Ben Stein, former Nixon speechwriter and a trusted voice on the economy and financial markets, apologized in a recent blog he posted on Yahoo! In great detail, he explains the ins and outs of the crisis and what went wrong. Ben Stein writes, “It (the subprime mortgage collapse) was extremely similar to the collapse of the Drexel Burnham Lambert junk bond empire. This had caused barely a ripple in the national economy when it fell apart in the early 1990’s. I assumed that the same would happen with junk mortgages. So, I assumed, and wrote, things would be fine.”
Mr. Stein goes on to explain about the interwoven deals from subprime collateralized mortgage obligations (CMOs), to short selling, to credit default swaps (CDS). He writes regarding this intensely complicated situation in terms that even a novice can understand, or at least mostly understand.
Ben Stein goes on to say, “Where I missed the boat was not realizing how large were the CDS based on the junk mortgage bonds. They were not only large, but absolutely staggeringly large. Where the junk mortgage bonds were in the hundreds of billions, the CDS were in the tens of TRILLIONS. If the sellers of the CDS had to pay off in large part, the liability greatly exceeded the total bank capital in the United States and maybe in the world. It is this liability that swamped the banks, investment banks, and insurers. It is the CDS liability that broke AIG and Lehman.”
He apologizes to the American public for assuming that he did know the entire picture. Many people rely on his straight-forward vision of the economy and trust his opinions on investments. But, even Ben Stein is human. So he concludes with his apologies. “There is much that Ben Stein does not know. I apologize for not seeing it sooner. But I am still optimistic that the government will save us from the CDS, and we will go on to renewed prosperity.”
For the entire article, please go to: http://finance.yahoo.com/expert/article/yourlife/115733
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