Has the economic downturn made you lose faith in the free market?

[Phokus]

Originally posted by: LegendKiller

Originally posted by: Phokus

Originally posted by: OCguy

Originally posted by: Phokus

You really know how to lie to yourself if you think obesity from junk food is as easily understood as a mountain of paper full of legalese and financial mumbo jumbo.

You really know how to throw personal responsibilty out the window.

These loans should have never existed in the first place. Personal responsibility would entail all the executives (and their free market cheerleaders) who turned a blind eye to this jumping off a cliff in shame for screwing this whole country.

Ohh please. There were (and still are) perfectly legitimate reasons for exotic mortgages. An option arm exists for very good reasons (seasonal wages, bonuses...etc), as does No/Low-doc (self-employed).

You can abuse anything on this planet. You can get drunk and die from water and you can eat too many carrots to turn your skin orange. Everything is correct in moderation.

To a certain extent the banks were at fault for pushing the loans. To another extent borrowers were guilty of accepting them. I haven't seen any huge evidence of people who lost their homes making a class-action suit against the banks, claiming lender liability or fraudulent inducement.

That tells me that they signed up because they were greedy (just like the banks) and share their own culpability in the problem (just like the banks). I know several people in that bucket, they wanted to get rich quick off of housing using exotic mortgages. Now they are getting foreclosed upon.

I'm not saying that there weren't greedy people who understood the consequences of the loans, but on the whole, there was a LOT of shenanigans going on.

Exotic financing is fine, between parties who understand what the fuck is going on, but when you push that shit on ordinary people, bad things happen. Which is why companies like countrywide and bank of america are getting rid of those programs.

 

[LegendKiller]

Originally posted by: Phokus
I'm not saying that there weren't greedy people who understood the consequences of the loans, but on the whole, there was a LOT of shenanigans going on.

Exotic financing is fine, between parties who understand what the fuck is going on, but when you push that shit on ordinary people, bad things happen. Which is why companies like countrywide and bank of america are getting rid of those programs.

I would say the vast majority knew exactly what they were getting into. It ain't all that hard to understand a neg-am loan if you are signing up for one and regulatory wise, it's difficult to NOT go through and figure it out.

They are getting rid of them because they can't finance them.

 

[Phokus]

Originally posted by: LegendKiller

Originally posted by: Phokus
I'm not saying that there weren't greedy people who understood the consequences of the loans, but on the whole, there was a LOT of shenanigans going on.

Exotic financing is fine, between parties who understand what the fuck is going on, but when you push that shit on ordinary people, bad things happen. Which is why companies like countrywide and bank of america are getting rid of those programs.

I would say the vast majority knew exactly what they were getting into. It ain't all that hard to understand a neg-am loan if you are signing up for one and regulatory wise, it's difficult to NOT go through and figure it out.

They are getting rid of them because they can't finance them.

That's your opinion and maybe you think so because you work in finance.

I know a few people who didn't, one being an engineer who's now scared shitless because of the pending interest rate recasts.

 

[LegendKiller]

Originally posted by: Phokus

Originally posted by: LegendKiller

Originally posted by: Phokus
I'm not saying that there weren't greedy people who understood the consequences of the loans, but on the whole, there was a LOT of shenanigans going on.

Exotic financing is fine, between parties who understand what the fuck is going on, but when you push that shit on ordinary people, bad things happen. Which is why companies like countrywide and bank of america are getting rid of those programs.

I would say the vast majority knew exactly what they were getting into. It ain't all that hard to understand a neg-am loan if you are signing up for one and regulatory wise, it's difficult to NOT go through and figure it out.

They are getting rid of them because they can't finance them.

That's your opinion and maybe you think so because you work in finance.

I know a few people who didn't, one being an engineer who's now scared shitless because of the pending interest rate recasts.

My brother, who has always struggled with reading (a form of dyslexia), but is a very intelligent person, works as a union factory worker and knew that an ARM (option or otherwise), when pushed at him, was a horrible idea.

I know far more people than not who thought paying lower fixed interest up front and then going to variable, or paying whatever they wanted to up frontm, was a great idea since they were later going to flip the home and didn't care where they would be IR wise, or even neg-am wise (since they were going to make bank).

It is humorous you don't even know the difference (although you believe you do). A neg-am loan recasts, a normal ARM resets.

 

[Phokus]

Originally posted by: LegendKiller

Originally posted by: Phokus

Originally posted by: LegendKiller

Originally posted by: Phokus
I'm not saying that there weren't greedy people who understood the consequences of the loans, but on the whole, there was a LOT of shenanigans going on.

Exotic financing is fine, between parties who understand what the fuck is going on, but when you push that shit on ordinary people, bad things happen. Which is why companies like countrywide and bank of america are getting rid of those programs.

I would say the vast majority knew exactly what they were getting into. It ain't all that hard to understand a neg-am loan if you are signing up for one and regulatory wise, it's difficult to NOT go through and figure it out.

They are getting rid of them because they can't finance them.

That's your opinion and maybe you think so because you work in finance.

I know a few people who didn't, one being an engineer who's now scared shitless because of the pending interest rate recasts.

It is humorous you don't even know the difference (although you believe you do). A neg-am loan recasts, a normal ARM resets.

Did i say he had an Option ARM or not? Actually i believe he has an Alt-A and may have used the wrong word, but i'd have to ask him.

Edit:

My brother, who has always struggled with reading (a form of dyslexia), but is a very intelligent person, works as a union factory worker and knew that an ARM (option or otherwise), when pushed at him, was a horrible idea.

I know far more people than not who thought paying lower fixed interest up front and then going to variable, or paying whatever they wanted to up frontm, was a great idea since they were later going to flip the home and didn't care where they would be IR wise, or even neg-am wise (since they were going to make bank).

So your brother is intelligent and understood that it was a bad idea. That's great. Not everyone is your brother. Everyone is different. But the fact of the matter is, there was lots deceivign going on in an otherwise complicated transaction and when you have people, whether they be dumb, or smart (but financially illiterate), bad things are bound to happen.

 

[OCGuy]

Originally posted by: Phokus

Did i say he had an Option ARM or not? Actually i believe he has an Alt-A and may have used the wrong word, but i'd have to ask him.

Well the higest rebates on ALT-A were 5/1 Libor ARMS. Depending on the index used, some rates are not that much higher when they reset.

Now this is no comfort when rates could rise again and your rate reset again in another 6 or 12 months.

 

[Vic]

Originally posted by: LegendKiller

Originally posted by: Vic
No, because the economic downturn was not caused by the 'free' market.

Yeah, because option arms and NINJA loans were a massively regulated product.

Regulation is not the only form of govt intervention.

 

[ModerateRepZero]

To answer the OP's question, I believe in a free market provided that the government generally restricts itself to an umpire roll absent glaring abuses and disasters.

The recession has not changed my views about the free market. It didn't surprise me at all that part of the reason subprime mortgages proliferated was because mortgage companies kept pushing these loans on consumers and in a number of cases falsified and/or duplicated applications. It also doesn't surprise me that irrational exuberance was exhibited, with people thinking that the housing bubble wasn't going to pop, and that AA or A loans were better than BBB even though the ratings in subprime mortgages was suspect.

I'm not saying that there weren't greedy people who understood the consequences of the loans, but on the whole, there was a LOT of shenanigans going on.

:thumbsup: Were there warning signs as well as missed opportunities? certainly. Ordinary citizens should've remembered that nothing is free and to read the fine print carefully as a 'good deal', is seldom what it appears to be. Bankers and sophisticated investors should've been more careful and recalled that more risk = more profit and that slicing subprime mortgage loans =/= diversification. And government in retrospect placed too much importance on home ownership, and Greenspan kept interest rates too low for too long....

But the righteous "personal responsibility" rhetoric ignores the fact that there was numerous incidents of mortgage lenders pushing these subprime mortgages onto unsophsticated homebuyers, the huge amounts of leverage any number of financial companies had (I guess they forgot about Long Term Capital Management), the conflict of interest between financial companies and credit raters (ie Moody's). And it is because a number of financial companies were "too big to fail" that the government stepped in with a bailout. Blaming citizens and investors for lacking omniscience is far too simplistic and minimizes the role that financial greed, fraud/abuse, and unethical relationships played in contributing to the financial crisis.

one of my favorite articles about Wall Street and its interaction with subprime mortgages is by Michael Lewis.

 

[StageLeft]

Originally posted by: Phokus

Originally posted by: LegendKiller

Originally posted by: Phokus
I'm not saying that there weren't greedy people who understood the consequences of the loans, but on the whole, there was a LOT of shenanigans going on.

Exotic financing is fine, between parties who understand what the fuck is going on, but when you push that shit on ordinary people, bad things happen. Which is why companies like countrywide and bank of america are getting rid of those programs.

I would say the vast majority knew exactly what they were getting into. It ain't all that hard to understand a neg-am loan if you are signing up for one and regulatory wise, it's difficult to NOT go through and figure it out.

They are getting rid of them because they can't finance them.

That's your opinion and maybe you think so because you work in finance.

I know a few people who didn't, one being an engineer who's now scared shitless because of the pending interest rate recasts.

How could he have not known?I understand Grandma retard who knows nothing being overwhelmed by this but if an engineer cannot understand the basics of a loan reset and not locking in his rates he can't be a very smart fellow at all. He knew. He just didn't want to go with a conventional 30 year because it didn't buy as much house as what he wanted.

 

[LegendKiller]

Originally posted by: Skoorb

Originally posted by: Phokus

Originally posted by: LegendKiller

Originally posted by: Phokus
I'm not saying that there weren't greedy people who understood the consequences of the loans, but on the whole, there was a LOT of shenanigans going on.

Exotic financing is fine, between parties who understand what the fuck is going on, but when you push that shit on ordinary people, bad things happen. Which is why companies like countrywide and bank of america are getting rid of those programs.

I would say the vast majority knew exactly what they were getting into. It ain't all that hard to understand a neg-am loan if you are signing up for one and regulatory wise, it's difficult to NOT go through and figure it out.

They are getting rid of them because they can't finance them.

That's your opinion and maybe you think so because you work in finance.

I know a few people who didn't, one being an engineer who's now scared shitless because of the pending interest rate recasts.

How could he have not known?I understand Grandma retard who knows nothing being overwhelmed by this but if an engineer cannot understand the basics of a loan reset and not locking in his rates he can't be a very smart fellow at all. He knew. He just didn't want to go with a conventional 30 year because it didn't buy as much house as what he wanted.

You're forgetting he was too smart to realize he was getting something for nothing. The vast majority of people who took the ARMs didn't know anything about interest rate resets, despite the copious amounts of documentation and disclosures lenders *MUST* make.

But he's an engineer, so he's not greedy either.

 

[Jadow]

Too bad we don't live in a free market system. The free market was F'ed up when certain large companies were not allowed to FAIL.

 

[Siddhartha]

The 1929 depression made me question if a "free market" is the optimal solution for a long term healthy economy.

 

[LegendKiller]

Originally posted by: Jadow
Too bad we don't live in a free market system. The free market was F'ed up when certain large companies were not allowed to FAIL.

And what would have been your answer once 25%+ of the population lost their jobs overnight?

 

[Atreus21]

Originally posted by: Phokus

Originally posted by: Atreus21
Wait a second. Weren't sub-prime loans entirely created by the CRA?

Not this shit again, how many times do i have to debunk you guys

http://www.mcclatchydc.com/251/story/53802.html

This must have been the 10th time i posted this link. Stop relying on Rush Limbaugh and Fox News to educate you.

Two questions:

Federal housing data reveal that the charges aren't true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.

Subprime lending offered high-cost loans to the weakest borrowers during the housing boom that lasted from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.

First, if Fannie and Freddie weren't responsible for this, why'd they go under? Second, my original question, who created the subprime designation?

 

[LegendKiller]

Originally posted by: Atreus21

Two questions:

First, if Fannie and Freddie weren't responsible for this, why'd they go under? Second, my original question, who created the subprime designation?

Secondary effects.

The biggest problem was non-conforming and/or Alt-A mortgages. They drove the price increases, whatever conforming Prime mortgages did, they just got caught in the crossfire.

Subprime designation has existed for decades, far beyond the scope of this discussion.

 

[Atreus21]

Originally posted by: LegendKiller

Originally posted by: Atreus21

Two questions:

First, if Fannie and Freddie weren't responsible for this, why'd they go under? Second, my original question, who created the subprime designation?

Secondary effects.

The biggest problem was non-conforming and/or Alt-A mortgages. They drove the price increases, whatever conforming Prime mortgages did, they just got caught in the crossfire.

Subprime designation has existed for decades, far beyond the scope of this discussion.

Fair enough. Then why did the subprime market blow up? More importantly, what changed to cause it to happen in 2008?

 

[LegendKiller]

Originally posted by: Atreus21

Originally posted by: LegendKiller

Originally posted by: Atreus21

Two questions:

First, if Fannie and Freddie weren't responsible for this, why'd they go under? Second, my original question, who created the subprime designation?

Secondary effects.

The biggest problem was non-conforming and/or Alt-A mortgages. They drove the price increases, whatever conforming Prime mortgages did, they just got caught in the crossfire.

Subprime designation has existed for decades, far beyond the scope of this discussion.

Fair enough. Then why did the subprime market blow up? More importantly, what changed to cause it to happen in 2008?

It collapsed on its own weight.

As I have outlined in this thread (and in dozens of others), the vast majority of "subprime" were composed to no/low-doc loans, Option-ARMs, and ARMs. Those products, while originally intended for good reasons, were abused as "affordability" options. Thus, people could buy more house than they could with a traditional 30-year fixed rate mortgage.

You see, people blame interest rate. People blame the Fed. That's a fucking joke. Why? Because ALL of the products used as an "affordability tool" got around the interest rate key, what you can pay. If the interest rate was 15% for an Option-ARM it wouldn't have mattered. Why? Because you can just pay 2% interest and let the 13% go to principal.

Interest rates could have been 15% for a no/low-doc loan and it wouldn't have mattered. Why? Because you could have just lied about your ability to actually PAY the loan.

This is the key, it didn't matter fuck-all what the rate was. It mattered how the loans were sourced, underwritten, funded, booked, sold, and invested. That is where the borrowers, brokers, banks, investors, and government failed.

Borrowers failed because they didn't give a shit what the rate was. They thought housing was a "get rich quick" scheme of buy and flip. They didn't give a shit what the rate was because they *KNEW* they could sell the house for more, quickly. They KNEW there was a "greater fool" out there to buy the house at a higher price. Why? Because nobody else gave a shit about interest rates either.

Brokers failed because they had no skin in the game. They didn't give a flying fuck through a rolling doughnut that these people couldn't pay. They wanted their skim off the top. After all, it was a non-recourse situation. They made their money and moved onto the next sucker borrower and sucker bank.

Banks failed because they didn't police the brokers. They bought the loans thinking the brokers gave a shit. The banks really didn't need to police the brokers because the banks were going to sell the loans anyway. They just wanted their skim off the bottom (excess spread) which they booked up front (Gain on sale FAS140 accounting) and servicing fees (actually on the top, but who cares, it's profit).

Investors failed because they didn't give a flying fuck through a rolling doughnut because they were flush with money. Hedge funds could lever up 50:1. Investment Banks, who had no deposits and depended on funding from other banks (Bear Stearns, Lehman, Goldman...etc) didn't give a shit about leverage, so they went 40:1. Besides, the Rating Agencies said they were AAA, right?

Ohh, but then the banks, investors, and rating agencies failed again when they took the scraps of the mortgages (mezzanine and subordinate tranches of RMBS) and put them into CDOs, further levering up the capital structure of the securitizations. Thus, instead of the banks having skin in the game, they just sold the whole thing to a greater fool.

The government failed because they didn't stop the brokers from originating shit. They didn't stop the borrowers from levering up 100%. They didn't stop the banks from levering up 40:1 or stop the securitizations levering up 50:1. They didn't stop the banks from getting Gain on Sale accounting. They didn't stop the rating agencies from rubber stamping CDOs.

Then, since prices became just too outrageous (because everybody thought there was a greater fool out there), the house of cards collapsed.

 

[Atreus21]

Originally posted by: LegendKiller

Originally posted by: Atreus21

Originally posted by: LegendKiller

Originally posted by: Atreus21

Two questions:

First, if Fannie and Freddie weren't responsible for this, why'd they go under? Second, my original question, who created the subprime designation?

Secondary effects.

The biggest problem was non-conforming and/or Alt-A mortgages. They drove the price increases, whatever conforming Prime mortgages did, they just got caught in the crossfire.

Subprime designation has existed for decades, far beyond the scope of this discussion.

Fair enough. Then why did the subprime market blow up? More importantly, what changed to cause it to happen in 2008?

It collapsed on its own weight.

As I have outlined in this thread (and in dozens of others), the vast majority of "subprime" were composed to no/low-doc loans, Option-ARMs, and ARMs. Those products, while originally intended for good reasons, were abused as "affordability" options. Thus, people could buy more house than they could with a traditional 30-year fixed rate mortgage.

You see, people blame interest rate. People blame the Fed. That's a fucking joke. Why? Because ALL of the products used as an "affordability tool" got around the interest rate key, what you can pay. If the interest rate was 15% for an Option-ARM it wouldn't have mattered. Why? Because you can just pay 2% interest and let the 13% go to principal.

Interest rates could have been 15% for a no/low-doc loan and it wouldn't have mattered. Why? Because you could have just lied about your ability to actually PAY the loan.

This is the key, it didn't matter fuck-all what the rate was. It mattered how the loans were sourced, underwritten, funded, booked, sold, and invested. That is where the borrowers, brokers, banks, investors, and government failed.

Borrowers failed because they didn't give a shit what the rate was. They thought housing was a "get rich quick" scheme of buy and flip. They didn't give a shit what the rate was because they *KNEW* they could sell the house for more, quickly. They KNEW there was a "greater fool" out there to buy the house at a higher price. Why? Because nobody else gave a shit about interest rates either.

Brokers failed because they had no skin in the game. They didn't give a flying fuck through a rolling doughnut that these people couldn't pay. They wanted their skim off the top. After all, it was a non-recourse situation. They made their money and moved onto the next sucker borrower and sucker bank.

Banks failed because they didn't police the brokers. They bought the loans thinking the brokers gave a shit. The banks really didn't need to police the brokers because the banks were going to sell the loans anyway. They just wanted their skim off the bottom (excess spread) which they booked up front (Gain on sale FAS140 accounting) and servicing fees (actually on the top, but who cares, it's profit).

Investors failed because they didn't give a flying fuck through a rolling doughnut because they were flush with money. Hedge funds could lever up 50:1. Investment Banks, who had no deposits and depended on funding from other banks (Bear Stearns, Lehman, Goldman...etc) didn't give a shit about leverage, so they went 40:1. Besides, the Rating Agencies said they were AAA, right?

Ohh, but then the banks, investors, and rating agencies failed again when they took the scraps of the mortgages (mezzanine and subordinate tranches of RMBS) and put them into CDOs, further levering up the capital structure of the securitizations. Thus, instead of the banks having skin in the game, they just sold the whole thing to a greater fool.

The government failed because they didn't stop the brokers from originating shit. They didn't stop the borrowers from levering up 100%. They didn't stop the banks from levering up 40:1 or stop the securitizations levering up 50:1. They didn't stop the banks from getting Gain on Sale accounting. They didn't stop the rating agencies from rubber stamping CDOs.

Then, since prices became just too outrageous (because everybody thought there was a greater fool out there), the house of cards collapsed.

But people have been swindled and tricked since Eden. Aren't bankers and investors and brokers and rating agencies just as stupid now as they've always been? I don't understand why this happened in 2008, and why this hasn't happened repeatedly in the past.

The reason the CRA explanation is attractive to me is not, as many think, simply because I can neatly lay it at the democrats' feet. It's because it represents a change in the lending environment, and it seems to me common sense that only such a change could bring a big, big problem, such as the subprime crash or the Great Depression (although the cause of the Depression is still hotly debated.)

 

[LegendKiller]

Originally posted by: Atreus21
But people have been swindled and tricked since Eden. Aren't bankers and investors and brokers and rating agencies just as stupid now as they've always been? I don't understand why this happened in 2008, and why this hasn't happened repeatedly in the past.

It was a confluence of events and it has happened in the past, just with different confluences of differnet events.

Before it was techs. Before that it was commercial RE and S&Ls. Before that it was any company (1929) and also credit. Before that it was railroads.

You think this has been the only boom/bust cycle where a series of unfortunate events, and greed, conspired to cause huge economic gains and then losses?

 

[Atreus21]

Originally posted by: LegendKiller

Originally posted by: Atreus21
But people have been swindled and tricked since Eden. Aren't bankers and investors and brokers and rating agencies just as stupid now as they've always been? I don't understand why this happened in 2008, and why this hasn't happened repeatedly in the past.

It was a confluence of events and it has happened in the past, just with different confluences of differnet events.

Before it was techs. Before that it was commercial RE and S&Ls. Before that it was any company (1929) and also credit. Before that it was railroads.

You think this has been the only boom/bust cycle where a series of unfortunate events, and greed, conspired to cause huge economic gains and then losses?

I suppose not. What makes me angry is that people aren't looking at this as a "confluence of events" against us, but rather seizing the opportunity to make political points.

 

[LegendKiller]

Originally posted by: Atreus21
The reason the CRA explanation is attractive to me is not, as many think, simply because I can neatly lay it at the democrats' feet. It's because it represents a change in the lending environment, and it seems to me common sense that only such a change could bring a big, big problem, such as the subprime crash or the Great Depression (although the cause of the Depression is still hotly debated.)

CRA was a change in the lending environment *PRE* credit bubble. All statistical pool data shows CRA mortgages have outperformed even prime mortgages. Additionally, all of the most troubled other mortgages (alt-A, option-arms, arms, no/low-doc) were not CRA loans and were made by non-CRA entities (mortgage brokers were not CRA entities).

Blaming CRA is ignoring the basic *fact* that pretty much 99.9% of the mortgages busting were NOT CRA mortgages.

What changed in 2003? Nobody gave a shit about underwriting or over-leveraging. Everybody just wanted more "product" (homes, loans...etc).

 

[GeezerMan]

Link

The Federal Reserve Report on The Performance and Profitability of CRA-Related Lending of 2000 said that the delinquency rates for CRA loans in the home purchase and refinance market are twice that for non-CRA loans.

Now this was in 2000. Has something changed since then? Could it be that CRA loans default at a lower rate compared to other loans when looked at in a more current period?
I'm not saying that CRA loans were a huge % of the entire mortgage mess.