The Bailout Explained
This is the best analogy I've read, which explains this bailout mess:
The Crisis Explained - Really
Joe goes to the track and bets $2 on a horse.
Two guys standing nearby get into a discussion and Fred says to Sam, "I'll bet you $5 that Joe wins his bet."
Next to them are Bill and Bob. Bill says: "I'll bet you $10 that Fred welshes on his bet if he loses."
Next to them is Sally. Sally says: "For $3 I'll guarantee to Bill that if Bob fails to pay off, I'll make good on the bet."
Sally then goes to Mary and borrows the $7 needed in case she has to ever pay off and promises to pay back $8. She doesn't expect to every have to pay since she believes Bob will always make good. So she expects to net $2 no matter what happens to Joe.
A quick calculation indicates that there is now 2+5+10+3+7 = $27 riding on the outcome of the horse race.
Question how much has been "invested" in the horse race?
$50,000 by the owner of the horse who is expecting to recoup his investment from the winnings of the horse and other future deals. Everyone else is gambling, not investing.
The issue with the home market is that the only "investor" was the person who bought the home. All those engaged in the meaningless derivatives spun off from this are gambling. You can see how quickly the face value of all these side bets can exceed the underlying investment. Who is holding these side bets - not the homeowner? It is the people at the failing investment banks, hedge funds and similar enterprises. Notice that the bailout is being directed at them not the homeowners.
The real world is, of course, even more complicated. Over the last 30 years people have been allowed to place bets on everything starting with the value of stock averages. They might as well bet on the temperature in Newark at 8:00 AM.
So when you hear everybody saying this is a crisis caused by the housing collapse, be skeptical. We are in the midst of a classic pyramid or Ponzi scheme and there is no way out except for people to lose a lot of money. All that is different this time is that it is the taxpayers who are being asked for the cash.
The Ponzi Scheme effect: Joe (the home buyer) has had to pay more and more with each ARM reset, in order to keep the side betters afloat. It's only when Joe can no longer meet those ballooning payments --and has to move to Hooverville-- that the side betters declare "a crisis."
There are millions of Joes who've already faced the ARM resets, and 3 million more to come. And the side betters just keep gambling.
Truly heavy sigh.
Number of days since Donna Brazile promised to leave the party if superdelegates decided the Dem nominee:
Donna has known for a long time now that superdelegates would be necessary for any Dem candidate to win the nomination this year. Ask Donna when she intends to keep her promise.
Don't hold your breath awaiting a reply.
Here's Donna now...
"For the great majority of mankind are satisfied with appearances, as though they were realities, and are often more influenced by the things that seem than by those that are."
-Niccolo Machiavelli (1469-1527)
Best bar bet in the world: Delilah didn't do it.
Judges 16:19-- And she made him (Samson) sleep upon her knees; and she called for a man, and she caused him to shave off the seven locks of his head.