Wednesday, September 24, 2008

Poker, Gambling and How to Solve our Country's Financial Mess

Fear. There is definite fear that things are about to spin out of control and get worse.

The Administration wants $750 billion to bail out the financial institutions. But the Democrats want to get elected and say it's all a scheme to help the rich. Even the Republicans are not sure if they want to come out to support the bailout.

I read Ben Stein on Yahoo Finance who finally reveals the real problem behind the mortgage mess...yep, gambling.
Read his article here: http://finance.yahoo.com/expert/article/yourlife/109609.

It seems that the mortgage mess is only (only?) $250 billion. So that's small potatoes for our huge economy.

The problem is that there are entities that "place bets on whether or not those mortgages would ever be paid. You didn't have to own a mortgage to make the bets. These bets, called Credit Default Swaps, are complex. But in a nutshell, they allow someone to profit immensely - staggeringly - if large numbers of subprime mortgages are not paid off and go into default."

And these bets were backed by banks, investment banks and insurance companies. They lost their bets to these other entities. The result they owe real money--in the trillions. That's why they are all in a heap load of trouble.

Once again we see why bankers shouldn't be allowed to play poker. They stink at gambling. And they lost the farm and maybe your farm as well.

But, how about a solution. I am not a financial genius. But, I have a solution.

1. The Government buys these lousy mortgages back from these bankers for $250 billion. That's what they are worth.

2. The people who own the homes with these lousy mortgages are given a break. A low interest loan that is fair and it gives them an opportunity to stay in their home and pay off the debt. That would also help the value of your home to stop declining. The Democrats would love that.

3. My big idea: Remember that TV series "Dallas." One year that program went totally off course and had a story meltdown. So what did the writers do, they said, hey, let's make believe that whole year was a dream.

Why not do that here as well: Pull a "Dallas!"

Here's how:
a) Tell all the banks and financial institutions to make believe they never made any of those awful loans. Just restate all their past year financials. And all that money they just got from the US government to buy the lousy mortgages is free money they can now loan out to businesses and people for home, autos, etc. That makes the Republicans happy!

b)

Ok, the above probably shows my ignorance in all things financial. But, I like it. And, it seems to make everyone happy--it's like finding out the chip leader was cheating, forfeits and the players in 2nd and 3rd get to chop the pot.

What do you think?

2 comments:

Curtom said...

Hmm...definitely an interesting read. I happen to be an independent so I don't blame one side or the other. I blame both parties. I happen to believe that the consumer should be the ones being bailed out and not the big businesses. I speak as one of the people that benefit from the tax breaks given to the wealthy also. I have no problem paying more if Obama is elected either. It would not affect me much at all. However, I do have a problem with the Government taking your / our tax dollars to pay off businesses that clearly lack ethics and make poor decisions. How about wiping out all credit card debt and starting again from scratch for people with incomes beneath 100K? Obviously you would still need to address the loan problem and mortgages but at least people would have money to spend again. By bailing out big business it does not help the economy one bit because most people will still be B-R-O-K-E. Just my two cents.

Nice article.

Mitchell said...

Thanks. Looks like something will pass by the end of the week.

I don't understand why they don't make all those Credit Default Swaps Illegal Transaction and just say that all those bets are off.

What's Your Poker IQ?