"Jim Thompson" wrote in message news: snipped-for-privacy@4ax.com...
> Under WHOSE Watch ?????
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> Note the date, you liberal FASCISTS ;-)
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> ...Jim Thompson
From the article; ''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Peter's article May 2005 "Now it gets serious"
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10-30-07
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Peter's quoted here, A loss of confidence in the companies could prompt investors to dump FHLB debt, potentially causing the collapse of one or more banks, according to Peter Wallison and lawmakers including Representative Richard Baker of Louisiana. If others were unable to meet the liabilities, taxpayers would be on the hook, they said.
What Clinton pushed for was a form of deregulation. In other words, relax (or eliminate) the rules. The sitting GOP-run Congress, and the impending Bush administration also have knee jerk reactions to regulation.
Tightening up mortgage requirements would have rained on the brokers', bankers' and builders' picnics. So it was too easy to go along with Clinton's policy.
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Paul Hovnanian mailto:Paul@Hovnanian.com
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Don\'t hate yourself in the morning -- sleep till noon.
But the mortgage lenders would have protected themselves (with or without regulation) if they didn't have the government-sponsored enterprises (GSEs) to buy the paper. Mike
Donkey doodle. Manipulating markets, which is what the Clinton administration did, is *not* 'deregulation'.
That's another myth. Almost from day one, but certainly in both 2003 and 2005, not to mention the Presidents State of the Union speeches, numerous Republicans have tried to regulate Fannie Mae and Freddie Mac but have been routinely blocked by the Democrats.
Wouldn't have to 'tighten up' if the Clinton administration hadn't let loose the belt buckle in the first place.
I see, so it's 'their fault' for doing Clinton's policy.
See above. Both independent analysts and Republicans warned about this for years, and Republicans tried to regulate it, but the Democrats blocked it every time.
They would have protected themselves if there were no GSEs around to buy the risk. But given the political pressure to relax the standards on what they (the GSEs) were willing to buy, someone (with fiscally conservative leanings) should have pushed for audits to ensure that the paper being written actually reflected the underlying risk.
If you want to buy loans from people with no known income on 100% of some iffy property, fine. Just make sure that's what it says on the contract so when we buy the paper, we know what we're getting.
One thing to consider: If we do hand the financial sector $700 bn to cover damages, what sort of assurances are we buying that it doesn't happen again? Like SEC regulation (and accompanying audits) of all securities that banks are allowed to declare as assets for the purpose of capital requirements. And getting all that paper off the OTC market and into a (regulated) market/clearinghouse. That way, the next person to write a 'liar loan' will be making a misrepresentation to the government, which (as Martha Stewart knows) is a felony.
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Paul Hovnanian paul@hovnanian.com
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Have gnu, will travel.
Folks with 'fiscally conservative leanings' did. It was blocked, every time, by the Democrats.
The 'plan' is not to "hand to the financial sector $700bn." The idea is for the government to buy the 'bad' securities and get them out of the market. See more on that below.
That's actually part of the problem.
Think about it. Haven't you wondered how 5% (default rate) bad mortgages could collapse the entire financial market?
You have a security where 95% is still making a return (loans being paid) and even the foreclosed property is still property but the return is less than expected so, given the choice, you'd prefer to buy something with a higher return. The market for buying 'low yield' securities is low.
Our friendly government, however, requires they 'value' the securities "mark to market' so if no one will buy the low yield security then you have to declare it as 0 value even though it obviously has, in 'real' terms, value.
The government also requires an asset to loan ratio but has just forced you to write the entire security to 0, even though there are real (property) assets and 95% paying, so your asset value went from a modest decline to a 100% decline and if the ratio is 5 to 1 then you just lost 5 times the entire asset value in ability to make loans.
Well, hell, the market for buying securities that can instantly go from 'not a great yield' to flat ass *zero* value isn't just low, it's non existent. Which, of course, guarantees the 0 mark to market value. Add to that GSE bundling so it's difficult, if not impossible, to know which securities might suddenly go to 0 and the whole thing spirals down in a heart beat.
The 'plan' will 'work' (depending on how you define that) because Uncle Sam ain't going to play by the same rues they legislate. Just see how it's being 'explained'. As someone (sorry, forgot who) said, "the government has the strength and ability to 'wait' for the market value to recover" so they'll buy the 'bad' securities, knowing they have real value, and then sell them later, which is precisely what they prevent the private sector from doing.
If private enterprise did this they'd be in jail. I.E. Remember those
100 buck securities our GSE sold you? Well, surprise, we bundled in 5% crap so they're only worth $95 bucks. And we're going to require you write them to 0, making sure no one will buy them, but, good news, we'll 'bail out' your butt for $50.
Similar problem with Fannie Mae and Freddie Mac, btw, Being a GSE they didn't have to 'play by the rules' either so rather than a 5 or 10 to
1 loan to asset ratio they were operating 100 to 1. How could they do that? Well, they're government backed, Barney Frank, Chris Dodd, and Democrats in general, made sure of that, so one could argue the government needs to 'back' the mess it created.
Unless you're planning a government take over of the entire financial market the next 'liar' won't be talking to the government, they'll be trying to get a loan from a private sector institution. But, lest you be tempted, let me remind you that the existing 'liar loans' are there because of the structure set up by the government so if you like this mess then given them the whole thing.
Easy. The way CDOs have been engineered, the people holding the low risk tranches are still receiving their payments. The people holding the high risk parts (often the banks who couldn't sell them) are stuck with the garbage.
The investors holding the low risk bits have stood in the way of any scheme that would have cashed them out as well as the higher risk paper.
No. You have a package of securities that have little or no risk and then you've got securities where, if 5% of the mortgages default, they lose everything.
There is no market for the high risk tranches.
No. The banks sold the low risk paper to wealthy old farts that insist on receiving an ROI with no risk. But the banks couldn't unload the high risk securities. This is what they have left on their books as 'assets'.
As far as the property goes, it isn't clear who is responsible for seizing it. And once seized, how would you replace the CDO assets on banks' books with the real estate when there is no longer a one-to-one relationship between a mortgage and the debt obligations?
As each property is seized by whomever it is that runs the CDO pool (the institution that receives mortgage payments and then sends them out to all the debt holders), it can be sold or the deed kept on the books as an asset' But the rich old farts who hold the lowest risk pieces of paper have first call on any cash coming in. So the banks have to take the non-cash assets. They can't make loans with non-cash assets.
Right. But they don't have the power to do something like step in and refinance entire CDO pools. In other words, call in _all_ the paper for a block of mortgages (good as well as bad) and then sell paper with no risk differentiation back onto the market. The old farts with the low risk slices of the current pools won't let it happen.
The government doesn't have the strength to stare down Paulson's puppet masters.
Nope. I bought the low risk tranch, so $100 worth will still get me $100 (plus interest) until every last bank has closed and all of you are in soup lines. Or employed my me, scraping barnacles off my yacht.
They are there because the wealthy old farts demanded that the GSEs keep generating risk differentiated debt obligations. So they could ensure guaranteed income streams.
If the government steps in, all they have to do is to generate a one sheet piece of paper that says 'I ___ hearby certify that my income, down payment and home assessment have been stated truthfully.' And put the SEC's name at the top. Then, any bank that wants to use the derived debt obligations as assets for mandated capital reserves have a copy of each one on file. And all such 'approved for use as assets' paper must be traded through exchanges, open to the public, with visible bid/ask prices. Stocks are (largely) already traded under such a scheme. Except for special classes of equities (have to give the rich old farts some goodies), all equities offered for sale to the public must be registered.
But that ain't going to happen if the old farts with money insist on skimming the 'good' CDO paper out of the system before the rest goes to market.
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Paul Hovnanian paul@hovnanian.com
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Have gnu, will travel.
Mortgages are bundled into MBSs long before they get to the CDOs.
Of course.
Of course.
What a concept: people expecting to get what they paid for.
It's not that simple because the mortgages are already bundled before you get to CDOs.
The underlying mortgages are 'guaranteed' by Fannie Mae and Freddie Mac, which went bankrupt, not to mention the 2004 accounting fraud.
That screws up the underlying risk, which then screws up subsequent risk assessments by the securities issuers and *their* underwriters 'guaranteeing' the securities.
There are a myriad of other instruments institutions use to hedge and offset risk, too may for anything less that a PHD in finance, but the underlying problem is the inability to assess risk. The underwriter may fail, you 'hedge' may not hedge... and so on. There are just too many bad loans spread everywhere that no one can know what'll be there tomorrow.
'High risk' tranches are always high risk and everyone knows it. That's why they carry a high rate of return and there's always been a market for them. The 'problem' is in no longer being able to assess risk.
Pure bunk.
The banks had no problem whatsoever 'unloading' subprime loans because Fannie Mae and Freddie Mac not only said that's what they'd buy but insisted on it. And they insisted on it because the Clinton Administration chartered them to increase subprime loads to 50%.
Fannie Mae and Freddie Mac then bundle them into MBSs and sell to other institutions that then bundle those into CDOs.
Fannie Mae and Freddie Mac are only able to get away with it because they're GSEs with special privileges private institutions have no access to, like treasury money at well below market interest rates, ridiculously high debt to asset ratios and an inflated share price from the moral hazard assumption that the government 'will not let them fail'. As a result they became 10,000 pound gorillas on the block infusing bad paper into the financial system.
The securities managers.
Imagine that, the "rich old farts" insist on getting what they paid for.
You, on the other hand, apparently expect people who took a low rate of return for low risk to absorb the risk of others who got 'big bucks' for the risk, but now want to keep the money and shove the risk off on someone else.
It probably makes 'sense' to you, rob from the 'rich', but ALL those securities, low and high risk are held by what you'd call "rich old farts."
Further, you'd insure a Great Depression by eliminating the value of even the 'good paper' because who's going to buy the low yield, low risk, stuff when you are going to come dancing in eliminating *that* value?
What the hell makes you think banks can only buy high risk tranches?
That's why they don't *hold* the original mortgage: that 'asset' (the property securing the loan) is offset by the cash paid to the seller. So they 'sell' the mortgage and then they have cash on hand, from the mortgage sale, to make new loans with.
Paulson didn't finance a trillion in subprime mortgages, Fannie Mae and Freddie Mac did.
The Democrats set this thing up and blocked every attempt to regulate it.
The originating bank has no 'risk' in the loan because they *sold* it ages ago.
Fannie Mae and Freddie Mac do because they *guaranteed* it and the bundled MBS they issued. But they're now bankrupt so the asset/risk value of their MBSs is a big question mark. And since that's unknown the asset/risk value of the subsequent CDOs is unknown. And since no one really knows what the value/risk ratio is, or who's holding how much of what unknown asset/risks, they don't want to buy *or* loan.
As the saying goes, business hates uncertainty but no one hates it worse than an accountant because you can't add up "unknowns" in a ledger.
I'd like to see your yacht.
But, since you're a rich bastard, why are you complaining?
That's isn't what Fannie Mae and Freddie Mac do.
You have no idea.
*What* 'down payment'? That's another problem. With no equity in the home there's little inducement to hold it during a market decline.
But something akin to that, among other regulations on Fannie Mae and Freddie Mac, is what Republicans in general, and the Bush Administration beginning back in 2001 with his very first budget request, have tried to do but they were blocked each and every time by Democrats who wanted 'affordable housing',
The SEC doesn't regulate mortgages.
Probably wouldn't hurt but it doesn't solve the problem either.
Mark to market is *already* a problem because the value instantly declines even though there's an underlying real asset.
All the paper is voluntarily bid and bought. And, being institutions, they're all, in your ridiculous parlance, 'rich old farts'.
Turn on Fox News. They're discussing it right now. Schumer, Franks, Obama, all the Dems cooking the books.
...Jim Thompson
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