Reply #104: This mortgage mess is merely the normal, expected end to a giant Ponzi scheme. [View All]

[AdHocSolver]

Enron is the model for a Ponzi scheme. The insiders get people to invest in whatever they are promoting. The more money people throw at, for example, the company's stock, the higher the stock price is bid up. At some point, the insiders know that the suckers will stop buying and the price will plunge. Their goal is to calculate when the suckers will wise up, so that the insiders sell their shares at the highest price possible before the price drops. The last investors to buy the stock are the biggest losers. They spent "real" money to buy stock that is now worthless paper.

The mortgage lenders knew that the house buyers were poor risks. If they intended to hold on to the mortgages, they would have been more cautious as to whom they gave the mortgages. However, the idea was to "package" these mortgages with others so that the buyers of these "packages" would not know that they were bad investments.

Having the rate adjustments kick in after, say, three years, provided enough time for the insiders to promote these mortgages as good investments. The housebuyers would be making payments at the lower, affordable rate so that potential investors would believe the borrowers were good risks.

The insiders in a Ponzi scheme know it will eventually collapse. Their aim is to bail out before it happens. They don't have expectations that the "good" times will last forever.

The Fed bailout is not to save the economy. Its purpose is to bail out the last group of suckers, er... investors, who bought the mortgage packages before the fraud was exposed. The economy is going to tank, and the Fed doesn't care one bit about it. Pumping billions of "good" dollars into a Ponzi scheme that has already collapsed is the wrong thing to do if you want to help the economy.