Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Display:
Becuase they can short and/or insure their own loans if the insurance and/or short is in danger of becoming more profitable than the potential loan loss.

And without proper regulation and oversight they might be encouraged to do so.

Hypothetically.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Apr 26th, 2010 at 02:51:38 PM EST
[ Parent ]
Hypothetically? Hasn't the Great Vampire Squid already done just that?

The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Mon Apr 26th, 2010 at 02:57:05 PM EST
[ Parent ]
I was being ironic. :)
by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Apr 26th, 2010 at 03:18:29 PM EST
[ Parent ]
So, uh, can't we just ban that?

And how in gods name can they short a non-securitised loan they have issued themselves?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Apr 26th, 2010 at 04:04:01 PM EST
[ Parent ]
One way is to swap the interest and principle payments for the loan bank A made for the interest and principle payments of a different loan that bank B made. And banning that, or regulating it very severely rather, is precisely what is being proposed in the US banking reform legislation in Sen. Blanche Lincoln's version. The banking industry is resisting it full bore, however, since that kind of insurance trading is how so many US banks posted their most profitable years on record last year, during the worst banking crisis in 70 years.
by santiago on Mon Apr 26th, 2010 at 04:32:05 PM EST
[ Parent ]
Becuase they can short and/or insure their own loans if the insurance and/or short is in danger of becoming more profitable than the potential loan loss.

This, however, requires that the sucker who is on the other end of the deal hasn't done his risk analysis properly.

Which really speaks more to the need for keeping widows and orphans out of the capital markets than to any need to rein in the capital markets' tendencies to separate suckers from their money. Because the former is possible - the latter may very well not be.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Apr 26th, 2010 at 05:19:37 PM EST
[ Parent ]

Display:

Occasional Series