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#1 | ||
∂2ω=0
Sep 2002
República de California
101101111010112 Posts |
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"Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works"
-- John Stuart Mill “Behind every great fortune there is a crime.” -- Honoré de Balzac "The problem these gentlemen had to solve was to readjust the proportion between their wants and their income; and since wants are not easily starved to death, the simpler method appeared to be to raise their income." -- George Eliot, The Mill on the Floss "A lot of what is called innovative is simply a way to find new technology to do what has been forbidden with the old technology ... There are a certain number of tested Wall Street scams that have been forbidden by regulation. If you can find a way to use technology to revive one of these scams, then you are an innovator and you get paid extremely well for the five years these techniques work, and then you go away." -- Martin Mayer, June 2008 interview with Institutional Risk Analytics ---------------------------------------------------------------- Post links to articles and news about this, and your thoughts, here. The particular angle I'll be pursuing by way of background-color is how what actually did and will occur contrasts with the I-knew-nothing fairy tale spun by one of the key regulatory players [in this case actually a non-regulatory player], ex-Federal-Reserve chairman Alan Greenspan, in his new memoir. [Which, to me, verges on what I like to call "autohagiography".] I'll start with a pair of recent op-ed pieces by the NY Times' Paul Krugman, accompanied by choice excerpts: Gone Baby Gone - October 22, 2007 Quote:
Quote:
Extraordinary Popular Delusions and the Madness of Crowds: The Classic History of Popular and Financial-Market Folly by Charles Mackay, first published in 1841 Cafepress.com: The Alfred E. Greenspeuman "What, you should worry?" memorial line of fine apparel and housewares, courtesy of the funnybones at Capitalstool.com Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve: Latest book by Bill Fleckenstein of MSNBC Contrarian Chronicles fame Last fiddled with by ewmayer on 2008-08-13 at 16:48 Reason: Added new links |
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#2 |
"Mark"
Apr 2003
Between here and the
3·23·101 Posts |
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I am not surprised by the problems in the mortgage financing industry. If it was obvious to me a few years ago that there was a bubble (and I am not involved in the industry in any way), it must have been even more obvious to the lenders. I feel absolutely no sympathy for them and their predatory practices.
I do feel sorry for some (albeit a small percentage) of the borrowers who got caught up in this, but not all. Some borrowers probably lost jobs or faced financial crises out of there control, such as a death or illness. I suspect many borrowers were looking to make a quick buck when housing prices jumped as dramatically as they did. Others certainly borrowed to the limit of their means. I have heard of people who put so much money into a mortgage payment that they cannot even furnish their house. I know of others who don't save either for retirement or for emergency reasons and some of these are people who have a family income over $100,000. They assume that the government will take of them when they retire. I do not want the government to bail out the lenders, but it would be nice if they could help lenders refinance the more stable borrowers that have an ARM to get a fixed rate loan. I suspect that most people with ARM loans are in that boat. It would be a win-win situation for both the lenders and the borrowers, although it would just mean more of our tax money to make it happen. |
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#3 | |
P90 years forever!
Aug 2002
Yeehaw, FL
5×23×71 Posts |
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How 'bout this for a bailout: If and only if the government needs to step in to avoid a "banking crisis", we approach the banks with the ruthlessness of a venture capitalist smelling blood. If a bank needs $100 million of bailout cash it will cost them $500 million worth of newly issued preferred stock. Sure, the current shareholders will be screwed but thats the risk they took when they invested. On the plus side, the shareholders will demand management's heads on a silver platter. My only bailout for homeowners: It is my understanding that in some cases current law prevents loans from being renegotiated - even if it is in the best interest of both the bank and the homeowner. Foreclosure becomes the bank's only option. If possible, pass a law making renegotiation in as many cases as possible. |
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#4 | |
"Jacob"
Sep 2006
Brussels, Belgium
77316 Posts |
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Jacob |
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#5 |
Feb 2006
AR, US
9016 Posts |
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Most mortgages are packaged together and sold as investment vehicles (CDOs) to 'investors'. If the terms on the mortgages are changed (re-negotiation of rates or re-payment schedules, etc) then the investors have the option to force the mortgage lenders (Country-wide, Citigroup, etc) to take back the loans. This is what the mortgage lenders fear most, since the amount of 'problem' loans exceeds $800B (for starters). Thus, the creation of this superfund is to keep these loans from being priced to market, casuing every problem loan (not just mortgages) being priced realistically.
As bad as it's been so far, the worst is yet to come. The 'worst' loans will re-set in three phases in 2008, and the face-value amount of those dwarfs what has occurred so far. My 19-year old son has been inquiring about buying a house lately. My 'education' to him has been that, there are a hundred different ways to buy a house, but there's only one 'best' way. If a young adult can understand the basics of mortgages (read the fine print), and do simple amortization schedules on a calculator, any one else can also (or ask someone who knows). There is simply no excuse for people not knowing what they're getting into - no excuse for having a 'deer-in-the-headlights' look on their face when a mortgage broker sells them a no-down, no-documentation loan, whose payment exceeds 40% of their income. The borrowers should not be bailed out - the lenders should not be bailed out. It is unconscionable to use taxpayer $$ to protect greed-mongers and idiots from themselves. Capitalist 'constructive destruction' should be allowed to work here. That would get the crisis resolved sooner rather than later. Any bailout is just going to prolong and worsen the problem. |
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#6 |
(loop (#_fork))
Feb 2006
Cambridge, England
2·7·461 Posts |
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On the other hand, it would seem wise also to smite the mortgage-brokers with the largest available smiting device; no professional broker, and indeed no honourable person, should have sold such a person such a product.
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#7 | ||
∂2ω=0
Sep 2002
República de California
101101111010112 Posts |
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Why on earth, Fortune's Allan Sloan asks, should we protect banks from their mistakes?
http://money.cnn.com/2007/10/26/maga...ion=2007102910 Very much along the lines of what George says above: Quote:
Edit: And in related news... The $915B bomb in consumers' wallets: http://money.cnn.com/2007/10/29/maga...ion=2007103013 One nitpick with the above article: Quote:
Last fiddled with by ewmayer on 2007-10-30 at 20:59 |
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#8 | |
∂2ω=0
Sep 2002
República de California
5×2,351 Posts |
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http://money.cnn.com/2007/11/01/real...ion=2007110112
Quote:
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#9 |
∂2ω=0
Sep 2002
República de California
5·2,351 Posts |
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Responsible loan payers are crying foul about the breaks that delinquent borrowers are getting:
http://money.cnn.com/2007/11/01/real...ion=2007110511 |
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#10 |
Aug 2002
43·199 Posts |
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We bought a new townhouse in 2005 at 5.875% on a 30 year fixed loan. We bought what we could afford and not what the sales people told us we could afford.
We have the same thoughts as the woman in that article. ![]() |
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#11 | |
Bamboozled!
"𒉺𒌌𒇷𒆷𒀭"
May 2003
Down not across
2×73×17 Posts |
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There's nothing intrinsically right or wrong with either fixed or adjustable mortgage rates, AFAICT. FWIW, my 25-year mortgage expires at the end of 2008. It's been on an adjustable rate since it started. Paul |
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