Fair enough, hoss.
Care to comment on the substance of the thread, or are you just bird-dogging it?
Heh, I was gonna bust yer balls for it too, but couldn't quite find a humorous enough way to do so, and moved on.Are you some kind of expert on the subject johnsmith, or are you just curious?
Not that there's anything wrong with that of course.
I think it's funny my personal aside to DR made you uncomfortable. Insecure much?
S'all good. Quite frankly it is nice to occasionally get a break from the "Jane you ignorant ..." type of exchanges.
The le of the thread does include the phrase :"Bend over". HA!
I've pretty much stopped attempting anything with substance in the poltical forum because over the past couple of years I've learned that it's "in one ear, out the other" if you aren't on the same side of the argument. Now I just read everyone's posts and find it far more entertaining and informative.
However, I just wouldn't be myself if I didn't throw something out there every once in a while.
This is why I appreciate your posts more than any, (as well as chump, and clambake), because while I don't agree 90% of the time, at least you recognize that posting on this forum won't change the world, it's just entertainment.
Enough of this now.
Bah, youre just jealous. Now stop stalking me, the cops are on their way.
I am an eternal optimist.
There are those whose opinions won't ever change no matter how much reality beats them over the head with contradicting evidence, and there are those who actually keep a somewhat open mind, can learn new things, and that are wise enough to challenge their starting assumptions when something comes along that doesn't fit into their worldview.
You are right, I don't think I can change the world in an internet forum, but it is good to, every once in a while, connect with someone you might not agree with totally.
All in all it is mostly entertainment, and that falls into the 10% we agree on.
You ignorant .
Man, I miss old coke-fueled 70's SNL.
Random, you are one of the ignorant s on this forum.
You can't say that about others and exclude yourself homie.
Wow, a Dan Akroyd SNL allusion. You guys are showing your age.
I'm getting slammed here at work so I didn't read this entire thread but all this talk about adjusting rates and reworking mortgages is really pointless. They're not going to entertain it because it doesn't address the real problem. The banks wouldn't be in this large of a mess if CDS's and MBS's ceased to exist a decade ago. No amount of changing and adjusting is going to compensate for the billions lost and billions more soon to be lost on those two abortions. Until those problems are addressed, and I can't even begin to think of how to address it, the hole will continue to grow deeper regardless of how many people keep or don't keep their home.
Well, they can't cease to exist now. Value must be recouped.
Besides, there's nothing wrong with derivatives per se. It was the regulatory vacuum that encouraged mischief.
Thats the very essence of my point. With those types of loses there is no value to recoup. Thats why these banks can't get back in the black.
My point is, the magnitude of the malinvestment forces us to recoup. It's way too big to just write off. A 100% recoup isn't really a possibility, but the marginal values are more important than you may think. Mortgage based derivatives aren't worthless, just illiquid right now.
If the the government doesn't pay too much for MBS's, the banks fail.
If the government doesn't recoup somewhere down the line, the US may default.
(I think MBS's should replace bonus money and a portion of executive compensation. That way, banks can get rid of them, the executives can focus on getting the most out of them, and we don't have to pay for any of it. Not realistic, I know, but a feller can dream.)
Translation:
"I didn't recognize this as a well-meant joke, because I didn't really recognize the quote "you ignorant " was from a comedy skit."
Trust me, it was a joke. Honest.
The problem wasn't morgage backed securities, it was the relaxing the lending standards for the mortgages themselves.
The people packaging/buying these things assumed that because, historically, mortgage defaults were in a certain narrow range of percentages, even in recessions, that they would remain so.
What they didn't know is that the underlying nature of many of the mortgages had changed. They should have done their diligence, and didn't.
So instead of a 2%-4% default rate, you get 20% or 40% to 60% default rate, all due to the fact that the people really making money on these things, the mortgage brokers, got their fees based not on the quality of the loans, but on the quan y of the loans.
The profit motive in creating all of these mortages wasn't in getting a return of the loan, but in the origination.
The starting banks knew that they could sell even the ty mortgages, because they could sell the assets (mortgages) to someone else, and get cold, hard cash in return.
So the buck got passed up the investor food chain, and by the time it got to the ending buyers of those derivatives, the underlying nature of the bad lending practices was less than transparent, especially due to the bond insurance companies, whose gaurantees on the bonds artificially pumped bad and marginally bad into the range of fair to good. Basically greed trumped common sense, and prudent risk management.
An CDO or MBS isn't bad any more than a hammer or any other tool is, if used in a prudent manner.
What is needed is a way to make the ending derivatives more transparent and easy to value. The Danish model that Soros was talking about seems to be a good way to go.
Last edited by RandomGuy; 02-19-2009 at 10:28 AM.
Actually, the underlying mortages do have tangible assets, i.e. the houses themselves, and those assets are then part of the underlying value of the ending derivative.
The owners of the bonds become, essentially, the the owners of the houses if the house is repossessed under the terms of the mortage.
This was one of the reasons that investors went for them in the first place, because in the worst case scenario there was still the houses to sell to recoup some of the investments.
This points to another part of the problem in that everybody always assumed that the value of the houses would go up, in calculating what the bonds were worth.
When the value of the underlying assets went down, as house prices have all over the country, that magnified the losses.
Some bonds with concentrations in loans in the hardest hit areas are, I'm sure, next to worthless. You can't recoup your dollars invested if you can't sell the house, and in some places that is exactly what is happening.
Personally the whole crisis benefits me, as the oversupply will last for many years, and it will be about 4-5 years until I can afford to buy/build a house.
The actual default rate is nowhere near that high; it's actually well below 10%, as I understand it.
...trying to piece together a conversation I had with an economics professor friend of mine at a (very social) Chinese New Year Party.
The problem, as he explained it, is the amount the banks/mortgage holders were leveraged allowed for little to no defaults on the mortgages before the banks themselves were in default. They left themselves no breathing room.
My understanding is similar. Leverage is the culprit. The risk models never accounted for a possible decline in values.
What I've heard was that a 3%-4% decline in values was enough to cause default at 30/1 capital ratios.
That's very similar to what he said, thanks.
And I believe the banks were going back to the Fed, time and again, this decade asking to modify the risk models to allow this level of leverage. It happened incrementally.
Do you have info on this?
I've been given to understand the broker-dealers are the bigger culprit here. They were excepted from capital requirements by the SEC sometime in the last five years or so.
Capital rules for banks is much stricter, I think. I don't think leverage is as much the issue for them. What's happening is forced liquidation of assets at huge losses to meet the capital restrictions. But they can't afford to write down all the losses, and they're overvaluing the unmarketable assets still on their books, so the fix they're in is much worse than it appears.
From what I remember from my conversation (understand 1/4 of a Bell's sampler case was already gone):
Typical practices allowed the banks to be leveraged somewhere along the lines of 10/1 debt to assets; throughout the 00's they were allowed to raise that to nearly 50/1 - which is how we end up with the situation that 2% of loans go bad, and the banks are functionally insolvent.
Beer? I'm very interested.
I'd be very interested to see a link on this also, if you can find one.
http://www.bellsbeer.com/index.php/brands.html
The sample I had had a mixture of the first five. Good stuff, especially the Two-Hearted (an IPA)
...searching.I'd be very interested to see a link on this also, if you can find one.
Thx on both counts, 101A.
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