Creating Solutions for America, credit default swaps, Cricket Diane C Sparky Phillips, cricketdiane, Economics, Economy, Global Economy, Illuminati of One, International Concerns, international monetary policy, Principles of Economics, the trust of the American people, US economic crisis, US government bailout
Buy house = $130,000
Mortgage / Interest + principle = $350,000
sold on Wall Street (inside pkg.)
today – house won’t sell for $90,000
repackaged and sold (inside pkg.)
leveraged on loan for business (within packaged lot)
now – house going into foreclosure
at sale on courthouse steps = $8,000
not to be difficult but now how much is that mortgage worth?
and what is the real value of any of it, including the actual property with a house whose copper will be stripped out by someone for the money in a now desolate neighborhood with vacant uninhabitable homes?
what value does that $850,000 loan against its real value have?
but wait, there’s more
because some ninny decided to create a “credit default swap” financial derivative on it –
another party made an unregulated, “insurance” on it for the value to pay out $850,000 (just in case it didn’t get paid and wasn’t worth that which it isn’t.)
this “insurance policy” called a credit default swap financial derivative instrument or a mortgage-backed security was packaged and resold
since the premiums against the default were some portion of a +/- $2 million a year premium – the value of the hedge against loss was sold for $1.5 million to someone else so they could make $500,000 a year on it for awhile.
okay, let’s remember the word problems from school and add this up . . .
an $8,000 cash sale for a property where its unfit to live
$850,000 that has to be paid to somebody and part of $1.5 million in premiums to insure it is paid but nothing to back up paying it.
$350,000 for the original mortgage, if it continued to maturity and was actually paid off ever by anybody that is actually now owned for $850,000/ + interest.
but that’s okay because the business that owns the credit default swap pays the $850,000 for the mortgage that no longer exists on a house no one can live in that sold for $8,000.
(and still won’t sell for $130,000.)
Written by Cricket Diane C “Sparky” Phillips, 09-24-08, USA