Politicians, voters, and the public often lack knowledge
about complex business practices and fraudulent investments like
Government-Sponsored Enterprises (GSEs) and mortgage-backed securities. This
ignorance persists without public education.
Taxpayer dollars are misused in a political game of picking
corporate winners and losers, leading to risky financial behaviours like
collateralized debt obligations and credit default swaps. These won't be fully
exposed until voters understand their implications.
Mortgage-backed securities are questionable assets created
through bureaucratic oversight and political interference, benefiting financial
institutions, lawyers, and politicians. The principle of "buyer
beware" has eroded as asset values are influenced more by political clout
than market forces, contributing to financial crises and government bailouts.
Housing policies from the early 1990s aimed to expand
homeownership, even for those financially unfit, resulting in the creation of
GSE Debt Securities. Politicians campaigned on homeownership for all, mirrored
in Canada by the Canada Mortgage and Housing Corporation (CMHC), which lacks
transparency about its mortgage portfolio's stability.
Global economics now overshadow political ideologies and
laws. Those who understand these complexities control politics and power, as
seen in mergers and financial bailouts.
A once-niche stock trade known as dispersion has become a
major Wall Street strategy. Dispersion involves profiting from volatility
differences between an index like the S&P 500 and its individual stocks.
Its popularity has grown post-pandemic due to rising interest rates. However,
its success might be its downfall as increasing participation reduces
profitability.
Dispersion trading is seen as cheaper portfolio insurance,
benefiting from individual stock volatility while keeping the index steady.
Despite its complexity, it remains attractive but challenging due to rising
entry costs.
To prevent future crises, the public must educate themselves
about these financial practices and demand transparency and accountability from
institutions and policymakers.
The fraudulent scams investments like GSE or mortgage-backed
securities and others shall not come to an end until we the public educate
ourselves.
The transparent insanity and outright gambling with our
taxpayer dollars, in a political roulette-like game attempt to pick corporate
winners and losers within the free market system of capitalism, by unelected
bureaucrats and politicians alike, by using tax dollars in Ponzi schemes for
global bubble economics shall not fully be exposed until voters realize what
are the implications of collateralized debt obligations, securitization and
credit defaults swaps etc.
For example, a mortgage-backed security is a questionable
asset-backed security supposedly secured by a collection of other questionable
assets. And are the results of bureaucratic oversight and dizzy left-wing
meddling in nutty radical politics which in my opinion allowed a legal
confidence game to enrich opportunistic financial institutions, lawyers, and
politicians alike.
These mortgages first must originate, of course, from a
regulated financial institution and they then must be grouped into ratings as
established by credit rating agencies, that are accredited of course, who then
charge a fee to these same financial institutions for giving a worthy rating,
so the investments were then in the position to be legally sold to suckers born
daily.
Whatever became of the buyer beware clause in the free
market system?
Because these bundled or grouped assets were not at all
determined by the free marketplace. They were however first procured by
unelected bureaucrats and politicians.
The values and price of these assets of course were decided
by the amount of political influence of special interest groups, be they
corporations, unions, or investment banks, and not by what investors were
willing to pay.
This was a large part of the downfall of the US and the
world economy which resulted in the bail-out process by governments who
supposedly regulated all these organizations in the first place.
However, another catch and the problem were that from the
early 1990’s a political government policy was politically pushed through the
U.S. Department of Housing and Urban Development.
Because elected politicians were being pushed by special
interest groups within their constituencies and political parties to support
socialized housing policies based on low mortgage rates.
Thus, the unelected bureaucrats at HUD desperately needed a
way to expand homeownership, for citizens especially the Constituents of
elected politicians, and even to such citizens who were not in the financial
position to carry the cost of such ownership in the first place and which can
be referred to as political expediency for votes.
To achieve these political vote-getting schemes, unelected
bureaucrats were pressured by politicians and special interest groups to
disregard lending and accounting principles that had previously governed the
U.S. mortgage market of financial institutions.
So bureaucrats came up with a political plan to provide
funding to specific types of citizens having poor credit or insufficient income
groups who of course would not qualify for conventional mortgage loans.
The U.S. Congress of course approved this idea of a
marketable bond for financial institutions called Government Sponsored
Enterprises or GSE Debt Securities.
You see as a government-sponsored entity these GSEs were
able to attract lenders that offer lower rates because of the implied
government guarantee rather than a real guarantee.
As such lenders were willing to lower the finance charges
and interest rates to these risky and poor credit citizens, but investors are
also able to yield higher returns as a result of this implied guarantee.
Now the politicians could campaign on their political social
ideology that every American has the right to own a house even though they
could not afford one in the first place.
A political policy similar in a way to that of CMHC, our
Canadian Crown Corporation and largest mortgage insurer, is used by our
politicians, as the driving force in the housing market throughout Canada with
political policies that have inflated our own housing economic bubble.
To my knowledge as of this date Canada Mortgage and Housing
Corporation has not been transparent to either the government or taxpayers
about the stability of its portfolio and just what percent of its portfolio
represents a risk because of low or poor credit and arrears in payments?
Some have suggested it could be as high as 65% or as low as
45% but our government, like Fanny and Freddie in the U.S., and until it was
too late, our government as yet has not forced CHMC to come clean and reveal
this information to Canadians, even though thanks our government taxpayers are
on the hook for any and all defaults in the mortgage portfolios held by CMHC
and guaranteed by Canadians.
It is my personal and strong belief that now and in the
immediate future global politics and policies are no longer about political
ideologies or a country’s constitution and laws but rather about the complexity
of global economics based on complex laws and complex business financial
practices.
Therefore, those individuals, corporations, special interest
groups and unions that currently have or with the willpower to recognize,
understand and master these complexities shall be the ones who ultimately
control and direct politics and the power that goes with it as we have already
witnessed with mergers, the non-bankruptcies of GM, Chrysler, bank bailouts and
TARP to mention only a few.
Update Oct.24/11
The top 20 of the 147 super-connected companies.
1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
4. AXA
5. State Street Corporation
6. JP Morgan Chase & Co
7. Legal & General Group plc
8. Vanguard Group Inc
9. UBS AG
10. Merrill Lynch & amp; Co Inc
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC (holding company for Wal-Mart heirs)
16. Bank of New York Mellon Corp
17. Natixis
18. Goldman Sachs Group Inc
19. T Rowe Price Group Inc
20. Legg Mason Inc
Source Forbes
Public Info to Get you started………..
Interest Rate Swap
What Does Interest Rate Swap Mean?
An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate (most often the LIBOR). A company will typically use interest rate swaps to limit or manage exposure to fluctuations in interest rates, or to obtain a marginally lower interest rate than it would have been able to get without the swap.
Investopedia explains Interest Rate Swap
Interest rate swaps are simply the exchange of one set of cash flows (based on interest rate specifications) for another. Because they trade OTC, they are really just contracts set up between two or more parties and thus can be customized in any number of ways.
Generally speaking, swaps are sought by firms that desire a type of interest rate structure that another firm can provide less expensively. For example, let's say Cory's Tequila Company (CTC) is seeking to loan funds at a fixed interest rate, but Tom's Sports Inc. (TSI) has access to marginally cheaper fixed-rate funds. Tom's Sports can issue debt to investors at its low fixed rate and then trade the fixed-rate cash flow obligations to CTC for floating-rate obligations issued by TSI. Even though TSI may have a higher floating rate than CTC, by swapping the interest structures they are best able to obtain, their combined costs are decreased - a benefit that can be shared by both parties.
Introduction to Securitization
"When you measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind . . . ." William Thomson, Lord Kelvin, Popular Lectures and Addresses (1891--1894).
(i) The Nature of Securitization
Most attempts to define securitization make the same mistake; they focus on the process of securitization instead of on the substance, or meaning, of securitization. Hence, the most common definition of securitization is that it consists of the pooling of assets and the issuance of securities to finance the carrying of the pooled assets. Yet, surely, this reveals no more about securitization than seeing one's image reflected in a mirror reveals about one's inner character. In Lord Kelvin's terms, it is knowledge of "a meager and unsatisfactory kind."
Collateralized Debt Obligation - CDO
What Does Collateralized Debt Obligation - CDO Mean?
An investment-grade security backed by a pool of bonds, loans and other assets. CDOs do not specialize in one type of debt but are often non-mortgage loans or bonds.
Investopedia explains Collateralized Debt Obligation - CDO
Similar in structure to a collateralized mortgage obligation (CMO) or collateralized bond obligation (CBO), CDOs are unique in that they represent different types of debt and credit risk. In the case of CDOs, these different types of debt are often referred to as 'tranches' or 'slices'. Each slice has a different maturity and risk associated with it. The higher the risk, the more the CDO pays
Definition: CDO's, or Collateralized Debt Obligations, are sophisticated financial tools that repackage individual loans into a product that can be sold on the secondary market. These packages consist of auto loans, credit card debt, or corporate debt. They are called collateralized because they have some type of collateral behind them.
Credit Default Swap (CDS)
What Does Credit Default Swap (CDS) Mean?
A swap is designed to transfer the credit exposure of fixed-income products between parties.
Investopedia explains Credit Default Swap (CDS)
The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the creditworthiness of the product. By doing this, the risk of default is transferred from the holder of the fixed-income security to the seller of the swap.
For example, the buyer of a credit swap will be entitled to the par value of the bond by the seller of the swap, should the bond default in its coupon payments.