"Zombie" truckers have been mentioned here before. Here's a short article about them:
http://fleetowner.com/management/news/curse-zombie-truckers-0305/
Not only do they compete with other truckers, they divert freight from rail intermodal. Their equipment ownership costs are minimal or possibly nothing. That allows them to low ball rates and keep a positive cash flow going. It can't last.
But for now, rail domestic intermodal competes with truckers that are being carried by their lenders. The lenders' goal is aparently to keep the equipment on the books as a "good loan" until the used truck market picks up and the truckers' equipment can be reposessed and sold for a decent price.
Sounds like a plot for a Roger Corman vehicle---and, no, I'm not referring to RJCorman either!
I wonder if we could entice George A Romero into this one----
---------------------------------------------------------------
Actually, this is one weird read. Thanks for the info. This one wonders about how this'll play out considering that the resale market is filled to overflowing and that some are now saying the used truck market is, at base, toast.
Any argument carried far enough will end up in Semantics--Hartz's law of rhetoric Emerald. Leemer and Southern The route of the Sceptre Express Barry
I just started my blog site...more stuff to come...
http://modeltrainswithmusic.blogspot.ca/
Its all too real and it has been mighty disruptive to the pricing market in the last year. These guys have to take whatever rate they can to generate some cash to make fractional payments to the bank. They'll move freight below intermodal rates because, as noted, they're not paying much in the way of their fixed costs. Its not sustainable long term, but its a significant spoiler in the short term.
And you can be sure that the same banks who aren't taking back equipment now will be twice as careful about lending in the future. The above noted problem is therefore likely to be shortlived. Looking ahead, equipment loans will likely become harder to get, and only those operators with good credit and a substantial downpayment will qualify.
As far as competition with intermodal, I haven't seen anything to suggest that trucking is a serious cost effective alternative to intermodal...even where the trucking company is well run and viable.
Ulrich And you can be sure that the same banks who aren't taking back equipment now will be twice as careful about lending in the future. The above noted problem is therefore likely to be shortlived. Looking ahead, equipment loans will likely become harder to get, and only those operators with good credit and a substantial downpayment will qualify. As far as competition with intermodal, I haven't seen anything to suggest that trucking is a serious cost effective alternative to intermodal...even where the trucking company is well run and viable.
Harder still? Wow the last time I looked into a rig it was 25% down and 18% interest. (several years ago).
Maybe the RRs are aware of this problem and is a reason that there is still so much construction on choke points? Anyone?
Loaning money to any Goober who could fog a mirror is what has gotten us into this mess. But now it will swing too far back the other way.
Reality TV is to reality, what Professional Wrestling is to Professional Brain Surgery.
ButchKnouse Ulrich And you can be sure that the same banks who aren't taking back equipment now will be twice as careful about lending in the future. The above noted problem is therefore likely to be shortlived. Looking ahead, equipment loans will likely become harder to get, and only those operators with good credit and a substantial downpayment will qualify. As far as competition with intermodal, I haven't seen anything to suggest that trucking is a serious cost effective alternative to intermodal...even where the trucking company is well run and viable. Loaning money to any Goober who could fog a mirror is what has gotten us into this mess. But now it will swing too far back the other way.
A side issue to this piece is the inferance that these individual's who are out there 'just running' are cutting corners anywhere they can; Insurance costs are one area, Fuel is another area, some of these folks would surprise the unsuspecting in their 'resourcefulness' to find fuel at little or no cost.
Some will run with auxiliary pumps and hose rigs ( park in an area of the truck stop's 'fuel drop' employ their pump and take it right out of the UST, or at a big construction site out of the sites storage tank, from fuel tanks of parked unattended units( inclusive of RR equipment, parked/unattended). Dishonesty is a mother of invention.
Ray LaHood recently mentioned the impending lay-off of several thousand DOT employees due to funds shortages. More opportunities for shady operators to skirt laws. Those same shady operators have always been problematic, taking loads from truckload brokers and disappearing with cash advance checks, just dropping a load when out of money to deliver, If you can think of it they have done it. Used to be a guy who operated up in the NJ/NYC area who loaded"'pigs" with Haz-Mat, and paid a small cash advance to take the load, which the driver later found out was to a dummy delivery, started leaking enroute, or papers were phoney, which the driver stuck with it just dropped it ,and got away from it in a convienient area because if caught with it was a major fine, and really problematic for the driver/company.
Borderline Operators are always around, they are a product of the times; this current round is in part, the responsibility of bankers who have been propped up by low interest funds, and who have everything to gain by then proping those same bordrline operators up until they Have to repo their equipment which will by that time be effectively worthless, and a drag on the used equipment market. Those kinds of drivers and companies offer no support to the customers of their markets. They ultimately only drag down the legitimate operations in the short term. The ramifications of this period will effect the legitimacy of the companies who still try, and bring service with stability to the transportation markets.
Most of the ISSUES your describing I am VERY familar with in the OTR industry. However most of it can be traced to one thing the BROKERS. How do they feel justified to keep 30-40% of the entire FREIGHT bill for making a couple phone calls. They also refuse to pass on FSC and other charges to the people that deliver the frieght. Things were so bad on Goverment loads the Congress got involved they passed a law that all loads for the US Goverment all Fuel SurCharges 100% WILL BE PASSED ON TO THE DELIVERING CARRIER OR OWNER OPERATOR that delivers the load. Failure to do so results in a 500K fine and 10 years in the Federal Pen. Also carriers that will not have insurance and other things on them. Why because the FMCSA is overloaded and can only look at 2% of all carriers a year. However look for things to change this year. CVSA2010 is rolling out and if you have a certain point level your OOS and can not move this goes for the Carrier and the DRIVER. These points stay in effect for 6 months for Drivers and 18 months for a Carrier. No chance to reinstate if your a carrier either. Why do you think CH Robinson lost a 25 Million dollar case last year they used a carrier for a load that had a UNSat rating and he had a Fatal accident. CH Robinson had NOT EVEN CHECKED ON HIS INSURANCE. Turns out he HAD NO INSURANCE.
Interesting.
I met with the CFO of a very well operated midwest regional carrier yesterday. They are adding 50 trailers within the next couple of months. Another customer this week added 70 trailers and 100 tractors. Yet another this week added 15 trailers (he has indicated he will add 100 total trailers this year).
These are three accounts that acted THIS WEEK. None of which are the major truckers, but solid regional operators. That is a total of 135 trailers and 100 tractors this week. These three companies are all within 25 miles of each other.
I asked the CFO "how's business?" His reponse was telling. The last two weeks have exploded. He went on to explain...there is a slight bump in traffic, but the real factor is the LACK OF CAPACITY which has turned up the past few weeks as banks have called in equipment, companies have shut down, or drivers handed the keys in.
Interesting that this is keeping business off the intermodal trains. My notes indicated that the CSX Q156-02 (Tuesday) consisted of 11443 feet of train on 532 axles....that is a lot of intermodal train. He is nearby and it will be interesting to hear his scanner report today.
So, perhaps the worm is turning. These same financial institutions that wrote bad paper on trucks, also wrote bad mortgages....and that mess will take years to clean up. Alt-A mortgage resets are just starting to hit. This allegedly will be as big if not bigger than the subprime mess. Hang on.
Ed
In the zombie trucker article linked in the first post, there is a strong insinuation of injustice on the part of the zombies. If there is injustice, there ought to be a remedy, yet the article offers no suggestion of how to eliminate zombie truckers. It does say that zombie truckers should be bankrupt.
The way I look at it, the instant a business should be bankrupt, it will go bankrupt. Otherwise, what is the criterion for concluding that a non-bankrupt business should be bankrupt?
The article says that zombie truckers should be shut down. Who should shut them down?
Bucyrus In the zombie trucker article linked in the first post, there is a strong insinuation of injustice on the part of the zombies. If there is injustice, there ought to be a remedy, yet the article offers no suggestion of how to eliminate zombie truckers. It does say that zombie truckers should be bankrupt. The way I look at it, the instant a business should be bankrupt, it will go bankrupt. Otherwise, what is the criterion for concluding that a non-bankrupt business should be bankrupt? The article says that zombie truckers should be shut down. Who should shut them down?
That is an interesting bit in the story. I wonder if that would have to be something challenged in a court? Could a company just keep filing chapers 7 and 11 until the cows come home? Or could a collection agency send this into bankruptcy itself? Overall---very screwy situation here----
Barry,
I am not well informed on the various chapters of bankruptcy, but my point was about any degree of bankruptcy versus no bankruptcy at all. My point is that the zombies apparently prefer to stay in business rather than file bankruptcy. So I simply fail to understand the assertion in the article that the zombies should be in bankruptcy.
samfp1943Borderline Operators are always around, they are a product of the times; this current round is in part, the responsibility of bankers who have been propped up by low interest funds, and who have everything to gain by then proping those same bordrline operators up until they Have to repo their equipment which will by that time be effectively worthless, and a drag on the used equipment market.
Right now repos are nearly worthless but as the past batch wears out in Iran, Iraq, Russia there will be emand and the repo man will strike again
''CVSA2010'' = Commercial Vehicle Safety Alliance - see http://www.cvsa.org/home.aspx
CVSA’S 2010 WORKSHOP BRINGS TOGETHER HUNDREDS TO ACTIVELY IMPROVE CMV SAFETY Group Identifies, Evaluates Policies, Regulations and Training to Reduce Crashes
blownout cylinder Bucyrus In the zombie trucker article linked in the first post, there is a strong insinuation of injustice on the part of the zombies. If there is injustice, there ought to be a remedy, yet the article offers no suggestion of how to eliminate zombie truckers. It does say that zombie truckers should be bankrupt. The way I look at it, the instant a business should be bankrupt, it will go bankrupt. Otherwise, what is the criterion for concluding that a non-bankrupt business should be bankrupt? The article says that zombie truckers should be shut down. " Who should shut them down?" That is an interesting bit in the story. I wonder if that would have to be something challenged in a court? Could a company just keep filing chapers 7 and 11 until the cows come home? Or could a collection agency send this into bankruptcy itself? Overall---very screwy situation here----
Bucyrus In the zombie trucker article linked in the first post, there is a strong insinuation of injustice on the part of the zombies. If there is injustice, there ought to be a remedy, yet the article offers no suggestion of how to eliminate zombie truckers. It does say that zombie truckers should be bankrupt. The way I look at it, the instant a business should be bankrupt, it will go bankrupt. Otherwise, what is the criterion for concluding that a non-bankrupt business should be bankrupt? The article says that zombie truckers should be shut down. " Who should shut them down?"
To address the qupote from Bucyrus, I think you might be reading more into the article than is actually there.
To the inferance that there is on the part of the "Zombie Truckers" a sense of injustice,might be the wrong point. I suspect that the aim of Mr. Gross was to indicate that the Zombies were a drag on the transportation industry, rather than the truckers themselves. Owner-Operators have been around, and are a keystone in the trucking industry for a long time.
As Ed Benton indicated they have used and abused by the structure and function of the Transportation industry. Aided and abetted by their(O-O's) own individual wants needs and goals. Many are savy businessmen, but seemingly more and more are less businessmen and more ruled by their own individual issues (this goes to psychology and sociology, which do not want to go into, and to avoid to keep the discussion on a more general nature).
(Paraphrased) The question about what is the criterion for when is a business bankrupt or when should it be bankrupt. I'll leave that to the lawyers to put the legal language to. In the US we have two kinds of bankruptcy, voluntary and involuntary. One the individual declares insolvency and in the latter, the creditors declare the individual unable to pay their obligations.
In the "Fleet Owner" owner article, I think that the thrust indicated by Mr. Gross is that it is the creditors who are not taking the insolvent operators oout of the system, but allowing them to continue to work, in hopes of getting those few more dollars out of the individual. In the past the creditors were very quick to identify individuals who were bankrupt or on the verge of bakruptcy. This reluctance on the part of creditors to quickly act is the problem with transportation these days. That very reluctance has created a class of individuals who will haul anything for the purpose of purely cash-flow. The industry is using these individuals to their own purposed ( case in point: The example of C.H. Robinson mentioned by Ed Benton).
The total effect is a rush by shippers to use the cheapest transport available, without regards to future service. The examples of UPS/FedEx/JBH/Schneider and others using rail to service the delivery promise made to their customer base is a fine example of substantive organizations using their strong suites to meet the needs of their customers transport needs.
Rail is also a solution to a problem growing in the trucking industry; an apparent lack of drivers who cannot make the comitment to go out and stay out on the road for more than a week at a time. Too many new drivers have been sold by the industry as "make money/get home on week-ends". Further by drivers who develop attitudes that jobs are so available, if they get mad at one company or owner, they just go part the truck and find another ride with a company or owner wh has a vacant seat ( or better unit for the new driver). Those outside of the industry would be surprised to learn that the major carriers, have whole departments whos job is to recover trucks and loads that have been abandoned,before the unit or load can be stripped or stolen.
Watch an intermodal go by, look at the various number of different companies trailers on those trains. Companies you have never seen before on the rails now. Many carriers have found that long distance rail is the answer to their road driver problems. Apparently, local drayage is an easier situation for the companies to staff, although it also can be problematic; witness this past Christmas-time debacle of the colapse of Arrow Trucking (out of Tulsa,Ok) that company had many drayage contract locations at the time of their bankruptcy.
Bucyrus Barry, I am not well informed on the various chapters of bankruptcy, but my point was about any degree of bankruptcy versus no bankruptcy at all. My point is that the zombies apparently prefer to stay in business rather than file bankruptcy. So I simply fail to understand the assertion in the article that the zombies should be in bankruptcy.
I think the only reason it is in there is that traditionally that would be the state any business failure would go towards. In this case, however, our dear writer seems not capable of understanding the"new accounting" procedures.
And yes, I'm being a wee bit frisky here
I misunderstood the context of the comment suggesting that zombies should be in bankruptcy. It meant that zombies who are not making their monthly payments should be in bankruptcy because they are not making their payments. And in normal times, those zombies would go bankrupt if they failed to make their monthly payments.
And in reading the article again, I conclude that perhaps it is not calling for any solution or blaming anybody, but rather, just making an innocent observation of the rather unique economic problem, which is an artificial structure with the banks propping up zombies and thus creating an unleveled playing field.
The zombies would rather keep trucking than give up, and the bankers would rather carry them than take a bigger loss on equipment they can’t sell. It is nobody's fault and there is nothing that can be done about it.
MP173 Interesting. I met with the CFO of a very well operated midwest regional carrier yesterday. They are adding 50 trailers within the next couple of months. Another customer this week added 70 trailers and 100 tractors. Yet another this week added 15 trailers (he has indicated he will add 100 total trailers this year). These are three accounts that acted THIS WEEK. None of which are the major truckers, but solid regional operators. That is a total of 135 trailers and 100 tractors this week. These three companies are all within 25 miles of each other. I asked the CFO "how's business?" His reponse was telling. The last two weeks have exploded. He went on to explain...there is a slight bump in traffic, but the real factor is the LACK OF CAPACITY which has turned up the past few weeks as banks have called in equipment, companies have shut down, or drivers handed the keys in. Interesting that this is keeping business off the intermodal trains. My notes indicated that the CSX Q156-02 (Tuesday) consisted of 11443 feet of train on 532 axles....that is a lot of intermodal train. He is nearby and it will be interesting to hear his scanner report today. So, perhaps the worm is turning. These same financial institutions that wrote bad paper on trucks, also wrote bad mortgages....and that mess will take years to clean up. Alt-A mortgage resets are just starting to hit. This allegedly will be as big if not bigger than the subprime mess. Hang on. Ed
Much more than just "Interesting".
See, there ya' go. Just start a topic and you can learn something that is "Very" interesting.
Bucyrus And in reading the article again, I conclude that perhaps it is not calling for any solution or blaming anybody, but rather, just making an innocent observation of the rather unique economic problem, which is an artificial structure with the banks propping up zombies and thus creating an unleveled playing field. The zombies would rather keep trucking than give up, and the bankers would rather carry them than take a bigger loss on equipment they can’t sell. It is nobody's fault and there is nothing that can be done about it.
Yep.
Interesting economic situations are developing all the way around. And with mortgages resetting and all the other things mentioned thereto it could become even more odd as time progresses
Would like to see how long this'll hold up
Blowout:
Do you have this housing/mortgage issue in Ontario?
It seems the Canadian banks got thru the financial meltdown better than the US banks. Is that reality or my perception?Ed
MP173 Blowout: Do you have this housing/mortgage issue in Ontario? It seems the Canadian banks got thru the financial meltdown better than the US banks. Is that reality or my perception?Ed
The banks did do better up here generally. CIBC was the one that seemed to have been caught up in some of the bad commercial paper but it seems to have survived quite well without bailouts. Most of that was/is due to the types of regulations we have in place as well though. We don't have as many banks as you have so that could be a factor(?) but I'm not too sure of that.
As to the real estate market up here we have seen something of that melt down in places like Vancouver BC although nowhere near to the extent you've seen in California or Florida. Where I am in London ON our market did not go through any melt down--we seem to be going upwards a little even---which is interesting---
The housing market in Vancouver did have a correction, but I wouldn't call it a meltdown. Prices had been too high, partly due to the upcoming Winter Olympics, which have been called the most successful 'stimulus program' in North America.
We basically have 6 strong banks in Canada, each of which has branches in most cities from coast to coast, along with a couple of regional banks, and a lot of local 'Credit Unions'.
http://stockpreacher.com/2009/02/25/canadian-banks-prove-envy-of-the-world/February 25, 2009US President Barack Obama said the performance of Canadian banks, alone among those of the Group of Seven nations in not receiving a government bail-out was striking. “Canada has shown itself to be a pretty good manager of the financial system in ways that we haven’t always been here in the United States,” Mr. Obama told a Canadian broadcaster.
The president spent Thursday in Ottawa meeting Stephen Harper, Canada’s prime minister, to discuss the economy, trade and the environment, in addition to any talk surrounding the strength of Canada’s banks. In large part because of their conservative culture Canada’s banks have remained the strongest in the G7 and, according to an October report by the World Economic Forum, the soundest in the world. “In Canada they do it the old-fashioned way, where when you need money you go to the bank and they review your file and they will lend you no more than 75% of the value of your house,” said Laurence Booth, a finance professor at the University of Toronto. “Canada is a more conservative place and, as much as it limits growth in good times, that approach pays off when others begin a race to the bottom.”
Here is the rest of the story:
The financial housing bubble was caused in the U.S. by too much regulation, not by insufficient regulation. Congress forced Freddie Mac and Fannie Mae to lower their credit standards in order to increase lending to people who were underrepresented in the mortgage creation market. The reason those people were underrepresented is that they were under-qualified borrowers, due to having bad credit and/or low income.
Of course these borrowers were higher risk, but congress assured bankers that Freddie and Fannie would assume that extra risk. Consequently, the sudden flood of new buyers caused a rise in housing demand, which cause housing shortage, thus driving up housing prices, and causing a boom in new construction.
When the under qualified borrowers could not pay their mortgages, congress made good on their previous pledge to assume the risk. That was the TARP bailout. However, all of the excess housing that was created during the boom has driven market values down.
Bankers did not simply get stupid overnight and become so greedy that they overlooked the need to check creditworthiness of borrowers, as many would have you believe.
Bucyrus Bankers did not simply get stupid overnight and become so greedy that they overlooked the need to check creditworthiness of borrowers, as many would have you believe.
Regarding financing equipment for trucking, generally what kind of time periods would be involved? Three years for trailers, and five for tractors? Surely bankers must have seen the dangers in the housing bubble coming when current loans were made?
Bucyrus Here is the rest of the story: The financial housing bubble was caused in the U.S. by too much regulation, not by insufficient regulation. Congress forced Freddie Mac and Fannie Mae to lower their credit standards in order to increase lending to people who were underrepresented in the mortgage creation market. The reason those people were underrepresented is that they were under-qualified borrowers, due to having bad credit and/or low income. Of course these borrowers were higher risk, but congress assured bankers that Freddie and Fannie would assume that extra risk. Consequently, the sudden flood of new buyers caused a rise in housing demand, which cause housing shortage, thus driving up housing prices, and causing a boom in new construction. When the under qualified borrowers could not pay their mortgages, congress made good on their previous pledge to assume the risk. That was the TARP bailout. However, all of the excess housing that was created during the boom has driven market values down. Bankers did not simply get stupid overnight and become so greedy that they overlooked the need to check creditworthiness of borrowers, as many would have you believe.
That issue of allowing high risk borrowers into the market I don't think was thought through from the get go. Up here we did not see that free for all in the mortgage sector because the market still had that overall regulation going on.
In this case, it may have been a combination of relaxing of credit standards plus a general laxness in oversight that lead to the 'boom' in this instance. I will suggest that this aspect of 'greed'--if that is even the term for this---was aided and abetted by a form of "fiscal illiteracy" as well. When you do not understand what happens when you allow high risk borrowers into the mix you will end up with certain consequences. And those consequences will bleed through the system----
I think that this "zombie" thing will be going on for a while -----
nanaimo73 Bucyrus Bankers did not simply get stupid overnight and become so greedy that they overlooked the need to check creditworthiness of borrowers, as many would have you believe. Regarding financing equipment for trucking, generally what kind of time periods would be involved? Three years for trailers, and five for tractors? Surely bankers must have seen the dangers in the housing bubble coming when current loans were made?
That is a good question. Bankers originate mortgages and sell them to Freddie Mac and Fannie Mae. Therefore, the bankers’ credit standards for housing needed to be at least as high as the housing credit standards of Freddie and Fannie because if the bankers originated mortgages at a credit standard below the credit standard of Freddie and Fannie, Freddie and Fannie would not buy those mortgages. So when F&F lowered their credit standards to a new low threshold, the banks followed suit and lowered their mortgage origination standards to the same new low threshold. This is how the government assumed the risk of risky loans.
Loan originators will drop new mortgages out of airplanes if the government assumes the risk of default on those mortgages. Moreover, not only did the government assume the risk of the bad loans, but they also forced bankers to make them under the threat of being charged for violating the civil rights of disadvantaged borrowers. The difference between how this played out in the U.S. versus in Canada stems from the fact that the U.S. congress has no authority over Canada.
Just because zombie truckers are in trouble with their loans in the same manner that subprime mortgage borrowers are, does not mean that their trouble shares the same origin. I am not aware that the government forced banks to make loans to under-qualified truckers, and then assumed the risk of those loans in the way it was done with home mortgages. Affordable housing was the motive behind the government involvement in the subprime mortgage debacle. That particular advocacy/agenda would not apply to the trucking business.
I assume that the troubled truck loans today are merely the result of the recession that was created by the bursting of the subprime mortgage housing bubble. If business is so slow that banks cannot find a market for repossessed trucks, it is probably also too slow for truckers to make their payments. To your question: I do not know whether the bankers should have seen the recession coming or not, but since they took the risk and made business loans that were ultimately jeopardized by the recession, I would say that bankers did not know the recession was coming. Otherwise they would not have made those loans.
edbenton Why do you think CH Robinson lost a 25 Million dollar case last year they used a carrier for a load that had a UNSat rating and he had a Fatal accident. CH Robinson had NOT EVEN CHECKED ON HIS INSURANCE. Turns out he HAD NO INSURANCE.
Why do you think CH Robinson lost a 25 Million dollar case last year they used a carrier for a load that had a UNSat rating and he had a Fatal accident. CH Robinson had NOT EVEN CHECKED ON HIS INSURANCE. Turns out he HAD NO INSURANCE.
I ran into the flip side of this when the company I work for was bought by GE five years ago. They made it very clear that any shipping was going to be handled by carriers that were vetted by GE.
MP173 Interesting that this is keeping business off the intermodal trains. My notes indicated that the CSX Q156-02 (Tuesday) consisted of 11443 feet of train on 532 axles....that is a lot of intermodal train. He is nearby and it will be interesting to hear his scanner report today. So, perhaps the worm is turning. These same financial institutions that wrote bad paper on trucks, also wrote bad mortgages....and that mess will take years to clean up. Alt-A mortgage resets are just starting to hit. This allegedly will be as big if not bigger than the subprime mess. Hang on. Ed
Q156 was pushing the 12000 feet mark when it left 59th street yard today(3/7).
An "expensive model collector"
Bucyrus:I am going to disagree with you not completely, but somewhat.
Regulations were relaxed in two instances that had huge consequences in this matter:
1. Glass Stegal was repealed. This law allowed banks to provide investment banking services, and vice versa. Thus you had giant financial supermarkets such as Citi.
2. Another huge issue was that the leverage regulations were relaxed around 2005. Suddenly these financials which were leveraged 15-1 were allowed to pump up the leverage. Lehman and others soon had leverage ratios approaching 40-1. Thus, a 3% drop in the valuations of the holdings would wipe out ALL equity. This is what occurred.
Not all of these subprimes were handed over to F&F. Many were bundled into "Asset Backed Securities", with the homes as ultimate collateral. These mortgages were sliced and diced into tranches of various risk and bundled and sold as AAA rated securities. Why? Because Moodys and others assigned those ratings. Credit default swaps were issued as "insurance" against failure of these securities. Who issued the CDS? AIG and others.
If you want to see how a one man hedge fund saw this coming and made hundreds of millions of dollars, perhaps billions, read Michael Lewis' book excerpt "Betting on the Blind Side" in this month's Vanity Fair .... it is on line and is an excellent description of how things blew up and how one man saw it coming years ago.
This is the same Michael Lewis who wrote "The Blind Side" about the football player. The article is long and will take at least 45 minutes, but is well worth it.
Bucyrus, I agree in principal with nearly all of your views, but in this case two relaxations of regulations, along with the F&F fiasco, led to all of this.
Ed,
Thanks for that information. I do not dispute your explanation. I have heard of some of those details, but have not studied them in great detail. I’ll take a look at the article that you mentioned. My main concern was to point out the role of F&F, along with congress because the popular belief is that the subprime mortgage bubble was caused 100% by a failure of capitalism and the private sector due to greed. And, so much effort has gone into creating that perception that I doubt it can ever be corrected.
Our community is FREE to join. To participate you must either login or register for an account.