Credit MeltdownFlat Line the MeltdownTue, 23 Sep 2008 How remarkable it is that since short selling was outlawed, albeit temporarily, financial institutions have been able to survive the meltdown of 2008 in a planned and orderly manner. This SEC ruling does not involve spending a single US Dollar, it works by legal consensus, all participants in the market know that, for the time being, the rules do not allow negative trading, i.e. short selling. ---The problem has many dimensions, but it can be categorized into a real financial problem, where homeowner mortgages are overvalued because the underlying collateral has depreciated, and a virtual financial problem, where these mortgages were bundled and "trunched" into complex derivatives, where the problem lies in assigning a value to a virtual asset.
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FinanceFixed to MaturityMon, 29 Sep 2008 The mortgage meltdown is a problem that can be solved without spending a single dollar of taxpayer's money. The issue is in essence the problem caused by the implosion of the real estate valuation in the USA and elsewhere. Mortgages that were sold to fund the purchase of real property were cut up and sold in "trunches" as mortgage backed securities, or were used in derivative pricing formulas for hedge funds and other "creative" securities. Since the mathematical formulas used in creating these derivatives and securities assumed that the value of the underlying assets would never decrease, the entire foundation has collapsed, they have suffered a collapse of their foundational axioms.
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