|
Best Porn Sites | Live Sex | Register | FAQ | Members List | Calendar |
General Discussion & News Want to speak your mind about something ... do it here. |
|
Thread Tools | Display Modes |
August 19th, 2011, 04:55 PM | #11 | |
Former Staff
Join Date: Sep 2009
Posts: 16,579
Thanks: 452,836
Thanked 222,662 Times in 16,567 Posts
|
Quote:
We all know the assets failed because the mortgages failed, but without securitization most of those mortgages would never have been given in the first place. So we have to look elsewhere The trouble was that the loans did not stay with the originators as they would have done X years ago. In those days, and still today almost everywhere else in the world, you would never get a mortgage (or any loan, for that matter) unless the lender knew you had an excellent chance of paying it back. And to lessen the risk, you would have to make a good-sized downpayment, just in case But with securitization, the loans did not stay with originators, but were cut up, spread around different CDOs, given a AAA rating, and sold to investors, with the result that the originators didn't lose anything when the mortgages didn't perform. Which changed the incentives completely Who did it make happy? - the homebuyers, because they got a house they would otherwise never get; the mortgage brokers, because they got bonuses for the deals; the originators, because they got their bonuses too; the rating agencies, because they got big fees for total incompetence at best, and downright fraud at worst; and the fat cats on Wall St because they made gazillions selling the CDOs Now ask yourself who was burned, and who came out of it with millions in their pockets and, it seems, no liability The guys who got burned were the homebuyers, investors and taxpayers. Which leaves the rip-off artists... It was all a big fraud, deeps, and the trouble really was securitization, ie, the toxic assets |
|
The Following 10 Users Say Thank You to palo5 For This Useful Post: |
August 19th, 2011, 05:34 PM | #12 | |
Moderator
Join Date: Jul 2007
Location: Upper left corner
Posts: 7,213
Thanks: 48,028
Thanked 83,528 Times in 7,207 Posts
|
Quote:
Securitization was mostly a good thing. The problem with "retained loans" for lenders is that it results in dramatic over-concentration of risk. Banks that only make loans in a narrow "home market" are excessively vulnerable to that home market-- and they can blow up too. An example of that would be the Irish real estate bubble, and the destruction of the Irish banking system. These were loans made by Irish banks, to develop and purchase Irish real estate assets, and these loans were kept on their books . . . and Ireland's financial disaster is the equal of anyone else's . . . The "root cause" of the crisis, IMO, is the leverage in the system -- Bear Stearns and Lehman Brothers were leveraged 40 to 1 before they collapsed. That's simply too high . . . you borrow with %2.5 down, and sooner or later disaster will strike. Add to that a combination of government guarantees (explicit and implicit) and the ability of institutions to threaten systemic collapse, and you have a disaster. Put it another way: No institution capable of threatening the financial system should be allowed to lever up, 40-1. You want to roll the dice on some high risk/high reward strategy? Fine, do it in some "quarantined" vehicle which doesn't contaminate the rest of the system. Your point about the AAA credit ascribed to the various slices of synthetic securities is well taken. This was a strange bit of "finance fiction", based on mathematical models applied to a relatively small historical data set. Was it a "fraud"? No, I don't think so . . . it was reckless and while there certainly were instances of fraud, I'd say that the problem is much a very poor design. |
|
The Following 10 Users Say Thank You to deepsepia For This Useful Post: |
August 19th, 2011, 06:11 PM | #13 | |
Former Staff
Join Date: Sep 2009
Posts: 16,579
Thanks: 452,836
Thanked 222,662 Times in 16,567 Posts
|
It was good for bankers and the rating agencies. Can't fault you there
Quote:
The AAA thing had an excellent joke about it in a place I can't remember: "Banker goes to rating agent. Tells him he needs to sell a thousand piles of shit to bozos, but needs a triple-A to do it. He'll pay the rater extra The rater thinks a bit. That money looks handy. So he gives the triple-A and tells investors 'Buy this brown-colored gold - it's as good as US Treasuries' " |
|
August 19th, 2011, 06:26 PM | #14 | ||
Moderator
Join Date: Jul 2007
Location: Upper left corner
Posts: 7,213
Thanks: 48,028
Thanked 83,528 Times in 7,207 Posts
|
Quote:
Quote:
The impact of the ratings agencies was to permit more leverage to be applied to these instruments. There's nothing wrong with someone who wants to buy a package of dodgy loans -- that's how poor folks can buy things. You just shouldn't be levering them 40 to 1 |
||
The Following 9 Users Say Thank You to deepsepia For This Useful Post: |
August 19th, 2011, 06:56 PM | #15 | ||
Former Staff
Join Date: Sep 2009
Posts: 16,579
Thanks: 452,836
Thanked 222,662 Times in 16,567 Posts
|
How?
Quote:
Quote:
But that's no reason to trust the judgment of "the market". They're the ones who mostly cause bubbles and busts, after all Wouldn't be bad if we had someone who did what the ratings agencies obviously don't, namely Due Diligence |
||
The Following 8 Users Say Thank You to palo5 For This Useful Post: |
August 19th, 2011, 07:14 PM | #16 | |||
Moderator
Join Date: Jul 2007
Location: Upper left corner
Posts: 7,213
Thanks: 48,028
Thanked 83,528 Times in 7,207 Posts
|
Good for borrowers -- much greater availability of credit.
Good for savers-- able to build a much more diversified, higher yielding and resilient pool of interest earning assets. In essence, a Mortgage Backed Security or Collateralized Loan Obligation (CLO) is like a savings and loan ("building society" for those in the UK) without current operations. That is, in 1960, if you bought shares in "Springfield Savings and Loan", you were buying "securitized mortgages" AND an operation which was continuing to create new mortgages. The CMO/CLO business takes the continuing operation of loan origination and distributes risk much more broadly. The problem with "Springfield Savings and Loan" as a mortgage funding instrument is that the performance of the mortgages will co-vary, that is they're likely to all go bad at the same time. This happened in the US in the oil patch (Penn Square Bank) when oil busted, for example. And it just happened in Ireland. Optimally, you don't want your financial system to be so interwoven with local factors that when some local problem hits the economy, it then destroys your financial system as well. So spreading risk is much better. Quote:
Quote:
Quote:
Today, that's the suspicion with Societe Generale and the other European banks. They have Greek loans on their books (we don't know how much) and they're claiming minimal impairments, when the way the loans are trading, we know they're fucked. Which do you think is more truthful, the market price, or the banker's ascribed price? DD is the obligation of a fiduciary, which they are not. The impact of the ratings has been to insulate fiduciaries from the need to do their own DD. |
|||
The Following 7 Users Say Thank You to deepsepia For This Useful Post: |
August 19th, 2011, 08:12 PM | #17 | ||
Former Staff
Join Date: Sep 2009
Posts: 16,579
Thanks: 452,836
Thanked 222,662 Times in 16,567 Posts
|
Quote:
Quote:
|
||
August 19th, 2011, 08:36 PM | #18 | |
Moderator
Join Date: Jul 2007
Location: Upper left corner
Posts: 7,213
Thanks: 48,028
Thanked 83,528 Times in 7,207 Posts
|
Quote:
So bankers, obligingly, figured out how to lend us money against all that equity we'd built up in things like homes. At the same time, the central banks decided that housing asset prices were a kind of wealth, and were happy to let them do it. So effectively we ramped up consumption, fueled by loans against stuff that's not worth nearly as much as we claimed/hoped. So what do you get? Consumption collapses, impairing the value of any but the best credits. At the end of the day, no matter what S&P may think, the United States can print dollars, and US Treasuries are the only deep and liquid pool to absorb the wealth of surplus nations (look at what's happened to "poor" Switzerland as folks have crowded into the Swiss Franc) Our model doesn't really have a place for countries with prolonged consumption shortfalls . . . look at Japan. They keep piling on debt, consumption has gone nowhere for twenty years. Theory suggests that this shouldn't have happened this way . . . and yet it has. The paradox is: you assume that as prices fall, that stimulates more demand . . . but what if it doesn't? What if, as prices fall, folks who own (probably leveraged) assets, get more scared, consume less, and are moved to sell rather than buy assets? Was very nostalgic when Comrade Putin resurrected that old familiar term, "parasite". The curious thing -- the Soviet Union used to be a very reliable credit. Paid their bills on time . . . . . . but old Soviets knew that the market price was very different than the official price, and they knew which one was "true". |
|
The Following 7 Users Say Thank You to deepsepia For This Useful Post: |
August 22nd, 2011, 11:59 PM | #19 | |
Moderator
Join Date: Jul 2007
Location: Upper left corner
Posts: 7,213
Thanks: 48,028
Thanked 83,528 Times in 7,207 Posts
|
useful reading . . . good book, not my link, prop to OP
"Why are there so many banking crises?" This book would be the "markets will solve the problem, if you have an appropriate regulatory regime" position -- its not a proven argument (the left counter would be "the weight of money will undermine any regulatory regime you might come up with, eventually") Quote:
Code:
http://www.filesonic.com/file/1734994334/Rochet_-_Why_are_there_So_Many_Banking_Crises;_The_Politics_and_Policy_of_Bank_Regulation_(2007).pdf |
|
The Following 6 Users Say Thank You to deepsepia For This Useful Post: |
August 23rd, 2011, 08:07 PM | #20 | ||
Former Staff
Join Date: Sep 2009
Posts: 16,579
Thanks: 452,836
Thanked 222,662 Times in 16,567 Posts
|
Quote:
Quote:
|
||
|
|