60 Minutes and 60 Trillion Dollars of Credit Swaps
Any business that is in the “insurance business” must meet certain regulatory laws, i.e. they must hold a certain ratio of cash to outstanding insurance in which to pay off possible claims.
Certain ‘Investment Giants of Wall Street’ managed to get around this regulation by claiming that they were in the “Credit-Swap” business. They would basically insure certain types of highly risky investments and called these “swaps” rather than “insurance”. They sold the risky investments and then insured them thereby leading the investor to think that the investments were very secure because they were insured investments.
“"The instruments themselves are at the heart of this mess," Grant says. "They are complex, in effect, mortgage science projects devised by these Nobel-tracked physicists who came to work on Wall Street for the very purpose of creating complex instruments with all manner of detailed protocols, and who gets paid when and how much. And the complexity of the structures is at the very center of the crisis of credit today."
With its clients clamoring for safe investments with above average return, the big Wall Street investment houses bought up millions of the least dependable mortgages, chopped them up into tiny bits and pieces, and repackaged them as exotic investment securities that hardly anyone could understand.
“People don't know what they're made up of, how they're gonna behave," Kroft remarks.
"Right," Grant replies.
But it didn't stop ratings agencies, like Standard & Poor's and Moody's, from certifying the dodgy securities investment grade, and it didn't stop Wall Street from making billions of dollars selling them to banks, pension funds, and other institutional investors all over the world. But that was just the beginning of the crisis.”
No one seems to know how big this pool of swaps might be but it is estimated to be from 40 to 60 TRILLION dollars, that is to say this pool equals 4 to 6 times the GDP of the United States.
You can watch this “60 Minute” video and also read the text at the following Internet site:
http://www.cbsnews.com/video/watch/?id=4502673n
Any business that is in the “insurance business” must meet certain regulatory laws, i.e. they must hold a certain ratio of cash to outstanding insurance in which to pay off possible claims.
Certain ‘Investment Giants of Wall Street’ managed to get around this regulation by claiming that they were in the “Credit-Swap” business. They would basically insure certain types of highly risky investments and called these “swaps” rather than “insurance”. They sold the risky investments and then insured them thereby leading the investor to think that the investments were very secure because they were insured investments.
“"The instruments themselves are at the heart of this mess," Grant says. "They are complex, in effect, mortgage science projects devised by these Nobel-tracked physicists who came to work on Wall Street for the very purpose of creating complex instruments with all manner of detailed protocols, and who gets paid when and how much. And the complexity of the structures is at the very center of the crisis of credit today."
With its clients clamoring for safe investments with above average return, the big Wall Street investment houses bought up millions of the least dependable mortgages, chopped them up into tiny bits and pieces, and repackaged them as exotic investment securities that hardly anyone could understand.
“People don't know what they're made up of, how they're gonna behave," Kroft remarks.
"Right," Grant replies.
But it didn't stop ratings agencies, like Standard & Poor's and Moody's, from certifying the dodgy securities investment grade, and it didn't stop Wall Street from making billions of dollars selling them to banks, pension funds, and other institutional investors all over the world. But that was just the beginning of the crisis.”
No one seems to know how big this pool of swaps might be but it is estimated to be from 40 to 60 TRILLION dollars, that is to say this pool equals 4 to 6 times the GDP of the United States.
You can watch this “60 Minute” video and also read the text at the following Internet site:
http://www.cbsnews.com/video/watch/?id=4502673n
