[jtfanclub]

mike777, on Jul 15 2008, 02:12 PM, said:

Wayne, first mortgages/loans and savings and checking accounts are heavily regulated today, very heavily regulated. Can you be more specific?

Which is all completely worthless. A rating agency can call a mortgage already in default a AAA debt, and the bank can sell it then for lots of money. The guy who buys it and discovers that it's only useful as toilet paper doesn't have any 'regulations' that help him.

That's what has really happened in the mortgage industry. Nobody trusts the rating agencies any more, which means that the mortgage market has just vanished overnight. Almost half the mortgages in the market are either owned or guaranteed by Fannie or Freddy. The only reason you can still get a mortgage at all is because Fannie and Freddy are still buying (with money they don't have). Note that this isn't limited to subprime loans- they just exposed that the rating agencies didn't know what the heck they were doing.

It would be interesting if we got rid of the mortgage market entirely, and went back to banks actually keeping the mortgage instead of selling it immediately. For one thing, that means the bank would actually care about whether the person can pay it back, not what it will be rated as (which in turn determines how much money they make off the loan). During this mortgage market craziness, the seller didn't care if the buyer could afford it, the real estate agent didn't care if the buyer could afford it, the bank didn't care if the buyer could afford it, and the ratings agencies had no idea if the buyer could afford it beyond basic paperwork.

But then, Fannie Mae and Freddy Mac exist so that a mortgage market can exist, so that banks can loan more mortgages than they have assets (because they turn around and sell some of them). But I don't think they can handle a complete market collapse like this.

Dunno what the solution is, but I don't think this is their fault. They did what they were supposed to do.

[kenberg]

Mike,

I of course accept that most anything involves risk. I am not trying to eliminate risk. Also, I am not particularly trying to protect individuals from bad choices. I am asking about the best way to keep our complex financial structure from falling apart.

If a toothpaste company makes crummy toothpaste, it goes broke. Some investors lose money but hey, investments are not guaranteed.


Some large organizations seem to be in a different category however. If, say, the American auto industry goes belly up, or further goes belly up, I get hurt by the fall out even though I own no GM stock. OK, maybe we have to just put up with that. But Bear Stearns? FNMA? Apparently we, meaning the government, are not willing to just let matters take their course. (We aren't really willing with the auto industry either.) I suppose maybe this intervention is right. But I think that such a conclusion has implications.

The mortgage mess was not exactly just due to misjudgment. Some savvy folks got very rich and left us all with a huge problem. Well, some clever people are screwing over some foolish people, what else is new? Yes, but now we have to launch an expensive rescue operation not to save either the screwers or the screwees but rather to save the whole damn economy. We are being played for suckers and it seems natural enough to want to put a stop to this. Can we stop it, or do we just continue to get screwed?

Eliminating risk is not possible. I know that. I just don't like being conned.

[mike777]

I think your main point and what the tv is talking about now is that no one cared if you borrow money if you could pay it back.

Let us not be naive, the people buying these mortgages from banks are not innocent niave Joe's.

We all know the limits of how accurate the rating companies are...btw they are regulated also. Keep in mind one must pay money to the rating companies to get a rating. So if you trust what the rating is, whose fault is that? ...anyway.....

Back to the main point of this thread, that somehow more regulation will solve the problem.

I just want more transparency......
The problem of course is that Politicians prefer less, when they are in control......see FNMA for case study.....

As to what to do now? BUY BUY BUY....if you understand the company and how it makes money

[mike777]

OF course none of this is new.


One can go back throughout history and see the pattern.

Just look at ENRON. The problem was not lack of regulations, there were more than enough.

The problem was a lack of transparency. Investors react in two ways with too lack of transparency:
1) These guys are regulated and smart..I do not understand how they make money but what the heck.....buy......
2) I do not understand how Enron makes money.....I do not buy.....

or


1) I do not know if these mortgages are sound or not but who cares they are regulated...buy or
2) I do not understand...do not buy.....

[mike777]

kenberg, on Jul 15 2008, 03:34 PM, said:

Mike,

I of course accept that most anything involves risk. I am not trying to eliminate risk. Also, I am not particularly trying to protect individuals from bad choices. I am asking about the best way to keep our complex financial structure from falling apart.

If a toothpaste company makes crummy toothpaste, it goes broke. Some investors lose money but hey, investments are not guaranteed.


Some large organizations seem to be in a different category however. If, say, the American auto industry goes belly up, or further goes belly up, I get hurt by the fall out even though I own no GM stock. OK, maybe we have to just put up with that. But Bear Stearns? FNMA? Apparently we, meaning the government, are not willing to just let matters take their course. (We aren't really willing with the auto industry either.) I suppose maybe this intervention is right. But I think that such a conclusion has implications.

The mortgage mess was not exactly just due to misjudgment. Some savvy folks got very rich and left us all with a huge problem. Well, some clever people are screwing over some foolish people, what else is new? Yes, but now we have to launch an expensive rescue operation not to save either the screwers or the screwees but rather to save the whole damn economy. We are being played for suckers and it seems natural enough to want to put a stop to this. Can we stop it, or do we just continue to get screwed?

Eliminating risk is not possible. I know that. I just don't like being conned.

More transparency

If I do not understand the Math, I can go ask someone who does. If you tell me the math seems confusing to even you, not wrong, just confusing...that is a red flag.

For me I owned FNMA for decades, until a few years ago...the math and accounting got to confusing for me to understand, not wrong or bad, I just did not understand it.

FNMA borrows money at unfair low rates, ok I understood that.
They turn around and buy ordinary joe mortgages from banks and mortgage companies.

They borrow money at 3% get mortgages at 7%.......have a few expenses and mortgage defaults.....and the rest is free money...sweet....

[Al_U_Card]

Because when you take a dollar from a million people they say litte. Just don't try to "take" a million dollars from one (rich) person...

[Al_U_Card]

mike777, on Jul 15 2008, 03:02 PM, said:

FNMA is NOT a traditional mortgage lender

In 1968, Fannie Mae was re-chartered by Congress as a shareholder-owned company, funded solely with private capital raised from investors on Wall Street and around the world. "

OMG

So in 68 RM (Prescott of the Brown Bank is my backer) Nixon gave the power over mortgage financing to the "people" as shareholders.....oh yeah THOSE people, and we know how concerned THEY are for the mortgage holders in general...

[sceptic]

Quote

Let us not be naive, the people buying these mortgages from banks are not innocent niave Joe's. smile.gif

Actually, a lot of people could be naive, Fannie may or may not be good and its smaller brother Freddie are not where people expect their mortgages to be, If I take out a mortgage with a bank, I always expected that that bank would hold my mortgage (very naive of me) and earn interest from my regular payments, no one ever explained to me, that my debt would be brought by some appropriately named Fannie, and then sold off to investors (who we all know just want as much profit as possible, even whilst having thier investment guarenteed by said Fannie and herein possibly lies part of the problem)

All in all, I doubt many joes in the street expected thier mortgages to be hawked around all and sundry trying to cream off as much profit as possible, just to enable the banks to keep lending the same money, you can only lend the same dollar so many times before someone wants them all back at the same time or someone runs out of dollars

In fact Fannie Mae, buys mortgaes and then sells them on to investors, so I cant accept that the ordinary joe, does not have mortgages with Fannie and Bro, Fannie and Fred, have probably owned every americans mortgage at some time or another if only briefly

[mike777]

sceptic, on Jul 15 2008, 04:11 PM, said:

Quote

Let us not be naive, the people buying these mortgages from banks are not innocent niave Joe's. smile.gif

Actually, a lot of people could be naive, Fannie may or may not be good and its smaller brother Freddie are not where people expect their mortgages to be, If I take out a mortgage with a bank, I always expected that that bank would hold my mortgage (very naive of me) and earn interest from my regular payments, no one ever explained to me, that my debt would be brought by some appropriately named Fannie, and then sold off to investors (who we all know just want as much profit as possible, even whilst having thier investment guarenteed by said Fannie and herein possibly lies part of the problem)

All in all, I doubt many joes in the street expected thier mortgages to be hawked around all and sundry trying to cream off as much profit as possible, just to enable the banks to keep lending the same money, you can only lend the same dollar so many times before someone wants them all back at the same time or someone runs out of dollars

In fact Fannie Mae, buys mortgaes and then sells them on to investors, so I cant accept that the ordinary joe, does not have mortgages with Fannie and Bro, Fannie and Fred, have probably owned every americans mortgage at some time or another if only briefly

Ok so your regulation you want is if someone loans you money they can never sell your IOU unless you say it is ok........Let me get this straight.....not only do you want to borrow money from me but now you want to demand I cannot sell your IOU to someone else.

I think I will loan to someone else or if I do loan to you I will charge you double interest.

[Mbodell]

sceptic, on Jul 15 2008, 12:08 PM, said:

Quote

Fannie Mae provides stability,

cough

It is adding artificial stability to the housing market right now. Without the GSE the housing crash would likely be more severe/quicker as there would be even fewer buyers and prices would go down faster. Now, arguably, that would be a good thing as a fast crash may be better than a slow and lingering one, but I think the GSE are adding to the stability of housing prices right now.

[jtfanclub]

Mbodell, on Jul 15 2008, 05:23 PM, said:

Without the GSE the housing crash would likely be more severe/quicker as there would be even fewer buyers and prices would go down faster.

I suspect it would be nonexistent. The price of mortgages would be so bad that nobody would profit by selling them.

I suspect most of the people buying these didn't have much of a clue. Pensions, large funds, and suchlike. They saw a history of profit for these instruments so they bought them without understanding them. Around 2004, somebody did a study showing that if the housing market went down all of these bundle derivitives would collapse. I suspect the smart money ran for the hills, leaving us poor fools with pensions and mutual funds to hold the bag.

[kenberg]

sceptic, on Jul 15 2008, 04:11 PM, said:

Quote

Let us not be naive, the people buying these mortgages from banks are not innocent niave Joe's. smile.gif

Actually, a lot of people could be naive, Fannie may or may not be good and its smaller brother Freddie are not where people expect their mortgages to be, If I take out a mortgage with a bank, I always expected that that bank would hold my mortgage (very naive of me) and earn interest from my regular payments, no one ever explained to me, that my debt would be brought by some appropriately named Fannie, and then sold off to investors (who we all know just want as much profit as possible, even whilst having thier investment guarenteed by said Fannie and herein possibly lies part of the problem)

All in all, I doubt many joes in the street expected thier mortgages to be hawked around all and sundry trying to cream off as much profit as possible, just to enable the banks to keep lending the same money, you can only lend the same dollar so many times before someone wants them all back at the same time or someone runs out of dollars

In fact Fannie Mae, buys mortgaes and then sells them on to investors, so I cant accept that the ordinary joe, does not have mortgages with Fannie and Bro, Fannie and Fred, have probably owned every americans mortgage at some time or another if only briefly

I think that most troubles of the OJs (Ordinary Joes) is that they cannot handle their debt. What the bank did with their debt is not directly troubling to them.

True, the bank was willing to make a silly loan because they knew they could toss it off to someone else, but it is the having of the loan, not the moving of the loan, that gives OJ his trouble.

Now was he naive? There are quite a few people out there who know that they should look into things a little more. They also know, or at least suspect, that if they did they would not like the answers. The bank says they can have the loan because they are going to foist it off on someone else, the borrower asks no questions because he fears that a careful analysis would show he cannot afford it, and there we are.

Yes, I know. Some folks encounter obvious misfortune. But that has always been true. The great increase in numbers cannot be explained by something that has always been the case.

BUT Given that there is a sucker born every minute and given that there are a goodly number of jackals out there, what to do to keep this predator/prey system from bring us all down?

Transparency sounds good. Depending on what it means and how it plays out.

[mike777]

jtfanclub, on Jul 15 2008, 06:00 PM, said:

Mbodell, on Jul 15 2008, 05:23 PM, said:

Without the GSE the housing crash would likely be more severe/quicker as there would be even fewer buyers and prices would go down faster.

I suspect it would be nonexistent. The price of mortgages would be so bad that nobody would profit by selling them.

I suspect most of the people buying these didn't have much of a clue. Pensions, large funds, and suchlike. They saw a history of profit for these instruments so they bought them without understanding them. Around 2004, somebody did a study showing that if the housing market went down all of these bundle derivitives would collapse. I suspect the smart money ran for the hills, leaving us poor fools with pensions and mutual funds to hold the bag.

Please keep in mind those with pension plans or those who own large mutual funds expect those who run them to be smart and good investment managers.

Granted if you got idiots for investment managers all you can do is complain to the trustees to fire them.

If you got idiots running your mutual fund, then either get them fired or sell and move to another fund.

OTOH keep in mind we expect these managers to take on certain types of risks.

But I agree if they buy a millions or billions of mortgages we expect them to do due dilegence not just look at some rating agency.
Some simple common sense things.
1) Were the borrowers job and income confirmed.
2) What other borrowing do they have?
3) Do we have confirmation of the collateral. In other words let us not loan 500,000 on a house really worth 100,000 or one that does not exist.
4) We all know if interest rates rise on variable rate mortgages, defaults rise.
5) We all know if alot of people lose their job, defaults rise. This is not rocket science .
6) Granted a lot of complicated MBS derivates is rocket science.

[mike777]

"Transparency sounds good. Depending on what it means and how it plays out."

Let me try and use a bridge analogy.
1) We want to know as much as possible about the opp hands and partner's hand.
2) We will never have 100% perfect information
3) For most of us even seeing all 52 cards may not help that much.
4) Sometimes the opp commit fraud.
5) Sometimes we are too tired to fully understand what we are told
6) Hopefully with more transparency we will have fewer disasters but still more than zero
7) We all agree we need some bridge regulations but at some point we will simply ignore/forget the more silly ones......see same comparison for business.
8) As with most of life sometimes we just trust and use trial and error and hope we survive....see comparisons in business.

[matmat]

I could have sworn that is what they said about the Titanic.

[onoway]

"Let me try and use a bridge analogy."
Who answers when you holler for "DIRECTOR!!" ?

[mike777]

onoway, on Jul 15 2008, 10:47 PM, said:

"Let me try and use a bridge analogy."
Who answers when you holler for  "DIRECTOR!!" ? 

Easy...you Answer!

But if you are afraid of Life and need the government or need a Daddy you will always whine and be disappointed when they fail to protect you.

[sceptic]

Quote

I think I will loan to someone else or if I do loan to you I will charge you double interest. smile.gif

I am talking social responsibilty here, I am not an economist, I think everyone has a right, to some security for their basic needs in life, Home and wages,etc, if people are lucky enough to have extra left over to invest, they should be free to invest in as risky an investment as they want and if they want yo pay people huge commisions and bonuses for increasing their wealth (I describe wealth as surplus to basic needs for living in the modern world) then, if it all goes tits up, that is a risk, they have a choice about and can do something about and blame no one else if it goes wrong, they sure as hell do not moan when the gains are coming thier way

[sceptic]

Mbodell, on Jul 15 2008, 10:23 PM, said:

sceptic, on Jul 15 2008, 12:08 PM, said:

Quote

Fannie Mae provides stability,

cough

It is adding artificial stability to the housing market right now. Without the GSE the housing crash would likely be more severe/quicker as there would be even fewer buyers and prices would go down faster. Now, arguably, that would be a good thing as a fast crash may be better than a slow and lingering one, but I think the GSE are adding to the stability of housing prices right now.

yes, right now maybe they are, but if brokering peoples lives, was not happening, the market would have been stable through some other method, just because Fannie and Freddie are being proped up now, does not mean that we shouuuld be grateful andf happy, nor should we accept that maybe it is a flawed system

[mike777]

sceptic, on Jul 16 2008, 01:09 AM, said:

Quote

I think I will loan to someone else or if I do loan to you I will charge you double interest. smile.gif

I am talking social responsibilty here, I am not an economist, I think everyone has a right, to some security for their basic needs in life, Home and wages,etc, if people are lucky enough to have extra left over to invest, they should be free to invest in as risky an investment as they want and if they want yo pay people huge commisions and bonuses for increasing their wealth (I describe wealth as surplus to basic needs for living in the modern world) then, if it all goes tits up, that is a risk, they have a choice about and can do something about and blame no one else if it goes wrong, they sure as hell do not moan when the gains are coming thier way

Wayne pls back up
1) if everyone is promised a home ok....np
2) if everyone is promised a living wage ok np
3) but who promises this?



We are all old enough to understand.....governments fail. See worldwide governments last 60 years.

Simple example.....many say United Kingdom may disappear in our children..grandchildren lives........ok......in that case who promises all of this?

Ussr ..gone
east germany gone
south vietnam gone
checkoslava...gone
yugoslavia ...gone...
see africa ..many gone
see south american many gone
see central america ..many gone