Recipe for Disaster


A lot of blame is being thrown around these days, and I’m surprised at how often the lowly consumer is still mentioned as a scapegoat for the financial meltdown that’s only beginning to gather its full steam.

The fact is, the “bailout” money that’s been committed so far could pay off 90% of all home mortgages in the U.S., not just the very small percentage of loans that will default. Of course, no one’s mortgage is being paid off, so what debts are being forgiven here? We’re not permitted to know that, even though we’ll certainly be presented with the invoice.

Even the author of the formula shown above shouldn’t really be blamed. All he did was provide an elegant but fatally flawed blueprint for the real agents of corruption to exploit. And the exploitation that created the problem, IMHO, seems to be spilling over into the supposed solution.

In any case, take a read through the attached article; I think there’s a lot to learn.

From Wired

The CDS and CDO markets grew together, feeding on each other. At the end of 2001, there was $920 billion in credit default swaps outstanding. By the end of 2007, that number had skyrocketed to more than $62 trillion. The CDO market, which stood at $275 billion in 2000, grew to $4.7 trillion by 2006.

At the heart of it all was Li’s formula.”

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