Not enough regulation

Why did the insurance companies go belly up along with the investment firms? Here is an example.

Let's say you want to get full insurance on your brand new Corvette. You go to an insurance company and say "I want insurance" They get you to sign a bunch of papers and you drive away satisfied that if anything happens to your Vet, you will be fine.

On the way out of the parking lot you get t-boned by a garbage truck. The Vet is a mangled mess of worthless plastic, but you walk away miraculously, straight back in to the insurance office and fill out a claim. The insurance adjuster smiles and says "Great, all we need is to sell your Vet in order to give you your money so you can buy another Vet."

Wait a minute. They want that worthless pile of plastic out front being picked up by the truck that hit you in order to sell it before they can pay you your money. They used the Vet as an asset on the books to make it look like they had enough money to cover your Vet. That doesn't make any goddamn sense!!!

This is what happened with home mortgage assets. They called it 'Swapping' in stead of insurance because they would have had to deal with regulation. If the asset (home mortgages) had held some kind of value over this whole meltdown, the system might have worked. This insurance was designed to protect against poor management by the one company, or a problem with one company at a time. No one planned on the entire list of home mortgages to lock up and basically become worthless for the time being. No one can collect on the insurance because no one can sell the assets to make money to give to the insured. The insurance companies go belly up and the people who paid for insurance and their investors get screwed.