Economic FANTASY WONDERLAND !
@redyellowblackdog (10629)
United States
November 26, 2007 10:08am CST
Reading this story, I really feel like I've fallen down that infamous fictional rabbit hole Alice discovered.
Instead of an ordinary fantasyland, however, I landed in economic fantasyland. What does that mean? Well, consider this headline.
"1000% hedge fund wins subprime bet."
What the headline is about is that a professionally managed investment hedgefund made a literal fortune by betting that bad loans would go bad! For this someone can get unbelievably rich? Strange but true, this really did happen. Here's the story.
http://www.ft.com/cms/s/0/7b6160be-9b80-11dc-8aad-0000779fd2ac.html
Reading the story one wonders, "Why were so many bad loans made in the first place?".
Why was it a surprise to so many when these loans did not perform?
Is this economic reality or have we all "fallen down the rabbit hole"?
I'd like your opinions and comments on this mystery.
3 people like this
2 responses
@speakeasy (4171)
• United States
28 Nov 07
Well, these companies are not the ones who made the bad loans.
They are just the ones who knew that:
1) Adjustable rate mortgages with very low initial premiums were being made to people who could NOT afford to pay more when the interest rates adjusted up. (A lot of us knew that!)
2) Knew how to use the stock market to profit when the "bubble" popped. (Very few of us know how to do that.)
The stock market is an "Alice in Wonderland" place anyway. The actual "value" of stocks and bonds go up and down on rumors and whims and rarely are tied to the actual worth of the companies or other securities they are based upon.
1 person likes this
@redyellowblackdog (10629)
• United States
28 Nov 07
I've studied the stock market so long that it actually is understandable to me. What is amazing in this case is that a fortune was made without any special knowledge, skill, or training. Anyone sould have known these loans were bound to fail. Anyone could have easily bought PUT options or went short on the companies doing these things or holding the paper. Anyone!
So, why not me?
This whole thing seems to be a case of the emperor's new clothes. The company that made the money is the little boy who spoke up and told the obvious truth. I was one of the crowd afraid to act on what I was seeing.
It would seem fairy tales really do teach valuable lessons.
@redyellowblackdog (10629)
• United States
28 Nov 07
By golly, you've got more formal training than myself. Would you be willing to start and respond in more threads concerning economic matters?
Investments would sure beat some of the other topics often discussed. I know I could learn a thing or two from you.
@speakeasy (4171)
• United States
28 Nov 07
Not really.
Most people do not even understand stocks and bonds; let alone, futures and options. Many of them barely think of "bonds" as the government savings bonds or a "bond issue" that their town or city is proposing so they can build something. The only other investments they understand a LITTLE, are mutual funds that they MAY have in an IRA or 401(k).
Then, there is the issue of having enough money to be ABLE to take advantage of these types of investments. Many Americans had the common sense to know that these ARMs were going to cause problems in a few years. But, very few had the cash available to invest in vehicles that would be able to profit from that fact.
I have received training in investments (I was an American Express Finanaical Advisor with a Series 7 license.) But, my family's income is such; that at the end of the month after the bills are paid, we don't even have enough money left over to go out to dinner or go to the movies. Our only investments are my husbands 401(k), which I actually manage (and it has been growing very nicely). But, 401(k)s do NOT offer many investment choices. They certainly td not offer "hedge funds".
1 person likes this
@AD11RGUY (1265)
• United States
27 Nov 07
Quite the rake - I mean take! I have heard over the years that there are very savvy investors who long ago figured out how to make killer profits from bad investments. This just seems to be the easiest one I've read about yet. I don't know how it works, winning on something that lost, but what gets me about this particular one is that there were enough people betting that the bad loans wouldn't go bad! I have a new hole in my head from scratching over this one. With the market falling as it has been doing for a few years now, how would any "investor" think that the bad loans would make a profitable return? All around me I see people giving up there SUV's, play toys, private schooling for their kids and the like, and 1 - 2 years later, they lose the house anyway. I'm quite confused on how this little investment firm managed to bamboozle so many out of so much.
@redyellowblackdog (10629)
• United States
27 Nov 07
I'm with you. This whole thing is mind boggling. I guess this means neither of us has any chance to ever become billionaires. Maybe not even millionaires!
