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The $200 billion bail-out for predator banks and Spitzer charges are intimately linked

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NoStateofMind

Diamond Member
Oct 14, 2005
9,716
6
76
Originally posted by: Vic
Here?s what happened. Since the Bush regime came to power, a new species of loan became the norm, the ?sub-prime? mortgage and its variants including loans with teeny ?introductory? interest rates. From out of nowhere, a company called ?Countrywide? became America?s top mortgage lender, accounting for one in five home loans, a large chunk of these ?sub-prime.?
Sorry, but this line is utter and complete BS, and I've been in the mortgage industry since 1994. People were selling teaser ARMs back then too, except they used to be just straight 6 month LIBOR ARMs with no 2 or 3 year fixed rate period. God forbid we talk about the time before HOEPA. Oh and Cwide was selling them then too. They've been one of the nation's biggest lenders for as long as I can remember.
Subprime itself has been around for decades in some form or another. IMO you can trace its roots back to the old Midwest farmers' finance companies. The lenders of last resort. High rates and high fees but hey you got the loan after everyone else turned you down. If subprime says no then you sell your soul to the hard money lenders or go BK.
These loans were never intended for prime borrowers but it was never intended for RE speculation to get this out of control either.

And seriously, I was VERY much against this $200 billion pay-out, am VERY much against any further Fed rate cuts at this time, and know (and care) little about Spitzer's downfall, but that's just the tip of the iceberg as to the industry/technical/historical details that this article got wrong.
IF there was wrongdoing here (and I wouldn't be surprised if there was), IMO it would be nice if we could hear about it from a source that actually knew what it's talking about.

edit: BTW, the thing about usurious kickbacks is BS as well. First, kickbacks are illegal under RESPA anyway. What they are talking about are YSP and SRP, which are totally different. Second, Fannie, Freddie, and FHA have ALWAYS paid more YSP and SRP than anyone else. Especially FHA, who might cap the upfront fees but sky's-the-limit on the back. Having to take your borrower subprime has always meant getting less YSP and having to sell a tougher loan to your borrower.
What this article is confused about there is that subprime lenders have always had less stringent requirements for its brokers, particularly the all-important net worth criteria. What this means is that a lot of the buyers were being sold subprime loans, not so their broker could make extra money, but because he didn't have access to prime products to sell them (and probably never told his buyers that, I am sure).
I agree that the article is biased with a good bit of rhetoric. But even if there is bias, what parts hold truth?

I don't think the article was pointing out that subprime mortgages were new, just the practices had changed. As seen here:

?Steering,? sub-prime loans with usurious kickers, fake inducements to over-borrow, called ?fraudulent conveyance? or ?predatory lending? under US law, were almost completely forbidden in the olden days (Clinton Administration and earlier) by federal regulators and state laws as nothing more than fancy loan-sharking.
The authors point is that the "loan sharks" were loosed on the public to offer loans willy nilly and the bailout IMO is proof that government is in bed with corporations. I would have rather seen them fall and we deal with a recession thats here and maybe a little worse, but to float these ignorant companies with FEDeral monies (taxpayer) while the home owners are shafted lets these billionaire cowards go free and allows them the leeway to screw up again and again without thought of loss.

The more I read about this economic situation, the more I see 1929 all over again but worse. The more I see Government protecting Corporate giants over citizens rights, the more I see consolidation of power and the removal of a Constitutional Republic. Failed Democracies in early 1900's were plagued with financial burdens and corrupt politicians which resulted in two of histories most memorable figures, Benito Mussolini and Adolf Hitler. If we don't pay attention to history, we are doomed to repeat it.
 

Vic

Elite Member
Jun 12, 2001
47,850
8,165
126
I still can't believe Dari has never seen "Airplane!"

"Jive ass dude ain't got no brains anyhow." Text
 

Dari

Lifer
Oct 25, 2002
17,136
37
91
Originally posted by: Vic
I still can't believe Dari has never seen "Airplane!"

"Jive ass dude ain't got no brains anyhow." Text
Airplane? Never saw it. Old school comedy doesn't do it for me:)
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: PC Surgeon
the authors point is that the "loan sharks" were loosed on the public to offer loans willy nilly and the bailout IMO is proof that government is in bed with corporations. I would have rather seen them fall and we deal with a recession thats here and maybe a little worse, but to float these ignorant companies with FEDeral monies (taxpayer) while the home owners are shafted. Letting these billionaire cowards go free allows them the leeway to screw up again and again without thought of loss.

The more I read about this economic situation, the more I see 1929 all over again but worse. The more I see Government protecting Corporate giants over citizens rights, the more I see consolidation of power and the removal of a Constitutional Republic. Failed Democracies in early 1900's were plagued with financial burdens and corrupt politicians which resulted in two of histories most memorable figures, Benito Mussolini and Adolf Hitler. If we don't pay attention to history, we are doomed to repeat it.
Without the government trying to bring this market to an orderly downturn there'd be chaos and it'd hurt a lot more.

1929 was a different problem. Ironically, it was mostly precipitated by the US propping up the *GOLD* Pound after it was re-floated as a gold backed currency. The loose credit was put in place to make sure the dollar-pound rated stayed high, which resulted in easy credit here (but continued recession and early depression there). Then, instead of keeping loose credit, the Fed panicked and raised rates to protect the currency, cutting off cashflows and letting the whole credit market tumble in a disorderly fashion. Since there weren't even hard assets (houses) backing the loans (unlike now) 100% losses were possible, and frequent, which is completely different.

Mussolini was in power far before the Depression. Again, this government's currency was a refloated gold based that eventually failed (as did every other gold based currency during that time).



Hitler's raise was already set in place long before the depression happened.If you don't pay attention to history you're going to keep misquoting, stating, and revising it.

 

Dari

Lifer
Oct 25, 2002
17,136
37
91
Originally posted by: LegendKiller
Originally posted by: Dari
Originally posted by: LegendKiller
Originally posted by: Dari
Originally posted by: LegendKiller
Originally posted by: nergee
Originally posted by: jpeyton
Aren't there more rate cuts scheduled for next week?

Bush is determined to bail-out as many of his corporate/wall-street cronies as possible before his departure.


those bastards would get bailed out no matter who was in office........
with the Fed spigot wide open, how does it feel to be part owner in all this crap?
Alternatives?
Let them fail like they should. At the very least, if these banks like to act in such rash manners, the government should nationalize them or re-instate the Glass-Steagall Act. But no, people have it in their mind that these banks are too big to fail. The truth is there is something call FDIC and >95% of depositors would get their money back from whatever bank that goes under. If FDIC is broke, then Bernanke can lend money to the FDIC instead of the clowns on Wall Street. The only suckers would be those that bought into these schemes (and those people are rich).
Reinstating Glass-Steagall wouldn't have prevented the solution.

Look, you see the confusion and problems in the market right now, right? You see that muni's are almost dead, auction rate market is gone, several banks are tight on credit, and massive panic has come in waves in several sections of the debt markets. That's *with* the fed helping a lot.

Proposing to let the system collapse is sheer stupidity and comes from idiots who say things like "turn them into glass". Letting the system dismantle itself in orderly bits is the smart thing to do. It keeps certain sections open for business and allows the gradual fall for others, rather than utter chaos.

I know you libertopian types would love to see "rich bankers" go down, but this goes far beyond "rich bankers".
I see what you're seeing. What irks me is that countless others saw this coming but there were only warnings. Why, you ask? Because, at the time, these new financial instruments were seeing as an efficient way for the market to spread risk. Everyone bought into the lie. Well, one of the downsides of spreading the risk is that the people that actually own your mortgage 1) only own a piece and are less inclined to help you out to fix it and 2) are on the other side of the globe so they could care less about your problems and 3) can easily sell your mortgage without thinking about the individual behind it.

Again, when times are good, people only give low-level warnings. But when everything comes crashing down like a house of cards, thats when the Fed goes and helps the banks, bailing them out like they're innocent bystanders.

BTW, one of the hidden secrets of this whole mess is how banks lend money to these boutiques (such as hedge funds) and turn around and sell them these risky instruments. Does that make any sense to anyone? To say that these banks didn't have it coming is stupid and they should pay.
There's nothing wrong with securitization. It's worked for 30+ years and has been still working fine outside of mortgages. It's nothing more than doing exactly what equities did to corporations. Don't blame the problem on the vehicle, blame it on the driver.

People have a lot of incentive to work out the debt, servicers have a legal duty to do so. Don't imagine for a second people aren't all over servicers. I work in the industry and watch servicers like a hawk.

Lending companies money and selling them products isn't the problem.
OK. Tell us, honestly, what your thoughts were when banks were hawking these securities? Did you think it was a good idea? I remember I was taking this statistics class called Survival Analysis and the professor was railing at how these products were being put together. Mathematicians and economists thought it worked well in theory, but this was the first time it had been put into practice with mortgages. Do you think it failed its first big test?
 

Vic

Elite Member
Jun 12, 2001
47,850
8,165
126
Originally posted by: Dari
Originally posted by: Vic
I still can't believe Dari has never seen "Airplane!"

"Jive ass dude ain't got no brains anyhow." Text
Airplane? Never saw it. Old school comedy doesn't do it for me:)
You don't know what you're missing then.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: Dari
OK. Tell us, honestly, what your thoughts were when banks were hawking these securities? Did you think it was a good idea? I remember I was taking this statistics class called Survival Analysis and the professor was railing at how these products were being put together. Mathematicians and economists thought it worked well in theory, but this was the first time it had been put into practice with mortgages. Do you think it failed its first big test?

The major problem didn't occur until historical information wasn't used.


1. As people moved down-credit, they began selling mortgage products not offered to lower-income down-credit people before. All of the "infamous" products you hear about now had perfectly legitimate uses. No/Low doc loans were for self-employed people who don't have W-2s, but have good credit and income. Option Arms are for people who have low monthly income, but high bonus income. ARMs were for people who were match-funding their houses, they were short-term owners and short-term fixed rate borrowers.

All of these uses had long-term historical information that worked well. However, as the products concentrated in FL, NV, and CA, and went down-credit, then the validity of historical information went out the door.

2. As these mortgages were packaged into securitizations, the mezzanine and equity tranches were stuck. What to do? Great, let's pool them and slap them into securitizations (CDOs). For the previous 30 years, almost all of these positions had to be "held" and they are still held by the vast majority of issuers in other asset classes (credit cards, the remainder of consumer credit, corporate credit...etc).

However, mortgages just had so much of this shit, they needed to put it somewhere, so why not double down on portfolio theory. Use the same shit estimates on losses, but then concentrate those losses.

Little did the idiots think that once you reach 100% correlation, you're screwed, especially if your asset values are eroding.

Loss multiples of 5x matter little when the 5x is easy to get to.



This is akin to "high end" auto loans. The structures depend on low enhancement. That means that if I take losses, there isn't much protecting me. If historical defaults are .32%, I say that acceptable protection is 5x that, or 1.6%. However, it's pretty fricking easy to get to 1.6% losses if things change even slightly.

People in CDO's slapped on 5x losses on things that could have skyrocketing losses, very easily. They used shit data *and* shit estimates on where losses would go.


As far as whether this invalidates the model, absolutely not. Securitization, outside of the mortgage crisis, has issued tens of trillions in securities and not the vast majority perform exactly as expected through several recessions. It's up to credit people and sales people to judge where things are going and react accordingly. As my boss says, "We're all credit people" even though I work in origination.
 

Dari

Lifer
Oct 25, 2002
17,136
37
91
Originally posted by: LegendKiller
Originally posted by: Dari
OK. Tell us, honestly, what your thoughts were when banks were hawking these securities? Did you think it was a good idea? I remember I was taking this statistics class called Survival Analysis and the professor was railing at how these products were being put together. Mathematicians and economists thought it worked well in theory, but this was the first time it had been put into practice with mortgages. Do you think it failed its first big test?

The major problem didn't occur until historical information wasn't used.


1. As people moved down-credit, they began selling mortgage products not offered to lower-income down-credit people before. All of the "infamous" products you hear about now had perfectly legitimate uses. No/Low doc loans were for self-employed people who don't have W-2s, but have good credit and income. Option Arms are for people who have low monthly income, but high bonus income. ARMs were for people who were match-funding their houses, they were short-term owners and short-term fixed rate borrowers.

All of these uses had long-term historical information that worked well. However, as the products concentrated in FL, NV, and CA, and went down-credit, then the validity of historical information went out the door.

2. As these mortgages were packaged into securitizations, the mezzanine and equity tranches were stuck. What to do? Great, let's pool them and slap them into securitizations (CDOs). For the previous 30 years, almost all of these positions had to be "held" and they are still held by the vast majority of issuers in other asset classes (credit cards, the remainder of consumer credit, corporate credit...etc).

However, mortgages just had so much of this shit, they needed to put it somewhere, so why not double down on portfolio theory. Use the same shit estimates on losses, but then concentrate those losses.

Little did the idiots think that once you reach 100% correlation, you're screwed, especially if your asset values are eroding.

Loss multiples of 5x matter little when the 5x is easy to get to.



This is akin to "high end" auto loans. The structures depend on low enhancement. That means that if I take losses, there isn't much protecting me. If historical defaults are .32%, I say that acceptable protection is 5x that, or 1.6%. However, it's pretty fricking easy to get to 1.6% losses if things change even slightly.

People in CDO's slapped on 5x losses on things that could have skyrocketing losses, very easily. They used shit data *and* shit estimates on where losses would go.


As far as whether this invalidates the model, absolutely not. Securitization, outside of the mortgage crisis, has issued tens of trillions in securities and not the vast majority perform exactly as expected through several recessions. It's up to credit people and sales people to judge where things are going and react accordingly. As my boss says, "We're all credit people" even though I work in origination.
Did you always have this view or is this an analysis of the mortgage mess?
 

Vic

Elite Member
Jun 12, 2001
47,850
8,165
126
Originally posted by: LegendKiller
1. As people moved down-credit, they began selling mortgage products not offered to lower-income down-credit people before. All of the "infamous" products you hear about now had perfectly legitimate uses. No/Low doc loans were for self-employed people who don't have W-2s, but have good credit and income. Option Arms are for people who have low monthly income, but high bonus income. ARMs were for people who were match-funding their houses, they were short-term owners and short-term fixed rate borrowers.

All of these uses had long-term historical information that worked well. However, as the products concentrated in FL, NV, and CA, and went down-credit, then the validity of historical information went out the door.
Finally! someone else sees this. Thank you.

"Predatory lending" is not a product. It's selling someone the wrong product. All of these loans had legitimate purposes for the right buyer, most of them had been around of decades, it's just that they were never intended to be used the ways that they were.

 

Dari

Lifer
Oct 25, 2002
17,136
37
91
Originally posted by: Vic
Originally posted by: LegendKiller
1. As people moved down-credit, they began selling mortgage products not offered to lower-income down-credit people before. All of the "infamous" products you hear about now had perfectly legitimate uses. No/Low doc loans were for self-employed people who don't have W-2s, but have good credit and income. Option Arms are for people who have low monthly income, but high bonus income. ARMs were for people who were match-funding their houses, they were short-term owners and short-term fixed rate borrowers.

All of these uses had long-term historical information that worked well. However, as the products concentrated in FL, NV, and CA, and went down-credit, then the validity of historical information went out the door.
Finally! someone else sees this. Thank you.

"Predatory lending" is not a product. It's selling someone the wrong product. All of these loans had legitimate purposes for the right buyer, most of them had been around of decades, it's just that they were never intended to be used the ways that they were.
Who, in theory, would want a mortgage that increased after a couple of years? Perhaps there is a market for something like that but I think only the gullible would take it.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: Dari


Did you always have this view or is this an analysis of the mortgage mess?
Almost exactly 12 months ago somebody came to my bank asking us to fund CDOs, I had just started working here. I told my boss "run away, run far away".

Before that, I worked at a large credit card company doing securitization. I told the bank that they needed to get 5-10bn in long-term conduit capacity to protect against a liquidity crunch. They got about half that amount and said I was too pessimistic. I hated the job and left.

Before that, I was the Sr. analyst and one of 3 people managing the securitization process for a 2.5bn portfolio of consumer loans. I created all of the loss curves, prepayment curves, historical delinquency information, and the majority of portfolio metrics.

When I was doing that job, in 2003, I spoke of this mortgage fiasco and how it was going to cause problems for securitization. The only person who listened was my boss. Everybody else thought I was a gloom and doomer, now they call me up bemoaning this problem.

If you want to solve the problems with securitization, your first step is to stop this stupidity about "off balance sheet treatment" but still let banks get good capital treatment from offloaded risk as they do with OBS treatment. Keep the benefits, since they are correct and good, but get rid of this stupidity about hiding exposures.

FAS140 is ridiculous and *Must* be revamped soon. It was a response to Enron and is an abomination.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: Dari
Originally posted by: Vic
Originally posted by: LegendKiller
1. As people moved down-credit, they began selling mortgage products not offered to lower-income down-credit people before. All of the "infamous" products you hear about now had perfectly legitimate uses. No/Low doc loans were for self-employed people who don't have W-2s, but have good credit and income. Option Arms are for people who have low monthly income, but high bonus income. ARMs were for people who were match-funding their houses, they were short-term owners and short-term fixed rate borrowers.

All of these uses had long-term historical information that worked well. However, as the products concentrated in FL, NV, and CA, and went down-credit, then the validity of historical information went out the door.
Finally! someone else sees this. Thank you.

"Predatory lending" is not a product. It's selling someone the wrong product. All of these loans had legitimate purposes for the right buyer, most of them had been around of decades, it's just that they were never intended to be used the ways that they were.
Who, in theory, would want a mortgage that increased after a couple of years? Perhaps there is a market for something like that but I think only the gullible would take it.
Why would I want to pay a higher fixed rate for 5 years, when I can get a lower fixed rate for 5 years, when I plan on selling my house in 5 years?

Match funding your assets with your liabilities is always smart.

Gambling that you're going to outsmart the market with regards to interest rates is exactly that, gambling. Gambling that you're going to outsmart the market with regards to interest rate *and* the value of your house is stupidity.
 

NoStateofMind

Diamond Member
Oct 14, 2005
9,716
6
76
Originally posted by: LegendKiller
Originally posted by: PC Surgeon
the authors point is that the "loan sharks" were loosed on the public to offer loans willy nilly and the bailout IMO is proof that government is in bed with corporations. I would have rather seen them fall and we deal with a recession thats here and maybe a little worse, but to float these ignorant companies with FEDeral monies (taxpayer) while the home owners are shafted. Letting these billionaire cowards go free allows them the leeway to screw up again and again without thought of loss.

The more I read about this economic situation, the more I see 1929 all over again but worse. The more I see Government protecting Corporate giants over citizens rights, the more I see consolidation of power and the removal of a Constitutional Republic. Failed Democracies in early 1900's were plagued with financial burdens and corrupt politicians which resulted in two of histories most memorable figures, Benito Mussolini and Adolf Hitler.If we don't pay attention to history, we are doomed to repeat it.
Without the government trying to bring this market to an orderly downturn there'd be chaos and it'd hurt a lot more.
It's looking like a prayer ATM. What other avenue are they going to use? Decreasing interest rates don't have a marked improvement anymore. There is only two ways about it, let things fall and the sooner we get back up or continue to inflate the currency in hopes of some miraculous rebound. Good luck with that.

1929 was a different problem. Ironically, it was mostly precipitated by the US propping up the *GOLD* Pound after it was re-floated as a gold backed currency. The loose credit was put in place to make sure the dollar-pound rated stayed high, which resulted in easy credit here (but continued recession and early depression there). Then, instead of keeping loose credit, the Fed panicked and raised rates to protect the currency, cutting off cashflows and letting the whole credit market tumble in a disorderly fashion. Since there weren't even hard assets (houses) backing the loans (unlike now) 100% losses were possible, and frequent, which is completely different.
Whether its deflation or inflation both have undesired effects. Both of which will cause massive poverty and loss of jobs. Instead of standing in soup lines with nothing in their pockets they will stand there with thousands of dollars not worth the soup they are given. Placing the blame on gold or fiat is misdirection, the blame is on the men who control those markets of currency.

Mussolini was in power far before the Depression. Again, this government's currency was a refloated gold based that eventually failed (as did every other gold based currency during that time).

Hitler's raise was already set in place long before the depression happened.If you don't pay attention to history you're going to keep misquoting, stating, and revising it.

Hitler's rise might have been on it's way, but it was sure fueled by way of poverty (Wiemar Republic). I guess I did overstate it a little with Mussolini, but his world standing did raise a bit after the depression, mostly do to war of course. Other than that It's pretty accurate with Hitler.

Forgive my butchering of your post.

 

Dari

Lifer
Oct 25, 2002
17,136
37
91
Originally posted by: LegendKiller
Originally posted by: Dari


Did you always have this view or is this an analysis of the mortgage mess?
Almost exactly 12 months ago somebody came to my bank asking us to fund CDOs, I had just started working here. I told my boss "run away, run far away".

Before that, I worked at a large credit card company doing securitization. I told the bank that they needed to get 5-10bn in long-term conduit capacity to protect against a liquidity crunch. They got about half that amount and said I was too pessimistic. I hated the job and left.

Before that, I was the Sr. analyst and one of 3 people managing the securitization process for a 2.5bn portfolio of consumer loans. I created all of the loss curves, prepayment curves, historical delinquency information, and the majority of portfolio metrics.

When I was doing that job, in 2003, I spoke of this mortgage fiasco and how it was going to cause problems for securitization. The only person who listened was my boss. Everybody else thought I was a gloom and doomer, now they call me up bemoaning this problem.

If you want to solve the problems with securitization, your first step is to stop this stupidity about "off balance sheet treatment" but still let banks get good capital treatment from offloaded risk as they do with OBS treatment. Keep the benefits, since they are correct and good, but get rid of this stupidity about hiding exposures.

FAS140 is ridiculous and *Must* be revamped soon. It was a response to Enron and is an abomination.
Seeing that the banks have been left holding all these securities and seeing that the Feds is bailing them out, don't you think there should be a new law that deals with some of the issues you raied? I ask because, clearly, the market can't correct itself without some governmental help.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: PC Surgeon
It's looking like a prayer ATM. What other avenue are they going to use? Decreasing interest rates don't have a marked improvement anymore. There is only two ways about it, let things fall and the sooner we get back up or continue to inflate the currency in hopes of some miraculous rebound. Good luck with that.

Whether its deflation or inflation both have undesired effects. Both of which will cause massive poverty and loss of jobs. Instead of standing in soup lines with nothing in their pockets they will stand there with thousands of dollars not worth the soup they are given. Placing the blame on gold or fiat is misdirection, the blame is on the men who control those markets of currency.

Hitler's rise might have been on it's way, but it was sure fueled by way of poverty (Wiemar Republic). I guess I did overstate it a little with Mussolini, but his world standing did raise a bit after the depression, mostly do to war of course. Other than that It's pretty accurate with Hitler.
As I have mentioned to people before, the financial markets are going through daily convulsions and are down significantly and that's *with* what BB has done, imagine if he'd just let them float in the wind, we'd have already had complete financial meltdown already and severe business disruption. What we have now is a much better solution for the immediate term. I wish none of it had happened, but few people listen to me. Heck, I have one co-worker who I told not to buy a house, he scoffed at me and is already down 9%, when he said it'd never decline in value.

Please stop with the hyperbole. The dollar isn't "worthless" nor is it on the way to being worthless. It's only declined in value because other governments are not cutting rates because they don't need to. The relative fluctuations are causing repricing of the dollar, if you'd read up on PPP and other FX movements, you might understand this better.

Hitler's raise was due to several things, the dejection in the German people had started a long time ago, with the annexation of the Saar, abrogation of rights, the numerous foreign reparations plans...etc.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: Dari
Seeing that the banks have been left holding all these securities and seeing that the Feds is bailing them out, don't you think there should be a new law that deals with some of the issues you raied? I ask because, clearly, the market can't correct itself without some governmental help.
The FASB has dicked around with FAS 140 for 4 or 5 years and has come up with nothing. It's about time they put the rubber to the road and gotten going on aligning themselves with international accounting standards.

An interesting theory regarding this latest problem is that it's not about cheap borrowing or liquidity crisis, it's about transparency and perception. If investors don't know what you're holding they're going to assume your holding a pile of dog crap and they won't lend, even if you're holding diamonds and gold bars.

I think that the Fed should demand that any bank that wants liquidity will get it as soon as they start opening up about holdings.
 

NoStateofMind

Diamond Member
Oct 14, 2005
9,716
6
76
Originally posted by: LegendKiller
Originally posted by: PC Surgeon
It's looking like a prayer ATM. What other avenue are they going to use? Decreasing interest rates don't have a marked improvement anymore. There is only two ways about it, let things fall and the sooner we get back up or continue to inflate the currency in hopes of some miraculous rebound. Good luck with that.

Whether its deflation or inflation both have undesired effects. Both of which will cause massive poverty and loss of jobs. Instead of standing in soup lines with nothing in their pockets they will stand there with thousands of dollars not worth the soup they are given. Placing the blame on gold or fiat is misdirection, the blame is on the men who control those markets of currency.

Hitler's rise might have been on it's way, but it was sure fueled by way of poverty (Wiemar Republic). I guess I did overstate it a little with Mussolini, but his world standing did raise a bit after the depression, mostly do to war of course. Other than that It's pretty accurate with Hitler.
As I have mentioned to people before, the financial markets are going through daily convulsions and are down significantly and that's *with* what BB has done, imagine if he'd just let them float in the wind, we'd have already had complete financial meltdown already and severe business disruption. What we have now is a much better solution for the immediate term. I wish none of it had happened, but few people listen to me. Heck, I have one co-worker who I told not to buy a house, he scoffed at me and is already down 9%, when he said it'd never decline in value.
A true free market wouldn't need government handouts but from what we have seen in this thread and other situations, thats exactly whats happening. Those banks/finance markets were no longer trying to do good business but any business at all because it knew big poppa government would step in and save their ass. What kind of practice is that? What kind of protection do these people with loans and upside down mortgages get? None. The government is there for the people, not corporations (supposed to be).

I see you are also now defending what you loath. You agreed with me in another thread that after the dot com bubble burst they should have let it bust and should have not propped it up, but now, you object to the very principle you then upheld.

I have no doubt in my mind that you know economics or how to invest wisely, this isn't an issue IMO.

Please stop with the hyperbole. The dollar isn't "worthless" nor is it on the way to being worthless. It's only declined in value because other governments are not cutting rates because they don't need to. The relative fluctuations are causing repricing of the dollar, if you'd read up on PPP and other FX movements, you might understand this better.
No, I think you misunderstood me. The dollar is not worthless. I was making the claim that whether in the great depression or the one to come the only difference then would be one with nothing in his pocket and the other carrying massive amounts of cash and still not be worth anything. So in a sense, both are the same.

I hope you're right and I'm just a loon :p

Hitler's raise was due to several things, the dejection in the German people had started a long time ago, with the annexation of the Saar, abrogation of rights, the numerous foreign reparations plans...etc.
Debt owed for WWI, the Reichstag fire etc..
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: PC SurgeonA true free market wouldn't need government handouts but from what we have seen in this thread and other situations, thats exactly whats happening. Those banks/finance markets were no longer trying to do good business but any business at all because it knew big poppa government would step in and save their ass. What kind of practice is that? What kind of protection do these people with loans and upside down mortgages get? None. The government is there for the people, not corporations (supposed to be).

I see you are also now defending what you loath. You agreed with me in another thread that after the dot com bubble burst they should have let it bust and should have not propped it up, but now, you object to the very principle you then upheld.

I have no doubt in my mind that you know economics or how to invest wisely, this isn't an issue IMO.
A "true" free market doesn't exist, it can't. It's idyllic and silly to even imagine a "true" free market existing inside the libertopian vacuum that you so love to cling to. Regulations are needed, no matter what.

As far as your assertion that people did what they did because they thought the government would bail them out. What'd the housing borrowers do?

I think you attribute way too much to this apocryphal knowledge. It's far more accurate to accept that people are inherently greedy and will do anything to get as much profit as quickly as possible. Thus, they forget about tomorrow and work for today, leading to these problems. I know you want to cling to the idea of some crutch thinking on their part, so that it can fit nicely into your idea that the government is propping up it's buddies. However, the far more elegant and true solution is that this situation was precipitated by the "free market" situation whereby limited oversight allowed people to fuck the system.

As far as your laughable comparison of this situation to the .bombs...

Do you not get the idea that this isn't about banks or bankers? I think people never really know a man until they walk a mile in his shoes. I think people like you never know the financial markets until they work in them. Otherwise you think it's all about rich bankers, blow, and hookers. What's even funnier is that you think that they're helping out bankers without helping out the consumers. If you had your eyes open, you'd realize that the reason why they are doing this is that nobody else will be able to help the consumer until bankers start putting liquidity into the market. Have you noticed the 30-year fixed rates? They have gone up recently because liquidity is dry, because bankers and investors won't lend until the markets are calm.

Putting liquidity out there will calm the markets and get people lending again, which will, in turn, reduce long-term rates, allowing distressed mortgage holders to refi out of disasterous positions.

Sorry buckshot, but when a bank closes down lending to everybody, it affects more than bankers. Get over your myopia and your libertopian "free market" vacuum ideals.

 

Vic

Elite Member
Jun 12, 2001
47,850
8,165
126
Originally posted by: Dari
Originally posted by: Vic
Originally posted by: LegendKiller
1. As people moved down-credit, they began selling mortgage products not offered to lower-income down-credit people before. All of the "infamous" products you hear about now had perfectly legitimate uses. No/Low doc loans were for self-employed people who don't have W-2s, but have good credit and income. Option Arms are for people who have low monthly income, but high bonus income. ARMs were for people who were match-funding their houses, they were short-term owners and short-term fixed rate borrowers.

All of these uses had long-term historical information that worked well. However, as the products concentrated in FL, NV, and CA, and went down-credit, then the validity of historical information went out the door.
Finally! someone else sees this. Thank you.

"Predatory lending" is not a product. It's selling someone the wrong product. All of these loans had legitimate purposes for the right buyer, most of them had been around of decades, it's just that they were never intended to be used the ways that they were.
Who, in theory, would want a mortgage that increased after a couple of years? Perhaps there is a market for something like that but I think only the gullible would take it.
You seem to have a habit of having something explained to you clearly, and then rejecting that reality on the basis of nothing but personal prejudice. It's annoying and makes you look stupid.
I'm totally a no-fee fixed rate and term kind of guy myself, but even I can understand why some people -- completely intelligent people who know exactly what they're getting into -- might want something a little "outside the box," either due to financial need, benefit, and/or desire to take a risk.
 

NoStateofMind

Diamond Member
Oct 14, 2005
9,716
6
76
Originally posted by: LegendKiller
Originally posted by: PC SurgeonA true free market wouldn't need government handouts but from what we have seen in this thread and other situations, thats exactly whats happening. Those banks/finance markets were no longer trying to do good business but any business at all because it knew big poppa government would step in and save their ass. What kind of practice is that? What kind of protection do these people with loans and upside down mortgages get? None. The government is there for the people, not corporations (supposed to be).

I see you are also now defending what you loath. You agreed with me in another thread that after the dot com bubble burst they should have let it bust and should have not propped it up, but now, you object to the very principle you then upheld.

I have no doubt in my mind that you know economics or how to invest wisely, this isn't an issue IMO.
A "true" free market doesn't exist, it can't. It's idyllic and silly to even imagine a "true" free market existing inside the libertopian vacuum that you so love to cling to. Regulations are needed, no matter what.

As far as your assertion that people did what they did because they thought the government would bail them out. What'd the housing borrowers do?

I think you attribute way too much to this apocryphal knowledge. It's far more accurate to accept that people are inherently greedy and will do anything to get as much profit as quickly as possible. Thus, they forget about tomorrow and work for today, leading to these problems. I know you want to cling to the idea of some crutch thinking on their part, so that it can fit nicely into your idea that the government is propping up it's buddies. However, the far more elegant and true solution is that this situation was precipitated by the "free market" situation whereby limited oversight allowed people to fuck the system.

As far as your laughable comparison of this situation to the .bombs...

Do you not get the idea that this isn't about banks or bankers? I think people never really know a man until they walk a mile in his shoes. I think people like you never know the financial markets until they work in them. Otherwise you think it's all about rich bankers, blow, and hookers. What's even funnier is that you think that they're helping out bankers without helping out the consumers. If you had your eyes open, you'd realize that the reason why they are doing this is that nobody else will be able to help the consumer until bankers start putting liquidity into the market. Have you noticed the 30-year fixed rates? They have gone up recently because liquidity is dry, because bankers and investors won't lend until the markets are calm.

Putting liquidity out there will calm the markets and get people lending again, which will, in turn, reduce long-term rates, allowing distressed mortgage holders to refi out of disasterous positions.

Sorry buckshot, but when a bank closes down lending to everybody, it affects more than bankers. Get over your myopia and your libertopian "free market" vacuum ideals.
Is the housing bubble like the dot com bubble? Yes. Is it identical? No. The principle remains, if you thought it was a bad idea then to prop up the market, then why is it now a good idea?

Why call it a free market then? Why not just governmentalize everything? Socialist society here we come. Ok, maybe you're saying it should be some sort of hybrid market. Well who chooses which and what is government backed and controlled? Where does it stop or end? Eventually we will end up being totally socialist.

I think government "propping up" of any kind is not good *unless* its in some form of loan. Why should we the taxpayer bare the burden? Why are those people with upside down homes going to be bankrupt and living on the streets with no government protection?

Thats part of the problem though I agree. If the banks stop lending then we do have a problem. Why is this? Because its a market devoted and built on CREDIT/DEBT! I am not saying get rid of loans altogether so don't go there with the Japan shite. Savings are always better and it seems the government wants a spend happy citizen rather than a frugal one.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: PC Surgeon
Is the housing bubble like the dot com bubble? Yes. Is it identical? No. The principle remains, if you thought it was a bad idea then to prop up the market, then why is it now a good idea?

Why call it a free market then? Why not just governmentalize everything? Socialist society here we come. Ok, maybe you're saying it should be some sort of hybrid market. Well who chooses which and what is government backed and controlled? Where does it stop or end? Eventually we will end up being totally socialist.

I think government "propping up" of any kind is not good *unless* its in some form of loan. Why should we the taxpayer bare the burden? Why are those people with upside down homes going to be bankrupt and living on the streets with no government protection?

Thats part of the problem though I agree. If the banks stop lending then we do have a problem. Why is this? Because its a market devoted and built on CREDIT/DEBT! I am not saying get rid of loans altogether so don't go there with the Japan shite. Savings are always better and it seems the government wants a spend happy citizen rather than a frugal one.
lol. So the housing bubble is like the .bomb because the housing is about credit and the .bombs were about equity. So they are the same? Who was propping up the .bombs? Why should they have been propped up? Nobody needed them to keep lending or creating liquidity. When did they underpin the entire market?

We won't end up like that. The market comes up with a medium whereby things stabilize. Some government intervention is good and needed.

Of course things are built on credit, as it should be. Credit should be used when it is cheap and efficient. Leverage is great, provided it's used responsibly.
 

NoStateofMind

Diamond Member
Oct 14, 2005
9,716
6
76
Originally posted by: LegendKiller
Originally posted by: PC Surgeon
Is the housing bubble like the dot com bubble? Yes. Is it identical? No. The principle remains, if you thought it was a bad idea then to prop up the market, then why is it now a good idea?

Why call it a free market then? Why not just governmentalize everything? Socialist society here we come. Ok, maybe you're saying it should be some sort of hybrid market. Well who chooses which and what is government backed and controlled? Where does it stop or end? Eventually we will end up being totally socialist.

I think government "propping up" of any kind is not good *unless* its in some form of loan. Why should we the taxpayer bare the burden? Why are those people with upside down homes going to be bankrupt and living on the streets with no government protection?

Thats part of the problem though I agree. If the banks stop lending then we do have a problem. Why is this? Because its a market devoted and built on CREDIT/DEBT! I am not saying get rid of loans altogether so don't go there with the Japan shite. Savings are always better and it seems the government wants a spend happy citizen rather than a frugal one.
lol. So the housing bubble is like the .bomb because the housing is about credit and the .bombs were about equity. So they are the same? Who was propping up the .bombs? Why should they have been propped up?
The market was propped up by the FED increasing the money supply when they should have let the bubble burst without an increase. Just as is now, they should have let the recession hit but instead infuse more money to delay the inevitable.

Nobody needed them to keep lending or creating liquidity. When did they underpin the entire market?
Nobody needed them to, but that didn't stop them did it? The elasticity perk of fiat was thrown out the window.

We won't end up like that. The market comes up with a medium whereby things stabilize. Some government intervention is good and needed.
Increasing the money supply is not the "fix all" to everything. Sadly this has become modern economics.

Of course things are built on credit, as it should be. Credit should be used when it is cheap and efficient. Leverage is great, provided it's used responsibly.
I won't argue there should be "no credit" but that credit should be based upon solid performance of the individuals income, savings and down payment. This housing bubble was created and burst because of aggressive loan companies and low requirements for them. Those at the bottom of the lending tree made as many loans as possible to procure a better paycheck, you know, being an American capitalist.

The fact of the matter is, loans are a business. You make bad loans, they are defaulted on. The bank charges an interest for their risk. But guess what? There is no risk. The government has made sure of that. Maybe they should start giving no interest loans then?

 

tvarad

Golden Member
Jun 25, 2001
1,130
0
0
LegendKiller,

Your views are insightful. However, what I fail to understand is why CDO's weren't seen by regulators for what they were and not allowed to be built up to such an extent as to threaten the entire financial system. I mean, surely there is a certain amount of expertise in the regulatory system that is far above that of the common man that should have seen it coming and headed it off at the pass? Who allowed such loans to be disbursed to unqualified people in the first place? Am I missing something here?
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: tvarad
LegendKiller,

Your views are insightful. However, what I fail to understand is why CDO's weren't seen by regulators for what they were and not allowed to be built up to such an extent as to threaten the entire financial system. I mean, surely there is a certain amount of expertise in the regulatory system that is far above that of the common man that should have seen it coming and headed it off at the pass? Who allowed such loans to be disbursed to unqualified people in the first place? Am I missing something here?
They weren't seen because many were hidden. You see, the banks needed some place to put them, so they sold them to other banks or just kept them in some cases. Other investors bought them, but didn't have to report them. If they did buy *and* report, they labeled them as AAA investments, but didn't have to disclose their true nature.

How were they hidden? FAS 140 allows for off-balance sheet treatment, provided you qualify several items. If you check off the requirements, you can create a dummy company that can hold stuff. People put CDOs into the dummy corporations and funded them with short-term money (money market funds, Asset Backed Commercial Paper are the same thing). These vehicles "SIVs" (Structured Investment Vehicles) held the shit, which were long-term assets, and funded them with short-term liabilities. As long as people would buy the short-term liabilities (which last 1-360 days, but mostly 30-120), they were fine, and they made money off of the interest spread between long and short term funding.

However, the market blew up. ABCP spreads widened or investors refused to buy ABCP backed by trash. The banks were forced to fund the SIVs themselves, which resulted in consolidation, the trash showed up on their balance sheets finally.

Now they have to "mark to market" the SIV assets, resulting in write-downs and losses.



Why did they allow this? Because PC Surgeon's beloved "free market". You see, FASB is not a government entity per se. It's just a professional body which sets accounting policies which are blessed by government regulators. Thus, the banks could still hide this shit because FASB hasn't revised accounting rules. On top of that, the mortgage industry isn't regulated enough on the back-end. Vic will tell you that on the front-end they are, but not beyond that.

New rules require people be qualified for the maximum payment possible under a loan, which is good, but it's shutting the barn doors after all of the cows have gotten out. FAS140, the FASB rule that governs off-balance sheet treatment has been under revision work for 4-5 years, but still hasn't been revised.

You see, FAS140 was a knee-jerk response to Enron, which now, I am sure, will be knee-jerk revised in response to this the other way.

Ahhh, gotta love the "free market" gyrations. Had the government stepped in we could have avoided half this crap, yet the "free market" was allowed to reign. Now, people like PC Surgeon bemoan the whole problem.

It's sort of ironic.
 

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