Monday, February 02, 2009

Let's see if I have this right....

If understand the financial crisis, even a little, I think it goes something like this:

1) Americans buy a house for $500,000 no money down, interest only from a mortgage broker.
2) Said broker bundles a bunch of these mortgages together and sells them as a security to a brokerage house.
3) Said brokerage house, bundles these securities together as a collateralized mortgage obligation - CMO (3 classes based on risk) to other brokerages, namely in Iceland and EU countries.
4)These are supposedly "insured", but cash reserves at "insurers" like AIG have no regulation, so there really is no insurance.
5)American's continue this cycle as home values raise, using equity to buy speculative property and finance lifestyles they cannot afford.
6)The credit Americans are using is used to purchase more an more products manufactured in China (the Wal-Mart Effect: Save money. Live better).
7) China is flush with cash and is buying US Treasury bonds allowing our government to save money and live better, too.
8) Suddenly, people 4% of American homeowners cannot pay their mortgages. This begins the collapse of the house of cards. Bad mortgages, not enough cash reserves for the CMO insurance.
(I'll admit, I'm getting pretty fuzzy on my knowledge right in here...)
9) Iceland's economy, many of the EU economies, Russia's and not China's economy begin to weaken.
10) Because China was behind the curve, they still have a lot of cash and now they are coming to the U.S. to buy up undervalued real estate.

Really...? Technically, they are using our money to buy (at fire sale prices I might add) real estate in the U.S. because their economy is "uncertain." Does this seem like a comedy sketch or what?

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