Early Retirement & Financial Independence Community - View Single Post - Credit Default Swaps, Idiots in Congress, Enron and Phil Gramm

ERD50 · 11-01-2008, 08:56 AM

Thanks chinaco, but I'm still looking for the "big picture".

Even if you come up with a good set of "white lines" for CDS derivatives, that leaves an infinite number of possibilities for other scams. I've said it before, the scammers can react faster than the law. Make a law and find a way to enforce it, the scammers move on to greener pastures.

I'll throw out one idea along those lines though, and this is barely thought out, just running it up the flag pole, before finishing my first cup of coffee, so take it FWIW -

Maybe we need some regulation such that ANY use of margin or leverage includes some standardized disclosure of the risk. With examples that anyone could understand. And yes, this would include home mortgages. I find it simply amazing that a pretty large % of the population could probably point to the use of 10:1 margin in the stock market in the 1920's as one of the causes of the Great Depression (or at least understand it when explained to them), but most of those people wouldn't think of their 10% down home mortgage as being in a similar class.

We didn't learn from the GD, we just moved the problem from high leverage stock investments (which hurt people when the bubble burst) to high leverage house investments (which hurt people when the bubble burst).

-ERD50

11-01-2008, 08:56 AM	#40
ERD50 Give me a museum and I'll fill it. (Picasso) Give me a forum ... Join Date: Sep 2005 Location: Northern IL Posts: 5,428	Thanks chinaco, but I'm still looking for the "big picture". Even if you come up with a good set of "white lines" for CDS derivatives, that leaves an infinite number of possibilities for other scams. I've said it before, the scammers can react faster than the law. Make a law and find a way to enforce it, the scammers move on to greener pastures. I'll throw out one idea along those lines though, and this is barely thought out, just running it up the flag pole, before finishing my first cup of coffee, so take it FWIW - Maybe we need some regulation such that ANY use of margin or leverage includes some standardized disclosure of the risk. With examples that anyone could understand. And yes, this would include home mortgages. I find it simply amazing that a pretty large % of the population could probably point to the use of 10:1 margin in the stock market in the 1920's as one of the causes of the Great Depression (or at least understand it when explained to them), but most of those people wouldn't think of their 10% down home mortgage as being in a similar class. We didn't learn from the GD, we just moved the problem from high leverage stock investments (which hurt people when the bubble burst) to high leverage house investments (which hurt people when the bubble burst). -ERD50