Tuesday, April 8, 2008

Explaining the Housing Bubble?

I think it begs the question: Why am I talking about housing on my 'technical' blog? Because it's my own damn blog, that's why! Ha, just kidding. Actually, I spend a lot of time studying the housing market (and the economy) because I really really want to buy a house but don't want to get burned. And, in many ways, the financial world is technical and so -- being human -- I'm naturally inclined to try to find patterns in the noise.

The conundrum here is about these mysterious "credit default swaps" that all the big financial players seem to be buried in. The news says the market for them is TWICE the size of the actual economy, $50T versus $22T. How can this be??? The widely used description of them is 'insurance' offered inst/amongst the various institution so as to spread risk. But then why did the Federal Reserve need to throw down potentially $30B to prevent the bankruptcy of Bear Sterns?

Near as I can figure it, when the bankers talk about spreading 'risk' they're really talking about spreading LOSSES. So I wouldn't be surprised if we eventually hear about illegal collusion, and maybe an anti-trust investigation of these huge Wall St banks. Just my $.02

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