Geithner Housing Plan Explained
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You won the prize - by managing to articulate yourself without the use of trailer trash language. Maybe the safety school Danbo went to will give him a discount on some online English courses....
Yeah for Danbo's intellectual superiority!!
Awww, big bad raccoon going to come for you ass! Except guerilla can back his shit up, you on the other hand use general statements to try and drive someone into the corner, because - you know - you are a trolling fagot with zero credibility.
I am interested in his reasoning. I think my statement was pretty specific. I am really curious if my take on it is sound or if there is something that I am missing. It is called curiosity.
You have a problem with me? Lets start our own little thread and go at it. It isn't good to muddy up threads.
So far as I am aware the cash flow into shit mortgages is from pretty much every source of investable cash in the world. If not directly then indirectly. Mutual Funds, Hedge funds, superannuation funds etc. They have all bought the packaged debt that was offered because it appears, due to the credit agencies giving it a AAA rating or whatever the good rating is called, to be a solid investment.
Fail, basically.
However due to the nature of our previous conversations I am going to have to guess that the money came somehow from the government?
Hehe Metacalfe.. its a effeminate baby meta-cow..
As for the opinion of myself and my friends. They did too much, too early. And instead of fixing the problem they put a sticking plaster over it. If they had have waited 6 months for the shit to fall down and then used all that cash to prop up the pieces you might have had a chance (guerilla I know we don't necessarily agree on this, but she asked for an opinion). As for what our government is doing... well they are doing similar things just on a smaller scale. "Economic incentives" ie handouts are being provided and promptly spent on booze/drugs/mortgage/new shoes depending on your demographic. So yeah not so great.
Oh and the financial press seem manic depressive. One moment everything is awesome, the next we are headed for financial ruin.
Oh and I am not sure what I did to piss you off (that was underlined, but not a link...), but I don't give a rat's arse about football... I assume the kiwi's won some sort of important trophy?
So the packaged debt that is sold is way overvalued (because the risk was not assessed correctly)? Is this correct?
So if the risk had been correctly assessed, then this wouldn't have happened?
So who gives these ratings and how is it that they were so wrong? Were the rating people duped or were the instruments just too complicated, or what?
On a side note. I recently read Liar's Poker. An insight into the financial crisis of the 80's
One of the interesting things I noticed was this:
In the 80's there was a boom of junk bonds.
The premise behind this boom was basically that although junk bonds are risky individually, a group of junk bonds is much less risky.
That is to say that in a selection of 10 junk bonds one may fail and become worthless. However due to the fact that the market perceived junk bonds to be a very poor investment and very risky you could purchase junk bonds for as little as 60% of their face value, meaning you would need only 6/10 of the companies who issued the junk bonds to stay solvent to make a decent return, and any more that stayed solvent were a bonus on top. Now this is a legitimate point and was exploited artfully by a few. However once the masses of bond investors started to catch onto the idea there were problems with price, and junk bonds became much less worthwhile as an investment because people were willing to pay too much for them, essentially robbing them of their attractiveness to a sensible buyer, but this was a boom, prices were going up so it was a good idea to buy (they thought) because prices were going up, so you could sell them later after they had gone up some more (.com boom anyone?).
As the market for junk bonds boomed, there weren't enough around to fulfill the demand, so some enterprising guys figured out that due to the economic regulations as they stood they could issue junk bonds to purchase the debt owing to savings and loans, these junk bonds could be sold on to their brokerage firms customers. In effect purchasing large groups of mortgages from them. There were other sources of junk bonds of course, including those issued for Leveraged Buy Outs etc. But it's interesting that one of the things that fueled the boom of the 80's was mortgage debt being purchased en masse by institutional investors, sold to them by brokerage firms. When the bust came the value of those bonds freefalls and everyone loses a lot of money.
Now the initial conditions, the name of the market device and the name of the key players may be different. But my understanding of the subprime mortgage problem boils down to only a few salient details.
A market device was created that allowed investors to purchase debt from mortgage providers, in this case called a collateralized debt obligation.
Market device is purchased en masse by institutional investors as sold to them by brokerage firms.
It turns out to be a much worse investment than previously thought and the market freefalls and everyone loses a lot of money
Feel free to correct me where I err. I was a comp-sci student, not an economics student. But the parallels are fun...
One of the interesting things I noticed was this:
In the 80's there was a boom of junk bonds.
The premise behind this boom was basically that although junk bonds are risky individually, a group of junk bonds is much less risky.
That is to say that in a selection of 10 junk bonds one may fail and become worthless. However due to the fact that the market perceived junk bonds to be a very poor investment and very risky you could purchase junk bonds for as little as 60% of their face value, meaning you would need only 6/10 of the companies who issued the junk bonds to stay solvent to make a decent return, and any more that stayed solvent were a bonus on top. Now this is a legitimate point and was exploited artfully by a few. However once the masses of bond investors started to catch onto the idea there were problems with price, and junk bonds became much less worthwhile as an investment because people were willing to pay too much for them, essentially robbing them of their attractiveness to a sensible buyer, but this was a boom, prices were going up so it was a good idea to buy (they thought) because prices were going up, so you could sell them later after they had gone up some more (.com boom anyone?).
As the market for junk bonds boomed, there weren't enough around to fulfill the demand, so some enterprising guys figured out that due to the economic regulations as they stood they could issue junk bonds to purchase the debt owing to savings and loans, these junk bonds could be sold on to their brokerage firms customers. In effect purchasing large groups of mortgages from them. There were other sources of junk bonds of course, including those issued for Leveraged Buy Outs etc. But it's interesting that one of the things that fueled the boom of the 80's was mortgage debt being purchased en masse by institutional investors, sold to them by brokerage firms. When the bust came the value of those bonds freefalls and everyone loses a lot of money.
Now the initial conditions, the name of the market device and the name of the key players may be different. But my understanding of the subprime mortgage problem boils down to only a few salient details.
A market device was created that allowed investors to purchase debt from mortgage providers, in this case called a collateralized debt obligation.
Market device is purchased en masse by institutional investors as sold to them by brokerage firms.
It turns out to be a much worse investment than previously thought and the market freefalls and everyone loses a lot of money
Feel free to correct me where I err. I was a comp-sci student, not an economics student. But the parallels are fun...
Collateralized debt obligation - Wikipedia, the free encyclopedia is a good place to start I suppose. I am not too au fait with the internal workings of the CDO
Government does have absolute control over the money supply, reserve requirements, accounting procedures, security regulation etc.
But no.
The money comes from the Federal Reserve, which is not part of government. Alan Greenspan deliberately lowered interest rates at the discount window (where Banks borrow from for short term liquidity), and kept them low for a year. So banks fed at this trough every day, recycling short term loans, for more short term loans (basically a revolving credit limit). They started aggressively loaning to make use of this almost free money they had access to.
As they got more mortgages in securitized fashion, they fed them back in for more liquidity to create...
more securitized mortgages.
Once they realized that the FED wouldn't take securitized debt as collateral, they created a secondary market in these packages, and started securitizing student loans, credit card balances, furniture loans (NO PAYMENTS UNTIL 2010!!!), car loans.
The last 7 years, there has been cheap and easy credit. Because the banks, even after Greenspan re-raised the rates, had discovered this great new thing called SIVs (structured investment vehicles). You package the debt, you get it rated. By mixing good with bad, and some creative statistical reasoning for value, the ratings agencies stamp it AAA. You then sell it to foreign banks, hedge funds, and most importantly, any pension trust fund in the US is REQUIRED to only buy AAA debt.
You take your earnings from selling these derivative products, you lay it down as reserves at the FED, they give you 10x back in new money (fractionally leveraged), and you go out and throw a mortgage, car loan etc at anyone with a heartbeat to repeat the process again.
Lastly, remember to get AIG to insure the value of these SIVs, because they are going to turn around and securitize the insurance policies, and start the game in the secondary market all over again.
So we can point all sorts of fingers, but in the type of analogy Peter Schiff would make, Daddy (the FED) left the liquor cabinet unlocked, and the kids (bankers) trashed the house.
People think more regulation will help. Even Tim Geithner admitted in Testimony on Thurs or Friday that there was too much regulation, obscuring too much of the market, that very few people saw this coming.
What has been missing, is more sunlight. Less regulation, and more market transparency. It's obvious the government and FED cannot be allowed to audit or police themselves.
One of my favorite investors, Jim Rogers, was bellowing over a year ago about "Level 3 Assets". No one understood what he was talking about.
Do-It-Yourself Dubious Accounting - Finance Blog - Felix Salmon - Market Movers - Portfolio.com
So you see, Government is now trying to make Mark to Market into Mark to Make Believe. Which was the problem in the first place and could have stopped the bubble much earlier.
The government should be regulating the FED, which is the banks in the form of a cartel. But it can't, in the greatest of ironies, it's been revealed in the last two weeks that the FED is protected from government audit by some obscure law from the 1950s. The government created the FED, gave them the power to create money, then made it so they can never be audited.
That's why no group should have monopoly power. The banks own the US government, lock stock and barrel. They kill every bill which has ever attempted to audit the FED, Fort Knox etc. They are the biggest single lobbying group when it comes to campaign contributions.
That complements my understanding of the market side of things. The recursive credit machine part is intriguing.
I keep thinking I should go back to university. Law is one of the things that I am interested in trying but now I am considering economics too. Comp sci is great, it gives you a lot of information on how the tech side of the world works, knowledge in tech is like having the keys to understand the rules behind systems. Law and Economics seem to be the keys to understanding the rules behind two other systems that guide our lives.
I keep thinking I should go back to university. Law is one of the things that I am interested in trying but now I am considering economics too. Comp sci is great, it gives you a lot of information on how the tech side of the world works, knowledge in tech is like having the keys to understand the rules behind systems. Law and Economics seem to be the keys to understanding the rules behind two other systems that guide our lives.
Interesting documentary on the fed....definitely shows where we erred when it comes to getting off the gold standard too
Search Documentaries :: FIAT EMPIRE- Why the FED Violates the U.S. Constitution
Search Documentaries :: FIAT EMPIRE- Why the FED Violates the U.S. Constitution
Well, really there are no rules. Democracy has convinced us that we own one 1/Xmillionth of the system with a vote, but that's not entirely true. All justice is arbitrary.
Economics is the science of human action (decision making/trades) in a world of scarce resources, and law is just the ethical system we use to defend property rights because scarce resources lead to conflict.
You seem like a pretty bright guy to me. Why not continue being an autodidact until you know precisely what you would like to study super seriously? The reason I say that is because these technical systems of law, politics and economics are just the now. Time will alter or wipe them out for new ones. I don't think schools teach that. They seem to be focused much more on turning out wage earners and public intellectuals, than free thinking critics and analysts.
Perhaps no permanent rules, however its similar to how the knowledge I gained doing a comp sci degree will get old, it's a set of base skills that I can apply to understand a computer based system. The systems will change but the analytical skills remain useful. I'm obviously not about to jump into a law or econ degree with no research, but they seem to offer similar base set of skills that can be applied to understanding the legal systems/the economic systems as they stand and as they evolve.
Thanks. I am not worried about turning into a typical wage earner, it's just not going to happen haha. If I study law, or econ, I will come out of it armed only with more skills, not transformed into a stereotype. I already avoided a huge bias in my last degree to conform to a particular job/career type, I know I can do it again.
The rate was cut 250 basis points between 9/11/01 and 2003. Don't forget that part. I think 9/11 caused the problem indirectly. You can blame it on the central bank, but without a central bank the economy probably would have took a shit right away after 9/11.
All they did was push off the inevitable and compound more pain into the unwinding that is due to come.
9/11 was an attack, a flare up. The problems go back to 1913, then the first dollar default when FDR confiscated all of the gold, and then devalued the dollar from $20 an ounce to $35 an ounce. Then in '71 when Nixon closed the gold exchange window, and defaulted again. The first time, they revalued against gold. The second time, they went to paper.
The next default will be the last one for the US dollar as a functional currency. All of the economic power has already moved to Asia, it's only a matter of time until the reserve currency powers follow.
It sucks. But I think this course was set so long ago, even if someone elected a Ron Paul who would enact a sane and sustainable monetary policy, it's probably too late with the size of the looming entitlement debts for social security and medicare. The only chance I can see is if there is a radically laissez-faire economy that outflanks China on capitalism and/or a genuine gold standard which brings in massive amounts of global investment.
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