Re: And you think your simplistic cause is the correct one?
FAZ157 (mark to market) triggered the crash.
Before its implementation
10 houses each worth 100,000 = 1million
1 defaults and is sold at auction for 75,000
There are now 9 houses at 100,000 and one at 75,000 = 975,000
After implementation
10 houses at 100,000 = 1million
1 fire sale at 75,000
Mark assets to Market
10 houses at 75,000 = 750,000
250,000 of value has been destroyed at a stroke despite the other nine houses still performing.
A margin call follows the devaluation and so more assets are liquidated at ever decreasing returns which lowers all values and triggers more margin calls.
It didn't matter too much at first because the difference in the loan value and resale value was insured.
Then AIG collapsed under a blizzard of insurance claims and all those full value loans on those rapidly devaluing assets was uninsured.
The Credit Crunch followed as no one could lend or borrow against an asset that could spiral to 0 value.
That was why Mark to Market was suspended.
Biting the hand that feeds IT
