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The past week or so I developed an acute interest in the current financial crisis and how it came about. I was completely ignorant of the alphabet soup financial acronyms such as CDS, MBS, CDO, CMO, LIBOR, and so on and so forth. And no, I do not pretend to know much of it after reading. I think my line of work of engineering is more interesting although it pays substantially less. I much prefer fixing the aging fleet of cars I have than reading and learning about the current situation which frankly makes me very worried. Is ignorance not bliss?
From what I understand much of the current crisis hinges on a financial instrument invented in the late 90's by a woman Blythe Masters fresh out of Cambridge University. Credit Default Swaps, or CDS, and its derivatives have wreak havoc in the financial market in only 11 years of existance. The total amount of it is estimated in hundreds of trillion dollors. It originates as a device to provide protection between bond sellers and buyers against default. But over time it has become not unlike a cock fight where any bystander can bet on the outcome. Someone correct me if I am wrong here. What started as a venue for corporations and municipals to raise funds for expansion via Wall Street has now become a big casino many of the participants have nothing what-so-ever to do with the process of raising funds except to hedge on if the bond will be repaid or default. Now that is sad. It is one thing the Wall Street (or part of it) becomes a gambling casino. Right now this toxic substance has the potential of subverting the entire economy.
I was of the opinion the 700 billion rescue plan was needed because I rather rely on the opinion of the financial experts who say we had to do it. I am not so sure now. No one can say whether it will work or not. Whatever the outcome of this I think the worst is yet to come. A depression or recession is coming I am afraid.
Fixing cars is so much more predictable. Isn't it?
posted by 66.247.20...
, Mon, 6 Oct 2008 07:46:55
, Mon, 6 Oct 2008 01:11:23
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