be done, however, why did the Federal Government act without imposing any conditions on the institutions that needed to be saved? There was no demands attached to the Bail Out Money, no one had to give back multi-million dollar bonuses, no assets had to be sold, no expense accounts needed to be trimmed, so in other words the Federal Government has determined that the people who made extremely bad business decisions would be rewarded with large amounts of America's money to continue to make extremely bad business decisions and continue to excessively reward themselves for these bad decisions.

The Federal Government under the Republican Bush Treasury Department has come to the conclusion that it is more beneficial to America to save a handful of Corporation that reward a handful of Executives with excessive compensation than to save the rest of the 300 million people who have suffered in this Economic Downturn caused by the failed policies of the Republican Theory of Economics as implemented by the Bush Administration. The Bush Administration has decided, because remember, he is the decider, to let the Middle Class and Working Class fall into poverty and despair while they assure that Multi-Millionaires are able to maintain their lavish lifestyles and Mansions. They have decided that saving a couple of hundred mansions and the lifestyles of a couple of hundred financial executives outweighs the Federal obligation to save tens of thousands of middle class homes and for millions of working class and middle class Americans. In the eyes of the Bush Administration the equation looks like this: 300 Millionaire Executives = 300 Million Americans.

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