DealMonkey
Lifer
Your type, on the other hand, who thinks there's some magical 50-50 split to blame, are even more hilarious.
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Did Bill Clinton cause the banking crisis?
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Your type, on the other hand, who thinks there's some magical 50-50 split to blame, are even more hilarious.
Svnla
Lifer
Funny, for a person that kept repeating the same "I don't care" yet you took time out to type a loooong reply with useless repetitive words without any purposes or contents.
Want to know why I posted the article? Touch luck, because I don't care of how/what you think.
Better luck to troll/bait someone else.
Vic
Elite Member
Of course. To use an extreme example, while a gun might provide the opportunity for murder, only the murderer is to blame for murder.
So while the Fed might have given the economy enough rope to hang itself, the Fed is not the economy, the people are. And the Fed is not all powerful. The people demanded low rates, the Fed leaders obliged to their wishes, lest the people decide the Fed needed new leadership.
LegendKiller
Lifer
The problem is that the Fed had higher rates, mortgage rates were about the same. The Fed had lower rates, mortgage rates were about the same. The Fed then really raised rates, mortgage rates were the same.
The problem wasn't the Fed, it was a massive influx of capital into the credit system from global investors. THEY drive long-term rates, not the Fed.
I am going to interject myself into this and ask a question. Werent most risky loans ARMs or interest only? ARMs are typically based off some treasury index arent they? When these ARMs came up or interest only saw a rate jump didnt it help accelerate this mess when people couldnt make a payment?
LegendKiller
Lifer
Vic could answer this question better, but I'll take a shot.
There were ARM loans but they are usually based off of LIBOR, which is just another floating rate.
As far as the "worst offenders", being ARMs they usually had cheaper interest rates (you're getting a quasi-variable loan as opposed to a 30yr fixed), thus, the term structure of the rates are different. This "cheaper" rate allowed more leverage. In the same way, option-arm loans, where you decide what payment to make, deferred interest and capitalized them into principal, allowing more leverage.
Both of these products are a perfect example of the innovative product driving leverage, not the rate itself.
That isn't even to begin to account for low/no-doc loans, which allowed NINJA borrowing and other such madness.
Finally, there's the basic fact that the loans were "underwritten" (using that term lightly since there was almost no real underwriting going on, no W-2 usage..etc) to the lower payment driven by an ARM or option-arm, not by the full payment that could occur.
Thus, nobody gave two shits about the interest rate. They cared about the payment and found any way possible to lower it.
LegendKiller
Lifer
There is somewhat over a correlation, since short-term rates, over the long-term, will be the same (or at least the market expectation of short-term rates). That isn't to say that the Fed's ability to control short-term rates feeds into long-term rate decisions. It's why the market hasn't reacted well to the Fed buying treasuries or why the yield-curve is so steep, everybody knows rates will go up, thus, long-term rates are higher than short-term.
It's why it is laughable for people to be blaming the Fed, since the "market" sets the long-term rates at the end of the day. Global-investors buying t-bills were seeking some safety, but in the meantime they were buying CDOs like nobody's business.
Sir, you are an egotistical fool. From your first reply to me you have been trying to throw yourself under a buss that does not exist. I, for example, took no more note of you than I do a fly outside in my garden. One can't troll somebody one does not recognize exists. You are of no account and of no value to me to troll. You are irrelevant. You thrust yourself in my face because you fancy yourself some how important, as if I were attacking you. You are like a person with a huge sore toe who leaves it out in the aisle and screams when people accidental step on it, people who pay no notice to your big fat toe at all. I'm more than happy to let you know how you are.
None of what I say has the intent of putting you down any more than I'm going out in my garden to chase flies. But it amuses me that you don't seem to accept that I don't care. I don't care and I don't mind telling you even though, in your self important delusions, you take that as concern as if I some how am in some sort of battle. No.
The problem is that much of the strife in the world is generated by people like you who demand and insist that other people are out to get them. This is a product of self hate. You feel so worthless that you can only have existence in opposition to me. I don't want to play into your delusions. I have given you a mirror to see who you are so that maybe tomorrow you won't need to make a fool of yourself by injecting yourself in places only you imagine exist. I wish you well.
bamacre
Lifer
First off, your gun/murder analogy is, IMO, a bad one. But I understand what you mean.
Overall, I disagree with your assertion though. Because I think the intentions of the artificially low rates were to fuel borrowing, and thus, spending. While I agree with your suggestion of blaming the big businesses who knew better, certainly you can't blame the people who were misled. Sure, some people put themselves into debt much more than they should have, but, well, I guess I am looking at the big picture and see that market conditions were distorted, and intentionally.
There's no reason for the Fed to give "the economy enough rope to hang itself," in the first place. It's as if they made it rain, and you blame people for getting wet? Ok, now I'm making bad analogies.
You're right, the Fed is not the economy, and it isn't all powerful. But they do have heavy influence, too much IMO. And lastly, as for people demanding low rates, that's irrelevant, IMO. It doesn't mean you have to give it to them. And if it does, then that's a damn good reason to get rid of being able to. At least in this manner.
On a personal note, I find it difficult to understand your perception of the Fed, given what I assume is your political ideology. Career over beliefs?
Vic
Elite Member
My only beliefs are that I don't believe in beliefs.
There are 2 problems with having beliefs that lead to fallacies.
The first is that beliefs are inflexible. Beliefs don't change when circumstances do. And circumstances are always changing.
The second is that beliefs distort perception. You end up seeing what you believe rather than believing what you see.
On that note, bam, I have difficulty with your insistence of putting all the blame on the Fed. The Fed played a role, but the reality that we are all to blame. So far as I can determine, there is no political or economic ideology that can get rid of boom and bust cycles, regardless of all the claims from all the various ideologies.
There are 2 problems with having beliefs that lead to fallacies.
The first is that beliefs are inflexible. Beliefs don't change when circumstances do. And circumstances are always changing.
The second is that beliefs distort perception. You end up seeing what you believe rather than believing what you see.
On that note, bam, I have difficulty with your insistence of putting all the blame on the Fed. The Fed played a role, but the reality that we are all to blame. So far as I can determine, there is no political or economic ideology that can get rid of boom and bust cycles, regardless of all the claims from all the various ideologies.
LegendKiller
Lifer
He needs to place primary blame on the Fed because that IS his political ideology.
What exactly does "artificially low rate" means? Who determine if the rate is artificially low, what are the criterion that determine the rate is artificially low. If our interest rate is "artificially low", what about Japan's near zero rate for almost a decade?
Maybe with your infinite wisdom, education and knowldge and is able to determine when an interest rate is artificially low can tell us your thoughts on my questions.
rchiu: Maybe with your infinite wisdom, education and knowledge and is able to determine when an interest rate is artificially low can tell us your thoughts on my questions.
M: I know your question was addressed to bamacre, but that infinite wisdom thingi there looks for all the world like an invitation to me, so this is what I'd say:
Say you are playing WOW are in Naxxramas trying to run by the slime that will kill you if you get too close to them. If your lag is bad you will die because you aren't where you think you are because of the lag. The lag lays you artificially low.
It is the same thing with rabbits and wolves. Rabbits breed and grow fast, not so wolves, so when the rabbits increase in numbers so do the wolves. But when the number of rabbits grow too large for the clover they eat to feed them they starve, and the growing wolf population does too.
The lag between the disappearance of the rabbits happens before the wolves can adjust and they die off in great numbers too.
It's the same thing when the economy eats money. When the economy expands there is more and more money to lend and that reduces the rates of lending to the point that so much borrowing takes place there isn't any more money, and bang, the whole bubble goes poof. That's the artificial low.
It's that damn lag that does us in. And believing stuff can be the same kind of trap because it takes time to unlearn bad assumptions.
M: I know your question was addressed to bamacre, but that infinite wisdom thingi there looks for all the world like an invitation to me, so this is what I'd say:
Say you are playing WOW are in Naxxramas trying to run by the slime that will kill you if you get too close to them. If your lag is bad you will die because you aren't where you think you are because of the lag. The lag lays you artificially low.
It is the same thing with rabbits and wolves. Rabbits breed and grow fast, not so wolves, so when the rabbits increase in numbers so do the wolves. But when the number of rabbits grow too large for the clover they eat to feed them they starve, and the growing wolf population does too.
The lag between the disappearance of the rabbits happens before the wolves can adjust and they die off in great numbers too.
It's the same thing when the economy eats money. When the economy expands there is more and more money to lend and that reduces the rates of lending to the point that so much borrowing takes place there isn't any more money, and bang, the whole bubble goes poof. That's the artificial low.
It's that damn lag that does us in. And believing stuff can be the same kind of trap because it takes time to unlearn bad assumptions.
LegendKiller
Lifer
The problem is he doesn't see that "artificially low" is a misnomer. The market is the one who set interest rates. The market is the one who "squeezed" people into mortgages any way possible, despite higher interest rates. The Fed couldn't do jack shit to rates because a flood of cash was moving into the market. They just simply could not alter them enough. They couldn't stop spreads from squeezing, they couldn't stop money from moving in, they couldn't regulate underwriting.
That is truly the biggest problem, underwriting. With the proliferation of the broker-passthrough model which then fed into the purchaser/seller/servicer model, which fed into the bond holder, residual to CDO model, you got a "hyper" underwriting and originating system disconnected from the reality of risk.
Which, effectively, was the biggest problem. Risk wasn't priced into anything. A AAA CDO composed of mezzanine tranches of subprime RMBS composed of 50% CA NINJA loans and the remainder FL, NV, and AZ NINJA loans, was priced at 1.00% above LIBOR. When, in fact, the risk of that transaction should have been at 20% above LIBOR, if it should have been created at all.
But then, if the CDO hadn't been created (because it couldn't be rated, or nobody could be found to take it for less than 20%), then the mezzanine tranches if shit RMBS couldn't have been sold, which means that eventually the Seller/Servicer couldn't issue more shit mortgages in a securitization, since it's equity base couldn't take any more mezz/equity tranches, which would have stopped (or at least slowed) the origination channel, which would have prevented NINJA loans from occuring anyway, since the overall price of *ALL* of those layers would have been increased, due to risk spreads.
This is what is laughable about bamacre. He thinks that base short-term interest rates had anything more than a marginal facet of this situation. It wouldn't matter WHAT rate the base rate was, people wanted RMBS and CDOs at any price. This is what caused the risk, not base rates.
LegendKiller
Lifer
Notice bamacre's complete inability to refute the Fed not being able to control long-term rates. Heck, I could even try to refute my own argument, but then again, I actually have knowledge about what I'm talking about.
nobodyknows
Diamond Member
I think Bamacre has made a valid observation. Lowering the short term rates forced people's money into different instruments. The fed could have raised short term rates which would have caused some of the long term money to move into short term investments.
The banking crisis was caused by the financial sector's insatiable greed.
bamacre
Lifer
"Controlling" long-term rates is not what I argued. The Fed can't lower rates without pumping new money into the economy. The distortion comes when this new money appears as capital, when at least in the long run, it isn't. It's like pouring water into a pitcher of beer. You don't have more beer, just watered-down beer.
LegendKiller
Lifer
How did the Fed put money into the system in the form of CDOs? Exactly what capital did they extend? I'd love for you to prove this out because, from what I see, investor capital has been wiped out to the tune of $1.5TR in the banks and other financial entities and global wealth has declined by 19%. Yet, somehow, this isn't taken into account in your equation. It's just the Fed.
LegendKiller
Lifer
Again, if the Fed had that kind of control over interest rates then why didn't mortgage rates change?
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