A Blank Spot on the Map

Sunday, October 05, 2008

LowcountryJoe muirgeo and Mortgage backed Securities





This post is dedicated to a gentlemanly discussion of the root causes of the current sub-prime financial melt down. It was initiated here at Cafe Hayek. And the first 3 post from there are published here to start the discussion.










Mortgage backed securities boom after the passage of The Gramm-Leach-Bliley Act (GLBA) in 1999 and of the Commodity Futures Modernization Act of 2000.

Fannie Mae has been a round since 1938.

45 Comments:

At 6:26 AM, October 16, 2008, Blogger muirgeo said...

LowcountryJoe,


Do you want to follow this argument through? If so we can keep on it here or we can go to my blog . Either way we can go into great detail to define the issue. I'm willing if you are.


OK lets start a the beginning. Let's pretend you're the banker and I could be the lender.

Using most of normal banking history (that's basically from the dawn of civilization until about the last 5-7 years) would you lend me the money for a $100,000 house if I had only $50 down and welfare income of $500 /month and no other collateral?

And to move things along lets imagine two scenarios one where regulations said you could not make such a loan to me legally because I didn't qualify based on FHA standards and one in which no such regulations existed.

Posted by: muirgeo | Oct 16, 2008 12:09:31 AM

 
At 6:29 AM, October 16, 2008, Blogger muirgeo said...

Do you want to follow this argument through? If so we can keep on it here or we can go to my blog . Either way we can go into great detail to define the issue. I'm willing if you are.

Yes, I would like to follow it through but I prefer to do this here where a much larger audience can watch you twist in the wind while answering questions and explaining yourself. If you're actually going to engage in deep discussion for once, I think that everyone who has had to endure your behavior and your trolling should have the proper forum to do so -- the forum that you enjoy disrupting.

You may start by answering my posted comment properly. I ask two more than just rhetrical questions. I ask you to explain what the banking CEOs and the hedge fund manager had to do with this.

I also tasked you with identifying the crooks. And I asked you to tell me exactly who it was denying regultory oversight in mortgage lending.

Those are my terms. Address those and I'd be more than happy to continue the discussion with you, and even answer your post to the best of my ability. Be warned, though, dear Doctor, I am a ding dong that doesn't grasp figuartive speech so well, so you'll have to check your canned media-like expressions, talking points, and hyperbole at the door.

Okay, now; let's discuss, Doctor [ball. your court. go!]
Posted by: LowcountryJoe | Oct 16, 2008 5:50:59 AM

 
At 6:31 AM, October 16, 2008, Blogger muirgeo said...

You know what, George, post that last post of yours exactly as shown and link to this thread where the original discussion began. Then I will visit your blog and take any further discussion there.

But, I will get to recreate how this discussion began in here between you and I on this thread...with what was orinially written, using our alias names with a colon to separate who wrote what. And you promise not to delete ths recreated background post. I will not alter the text of our dialogue in any way nor will I edit just the parts that I want viewed. The original text of the dialogue can be seen in all of its ugliness. Deal?

Posted by: LowcountryJoe | Oct 16, 2008 6:06:15 AM

 
At 7:10 AM, October 16, 2008, Blogger muirgeo said...

LCJ;


To reframe and clarify the discussion let me make a few summary statements.

My claim broadly speaking is that deregulation and lack of oversight were the main cause of the current financial problems. Your contention is that it was mostly do to government meddling or social engineering. Fair enough?

 
At 7:20 AM, October 16, 2008, Blogger muirgeo said...

I have to get ready for work but I'll briefly address the issue of CEO's and Hedge fund managers.

Bottom line is both stood to and DID get rich via investment in MBS (mortgage backed securities). Is there any question about that?

The whole issue is more generally one of "bubble economies" that I'm convinced many Wall Streeters repeated use as a format to "take the money and run".

So specifically Hedge Fund managers and CEO's of investment banks put much of their resources into acquiring, selling and profiting off MBS. They also lead the lobbying efforts to get the rules changed to favor and allow them to legally do what they did.
And they also hired very intelligent people to design and develop these complex financial products that allowed the scheme to move forward. They also positioned contacts in the Fed,the SEC, in government regulatory bodies and in other key spots to mold the playing field to their needs.

The CEO's and Hedge Fund managers were the "Don's " of the Wall Street Mafia.

 
At 3:02 PM, October 16, 2008, Blogger LowCountryJoe said...

Background posts below

muirgeo: Oh but you wouldn't really want to call them insurance now would you? If you did that it might bring up some issues with regards to regulation. And we can't have that. It's too hard to steal peoples homes with regulated things better use a different word then insurance. Maybe they are more like Bistros or swaps or obligations but not insurance.

LCJ: Wait, homes were supposedly easier to steal because of the third-party use of derivatives? Oh, do explain this one, Doctor. Please explain house theft first and then explain how people in the marketplace, trading derivatives for cash, are part of the theft.

This is your kooky asertion, Big Guy, so pony up what you meant by it or you could always waddle you behind out of the thread like you usually do.

muirgeo: LCJ, poor people using sub-prime loans were note the only ones who had their houses equity stolen by these schemes. Many people who didn't need sub-prime loans were pushed into them. If you're too much of a ding dong to understand figurative speech regarding "homes being stolen" rather then the equity being taken out of them and people losing them to foreclosure then that's your problem.

If you don't see any massive theft along the way with regards to the sub-prime issue, if your gonna stand there and stomp your feet and proclaim nothing was done wrong and that these Hedge Fund managers and Investment Banking CEO's earned their money then you are just being dishonest. Bottom line it couldn't have happened with out the loosening of regulations and letting these crooks run free with no over sight.

LCJ: Words mean things, Doctor. Say what you mean, avoid the use of hyperbole, and clearly get your points across.

So, now on to equity being taken out of the homes: who received the equity proceeds? Were they victims in these instances -- victims of cash-in-hand? Why were their homes forclosed on? Did the 'victims' of home forclosure meet their contractual obligations and the banks just stuck it to them anyway?

There's that word again, "stolen". And let's assume that these so-called stolen-from borrowers were 'pushed' into the loans that they got; who was really doing the pushing? Come on now, B.Frank with us!

I made it quite clear that I thought government social engineering was behind the bubble and then the subsequent fall. Stay on task, Doctor and follow the arguements a litlle more closely please!

Explain what hedge fund managers and investment bank CEOs had to do with this, please. This is not dishonesty on my part...I happen to not agree with your assesment, not seeing how they had anything to do with encouraging loans in which the borrowers would not pay back on schedule and in accordance with the terms of the contract. Please explain why it was in the CEO's best interest to knowingly make an unprofitable loan. If you can honestly and accurately do this without bringing the government's culpability into it, I'll listen. And while you're at that, explain how the hedge fund manager even fits into this.

Your first task, if you should choose to tackle it, is to correctly identify the crooks while being sensible. That's going to be a major hurdle for you since you just regurigate the inaccurate crap that you hear from less than reliable sources. Your next task after the first one will be to explain just who didn't feel oversight needed to be in place. But you wont get the crooks part right to begin with. The real crooks are the ones who took out loans, signed the paperwork with all of the current government madated truth-inlending regulations/forms/disclaimers and who reneged on their agreements to repay the loan as scheduled. Equally complicate is the asshat politicians who lobbied hard (read: pandered) to make sure that people that should have never gotten loans, were granted subsidized loans through government aided programs. But your intellectual biased blinders will not allow you to see this for what it truly is. And that, that is truly the sadest part in all this, Doctor.

 
At 4:13 PM, October 16, 2008, Blogger LowCountryJoe said...

>>Bottom line is both stood to and DID get rich via investment in MBS (mortgage backed securities). Is there any question about that? <<

Yes, there are questions about this. If CEOs of banks made loans that later turned out to not payoff, how are they enriched by this? Explain this thoroughly for me please. Also explain how the hedge fund managers role is in all of this if they were buying up mortgage-backed securities that are now NOT being paid off by an increasing percentage of homeowners.

>>The whole issue is more generally one of "bubble economies" that I'm convinced many Wall Streeters repeated use as a format to "take the money and run".<<

And the Wall Street types ran where with this money? Do you really think those that bought up the MBSs took money and ran or do you suppose that the foreclosing population took the eviction time period and then ran out on the Wall Streeters who invested in MBSs?

>>They also lead the lobbying efforts to get the rules changed to favor and allow them to legally do what they did.<<

Who lead the lobbying efforts and which politicians were being lobbied? Your assertion so you should provide accurate details.

>>And they also hired very intelligent people to design and develop these complex financial products that allowed the scheme to move forward.<<

Describe this scheme in detail for me please. I want to know what you think you know to be true.

>>They also positioned contacts in the Fed,the SEC, in government regulatory bodies and in other key spots to mold the playing field to their needs.<<

What? Please explain who these contacts are, what their behavior were, and how they (if they really exist) benefitted. Again, your assetion so you should have some kind of source you can link to the addresses these issues and explains how someone could benefit from it if it does exist?

>>Using most of normal banking history (that's basically from the dawn of civilization until about the last 5-7 years) would you lend me the money for a $100,000 house if I had only $50 down and welfare income of $500 /month and no other collateral?<<

From the dawn of civilization?

The payments for 360 months on a zero percent interest loan on $99,950 is $277. Do I make the loan at zero percent when $277, 30 years from now, will lose its purchasing power? If I charge just 4%, the payments go up to $477. No, I don't make that loan. Did you expect me to say that I would. Do you expect me to believe that lenders did this?

 
At 5:57 PM, October 16, 2008, Blogger muirgeo said...

LcJ,

Lot's of questions there partner. You're shot-gunning me.

I / we should in time attempt to answer them all.

I suggest we go through the process of an actaul loan to see how the process has changed and what changes may have led up to the sub-prime mess.

I think, in the banker-landerr scenario we see up you said you wouldn't make such a loan.

That was pretty obvious. I, the lender had no collatoral and was putting nothing down. And we didn't even talk about the real value of the house. So of course you wouldn't have made the loan.


But recently such loans were made. Maybe not exactly that bad but bad loans. That's why they were called subprime.


Now imagine the same scenario and the loan you made could quickly be sold off to a broker for $2,000 dollars after 6 months would you make THAT loan? Imagine it cost you $500 dollars to make the loan and then sell it off and all you had to do was set up a loan so that the lender wouldn't default in the first 6 months.

That is actually a no brainer too. I would do it. I would set up an interest only type loan that even some one on $500 a month could pay off for at least 6 months so there would be little risk to me.

Now again their would be 2 possibiliies. One where their were regulations that made such a loan illegal and one where there where less regulation.


I'd make the loan only if it wasn't illegal. I assume the same for you.

 
At 6:33 PM, October 16, 2008, Blogger LowCountryJoe said...

If you feel shot-gunned you might try to answer questions as they're posed and not let them build up before getting sidetracked on other talking points.

As to your loan that you'd make: do you know anyone dumb enough to purchase that MBS from you? Do you really believe that investors are this stupid?

Muirgeo, the only way I make this loan is, as you suggest, on an interest only basis AND if I hold the title to it. The problem with your scenario is that no one will buy the debt instrument from you without the same rights to ownership if the loan doesn't perform.

I'll now wait for you to answer previously unanswered questions.

 
At 11:07 PM, October 16, 2008, Blogger muirgeo said...

LcJ,

Here is a great diagram explaining the whole process. Hedge fund managers where the guys on top of the pyramid scheme. They were the ultimate buyers of securitized debt. They were completely unregulated.

Here is the full article.

 
At 2:39 AM, October 17, 2008, Blogger LowCountryJoe said...

I am not going to read this unless you can summarize many of these details or ot least pick out the "money paragraphs" that will explain this. If you can do this, then I might read it to see if it makes sense.

Plus, there are several things that I want you to respond to which you haven't yet (all of them). I'll wait until that happens before commenting again.

 
At 6:29 AM, October 17, 2008, Blogger muirgeo said...

LcJ,

I will respond to all of them. But to keep this reasonable I suggest we focus on one at a time.

Bottom line is Hedge funds played a huge role in the sub-prime market and it's failure by being the ultimate guys on top holding all the loot (equity). And now if you read todays papers you will see they are the last to fall. And they are falling hard but mostly with other peoples money. The big guys are gone to their ranches with their money.


Do you want to continue to deny that hedge funds had no roll in the sub prime crisis? If so I think you are being argumentative but we can work through in more detail if your not convinced.

Now I've answered the Hedge fund question adequately and if you are gonna deny it then I will request that you tell me what you think hedge funds have mostly invested in over these last 5-10 years.

 
At 10:19 AM, October 17, 2008, Blogger LowCountryJoe said...

I suggest we focus on one at a time.

I don't like that arrangement because you'll never get to answering my questions.

Bottom line is Hedge funds played a huge role in the sub-prime market and it's failure by being the ultimate guys on top holding all the loot (equity). And now if you read todays papers you will see they are the last to fall. And they are falling hard but mostly with other peoples money. The big guys are gone to their ranches with their money.


Do you want to continue to deny that hedge funds had no roll in the sub prime crisis? If so I think you are being argumentative but we can work through in more detail if your not convinced.


This makes no sense to me. What loot were the hedge fund managers holding. Sure, they had other people's loot to invest, but they turned around and purchased securities with it [and did you know that you an investor with under a million in cash cannot buy into a hedge fund...apperently the regulators think that they're too risky for everyday people with limited amounts of money and so they prohibit us and treat us like children]. Did they also get paid management fees? You bet; that's what money managers do....they get paid to manage other people's assets and those other people are taking risks. But you still have not adequately explained how holding a bad mortgaged backed security (a security that is no longer being paid off by the lender) helps the money manager and how they (the money fund managers) were enriched and continue to be enriched.

You paragraph that starts, "Bottom line is..." is essentially worthless to me. It does not explain the reality (or your reality) in an easy to understand manner. I've checked out the first link (diagram) and the second link (article) and there's here to discuss. The author thinks that the markets "broke down" and I say that the portion of the market that still worked and was left alone did exactly as it should have...it sent the right signals, corrected, and now is trying to find the appropriate equilliberium while the asshats try and throw wrenches in this process so that no one has to feel any pain. Problem is, the pain will be worsened because of it.

Muirgeo, you just do not understand this stuff well enough to write informatively about it.

I'll be back but first answer my other questions and be sure to convincingly tell me exactly how hedge fund managers and bank CEOs are to blame and do it in details or commentary that makes sense.

 
At 12:25 PM, October 17, 2008, Blogger muirgeo said...

LcJ,

Let me back up a bit. My main thesis is that this is a failure of markets that was allowed to occur by deregulating the mortgage industry. CEO's and Bankers are most directly responsible because they paid the lobbyist to get the laws changed. They are also responsible because they provided and created the opaque financial instruments that hid the risk and allowed the risk to be passed along to others.

That flow diagram is so pertinent that I will add it to the front page of this post.

 
At 4:40 PM, October 17, 2008, Blogger LowCountryJoe said...

Let me back up a bit. My main thesis is that this is a failure of markets that was allowed to occur by deregulating the mortgage industry. CEO's and Bankers are most directly responsible because they paid the lobbyist to get the laws changed.

Add this to my list of questions:

What portions of the mortgage industry were deregulated?

Specifically who lobbied?

Specifically which asshats were lobbied?

[I honestly did not know there was deregulation so please point it out for me]

They are also responsible because they provided and created the opaque financial instruments that hid the risk and allowed the risk to be passed along to others.

Which finincial instruments were opaque? Did these opaque instruments not have terms, conditions, and dislaimers for full view?

Who had the risk passed onto them? And are these the type of people that you typically feel altruism for?

That flow diagram is so pertinent that I will add it to the front page of this post.

The flow diagram is garbage if it doesn't explain anything. Can you summarize the flow diagram in words that accurately described what happened AND so that it fits with logic. Try explaining what happened using "first this, then that" statements. They better make sense to and you had better start answering some questions (as they're piling up) or I'm outta here. So far I am seriously unimpressed with this discussion.

 
At 11:41 PM, October 17, 2008, Blogger muirgeo said...

LcJ:


Your post and the questions you are asking tell me how little you actually know of the situation.



The Glass-Steagall Act passed in 1933 separated consumer banks from investment banks.

The Glass-Steagall act was lobbied against by the banking industry no less then 8 times.

It was slowly gutted but the finally overturned with the passage of the Gramm-Leach-Bliley Act: allowing commercial banks, investment banks, and insurers to merge.

Sen. Gramm was the driving force behind the Gramm-Leach-Bliley Act, as he had received over $4.6 million from the FIRE sector (Finance, Insurance and Real Estate donations) over the previous decade.

Shortly after George W. Bush was elected president, Congress and President Clinton were trying to pass a $384 billion omnibus spending bill, and while the debates swirled around the passage of this bill, Senator Phil Gramm clandestinely slipped a 262-page amendment into the omnibus appropriations bill titled: Commodity Futures Modernization Act.


The legislation contained a provision -- lobbied for by Enron, a major campaign contributor to Gramm -- that exempted energy trading from regulatory oversight. Basically, it gave way to the Enron debacle and ushered in the new era of unregulated securities.

In 2003, Gramm left the Senate to join UBS, which had acquired investment house PaineWebber due to his deregulation bill. At UBS, Gramm lobbied Congress, the Fed and the Treasury Department. During Gramm's tenor at UBS and as a lobbyist, Congress passed the Responsible Lending Act, billed as an anti-predatory-lending measure, but was called the "Loan Shark Protection Act" by consumer advocates, as it was designed to preempt stronger state laws against anti-predatory lending.

Henry Paulson became the Treasury Secretary in July, 2007, when, "In 2005, [at] Goldman [he] securitized $68 billion in residential mortgages and $23 billion in 'other assets' primarily related to CDOs," (Mother Jones, August, 2008). With such self-interest, and a lack of the nation's interest, we can see how this subprime mess was allowed to escalate to such great proportions.

 
At 12:05 AM, October 18, 2008, Blogger muirgeo said...

Bottom line LcJ, the changes in law I outlined above allowed mortgages to be securitized and the securitized products like OTC derivatives and credit default swaps were completely unregulated.

The Gramm-Leach-Bliley Act of 1999 allowed banks to merge and thus securitize loans for profit.

The Commodity Futures Modernization Act of 2000 allowed for OTC derivatives and Credit default swaps to be used which were completely unregulated


After these regulatory changes banks had no interest in making good loans because they could make more money faster by securitizing the loans.

This article provides all the detail to explain the basics further.

 
At 6:18 AM, October 18, 2008, Blogger LowCountryJoe said...

Muirgeo,

Finally you link to an aricle that I can identify with even though it has obvious biases it was still readable and followed logic. So, being pretty straight forward it just goes back to my leading questions that I have introduced at nearly every step of the way -- some questions that you have yet to answer and which need to be answered by you or I will not continue. I have to put my foot down somewhere and after this reply, it'll be here.

As long as home values were rising, everyone was benefitting from the practice: home mortgagers who were skimming from their equity; the bank for taking their fees for extending the refi loans and then packaging the securities for investors; the money mangers for being the intial big player investors of these securities and then convinicing others to park their money with them; and fund investors for ultimately being on the lending side of the loan and making a return. Most people involved thought that this process would just continue on indefinitely. It didn't and people were burned. Sometimes markets get out of whack because peole speculate that trensds will continue. History shows that speculators eventually get burned and take losses. It's painful but neccessary. Prior speculative events have been anything from the tulip craze in Europe to investors buying up technology related mutual funds in the late 90s thinking that 80% returns year-over-year were going to be the norm.

As to Glass-Steagall: I see no problem with banking being distinguishable in what activities a certain branch bank can endeavor into. None at all. Just like I'd see no problem with a Health Insurer also offering property and casualty insurance. Business is business. Borrowing and lending, no matter to who, is just doing banking business.

On the Responsible Lending Act: if true, that this prohibited states from making tougher laws on "payday advance loan" businesses, then I would oppose it on federalism grounds. States should be able to regulate as they see fit. But know this, I would oppose any measure at the state level that would seek to protect people from what outside people (do gooders) see as "protecting you for your own good". If payday advance places can stay in business doing what they do, then there must be a market for it and a market for it because some people actually want their money early for whatever reason. Who am I to tell them that I want legislation that eliminats that option for them? Who am I to tell other adults that their financial habits need to be made harder to achieve for their own good. Do you atually think that the activity still want occur in the underground in more unsavory ways? I'm not someone like you, muirgeo, that's for sure.

As to the The Commodity Futures Modernization Act of 2000: I don't know enough about it. I don't know what the changes were but I do know that allowing the freer trade of securities, in my opinion, is probably not a bad thing.

I don't suggest you spend any more time trying to go down this particular road with me, though, until you get busy answering my previous unanswered questions. There are a lot of them but for me they are critical for maintaining this discussion. You have some reading and writting (specifically answering question) to do if you wish for me to stick around. The only questions that you've really answered so far is how the bankers were making money (and I always knew that money managers were making money in their portfolios). Are they making much money now? No, in fact they're asking for handouts. And then you have president Bush claiming that the credit markets are frozen or some such bullshit so we have to use federal funds (taxpayer money) to bail out the banks?! Please! How about eliminate the income tax on all dividend and interest that's made by investors. Credit markets would become unfrozen overnight but the asshats would have less to spend.

Here are the questions that you still have yet to answer, muirgeo:

1) So, now on to equity being taken out of the homes: who received the equity proceeds?
2)Were they victims in these instances -- victims of cash-in-hand? Why were their homes forclosed on?
3)And let's assume that these so-called stolen-from borrowers were 'pushed' into the loans that they got; who was really doing the pushing [in other words, who contacted who about refinancing? Borrowers or lenders? And specifically regarding subsidized or government loan programs; who pushed for those to be implimented in the first place]?
[Question answered]Explain what hedge fund managers and investment bank CEOs had to do with this, please. This is not dishonesty on my part...I happen to not agree with your assesment, not seeing how they had anything to do with encouraging loans in which the borrowers would not pay back on schedule and in accordance with the terms of the contract. Please explain why it was in the CEO's best interest to knowingly make an unprofitable loan. If you can honestly and accurately do this without bringing the government's culpability into it, I'll listen. And while you're at that, explain how the hedge fund manager even fits into this.[see how that works]
[Question mostly answered]Your next task after the first one will be to explain just who didn't feel oversight needed to be in place.[Now if you could tell me who didn't want the GSEs to have proper oversight that would be great]
4)Are not the real crooks the ones who took out loans, signed the paperwork with all of the current government madated truth-in-lending regulations/forms/disclaimers and who reneged on their agreements to repay the loans as scheduled.
[Question partially answered in the short term. What about going forward?]If CEOs of banks made loans that later turned out to not payoff, how are they enriched by this?
5)Do you really think those that bought up the MBSs took money and ran or do you suppose that the foreclosing population took the eviction time period and then ran out on the Wall Streeters who invested in MBSs?
[Question answered but since I favor deregulation, I don't see the problems you see]Who lead the lobbying efforts and which politicians were being lobbied?
6)As to your loan that you'd make: do you know anyone dumb enough to purchase that MBS from you? Do you really believe that investors are this stupid?
[Question answered. But were they completely answered?]What portions of the mortgage industry were deregulated?
Specifically who lobbied?
Specifically which asshats were lobbied?

7 & 8)Which finincial instruments were opaque? Did these opaque instruments not have terms, conditions, and dislaimers for full view?
9 & 10)Who had the risk passed onto them? And are these the type of people that you typically feel altruism for?

 
At 12:14 PM, October 18, 2008, Blogger muirgeo said...

Lcj,

You aren't really interested in debating this. You are interested in obfuscation. You ask 10 questions requiring very detailed answers then threaten to end the debate.

Grow up! All you are doing is making this a jumbled mess rather then proceeding in an organized fashion.

Lets focus on one issue at a time.


And how about you putting some skin in the game. I clearly delineated my position on how I think deregulation caused the current market collapse.


Why don't you give your thesis on how the collapse came about and I'll ask you 10 questions requiring lots of research and 10 pages of answers.


I won't be the one leaving the debate because I am here in earnest.

I only ask that we approach it in a more organized fashion then the shot-gunning you are doing.


As far as I'm concerned there is no time when the debate has to end. It's an ongoing thing were we try to answer each others question and either find common ground or agree to disagree.


I have to go ref some soccer games. I'll try to get to your 10 hours of assigned homework as time permits.

Again I suggested an organized approach following the process from borrower to hedge fund manager.

I was working on borrower lender issues and your asking 20 questions from all over east jesus.

Later!

 
At 2:11 PM, October 18, 2008, Blogger LowCountryJoe said...

It is your turn to grow up, Doctor. You make statements that, at the time you make them, I find to be hypebolic or untrue. I then follow up your statement with questions of my own to try and get you to think. And while the questions may get you to think to yourself, the questions go ananswered by you. Your responses to these questions are critical for me to read and foe me to move forward in the debate.

Muirgeo, I've witnessed this same scenario play out on multiple issues on and off for the last two years with you. You dodge questions, disappear on a particular topic , on then resurface on a different topic (and sometimes the same topic) later down the road. I'm tired of you not answering questions from me and other clasically liberal people.

I'm finally going to call bullshit on you since it is your blog and any ducking that you may do at this point just causes you to look really bad. By the way, the questions that I ask should not take any longer than about an hour of your time to answer. Once there all answered, I'll be back. Not answering all questions and I don't come back. That's my approach and as someone with the freedom to be on your blog or not, I'll exercise it.

And how about you putting some skin in the game. I clearly delineated my position on how I think deregulation caused the current market collapse.

And I didn't? Check my comment at CafeHayek (from the thread you link to) on Oct 14, 2008 @ 9:03:21 PM.

Honest, Doctor, you grow up!

 
At 7:53 PM, October 18, 2008, Blogger muirgeo said...

Lcj,

First of all I will not be the one to walk away from this discussion. I will answer all your questions in time. I've answered many already.

But you will have to answer similar question I'll ask of you regarding your "thesis" as posted in Cafe Hayek on Oct 14 9:03.21 PM.

That post made lots of claims with little backing.


To summarize. My contention is that though I believe that you identify some key issues regarding GSE's and lending standards the ability of the counties investment banks to literal leverage $100 trillion dollars on as little as $1 trillion dollars can only be explained by the introduction of complex securitization products ... WHICH could not have existed or occurred with out deregulatory changes that allowed these products to infiltrate the markets.

Let me get you on record if you will. Would you claim that complex financial products had nothing or little to do with the sub-prime problem?

And also are you claiming that the explosion of these products had nothing to do with deregulation?

 
At 6:35 AM, October 19, 2008, Blogger LowCountryJoe said...

First of all I will not be the one to walk away from this discussion.

It's your blog, genuis, how or why would/could you walk away from it.

I will answer all your questions in time.

I don't believe you. I base this on observed behaviors by you during the last two years.

I've answered many already.

Many?! Besides, it was your linked-to article that answered half of the answered questions I had asked of you. What are you going to do for the others -- the many that you left unanswered -- and when are you going to start answering them? Start now! That's all I am asking from you now. That's all!

But you will have to answer similar question I'll ask of you regarding your "thesis" as posted in Cafe Hayek on Oct 14 9:03.21 PM.

I'm looking forward to the questions you will ask. But I'll first wait until mine are answered.

That post made lots of claims with little backing.

Are you now beginning to see just what it is that you do nearly each and every time you write something at The Cafe?

 
At 11:05 AM, October 19, 2008, Blogger muirgeo said...

Here are the questions that you still have yet to answer, muirgeo:

1) So, now on to equity being taken out of the homes: who received the equity proceeds?
2)Were they victims in these instances -- victims of cash-in-hand? Why were their homes forclosed on?



The equity was received by the mortgages brokers and bankers who through predatory lending practices took money via loan fees and such from people who they had no business loaning to. The only reason they would do so was because now the rules were changed and they could sell their bad loans on the secondary markets.

Predatory lending increased directly from changes in regulation and over sight that were basically deregulatory.


The counter claim you suggest is abpout so called predatory borrowing. As if all of a sudden bankers and brokerage houses were being ripped off by poor people who lied about their incomes and assets.


It's absurd. Predatory lending and sub-prime lending was simply away to pull equity out of peoples houses. They were no longer making money on the interest paid back on the loans but on loan fees and on selling off the loans to the secondary market.


You think this was not a result of predation then read this article.



So in summary my answer to your first 2 questions is yes predators with less regulation used their new freedom to fleece the equity from the unsuspecting. I believe the overall number is that something like 1-2 trillion dollars of equity has been pulled out of the homes of Americans.



All this would not have happened had there been stricter oversight of lending practices. These predatory practices are not the result of GSE's or the CRA. If anything they had tighter standards on their loans then the unregulated broader markets.


Further I can show you all sorts of news articles showing states wanting to impose their own stricter standards only to be over ridden by the fed and the Bush administration as they gave in to the pleads from Wall Street lobbyist.

Any rebuttals or replies of yours best be backed with documentation. I'm not interested in your innuendo.

 
At 2:37 PM, October 19, 2008, Blogger LowCountryJoe said...

Wow, just two questions so far. I'll work with that this one but it does bring up more questions that you'll have to answer. Maybe if you refrained from your wild assertions this would happen to you.

The equity was received by the mortgages brokers and bankers who through predatory lending practices took money via loan fees and such from people who they had no business loaning to.

All of it? You mean that people taking out refinance mortgage loans had all their equity taken up by fees and bank charges? Earlier you made the claim that it was stolen. You backed off of that but now your claim is that the bank got all the equity and borrowers signed off on that?!

And what of this question of mine that you did not answer:

Why were their homes forclosed on?

Predatory lending increased directly from changes in regulation and over sight that were basically deregulatory.

If money is loaned to someone who is ordinarily unworthy of the loan and then this borrower receives all the truth-in-lending forms to sign and then does not pay the loan back, is the lender really the predator? I don't see it that way no matter what article you post.

The counter claim you suggest is abpout so called predatory borrowing. As if all of a sudden bankers and brokerage houses were being ripped off by poor people who lied about their incomes and assets.

My claim was never that they lied about their assets and income. My claim was that they defaulted on their loans. Go back and check it out; I never once had written that these borrowers lied.

It's absurd.

What, that you've not answered questions? Agreed.

I believe the overall number is that something like 1-2 trillion dollars of equity has been pulled out of the homes of Americans.

With all of it going to the bankers and none of it going to the home owners? Is that what you're trying to say.

Let me get you on record if you will. Would you claim that complex financial products had nothing or little to do with the sub-prime problem?

They are related in that these credit swaps wre use to mitigate loans that were thought to be going bad...and used as an insurance or hedge against held MBS going into default. The extent that many of these swaps were issued by institutions that were not capitalized enough (or did not have sufficient reserves to withstand a market turn like we're seeing). The best thing to do was to let any institution with too much exposure to this risk fail like they should have been allowed to do. Yes it would have been painful but it should have bee neccessary.

And also are you claiming that the explosion of these products had nothing to do with deregulation?

Why not just use the words "significantly increase"? Yes, I'll make that claim. These things have always existed outside of being regulated because they are not (and never were) classified as insurance. The only reason why these instruments increased in usage was because fund managers began to see the writing on the wall and wanted to completely hedge in case borrowers defaulted on thier loans...they were worried and were willing to forgoe all potential returns just to avoid any losses in case of default.

Here's some comentary on the causes and consequences:

http://www.cato.org/pub_display.php?pub_id=9719

An interesting read on how re-regulation was a culprit.

How can you argue with this?. I am sure that you'll find a way.

Any rebuttals or replies of yours best be backed with documentation.

Really?! Should I have to document what should be common sense? You are an educated physician, are you not?

I'm not interested in your innuendo.

And you expect everyone else to be inteested in yours. Do you really want me to go back and bust your balls about the whole stolen equity comment. And that's just one of many hyperbolic and innuendo laced comments that you've written over at the cafe. physician heal thyself! And also answer some more f*cking questions.

 
At 4:12 PM, October 19, 2008, Blogger muirgeo said...

"All of it?"


In some cases yes. But overall some $1-2 trillion dollars have been pulled out of homeowner equity. Now for the first time since the 1940's most people
owe more then the equity they have in their house.


"Why were their homes forclosed on?"


Because lenders gave them loans they could not possibly pay off under terms that any reasonable lender (from the rest of history... you know from 1,000,000 years ago until about the last 10 years) would ever have done in the past.


"..... is the lender really the predator? "


YES YES YES!!! KEY POINT... because he passed the loan on. Had he had to maintain primary responsibility for the loan HE NEVER WOULD HAVE MADE IT. Got it now? But securitization allowed him to pass off the loan and just focus on getting his fees and commission for the loan.

You are making my argument for me by pointing out how crazy it would be for lenders to make such bad loans. YET THEY DID. And now you know why. But attempting to claim the lenders were taken by the borrowers is incredulous. If some car dealer sold me a 10,000 dollar car for 5,000 dollars because he didn't know his business or because I was a shrewd buyer that don't make it my fault. But again these lenders KNEW EXACTLY WHAT they were doing.


Did you even read that Goldman Sachs Memo??????

And I believe I have you on record saying that the complex financial products MAY explain why some bad loans were made but denying that their increased use had anything to do with regulatory changes.

This is good because it's easy to prove the first is a massive understatement and the second is just simply flat out wrong.


After doing so I will pretty much have proved my point that these bad loans and their resultant foreclosures were ultimately the results of decreased regulations.


Here's a point I can grant you. The housing bubble could have occurred and did occur in part for other reasons like low interest rates and pushes to house credit unworthy lenders. All the things the GSE'a and CRA did could have caused a housing bubble but no way could they alone have resulted in massive economic failure that resulted in over leveraging these loans with complex financial instruments.

 
At 10:57 PM, October 19, 2008, Blogger muirgeo said...

3)And let's assume that these so-called stolen-from borrowers were 'pushed' into the loans that they got; who was really doing the pushing [in other words, who contacted who about refinancing?




This is basically a matter of predatory lending. You don't remember all the refinance commercials?


Here is a good summary article on predatory lending.


Key quotes;

-"What we take it to mean is [a situation where] I make a loan to you that reduces your expected welfare," Musto says. "That is an example of me being a predatory lender.... I, the lender, know something extra about how this loan is going to play out."


-Why would a lender give a mortgage to a borrower at high risk of default? It's a numbers game.

-"Critics of banks' behavior in subprime lending markets suggest that borrowers misjudge their true probability of default and lose their homes in foreclosure, while lenders know the true odds but ... recover enough in foreclosure that they lend anyhow," Musto and his colleagues write.

-To assure they can recover enough in foreclosure, predatory lenders tend to focus on homeowners who already have a lot of equity in their properties, assuring that the property can be sold for enough in foreclosure to cover the borrower's debt.

 
At 11:03 PM, October 19, 2008, Blogger muirgeo said...

"If CEOs of banks made loans that later turned out to not payoff, how are they enriched by this?"



Come on now! The fact is that CEO's of investment banks bought up huge amounts of these loans and repackaged them as securities.

You're asking a question like it would be ridiculous for them to do so when in fact they did so. So why do you think they did? Too make money. And their stock prices rose well while the bubble was inflating.


CEO pay is a whole nother thing. They make money by doing things in the short term that aren't in the long term interest of the company or society.

Do we need to make a list of Hedge Fund managers and Investment Bankers that are settled with hundreds of millions of dollars? Yeah some stayed in too long and lost millions and now only have tens of millions instead of hundreds of millions.


But still it's money from retirement accounts and others home equities. Those people lost their homes and their retirement investments.

 
At 11:08 PM, October 19, 2008, Blogger muirgeo said...

Who lead the lobbying efforts and which politicians were being lobbied?

Freddie Mac Paid GOP Consulting Firm $2M To Kill Legislation


Just one of many examples I could dig up. Also Wall Street lobbied and won when states tried to enforce stricter standards in lending. The Fed over-rid the states desires.... so much for Republican Federalism.


But again the banking industry lobbied for years to break down Glass -Steagalll. Eventually they got their way.

 
At 11:11 PM, October 19, 2008, Blogger muirgeo said...

6)As to your loan that you'd make: do you know anyone dumb enough to purchase that MBS from you? Do you really believe that investors are this stupid?

Again what the fuck are you trying to say.

YES PEOPLE BOUGHT MBS's. THAT WAS THE WHOLE PROBLEM. Have you not been reading the papers? AIG was over leveraged 100 to 1 with MBS and CDS.

 
At 11:16 PM, October 19, 2008, Blogger muirgeo said...

What portions of the mortgage industry were deregulated?



Only 25% of all sub-prime loans where handled by GSE's and CRA. And those loans being more regulated had fewer problems.

Subprime primer



Community Reinvestment Act May Have Deterred Risky Mortgage Lending

 
At 11:22 PM, October 19, 2008, Blogger muirgeo said...

7 & 8)Which finincial instruments were opaque? Did these opaque instruments not have terms, conditions, and dislaimers for full view?

It's common knowledge that OTC derivatives created information asymmetry and that Credit default swaps where called "swaps" so as to avoid regulation by the insurance industry.

Again the question is almost as if you're asking "if there has been a problem here". Their opaqueness is at the very heart of the melt down. Nobody still knows who has what and how to value these pieces of trash paper.


9 & 10)Who had the risk passed onto them? And are these the type of people that you typically feel altruism for?


These things made their way into 401k and other investments held by the general public. The whole fricking world had the risk passed onto it.

 
At 11:24 PM, October 19, 2008, Blogger muirgeo said...

LcJ;



I don't know if you listen to podcast much but if you want to here the other side I'd suggest listening to Demandside podcast. The guy is quite dry but he's makes a lot of valid points and he usually references what experts are saying.

 
At 11:48 PM, October 19, 2008, Blogger muirgeo said...

Finally as a complete summary I suggest watching the CSPAN coverage of the recent Senate hearings on the issues.

Senate Banking Cmte. Hearing on Credit Markets & Economic Crisis (October 16, 2008)


Unable to link directly. Either search google or CSPAN

 
At 4:44 PM, October 20, 2008, Blogger LowCountryJoe said...

In some cases yes.

Oh, so it's only some cases now. Because no homeoweners and borrowers would ever be smart enough to know that lenders were taking all the equity from their homes.

But overall some $1-2 trillion dollars have been pulled out of homeowner equity. Now for the first time since the 1940's most people

Before, you wrote that it (the equity) was stolen. Nice to see you come around back down to Earth.

This article that you hyperlinked to: [owe more then the equity they have in their house.]. I know all this. It is not saying anything different than what I have said and you have chose not to dispute. For far too long, Home prices rose and borrowers/home owners thought that the treand would continue. Many were leveraging far too much for comfort and got burnt. Next!

Because lenders gave them loans they could not possibly pay off under terms that any reasonable lender (from the rest of history... you know from 1,000,000 years ago until about the last 10 years) would ever have done in the past.

Whatever regarding you banking history. The bottom line is that lenders thought that housinhg values would keep going up too. And lenders get paid to make what they feel to be solid loans. It urned out that the loans turned out to not be so solid because conditions changed. Specifically, so-called disadvantages people were getting loans because the federal government mad implicate garauntees on the loans through government created programs.

YES YES YES!!! KEY POINT... because he passed the loan on.

"To a greedy investor who should have had his/her money confiscated in taxes anyway", is something you might say. You have disdain for the investors so why do you care if they were burned because they did not give careful consideration to or give due diligence of their investments?

And now you know why.

I've always known why...they thought that the good times would just keep on rolling. Your own links that you post show this.


But attempting to claim the lenders were taken by the borrowers is incredulous.

So, borrowers did not stop making their payments -- payment that they contractually agreed to -- yet the banks put them in foreclosure anyhow?

If some car dealer sold me a 10,000 dollar car for 5,000 dollars because he didn't know his business or because I was a shrewd buyer that don't make it my fault.

Poor analogy: would you really flake out on responsibilities on paying for the loan of this car if you had gotten such a good deal knowing that it would get repossesed? But poor analogies seem to be your specialty.


Did you even read that Goldman Sachs Memo??????

Yes. Tammy Lish, the person who either orginated the memo or who forwarded it was an Account Rep but not an underwriter. Did you happen to catch that? Did you happen to read this quote, too: "'It boggles my mind that any federally chartered organization would invite this kind of activity in such a flagrant way,' said David Tatman, head of Oregon’s Division of Finance and Corporate Securities."

And I believe I have you on record saying that the complex financial products MAY explain why some bad loans were made but denying that their increased use had anything to do with regulatory changes.

No, go back and read what I wrote. I did not write that these were the reason why suspect loans were made in the first place. What I wrote is that there's some relationship to why this financial downturn has unfolded the way that it has...because these complexed financial product exist. And yes, these products had been around for longer than any supposed degregulation that you claim has occured. Did you read the link to Muhlenkamp's commentary that I linked to regading new regulations on how securities had to continuosly be accounted for on balnace finanicla statments as to their fair market value?

This is good because it's easy to prove the first is a massive understatement and the second is just simply flat out wrong.

If it is easy then prove it to me. I seem to be the only one who is reasonable (and has integrity) enough to change my opinion if I read something that makes sense and follows logic.

After doing so I will pretty much have proved my point that these bad loans and their resultant foreclosures were ultimately the results of decreased regulations.

Get busy then. Because you will have to convince me that the biggest culprit was the incorrect assumptions that: housing prices would continue to rise; that large scale federal bail-outs of the mortgage industry would occur if things went south; that borrowers thought that their rates wouldn't change, that their house value would always go up, and that they's never become dead deats as borrowers.

Here's a point I can grant you...

Whoa! You actually agreed with something? Maybe the head isn't so thick after all.

Don't forget about governments (and really society's) desire for home ownership and the preferential tax policy that led to an unhealthy allocation in residential property.

More to follow; stay tuned (as if you're giong anywhere on your blog). Oh, an George...so nice for you to finally be held to account and answer some questions.

 
At 5:33 PM, October 20, 2008, Blogger LowCountryJoe said...

This is basically a matter of predatory lending. You don't remember all the refinance commercials?

I sure do. While house prices were rising, as I recall, millions of home mortagers were looking to be someone else's prey. And all of them refused the cash that was being offered. Some even said you keep it! Quite fascinating cooperation since they all had their arms twisted behind their backs and we're strong-armed into making decisions at their own peril. No, actually, that's not fascinating. This is actually the cooperation that libertarians have with government and the asshats who populat our "pluralistic democracy" or some such shit.

Come on, dude! Everyone miscalculated except the bankers. For they knew that if this ever happened, congress was going to come ride to the rescue (which they still may do for people who may get close to forclosing on in the future unless the banks can use the $700B to restructure the loans for these poor victims). Did congress disappoint the bankers?

Here is a good summary article on predatory lending.


Key quotes;

-"What we take it to mean is [a situation where] I make a loan to you that reduces your expected welfare," Musto says. "That is an example of me being a predatory lender.... I, the lender, know something extra about how this loan is going to play out."


I have to ask only because this is just such polulist crap being written in that article. When your two-faced ideology encounters a situation when people that do not deserve loans are not able to get them, why is it that these people are perceived to be victims in those circumstances -- by Leftists -- as well?

lenders know the true odds but ... recover enough in foreclosure that they lend anyhow," Musto and his colleagues write.

Now lenders knew of the true odds? Of what, a bail-out should it be needed?


-To assure they can recover enough in foreclosure, predatory lenders tend to focus on homeowners who already have a lot of equity in their properties, assuring that the property can be sold for enough in foreclosure to cover the borrower's debt.

This is right where the intelligence of this article breaks down and shows its ignorance: if a refi occurs what would be happening to the equity. If this is an initial loan, and the borrowers are putting al large amount down (establishing equity), then why would the borrower walk away from the house and let it go into forclosure? Would they sell it? And why wouldn't a bank want to find buyers that put a lot down?

Did you take this paragraph that seriously. Was it profound for you. because, quite fankly, I found is to be a pretty dense thing to write...and to repeat.

Come on now! The fact is that CEO's of investment banks bought up huge amounts of these loans and repackaged them as securities.

You're asking a question like it would be ridiculous for them to do so when in fact they did so. So why do you think they did? Too make money. And their stock prices rose well while the bubble was inflating.


And wasn't it ridiculous for people to have speculated in real estate? Hindsight, Doctor, reveals many thinks that were previously unknown or overlooked. And what of those bankers now, muirgeo?

CEO pay is a whole nother thing. They make money by doing things in the short term that aren't in the long term interest of the company or society.

Wait, all CEOs? A company has no business doing what society asks of it. Its job is to satisfy sharholders and shareholders are on the line, financially, for what the CEOs of the companies they own shares in, do. But, you know, as Smith wrote, "as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."

Yeah some stayed in too long and lost millions and now only have tens of millions instead of hundreds of millions.

Doesn't that at least cause you some happiness. I mean, it does satisfy at least some of your class envy tendencies, right?

But still it's money from retirement accounts and others home equities. Those people lost their homes and their retirement investments.

Some may have lost it all. Gee, that sucks, huh? I lost some equity in my accounts. It happens...investing and speculating is risky and it's not for the feignt of heart or the pussies who cannot handle the possibility of losses. Wasn't it you who told me to grow up, first?

Just one of many examples I could dig up. Also Wall Street lobbied and won when states tried to enforce stricter standards in lending. The Fed over-rid the states desires.... so much for Republican Federalism.

Sickening that the party that suposedly champions limited government is no different than the legislators on the other side of the isle who do not hide their support for their precious GSEs that. Notice who was already in the tank and who needed to still be paid off by money that originated at the GSE? See how the libertarians see these scumbags (all of them). That's why we want to miminize the ability of congress to do these things...to have the federal government butt out of just about all things that it curently does. You do see that, right?

But again the banking industry lobbied for years to break down Glass -Steagalll. Eventually they got their way.

I still do not see a problem with consolidated banking. You do and I am okay that you do. Why do you bring this up so often. Tell me just how meaningful it is and I'll listen. Use your own words and not some artcle that you have to dig for, okay?

Subprime primer

That link was hilarious. I'm surprised you posted it. Did you find it funny, too. Yeah, it places more blame on the bankers and reveals its biases but it does reveal everyone involved to be quite ignorant or, at least, too convinced that the party could last forever.

More to follow>>

 
At 5:55 PM, October 20, 2008, Blogger LowCountryJoe said...

Rueters link was not working at the moment.

Again what the fuck are you trying to say.

It was your dumbass hypothetical loan that I was writing about. The hyperbolic one where someone borrows $100,000 with only $50 down and a $500 monthly income.


YES PEOPLE BOUGHT MBS's. THAT WAS THE WHOLE PROBLEM. Have you not been reading the papers? AIG was over leveraged 100 to 1 with MBS and CDS.

I typically do not read the papers. As for someone buying the MBS with the very same scenario that you proposed? And you said that you make the loans. I said I'd only make the loan if it was interest only and I had rights to the house in case the borrower defaulted. I guess that makes me a predator, huh, Doctor?

Their opaqueness is at the very heart of the melt down. Nobody still knows who has what and how to value these pieces of trash paper.

No one has to, muirgeo, because the market participants determine the value. If they really were trash, could you scrounge some up for me and deliever to Georgia. I'll pay for the priority mail and even compensate you some for your time and effort. More hyperbole, eh, George. Stop using it or I will bust your balls each and every time you employ it as a debate tactic.

By the way; you did not answer question number eight. Do these instruments (contracts) have terms and conditions on them; yes or no?

These things made their way into 401k and other investments held by the general public. The whole fricking world had the risk passed onto it.

No they didn't. By your own admission, it was only hedge funds that dealt with them. Surely you don't feel symathatic to those fat cats with millions of dollars to play with who got burned, do you. So, let's try to answer question number 10 again, shall we?

I don't know if you listen to podcast much but if you want to here the other side I'd suggest listening to Demandside podcast. The guy is quite dry but he's makes a lot of valid points and he usually references what experts are saying.

I get enough incoherent commentary from you. Why would I waste any more of my time listening to the same shit again? As it is, this is a tremndous waste of my time yet I'm taking a guilty pleasure in it. I've been at this for nearly three hours. Why the fuck am I doing this when we wont see eye-to-eye. Well, I'm doing it because it is you blog and it's the only way I can get you to answer questions and to temporarily keep you from visiting other blogs. I'm not preventing you, mind you, but you do sort of have to make sure that you go unchallened on your own blog if you want to save face.

Thank you for showing me this place. I'm trying to persuade others to join in the fun but so far they've opted to stick with their own (libertarian) kind...something that I, myself, should probably stick to doing.

More to follow=>>

 
At 5:59 PM, October 20, 2008, Blogger LowCountryJoe said...

Finally as a complete summary I suggest watching the CSPAN coverage of the recent Senate hearings on the issues.

Senate Banking Cmte. Hearing on Credit Markets & Economic Crisis (October 16, 2008)


Unable to link directly. Either search google or CSPAN


Oh, damn! I wouldn't want to miss that. Legislators supposedly trying to get to the root of what happened while skirting the issue of how their social engineering was one of the biggest drivers in the bubble.

No thanks, Doctor, you watch it and summarize. I don't put much faith, at all, into what those asshats have to say. Apparently you do though.

 
At 2:55 PM, October 21, 2008, Blogger LowCountryJoe said...

First of all I will not be the one to walk away from this discussion.

Really?!

I will answer all your questions in time.

When? There were two that you didn't even address.

I've answered many already.

True. And now there are additional questions.

 
At 10:27 PM, October 22, 2008, Blogger muirgeo said...

Lcj:


Now you can answer my questions for a while.


Why did lenders make loans that were clearly sub-prime and high risk?

You try to put blame on the borrower for not fulfilling the contract. But there was a contract. So why would the lender sign the contract.


The borrower certainly has nothing to gain by signing a contract he knows he can't fulfill.

Onthe other hand the lender DOES have something to gain by signing a contract that might fail... ONLY IF H CAN TAKEE OUT his money and pass the contract off to some one else.


It's that simple LcJ. That could not happen before Glass Steagall because banking and investment institutions were kept separate effectively making securitization of mortgagees illegal.

Finally if a bunch of homeowners defaulted on bad loans it might cause a crisis but nothing of the magnitude we are seeing. For that you need complex opaque financial instrument. And deregulation of financial products allowed one bad mortgages to be leveraged 60 to 100 times. Do you understand that? That is were the massive fuck up occurred and that was in unregulated markets in which these securities were invented and traded that could not have been done legally prior to the year 2000.

 
At 10:43 PM, October 22, 2008, Blogger muirgeo said...

Here is one more deregulatory step of of the cliff.


Again this is a straight forward problem of deregulation and lack of oversight.

 
At 3:01 AM, October 23, 2008, Blogger LowCountryJoe said...

This comment has been removed by the author.

 
At 3:01 AM, October 23, 2008, Blogger LowCountryJoe said...

Why did lenders make loans that were clearly sub-prime and high risk?

Pick a government loan program; HUD/FHA, VA, RHL

Ah ha! Now I've got you. Read this!

Thanks for playing and even hosting this exchange. I hope you have learned something new. Feel free to answer any of my previous questions at any time.

 
At 6:16 AM, October 24, 2008, Blogger muirgeo said...

LcJ;

So your gonna pull old Greensppan quotes requesting MORE not LESS regulation of Freddie and Fannie which were privately owned.


Well here I got a Greenspn quote from just yesterday claiming the problem could not have happened without the new introduction of unregulated derivatives and credit default swaps.

Alan Greenspan: as seen on CSPAN's House Oversight Hearing on the Role of Federal Regulators beginning about minute 20:00

" What went wrong....... The breakdown has been most apparent in the securitization of home mortgages. The evidence STRONGLY suggest that without the excess demand from securitizers, sub-prime mortgage originations,undeniably the original source of the crisis, would have been smaller and defaults according fewer."


80% of sub-prime loans were not subject to GRE or CRA oversight. The ones that were generally had better terms and LESS defaults.

So know you don't have me ... you explained less then 20% of the problem and you are left unable to explain how this could have happened with out the massive leveraging that only could have occurred with the deregulatory Securities and Futures Modernization Act of 2000 that allowed the creation of OTC derivatives and CDS.

So that's why little blog debate with you is neat. People can see me ask you some questions that you can't answer correctly without destroying your position.


1) How does this happen without the opaque multi -leveraging new financial products?

I'll answer... IT DOESN'T

2)How exactly did legislation force Moody's, S&Ps and Fitch to rate junk paper as Triple AAA?

IT DIDN'T


3) Did the GSEs require banks to not check credit scores? Assets? Income?

Yes they did unlike the majority of bad sub-prime loans made in the private sector.

4) What was it about the CRA or GSEs that mandated fund managers load up on an investment product that was hard to value, thinly traded, and poorly understood.


Nothing.... they did what they did of their own volition. They cheated and raped each other until the walls crumbled down.

5) What was it in the way of Fannie/Freeddie or CRA legislation that forced banks to make "interest only" loans? Were "Neg Am loans" also part of the legislative requirements also?

Answers; NOTHING and NO

6) Finally... mercifully for you LcJ, Consider this February 2003 speech by Countrywide CEO Angelo Mozlilo at the American Bankers National Real Estate Conference. He advocated zero down payment mortgages -- was that a CRA requirement too, or just a grab for more market share, and bad banking?


No it wasn't it was he private sector acting on its own.


So there it all is in summary. People who wish can read our debate and decide for themselves who asked the pertinent questions and who the answers favor.


Finally,

Mr. Greenspan conceded: “Yes, I’ve found a flaw."


Hey funny that ME TOO!

 
At 6:52 AM, March 22, 2009, Blogger LowCountryJoe said...

First off, I just want to say that I missed this last post of yours. I thought I had visited here some two days later and still found nothing. Turns out it was only a day, not two like I had claimed at The Cafe.

So your gonna pull old Greensppan quotes requesting MORE not LESS regulation of Freddie and Fannie which were privately owned.

Sure they were privately owned. But they also had monopoly privilges and are quasi governmental agencies.

80% of sub-prime loans were not subject to GRE or CRA oversight. The ones that were generally had better terms and LESS defaults.

Wait, what? Explain, please.

So know you don't have me ... you explained less then 20% of the problem and you are left unable to explain how this could have happened with out the massive leveraging that only could have occurred with the deregulatory Securities and Futures Modernization Act of 2000 that allowed the creation of OTC derivatives and CDS.

You're too ignorant to realize what I said to you regarding the expactation of property value increases and the cycle of gaining equity and borrowing against that equity. Once that trend was broken, the economy could not sustain the growth that it once came to depend on. Now comes the painful period of correction, George.

What's up with posing questions and then answering them youserf?

 
At 10:22 AM, June 16, 2009, Blogger LowCountryJoe said...

Did you ever listen to this:

http://www.econtalk.org/archives/2009/05/leamer_on_macro.html

Start at about the 30 minute mark.

 

Post a Comment

Links to this post:

Create a Link

<< Home