100 Billion dollar subprime Fund

[4plexowner]

History shows that the most prosperous societies are the ones with the least government meddling and interference

(in our modern financial world the line between ‘government’ and the banking cartel has become very blurred because of the political nature of central banking – the $100 bil fund being set up by banks (in collusion with the Fed) might as well be direct govt intervention IMO)

History also shows that ALL fiat monetary systems end in failure and economic collapse

At some point all of the current intervention will fail and we will have the 2nd Great Depression

The next depression is needed to teach the world once again that THERE IS NO FREE LUNCH

Why not go ahead and let it start now?

That way my children can enter their adult lives in a healthy, vibrant economy that doesn’t have $450+ trillion dollars worth of Monopoly money floating around the board looking for a bubble to inflate

“If something is about to fall off a cliff, it deserves to be pushed.” -Friedrich Nietzsche

[4plexowner]

History shows that the most prosperous societies are the ones with the least government meddling and interference

(in our modern financial world the line between ‘government’ and the banking cartel has become very blurred because of the political nature of central banking – the $100 bil fund being set up by banks (in collusion with the Fed) might as well be direct govt intervention IMO)

History also shows that ALL fiat monetary systems end in failure and economic collapse

At some point all of the current intervention will fail and we will have the 2nd Great Depression

The next depression is needed to teach the world once again that THERE IS NO FREE LUNCH

Why not go ahead and let it start now?

That way my children can enter their adult lives in a healthy, vibrant economy that doesn’t have $450+ trillion dollars worth of Monopoly money floating around the board looking for a bubble to inflate

“If something is about to fall off a cliff, it deserves to be pushed.” -Friedrich Nietzsche

[Raybyrnes]

gandalf

That’s interesting. The people I know are on the institutional sales side. I think it is going to be a tough year for them but there fortunes have been made ina short period of time.

Would like you opinion. Credit cards, car financing, and lots of other industries are collateralizing their debt. Why have we heard little of no rumblings about these offerings. I would thing they have even higher risk thatn MBS?

[Raybyrnes]

gandalf

That’s interesting. The people I know are on the institutional sales side. I think it is going to be a tough year for them but there fortunes have been made ina short period of time.

Would like you opinion. Credit cards, car financing, and lots of other industries are collateralizing their debt. Why have we heard little of no rumblings about these offerings. I would thing they have even higher risk thatn MBS?

[patientlywaiting]

Why not go ahead and let it start now?

I wonder what the people at the World Bank are thinking these days?  Don't they keep on telling emerging economies to keep their hands off and let the (foreign) sharks pounce on their assets?  

Shouldn't we practice what we preach, allow some banks to fail, and let  CITIC or other foreign banks pounce on our assets?   After all, bad decisions should not be rewarded.  

 

[patientlywaiting]

Why not go ahead and let it start now?

I wonder what the people at the World Bank are thinking these days?  Don't they keep on telling emerging economies to keep their hands off and let the (foreign) sharks pounce on their assets?  

Shouldn't we practice what we preach, allow some banks to fail, and let  CITIC or other foreign banks pounce on our assets?   After all, bad decisions should not be rewarded.  

 

[gandalf]

Great observation. Here are my thoughts:

Housing, as an asset class, saw tremendous appreciation from 1998-2005. The appreciation was quite frothy. It was enabled by excess liquidity in our monetary system, loose practices in the lending industry and unrealistic expectations for long-term growth in real property markets.

Other classes of assets, cars, credit cards, etc., I don’t think we saw these kinds of conditions, growth expectations, behavior, etc. I can’t be sure if this is the explanation because I don’t work in the industry anymore, but this would be my outsider’s guess.

Curious, what’s your POV?

What’s your POV on the impacts of all this? In particular, how about the larger question of what happens to leveraged positions when asset values fall and revenue streams are diminished?

[gandalf]

Great observation. Here are my thoughts:

Housing, as an asset class, saw tremendous appreciation from 1998-2005. The appreciation was quite frothy. It was enabled by excess liquidity in our monetary system, loose practices in the lending industry and unrealistic expectations for long-term growth in real property markets.

Other classes of assets, cars, credit cards, etc., I don’t think we saw these kinds of conditions, growth expectations, behavior, etc. I can’t be sure if this is the explanation because I don’t work in the industry anymore, but this would be my outsider’s guess.

Curious, what’s your POV?

What’s your POV on the impacts of all this? In particular, how about the larger question of what happens to leveraged positions when asset values fall and revenue streams are diminished?

[kewp]

Japan survived their housing bubble, no reason I think we shouldn’t as well.

Especially given that our society allows debt forgiveness.

I’ll agree, however, that those that had fingers in the pie be burned. Its in everyones best interest.

[kewp]

Japan survived their housing bubble, no reason I think we shouldn’t as well.

Especially given that our society allows debt forgiveness.

I’ll agree, however, that those that had fingers in the pie be burned. Its in everyones best interest.

[4plexowner]

kewp – don’t forget that ‘debt forgiveness’ has been radically modified in the last year or so

credit card debt can no longer be erased via bankruptcy

[4plexowner]

kewp – don’t forget that ‘debt forgiveness’ has been radically modified in the last year or so

credit card debt can no longer be erased via bankruptcy

[davelj]

golfgal (and perhaps a few others), I think you misunderstand how some of these securities work. Yes, you’re correct, that most of them are not worthless because, yes, there is some collateral protection. (And, in fact, some of the securities in question may very well be worth more than the valuation the market is placing on them currently.) Having said that, THERE ARE ABSOLUTELY QUITE A FEW WORTHLESS MBS – “GOOSE EGGS,” IN TECHNICAL TERMS – OUT THERE.

Allow me to explain.

Let’s say I own two different portions of a single subprime mortgage securitization. One portion is rated AAA; the other is rated CCC. And let’s say that this securitization, as a whole, ends up with a 20% default rate and losses that total 10% of face value. Well, considering it’s going to take one of the initial loss positions for the whole securitization, guess how much that CCC piece is probably going to be worth? You got it: somewhere around zero.

Now, the AAA piece is rated AAA because it’s protected by all the pieces rated AA and below which are, in descending order, going to take on the securitization’s losses (to varying degrees). (These losses will be assigned by formulas outlined in the offering documents.) As the losses mount, they wipe out most, and in some cases all, of the value of the “Z tranches” and start moving up the ratings scale. So, let’s be clear here: There are some MBS that are, literally, worthless. There are others that are merely impaired. The question is what is the difference between the market value and the economic value of these various securities. Regardless of all of these shenanigans we’re going to find out the true answer over the next couple of years. I’m skeptical that the market has it completely wrong, although there’s likely some variance due to illiquidity and behavioral issues.

golfgal, you said, “The valuation question – its whatever people will pay.” We’re in complete agreement here. According to your statement, there’s no need for this “super fund” at all. These institutions should just sell this dreck into the market and find out what the market thinks its worth. Let’s just say that I’m not going to hold my breath on that one…

[davelj]

golfgal (and perhaps a few others), I think you misunderstand how some of these securities work. Yes, you’re correct, that most of them are not worthless because, yes, there is some collateral protection. (And, in fact, some of the securities in question may very well be worth more than the valuation the market is placing on them currently.) Having said that, THERE ARE ABSOLUTELY QUITE A FEW WORTHLESS MBS – “GOOSE EGGS,” IN TECHNICAL TERMS – OUT THERE.

Allow me to explain.

Let’s say I own two different portions of a single subprime mortgage securitization. One portion is rated AAA; the other is rated CCC. And let’s say that this securitization, as a whole, ends up with a 20% default rate and losses that total 10% of face value. Well, considering it’s going to take one of the initial loss positions for the whole securitization, guess how much that CCC piece is probably going to be worth? You got it: somewhere around zero.

Now, the AAA piece is rated AAA because it’s protected by all the pieces rated AA and below which are, in descending order, going to take on the securitization’s losses (to varying degrees). (These losses will be assigned by formulas outlined in the offering documents.) As the losses mount, they wipe out most, and in some cases all, of the value of the “Z tranches” and start moving up the ratings scale. So, let’s be clear here: There are some MBS that are, literally, worthless. There are others that are merely impaired. The question is what is the difference between the market value and the economic value of these various securities. Regardless of all of these shenanigans we’re going to find out the true answer over the next couple of years. I’m skeptical that the market has it completely wrong, although there’s likely some variance due to illiquidity and behavioral issues.

golfgal, you said, “The valuation question – its whatever people will pay.” We’re in complete agreement here. According to your statement, there’s no need for this “super fund” at all. These institutions should just sell this dreck into the market and find out what the market thinks its worth. Let’s just say that I’m not going to hold my breath on that one…

[Raybyrnes]

I think all of this is political and that wiht an election year coming up and the Republicans trying to hold on to power you are going to see the Fed accomodate. Therefore they are going to help prop up the markets. The platform is going to sidestep the issue of the war by asking American “are you better off now than you were 8 years ago?”

Greenspan Put

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