Supporting arguements against the Federal Bailout.
Unsecured derivatives are just an arbitrary agreement of money transfer. The government is kidding us by buying these things out, becuase they have no value and can't be sold at an auction. Since these financial instruments were used for inventory of ARM loans, the interest and value of this agreement was solely placed on the borrower's ability to pay their mortgages. The economy definately wasn't cooperating. The credit defaults used to be backed by bonds. If they were still backed by bonds ("insurance"), the non-bank lenders/banks would have less liquidity, but they still would have had liquidity. Since the derivative market was never regulated, these financial instruments traded without any insurance. The banks would not have been bankrupt if the CD's were secured. The underlying reason why the lenders had so much inventory was to encourage more speculation to create an image of a GDP, since the ARM loans kept property values unethically high. A few made A LOT of $$ trading Credit defaults, others made a lot of money in real estate.
The mystery remains. Why is their inventory SO high? And WHAT mechanism did they use for their economic forecasting, since the value of the US Dollar was dropping (bearish indicator)?
Since our government is going to auction these bad debts, there are 2 ways to give value to the toxic paper. 1. secure it with something of value or 2. enable the mortgage borrowers to make their mortgage payments. That would require REAL job creation. Not the Bush kind.
There's no more beating around the bush, the fundamentals of our economy are not good (trade deficit, federal deficit, interest payables, opportunity costs, misery index). The U.S. needs income (trade surplus, innovation, wealth (VALUE) creation vs. paper creation, interest receivables, real job creation). It's come to the point that this can't be avoided anymore.
If the GDP=$13+ and the 400 richest Americans grew $10-12+ wealth each year, the difference minus the trade deficit is all we have left to split between 90% of Americans. Less inflation, interest, taxes...and anywhere between that amount and $13 trillion has to be all credit. The people are paying straight interest on it, without real wages people simply cannot afford their mortgages.
Source: Forbes 500, the EPI, Wikipedia, the U.S. Census Bureau
Thanks for reading!
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