Subprime Mortgage Market vs. Credit Default Swaps

To expand upon the exchange below, here is the size of the subprime mortgage market (from bloomberg.com) versus the credit default swap (CDS) market which expanded, thanks to chief McCain advisor Phil Gramm's 2001 legislation, from a 1 trillion dollar market ten years ago to more than 62 trillion dollars (from Yahoo):



Now look at that chart, and ask yourself: which of the two slices would have banks scared shitless that if they lend to other banks, those banks might lose everything? It's those kinds of numbers (and the reality that AIG almost folded because of CDSs) that are at the root of the credit crunch. And a further point: mortgage brokers have been talking about the huge demand for "paper" that came filtering down from on high, the pressure to generate mortgages. This pressure came from speculators (domestic and foreign) who wanted more fuel for Ponzi schemes like the CDS market. It's a situation where an instrument intended to mitigate mortgage risk far outstripped its object and magnified the risk -- not only did the cart get before the horse, it picked the horse up carried it off a cliff.

And in case you think part of the credit problem is all the plastic we've been burning (and which the "culture of responsibility" pablum keeps bringing up), chew on this: total consumer credit card debt was 2.55 trillion in 2007 (from creditcards.com). That's less than 5% of the CDS market. And this is why Matt Taibbi gets pissed at Byron York below -- blaming minorities and consumers*** is standard Republican bullshit.

The worst thing about this bullshit (as I suspect most of what comes from the G.O.P.) is that most of them believe it, because they don't understand what they're talking about. Byron York is only a lead contributor to The National Review -- perhaps the foremost conservative rag in the U.S. Why should he bother to do research that took me 20 minutes? Of course, the guy from fucking Rolling Stone had the time -- but I guess covering Kanye West and Tool leaves you with more free time to do market research than, say, professional policy commentary.

It has to be rare for an entire half of the political spectrum to be so completely, so unabashedly out of their fucking minds. But, you know, it takes a village...


*** And don't get me started on the plastic safety net that consumers turn to when their real wages decline over seven years of Republican (non)-domestic policy.