The Revival of Subprime: Will This End Badly?

[coyotes_geek]

The Revival of Subprime: Will This End Badly? (http://finance.yahoo.com/news/revival-subprime-end-badly-115946870.html;_ylt=AiAalrE2YcBnsX.E5LYx3DGiuYdG;_ ylu=X3oDMTQ4Yzl1YTIyBG1pdANDTkJDIFRvcCBTdG9yaWVzBH BrZwNiMDQ4M2Y4Ni02NGU4LTNjZjgtOGIyMy0zNmQ2ZmI4NDJm NzkEcG9zAzQEc2VjA01lZGlhQkxpc3RNaXhlZExQQ0FUZW1wBH ZlcgMyODBlNWMzMC03MWU3LTExZTItYWJmNC1jYTM3ZWYxODlj MzU-;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRw c3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3)

The sub-prime market - risky mortgage backed securities - is hot again and its revival is exceeding many people's expectations, the chief market strategist at Rosenblatt Securities says. He believes this will end badly.


The subprime mortgage crisis which led to the financial crash of 2008 involved institutions making loans to those that had difficulty maintaining their repayment schedule.


Wall Street brokerage firm Rosenblatt - which has been monitoring the situation since the last storm - says the credit-led bull market is well under way.


"The subprime market's revival is proving to be even stronger than we had anticipated," Brian Reynolds said in a research note. "This is just a credit cycle, and it will eventually end badly like the others."


Rosenblatt Securities has been worried before. It showed outrage when General Motors (GM) bought AmeriCredit car loans firm in 2010. The deal repeated the excesses of the last credit cycle, it said at the time, when GM had to hive off its financial subsidiaries which then needed taxpayers' money to survive.


(Read More: Bond Prices Rebound as Bargain Hunting Emerges)

And it has noticed another huge development this week. The Wall Street Journal reported that a joint venture between AIG (AIG) and Fortress will be issuing a securitization of personal loans.


"The average coupon on some of these loans is 25 percent, as some of them have no collateral. The A-rated tranche is expected to yield a whopping (for this environment) 2.5 percent, and we're pretty sure the enhanced cash and cash-plus pseudo-money market funds will gobble this up."


This search for yield has angered Reynolds, who thought he would never see subprime personal loans again. He said the situation was now reminiscent of the structured finance boom that began in 1994.


"We're tempted to go check the attic to see if we have some old Beanie Babies that we could securitize!," he said.


"It is likely to add to the intensity of this credit boom for a number of years, and help generate significantly higher stock prices, before the next bear market sets in."


(Read More: Bond Frenzy Stokes Bubble Fears in China's Real Estate)

In the short term Reynolds expects the yields on Spanish sovereigns to dictate the markets. Pension funds will continue to pile money into the credit markets, he adds, eventually lifting share prices to new highs after this current period of caution.


"The issuance of the junkiest sub-prime deal, in at least a dozen years, during the current equity jitters bolsters this case," he said.


"Given how underweighted many equity investors are, they need to think about using these jitters to add exposure or they will face yet another year of massive underperformance."


-By CNBC.com's Matt Clinch

[TeyshaBlue]

The crash of 08-09 created a huge pool of new sub-prime customers. Who's shocked that they are going to be targeted for more abuse?

Not me.

[coyotes_geek]

On a similar note...


Americans Are Tapping into Home Equity Again
(http://finance.yahoo.com/news/americans-tapping-home-equity-again-160850204.html)

"Nationally we've seen a 31 percent increase in HELOC's year-over-year," said a spokesperson from JPMorgan Chase (JPM).

[mercos]

There is already talk of another housing bubble forming. Until reform is brought upon the housing market, we will be stuck in a boom bust cycle in housing.

[boutons_deux]

"reform is brought upon the housing market"

Wont' happen, because the financial sector, with the Repug accomplices, will block ALL reforms. Even now, the tame, already toothless CFPB is being taken down by the Repugs.

[boutons_deux]

"The Banks Still Hold Guns to our Heads," Say Former TARP Director


Last night, Jon Stewart interviewed Neil Barofsky, the former overseer of the government's Troubled Asset Relief Program (TARP) and author of the new book Bailout.

According to Barofsky, TARP turned into a colossal betrayal of the American people, a disaster aided by the corrosive and defensive environment in Washington.

“Everybody was more concerned about looking out for themselves, the next newspaper report, rather than the giant financial meltdown that we had walked into,” Barofsky said. Barofsky was appointed by President Bush in 2009 as Special Inspector General to TARP, but resigned in 2011.

Part of the $700 billion was supposed to help homeowners, but only an infinitesimal portion ended up actually going to families struggling under the weight of toxic, ballooning mortgage payments. In particularly, the home mortgage modification program (HAMP) was completely corrupted to aid Wall Street while ignoring homeowners.

“There was almost no effort," said Barofsky. "The justifications for not doing the right thing, among them was, ‘Oh well, we can’t help an undeserving homeowner. It would be terrible if we did that,’” Barofsky said. “Meanwhile, the financial institutions that drove this country into the ditch … those guys, ‘let’s not only get them their money, but let’s make sure their still able to pay their million dollars in business.’”

Barofsky and Stewart also discussed how unless the “too big to fail” exemption for Wall Street, our broken financial system will continue to screw over everyday Americans.

“A lot of the biggest banks did and still do hold the guns to our heads,” said Barofsky.

http://www.alternet.org/news-amp-politics/banks-still-hold-guns-our-heads-say-former-tarp-director

[boutons_deux]

Matt Taibbi on Just How Screwed Americans Were By the Bailout


http://www.alternet.org/economy/matt-taibbi-just-how-screwed-americans-were-bailout?paging=off


Secrets and Lies of the Bailout

It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyperconcentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it.

http://www.rollingstone.com/politics/news/secret-and-lies-of-the-bailout-20130104#ixzz2HIrDzuGl (http://www.rollingstone.com/politics/news/secret-and-lies-of-the-bailout-20130104#ixzz2HIrDzuGl)



Secrets and Lies of the Bailout: One Broker's Story

http://www.rollingstone.com/politics/blogs/taibblog/secrets-and-lies-of-the-bailout-one-brokers-story-20130108

[Agloco]

Banks are now empowered due to how the first bubble was handled. It's a low risk high reward game for them and they're back to take full advantage once again. As TB stated, there's an even larger market for this now.




On a similar note...


Americans Are Tapping into Home Equity Again


"Nationally we've seen a 31 percent increase in HELOC's year-over-year," said a spokesperson from JPMorgan Chase (JPM).

Not surprised. The short memory span of the American consumer rears its ugly head once more.

[boutons_deux]

And we've all begun receiving again unsolicited offers for credit cards, the financial sector's efforts to get us all (more and deeper) into debt peonage.

More proof that millions of Americans are living on the financial precipice, no savings, paycheck to paycheck:

Bank Overdraft Revenue Rises to $31.5 Billion

The median overdraft fee rose to $29 from $28 the prior year, a 3.6 percent increase, according to the survey.

The region with the lowest overdraft fee was Green Bay, Wis. at $8 for a transaction. The highest fee was in Gainesville, Fla., where residents were charged $45 on average.

Higher fees and more overdrafts both appear to be driving the increase in revenue, Moebs found as part of its annual survey of financial institutions.

http://abcnews.go.com/blogs/business/2012/09/bank-overdraft-revenue-rises-to-31-5-billion/

America, the Land of Milk and Honey?

More like the land of piss and vinegar.

[boutons_deux]

without bank overdraft income, the banks would be scraping by, with many losing money

What Downturn? Bank Profits Hit $34.5 Billion

http://www.forbes.com/sites/halahtouryalai/2012/08/28/what-downturn-bank-profits-hit-34-5-billion/

[DUNCANownsKOBE]

The crash of 08-09 created a huge pool of new sub-prime customers. Who's shocked that they are going to be targeted for more abuse?

Not me.

This.

The middle class in this country is poorer than it's been in decades. The only way the mortgage industry can survive with a middle class as weak as ours is subprime loans where people who live paycheck to paycheck and have no liquidity whatsoever can buy a house with little to no money down.

[mavs>spurs]

i specialize in subprime lending..the interest rates we charge are ridiculous. 25% in some cases..but the people are thoroughly screened almost to the point of riduculousness and they are rated appropriately for the level of risk, a big difference from subprime last time where they were misrepresenting the level of risk and people didn't know what they were buying in those repackaged securities. the fact is, after 08 the majority of this country actually falls into subprime, so without it at this point nobody would be able to get a loan. subprime just means more than "no risk," not necessarily only people with terrible credit.

[Winehole23]

yeah, well, we'll see, won't we? you trust the weatherman? you lenders ain't so much smarter,tbh.

[mavs>spurs]

i just need to be smarter than boutons so i can loan people like him money is all, sort of like not having to be the fastest in order to not get eaten by the bear you just can't be the slowest :lol

[boutons_deux]

yeah, well, we'll see, won't we? you trust the weatherman? you lenders ain't so much smarter,tbh.

The lenders, with their lawyers and financial experts, are much smarter, more experienced, than often-first-time borrowers, and know exactly how to scam/sucker sub-prime borrowers.

[Winehole23]

related: http://www.newrepublic.com/article/112395/wall-street-hedge-funds-buy-rental-properties#

[boutons_deux]

related: http://www.newrepublic.com/article/112395/wall-street-hedge-funds-buy-rental-properties#

an article on this subject said Wall St is buying REO much cheaper than the REO holders are offering to the homeowners.

http://en.wikipedia.org/wiki/Rentier_capitalism

[Winehole23]

i just need to be smarter than boutons so i can loan people like him money is all, sort of like not having to be the fastest in order to not get eaten by the bear you just can't be the slowest :loldefined as self preservation.

most people don't pre-supply excuses for the dictates of expedience so, the effort on D is appreciated.

[boutons_deux]

Private Debt – Not Government Debt – Will Destroy America


There are two kinds of debt. One that’s relatively harmless. And one that can destroy us all.

There’s public sector debt – or government debt – which is over $16 trillion. This is the sort of debt that politicians scream and holler about when they demand austerity.

And then there’s private sector debt – the debt owned by you and me and millions of Americans across the nation in the form of credit cards, home and auto loans, along with America's corporate debt. This sort of debt doesn’t seem to
bother politicians at all, even though total private sector debt is $38 trillion, more than double government debt.

Now here’s what you need to know. Public sector debt is not a problem at all. Our national debt, despite the big number, is not a threat to the nation.

Currently, our national debt is roughly 100% of GDP. After World War 2, it was much higher – over 120% of GDP. But, rather than freaking out in the 1950’s and demanding austerity spending cuts, both Republican and Democratic Presidents and lawmakers grew our nation out of this so-called debt problem with government spending.

There were massive government investments to build the Interstate Highway System, send returning GIs to college, and to grow the social safety net.

And it worked. With more government investments, more Americans were put to work, which meant they had more money to spend, which meant more businesses hired more people to keep up with the higher demand, which meant Americans all around were earning more money and paying more revenue into the government through taxes. Our debt-to-GDP ratio plummeted from its peak of over 120% in the 1950’s to around 20% in the 1970’s.

Then Reagan came in, gave billionaires a massive tax cut, increased defense spending, and our national debt exploded again. But, two Presidents later, Bill Clinton had the budget balanced and the nation on track to completely eliminate the national debt within ten years.

George W. Bush blew up that plan with his tax cuts, wars, corporate giveaways, and his economic crash, so now we have a pretty massive debt, although not as big as the one Truman and Eisenhower faced and beat.

Our nation has a long history, from the Revolutionary War to the Civil War to World War II of dealing with our national debt, and reducing debt levels that are much higher than we see today. That’s why government debt is not a problem right now. With just a small amount of political will, it can be solved pretty easily: more government investments to put people to work and more taxes on the rich so that they pay their fair share again have always solved it in the past.

On the other hand, private sector debt is a huge problem. Not only is it devastating the livelihoods of millions of Americans around the nation, but it’s also pushing our economy toward collapse.

After World War 2 (http://www.washingtonsblog.com/2012/09/138-years-of-economic-history-show-that-keen-and-minsky-are-right-and-all-of-the-mainstream-economists-are-wrong.html), total private debt was below 50% of GDP. Today, it’s more than 250% of GDP, which is even higher than it was during the Great Depression.

There are several reasons for this.

The first is that when Reagan stopped enforcing the Sherman Anti-Trust Act, businesses started merging and acquiring each other like crazy. Because of changes in the rules on how that could be done, Private Equity or LBO firms came into existence, driving the monopolistic merger process with trillions in debt. Today virtually every corporate merger involves the company taking on huge debt, while the executives and the Pirate Equity boys take home billions. The result is that most of this private sector debt is corporate debt, and it's dangerously high, a teetering, towering house of cards.

And then there's household debt.

Since Reagan, Americans have not been paid more for their increased productivity, so wages have failed to keep up with the rising costs of housing, energy, education, and healthcare. To make ends meet, Americans had to extend their credit lines and home mortgages, thus sinking further into debt.

Also, there was the housing bubble, which was caused by banksters pushing mortgages – or debt – on millions of Americans, knowing that those same Americans were unlikely to be able to pay down those mortgages and debt.

But the banks made a ton of money selling off that bad debt to other investors before the market went bust, and skimming fees off the top of every single transaction.

And, of course, all of the losses that the banksters did incur during the crisis were promptly repaid by our government thanks to the bailout.

But nobody seemed to care about the debt that everyone else who wasn’t a bankster still had. Nobody except the banks, which are still trying to suck more and more money out of their indebted customers, and are now bringing back debtor’s prisons to help in this effort.

In Arkansas, a breast cancer survivor, Lisa Lindsay, was thrown in jail (http://finance.yahoo.com/news/jailed-for--280--the-return-of-debtors--prisons.html) because she didn’t pay a $280 medical bill, which was charged to her by mistake.

Debtors’ prisons haven’t officially been used in America since before the Civil War. But today, a third of the states in the country allow debt collectors to use the public court system to go after people who owe them money. So, rather than being thrown in jail for specifically owing money, Americans are thrown in jail for not showing up to court hearings or not paying legal fines stemming from their debts.

There’s even a law in Arkansas (http://www.rawstory.com/rs/2013/02/09/arkansas-law-jails-tenants-who-dont-pay-their-rent/) that allows landlords to throw tenants in jail if they're late on their rent. According to a recent report (http://www.hrw.org/node/113160) by Human Rights Watch, hundreds of tenants in Arkansas who’ve fallen on hard times and can’t pay their rent are taken to court and sometimes jailed.

So, in a roundabout way, the debtors prisons have returned to America.

This is a huge problem because economies depend on consumers – people like you and me – spending money. But, if we’re in debt up to our eye-balls, and being thrown in prison for that debt, then we can’t spend money to stimulate the economy.

As economist Steve Keen told me (http://www.youtube.com/watch?v=NP5-a6ln-0I), “That’s why we’re in a crisis.”

He added that it wasn't the government deficit we have to worry about. Instead, he said, “It’s the dynamics of private debt that have determined the crunch we’re in now.”

While debt can be useful and free up more spending in the economy, we’ve reached a point where businesses and individual Americans can no longer afford to go deeper into debt.

And a major reason why the economy continues to stagnate after the collapse is because Americans are paying down their debt rather than spending money in the economy. And the more Americans continue to pay down their debt instead of spending, the worse the economy will get.

When this happens, Keen told me, “You plunge off the cliff.”

Even government stimulus can’t help at this point. Whether it was Bush’s stimulus at the end of 2008 that gave everyone a couple hundred bucks, or Obama’s stimulus in 2009, any extra money Americans get from the government is diverted away from the economy and put instead toward paying down their huge individual debts, which has no stimulative effect on the economy at all.

If private debt was 50% of GDP like in the 1950’s, then Americans could afford to both buy things and pay down their own debt. And ditto for businesses. But at 250% of GDP, that private sector debt strangles the economy and sets the stage for a looming economic collapse.

So then, what’s to be done?

We should wipe the worst and most destructive of the private sector debt, the debt that prevents people from spending.

Keen calls for a debt jubilee. That means using the government to simply pay off much of the individual debt across America, from mortgages to student loans to credit cards.

This is also the approach Occupy Wall Street is taking with its “Strike Debt (http://strikedebt.org/)” campaign, though the organization is also relying on private donations to help buy people’s overdue debt at a cheap price and then completely wipe it out.

A debt jubilee isn’t a radical idea. In fact, it’s promoted in the Bible in the Book of Leviticus, which calls for a debt jubilee every 49 years. As Leviticus 25:10 reads (http://www.biblegateway.com/passage/?search=Leviticus%2025:10;&version=CEV;), "This fiftieth year is sacred—it is a time of freedom and of celebration when everyone will receive back their original property, and slaves will return home to their families."

Debt cancellation is supported in the Koran, too. And it was used in Ancient Athens and many Native American societies.

Wiping out private debt would unleash enormous spending in our economy in ways we haven’t seen since the boom years of the 1950’s and 1960’s. The only reason it’s not seriously being considered by our lawmakers today is because a debt jubilee would diminish the profits of the banksters who thrive – and prey – on an indebted nation.

But, in the not-to-distant future, as our economy continues to collapse under the weight of tens of trillions of dollars in private sector debt, our nation will be faced with an ultimate choice: Strike Debt or watch our economy completely collapse in a way that will make 1929 look like a picnic.

http://truth-out.org/opinion/item/14566-private-debt-%E2%80%93-not-government-debt-%E2%80%93-will-destroy-america