UFBF File -- $700 Billion

What percentage of the population do you think knows what the problem really is? I am reasonably intelligent, and it is very tough to figure out why we are in a crisis, what exactly the crisis is, and how come if the crisis is so near we aren't seeing breadlines and brokers jumping out of windows.

The problem with leverage is that it levers both ways. When one dollar of real estate, say, is propping up $100 borrowed to play the market, and that real estate is now worth 80 cents, or 70 cents, or 50 cents, you are now only allowed to borrow $80, $70, or $50. If you can't pay back the $20, $30 or $50 difference when the lender asks for it... Margin call, and big problems! This is especially true when you have no idea how much that dollar declined to -- is it only 50 cents? Could be zero! Let's pull the plug and call all the funds!

The problems are: 1. these guys bought real estate mortgages as securities and actually believed the seller that the real estate backing them up was sound, and 2. they then borrowed tons of money against these "securities" to buy other securities, many of which had the same problem.

That, to me, is a basic understanding of the problem. The bailout is being sold as a way to stabilize the value of these bad securities -- to actually put a value on them, so that instead of not knowing if the $1 in real estate is now 80, 70, 50, or 0 cents, because no one is buying them, the government will buy them at one of these numbers, thereby fixing the value, at least for the bank, and letting the bank take its hit and move on. The government thinks that $700 Million will cover it.

What happens if the gov't does not do this? Personally, I think it will be a deflation, or depression, and it will take years to recover, as these unstable "assets" are defrayed and the level sets to their real value. Or, it could be a hyper-inflation to cover the effects of the depression.

It will be hard to borrow money. Might be hard to make money since it will be harder for companies to borrow to grow, or even to get investment money. It is hard for me to envision.

Is $700 Million enough? I don't know. Did you know there are over 60 T-T-T-Trillion dollars of insurance written in credit default swaps? Unf-ing believable.

How the hell did this happen? Greed and stupidity. Actually, if you recounted the seven deadly sins, every since one of them were indulged in by those that were parties to this, and it is not just the banks or brokers. Those that borrowed 100% for adjustable interest-only mortgages, those that bought houses on "spec" to "flip" at some insane increase of value (the bigger sucker principal). People without jobs or prospects buying houses based on a belief in magic that they will be able to pay them back (or sell the house for some insane return in the next week or two). Real estate pros who were incented to sell as high as possible to get their 6% commissons. Mortgage brokers who were incented by big closing fees to close the deal. Home lenders like Countrywide who bought these mortgages without doing due dilligence (they call it due dilligence for a reason!). Wall street who packaged all these mortgages into "securities" and sold them to investors who, again, did not do due dilligence on these component loans.

I saw the end of the bubble years ago. I knew it would be bad, but I suspected something like the early '90s where some people were hit bad by it, but we all lived. I had no idea that it would result in this.