Lets talk about the derivatives legislation that just passed. It rolled back the swap push rule here is the jist. Basically it allows banks to buy/sell credit default swaps which is a fancy term for bad security insurance. Basically the bank makes a shady loan to an uncredit worthy buyer, then the bank sells its home loan payments for a cash infusion and another bank collects the mortgage monies. The default swap is then sold to the security buyer because the risk associated with the loans. The swap guareentees the money will be paid in the event the home owner cant make the payments. The trick here is that if the bank had the capital to back the loan in the first place it wouldnt be making shady loans, so it sells swap(which remember they dont have the capital in the first place) to cover it, and then when the swap is needed they dont have the money in capital so they pay it with your saved money. And if it happens enough, you go to withdraw the money you put in the bank and surprise the bank doesnt have it, but since they unrolled this rule they will always have the money because the FDIC will pay the missing deposit money back from tax dollars.
Posted on: Sun, 14 Dec 2014 04:52:07 +0000
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