There are a lot of things I don't understand about the financial meltdown but maybe the biggest question I have is this;

Basically, high-risk mortgages were grouped together and sold to investors on Wall Street. Fannie and Freddie sold shares to brokerage firms like Lehman Bros, Morgan Stanley, etc. who then sold them to private investors. As with any investment, you risk losing your shirt. That money didn't evaporate, it just changed hands, or failed to change hands as the case may be. If, as 60 Minutes said is right, that only 6% of mortgage loans are in default, why is that tail wagging the dog? And why should taxpayers rescue the fortunes of greedy people making risky investments?

Well, that's more than one question and I'm sure there will be more than one answer.

I am sure there will be more than one answer, but as your Republican admin in DC is sayin' - "There is a grave danger to the economy" due to the domino theory. Of course, now that puts the onus on you (us) to decide, " can we let'em fold like dominos?

it's all about "leverage" and "multipliers". Had all these mortgages remained "at home", a 5% default rate would be the shits, but it would've been essentially factored in.

I think one of the contributing factors is that lots of money was borrowed on the promise that money would be forthcoming from the mortgage backed securities. The investement banks treated the debt they owned like it was money in the bank and borrowed to buy up more debt, so when the debt went bad they weren't just out what they had paid for the debt in the first place, they were out what they had borrowed based on how much they were supposed to get for that debt and what they had borrowed to buy more debt. I think. I'm confusing myself now...

That only US Taxpayers can afford................. to bailout

Listening to my SIL, the bank examiner, I have learned the following:

• The mortgages at fault here equate to about 7% of all mortgages.
• Not all were subprime
• Some of the houses used for collateral were overvalued and are now reaching their true market value, however, now that the market has gone south and the credit is now longer available, the owners owe more than the value
• Some of the problem has to do with the derivatives that were invented by wall street to spread the risk
• Derivatives come in various sizes. Say for instance, you have a bundle of 15 yr loans, 40% of which are fixed rate, 40% are ARMs and 20% are Interest only. Say also that in the first year, 90% of these loans are performing as agreed. So you take this bundle and you sell it in parts to investors. These parts are called tranches. some investors pay a premium and buy the interest payments due for the next 4 years. Another investor buys, at a discount, the principal due for the same period. Then another one comes in and buys the P&I on the fixed rate loans for the next five years. Still another buys five years of P&I on the ARMs and IO loans. At the same time, the investors purchase a credit default swap, which in theory, is supposed to protect the investor if a) interest rates go below a certain level or b) borrowers default. Only problem is, the issuer of the swap doesn't have the capital to back up the bet. When the worst happens, the issuer of the CDS can't make good, the holders of the various tranches--except maybe for the guys holding the fixed rate loans--have worthless paper.
• so now, instead of having sub-prime loans as the main culprit, we have the brokers selling bets on what and when defaults will occur. The problem is not the sub-prime market alone, it is also that these brokers invented a way to make a lot of money quickly at the expense of everyone else.

If you listened to Diane Rehm this morning on NPR, she had three top economists:

Jared Bernstein, a senior fellow and director of the Living Standards Program at the Economic Policy Institute and author of "Crunch: Why Do I Feel So Squeezed? (And Other Unsolved Economic Mysteries)"

Dean Baker, co-director of the Center for Economic and Policy Research and co-author of "Social Security: The Phony Crisis" (Portfolio)

Greg Ip, U.S economics editor, The Economist

. All three of them say that Freddie Mac/Fannie Mae were a stabilizing force and not to be blamed solely. They also assert strongly that the Community Reinvestment Act (CRA) that is taking a lot of heat, is surely not to be blamed. They lay the majority of the fault at the feet of Wall Street.

http://wamu.org/programs/dr/