Why the Meltdown Should Have Surprised No One

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LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
titan131 said:
hi, this is a video by peter schiff and in it he explains why the economic meltdown should have surprised no one. Its from the perspective of an Austrian economist and I found it very informative.

Video: http://www.youtube.com/watch?v=EgMclXX5msc

Check out 'peter schiff was right' if you haven't already seen it.

http://www.youtube.com/watch?v=2I0QN-FYkpw
Click to expand...

So Peter Schiff was right as the Case Shiller Index was already showing massive weakness in 2006 and 2007, defaults had already begun to rise and credit was getting weaker. Wow, great job.

I was right back in 2004.
 
wuliheron

wuliheron

Diamond Member
Feb 8, 2011
3,536
0
0
That's not exactly news. There were plenty of people who saw it coming, said something, and were ignored. Denial is not a river in Egypt and profits are both the strength and weakness of capitalism.
 
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PokerGuy

Lifer
Jul 2, 2005
13,650
201
101
Funny how all these people (including LK) were right and saw all this coming, but none of them were able to capitalize on their brilliance and make billions.....
 
IronWing

IronWing

No Lifer
Jul 20, 2001
72,555
33,245
136
Personal clues that a problem was coming well before 2006:

In 2000 we bought our first house. The mortgage company asked us if we were willing to document our income. It never occurred to us until then that anyone would be dumb enough to make a mortgage sized loan with no evidence to suggest the borrower could pay it back.

In 2003 we refinanced. To get meet the requirements of the refi, we had to have 20% equity. Since we started with a 5% down loan even with the rise in the market value of the house, we still didn't meet the requirement. No problem. Same appraiser (worked for lender), same week, the house magically increased in value sufficiently to meet the loan requirements.

Anyone who understood what option ARM loans were could see the writing on the wall. Personally, I jumped too soon and pulled most of my money out of stocks and bonds in late 2006. I was surprised when the market held out for another two years.
 
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LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
PokerGuy said:
Funny how all these people (including LK) were right and saw all this coming, but none of them were able to capitalize on their brilliance and make billions.....
Click to expand...

For me it was a lack of capital, I was just coming out of b-school and had no money. Furthermore, I wasn't into the market, especially the derivatives market, yet.

The only guys who could take advantage of the market to make "billions" were banks (Goldman) or hedge funds. The hedge fund guys were a handful and they all had access to millions in capital that was generated years before.

I did take advantage of the downturn by investing in several different asset classes, including a huge play on the rental car companies.
 
her209

her209

No Lifer
Oct 11, 2000
56,336
11
0
Interest-only loans for everyone yay! You can't lose because you'll sell your house for a nice profit before your balloon payment is due because the housing prices will never go down. Oh and that nice profit you made, TAX FREE baby!

Wooooo hooooooo!
 
C

Craig234

Lifer
May 1, 2006
38,548
350
126
LegendKiller said:
Just to back up my claims...


http://www.gotapex.com/finance-inve...3917-we-could-be-in-a-real-estate-bubble.html

I know there was some later in 2004.
Click to expand...

This is not a criticism of you, but what you saw as described there was only a small bit of the problem.

Nothing about the massive problems only a few knew about with the derivatives and other problems - just the publically available info on the rise of ARMs and other such things.

A few who actually did run across these issues in the industry did make big money from it, such as this guy:

http://www.amazon.com/Greatest-Trade.../dp/0385529910

But it's interesting to note, as much as he saw it coming, his first attempt to profit from the info cost him big.
 
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LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Craig234 said:
This is not a criticism of you, but what you saw as described there was only a small bit of the problem.

Nothing about the massive problems only a few knew about with the derivatives and other problems - just the publically available info on the rise of ARMs and other such things.

A few who actually did run across these issues in the industry did make big money from it, such as this guy:

http://www.amazon.com/Greatest-Trade.../dp/0385529910

But it's interesting to note, as much as he saw it coming, his first attempt to profit from the info cost him big.
Click to expand...

There were other posts on GA where I explained the issue in more detail, but, as I said above, at the time I wasn't involved in the CDO or synthetic CDO area, so knowing how Paulson and the rest of the guys profited from synthetic CDOs/CDS, was beyond me.
 
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PokerGuy

Lifer
Jul 2, 2005
13,650
201
101
LegendKiller said:
For me it was a lack of capital, I was just coming out of b-school and had no money. Furthermore, I wasn't into the market, especially the derivatives market, yet.
Click to expand...

I understand that, just saying all those who were so certain of the impending implosion should have been able to profit handsomely. Perhaps not to the tune of billions like the real crooks, but certainly a lot of money. Yet most did not. Everyone "saw it coming", but not many were certain enough of the when and how to really put their money in it and make a boatload.
 
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LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
PokerGuy said:
I understand that, just saying all those who were so certain of the impending implosion should have been able to profit handsomely. Perhaps not to the tune of billions like the real crooks, but certainly a lot of money. Yet most did not. Everyone "saw it coming", but not many were certain enough of the when and how to really put their money in it and make a boatload.
Click to expand...

If you read The Big Short, you can see pretty easily how the people who could see it coming and did have the capital could take advantage of it. Conversely, you could see how people who didn't have the capital had no easy way of shorting the housing market.

The only ones who did eventually make a lot of money betting against housing did so using CDS on CDOs or RMBS. These CDS are extremely difficult to buy, you have to know somebody who is selling and that means you need access to investment banking traders who will sell. TBS details how a couple people did this, it wasn't easy and even when they did get access, it was cut off before they could really get the profit going. Furthermore, it's expensive to maintain the contracts, even relatively speaking to the profit they generated.

You can't buy CDS on the street corner, nor buy them in a normal brokerage account. One of TBS' anecdotes only got access through a huge amount of luck.
 
I

Infohawk

Lifer
Jan 12, 2002
17,844
1
0
PokerGuy said:
Funny how all these people (including LK) were right and saw all this coming, but none of them were able to capitalize on their brilliance and make billions.....
Click to expand...

Yup end of story.

And it's easy to be right once in a while if all you ever do is say the stock market is going to go down.
 
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IKnoWhatsBest4U

Banned
Feb 17, 2011
14
0
0
Damn, if only LegendKiller or Peter Schiff were in charge of the Federal Reserve!

LegendKiller for Fed Chairman! Here here!
 
Last edited by a moderator:
IronWing

IronWing

No Lifer
Jul 20, 2001
72,555
33,245
136
PokerGuy said:
Everyone "saw it coming", but not many were certain enough of the when and how to really put their money in it and make a boatload.
Click to expand...
Like I said, I was about two years early and I certainly had no knowledge of how to profit from the pending bust, only a way to protect my meager capital. But to say we didn't see it coming is not accurate. The housing market screamed "bubble". The median house price to median income ratio was out of whack everywhere, even with the very low interest rates available. I can't claim to have understood (or clearly understand now) the innards of the securitization process for mortgages but I did know that banks were offloading mortgages as fast as they could write them and that the folks buying the securities didn't have a clue what they were buying. This was also already public info well covered by Market Place radio prior to the bust. Market Place also covered the slicing and dicing of these securities to some extent prior to the bust.
 
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PokerGuy

Lifer
Jul 2, 2005
13,650
201
101
IronWing said:
Like I said, I was about two years early and I certainly had no knowledge of how to profit from the pending bust, only a way to protect my meager capital. But to say we didn't see it coming is not accurate. The housing market screamed "bubble". The median house price to median income ratio was out of whack everywhere, even with the very low interest rates available. I can't claim to have understood (or clearly understand now) the innards of the securitization process for mortgages but I did know that banks were offloading mortgages as fast as they could write them and that the folks buying the securities didn't have a clue what they were buying. This was also already public info well covered by Market Place radio prior to the bust. Market Place also covered the slicing and dicing of these securities to some extent prior to the bust.
Click to expand...

I agree 100%, just about all of us saw something bad coming, including some sort of housing bust. The problem is that very very few of us knew specifically what was gonna go bust and how and when. Even if you simply shorted an ETF of the S&P 500 you could have made 50% profit in a very short span.

I'm not saying nobody saw anything coming and so it was a complete surprise to all, just that everyone saw some things coming down the pike but nobody knew the details and how to stop it or profit from it.
 
alkemyst

alkemyst

No Lifer
Feb 13, 2001
83,769
19
81
PokerGuy said:
Funny how all these people (including LK) were right and saw all this coming, but none of them were able to capitalize on their brilliance and make billions.....
Click to expand...

QFT...and they all have WAY too much time here during their working/profit hours.
 
I

iGas

Diamond Member
Feb 7, 2009
6,240
1
0
Awesome vids.

Which would be a better book to start?

How an Economy Grows and Why It Crashes

or

Crash Proof 2.0: How to Profit From the Economic Collapse
 
D

Darwin333

Lifer
Dec 11, 2006
19,946
2,329
126
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