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alstry (36.32)

An Explanation of Zombulation

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August 13, 2009 – Comments (10)

As a attorney who spent a bit of time dealing with insurance companies, Alstry knows a thing or two about how the game works.  Insurance companies generally limit their liability to the replacement value of what they are insuring...and prohibit stacking coverage to simply the replacement value even if you obtain coverage from more than one insurer.  Otherwise, some savvy insureds might insure their property for many more times than its worth and we would have an epidemic of property being destroyed.

The opposite is true as well if the insurance companies could write insurance policies for premiums many more times than the property was worth, and simply limit their liability to replacement value...every time a property was destroyed they would simply pocket the premiums received over the replacement value by buying out the property.

Colleraterized Debt Obligations are simply insurance on debt....except there is no limit on how much can be written.  As a result, bankers started writing as much debt as they could regardless of the borrowers ability to repay simply so they could collect massive premiums writing the insurance, or CDOs.  As a result, our nation's families, schools, businesses, hospitals, cities, counties, and states were infected with tens of trillions of dollars of debt in recent years.

By loaning money to anyone with a pulse, the value of everything skyrocketed and we are all paying much higher property taxes as a result...even though most incomes remained flat or are now falling.  In addition, it created a bunch of temporary jobs that no longer exist.  Due to the temporary boom, government expanded to a level that we can no longer sustain.

The boom occured simply because the bankers didn't give a damn whether they could ever be paid back....and we all suffered as a consequence.  The Fed knew exactly what was going on as they encouraged the behavior.  As a matter of fact they knew exactly what was going to happen when they raised interest rates 17 times, tightened credit, and made it much harder to declare bankruptcy.

The Fed knew many would be unable to meet their debt obligations and the millions of temporary jobs would evaporate.  Unfortunately, the Fed forgot to ease the burden of the existing debt causing massive defaults.  Instead of punishing its bankers for destroying our economy, the Fed rewarded them with $9 trillion dollars of taxpayer money.

In addition, the bankers kept loaning money to money losing business so long as they could write CDOs against the debt.  Those businesses that didn't qualify, most of the private businesses in America, they were cut off from credit and began shutting down.  If you were a business getting credit, it didn't matter whether you made money or not, you had an unlimited lifeline from your friendly neighborhood Wall Street banker no matter how poorly you ran your operation.

Just look at the public homebuilders, they have been selling homes for a loss for the past three years and most of them are still in business.  Thousands of private homebuilders have shut down because they simply can't continue operating at a loss indefinitely.

The joke is Wall Street convinced our penion funds to make the loans to these money losing companies.  Now our pension are infected with trillions in debt that will never be paid back when Wall Street backs away from funding the debt.

At this point, the end is getting nearer as now America can no longer feed its population without borrowing money from the Wall Street banks and Primary Dealers that own the Federal Rerseve.  The joke is these banks really don't have the money they are "lending" to us, in fact, the only reason they can lend is that we are funding them with taxpayer money.

In other words, the citizens of the United States are funding the bastards that are going to end up shutting our nation down.  None of this is hard to see.....if you simply open your eyes.

10 Comments – Post Your Own

#1) On August 13, 2009 at 2:03 PM, AdirondackFund (< 20) wrote:

Precisely correct.  Don't think for a minute that the floor of the NYSE isn't keenly aware of what is going on and will not tolerate the destruction of it's customer base, at the behest of Goldman Sachs. 

It is looking more and more as if Goldman's days are numbered.  We foiled their mega-billion dollar buyouts in M&A during the 80's by introducing the stock swap merger...a very old idea which Goldman seemed to have forgotten about.  

The real business of America is in the local Hardware Store on Main St., not Goldman Sachs.  In order to protect the Hardware Store's lines of credit, it will be necessary to re-install Glass Steigel.   

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#2) On August 13, 2009 at 2:08 PM, alstry (36.32) wrote:

Bingo!

What I find amazing is that the destruction has gone this far and few have voiced an opinion in opposition...especially those representing free enterprise in America.

I know of hundreds of small businesses in the brink and few of the owners really understand what is happening to them or how it was orchestrated.  Especially those in the trucking business that are now competing with trucking companies moving at a loss.

Where the real disappoint came in was when Buffett went from calling CDOs finanicial weapons of mass destruction to supporting the behavior by investing in Wall Street across the board.

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#3) On August 13, 2009 at 2:17 PM, AdirondackFund (< 20) wrote:

Yes, well the hunt to catch the criminal is always best exercised through patience.  That means you have to let the mouse take the cheese. Not only do they return to the scene of the crime, but many times they show up as the Police themselves. 

Making a very Public Display of their wrongdoing is the essential ingredient in preserving the Union.  Otherwise, we simply do not have a Country anymore. 

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#4) On August 13, 2009 at 2:46 PM, outoffocus (23.49) wrote:

The spammers keep trying to zombulate the CAPS blogs.

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#5) On August 13, 2009 at 3:15 PM, JerseyShoreGirl (< 20) wrote:

Excellent post!  Well said Alstry!  This is all so sad .. are we in the calm before the storm?

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#6) On August 13, 2009 at 3:28 PM, bigpeach (27.64) wrote:

You're thinking of credit default swaps (CDS). A CDO is a structured asset backed security, not insurance on a security. Very different instruments.

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#7) On August 13, 2009 at 4:17 PM, alstry (36.32) wrote:

You are right...brain freeze...thanks.

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#8) On August 13, 2009 at 7:39 PM, LydiaVorst (< 20) wrote:

"...the Fed rewarded them with $9 trillion dollars of taxpayer money."

$9.7 trillion, the amount of money which, according to the article below, would have paid off more than 90% of US mortgages.

http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aGq2B3XeGKok

 If the money had been used to pay off mortgages, people could have stayed in their houses, they would have lots more disposable income to spend because their housing costs would be drastically lower, and the "toxic" mortgage-backed securities wouldn't be toxic if the mortgages were paid off. ( As far as I understand it because I thought they were toxic because the mortgages were in default.)

Wouldn't such a program have helped everyone, instead of the current impending train wreck which looks like it will hurt everyone?

http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aGq2B3XeGKok

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#9) On August 13, 2009 at 7:56 PM, booyahh (< 20) wrote:

Hahahaaaaa!!!  Alstry just keeps missing rally after rally. Sell now, buy on the next dip, then sell again at the next rally, and you'll be fine. Alternatively, you can freak yourself out and zombulate your portfolio by missing rally after rally.  

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#10) On August 15, 2009 at 4:56 PM, Teacherman1 (28.84) wrote:

I would like to make one comment on why homebuilders are building and selling homes at a loss (or perhapsat breakeven). Most of their loan covents are controlled by "cash flow" requirements, not profit requirements. My own home, while not under water, has lost a lot of its value in the past 2 years, simply because you can buy a new one just like it, in the same subdivision, for about what mine appraises for today. This is something that all of the big builders are and have been doing. I have seen a slight sliver of hope in recent months, as the new home price has crept back up a little. Since I bought my home to live in, and not as an investment, it is not a problem for me in the shorter term. In fact, it has helped some on my property tax bills, as my appraised value for tax purposes has fallen about 15% since last year and almost 20% from the year before. Not excusing what has happened, but I understand why the big home builders are doing it. I speak from the perspective of a former real estate developer and banker. Before anyone condems me for my past activites, I am now out of both, and have been for some time.I now devote my time to helping disabled kids.

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