Friday, April 25, 2008

The Missing Billions From The Housing/Credit Crunch

I have good news and bad news. The good news is that I am happy to report that we have located all of those missing billions from the mortgage/credit meltdown. You know all of those profits from all of those questionable loans that the banks made to the mortgage companies, who in turn with the help of the hedge fund managers bundled them together and presented them to an unsuspecting public as stable investment vehicles. That’s the good news. The bad news is that the money was found in the pockets and bank accounts of the ones who helped to start this fiasco. In what is becoming an all too familiar scene the authors of the mortgage fraud have walked away with billions in profits while the rest of the country prepares for tough times ahead.

Hedge fund managers have redefined notions of wealth in recent years. And the richest among them are redefining those notions once again.

Their unprecedented and growing affluence underscores the gaping inequality between the millions of Americans facing stagnating wages and rising home foreclosures and an agile financial elite that seems to thrive in good times and bad. Such profits may also prompt more calls for regulation of the industry.

Even on Wall Street, where money is the ultimate measure of success, the size of the winnings makes some uneasy. “There is nothing wrong with it — it’s not illegal,” said William H. Gross, the chief investment officer of the bond fund Pimco. “But it’s ugly.”[1]

So here is what we know, the CEO’s of the main players in the mortgage meltdown made bonuses in the millions while they steered their companies to the verge of bankruptcy. The hedge fund managers made billions- this is not a typo- they made billions as they played both sides against each other. We have surpassed the avarice of the Gilded Age and have created a whole new level of greed not seen before in this country and maybe not in this world. If you thought we had reached the stage where a few super-wealthy families were influencing the economies of the world, you haven’t seen anything. There will be untold carnage left behind by these hedge funds as they grow larger and more influential. Imagine managing and moving around amounts of money that dwarf many countries GNP’s and how that will affect the smaller and more volatile economies.

This news comes on the reports of the MSM of how everyone lost during this economic meltdown, well I guess everyone didn’t lose. The biggest losers were the average homeowners and investors who have been made prey for those who will never have enough. How much is enough money? How much is enough cars, clothes, and stuff? The level of disconnect between what people actually do and what they earn in the area of investing and financing has reached the level of the absurd.

Top hedge fund managers made money in many ways last year, from investing in overseas stock markets to betting that prices of commodities like oil, wheat and copper would rise. Some, like Mr. Paulson, profited handsomely from the turmoil in the mortgage market ripping through the economy.

As early as 2005, Mr. Paulson began betting that complex mortgage investments known as collateralized debt obligations would decline in value, much as Wall Street traders bet that shares will drop in price. In that case, known as shorting, they borrow shares and sell them, wait for the price to fall, buy the shares back at a lower price and return them, pocketing the profit.

Then, over the next two years, Mr. Paulson established two funds to focus on the credit markets. One of those funds returned 590 percent last year, and the other handed back 353 percent, according to Alpha. By the end of 2007, Mr. Paulson sat atop $28 billion in assets, up from $6 billion 12 months earlier.[2]

All this money making and profit taking is news to me because I lost money from my investments across the board last year. How is it possible that the market you are investing in lost money, but you actually made money? And not just a little money, but a perverse amount of money that would even be considered exorbitant in good times let alone in falling markets. I am not a Rhodes Scholar economist, but I know bullsh*t when I see it. And what we are watching in America today is exactly that. These guys use borrowed money and bail-outs to generate these excessive profits all the while espousing the impending menace of the entitlement programs, government safety nets and their subsequent implosion. Give me a break! If these guys would pay half the money they and their corporations should be paying in taxes many of the ills they speak of would be non-existent.



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