I have asked a few questions several times in several forums and I got no answer: (1) Where did the money raised from the sale of derivative products go? A good part of it came from overseas investors. (2) What is that mechanism everyone claims was used to hedge those derivatives but nobody has ever explained how it worked? I get the impression that people make this to sound too complicated just to divert the attention from the real issues. I think Cutten is right. Everything would have worked fine and HAS worked fine in the past provided that people paid for their loans. CDOs and CMOs is not a new thing. They are here from the 1980s. But look at it another way: Would it be possible to have people not paying for their loans and still not have a crisis? I still have to see someone explain how the derivative products boosted a crisis that otherwise would have been of much smaller proportion given the same default rates. Blaming derivatives, CDOs, OTC markets, etc. is a politicians ways of diverting the attention from the real issues.
Why did Citigroup give money to Daniel Sadak (Quick Loan Funding) who make his business from ONLY subprime loans(liars loan)? Because the good credit people already have refinanced in 2003 with low morgage rates. So they have to find a market...hmm subprime people. Duetch bank, Goldman Sachs, Bear Stearns, Citigroup, JP Morgan all package those subprime loans because they give more yield then 10 year treasury in 2005. BIG demand from hedge funds, pension funds...because they have AAA rating and higher yield than of treasury. The banks want more of this morgages to sell, so they create a derivitive of the subprime morgages to sell. That is how they leverage subprime loans into more instruments to sell world wide. All of this from subprime root? And that is the fault of the greedy borrowers who really have no money to pay the loan? No, it is a banks looking for a market, they approve that (subprime) market with help from Moodys, S&P, Fitch ratings..who make money too. They make money when they sell that securities to someone else, and for some make money again when betting against that ...like Deutch Bank and Goldman Sachs who bet against subprime derivitives and sold MBS. So they hedge, not bad to do. (ABX Index) Other funds saw a mess happening and bet against this too, and make big money. So when I hear the people say all the global mess is the fault of poorer subprime people, that is the lie to hide the banks who created a market of derivitives(knowing the root in subprime people) but do it anyway. No one can make me believe that the subprime, small income people fooled the big banks of wall street.
ps subprime morgage people have to pay HIGHER interest rate for that loan because they are risk. So rating agencys see this yield as dollar amount it could produce. This makes one of a part of rating for AAA through yield? Even a teenager can see you can not get more money from someone who does not have that to begin with.