Call it a recession; call it the Recession, or call it the Great Recession if you want to, but the fact is most of us are experiencing the greatest economic downturn of our lifetimes. It has cut across all sectors and countries, and it started with our own housing collapse.
You’ve heard the story: the returns from subprime mortgages were collected, packaged together, and then sold to investors around the world as a mortgage-backed security or one of
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Call it a recession; call it
“the Recession,” or call it
the Great Recession if you want to, but the fact is most of us are experiencing the greatest economic downturn of our lifetimes.
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their various derivatives. Mortgage-backed securities have been around for a long time, but the same can’t be said, for example, of collateralized debt obligations (CDO’s) or the equally incomprehensible credit default swaps (something like insurance, but not really).
When I was with Mortgage Guarantee Investment Corp (MGIC) in the ‘80’s, we had two standing jokes: one was about what we called the Sticker Principle. It referred to the stickers on the front windows of the Savings & Loan associations (the primary home lenders of the time), attesting to the fact that they were “FSLIC Insured,” and would in theory be bailed-out by the Federal Savings & Loan Insurance Corp (the S&L equivalent of the FDIC for banks) in the event of any individual failures, let alone a world-wide economic cataclysm where they all went under at
the same time!
We laughed, as we knew that after the first dozen or so bailouts, the Treasury couldn’t print money fast enough to cover the rest.