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

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

Frank Boettcher wrote:
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


Sorry, but it just plain isn't.

You seem to be insisting that the "root cause" is that poor people who
could not ordinarily qualify for a mortgage were flooding into the
housing market, because the gov't was forcing banks to offer them
loans that they could then shrug off. And you're saying this is
because of a law passed by Congress in the 1970s. Long time comin'
huh? Well, I just can't see this as a smoking gun.

1st- the rate of default, as a percent, has not gone up all that
much... less than a 10% increase overall IIRC

2nd- even if you take a dim view of poor people getting mortgages, and
insist they would take a mortgage no more seriously than they would
paying rent, it's hard to fathom why they would go to the trouble...
it's time consuming and complicated to apply for a mortgage. Did they
do it just to **** off us whiteys?

3rd- Mortgage defaults have hit the middle- and upper-middle class as
hard as the lower income brackets, especially people who did cash-out
refinances, people who bought upgrade houses & second (or third)
homes. Many defaults are due to adjusted ARMs or balloon payments
coming due, and the homeowner's conclusion that they're better off
walking away from a seriously upside-down property.

4th- banks were certainly not forced to offer 125% financing, home-
equity lines of credit, zero-down & interest-only mortgages, and all
the other nifty ways to live beyond one's means that sustained
consumer spending thru the past ten years.

5th- investment banks & hedge funds were not forced by the gov't to
over-leverage these new mortgage-bundle-based investments on the
goggle-eyed assumptions that real estate values had no ceiling
(especially after "warning shot" crash in California).

FWIW I bought a house with VA assisted finacning too. What a pain...
I'll never do that again. Our VA seems to be one of those
bureaucracies that spends all it's time & effort telling you why you
can't have what they're obliged to givo you... other parts of the
country seem to have a better bunch in office.

Regards- Doug King

On Sun, 12 Oct 2008 18:56:31 -0700 (PDT), wrote:

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

Frank Boettcher wrote:
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


Sorry, but it just plain isn't.

You seem to be insisting that the "root cause" is that poor people who
could not ordinarily qualify for a mortgage were flooding into the
housing market, because the gov't was forcing banks to offer them
loans that they could then shrug off.

yes, If the government wanted to do social experimentation they should
do it outside the private market.

And you're saying this is
because of a law passed by Congress in the 1970s. Long time comin'
huh?

Yes, it often happens that way.

Well, I just can't see this as a smoking gun.

Sorry for that. If many are like you we will be doomed to repeat..



1st- the rate of default, as a percent, has not gone up all that
much... less than a 10% increase overall IIRC

Won't take the time to research to dispute those figures, but doesn't
take much to tilt the scale, open the flood gates.

2nd- even if you take a dim view of poor people getting mortgages, and
insist they would take a mortgage no more seriously than they would
paying rent, it's hard to fathom why they would go to the trouble...
it's time consuming and complicated to apply for a mortgage.

Loan originators make it fairly easy these days.

Once you create a root cause and open the door, then anyone who can
profit by it will. If you can't see that I can't help. but that is
all contributing factor not root cause.

I think I posted earlier that an individual left my employ, gave up
twelve years tenure and a bright future as one who "adds value to
something that is mined or grown" to become a loan originator. This
confused me, I didn't know why, thought this was just a bank clerical
job. No, he said, you can make a ton of money, the gov has fixed it
so any warm body can qualify, I make my commission and the loan gets
passed on to Fannie and Freddie.

"Mortgage" company sprang up in peoples homes. Just a place to pass
the paper on.

Did they
do it just to **** off us whiteys?

I never mentioned race. It has to do with whether an individual meets
the lenders standards. The lender should be whomever will have to
accept and hold the risk. That's the way it was for hundreds of years
before this social engineering experiment.




3rd- Mortgage defaults have hit the middle- and upper-middle class as
hard as the lower income brackets, especially people who did cash-out
refinances, people who bought upgrade houses & second (or third)
homes. Many defaults are due to adjusted ARMs or balloon payments
coming due, and the homeowner's conclusion that they're better off
walking away from a seriously upside-down property.

If the market had not been superheated by the root cause, that would
not have happened.

4th- banks were certainly not forced to offer 125% financing, home-
equity lines of credit, zero-down & interest-only mortgages, and all
the other nifty ways to live beyond one's means that sustained
consumer spending thru the past ten years.

And they wouldn't have, if all those home sales were not heating up
the inflationary monster.

5th- investment banks & hedge funds were not forced by the gov't to
over-leverage these new mortgage-bundle-based investments on the
goggle-eyed assumptions that real estate values had no ceiling
(especially after "warning shot" crash in California).

Had to put the "junk" (often disguised as AAA obligations) somewhere.
And as mentioned, once you create a system, open the door, then
whomever can profit by it will.

FWIW I bought a house with VA assisted finacning too. What a pain...
I'll never do that again. Our VA seems to be one of those
bureaucracies that spends all it's time & effort telling you why you
can't have what they're obliged to givo you... other parts of the
country seem to have a better bunch in office.


Can't comment on that, my next two homes that were associated with
transfers, were done conventionally. 20% down, and there ain't no way
I'm going to load up those properties with additional debt and risk
losing that equity. You see I have an incentive to be conservative.

Regards- Doug King

Well, I just can't see this as a smoking gun.


Frank Boettcher wrote:
Sorry for that. *If many are like you we will be doomed to repeat..


Did you read Dave's earlier post in this thread? There are a lot of
elements coming together to create this implosion... he called it 'the
Perfect Storm' which is apt. There is no one single cause.


1st- the rate of default, as a percent, has not gone up all that
much... less than a 10% increase overall IIRC


Won't take the time to research to dispute those figures, but doesn't
take much to tilt the scale, open the flood gates.


The flood gates won't open unless there is a market collapse, caused
by loss of confidence... say for example, if you are watching a market
downturn and suddenly find out your insurance company is bankrupt &
defaulting.... then you sell for whatever you can get.

Like I said, it's not just one single root cause.



2nd- even if you take a dim view of poor people getting mortgages, and
insist they would take a mortgage no more seriously than they would
paying rent, it's hard to fathom why they would go to the trouble...
it's time consuming and complicated to apply for a mortgage.

Loan originators make it fairly easy these days.


And the reason why there are 'loan originators' in the first place is
the banking deregulation about reselling mortgages.
For the past few years, most banks have been shucking their mortgages
as fast as they can. All they were doing was originating loans for the
fees generated, so why would they care about risk?



I think I posted earlier that an individual left my employ, gave up
twelve years tenure and a bright future as one who "adds value to
something that is mined or grown" to become a loan originator. *This
confused me, I didn't know why, thought this was just a bank clerical
job. *No, he said, you can make a ton of money, the gov has fixed it
so any warm body can qualify, I make my commission and the loan gets
passed on to Fannie and Freddie.


Well, he certainly was not fully informed on the business. I bet he's
not making a "ton of money" any more.

The CRA is part of what went wrong, but without the other pieces
falling into place... deregulation, lack of accounting oversight, lack
of diligence, and exeptions to reserve requirements... the mess would
be so much smaller as to not be worth a front-page headline.

Some people are determined to blame Allan Greenspan for keeping
interest rates so low that credit was almost free to banks & other
financial institutions, and so they couldn't resist gambling with this
almost-free money. And he certainly played a part (although some of
his more lucid public comments, back in the day, were on the need for
consistent accounting & auditing standards and the need for diligent
risk assessment). People only hear what they want to hear!

Regards- Doug King

wrote in message
...

Well, I just can't see this as a smoking gun.


Frank Boettcher wrote:
Sorry for that. If many are like you we will be doomed to repeat..


Did you read Dave's earlier post in this thread? There are a lot of
elements coming together to create this implosion... he called it 'the
Perfect Storm' which is apt. There is no one single cause.


1st- the rate of default, as a percent, has not gone up all that
much... less than a 10% increase overall IIRC


Won't take the time to research to dispute those figures, but doesn't
take much to tilt the scale, open the flood gates.


The flood gates won't open unless there is a market collapse, caused
by loss of confidence... say for example, if you are watching a market
downturn and suddenly find out your insurance company is bankrupt &
defaulting.... then you sell for whatever you can get.

Like I said, it's not just one single root cause.



2nd- even if you take a dim view of poor people getting mortgages, and
insist they would take a mortgage no more seriously than they would
paying rent, it's hard to fathom why they would go to the trouble...
it's time consuming and complicated to apply for a mortgage.

Loan originators make it fairly easy these days.


And the reason why there are 'loan originators' in the first place is
the banking deregulation about reselling mortgages.
For the past few years, most banks have been shucking their mortgages
as fast as they can. All they were doing was originating loans for the
fees generated, so why would they care about risk?



I think I posted earlier that an individual left my employ, gave up
twelve years tenure and a bright future as one who "adds value to
something that is mined or grown" to become a loan originator. This
confused me, I didn't know why, thought this was just a bank clerical
job. No, he said, you can make a ton of money, the gov has fixed it
so any warm body can qualify, I make my commission and the loan gets
passed on to Fannie and Freddie.


Well, he certainly was not fully informed on the business. I bet he's
not making a "ton of money" any more.

The CRA is part of what went wrong, but without the other pieces
falling into place... deregulation, lack of accounting oversight, lack
of diligence, and exeptions to reserve requirements... the mess would
be so much smaller as to not be worth a front-page headline.

Some people are determined to blame Allan Greenspan for keeping
interest rates so low that credit was almost free to banks & other
financial institutions, and so they couldn't resist gambling with this
almost-free money. And he certainly played a part (although some of
his more lucid public comments, back in the day, were on the need for
consistent accounting & auditing standards and the need for diligent
risk assessment). People only hear what they want to hear!

Regards- Doug King

Greenspan may be intelligent, but the FED's policies on his watch were a
disaster. He opened the financial markets to wide spread speculation and
manipulation. Financial leverage increased a thousand fold on his watch.
He was the Captain of the ship and his love of the limelight, his posturing,
and his pandering to Citibank, Lehman Bros, and other large financial
institutions is what got us in this mess.

I parted company with Bush when he re-appointed Greenspan. Biggest mistake
he made, including the Iraqi war.

On Mon, 13 Oct 2008 09:16:08 -0700 (PDT), wrote:


Well, I just can't see this as a smoking gun.


Frank Boettcher wrote:
Sorry for that. *If many are like you we will be doomed to repeat..


Did you read Dave's earlier post in this thread? There are a lot of
elements coming together to create this implosion... he called it 'the
Perfect Storm' which is apt. There is no one single cause.


1st- the rate of default, as a percent, has not gone up all that
much... less than a 10% increase overall IIRC


Won't take the time to research to dispute those figures, but doesn't
take much to tilt the scale, open the flood gates.


The flood gates won't open unless there is a market collapse, caused
by loss of confidence... say for example, if you are watching a market
downturn and suddenly find out your insurance company is bankrupt &
defaulting.... then you sell for whatever you can get.

Like I said, it's not just one single root cause.

I guess I've been trained for an entire career in problem solving to
always look for the root cause. There always is one. Sometimes
difficult to find but it is always there. That one thing by which all
other contributing factors could not evolve, develop, or impact. So
you can believe what you want and we'll disagree.



2nd- even if you take a dim view of poor people getting mortgages, and
insist they would take a mortgage no more seriously than they would
paying rent, it's hard to fathom why they would go to the trouble...
it's time consuming and complicated to apply for a mortgage.

Loan originators make it fairly easy these days.


And the reason why there are 'loan originators' in the first place is
the banking deregulation about reselling mortgages.
For the past few years, most banks have been shucking their mortgages
as fast as they can. All they were doing was originating loans for the
fees generated, so why would they care about risk?



I think I posted earlier that an individual left my employ, gave up
twelve years tenure and a bright future as one who "adds value to
something that is mined or grown" to become a loan originator. *This
confused me, I didn't know why, thought this was just a bank clerical
job. *No, he said, you can make a ton of money, the gov has fixed it
so any warm body can qualify, I make my commission and the loan gets
passed on to Fannie and Freddie.


Well, he certainly was not fully informed on the business. I bet he's
not making a "ton of money" any more.

Actually as often happens in cases like this, he made his, got out and
bought a resturant franchise.

The CRA is part of what went wrong, but without the other pieces
falling into place... deregulation, lack of accounting oversight, lack
of diligence, and exeptions to reserve requirements... the mess would
be so much smaller as to not be worth a front-page headline.

Some people are determined to blame Allan Greenspan for keeping
interest rates so low that credit was almost free to banks & other
financial institutions, and so they couldn't resist gambling with this
almost-free money. And he certainly played a part (although some of
his more lucid public comments, back in the day, were on the need for
consistent accounting & auditing standards and the need for diligent
risk assessment). People only hear what they want to hear!

You can't have diligent risk assessment if the government is
threatening you with discrimination charges if you do not give loans
to people who cannot and should not have them. So the system gets set
up to pass them on mostly to a couple of psuedo private industry
giants that actually have a tacit government guarantee with no
oversight.



And I'm not saying now nor have I ever said that there were not many
contributing factors and that every individual and entity looked at
the game board and asked themselves "how can I profit from this set of
rules"? I'm just a big believer in the root cause theory. Maybe you
are not.

Frank
Regards- Doug King

And the reason why there are 'loan originators' in the first place is
the banking deregulation about reselling mortgages.

Dave wrote:
What changes in regulations are you referring to?


The ones that allowed banks to sell mortgage contracts to specialized
institutions (ie non-banks) in other states where other terms applied
to that contract.

Dave, I'm sure you know more about the Federal and NY (and probably
other states too) banking regulations than I do. I also know that NC
law *still* forbids a contractee from using a change of address to
change the terms of a contract. I know (unspecifically) that other
states have changed laws affecting this in the past 12 years, maybe
there are also Federal laws involved (other than Article 4 of the
Constitution). For example, when the bank holding our mortgage was
bought out back in the late 1990s, they sent us a very sugary letter
explaining that they were kindly NOT changing the terms of our
mortgage. OTOH I know of several people around then, and in subsequent
years, who have had resold mortgages with changed terms. Insurance and
tax escrow arrangements, for example.


For the past few years, most banks have been shucking their mortgages
as fast as they can. All they were doing was originating loans for the
fees generated, so why would they care about risk?

Definitely part of the problem.

And this could be driven by CRA... a bank's natural response to the
rise in risky mortgages, shuck 'em!

But I still don't see the CRA... or President Bush's "Ownership
Society" drive... as the biggest smoking gun behind this credit crash.

I'm also waiting, dollars in hand, to see the market bottom out.....

Regards- Doug King