Derivatives are financing vehicles that created new pools of money that were secured by existing pools of money that were secured by real estate. Then, new pools of money were created that were secured by the pools of money that were secured by the money that was secured by the real estate.

In other words, lipstick was put on pigs, and then the pigs with lipstick were put into evening gowns. No new pigs, just made up and then dressed up. This was to accomodate buyer demand- not to create buyer demand.

Keeping up with the Joneses created the demand. Get rich quick by flipping property strategies created demand.

Lastly, you cannot reduce the principal owed on a loan without hurting the investors who put their money into mortgage bonds. If you do, investors won’t buy bonds, and the money won’t go back into the market to create new loans- UNLESS you increase the return (raise rates) to make up for the losses over time (a long time).

Now, as much as it scares me, we have to count on people that can make their payments, to make their payments- no matter how attractive the government makes it to default. This is where those who make sacrifices do so for the greater good when it isn’t fair.

We arrived at this place as a result of greed and our best chance for recovery is integrity.