The nomination for Ben Bernanke's re-appointment to the is coming up.

[brencat]

The only theory that comes even close to explaining the boom is that low rates in Treasuries, as a by-product of low FF rates (although I don't buy into it since they are different products), resulted in yield-chasing to RMBS and other products. This is a silly argument as long-term rates aren't set by the Fed, FF rates have limited affect on LT rates when a bubble is in full blown frenzy mode.

As far as the GSEs, the guaranty was always implied but never explicit. The GSE's proportion of the mortgage market actually DECLINED during the bubble.

Everything you said about option-arms and liar loans is true, but it was all connected due to yield chasing resulting from low interest rates. The argument is circular -- there was huge incentive to keep pumping out mortgage product to securitize and sell to investors, who were chasing yield...again, all because interest rates were TOO LOW.

This caused all kinds of bubbles. Housing going up 15%/year for 5 years straight only incentivized the public to further reach for overvalued real-estate, which lenders were all too happy to provide b/c they could lay off the risk to securitizers who packaged the crap, sliced it and diced it into CDOs and sold it to yield-chasing institutional investors.

No one can convince me otherwise that the Fed and its low rates/easy money policies are most responsible for the housing and credit bubbles that took down our economy.

 

[LegendKiller]

Everything you said about option-arms and liar loans is true, but it was all connected due to yield chasing resulting from low interest rates. The argument is circular -- there was huge incentive to keep pumping out mortgage product to securitize and sell to investors, who were chasing yield...again, all because interest rates were TOO LOW.

This caused all kinds of bubbles. Housing going up 15%/year for 5 years straight only incentivized the public to further reach for overvalued real-estate, which lenders were all too happy to provide b/c they could lay off the risk to securitizers who packaged the crap, sliced it and diced it into CDOs and sold it to yield-chasing institutional investors.

No one can convince me otherwise that the Fed and its low rates/easy money policies are most responsible for the housing and credit bubbles that took down our economy.

However, the yield wasn't there because there was too much demand, that wasn't driven by the Fed, it was driven by demand exceeding supply.

As I said before, spread compression was *HUGE*. That CDO didn't go for much. Everybody ignored the risk of it so nobody priced in a large risk spread. A Mezz CDO might have gone for 100bps when it should have gone for 600-700+.

Was this because people were chasing yield because rates were low? No, because all they had to do was NOT buy because of the risk, then rates would have gone up anyway.

I absolutely love how people on the outside blame everything on the low rates on the Fed, when they really don't blame anything on simple human greed. NOBODY priced in risk, that's the simple fact of the matter. Risk was gone!

It's like the rating agency models that never built in assumptions for DECLINING house prices.

Was that yield also? NO, it was ignoring RISK.

I will contend to the day I die that this had nothing to do with rates. But you know what it had *EVERYTHING* to do with?


leverage.

If you're playing with other people's money and you can get away with paying nothing for interest, then who gives a shit about risk?

Keep in mind, this bubble didn't really take off until 2004 or so, exactly when the leverage ratios for investment banks were loosened.

 

[werepossum]

However, the yield wasn't there because there was too much demand, that wasn't driven by the Fed, it was driven by demand exceeding supply.

As I said before, spread compression was *HUGE*. That CDO didn't go for much. Everybody ignored the risk of it so nobody priced in a large risk spread. A Mezz CDO might have gone for 100bps when it should have gone for 600-700+.

Was this because people were chasing yield because rates were low? No, because all they had to do was NOT buy because of the risk, then rates would have gone up anyway.

I absolutely love how people on the outside blame everything on the low rates on the Fed, when they really don't blame anything on simple human greed. NOBODY priced in risk, that's the simple fact of the matter. Risk was gone!

It's like the rating agency models that never built in assumptions for DECLINING house prices.

Was that yield also? NO, it was ignoring RISK.

I will contend to the day I die that this had nothing to do with rates. But you know what it had *EVERYTHING* to do with?


leverage.

If you're playing with other people's money and you can get away with paying nothing for interest, then who gives a shit about risk?

Keep in mind, this bubble didn't really take off until 2004 or so, exactly when the leverage ratios for investment banks were loosened.

Once HUD set the GSEs insane requirements for disadvantaged and low income buyers, the die was cast for the collapse. There is never a shortage of greed or stupidity, and government excels at putting the two together. It doesn't matter what interest rates are charged if greedy people convince stupid people they can afford a house knowing that the federal government (via the GSE's) will buy out the greedy person's risk at a tidy profit before the stupid person defaults. That's why I'm okay with Bernanke returning to his post.

 

[LegendKiller]

Once HUD set the GSEs insane requirements for disadvantaged and low income buyers, the die was cast for the collapse. There is never a shortage of greed or stupidity, and government excels at putting the two together. It doesn't matter what interest rates are charged if greedy people convince stupid people they can afford a house knowing that the federal government (via the GSE's) will buy out the greedy person's risk at a tidy profit before the stupid person defaults. That's why I'm okay with Bernanke returning to his post.

Again, GSE proportion of mortgages DECLINED during the bubble. The biggest problematic mortgages weren't HUD. Option-Arms and liar loans weren't HUD loans.

 

[lothar]

It's official...
Ben Bernanke confirmed in the US Senate on a 70:30 vote.
Ben Bernanke rejected in the US Anandtech on a 38:8 vote.

He passed the Senate filibuster with flying colors, but failed the Anandtech filibuster miserably.