CDO/CDS were never part of loans...infact goldman sachs devised them so that others(paulson,mike burry ) cud bet against(short) mortgage loans. (Remember goldman ,paulson + SEC + 750 million $$ scandal?) because thats how you short bonds unlike equity where shorting means selling nd buying back the same day.
Ofcourse they were never part of the loans :
I meant to say CDO/CDS weren't used for the purpose they were supposed to be used. They were abused beyond wildest imagination and then that behaviour was passed down to the common commercial banks and the end user as well. In totality, its a recipe for disaster.
At the same time, I don't think anyone can squarely blame people because they devised them. Also, it not factually correct. CDOs have been there since late 1980's and were devised by other people. The problem is not with such financial pills but with their usage and abuse of anything will lead to bad results. Also, The easiest thing to do in the world is to blame things on other people and never look where where other guys went wrong. We shouldn't question who did it (they should be punished), but why it was done and how could the behaviour not existed in the first place.
firms are sitting on pile of cash nowww...yes its true guys. They are reluctant to spend even after coming back in green.
Thats called investing confidence. No one will have that unless they are sure that there is no crisis.
Firms are hoarding cash for different reasons, the article has nothing to do with financial crisis in real terms. Its a decision that is dependent on many many factors which depend on the country of the company, strategy of the company and many other factors. You can't just make companies spend money because you want them to.
I wouldn't have spent the cash myself unless I knew it would make truck loads of more money.
We can't just wish " For recovery to proceed smoothly, firms must stop hoarding cash", We have to realise why are they behaving that way. Why it is that they are hoarding? When do people hoard? People hoard when they are afraid and unsure. The firms are unsure of what to do with the money. whats the behavioural reason for this? These are the important questions.
The loan rates were lowest only for a duration of loan....infact they were called teaser loans wherein borrowers had to pay negligible amount to bank for first 2 years..and then the demon of compounding wud creep up to haunt them wid hefty installments to pay.in short these loans were made to go bust.Those who were selling them knew it will eat somebody else's balance sheet as they could bundle the loans into mortgage bonds and sell them off.
What you are talking about is the common man's commercial loan rate
What I am talking about is the federal reserve rate :D
There are many rates of interest in the world, by far the most important of them is the US fed Rate, that was at an all time low of 40 years. This has created problems and will continue to do so because the interest rate is irrational and will create a loopsided market. Some of it has happened and some more will happen.
About teaser rates, ofcourse, but then thats what a floating rate policy is.
Teaser is when you add marketing brilliance to such financial wizardry. The trouble is whom are you suppose to blame? The commercial banks because they were trying to get more customers or should you rather blame the government for such outrageous policy planning that led to this? I choose to blame the US fed and the Economics & Finance Dept of US government because being a completely capitallist nation they should have foreseen the fact that everyone would try and maximise profits.
They didn't have the liquidity(cash) in 2008 as lending banks went bust.
Liquidity is related to a lot of things like internal management practices of a company (apple will never have a liquidity crisis because in excess of 36 billion dollars with itself) on the other hand a company that spends a lot will have to take leverage or a loan to, lets say, do some acquisition etc.
Liquidity was held up because lending was more dangerous than ever.
Its a natural process, Its like you not wanting to give money to your friend because he has already bad debted on 3 of your friends and hence you feel less confident about your investment. Now is there any rational relation between how much money you own verses you giving him the loan?
Your investment decision should be based on what he has done in the past, what is his current market condition and if he will pay back.
How much much you have has very little to do with it (beyond a certain point ofcourse)insurance against loan thing 
thats what was told to banks like AIG who thought this was just another insurance .Interestingly goldman sachs and deutche were selling insurance where insuring party was AIG or banks like citi and not themselves.
Thats the problem, thats where greed comes in. Its in a way, Insider Buying : Also there seems to be a lot of conflict of interest in the entire thing. Its amazing how none of these guys thought about the conflict of interest involved. Its the basic code of any business. We have stopped using insurance as insurance, hedging for hedging. This is a huge problem in a lot of cases.
