Not everyone in my household agrees that the Credit Debt Obligations (CDO) represented a huge Ponzi scheme, but now I have Paul Krugman agreeing with me. I feel somewhat vindicated. However, I admit to my filial advisor that these financial instruments were not technically a Ponzi scheme since there was no intent to defraud. I admit that! But, the outcome is essentially the same as the Ponzi scheme.
In an article regarding Barney Franks, Maureen Thacik reported that the credit default swaps reached $55 trillion when everyone was aware that housing prices were not holding. As she quoted Barney Franks: “These people insure so much money … that they now owe more money … than there is money!” What a disaster!
While talking about this fiasco while celebrating Thanksgiving surely mixed negative and positive feelings, it surely remains an interesting topic for discussion! No one (apart from Krugman) seemed to be aware of problems before they emerged tout de force! Now we are all becoming students of an aspect of economics that most majors in economics never discussed.
It is interesting that there have been four major financial crises in the last couple of decades: major hedge fund collapse, savings and loan banks failure, internet bubble collapse and, now, this crisis which seems much more problematic than the rest combined.
If there is anything to be learned, it seems that anyone should be suspicious of anything that smells like a bubble. When things seem too good, they are!
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