who takes the loss ?

[HLS]

JWM , I could expound upon my posts, but they might be too long already.

Many people on this board are well educated and experienced, regardless of their opinion or whether they are a bull or bear.(I think that you and I agree about the overall economic risks)

The fact is that MANY average people have made a substantial anount of money, either on paper or in reality, because they got LUCKY.
They didn’t follow any traditional theories. They just bought when they could, regardless of market timing.

When a $90,000 house brought in $900 a month rent, I was a buyer. When the house doubled or tripled and the rent went up 25%, I was out, with a happy profit, and invested elsewhere.
I never intended to hit the top of the market.

The ones that bought at 2002-03 prices did pretty well, but only by luck, IMO. 2007 market could have been 2004 instead.

My point is that common sense and economic theory do not hold up when you have so many players in the game that don’t have the same education or experience.

The stock market is the next unlevel playing field.
People are throwing piles of money into funds without understanding what they are doing and the risks, they are sheep following blindly.
They don’t know the difference between P/E, P/S or Market Cap. Some are getting lucky.

When the vast majority of people are in and giddy and happy about a market, I’m pretty much out.
I’ll gladly sacrifice the potential extended gains, so I can sleep at night.

When people are scared, afraid to buy and think that the world is coming to an end, my interest is piqued.

You can get rich in value stocks buying when the news is terrible and it looks like the company is going out of business compared to what you can make when the stock breaks above the 200 day MA, and you are looking for a 25% gain. It may have already moved 200%-500%. It’s not unusual at all, but most people only know to buy the highs, and are scared at the lows.

I’m sure that you know that we may be too conservative for our own good, or at least to want to participate with the sheep.

[HLS]

JWM , I could expound upon my posts, but they might be too long already.

Many people on this board are well educated and experienced, regardless of their opinion or whether they are a bull or bear.(I think that you and I agree about the overall economic risks)

The fact is that MANY average people have made a substantial anount of money, either on paper or in reality, because they got LUCKY.
They didn’t follow any traditional theories. They just bought when they could, regardless of market timing.

When a $90,000 house brought in $900 a month rent, I was a buyer. When the house doubled or tripled and the rent went up 25%, I was out, with a happy profit, and invested elsewhere.
I never intended to hit the top of the market.

The ones that bought at 2002-03 prices did pretty well, but only by luck, IMO. 2007 market could have been 2004 instead.

My point is that common sense and economic theory do not hold up when you have so many players in the game that don’t have the same education or experience.

The stock market is the next unlevel playing field.
People are throwing piles of money into funds without understanding what they are doing and the risks, they are sheep following blindly.
They don’t know the difference between P/E, P/S or Market Cap. Some are getting lucky.

When the vast majority of people are in and giddy and happy about a market, I’m pretty much out.
I’ll gladly sacrifice the potential extended gains, so I can sleep at night.

When people are scared, afraid to buy and think that the world is coming to an end, my interest is piqued.

You can get rich in value stocks buying when the news is terrible and it looks like the company is going out of business compared to what you can make when the stock breaks above the 200 day MA, and you are looking for a 25% gain. It may have already moved 200%-500%. It’s not unusual at all, but most people only know to buy the highs, and are scared at the lows.

I’m sure that you know that we may be too conservative for our own good, or at least to want to participate with the sheep.

[HLS]

Patient, of course you know of what you speak.

We can look back at the loans originated in 2005-06 and conclude that now…It’s easy to say that now. Personally, I wouldn’t have invested based on 2003-04 loans either.

If you have been in OC very long, you remember the crisis of the county. The treasurer had invested in crappy bonds, looking for the yield. OC bonds were cut to junk. Even NYC was on the verge of BK before Giuliani.

Society has demanded more value for their money. Whether it’s buying inferior products for a cheaper price OR wanting higher yields on investments.

The sad/crazy/reality is that it’s STILL happening on Wall Street. Money flow into the markets have never been greater.
Millions of educated and not continue to “invest” because of the perception. It will take a true crash to cure a generation of this sheepish thinking, like it did in 1929.

Do you really think that the brightest and finest MBA’s and Wall Street geniuses didn’t KNOW that historically low interest rates combined with 100% STATED income financing
with the creaton of MBS in the 90’s was going to create a crisis at some point ?? It was brilliant manipulation.
You think they care who would ultimitely get hurt ?

$$ Millions $$ have been made by many. Some people think that they have done well making a few hundred grand in equity, and they have, but not because they are smart.
The guys that made millions in the same period are the smart ones.

I was involved in local real estate in the late 80’s and early 90’s. I saw what was going to happen the last few years with crystal clarity. I’m no genius. I got out.

See me post above. You have to accept that the “other” players control the market, not the sensible ones…

To address your comment above, I agree, but the fact is that buyer’s do not understand what they are buying!
I think that you know this. ‘Nuff said ?

[HLS]

Patient, of course you know of what you speak.

We can look back at the loans originated in 2005-06 and conclude that now…It’s easy to say that now. Personally, I wouldn’t have invested based on 2003-04 loans either.

If you have been in OC very long, you remember the crisis of the county. The treasurer had invested in crappy bonds, looking for the yield. OC bonds were cut to junk. Even NYC was on the verge of BK before Giuliani.

Society has demanded more value for their money. Whether it’s buying inferior products for a cheaper price OR wanting higher yields on investments.

The sad/crazy/reality is that it’s STILL happening on Wall Street. Money flow into the markets have never been greater.
Millions of educated and not continue to “invest” because of the perception. It will take a true crash to cure a generation of this sheepish thinking, like it did in 1929.

Do you really think that the brightest and finest MBA’s and Wall Street geniuses didn’t KNOW that historically low interest rates combined with 100% STATED income financing
with the creaton of MBS in the 90’s was going to create a crisis at some point ?? It was brilliant manipulation.
You think they care who would ultimitely get hurt ?

$$ Millions $$ have been made by many. Some people think that they have done well making a few hundred grand in equity, and they have, but not because they are smart.
The guys that made millions in the same period are the smart ones.

I was involved in local real estate in the late 80’s and early 90’s. I saw what was going to happen the last few years with crystal clarity. I’m no genius. I got out.

See me post above. You have to accept that the “other” players control the market, not the sensible ones…

To address your comment above, I agree, but the fact is that buyer’s do not understand what they are buying!
I think that you know this. ‘Nuff said ?

[Fearful]

HLS wrote: When the vast majority of people are in and giddy and happy about a market, I’m pretty much out.

That line brought back memories! One business school prof wrote some of his own case studies for us. In one, regarding real estate, he relayed his experience with the Texas real estate boom in the late ’80s: “When you hear cowboys saying ‘This here’s the easiest money ah evah made’, it’s time to get out.”

A bear market is not done until all optimism is gone, until everyone swears they will never invest again. It is a long, slow, painful grind.

[Fearful]

HLS wrote: When the vast majority of people are in and giddy and happy about a market, I’m pretty much out.

That line brought back memories! One business school prof wrote some of his own case studies for us. In one, regarding real estate, he relayed his experience with the Texas real estate boom in the late ’80s: “When you hear cowboys saying ‘This here’s the easiest money ah evah made’, it’s time to get out.”

A bear market is not done until all optimism is gone, until everyone swears they will never invest again. It is a long, slow, painful grind.

[patientrenter]

HLS, we’ll have to agree to disagree.

I think your point is that the people involved in supplying the loans were in the best position to see that they were offering comparatively lousy returns for the risk, and that they allowed their profit motive to get in the way of alerting the buyers (of the loans/loan securities). My point is that even the dumbest buyer knew that they were getting higher returns than Treasuries, and any person expecting to get those higher returns should peresonally bear most of the responsibility for understanding and accepting the risks that went with that.

I guess I bring a bias to this that I’ll explain. I like the caveat emptor rule for almost everything, barring fraud. If I want to buy a car, I think first about whether I want to take the risk of buying a used car. I know it may be cheaper than new, but I know the experts I hire to check it out might not catch everything. If I can’t deal with that uncertainty, I buy a new car. I just find it hard to deal with people blaming others for their problems, and I don’t like the moral hazard it introduces to the system when principals in a transaction turn to intermediaries and others to absorb responsibility.

Patient renter in OC

[patientrenter]

HLS, we’ll have to agree to disagree.

I think your point is that the people involved in supplying the loans were in the best position to see that they were offering comparatively lousy returns for the risk, and that they allowed their profit motive to get in the way of alerting the buyers (of the loans/loan securities). My point is that even the dumbest buyer knew that they were getting higher returns than Treasuries, and any person expecting to get those higher returns should peresonally bear most of the responsibility for understanding and accepting the risks that went with that.

I guess I bring a bias to this that I’ll explain. I like the caveat emptor rule for almost everything, barring fraud. If I want to buy a car, I think first about whether I want to take the risk of buying a used car. I know it may be cheaper than new, but I know the experts I hire to check it out might not catch everything. If I can’t deal with that uncertainty, I buy a new car. I just find it hard to deal with people blaming others for their problems, and I don’t like the moral hazard it introduces to the system when principals in a transaction turn to intermediaries and others to absorb responsibility.

Patient renter in OC

[HLS]

Bulls make money, Bears make money, Pigs get slaughtered.

the truth doesn’t change.

Fear: I can hear that Texan Cowboy drawl now. I LOVE it!
“easiest money ah evah made”

As I alluded to, not everyone went to biz school.
Many are still “well” invested.

Did you hear the one about the Texan and the pigeon after the oil bust ??…..

The pigeon could still make a deposit on a Mercedes 😉

[HLS]

Bulls make money, Bears make money, Pigs get slaughtered.

the truth doesn’t change.

Fear: I can hear that Texan Cowboy drawl now. I LOVE it!
“easiest money ah evah made”

As I alluded to, not everyone went to biz school.
Many are still “well” invested.

Did you hear the one about the Texan and the pigeon after the oil bust ??…..

The pigeon could still make a deposit on a Mercedes 😉

[Fearful]

Re: the pigeon

Made me laugh out loud. Thanks!

[Fearful]

Re: the pigeon

Made me laugh out loud. Thanks!

[HLS]

Patient, I’m not sure that we disagree. I don’t understand your point. You mention “people involved in supplying the loans” and “alerting the buyers of the loans”

Perhaps you know the below already;

Loans are sold off in huge portfolios that were underwritten to the standards of the “buyers of the loans”

“People involved in supplying the loans” didn’t force the buyers to take them. Each lender knew what their available line was for funding on an ongoing basis and loans were delivered.

The problem with subprime lenders arose when payments weren’t made (defaults) in the first month or two after origination, and the buyer wanted to return the loan to the supplier and be reimbursed. Many times the lender hadn’t made much on the loan, only a tiny %, but was faced with the buyback of a $500,000 loan. Multiply that times dozens or hundreds and you see where the collapse comes in.

The ultimate buyer of these subprime loans was Wall Street.
If I understand you above, you say that the WS buyers should have taken the responsibility and I AGREE with you, however, they were able to return the quickly defaulting loans which triggered the collapse of subprime, so they really weren’t taking ALL the responsibility.

Anyone with a basic understanding of math should have known that loaning 100% freely was going to lead to defaults.

It’s EXACTLY what credit cards do. they loan 100%, but compensate for the risk by charging 15%-35% plus fees to the honest group, and write off the non performing loans.

Where do we disagree ??

[HLS]

Patient, I’m not sure that we disagree. I don’t understand your point. You mention “people involved in supplying the loans” and “alerting the buyers of the loans”

Perhaps you know the below already;

Loans are sold off in huge portfolios that were underwritten to the standards of the “buyers of the loans”

“People involved in supplying the loans” didn’t force the buyers to take them. Each lender knew what their available line was for funding on an ongoing basis and loans were delivered.

The problem with subprime lenders arose when payments weren’t made (defaults) in the first month or two after origination, and the buyer wanted to return the loan to the supplier and be reimbursed. Many times the lender hadn’t made much on the loan, only a tiny %, but was faced with the buyback of a $500,000 loan. Multiply that times dozens or hundreds and you see where the collapse comes in.

The ultimate buyer of these subprime loans was Wall Street.
If I understand you above, you say that the WS buyers should have taken the responsibility and I AGREE with you, however, they were able to return the quickly defaulting loans which triggered the collapse of subprime, so they really weren’t taking ALL the responsibility.

Anyone with a basic understanding of math should have known that loaning 100% freely was going to lead to defaults.

It’s EXACTLY what credit cards do. they loan 100%, but compensate for the risk by charging 15%-35% plus fees to the honest group, and write off the non performing loans.

Where do we disagree ??

[Nancy_s soothsayer]

Some of the genius bagholders probably don’t even have any whiff of their fate yet. For example, some pension funds probably did all of these and more:

1. loaded up on RMBS “highly rated” by Ratings Agencies (liars!)
2. loaded up on agency securities of Fannie and Freddie
3. loaded up on CDO’s and swaps (they could be on the wrong end of such swaps!)
4. paid huge fees to hedge fund managers so that these mismanagers can engage in gambling with the pension fund’s money (nice!! — See Amaranth.)
5. paid huge fees to investment banks (Bear Stearns) for banking services and transaction costs
6. retained and adding more high-priced lawyers so that they can sue all
#’s 1 though 5 above in the future. YAY!!!

To top it off, they borrowed tons of cash too, to give to the hedge fund managers for gambling.

[Author]

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