You really have no idea what you're talking about. Please stop unless you plan on being serious instead of spreading your idiocy. You can do a simple search on Level III assets to learn what they are and why it's controversial even prior to the financial crisis. A bank can't take its own mortgage that it issued and lend against it. But it can take a "new & improved" mortgage based security, the loans from which it did not originate and put it on the books, hence bolstering its borrowing ability from the Federal Reserve System. Isn't it funny that writers such as these were predicting the implosion of the financial system, due to the fact that there were trillions of phantom Level III assets on the books of all major banks?
Yup, it's those damn Marxists and lefties in the Media that are "manipulating" people into stuffing their mattresses. Let's see... Outsourcing and H1B visas supported by Wall Street contribute to lower wages and job instability. Rating agencies, WorldCom, Enron, in the late 90s and early 2000s showed what a scam Wall Street is. Unregulated derivatives markets imploding, Wall Street traders and management types getting billions in bonuses the past 5 years, and wait - it was all a scam, now we have to bail them out - they need billions more - at everyones' expense. Yeah. All those things, and many more factors contributed nothing to the fact that people are hoarding cash. Nope... It's the Marxists. There's a saying in Moscow: Everything the Communists told us about Communism was a lie, but unfortunately everything the Communists told us about Capitalism was true. There's truth to that. Not that Capitalism is faulty - it's the best system so long as it is not hijacked. But all societies, over time, trend towards oligarchies that influence government in order to maintain their status quo - at the expense of EVERYONE ELSE. That's what's going on right now.
That has nothing to do with it. The real problem is we don't really believe in capitalism as a society. More specifically, we like asset price inflation, but an equally good part of capitalism is when it flushes garbage down the drain and then asset prices deflate in that process. Instead we plug the drain and the sink fills with garbage.
You are increadible troll. You don't know what I'm talking about which is basic knowledge about banking you learn in first year economics and finance and you have the nerve to call it idiocy. You wrote: "Since late 1990s, banks were able to turn derivatives into assets and lend against them" You don't know the difference between bank assets and liabilities, yet you talk about banks. Banks cannot lend against assets. You got a serious problem pal. You talk about things you don't understand and you attack those that try to correct your mistakes. You are a troll.
Madoff did not make any monies disappear. Ponzi schemes do not destroy cash, they re-distribut cash illegaly, It is an illegal scheme but people think it has to do with capitalism. No, it has to do with criminal behavior.
"A simple two-ply square of toilet paper sells for $417" The above statement made me write this whole story off. The author lacks common sense. Perhaps the author lacks sense overall. If 1 sheet of toilet paper cost that many bills, wouldn't you just use the 417 bills in place of 1 piece of toilet paper?
Does the article say what would happen to the historic mega-profits that would accrue to the players on the other side of these alleged derivatives contracts?
He is. Here: http://www.elitetrader.com/vb/showthread.php?s=&postid=2339814#post2339814 he posts about most of the people in the world are "starving to death". When he finally understands how flaming stooopid that comment is, he corrects it to mean several hundred million people are starving to death. Put him on ignore like everybody else does.
What about reserve requirements when doing something like that? I don't see the problem in this case. If the mortgage based secutiry loses its value then the bank owes less or nothing to the issuer and it still makes interest on the loans.