[Rhodes22-list] Dow Jones.....I hate to say it.....

[DCLewis1 at aol.com]

Rik, 
 
Re your comment that you can’t make loans to people that can’t repay them -  
I don’t think you’ve been following the mortgage debacle story.  Not  only 
can you make those loans, you can make a lot of money making those  loans.  The 
real estate salesmen that sold the houses made fine commissions  - and they’
ve  banked or spent the money.  The home builders that  built the homes have 
made a lot of money - and banked it or spent it. The  mortgage brokers that 
originated the loans made out very well - and they’ve  banked or spent their fees. 
 The people who securitized the loans made out  very well with their fees - 
and they’ve banked or spent the money.  The  rating companies that rated the 
debts AAA, and collected their fees, made out  very well and have banked or 
spent their money.  The people that finally  wound up with these debts are the 
conservative people who relied on the  competence and integrity of the rating 
companies - they’re screwed.  This  mortgage debacle is just another 
manifestation of that great American business  model called “take the money and run”.
 
I think the real story is not people making loans to people that can't  
afford them, the real story is conservative people and organizations buying AAA  
rated debt securities - the highest commercial ratings possible, only topped by  
Treasuries - who then find out their securities are literally junk or at 
severe  risk of impairment.  Worse, once they find out they've bought junk they  
can't sell it in any functioning market because no one will touch the  entire 
class of security with a 10' pole.  These people appear to have  to take a 
complete loss on their AAA securities, and there are more than $1T of  the 
securities issued.


In my opinion, from a debt owner perspective the real swindle here is the  
failure of the debt rating agencies, Moodys, Fitch, and S&P, to properly  rate 
the risk of owning CDOs.  They get paid to do that and the entire debt  
securities market relies on them to do it properly for nearly all debt  securities.  
A whole class of AAA rated debt securities is at severe risk  of impairment - 
it just shouldn’t happen.  They failed.

 
And because Moodys, Fitch, and S&P are gate keepers for the securitized  debt 
market, if they’re broke the  debt and securities markets could come  down - 
that’s the contagion risk.  If the stock market fails, there are  almost 
always buyers and sellers, things might work out.  But debt has  a finite term and 
always has to be re-issued or paid; if people and  organizations stop loaning 
money, companies can't roll over or increase their  debt, they fail and the 
economy fails.  I think that’s why you saw  governments commit more $120B in 
less than 8 hrs to address the issue, the  risk is real.
 
My guess, and hope, is that the central banks will get on top of this issue  
but we're all are being burned and are going to be burned further regarding  
it. I bet every person on this list that owns any stocks or bonds is  feeling a 
keen sense of loss and some anxiety as to how it's all going to  work out.  
It's a serious, painful, and risky situation.  I agree with Wally.
 
Dave




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