Comments on: Bernanke Spoon Feeds us with Baby Steps http://serious-speculator.com/2008/02/14/bernanke-spoon-feeds-us-with-baby-steps/ Insight into Speculative Investing Wed, 09 May 2012 04:00:35 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: John Joseph http://serious-speculator.com/2008/02/14/bernanke-spoon-feeds-us-with-baby-steps/comment-page-1/#comment-3 John Joseph Fri, 15 Feb 2008 03:44:30 +0000 http://serious-speculator.com/blog/?p=30#comment-3 The problem is that bank/investment houses don't know the extend of the problem with the sub-prime mortgages. The majority of these loans were stripped and re-packaged and sold as first class assets to banks world-wide. The package contained part mortgages. The banks and audit teams don't know how to put a fair value on these products. This practice has been going on for many years.There has been many billion's of dollar or foreign currency products done this way. Short term loans were swapped out for longer term commitments. The mess can't be unraveled.Buyers of assets were believed that the backing was always of full faith and backed by first class insurance and or US Gov't. Since there was no failures by some of these insurance backers their reserves or Tier 1 was limited. Another issue was interest rate swaps done on the basis of LIBOR vs PRIME RATE using historical levels and this failed. This was in the many billion of dolls and foreign currency. It started as prime moved up from a lower base to higher and family debt started to mount with no chance of paying back. Mortgage sellers were selling to hundreds of million who didn't know the risk of FLOATING rates as prime went up. The FEDERAL Reserve is good when it can research historical patterns. This was the start of a new event risk. Goldman Sachs was one of the few who got out or hedged their risk. Many of the world banks/investment bank use the basis same data to view their dollars at risk. They didn't plan or didn't have enough in reserves when this EVENT RISK HAPPENED. IMHO The problem is that bank/investment houses don’t know the extend of the problem with the sub-prime mortgages. The majority of these loans were stripped and re-packaged and sold as first class assets to banks world-wide. The package contained part mortgages. The banks and audit teams don’t know how to put a fair value on these products. This practice has been going on for many years.There has been many billion’s of dollar or foreign currency products done this way. Short term loans were swapped out for longer term commitments. The mess can’t be unraveled.Buyers of assets were believed that the backing was always of full faith and backed by first class insurance and or US Gov’t.
Since there was no failures by some of these insurance backers their reserves or Tier 1 was limited.
Another issue was interest rate swaps done on the basis of LIBOR vs PRIME RATE using historical levels and this failed. This was in the many billion of dolls and foreign currency.
It started as prime moved up from a lower base to higher and family debt started to mount with no chance of paying back. Mortgage sellers were selling to hundreds of million who didn’t know the risk of FLOATING rates as prime went up.

The FEDERAL Reserve is good when it can research historical patterns. This was the start of a new event risk. Goldman Sachs was one of the few who got out or hedged their risk. Many of the world banks/investment bank use the basis same data to view their dollars at risk.
They didn’t plan or didn’t have enough in reserves when this EVENT RISK HAPPENED.

IMHO

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