jc, i'm amazed cramer is still around...

to be honest i think this whole MBS, CDO thing is gonna boil down to:

the banks were falling apart with losses because any continually leveraged system will eventially reach a breaking point. kinda like living on credit cards and continually transferring the debt...eventially, somebody is'nt (or can't) extend more credit.

so the government (together with the central bank) created an additional $2tril...loaned the banks fresh money to get the system rolling again and now they want some of it back to breathe life into thier own investments...fnm, fre, f, gm, etc....

eventially i believe there will be a real meltdown of the derivitives market (although we may not see it in our lifetime)....that would take a popular movement away from fiat currencies...and temporarily cause complete chaos and the creation of a completely new monetary system...

for now, the game goes on as it has....in the US you hear a lot about how it's "the dems" or the "republicans" fault...imo the following shows how they both stuck it to us with guidance from the bank lobby......this is why we have MBS and CDO's..

from wiki: a portion about the repeal of glass-steagall (enacted after the first big crash caused by "margin")..

Repeal

The bill that ultimately repealed the Act was introduced in the Senate by Phil Gramm (Republican of Texas) and in the House of Representatives by Jim Leach (R-Iowa) in 1999. The bills were passed by a Republican majority, basically following party lines by a 54–44 vote in the Senate[12] and by a bi-partisan 343–86 vote in the House of Representatives.[13] After passing both the Senate and House the bill was moved to a conference committee to work out the differences between the Senate and House versions. The final bill resolving the differences was passed in the Senate 90–8 (one not voting) and in the House: 362–57 (15 not voting). The legislation was signed into law by President Bill Clinton on November 12, 1999.[14]

The banking industry had been seeking the repeal of Glass–Steagall since at least the 1980s. In 1987 the Congressional Research Service prepared a report which explored the cases for and against preserving the Glass–Steagall act.[8]

The argument for preserving Glass–Steagall (as written in 1987):

1. Conflicts of interest characterize the granting of credit — lending — and the use of credit — investing — by the same entity, which led to abuses that originally produced the Act.

2. Depository institutions possess enormous financial power, by virtue of their control of other people’s money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments.

3. Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.

4. Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. An example is the crash of real estate investment trusts sponsored by bank holding companies (in the 1970s and 1980s).

The argument against preserving the Act (as written in 1987):

1. Depository institutions will now operate in “deregulated” financial markets in which distinctions between loans, securities, and deposits are not well drawn. They are losing market shares to securities firms that are not so strictly regulated, and to foreign financial institutions operating without much restriction from the Act.

2. Conflicts of interest can be prevented by enforcing legislation against them, and by separating the lending and credit functions through forming distinctly separate subsidiaries of financial firms.

3. The securities activities that depository institutions are seeking are both low-risk by their very nature, and would reduce the total risk of organizations offering them – by diversification.

4. In much of the rest of the world, depository institutions operate simultaneously and successfully in both banking and securities markets. Lessons learned from their experience can be applied to our national financial structure and regulation.[8]

[edit] Events following repeal

The repeal enabled commercial lenders such as Citigroup, which was in 1999 the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities.[15] Elizabeth Warren,[16] author and one of the five outside experts who constitute the Congressional Oversight Panel of the Troubled Asset Relief Program, has said that the repeal of this act contributed to the Global financial crisis of 2008–2009.[17] [18]

This section contains information which may be of unclear or questionable importance or relevance to the article's subject matter. Please help improve this article by clarifying or removing superfluous information.

The year before the repeal, sub-prime loans were just five percent of all mortgage lending.[citation needed] By the time the credit crisis peaked in 2008, they were approaching 30 percent.[citation needed] This correlation is not necessarily an indication of causation however, as there are several other significant events that have impacted the sub-prime market during that time. These include the adoption of mark-to-market accounting, implementation of the Basel Accords, the rise of adjustable rate mortgages etc.[19]

[edit] Proposed re-enactment

In mid-December of 2009, Republican Senator John McCain of Arizona and Democratic Senator Maria Cantwell of Washington State jointly proposed re-enacting the Glass-Steagall Act, to re-impose the separation of commercial and investment banking that had been in effect from the original Act in 1933, to the time of its initial repeal in 1999.[20] Legislation to re-enact parts of Glass-Steagall was also introduced into the House of Representatives. Banks such as Bank of America have strongly opposed the proposed re-enactment.[21]

On January 21, 2010, Barack Obama proposed bank regulations similar to some parts of Glass-Steagall in limiting certain of banks' trading and investment capabilities. The proposal was dubbed 'The Volcker Rule',[22] for Paul Volcker, who has been an outspoken advocate for the reimplementation of many aspects of Glass-Steagall[23] and who appeared with Obama at the press conference in support of the proposed regulations.

In Mainland Europe, notably in France, Germany and Italy, an increasing number of think-tanks such as the CEE Council are calling for the adoption of stricter bank regulation through new national and EU-wide legislations based on the Glass-Steagall Act.[24]