Remember one of the main causes of the housing crises and the mess we find ourselves in today? Well it was the structured products and how Wall St was able to take junky credit mortgages, wrap them together as one security, and sell them convincing the rating agencies and buyers that they were AAA. Basically, throw one hundred junk mortgages together and boom, you have the perfect mortgage. The argument was because of diversification it was really safe.
Well that thinking with tons of leverage almost caused the entire system to collapse. It would have collapsed except the government took all the risk.
Welcome to today and the governments have managed to do the same thing. According to the New York Times "The European Financial Stability Facility, as the fund is known, was rated AAA by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. Standard & Poor’s said its understanding was that 'guarantees from member governments supporting the repayment of E.F.S.F. obligations will be unconditional, irrevocable and timely, and thereby consistent with our criteria for sovereign guarantees.'"
That is tragic or funny (depending on your perspective) on all sorts of levels. 1) The facility has not been pre funded. It is only going to be funded if there is an actual problem. I am sure everyone is setting money aside so it can be guaranteed to be there if need be. Truly AAA material. 2) What is even worse is that 3/4 of the countries that make up the EFSF aren't AAA. Basically we have just taken a bunch of junky mortgages, thrown them together and presto made it AAA. In this case we just took a bunch of junky countries and made them AAA.
Of course there is no problem now so the market prices it as if there will never be a problem.
More brokenness as our system slips towards the abyss.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment