...something you'd rather sweep under the rug in the rush to blame
those evil libby-rull Democrats!

Dave wrote:
Nope. I blame the failures of the investment banks on their own stupidity in
over-leveraging their capital and their undue concentration of assets. The
guvmint should have let all of them run to the bankruptcy courts if they
couldn't continue to meet their obligations, instead of bailing them out.

OK, good so far.

The only problem I have is that if we simply let the banks fail in an
economy that has grown increasingly dependent on credit.... addicted
to it, you might say.... then failure will spread quickly thru every
level of the economy. Bank failure was one of the tripwires of the
Great Depression.

But apparently Thunder doesn't know the difference between a bank and an
investment bank. No one who did would mention CRA in the same sentence with
investment bank. That's why I suggested he take a nap while those who know
something about the subject discuss it.

I think I got it.

We have a financial crisis caused by the CRA and commercial banks
giving mortgages to unsuitable lenders. But the investment banks have
nothing at all to do with the CRA and they're the biggest part of this
crisis.

Maybe you can explain just a little further Dave. You may be making a
leap of faith here that I can't follow....

DSK

wrote in message
...
...something you'd rather sweep under the rug in the rush to blame
those evil libby-rull Democrats!

Dave wrote:
Nope. I blame the failures of the investment banks on their own stupidity
in
over-leveraging their capital and their undue concentration of assets.
The
guvmint should have let all of them run to the bankruptcy courts if they
couldn't continue to meet their obligations, instead of bailing them out.

OK, good so far.

The only problem I have is that if we simply let the banks fail in an
economy that has grown increasingly dependent on credit.... addicted
to it, you might say.... then failure will spread quickly thru every
level of the economy. Bank failure was one of the tripwires of the
Great Depression.

But apparently Thunder doesn't know the difference between a bank and an
investment bank. No one who did would mention CRA in the same sentence
with
investment bank. That's why I suggested he take a nap while those who
know
something about the subject discuss it.

I think I got it.

We have a financial crisis caused by the CRA and commercial banks
giving mortgages to unsuitable lenders. But the investment banks have
nothing at all to do with the CRA and they're the biggest part of this
crisis.

Maybe you can explain just a little further Dave. You may be making a
leap of faith here that I can't follow....

DSK

Many investment banks bought huge amounts of the mortgages and packaged them
into "Collateralized Mortgage Obligations" ("CMO"), slicing and dicing the
packages into multiple tranches and then selling the various tranches to
investors, including banks, private investors, and hedge funds. The MBA's
on Wall Street kept getting wilder and wilder until no one knew what they
were buying anymore, or what the CMOs were worth. When rates went up and
mortgage holders with adjustable rate mortgages started defaulting some of
the higher yielding tranches (riskier tranches) cash flow became impaired
and investors started asking hard questions. The answers scared them and
they quit buying. Market values fell, mark to market rules required write
downs, and now we are in free fall.

"jlrogers±³©" wrote:
Many investment banks bought huge amounts of the mortgages and packaged them
into "Collateralized Mortgage Obligations" ("CMO"), slicing and dicing the
packages into multiple tranches and then selling the various tranches to
investors, including banks, private investors, and hedge funds. *The MBA's
on Wall Street kept getting wilder and wilder until no one knew what they
were buying anymore, or what the CMOs were worth. *When rates went up and
mortgage holders with adjustable rate mortgages started defaulting some of
the higher yielding tranches (riskier tranches) cash flow became impaired
and investors started asking hard questions. *The answers scared them and
they quit buying. *Market values fell, mark to market rules required write
downs, and now we are in free fall.


Yep, looks right on the mark to me... but how is it the CRA's fault?
Just because everything from gas prices to warm beer is always blamed
on the nearest handy Democrat?

Looks to me like the crash was caused by greed & stupidity, helped
along by some concurrent bubbles popping.

As a private individual, if I buy an investment without carefully
researching it's true risk, then it's my fault if it goes south. I
take the hit. If dozens of investment banks do the same thing, to the
tune of squajillions of dollars, then it drags the rest of us down...
a bail-out to avoid massive bank failure may be in the best public
interest (although my vote would be to take the first round of bail-
out money from the pockets of those CEOs)... it's sure not the fault
of some muddle-headed doo-gooders who decades ago said, "hey wouldn't
it be nice if banks offered nice mortgages to poor people?"

The proble is that we Americans have a whole slew of unhealthy
addictions. Addiction to oil and addiction to credit are the two
biggies. Our borrow-and-spend government is merely a reflection of the
fact that the U.S. has a negative savings rate. The "average" US
household carries about $10K in credit card debt and our total average
indebtedness is over $150K per person. I've pointed this out as a
problem many times (even though it's not the way I manage my own
finances) long before the current banking/mortgage/credit crisis hit
the headlines.

We are addicted to oil and credit. Both are very destructive habits
that we *will* break in the near future... one problem we have is that
oil companies and financial companies are both profiting heavily from
these bad habits, just like cigarette companies profit from addiction
to nicotine. It's going to be either a fight break free or a complete
wreckage of the nation when we hit bottom.

Fresh Breezes- Doug King

wrote in message
...
"jlrogers±³©" wrote:
Many investment banks bought huge amounts of the mortgages and packaged
them
into "Collateralized Mortgage Obligations" ("CMO"), slicing and dicing the
packages into multiple tranches and then selling the various tranches to
investors, including banks, private investors, and hedge funds. The MBA's
on Wall Street kept getting wilder and wilder until no one knew what they
were buying anymore, or what the CMOs were worth. When rates went up and
mortgage holders with adjustable rate mortgages started defaulting some of
the higher yielding tranches (riskier tranches) cash flow became impaired
and investors started asking hard questions. The answers scared them and
they quit buying. Market values fell, mark to market rules required write
downs, and now we are in free fall.


Yep, looks right on the mark to me... but how is it the CRA's fault?
Just because everything from gas prices to warm beer is always blamed
on the nearest handy Democrat?

Looks to me like the crash was caused by greed & stupidity, helped
along by some concurrent bubbles popping.

As a private individual, if I buy an investment without carefully
researching it's true risk, then it's my fault if it goes south. I
take the hit. If dozens of investment banks do the same thing, to the
tune of squajillions of dollars, then it drags the rest of us down...
a bail-out to avoid massive bank failure may be in the best public
interest (although my vote would be to take the first round of bail-
out money from the pockets of those CEOs)... it's sure not the fault
of some muddle-headed doo-gooders who decades ago said, "hey wouldn't
it be nice if banks offered nice mortgages to poor people?"

The proble is that we Americans have a whole slew of unhealthy
addictions. Addiction to oil and addiction to credit are the two
biggies. Our borrow-and-spend government is merely a reflection of the
fact that the U.S. has a negative savings rate. The "average" US
household carries about $10K in credit card debt and our total average
indebtedness is over $150K per person. I've pointed this out as a
problem many times (even though it's not the way I manage my own
finances) long before the current banking/mortgage/credit crisis hit
the headlines.

We are addicted to oil and credit. Both are very destructive habits
that we *will* break in the near future... one problem we have is that
oil companies and financial companies are both profiting heavily from
these bad habits, just like cigarette companies profit from addiction
to nicotine. It's going to be either a fight break free or a complete
wreckage of the nation when we hit bottom.

Fresh Breezes- Doug King

CRA was the catalyst. In the old days mortgages to be sold to Freddie and
Fannie had to meet rigorous criteria with respect to specific financial
ratios (e.g., loan to value, income to loan amount), verifications with
respect to employment, income, and net worth. Rates were fixed, so the
borrower could depend on a fixed payment. The requirements were so strict
it took "forever" to close a loan.

CRA was the beginning of removing the standards. Adjustable rates was the
killer.

CRA

On Fri, 10 Oct 2008 12:27:33 -0700 (PDT), wrote:

"jlrogers±³©" wrote:
Many investment banks bought huge amounts of the mortgages and packaged them
into "Collateralized Mortgage Obligations" ("CMO"), slicing and dicing the
packages into multiple tranches and then selling the various tranches to
investors, including banks, private investors, and hedge funds. Â*The MBA's
on Wall Street kept getting wilder and wilder until no one knew what they
were buying anymore, or what the CMOs were worth. Â*When rates went up and
mortgage holders with adjustable rate mortgages started defaulting some of
the higher yielding tranches (riskier tranches) cash flow became impaired
and investors started asking hard questions. Â*The answers scared them and
they quit buying. Â*Market values fell, mark to market rules required write
downs, and now we are in free fall.


Yep, looks right on the mark to me... but how is it the CRA's fault?
Just because everything from gas prices to warm beer is always blamed
on the nearest handy Democrat?

Looks to me like the crash was caused by greed & stupidity, helped
along by some concurrent bubbles popping.

As a private individual, if I buy an investment without carefully
researching it's true risk, then it's my fault if it goes south. I
take the hit. If dozens of investment banks do the same thing, to the
tune of squajillions of dollars, then it drags the rest of us down...
a bail-out to avoid massive bank failure may be in the best public
interest (although my vote would be to take the first round of bail-
out money from the pockets of those CEOs)... it's sure not the fault
of some muddle-headed doo-gooders who decades ago said, "hey wouldn't
it be nice if banks offered nice mortgages to poor people?"

The proble is that we Americans have a whole slew of unhealthy
addictions. Addiction to oil and addiction to credit are the two
biggies. Our borrow-and-spend government is merely a reflection of the
fact that the U.S. has a negative savings rate. The "average" US
household carries about $10K in credit card debt and our total average
indebtedness is over $150K per person. I've pointed this out as a
problem many times (even though it's not the way I manage my own
finances) long before the current banking/mortgage/credit crisis hit
the headlines.

We are addicted to oil and credit. Both are very destructive habits
that we *will* break in the near future... one problem we have is that
oil companies and financial companies are both profiting heavily from
these bad habits, just like cigarette companies profit from addiction
to nicotine. It's going to be either a fight break free or a complete
wreckage of the nation when we hit bottom.

That is all right on. Indebtedness has been encouraged for maybe 15
years now. IMO the 401k, which allowed Wall Street directly into the
paycheck of many workers, was the beginning of the problem.
The new money allowed inflation of stock prices, and made everybody
happy with the magic money of "created wealth."
But it took consumer spending and indebtedness to maintain the facade
of equity wealth.
That's a simplistic outline, and the whole truth is really complicated
by other elements, like shipping manufacturing overseas, which
increased stock prices at the expense of more worker indebtedness.
We've really been living in a financial fantasyland for many years.
A long-running Ponzi scheme.
But the worst mistake is that most of those in charge - gov and
business - abandoned their fiduciary responsibilities.
A vast fleet of ships with drunken captains.

--Vic

Vic Smith wrote:
But the worst mistake is that most of those in charge - gov and
business - abandoned their fiduciary responsibilities.

Bingo.
It's as much an epidemic of irresponsibility as a fiscal crisis.


A vast fleet of ships with drunken captains.


I like that analogy.
Many people who have no clue what it means to be a Captain think
everything is going fine.
And many more think it's fine because it's a lot of fun as long as
you're one of the drunks!

DSK

On Fri, 10 Oct 2008 14:09:55 -0500, "jlrogers±³©"
wrote:


wrote in message
...
...something you'd rather sweep under the rug in the rush to blame
those evil libby-rull Democrats!

Dave wrote:
Nope. I blame the failures of the investment banks on their own stupidity
in
over-leveraging their capital and their undue concentration of assets.
The
guvmint should have let all of them run to the bankruptcy courts if they
couldn't continue to meet their obligations, instead of bailing them out.

OK, good so far.

The only problem I have is that if we simply let the banks fail in an
economy that has grown increasingly dependent on credit.... addicted
to it, you might say.... then failure will spread quickly thru every
level of the economy. Bank failure was one of the tripwires of the
Great Depression.

But apparently Thunder doesn't know the difference between a bank and an
investment bank. No one who did would mention CRA in the same sentence
with
investment bank. That's why I suggested he take a nap while those who
know
something about the subject discuss it.

I think I got it.

We have a financial crisis caused by the CRA and commercial banks
giving mortgages to unsuitable lenders. But the investment banks have
nothing at all to do with the CRA and they're the biggest part of this
crisis.

Maybe you can explain just a little further Dave. You may be making a
leap of faith here that I can't follow....

DSK

Many investment banks bought huge amounts of the mortgages and packaged them
into "Collateralized Mortgage Obligations" ("CMO"), slicing and dicing the
packages into multiple tranches and then selling the various tranches to
investors, including banks, private investors, and hedge funds. The MBA's
on Wall Street kept getting wilder and wilder until no one knew what they
were buying anymore, or what the CMOs were worth. When rates went up and
mortgage holders with adjustable rate mortgages started defaulting some of
the higher yielding tranches (riskier tranches) cash flow became impaired
and investors started asking hard questions. The answers scared them and
they quit buying. Market values fell, mark to market rules required write
downs, and now we are in free fall.

And it didn't help that the lowest yielding, most secure tranches
were often rated AAA by the rating agencies, so investors thought they
were getting a sound investment. It turns out that many of those so
called triple A's became riddled with defaults.

But Doug, when problem solving you always need to look for root cause.
The red X in statistical DOE terms. There are many contributing
factors, however the root cause, the red X is simply setting up a
system to give people who could not afford these properties and loans
in the first place a way to get them with no skin in the game. That's
why I blame the dems. Just another social engineering experiment gone
bad.

If the systems were not set up, they wouldn't get the loans, they
wouldn't get the properties, they wouldn't default the loans, the
loan originators, incentified by commission and no skin in the game
wouldn't have sprouted on every street corner, the stinky CMO's would
never have been created, the CEO's of Fannie and Freddie would not
have become multimillionaires based on an incentive system that
resulted from quantitiy of loans made, demand for housing wouldn't
have accelerated artificially driving prices higher, and the list goes
on.........

On the other side of the once heated market is the pre-construction
flipper. Another entity with no skin in the game, but at least in
that game someone other than the taxpayer had to take the hit.

Frank

Frank Boettcher wrote:
*And it didn't help that the lowest yielding, most secure tranches
were often rated AAA by the rating agencies, so investors thought they
were getting a sound investment. *It turns out that many of those so
called triple A's became riddled with defaults.


True enough... part of the problem is that these were a new type of
instrument that nobody knew how to assess the risk of; but it's also
true that there was little accountability and due diligence as these
intruments were marketed thru-out the finance world.

The default rate, as a percent, has only gone up a small amount. A
bigger problem is the crisis of confidence... when it turns out that
even the safest-rated instruments can be hit by default, *and* the
insurance is worthless, then people panic and want to dump their
investment before they lose the whole pie.

After all, what makes a $20 bill worth $20? The fact that people will
accept it as valuable for a certain range of goods & services...
pretend for a moment that terrorists had broken into the Mint and
infected random $20 bills with AIDS (or something), then you'd have
the same effect... free-fall!

And this is *still* only part of the problem, as I see it... we've
been thru cycles of tight credit before, and cycles of loan default
(remember the junk-bond scandals). The answer is, people who have
money to loan insist on higher interest rates. But now we (the U.S.A.
is not just addicted to credit, we need CHEAP credit! We cannot afford
to take on higher debt just to service the debt we've already taken
on! The country is balancing on the edge of a cliff here and Paulson &
Bernanke are desparate not just to ease credit but to keep interest
rates low.


But Doug, when problem solving you always need to look for root cause.

Agreed. And I think the CRA (you might as well add in President Bush's
'Ownership Society') is indeed part of what got us here. I just don't
see it as The Big Cause.

The red X in statistical DOE terms. *There are many contributing
factors, however the root cause, the red X is simply setting up a
system to give people who could not afford these properties and loans
in the first place a way to get them with no skin in the game.

But they *did* have skin in the game. The same as you or I... keep
paying or lose your home.

Dave's point about computers enabling the dizzying array of mortgage
loan terms is also a good one.

IMHO one of the inherent factors in being "conservative" means to be
leery of new things such as new types of financial instruments.

Regards- Doug King

IMHO one of the inherent factors in being "conservative" means to be
leery of new things such as new types of financial instruments.


How right you are. My bank avoided trouble because our Funds Manager
refused to buy anything new and different that he couldn't understand. He
was the only bank employee older than me and had been through the bank
failures of the 70's and 80's. He took a lot of criticism and ridicule for
being a "...conservative old fart," until the **** hit the fan, that is.

On Sun, 12 Oct 2008 10:47:14 -0700 (PDT), wrote:

Frank Boettcher wrote:
*And it didn't help that the lowest yielding, most secure tranches
were often rated AAA by the rating agencies, so investors thought they
were getting a sound investment. *It turns out that many of those so
called triple A's became riddled with defaults.


True enough... part of the problem is that these were a new type of
instrument that nobody knew how to assess the risk of; but it's also
true that there was little accountability and due diligence as these
intruments were marketed thru-out the finance world.

The default rate, as a percent, has only gone up a small amount. A
bigger problem is the crisis of confidence... when it turns out that
even the safest-rated instruments can be hit by default, *and* the
insurance is worthless, then people panic and want to dump their
investment before they lose the whole pie.

After all, what makes a $20 bill worth $20? The fact that people will
accept it as valuable for a certain range of goods & services...
pretend for a moment that terrorists had broken into the Mint and
infected random $20 bills with AIDS (or something), then you'd have
the same effect... free-fall!

And this is *still* only part of the problem, as I see it... we've
been thru cycles of tight credit before, and cycles of loan default
(remember the junk-bond scandals). The answer is, people who have
money to loan insist on higher interest rates. But now we (the U.S.A.
is not just addicted to credit, we need CHEAP credit! We cannot afford
to take on higher debt just to service the debt we've already taken
on! The country is balancing on the edge of a cliff here and Paulson &
Bernanke are desparate not just to ease credit but to keep interest
rates low.


But Doug, when problem solving you always need to look for root cause.

Agreed. And I think the CRA (you might as well add in President Bush's
'Ownership Society') is indeed part of what got us here. I just don't
see it as The Big Cause.

The red X in statistical DOE terms. *There are many contributing
factors, however the root cause, the red X is simply setting up a
system to give people who could not afford these properties and loans
in the first place a way to get them with no skin in the game.

But they *did* have skin in the game. The same as you or I... keep
paying or lose your home.

No, I had to put 20% down on my last home as a requirement to avoid
PMI and to get the payment to something I could afford. They
essentially had the same situation as a renter. Nothing substantial
down, If you can't do it, just walk away, nothing lost except I got to
move.

I remember buying my first home. 1971, 24 years old, college graduate
with a first entry level professional job, good work record, no debt,
good credit, proof of savings for down payment and closing costs, I
was trying to borrow $18,000 and the PITI would be $123/month. I was
making $700/month and was in the Marine Corp reserve making another
$30 or so. Mortgage was to be an VA/FHA combo, available to
reservists.

I was turned down. Builder (who was also my landlord and friend of
the family) drove me 180 miles to Jackson to have an appeal interview
with the FHA people to try to get me in the house. After the
interview they approved the loan.

How did we get from that to where you could get a "liars loan" from a
street corner loan originator, where you don't even have to show proof
of income, assets, credit worthiness or anything to get a loan.

Root cause my friend, simple as that.
Frank

Dave's point about computers enabling the dizzying array of mortgage
loan terms is also a good one.

IMHO one of the inherent factors in being "conservative" means to be
leery of new things such as new types of financial instruments.

Regards- Doug King