Re: : good question Credit Default Swaps

[David Farber <dave () farber net>]

________________________________________
From: Charles Brown [cbrown () flyingcircuit com]
Sent: Friday, April 04, 2008 1:01 PM
To: David Farber; To: ip () v2 listbox com
Cc: Charles Brown
Subject: Re: [IP] Re: good question Credit Default Swaps

Dear Professor,

I am a long-time subscriber to the The Economist magazine.  I'm sure like many others on the IP List, I read your post 
with interest and amusement.  While we all here on the IP list could no doubt benefit from your experience and 
knowledge of the subject,  I would highly recommend this reading:

http://www.economist.com/finance/displaystory.cfm?story_id=10880496

My take is that a much bigger risk to all of us is a lack of political will which caused the sinister and horrible 
stagflation that Japan and its people have been subjected to since their asset bubble burst in the 80's.  The German 
banks are taking their losses.   We should do the same.  This is what Barney Frank has proposed and I think that's the 
right thing to do.  The government is the lender of last resort but only after the investment banks have taken the 
losses properly allocated to them.  That would be a much bigger confidence-booster.  Instead, we get pedantic rhetoric 
like, "it's too complex for you morons out there" and "I'm an expert on the Depression", and people on Wall Street and 
in finance are "brilliant."  Just what we need here, more brilliant experts!

The shareholders of the investment banks are wiped-out, it's that simple.  If it so happens a great majority of those 
shareholders happen to be Wall Street insiders and their friends, that's no reason to continue this charade to what I 
perceive as the continuing detriment to the people.  It the investment banks can't raise the capital they need in the 
market, they have outlived their usefulness.

Perhaps you could educate us about the situation at the commercial banks in this situation.  This is where most of us 
have our money and loans.  How deep are they into the derivatives market?  Last time I was in Wells Fargo about the 
most aggressive thing I saw them pushing was documented home equity loans.

Charles Brown


________________________________________
From: Gerry Faulhaber [gerry-faulhaber () mchsi com<mailto:gerry-faulhaber () mchsi com>]
Sent: Friday, April 04, 2008 11:03 AM
To: David Farber
Subject: Re: [IP] Re: good question Credit Default Swaps

I've read with interest (and a little amusement) this IP thread on the
financial meltdown re: CDOs, MBSs and what-all: watching techies explain the
financial system is much like watching economists explain ultrawideband (and
most of us were snoozing during the Fourier transform class in DiffEQ).
Kind of in over their heads, although some respondents have been getting
close.

The Economist magazine had an excellent, not-for-experts Briefing a week
ago; I would highly recommend this reading:
http://www.economist.com/finance/displaystory.cfm?story_id=10881318 . My
take is that The Economist doesn't always get it right, but they are a
better source for economic issues than IP (sorry, Dave). [ IP got you to point djf]

Prof Gerry Faulhaber
Wharton School and Penn Law School
University of Pennsylvania
Philadelphia, PA 19103

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