[davelj]

[quote=ljinvestor] So you know, price per square foot is not an acceptable appraisal methodology. [/quote]

Ummm… I will agree that price per square foot ALONE is not an acceptable appraisal methodology. But if you look at most appraisals – which are a complete joke – just about ALL they focus on is price per square foot with “adjustments.” Now I don’t think this is the right way to appraise homes, but this is the way it is. So, I’m a little baffled by the appraiser’s comments to you on this point.

Personally, I think an income (re: rental equivalent) component should be integrated into SFR appraisals, but that will happen when pigs fly.

[davelj]

[quote=ljinvestor] So you know, price per square foot is not an acceptable appraisal methodology. [/quote]

Ummm… I will agree that price per square foot ALONE is not an acceptable appraisal methodology. But if you look at most appraisals – which are a complete joke – just about ALL they focus on is price per square foot with “adjustments.” Now I don’t think this is the right way to appraise homes, but this is the way it is. So, I’m a little baffled by the appraiser’s comments to you on this point.

Personally, I think an income (re: rental equivalent) component should be integrated into SFR appraisals, but that will happen when pigs fly.

[davelj]

[quote=ljinvestor] So you know, price per square foot is not an acceptable appraisal methodology. [/quote]

Ummm… I will agree that price per square foot ALONE is not an acceptable appraisal methodology. But if you look at most appraisals – which are a complete joke – just about ALL they focus on is price per square foot with “adjustments.” Now I don’t think this is the right way to appraise homes, but this is the way it is. So, I’m a little baffled by the appraiser’s comments to you on this point.

Personally, I think an income (re: rental equivalent) component should be integrated into SFR appraisals, but that will happen when pigs fly.

[davelj]

[quote=ljinvestor] So you know, price per square foot is not an acceptable appraisal methodology. [/quote]

Ummm… I will agree that price per square foot ALONE is not an acceptable appraisal methodology. But if you look at most appraisals – which are a complete joke – just about ALL they focus on is price per square foot with “adjustments.” Now I don’t think this is the right way to appraise homes, but this is the way it is. So, I’m a little baffled by the appraiser’s comments to you on this point.

Personally, I think an income (re: rental equivalent) component should be integrated into SFR appraisals, but that will happen when pigs fly.

[davelj]

[quote=deadzone]Why would any big time manager announce their strategy to the world? Not gonna happen. If you’d read the book about Paulson (Greatest Trade Ever) you’d know that he was very secretive about all of his credit default swap dealings. If too many other people were in on his side of the trade it wouldn’t have worked.[/quote]

Let’s be clear about what John Paulson did. He cherry-picked the worst loans he could find and helped Goldman structure them in a way that the resulting MBS would still be classified as “investment grade”. Then Goldman went out and found additional investors to buy the MBS and Paulson provided a sliver of equity to get the deals funded. Then he went out and bet against the MBS that he helped create using the CDS market. In relative terms, he lost 10 cents on his long position and made $1 on the “short” position in the CDS.

Here’s an analogy (albeit imperfect). Let’s say I go out and find a house that I’m highly confident is only worth $200K (let’s say it has myriad defects that only I know about). But I find a group of folks who are willing to buy it for $400K in cash with me as a co-investor. I put up $10K of the $400K. Then let’s assume that there’s a market that allows me to bet on the price of that house and I take a short position that’s several multiples of my $10K long position. The defects are uncovered and the house ultimately sells for $200K and I lose $5K on my long position but I make a multiple of that on my short position.

Basically, Paulson helped Goldman structure mortgage-backed securities DESIGNED to fail, and disguised by the fact that he was a co-investor in the MBS. Then he went out and made leveraged bets against them.

Legal? Apparently. Diabolical? Absolutely. Ethical? I don’t think so.

[davelj]

[quote=deadzone]Why would any big time manager announce their strategy to the world? Not gonna happen. If you’d read the book about Paulson (Greatest Trade Ever) you’d know that he was very secretive about all of his credit default swap dealings. If too many other people were in on his side of the trade it wouldn’t have worked.[/quote]

Let’s be clear about what John Paulson did. He cherry-picked the worst loans he could find and helped Goldman structure them in a way that the resulting MBS would still be classified as “investment grade”. Then Goldman went out and found additional investors to buy the MBS and Paulson provided a sliver of equity to get the deals funded. Then he went out and bet against the MBS that he helped create using the CDS market. In relative terms, he lost 10 cents on his long position and made $1 on the “short” position in the CDS.

Here’s an analogy (albeit imperfect). Let’s say I go out and find a house that I’m highly confident is only worth $200K (let’s say it has myriad defects that only I know about). But I find a group of folks who are willing to buy it for $400K in cash with me as a co-investor. I put up $10K of the $400K. Then let’s assume that there’s a market that allows me to bet on the price of that house and I take a short position that’s several multiples of my $10K long position. The defects are uncovered and the house ultimately sells for $200K and I lose $5K on my long position but I make a multiple of that on my short position.

Basically, Paulson helped Goldman structure mortgage-backed securities DESIGNED to fail, and disguised by the fact that he was a co-investor in the MBS. Then he went out and made leveraged bets against them.

Legal? Apparently. Diabolical? Absolutely. Ethical? I don’t think so.

[davelj]

[quote=deadzone]Why would any big time manager announce their strategy to the world? Not gonna happen. If you’d read the book about Paulson (Greatest Trade Ever) you’d know that he was very secretive about all of his credit default swap dealings. If too many other people were in on his side of the trade it wouldn’t have worked.[/quote]

Let’s be clear about what John Paulson did. He cherry-picked the worst loans he could find and helped Goldman structure them in a way that the resulting MBS would still be classified as “investment grade”. Then Goldman went out and found additional investors to buy the MBS and Paulson provided a sliver of equity to get the deals funded. Then he went out and bet against the MBS that he helped create using the CDS market. In relative terms, he lost 10 cents on his long position and made $1 on the “short” position in the CDS.

Here’s an analogy (albeit imperfect). Let’s say I go out and find a house that I’m highly confident is only worth $200K (let’s say it has myriad defects that only I know about). But I find a group of folks who are willing to buy it for $400K in cash with me as a co-investor. I put up $10K of the $400K. Then let’s assume that there’s a market that allows me to bet on the price of that house and I take a short position that’s several multiples of my $10K long position. The defects are uncovered and the house ultimately sells for $200K and I lose $5K on my long position but I make a multiple of that on my short position.

Basically, Paulson helped Goldman structure mortgage-backed securities DESIGNED to fail, and disguised by the fact that he was a co-investor in the MBS. Then he went out and made leveraged bets against them.

Legal? Apparently. Diabolical? Absolutely. Ethical? I don’t think so.

[davelj]

[quote=deadzone]Why would any big time manager announce their strategy to the world? Not gonna happen. If you’d read the book about Paulson (Greatest Trade Ever) you’d know that he was very secretive about all of his credit default swap dealings. If too many other people were in on his side of the trade it wouldn’t have worked.[/quote]

Let’s be clear about what John Paulson did. He cherry-picked the worst loans he could find and helped Goldman structure them in a way that the resulting MBS would still be classified as “investment grade”. Then Goldman went out and found additional investors to buy the MBS and Paulson provided a sliver of equity to get the deals funded. Then he went out and bet against the MBS that he helped create using the CDS market. In relative terms, he lost 10 cents on his long position and made $1 on the “short” position in the CDS.

Here’s an analogy (albeit imperfect). Let’s say I go out and find a house that I’m highly confident is only worth $200K (let’s say it has myriad defects that only I know about). But I find a group of folks who are willing to buy it for $400K in cash with me as a co-investor. I put up $10K of the $400K. Then let’s assume that there’s a market that allows me to bet on the price of that house and I take a short position that’s several multiples of my $10K long position. The defects are uncovered and the house ultimately sells for $200K and I lose $5K on my long position but I make a multiple of that on my short position.

Basically, Paulson helped Goldman structure mortgage-backed securities DESIGNED to fail, and disguised by the fact that he was a co-investor in the MBS. Then he went out and made leveraged bets against them.

Legal? Apparently. Diabolical? Absolutely. Ethical? I don’t think so.

[davelj]

[quote=deadzone]Why would any big time manager announce their strategy to the world? Not gonna happen. If you’d read the book about Paulson (Greatest Trade Ever) you’d know that he was very secretive about all of his credit default swap dealings. If too many other people were in on his side of the trade it wouldn’t have worked.[/quote]

Let’s be clear about what John Paulson did. He cherry-picked the worst loans he could find and helped Goldman structure them in a way that the resulting MBS would still be classified as “investment grade”. Then Goldman went out and found additional investors to buy the MBS and Paulson provided a sliver of equity to get the deals funded. Then he went out and bet against the MBS that he helped create using the CDS market. In relative terms, he lost 10 cents on his long position and made $1 on the “short” position in the CDS.

Here’s an analogy (albeit imperfect). Let’s say I go out and find a house that I’m highly confident is only worth $200K (let’s say it has myriad defects that only I know about). But I find a group of folks who are willing to buy it for $400K in cash with me as a co-investor. I put up $10K of the $400K. Then let’s assume that there’s a market that allows me to bet on the price of that house and I take a short position that’s several multiples of my $10K long position. The defects are uncovered and the house ultimately sells for $200K and I lose $5K on my long position but I make a multiple of that on my short position.

Basically, Paulson helped Goldman structure mortgage-backed securities DESIGNED to fail, and disguised by the fact that he was a co-investor in the MBS. Then he went out and made leveraged bets against them.

Legal? Apparently. Diabolical? Absolutely. Ethical? I don’t think so.

[davelj]

[quote=patb][quote=faterikcartman][quote=davelj] Furthermore, they can’t find places to loan out the money where they have much comfort.
[/quote]

I’ve wondered if the government bailouts insulate them from having to loan out the money to make money.[/quote]

yes, they are borrowing for free short and buying treasuries. they borrow at 0.25% and get 4.2%.

of course the shock when short rates rise?[/quote]

Well, you’re half right, anyway. They’re borrowing at 25 bps and re-investing at rates averaging about 175 bps these days. Banks have this little thing called asset-liability management and they don’t invest their liquidity in long-term securities – they generally go out a few years at most. And the yields on 2-4 year securities are pretty paltry. Hell, the GSEs are issuing 2-year securities to yield 50 bps (of course, they’re now guaranteed by us). But, still, 150 bps of risk-free spread isn’t bad after accounting for leverage.

http://www.foxbusiness.com/markets/2010/10/06/fannie-mae-sells-billion-year-issue-yield/

So,yes, the bailouts take a little pressure off of having to take risk in underwriting loans, but they’d surely rather make adjustable rate loans with 5.50% floors… if they could find more that they liked. One of the problems with our economy is that there’s too much leverage – don’t we all agree on that? – so why folks would be clamoring for the banks to make more loans is beyond me.

[davelj]

[quote=patb][quote=faterikcartman][quote=davelj] Furthermore, they can’t find places to loan out the money where they have much comfort.
[/quote]

I’ve wondered if the government bailouts insulate them from having to loan out the money to make money.[/quote]

yes, they are borrowing for free short and buying treasuries. they borrow at 0.25% and get 4.2%.

of course the shock when short rates rise?[/quote]

Well, you’re half right, anyway. They’re borrowing at 25 bps and re-investing at rates averaging about 175 bps these days. Banks have this little thing called asset-liability management and they don’t invest their liquidity in long-term securities – they generally go out a few years at most. And the yields on 2-4 year securities are pretty paltry. Hell, the GSEs are issuing 2-year securities to yield 50 bps (of course, they’re now guaranteed by us). But, still, 150 bps of risk-free spread isn’t bad after accounting for leverage.

http://www.foxbusiness.com/markets/2010/10/06/fannie-mae-sells-billion-year-issue-yield/

So,yes, the bailouts take a little pressure off of having to take risk in underwriting loans, but they’d surely rather make adjustable rate loans with 5.50% floors… if they could find more that they liked. One of the problems with our economy is that there’s too much leverage – don’t we all agree on that? – so why folks would be clamoring for the banks to make more loans is beyond me.

[davelj]

[quote=patb][quote=faterikcartman][quote=davelj] Furthermore, they can’t find places to loan out the money where they have much comfort.
[/quote]

I’ve wondered if the government bailouts insulate them from having to loan out the money to make money.[/quote]

yes, they are borrowing for free short and buying treasuries. they borrow at 0.25% and get 4.2%.

of course the shock when short rates rise?[/quote]

Well, you’re half right, anyway. They’re borrowing at 25 bps and re-investing at rates averaging about 175 bps these days. Banks have this little thing called asset-liability management and they don’t invest their liquidity in long-term securities – they generally go out a few years at most. And the yields on 2-4 year securities are pretty paltry. Hell, the GSEs are issuing 2-year securities to yield 50 bps (of course, they’re now guaranteed by us). But, still, 150 bps of risk-free spread isn’t bad after accounting for leverage.

http://www.foxbusiness.com/markets/2010/10/06/fannie-mae-sells-billion-year-issue-yield/

So,yes, the bailouts take a little pressure off of having to take risk in underwriting loans, but they’d surely rather make adjustable rate loans with 5.50% floors… if they could find more that they liked. One of the problems with our economy is that there’s too much leverage – don’t we all agree on that? – so why folks would be clamoring for the banks to make more loans is beyond me.

[davelj]

[quote=patb][quote=faterikcartman][quote=davelj] Furthermore, they can’t find places to loan out the money where they have much comfort.
[/quote]

I’ve wondered if the government bailouts insulate them from having to loan out the money to make money.[/quote]

yes, they are borrowing for free short and buying treasuries. they borrow at 0.25% and get 4.2%.

of course the shock when short rates rise?[/quote]

Well, you’re half right, anyway. They’re borrowing at 25 bps and re-investing at rates averaging about 175 bps these days. Banks have this little thing called asset-liability management and they don’t invest their liquidity in long-term securities – they generally go out a few years at most. And the yields on 2-4 year securities are pretty paltry. Hell, the GSEs are issuing 2-year securities to yield 50 bps (of course, they’re now guaranteed by us). But, still, 150 bps of risk-free spread isn’t bad after accounting for leverage.

http://www.foxbusiness.com/markets/2010/10/06/fannie-mae-sells-billion-year-issue-yield/

So,yes, the bailouts take a little pressure off of having to take risk in underwriting loans, but they’d surely rather make adjustable rate loans with 5.50% floors… if they could find more that they liked. One of the problems with our economy is that there’s too much leverage – don’t we all agree on that? – so why folks would be clamoring for the banks to make more loans is beyond me.

[davelj]

[quote=patb][quote=faterikcartman][quote=davelj] Furthermore, they can’t find places to loan out the money where they have much comfort.
[/quote]

I’ve wondered if the government bailouts insulate them from having to loan out the money to make money.[/quote]

yes, they are borrowing for free short and buying treasuries. they borrow at 0.25% and get 4.2%.

of course the shock when short rates rise?[/quote]

Well, you’re half right, anyway. They’re borrowing at 25 bps and re-investing at rates averaging about 175 bps these days. Banks have this little thing called asset-liability management and they don’t invest their liquidity in long-term securities – they generally go out a few years at most. And the yields on 2-4 year securities are pretty paltry. Hell, the GSEs are issuing 2-year securities to yield 50 bps (of course, they’re now guaranteed by us). But, still, 150 bps of risk-free spread isn’t bad after accounting for leverage.

http://www.foxbusiness.com/markets/2010/10/06/fannie-mae-sells-billion-year-issue-yield/

So,yes, the bailouts take a little pressure off of having to take risk in underwriting loans, but they’d surely rather make adjustable rate loans with 5.50% floors… if they could find more that they liked. One of the problems with our economy is that there’s too much leverage – don’t we all agree on that? – so why folks would be clamoring for the banks to make more loans is beyond me.

[davelj]

[quote=faterikcartman]

I think we’ve been insulated from a lot of inflationary pressure as many institutions that have received dollars from the government trough have not yet done anything with them so they’re not really in circulation.
[/quote]

Agreed. But realize that a lot of these institutions can’t do anything with these dollars. They’ve got capital and liquidity issues that aren’t getting better. Furthermore, they can’t find places to loan out the money where they have much comfort.

So, yes, these dollars will one day get into circulation… but that could be a ways down the road given the fragility of their balance sheets.

[Author]

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