Divided we stand, united we fall

The US mortgage crisis makes me laugh. Ya that’s right – a sick, ironic laugh.  The taxpayers are about to get fucked in the ass one more time by Bush on his way out the door.  Bush went on the TV last night talking about the “crisis hitting America”. There is no crisis. Stop and think about it. People got loans to buy houses they can’t afford to pay back. So what?

Are the houses gone? Did the land disappear? No.

In fact, these companies that backed the mortgages will still own the land AND get a 700 billion dollar bail out. The US is going to use taxes to bail out investing.  That is essentially using public funds to bail out gamblers.  And investors are beginning to salivate at the thought of a big buy out which is evident in the favorable turn in the markets this morning.

That’s the funny thing about the markets, it is driven on emotion.  Investors, like mud hens, or lemmings tend to follow the crowd.  So when one yells the sky is falling, they all panic and dump their stocks causing the stocks’ value to plummet.

And there’s the rub.  None of it is real.  It is all smoke and mirrors.

It works like this:

So I have $100.   I loan $10 to 10 friends with an interest of 20%. Which means I would make $12 back from each.  However, I don’t want to tie up my money so I bundle up the loans into a “fund” which I then sell to 10 other people for 10 dollars a share promising them each 10% interest.  This means I will pay each of them $11 when the fund matures.  I have made $10 and it has cost me nothing since I still have the $100 that I started with.  I do it again, and again,  and again…

You can see the trouble that happens when the people I loaned the money to stop paying me back.  I can no longer back my funds.

If I want to borrow some money from the bank to buy a house, I promise that if I can’t pay them back they can keep the house, (foreclosure) I have backed it up (collateral).  But if the bank promised someone else that if they loaned the bank that money (investment), they would pay them back with interest where is the banks collateral?  There isn’t any.  You are betting that the bank will give you return on your money based on the fact banks always make money. 

If the bank screws up and looses your money you record a capital loss. While it sucks, you the investor take that risk for the chance at large gains.  The government in the US is bailing out banks, when the investors took the risks.  The investors were the only ones who would see the gains, they should have been the ones to take the fall.

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