The money in the banking and credit-derivative markets (that everyone is now scared of losing since it was all represented on paper by easy mortgages and leveraged debt) was created by the banks lending up to high leverage levels, for sale followed by the financial industry as a whole (de-regulated) packaging and selling the risk contained in the derivative financial "instruments". The money "created" by these machinations was circulated in the stock market, which kept rising over the past 7 years, much of it sustaining the run-up in value of financial institution stock (and thus the "performance-based" bonuses paid to the CEOs and other executives) as their businesses seemed to grow year-over-year.
This is, more or less, what Kevin Phillips calls the financialization of the American economy.
As the developing holes in the sub-prime and then Alt-A mortgage markets and credit-derivative markets began to deflate the bubble in real estate prices, the share prices of financial institutions holding unidentifiable levels of rapidly-devaluing assets began to drop and then some insolvencies loomed (Bear Sterns, IndyMac, the FMs and Lehman).
If the share prices of the financial institutions, and thus much of the stock market, are not propped up now, the people who made the money for which they could not sustain the payments (everything that is in play has been created over the past seven years) will lose it.
Preventing these losses is the key reason for the bailout .. in effect, to legitimate the wealth transfer (based entirely on credit), to make it become real as opposed to just happening on paper.
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This is a stick-up, folks ! Just shut up and put the money in the bag, QUICK, before the alarm goes off … NOW !
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Is it any different to Mugabe printing money?
The sad thing is that anyone with basic management education knew what was happening and collaborated with silence.
Or perhaps my economics and political science is too simplistic?
No, you’re right. Silence all around, except for a relatively few voices here and there.
There’s been lots of analysis, speculation and prediction in the blogosphere for the last couple of years, at least, but that’s not the “official” world.
Out there, everyone still wants their salaries .. it’s a cash-flow world (one of the reasons credit floated into “the market” needs to be made real, to cover any losses encountered when the cash flow of the system stops).