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<DIV><FONT size=2 face=Arial>For a complete discussion of the past financial
crisis one must read </FONT><FONT size=2 face=Arial>pages 199 to the end of the
recent book "THIS TIME IT IS DIFFERENT" by REINHART and ROGOFF. Great read
and if the government does not stop spending your money the crisis will rise
from the grave and spit fire and brimstone again at you.</FONT></DIV>
<DIV><FONT size=2 face=Arial></FONT> </DIV>
<DIV><FONT size=2 face=Arial>First CDO and CMO's have been around since the
early 80's of the last century. It was not their fault that the crisis began, it
was the PhD's who used faulty REASONING, who created this crisis. When you
create computer models which use historical information that is flawed, an
example Sub-prime mortgages default at a rate of 7% on the high end, and when
instead of 7% it goes to 40% you have a problem. Second credit
swaps(insurance) based again on these wrong numbers was easy money at AIG.
If you were in their shoes it looked like a no-brainier chance of a life
time.</FONT></DIV>
<DIV><FONT size=2 face=Arial></FONT> </DIV>
<DIV><FONT size=2 face=Arial>The chance of AAA bonds(tranches of CMO and CDO'S)
going to default were 1 in 200, and by writing insurance(credit
swaps) against that number and getting a 8% premium would you not take
those odds. And they did to the tune of 500 billion. The people who
brought the insurance were Goldman and other wall street firms. So when
Lehman Bros after 150 years in business went belly up, AIG was on the hook, as
the AAA Bonds(Lehman Bros) defaulted and they too were leveraged to
the hilt(they had sold their insurance policies from AIG to other banks who
also thought it was easy money without risk too. Well when AIG threaten to
default this house of cards would collapse as they at AIG did not have the
money(500 billion) to pay off their credit swaps(insurance) of Lehman Bros
and others. If AIG went down, Goldman would have went down and most of
the core banking industry would have failed. It had it's greed factor
true, but it was just a case of bad numbers sold to a group of people who
did not understand the risks. If these PhD's had found jobs teaching,
instead of Wall Street, there probably would have still been a crisis, a lot
smaller though. It was all ok with the laws as there were and still none
which were broken. Can't break what does not exist.</FONT></DIV>
<DIV><FONT size=2 face=Arial></FONT> </DIV>
<DIV><FONT size=2 face=Arial>What would make these PhD's use wrong
numbers, again because they were taught that method at major colleges in
this country. They believed in their numbers, but they did not take into account
what is now referred to a NINJA loan, brokered by some high school graduates in
the real world who found a gold mine in sub prime loans:) Taleb calls it a
"Black Swan event", I call it "to smart for their own good".</FONT></DIV>
<DIV><FONT size=2 face=Arial></FONT> </DIV>
<DIV><FONT size=2 face=Arial>Bye the bye, Wall street bonuses were ok with me.
They figured out that with the Gov't backing everything and was
printing money like it was some game being played, they have re-inflated
the stock market by 4000 points in the greatest bull run since 1930.
</FONT></DIV>
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<DIV><FONT size=2 face=Arial>In May of last year, at a reflection point I asked
on this list is this a bear market rally or a bull rally. At that time I picked
the former, and have watched the marker as it rose and rose, it was the
safe choice as I am old and can't afford to lose, but on Wall Street the pro's
picked the latter and now receive those wonderful bonuses for being right. They
used our money true, but their is no law against that is there?</FONT></DIV>
<DIV><FONT size=2 face=Arial></FONT> </DIV>
<DIV><FONT size=2 face=Arial>What smells is that H. Paulsen former CEO of
Goldman brokered the deal which save Goldman and the economy. Was he
saving us, or Goldman?</FONT></DIV>
<DIV><FONT size=2 face=Arial></FONT> </DIV>
<DIV><FONT size=2 face=Arial>One person makes a mess, but it takes a PHD to make
a crisis:)</FONT></DIV>
<DIV><FONT size=2 face=Arial></FONT> </DIV>
<DIV><FONT size=2 face=Arial>Frank</FONT></DIV>
<DIV><FONT size=2 face=Arial></FONT> </DIV>
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