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These CDO's which were repackaged mortgages were required to be accounted for at market rate. Now suppose I knew that and had some influence on the price. The price is determined by the rating agency, but how do they do it. They call the people who generally buy this kind of thing and ask. Now a small number of people have control over the value of a large amount of relatively unregulated securities, which Banks and other large corporations hold and must have on their books at market value. What could I do in this circumstance ? I short the bank stocks and finance company stocks and I tell the rating agency when they call that neither I nor any of my friends are the least bit interested in buying their crap. The rating company Marks down the package values, the assets are written down on corporate and bank books. It no longer matters what they are really worth, they are now worthless. Capital is gone, Reserves are insufficient, stocks plummet, the short sellers make a fortune. But who paid the short sellers ? AIG in part via the insurance on the short contracts - and we know where they got the money. Mark to Market made it all possible. Someone has made this fortune and they are not being identified. The only thing I can think of on this scale on the short side of bonds and capital is George Soros - the man who broke the Bank of England - shorting the pound just before the government was forced to devalue the pound earning Georgy 1 Billion Dollars. The Bank of England warned the government that spending cannot continue at their rate or they will run out of cash. Perhaps this time Soros and company got the US and England in one fell swoop.
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