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If all credit derivatives were made null and void across the board – losses would be distributed across the system and absorbed. It could work quickly and efficiently to resolve the weakness it is causing. It would create a level playing field and all real assets that are in those packages could be re-written in a prudent and financially sound manner.
If all credit systems had to conform to the same standards of sane leverage ratios and the same conditions of repayment, collateralization, standards of practice and fair lending whether in credit cards, mortgages, commercial mortgages, bonds, commercial paper, stock market practices, hedge fund practices, banking, etc. then the system could quickly be restored to stability. It would not offer soundness but stability would be restored and financial soundness could be sorted out immediately thereafter.
If everyone with a credit card would boycott these banks by not using them ever at all ever again – never, there would be a change in the poor decision-making of the banks holding them. Their shady practices would have to by necessity change and it would alter the price of every product available for purchase on the market to reflect real supply and demand economics.
If credit derivatives and other exotic financial investment products were forced back upon those who created them and the losses absorbed by those who traded in them in the first place, the system could be restored to true value and basic solvency provided that the governments of the world including the United States do not bail them out of those losses. It would go farther to restore balance and soundness in the system than anything else.
If banks, commercial developers, investment bankers, financial institutions and corporate financial officers were held accountable by personal loss, jail time, loss of wealth acquired by ill-gotten gains by trading in these illiquid and worthless financial products, then there would be a change in how they view the situation and their part in it. They have literally embezzled the assets of sound companies by converting them into highly leveraged toxic asset classes of worthless “securities” and structured investment vehicles / CDOs / exotic financial and credit derivatives. The economy is reeling from their actions while their personal experience is shielded from consequences. It would restore prudence in financial matters, strengthen the financial system and inspire the creation of new appropriate sound financial structures in the economy.
If the international community would insist that the members of the financial system that sold them toxic waste in derivatives and leveraged credit products give the money back, then these products wouldn’t continue being sold, traded and given credibility. They would be restructured into their component parts by the companies responsible for creating them and then losses would be absorbed, the good valuable assets would be restored to their rightful free-standing independence and value, and the soundness of the system would be restored. Trust would then be possible to be earned once again.
It doesn’t matter if there are 5 billion shares being traded on the stock market – that describes the willingness of a handful of institutional investment managers to continue gambling because they are addicted to doing so, and it isn’t their money. They get paid whether the portfolios build out or not, though to increase the return of the portfolio is a greater return to their personal wealth. This describes a sideline of the economic reality that isn’t based in reality – not the facts.
– cricketdiane, 02-12-09