EternalHoH
Posts: 791
Joined: 5/30/2010
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quote:
ORIGINAL: kdsub
As an example it is just a matter of time before the credit card industry collapses.
Credit card industry is a great example.
But do you also realize that this industry, who is owned billions of dollars by questionable card-holding debtors, chose to hedge against any potential losses from their potentially deadbeat clientele and sought the same type of unregulated 'insurance' to cover their receivables. After all, what credit card company wouldn't want to get paid by 'insurance' when the customers who owe them money go bankrupt. Except the insurance company who sold them the policy has no equity in the tank to cover all the 'insurance' it sold. This will be round 2 of what we saw with the housing debacle.
The same line of thinking is what drove the takeover of GM. Now, GM went bankrupt for sloppy business practices of their own making, but the creditors who were owed money by GM bought loss hedging insurance, to be payable in the event GM went out of business, and they bought that insurance from AIG. And as we know, with AIG, there was no "there" there when the "policyholders" of the mortgage securities "insurance" rightfully should have been paid when their mortgage securities rotted. Since the taxpayer owned AIG, if GM had gone out of business, the taxpayer would have been on the hook to pay trillion of dollars worth of unregulated "GM insurance policies". The choice for the taxpayer was to pay trillions of dollars in insurance payables, or take over the company and spend 50 billion (chump change, by comparison) to restore the company to health. Obviously, the 50 billion route was cheaper for the taxpayer, and that is what happened.
There is similar loss-hedging insurance on the books over interest rate changes (people want to have insurance make up the difference in borrowing costs when interest rates go up, right?), the solvency of state governments (people who are owed money there want to get paid too, right?), etc. And all of this financial 'complication' was created by DEREGULATION.
The reason the credit card industry put million of credit cards into the hands of deadbeats was the same reason banks put mortgages in the hands of poor people. A loss-hedging 'insurance' mechanism existed, and either course would be safe, right? Too bad the unregulated insurance mechanism turned out to be a ponzi scheme.
< Message edited by EternalHoH -- 10/25/2010 11:43:58 AM >
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