04-10-2008, 04:34 PM
A warm welcome David!
I probably don't fall into the category of others with greater knowledge but my first thought on reading your post is that, yes, I can see how the mortgage backed security is a form of currency. It is a good analogy. And it has been debased. More than that it is not backed by anything at all.
I first realized that this was turning into something a bit more than a garden variety financial crisis when I heard a radio report about how Deutsche Bank had taken about 8 people who had defaulted on their mortgages to court in the US. They wanted to foreclose as they (thought) held the title and get their money back. When the judge asked the bank to show their title to the properties they were unable to do so because of the way the mortgage backed securities had been chopped up and spread around. The judge then made a judgement to the effect that the bank did not have title to the properties the people could stay there but the bank still had the debt and that was their problem. I think it put shock waves through the banking system when they realised that the mortgages backed securities were not worth the paper they were written on.
I've never understood how even in 'normal' times a bank could produce money out of thin air and lend it but you have to pay back in hard earned real currency. It just seems like a sleight of hand conjuring trick. I had always thought they had to borrow other people's real money (in the form of deposits or from the Reserve Bank) to lend to others at interest to make the money to run the bank and pay the original lender. But I understand banking hasn't been done like that for some time. Time for me to dust of my copy of Das Kapital I think.
It really is just a ponzi scheme that I am seeing. Even when it's respectable.
I probably don't fall into the category of others with greater knowledge but my first thought on reading your post is that, yes, I can see how the mortgage backed security is a form of currency. It is a good analogy. And it has been debased. More than that it is not backed by anything at all.
I first realized that this was turning into something a bit more than a garden variety financial crisis when I heard a radio report about how Deutsche Bank had taken about 8 people who had defaulted on their mortgages to court in the US. They wanted to foreclose as they (thought) held the title and get their money back. When the judge asked the bank to show their title to the properties they were unable to do so because of the way the mortgage backed securities had been chopped up and spread around. The judge then made a judgement to the effect that the bank did not have title to the properties the people could stay there but the bank still had the debt and that was their problem. I think it put shock waves through the banking system when they realised that the mortgages backed securities were not worth the paper they were written on.
I've never understood how even in 'normal' times a bank could produce money out of thin air and lend it but you have to pay back in hard earned real currency. It just seems like a sleight of hand conjuring trick. I had always thought they had to borrow other people's real money (in the form of deposits or from the Reserve Bank) to lend to others at interest to make the money to run the bank and pay the original lender. But I understand banking hasn't been done like that for some time. Time for me to dust of my copy of Das Kapital I think.
It really is just a ponzi scheme that I am seeing. Even when it's respectable.