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ucodegen
ParticipantGood point but the GSE contributed maybe 3% to the crash.
Actually the contributed a lot more.. Just look at how much TARP money they have taken (almost 100Bil with a cap of 400Bil-fed expecting more?) compared to;
Goldman Sachs – 10Bil – paid back
JPMorgan – 25Bil – paid back
Morgan Stanley – 10Bil – paid back
Wells Fargo – 25Bil
BofA – 45Bil (15Bil initially, 10B inherited from Merrill, 20Bil additional- probably to grease Merrill shotgun wedding).Fannie = 45Bil
Freddie = 50BilThe crash first occurred with non-GSE backed subprime loans, and they infected the GSE loans.
GSE’s also had subprime.. and the crash did not start with the loans.. it started with the Credit Default Swaps that occurred as loans went bad. The Credit Default Swaps were not being properly priced to risk of default. Take a look at how much AIG took in on TARP (69Bil in warrants, 37.8Bil in more loans just approved with an 85Bil Credit line).. AIG is an insurance company, not a bank. There was a mindset that RE always goes up, so a loan at 100%LTV was good because you could always resell the property to cover the loan irregardless of FICO or ability to pay.
Freddie had over 25Bil sub-prime loans. I can’t find the amount that Fannie had because they often bought securitized loans.. not actual loans. One thing to note is that Fannie’s default rate is almost 2x Freddies.
You stated ‘infected the GSE loans’.. so just how do you ‘infect’ a loan? It doesn’t work that way. Loans don’t have viruses. Either the loan is written well or written poorly. It is money, value of the property and the ability to repay, period(to copy a word you used – loans are fairly black and white). This is why banks like New York Mellon repaid TARP quickly and others are taking longer or went under. Freddie and Fannie were doing 100%+ LTVs during the ‘craze’ and many of these fit under the community reinvestment act. The increased interest rate on loans offsets the risk of default. CRA tried to violate that tenant. It also pushed Fannie and Freddie outside of their traditional 80% max LTV, high FICO score area.
Community reinvestment loans were never the problem as Rush likes to claim.
Rush is actually partially right.. the problem with Rush is that the truth gets trampled in his rush to the ‘goal post’, so I completely ignore him. He takes a small grain of truth and then blows it up all out of proportion.. ignoring everything else to the contrary.
Speculation on flip properties, whether the flippers were residents or not, was the problem.
Flippers were actually a very small part of the problem. Who buys the property from the flipper after the inflated price? If no-one does, flippers don’t survive. Another part of the problem was the RE brokers pumping that ‘you have to buy now or forever be priced out!’. This caused people to get caught up in the moment and taking un-necessary risk, combined with really funky loans to try to keep it all going. Add in mortgage brokers steering people into improper loans with high kickbacks to the mortgage broker, mortgage brokers mis-stating income on the loans so that people could qualify… and you have a disaster.
ParticipantGood point but the GSE contributed maybe 3% to the crash.
Actually the contributed a lot more.. Just look at how much TARP money they have taken (almost 100Bil with a cap of 400Bil-fed expecting more?) compared to;
Goldman Sachs – 10Bil – paid back
JPMorgan – 25Bil – paid back
Morgan Stanley – 10Bil – paid back
Wells Fargo – 25Bil
BofA – 45Bil (15Bil initially, 10B inherited from Merrill, 20Bil additional- probably to grease Merrill shotgun wedding).Fannie = 45Bil
Freddie = 50BilThe crash first occurred with non-GSE backed subprime loans, and they infected the GSE loans.
GSE’s also had subprime.. and the crash did not start with the loans.. it started with the Credit Default Swaps that occurred as loans went bad. The Credit Default Swaps were not being properly priced to risk of default. Take a look at how much AIG took in on TARP (69Bil in warrants, 37.8Bil in more loans just approved with an 85Bil Credit line).. AIG is an insurance company, not a bank. There was a mindset that RE always goes up, so a loan at 100%LTV was good because you could always resell the property to cover the loan irregardless of FICO or ability to pay.
Freddie had over 25Bil sub-prime loans. I can’t find the amount that Fannie had because they often bought securitized loans.. not actual loans. One thing to note is that Fannie’s default rate is almost 2x Freddies.
You stated ‘infected the GSE loans’.. so just how do you ‘infect’ a loan? It doesn’t work that way. Loans don’t have viruses. Either the loan is written well or written poorly. It is money, value of the property and the ability to repay, period(to copy a word you used – loans are fairly black and white). This is why banks like New York Mellon repaid TARP quickly and others are taking longer or went under. Freddie and Fannie were doing 100%+ LTVs during the ‘craze’ and many of these fit under the community reinvestment act. The increased interest rate on loans offsets the risk of default. CRA tried to violate that tenant. It also pushed Fannie and Freddie outside of their traditional 80% max LTV, high FICO score area.
Community reinvestment loans were never the problem as Rush likes to claim.
Rush is actually partially right.. the problem with Rush is that the truth gets trampled in his rush to the ‘goal post’, so I completely ignore him. He takes a small grain of truth and then blows it up all out of proportion.. ignoring everything else to the contrary.
Speculation on flip properties, whether the flippers were residents or not, was the problem.
Flippers were actually a very small part of the problem. Who buys the property from the flipper after the inflated price? If no-one does, flippers don’t survive. Another part of the problem was the RE brokers pumping that ‘you have to buy now or forever be priced out!’. This caused people to get caught up in the moment and taking un-necessary risk, combined with really funky loans to try to keep it all going. Add in mortgage brokers steering people into improper loans with high kickbacks to the mortgage broker, mortgage brokers mis-stating income on the loans so that people could qualify… and you have a disaster.
ParticipantStill, what the Banks said would be fixed, when Paulson threatened us with martial law has not been done. CREDIT IS STILL CONTRACTING, which is the driver of all economic woes.
Some of it still needs to contract. There was some stupid lending. I am still seeing lending being done. My Mother is currently re-financing the house to lock in a good rate. I was showing her how to use the fact that her LTV is around 18% to strong-arm the banks. She is looking at a 4.113% 5yr fixed, LIBOR based ARM with a 9% cap as well as a 5.113% Fixed 30 year. I am trying to convince her to go Fixed because I suspect the interest rates are going to go up in about 1 year.
I suspect that people in general, got used to stupid lending… and now that lending is not so stupid, they see it as overtightening.
(1) Throwing trillions of dollars at the “too big to fails”, instead of admitting that many of them are insolvent
Some of the too big to fails.. are really solvent, on the other hand others, ie AIG are really toast. Many of these ‘too big to fails’ are paying back their TARP money (which was a loan in comparison to the following stimulus money) AIG will probably never be able to repay its TARP money. Freddie probably will, unless they sacrifice their recovery to prop up house prices..
http://finance.yahoo.com/news/Government-unveils-new-apf-2353211474.html?x=0&.v=11
Maybe this is why the existing conservator was replaced..
Fannie Mae has a bigger risk of failing than Freddie.(3) Failing to restore Glass-Steagall, reign in credit default swaps, or do anything else necessary to stabilize the financial system
One of the biggest problems were the SIVs which were completely opaque. This makes it hard to understand the condition of a borrower. There was the potential of all sorts of toxic waste in those SIVs. Credit Default Swaps should be treated as a insurance of margin product.. which is what it really is.
(5) Failing to take real measures to decrease employment and increase manufacturing
I think you meant to say ‘decrease unemployment’..
(6) Creating an enormous debt overhang and trashing our currency
This is one of the reasons that I felt that TARP money should have come from ‘printed’ money and not Treasury bills. The TARP money has to be repaid.. and to make inflation neutral, the fed only has to collect the interest and ‘destroy’ the principal when it gets returned. The result would have been a significantly smaller debt overhang.
ParticipantStill, what the Banks said would be fixed, when Paulson threatened us with martial law has not been done. CREDIT IS STILL CONTRACTING, which is the driver of all economic woes.
Some of it still needs to contract. There was some stupid lending. I am still seeing lending being done. My Mother is currently re-financing the house to lock in a good rate. I was showing her how to use the fact that her LTV is around 18% to strong-arm the banks. She is looking at a 4.113% 5yr fixed, LIBOR based ARM with a 9% cap as well as a 5.113% Fixed 30 year. I am trying to convince her to go Fixed because I suspect the interest rates are going to go up in about 1 year.
I suspect that people in general, got used to stupid lending… and now that lending is not so stupid, they see it as overtightening.
(1) Throwing trillions of dollars at the “too big to fails”, instead of admitting that many of them are insolvent
Some of the too big to fails.. are really solvent, on the other hand others, ie AIG are really toast. Many of these ‘too big to fails’ are paying back their TARP money (which was a loan in comparison to the following stimulus money) AIG will probably never be able to repay its TARP money. Freddie probably will, unless they sacrifice their recovery to prop up house prices..
http://finance.yahoo.com/news/Government-unveils-new-apf-2353211474.html?x=0&.v=11
Maybe this is why the existing conservator was replaced..
Fannie Mae has a bigger risk of failing than Freddie.(3) Failing to restore Glass-Steagall, reign in credit default swaps, or do anything else necessary to stabilize the financial system
One of the biggest problems were the SIVs which were completely opaque. This makes it hard to understand the condition of a borrower. There was the potential of all sorts of toxic waste in those SIVs. Credit Default Swaps should be treated as a insurance of margin product.. which is what it really is.
(5) Failing to take real measures to decrease employment and increase manufacturing
I think you meant to say ‘decrease unemployment’..
(6) Creating an enormous debt overhang and trashing our currency
This is one of the reasons that I felt that TARP money should have come from ‘printed’ money and not Treasury bills. The TARP money has to be repaid.. and to make inflation neutral, the fed only has to collect the interest and ‘destroy’ the principal when it gets returned. The result would have been a significantly smaller debt overhang.
ParticipantStill, what the Banks said would be fixed, when Paulson threatened us with martial law has not been done. CREDIT IS STILL CONTRACTING, which is the driver of all economic woes.
Some of it still needs to contract. There was some stupid lending. I am still seeing lending being done. My Mother is currently re-financing the house to lock in a good rate. I was showing her how to use the fact that her LTV is around 18% to strong-arm the banks. She is looking at a 4.113% 5yr fixed, LIBOR based ARM with a 9% cap as well as a 5.113% Fixed 30 year. I am trying to convince her to go Fixed because I suspect the interest rates are going to go up in about 1 year.
I suspect that people in general, got used to stupid lending… and now that lending is not so stupid, they see it as overtightening.
(1) Throwing trillions of dollars at the “too big to fails”, instead of admitting that many of them are insolvent
Some of the too big to fails.. are really solvent, on the other hand others, ie AIG are really toast. Many of these ‘too big to fails’ are paying back their TARP money (which was a loan in comparison to the following stimulus money) AIG will probably never be able to repay its TARP money. Freddie probably will, unless they sacrifice their recovery to prop up house prices..
http://finance.yahoo.com/news/Government-unveils-new-apf-2353211474.html?x=0&.v=11
Maybe this is why the existing conservator was replaced..
Fannie Mae has a bigger risk of failing than Freddie.(3) Failing to restore Glass-Steagall, reign in credit default swaps, or do anything else necessary to stabilize the financial system
One of the biggest problems were the SIVs which were completely opaque. This makes it hard to understand the condition of a borrower. There was the potential of all sorts of toxic waste in those SIVs. Credit Default Swaps should be treated as a insurance of margin product.. which is what it really is.
(5) Failing to take real measures to decrease employment and increase manufacturing
I think you meant to say ‘decrease unemployment’..
(6) Creating an enormous debt overhang and trashing our currency
This is one of the reasons that I felt that TARP money should have come from ‘printed’ money and not Treasury bills. The TARP money has to be repaid.. and to make inflation neutral, the fed only has to collect the interest and ‘destroy’ the principal when it gets returned. The result would have been a significantly smaller debt overhang.
ParticipantStill, what the Banks said would be fixed, when Paulson threatened us with martial law has not been done. CREDIT IS STILL CONTRACTING, which is the driver of all economic woes.
Some of it still needs to contract. There was some stupid lending. I am still seeing lending being done. My Mother is currently re-financing the house to lock in a good rate. I was showing her how to use the fact that her LTV is around 18% to strong-arm the banks. She is looking at a 4.113% 5yr fixed, LIBOR based ARM with a 9% cap as well as a 5.113% Fixed 30 year. I am trying to convince her to go Fixed because I suspect the interest rates are going to go up in about 1 year.
I suspect that people in general, got used to stupid lending… and now that lending is not so stupid, they see it as overtightening.
(1) Throwing trillions of dollars at the “too big to fails”, instead of admitting that many of them are insolvent
Some of the too big to fails.. are really solvent, on the other hand others, ie AIG are really toast. Many of these ‘too big to fails’ are paying back their TARP money (which was a loan in comparison to the following stimulus money) AIG will probably never be able to repay its TARP money. Freddie probably will, unless they sacrifice their recovery to prop up house prices..
http://finance.yahoo.com/news/Government-unveils-new-apf-2353211474.html?x=0&.v=11
Maybe this is why the existing conservator was replaced..
Fannie Mae has a bigger risk of failing than Freddie.(3) Failing to restore Glass-Steagall, reign in credit default swaps, or do anything else necessary to stabilize the financial system
One of the biggest problems were the SIVs which were completely opaque. This makes it hard to understand the condition of a borrower. There was the potential of all sorts of toxic waste in those SIVs. Credit Default Swaps should be treated as a insurance of margin product.. which is what it really is.
(5) Failing to take real measures to decrease employment and increase manufacturing
I think you meant to say ‘decrease unemployment’..
(6) Creating an enormous debt overhang and trashing our currency
This is one of the reasons that I felt that TARP money should have come from ‘printed’ money and not Treasury bills. The TARP money has to be repaid.. and to make inflation neutral, the fed only has to collect the interest and ‘destroy’ the principal when it gets returned. The result would have been a significantly smaller debt overhang.
ParticipantStill, what the Banks said would be fixed, when Paulson threatened us with martial law has not been done. CREDIT IS STILL CONTRACTING, which is the driver of all economic woes.
Some of it still needs to contract. There was some stupid lending. I am still seeing lending being done. My Mother is currently re-financing the house to lock in a good rate. I was showing her how to use the fact that her LTV is around 18% to strong-arm the banks. She is looking at a 4.113% 5yr fixed, LIBOR based ARM with a 9% cap as well as a 5.113% Fixed 30 year. I am trying to convince her to go Fixed because I suspect the interest rates are going to go up in about 1 year.
I suspect that people in general, got used to stupid lending… and now that lending is not so stupid, they see it as overtightening.
(1) Throwing trillions of dollars at the “too big to fails”, instead of admitting that many of them are insolvent
Some of the too big to fails.. are really solvent, on the other hand others, ie AIG are really toast. Many of these ‘too big to fails’ are paying back their TARP money (which was a loan in comparison to the following stimulus money) AIG will probably never be able to repay its TARP money. Freddie probably will, unless they sacrifice their recovery to prop up house prices..
http://finance.yahoo.com/news/Government-unveils-new-apf-2353211474.html?x=0&.v=11
Maybe this is why the existing conservator was replaced..
Fannie Mae has a bigger risk of failing than Freddie.(3) Failing to restore Glass-Steagall, reign in credit default swaps, or do anything else necessary to stabilize the financial system
One of the biggest problems were the SIVs which were completely opaque. This makes it hard to understand the condition of a borrower. There was the potential of all sorts of toxic waste in those SIVs. Credit Default Swaps should be treated as a insurance of margin product.. which is what it really is.
(5) Failing to take real measures to decrease employment and increase manufacturing
I think you meant to say ‘decrease unemployment’..
(6) Creating an enormous debt overhang and trashing our currency
This is one of the reasons that I felt that TARP money should have come from ‘printed’ money and not Treasury bills. The TARP money has to be repaid.. and to make inflation neutral, the fed only has to collect the interest and ‘destroy’ the principal when it gets returned. The result would have been a significantly smaller debt overhang.
ParticipantThe Republicans real estate folks will never admit that they are operating in a socialist market with countless subsidies that artificially prop up real estate prices and magnify inefficiencies.
I would love the estate estate Republicans to lobby for the removal of real estate support and for letting the “real” free market flourish.
Slight problem here.. almost all RE folks want the market propped up.. and not all RE folks are Republicans. RE brokers make a percentage of the sale (6% for sole broker, 3% on split commission). The higher the RE price.. the more they make.. therefore, regardless of party affiliation, they tend to want higher RE prices.
Some Republicans are taking the reverse position and sold of RE or are taking a short position on Real Estate related companies (ie. builders).
I know that it will never happen.
Considering that we have a Democratic President and House and Senate are largely Democratic… why? Three reasons.. Pelosi, Raines, Franks.. who are ‘staunch’ Democrats and are working hard behind the scenes to find ways to support RE prices. These are the same three who subverted bills to regulate the GSEs and banks from unsafe lending, which helped create the bubble and left us where we are now.
ParticipantThe Republicans real estate folks will never admit that they are operating in a socialist market with countless subsidies that artificially prop up real estate prices and magnify inefficiencies.
I would love the estate estate Republicans to lobby for the removal of real estate support and for letting the “real” free market flourish.
Slight problem here.. almost all RE folks want the market propped up.. and not all RE folks are Republicans. RE brokers make a percentage of the sale (6% for sole broker, 3% on split commission). The higher the RE price.. the more they make.. therefore, regardless of party affiliation, they tend to want higher RE prices.
Some Republicans are taking the reverse position and sold of RE or are taking a short position on Real Estate related companies (ie. builders).
I know that it will never happen.
Considering that we have a Democratic President and House and Senate are largely Democratic… why? Three reasons.. Pelosi, Raines, Franks.. who are ‘staunch’ Democrats and are working hard behind the scenes to find ways to support RE prices. These are the same three who subverted bills to regulate the GSEs and banks from unsafe lending, which helped create the bubble and left us where we are now.
ParticipantThe Republicans real estate folks will never admit that they are operating in a socialist market with countless subsidies that artificially prop up real estate prices and magnify inefficiencies.
I would love the estate estate Republicans to lobby for the removal of real estate support and for letting the “real” free market flourish.
Slight problem here.. almost all RE folks want the market propped up.. and not all RE folks are Republicans. RE brokers make a percentage of the sale (6% for sole broker, 3% on split commission). The higher the RE price.. the more they make.. therefore, regardless of party affiliation, they tend to want higher RE prices.
Some Republicans are taking the reverse position and sold of RE or are taking a short position on Real Estate related companies (ie. builders).
I know that it will never happen.
Considering that we have a Democratic President and House and Senate are largely Democratic… why? Three reasons.. Pelosi, Raines, Franks.. who are ‘staunch’ Democrats and are working hard behind the scenes to find ways to support RE prices. These are the same three who subverted bills to regulate the GSEs and banks from unsafe lending, which helped create the bubble and left us where we are now.
ParticipantThe Republicans real estate folks will never admit that they are operating in a socialist market with countless subsidies that artificially prop up real estate prices and magnify inefficiencies.
I would love the estate estate Republicans to lobby for the removal of real estate support and for letting the “real” free market flourish.
Slight problem here.. almost all RE folks want the market propped up.. and not all RE folks are Republicans. RE brokers make a percentage of the sale (6% for sole broker, 3% on split commission). The higher the RE price.. the more they make.. therefore, regardless of party affiliation, they tend to want higher RE prices.
Some Republicans are taking the reverse position and sold of RE or are taking a short position on Real Estate related companies (ie. builders).
I know that it will never happen.
Considering that we have a Democratic President and House and Senate are largely Democratic… why? Three reasons.. Pelosi, Raines, Franks.. who are ‘staunch’ Democrats and are working hard behind the scenes to find ways to support RE prices. These are the same three who subverted bills to regulate the GSEs and banks from unsafe lending, which helped create the bubble and left us where we are now.
ParticipantThe Republicans real estate folks will never admit that they are operating in a socialist market with countless subsidies that artificially prop up real estate prices and magnify inefficiencies.
I would love the estate estate Republicans to lobby for the removal of real estate support and for letting the “real” free market flourish.
Slight problem here.. almost all RE folks want the market propped up.. and not all RE folks are Republicans. RE brokers make a percentage of the sale (6% for sole broker, 3% on split commission). The higher the RE price.. the more they make.. therefore, regardless of party affiliation, they tend to want higher RE prices.
Some Republicans are taking the reverse position and sold of RE or are taking a short position on Real Estate related companies (ie. builders).
I know that it will never happen.
Considering that we have a Democratic President and House and Senate are largely Democratic… why? Three reasons.. Pelosi, Raines, Franks.. who are ‘staunch’ Democrats and are working hard behind the scenes to find ways to support RE prices. These are the same three who subverted bills to regulate the GSEs and banks from unsafe lending, which helped create the bubble and left us where we are now.
ParticipantJust redistributing wealth through social programs is much akin to giving you kid an allowance. It doesn’t motivate him to find a way to earn more.
Actually it is closer to taking money from the kid that decided to go out and get a summer job and giving it to the kid who decided to do a ‘beach bum summer’..
While ‘redistributing wealth’ has benefits, it also has some severe costs. The act of redistribution does not create value.. just ‘redistributes’ it. The act of redistribution is also a powerful dis-incentive to those that sacrificed their own time to create it. I bet that kid who decided to go for a summer job would have preferred to do a ‘beach bum summer’.
Redistribution of wealth can have a beneficial effect in offsetting the powers of scale when dealing with income. As a person earns successively more, the percentage of that income going to survival level necessities decreases. This leaves discretionary income for many purposes. Taking a small amount of this ‘excess’ is not that much a problem, but removing a large portion would disincentivize the person from putting out the effort to produce this income.
Pick up a book on economics, Thomas Sowell has some good fast reads. You will learn that government spending is simply someone else deciding how to your money should be spent.
There is one area that government spending is useful. Remember, not all spending comes from taxes.. some comes from ‘printing’ as well. One area that government spending is useful is in recovery from recessions or preventions of depressions. Generally, the government should be paying down its borrowed money when the economy is healthy or becoming ‘overheated’. The government needs to do the reverse (spending money) when times get tight. It controls the currency and needs to be a balancing force against the extremities of the market. Unfortunately, not many politicians seem to have the self control to ‘save for a rainy day’.
ParticipantJust redistributing wealth through social programs is much akin to giving you kid an allowance. It doesn’t motivate him to find a way to earn more.
Actually it is closer to taking money from the kid that decided to go out and get a summer job and giving it to the kid who decided to do a ‘beach bum summer’..
While ‘redistributing wealth’ has benefits, it also has some severe costs. The act of redistribution does not create value.. just ‘redistributes’ it. The act of redistribution is also a powerful dis-incentive to those that sacrificed their own time to create it. I bet that kid who decided to go for a summer job would have preferred to do a ‘beach bum summer’.
Redistribution of wealth can have a beneficial effect in offsetting the powers of scale when dealing with income. As a person earns successively more, the percentage of that income going to survival level necessities decreases. This leaves discretionary income for many purposes. Taking a small amount of this ‘excess’ is not that much a problem, but removing a large portion would disincentivize the person from putting out the effort to produce this income.
Pick up a book on economics, Thomas Sowell has some good fast reads. You will learn that government spending is simply someone else deciding how to your money should be spent.
There is one area that government spending is useful. Remember, not all spending comes from taxes.. some comes from ‘printing’ as well. One area that government spending is useful is in recovery from recessions or preventions of depressions. Generally, the government should be paying down its borrowed money when the economy is healthy or becoming ‘overheated’. The government needs to do the reverse (spending money) when times get tight. It controls the currency and needs to be a balancing force against the extremities of the market. Unfortunately, not many politicians seem to have the self control to ‘save for a rainy day’.
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