$2 Trillion Less To Lend – by WS Brains-in-a-Vat

[Deal Hunter]

"The authors calculate mortgage losses three ways: by extrapolating losses on earlier subprime mortgages to more recently issued mortgages and adjusting for a 15% cumulative decline in home prices; by looking at the size of losses discounted by prices of derivatives based on subprime mortgages; and by extrapolating the experience of California, Texas and Massachusetts with large home price declines. All three methods yielded total losses (defaulted loans minus value recovered from the foreclosed home) of about $400 billion."

Full article here: http://blogs.wsj.com/economics/2008/02/29/banks-may-need-to-shrink-by-2-trillion-on-subprime-losses/?mod=homeblogmod_economicsblog

This is one of those self-fulfilling prophesy type things, isn't it?

The other question is who, if anyone will pick up the $2 Trillion in lending opportunity that the big boys turn away?  (Don't bother mentioning Dubai or Saudi, because charging interest, a.k.a. "usury" is against the K'oran.) 

 

 

[patientrenter]

“This is one of those self-fulfilling prophesy type things, isn’t it?

The other question is who, if anyone will pick up the $2 Trillion in lending opportunity that the big boys turn away?”

The way you phrase your questions betrays what you think the answers are. Saying that something is a “self-fulfilling prophesy” makes it sound as if it is caused by irrational psychology, not rational fundamentals.

I do not think that the downturn in prices in CA, and other states that saw price increases above the rate of wage increases, is caused by irrational psychology. I think this downturn is a return to rational fundamentals. It was the prior massive house price inflation that was the irrational self-fulfilling prophesy: “Buy now or…”.

Calling a possible action an “opportunity” makes it sound like the smart thing to do. I wouldn’t call applying a sharp serrated knife to my fingers an “opportunity”. I’d argue that banks have been lending $2 trillion a year that doesn’t make sense, to fraudulent borrowers putting down no money of their own, on houses appraised well over their value. Now the banks are stopping because they are getting called on the nonsense. That’s what that $2 trillion “opportunity” looks like. Anyone who wants to step in and continue the fraud-ridden and completely noneconomic lending that went into that $ 2 trillion can do so, but I wouldn’t call it an opportunity.

Patient renter in OC

[patientrenter]

“This is one of those self-fulfilling prophesy type things, isn’t it?

The other question is who, if anyone will pick up the $2 Trillion in lending opportunity that the big boys turn away?”

The way you phrase your questions betrays what you think the answers are. Saying that something is a “self-fulfilling prophesy” makes it sound as if it is caused by irrational psychology, not rational fundamentals.

I do not think that the downturn in prices in CA, and other states that saw price increases above the rate of wage increases, is caused by irrational psychology. I think this downturn is a return to rational fundamentals. It was the prior massive house price inflation that was the irrational self-fulfilling prophesy: “Buy now or…”.

Calling a possible action an “opportunity” makes it sound like the smart thing to do. I wouldn’t call applying a sharp serrated knife to my fingers an “opportunity”. I’d argue that banks have been lending $2 trillion a year that doesn’t make sense, to fraudulent borrowers putting down no money of their own, on houses appraised well over their value. Now the banks are stopping because they are getting called on the nonsense. That’s what that $2 trillion “opportunity” looks like. Anyone who wants to step in and continue the fraud-ridden and completely noneconomic lending that went into that $ 2 trillion can do so, but I wouldn’t call it an opportunity.

Patient renter in OC

[patientrenter]

“This is one of those self-fulfilling prophesy type things, isn’t it?

The other question is who, if anyone will pick up the $2 Trillion in lending opportunity that the big boys turn away?”

The way you phrase your questions betrays what you think the answers are. Saying that something is a “self-fulfilling prophesy” makes it sound as if it is caused by irrational psychology, not rational fundamentals.

I do not think that the downturn in prices in CA, and other states that saw price increases above the rate of wage increases, is caused by irrational psychology. I think this downturn is a return to rational fundamentals. It was the prior massive house price inflation that was the irrational self-fulfilling prophesy: “Buy now or…”.

Calling a possible action an “opportunity” makes it sound like the smart thing to do. I wouldn’t call applying a sharp serrated knife to my fingers an “opportunity”. I’d argue that banks have been lending $2 trillion a year that doesn’t make sense, to fraudulent borrowers putting down no money of their own, on houses appraised well over their value. Now the banks are stopping because they are getting called on the nonsense. That’s what that $2 trillion “opportunity” looks like. Anyone who wants to step in and continue the fraud-ridden and completely noneconomic lending that went into that $ 2 trillion can do so, but I wouldn’t call it an opportunity.

Patient renter in OC

[patientrenter]

“This is one of those self-fulfilling prophesy type things, isn’t it?

The other question is who, if anyone will pick up the $2 Trillion in lending opportunity that the big boys turn away?”

The way you phrase your questions betrays what you think the answers are. Saying that something is a “self-fulfilling prophesy” makes it sound as if it is caused by irrational psychology, not rational fundamentals.

I do not think that the downturn in prices in CA, and other states that saw price increases above the rate of wage increases, is caused by irrational psychology. I think this downturn is a return to rational fundamentals. It was the prior massive house price inflation that was the irrational self-fulfilling prophesy: “Buy now or…”.

Calling a possible action an “opportunity” makes it sound like the smart thing to do. I wouldn’t call applying a sharp serrated knife to my fingers an “opportunity”. I’d argue that banks have been lending $2 trillion a year that doesn’t make sense, to fraudulent borrowers putting down no money of their own, on houses appraised well over their value. Now the banks are stopping because they are getting called on the nonsense. That’s what that $2 trillion “opportunity” looks like. Anyone who wants to step in and continue the fraud-ridden and completely noneconomic lending that went into that $ 2 trillion can do so, but I wouldn’t call it an opportunity.

Patient renter in OC

[patientrenter]

“This is one of those self-fulfilling prophesy type things, isn’t it?

The other question is who, if anyone will pick up the $2 Trillion in lending opportunity that the big boys turn away?”

The way you phrase your questions betrays what you think the answers are. Saying that something is a “self-fulfilling prophesy” makes it sound as if it is caused by irrational psychology, not rational fundamentals.

I do not think that the downturn in prices in CA, and other states that saw price increases above the rate of wage increases, is caused by irrational psychology. I think this downturn is a return to rational fundamentals. It was the prior massive house price inflation that was the irrational self-fulfilling prophesy: “Buy now or…”.

Calling a possible action an “opportunity” makes it sound like the smart thing to do. I wouldn’t call applying a sharp serrated knife to my fingers an “opportunity”. I’d argue that banks have been lending $2 trillion a year that doesn’t make sense, to fraudulent borrowers putting down no money of their own, on houses appraised well over their value. Now the banks are stopping because they are getting called on the nonsense. That’s what that $2 trillion “opportunity” looks like. Anyone who wants to step in and continue the fraud-ridden and completely noneconomic lending that went into that $ 2 trillion can do so, but I wouldn’t call it an opportunity.

Patient renter in OC

[Deal Hunter]

LOL! I love your analogies.

Well, “fundamentally,” lending is the ONLY way a bank makes money/profit/income. It’s in their charter and how they ensure and grow shareholder equity – by lending. What they shouldn’t have been experimenting with so much was selling securitized loans and derivatives.

So, the opportunity, is just that. Lending is the life blood of a bank and if the big boys can’t do it, some other bank can – and should – if they are true to their charter as a commercial or investment bank, right?

$2 Trillion can be lent on highly speculative lending, like sub-prime or it can be lent more strategically or more classically, like in the old days, when you had to consider merit of the borrower and strength of the collateral.

[Deal Hunter]

LOL! I love your analogies.

Well, “fundamentally,” lending is the ONLY way a bank makes money/profit/income. It’s in their charter and how they ensure and grow shareholder equity – by lending. What they shouldn’t have been experimenting with so much was selling securitized loans and derivatives.

So, the opportunity, is just that. Lending is the life blood of a bank and if the big boys can’t do it, some other bank can – and should – if they are true to their charter as a commercial or investment bank, right?

$2 Trillion can be lent on highly speculative lending, like sub-prime or it can be lent more strategically or more classically, like in the old days, when you had to consider merit of the borrower and strength of the collateral.

[Deal Hunter]

LOL! I love your analogies.

Well, “fundamentally,” lending is the ONLY way a bank makes money/profit/income. It’s in their charter and how they ensure and grow shareholder equity – by lending. What they shouldn’t have been experimenting with so much was selling securitized loans and derivatives.

So, the opportunity, is just that. Lending is the life blood of a bank and if the big boys can’t do it, some other bank can – and should – if they are true to their charter as a commercial or investment bank, right?

$2 Trillion can be lent on highly speculative lending, like sub-prime or it can be lent more strategically or more classically, like in the old days, when you had to consider merit of the borrower and strength of the collateral.

[Deal Hunter]

LOL! I love your analogies.

Well, “fundamentally,” lending is the ONLY way a bank makes money/profit/income. It’s in their charter and how they ensure and grow shareholder equity – by lending. What they shouldn’t have been experimenting with so much was selling securitized loans and derivatives.

So, the opportunity, is just that. Lending is the life blood of a bank and if the big boys can’t do it, some other bank can – and should – if they are true to their charter as a commercial or investment bank, right?

$2 Trillion can be lent on highly speculative lending, like sub-prime or it can be lent more strategically or more classically, like in the old days, when you had to consider merit of the borrower and strength of the collateral.

[Deal Hunter]

LOL! I love your analogies.

Well, “fundamentally,” lending is the ONLY way a bank makes money/profit/income. It’s in their charter and how they ensure and grow shareholder equity – by lending. What they shouldn’t have been experimenting with so much was selling securitized loans and derivatives.

So, the opportunity, is just that. Lending is the life blood of a bank and if the big boys can’t do it, some other bank can – and should – if they are true to their charter as a commercial or investment bank, right?

$2 Trillion can be lent on highly speculative lending, like sub-prime or it can be lent more strategically or more classically, like in the old days, when you had to consider merit of the borrower and strength of the collateral.

[EconProf]

BobS
This is a significant study that shows the economic tsunami headed our way. I believe it will have an impact on the markets next week once it gets circulated and digested.
There are many causative factors of this housing decline that will have a self-reinforcing, cumulative effect on each other. It simply will not resemble past cycles in our history, except perhaps the panics of the 19th century.
Unlike past cycles, everyone was leveraged to their eyeballs during the upturn. With no “skin in the game”, no-down and low-down buyers have none of the margin of safety to hang tough in the face of a slight decline in values. As they abandon their houses, thus feeding inventory, prices will fall all the faster.
Burned lenders will run away from writing loans, as is already becoming apparent, thus lessening the demand side for buyers.
This article shows the extent to which financial institutions, as required by their accounting rules, will overreact in their withdrawal from participation. It’s going to get bloody.

[EconProf]

BobS
This is a significant study that shows the economic tsunami headed our way. I believe it will have an impact on the markets next week once it gets circulated and digested.
There are many causative factors of this housing decline that will have a self-reinforcing, cumulative effect on each other. It simply will not resemble past cycles in our history, except perhaps the panics of the 19th century.
Unlike past cycles, everyone was leveraged to their eyeballs during the upturn. With no “skin in the game”, no-down and low-down buyers have none of the margin of safety to hang tough in the face of a slight decline in values. As they abandon their houses, thus feeding inventory, prices will fall all the faster.
Burned lenders will run away from writing loans, as is already becoming apparent, thus lessening the demand side for buyers.
This article shows the extent to which financial institutions, as required by their accounting rules, will overreact in their withdrawal from participation. It’s going to get bloody.

[EconProf]

BobS
This is a significant study that shows the economic tsunami headed our way. I believe it will have an impact on the markets next week once it gets circulated and digested.
There are many causative factors of this housing decline that will have a self-reinforcing, cumulative effect on each other. It simply will not resemble past cycles in our history, except perhaps the panics of the 19th century.
Unlike past cycles, everyone was leveraged to their eyeballs during the upturn. With no “skin in the game”, no-down and low-down buyers have none of the margin of safety to hang tough in the face of a slight decline in values. As they abandon their houses, thus feeding inventory, prices will fall all the faster.
Burned lenders will run away from writing loans, as is already becoming apparent, thus lessening the demand side for buyers.
This article shows the extent to which financial institutions, as required by their accounting rules, will overreact in their withdrawal from participation. It’s going to get bloody.

[EconProf]

BobS
This is a significant study that shows the economic tsunami headed our way. I believe it will have an impact on the markets next week once it gets circulated and digested.
There are many causative factors of this housing decline that will have a self-reinforcing, cumulative effect on each other. It simply will not resemble past cycles in our history, except perhaps the panics of the 19th century.
Unlike past cycles, everyone was leveraged to their eyeballs during the upturn. With no “skin in the game”, no-down and low-down buyers have none of the margin of safety to hang tough in the face of a slight decline in values. As they abandon their houses, thus feeding inventory, prices will fall all the faster.
Burned lenders will run away from writing loans, as is already becoming apparent, thus lessening the demand side for buyers.
This article shows the extent to which financial institutions, as required by their accounting rules, will overreact in their withdrawal from participation. It’s going to get bloody.

[Author]

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