So this fiscal abyss we're staring into stems from bad sub-prime mortgages, aided and abetted by mortgage-backed securities and credit default swaps. I'm no billmon or Devilstower, but ok, I think I get it: Bad mortgages turned into securities that made the badness less visible, which were then propped up by credit-default swaps, which are like insurance policies for risky investments and so made the visible badness appear less bad. Cue speculation, frenzied trading, and price inflation. I can see how that would happen.
But ultimately, it all came from risky sub-prime mortgage loans, right?
Now I know Kossacks are all intelligent and fiscally responsible people, and none of us would ever get mixed up with a sub-prime mortgage. But--and I'm talking purely hypothetically here, of course--here's what I don't get:
Who owns my house?
Let's imagine, just for a moment, that even though I'm a good, fiscally responsible Kossack democrat, that I ended up with one of these sub-prime mortgages.
Like, I dunno, maybe my wife and I were tired of working 12 hour days at our respective companies just so we can keep our jobs in this crappy economy, only to see a ridiculous fraction of our takehome pay vanish in the form of rent, contributing to our landlord's equity rather than ours. And, just maybe, we got a 0% down mortgage offer from our bank and we figured that since rent, groceries, and utilities were eating up 100% of our income so we'd never be able to save for a down payemnt anyway, this was our only chance to change our situation.
So--purely hypothetically you understand--let's imagine we got one of these loans.
And it got packaged up into a mortgage-backed security.
And bought, and sold, and traded, and speculated, and inflated into gigantic vapor-ware monster security.
And then lots of our non-fiscally responsible non-Kossack non-democrat neighbors started to default on their loans, so the monster security became worthless.
And then the corporation holding that security (not that I can possibly keep track of which one that might be), tried to call in its credit-default swap policy. But the CDS issuer was going bankrupt under the weight of suddenly being asked to pay off on thousands of other, similar CDS policies, and couldn't pay it. So the corporation holding my mortgage collapsed under the weight of its 35-to-1 debt-to-asset ratio.
And imagine, all the while (because remember, my wife and I are fiscally responsible Kossack democrats) that we've been working hard and paying our mortgage every month. It has been hard, but we're not in default. Not yet anyway. I know it's a stretch but--for the sake of this purely hypothetical question--just imagine.
So we're in good standing, but the corporation who owns our mortgage is gone and the corporation who could have made a claim on the security our mortgage is part of by means of the CDS that insured the security is gone. Belly up. A casualty of their own rampant greed.
Now, somebody answer me this, because in all the talk about this crisis and how it came to be, the one question that actually matters to me is:
WHO THE HELL OWNS MY HOUSE?
What happens if I just stop paying my mortgage? Who's left to come hassle me about it? If I, by virtue of being in good standing on my payments, have more equity in the house than anyone else, how isn't it mine if my creditors go out of existence?
Help me out, here. Because it seems entirely too good to be true, too much like a pipe-dream, but since I don't have the financial chops of the guys I linked to up above the fold, I don't understand how I don't come out of this with a free house.
And if--again, purely hypothetically--you wanted to rec this diary so the question has a shot at actually getting answered by someone who understands all this financial voo-doo, that would be hypothetically awesome.