patrick.net

This has nothing to do with whether the loans were securitized. It has to do with lending standards and whether bond holders were also enforcing lending standards. It seems like you superficially read something about mortgage backed securities once and are trying to repeat it.

You should read about CDOs and the shadow banking system. If you don't understand the connection between demand for securities that was out of whack with the inherent risks of those securities, and the resulting lowering of standards, then you should do some research. Let me know if you want some good links.

(I hope you get my condescending tone is trying to match yours - I'm assuming you're into that)

But here let me try to help you a little further. Banks make money writing loans. It's very profitable. If there is an insatiable market for loans even when they are low quality (low standards), that banks and mortgage brokers can sell to people that are securitizing them in ways that hide their risk, at interest rates that obviously dictate the rates the mortgages are written at, then and only then can such lending occur.

I'm not saying lending standards are irrelevant. I'm saying that lending standards were lowered because there was a market for the loans at those rates, and at those standards. (ie a lot of money to be made)

You see, if there aren't buyers of the debt (investors) at those rates, and at that quality, then lending standards do in fact become irrelevant. Who would the banks and mortgage brokers pass the risk on to ?

A corollary would be that if people truly understood the CDOs and priced them appropriately, then investors in mortgage securities(CDOs specifically) would demand higher rates, or tighter standards or both. It's true that in our never ending aftermath (sort of continuing bailouts) - the federal government is now much further involved in the mortgage market than it ever was before. But that is "artificial" in a different way than what was occurring before.

63

MisdemeanorRebel 2011 Aug 30, 5:58am

wtfcapinv says

Delusion? Meet thunderlips11.

I'm not sure what you think I'm deluded about.

Read just a few sentences further and you would have found:
thunderlips11 says

Part of me wondered if solid economic growth happens when inflation is low, and that much of the gains we have seen have really just been arbitrage and speculation.

Which expresses my concern that either inflation may not have been as low as officially claimed (esp if you consider that middle class fundamentals like gasoline, health care and education have consistently risen much faster than most other products and services measured) , or that economic growth was exaggerated.

Since inflation and economic growth historically go hand in hand.

Perhaps it was my incorrect use of tense. Should be "Wonders".

64

tatupu70 2011 Aug 30, 6:00am

FortWayne says

He is saying our government is inflating and creating a culture of borrowers and debtors with their inflationary policies. Policies which confiscate the earnings of the working class and pay off the debts of deadbeats and debtors.

I still don't get it. He's saying consumers borrow where they can get money. How does that have anything to do with the government?

65

MisdemeanorRebel 2011 Aug 30, 6:00am

That is, is it possible that many stood by in hopes of a few years of extreme inflation ?

This is a good point. High inflation would certainly benefit any homeowners who got caught in the bubble and are still holding on.

66 lenar 2011 Aug 30, 6:09am

Did you even read what I wrote?

Yes, I have. Be more specific about what in my response you don't like.

Did you click through to the link on the NBER site?

I did just now. You haven't suggested that link earlier, yet you act like you have. Why?

But now that I looked. NBER site suggests nothing about severity of recessions that it lists. Normal business cycle consists of expansion and contraction - so what? It doesn't even report timeline of Great Depression as a recession, instead listing two contraction periods 29-33 and 37-38. Apparently 33-37 were blissful times, weren't they? Doesn't it look a bit suspicious to you?

67

marcus 2011 Aug 30, 6:10am

The statement below shows you don't quite get it:

I have to tell you that my response about 5 comments up should make it more clear for you, and I made a couple minor edits to make it even more clear.

This isn't a chicken and egg situation. The buyers of low quality mortgages who were willing to take the risk off the books of banks and mortgage brokers, securitizing them in to CDOs made the lowering of standards possible.

These go hand in hand yes, but the CDOs were a neccesary condition.

And fyi, if you look back in this thread, I referred to CDOs (a part of the MBS market), but then Thunderlips used the far more general term MBS, whcih I went along with. I never intended to blame morgage backed securities in general for the bubble, and I doubt that Thunerlips did either. Please try to match your comments up with what's being said.

68 Honest Abe 2011 Aug 30, 6:11am

21% Strongly approve of Barrack Hussain Obama.
43% Strongly disapprove of Obama.

Overall - negative 22 index rating.

15% believe economy is getting better.
63% believe it is getting worse.

Overall - negative 48 index rating

Clearly both Republicans and Democrats agree that Obama is doing a lousy job.

69

Dan8267 2011 Aug 30, 6:16am

Dan8267 says

Instant runoff elections have been mathematically proven to be better representations of the public than our current system.

How have so-called "instant runoff" elections been mathematically proven to be better? My impression is that they are subject to tactical voting.

You are welcome to present your evidence against the myriad of evidence and mathematical analysis on instant runoff voting. Do know that this is a highly studied area and the people who advocated IRV do so after intensive, mathematical analysis. I.e., this is not something for the casual bullshitter to argue.

Dan8267 says

The fact that none of the politicians in either major party call for adopting instant runoff elections proves that none of them will place America's interests before their own.

This sounds like "because I disagree with a politician's choice, they clearly are not thinking in America's best interest."

Hardly. This is not a conservative vs liberal issue. This is not a Democrat vs Republican issue. This is a sound mathematical basis for elections vs the self-interests of the incumbents issue.

Regardless of where you stand on any political issues, the way in which elections should be run is a matter of game theory, not politics.

70

Dan8267 2011 Aug 30, 6:24am

Honest Abe says

21% Strongly approve of Barrack Hussain Obama.
43% Strongly disapprove of Obama.

I wonder how much that poll is influenced by the use of Obama's middle name. Oh now, it's Hussein they guy we fought in Iraq who had weapons of mass destruction and ties to Al Qaeda. And Obama sounds like Osama, so they also must be the same person. [Please note that if you didn't know I'm being facetious here, your sarcasm detector is off.]

There are plenty of reasons to disapprove of Obama's policies w/o having to use irrelevant emotional manipulation. The best reason to disapprove of Obama's policies being that they are basically the same as Bush's: from bailouts to torture to ongoing wars.

71

marcus 2011 Aug 30, 8:51am

I never intended to blame morgage backed securities in general for the bubble, and I doubt that Thunerlips did either.

A couple additional thoughts. It's true that I am no expert in this area, and a lot of my understanding comes from what I've read, and frankly I never did take the time to fully understand tranches, and the way that the risky parts of loan portfolios ended up in these CDOs.

Also, while it's true that I wasn't blaming the broader MBS market but specifically CDOs, I believe that the CDS (credit default swap) market may have contributed to mispricing of MBS beyond just CDOs. MAny people place a lot of blame there.

I think if an investigation were to be done, the CDS market would be an interesting place to start. Who made the most off of them, in unhedged ownership of CDSs ? I guess hedge funds who made a speculative killing can't so much be blamed. But if Goldman or others who were also packaging and or selling CDOs, made money on CDSs beyond what would have been used to hedge their inventory of CDOs, then that would be a serious red flag. Worse, what if they had them to hedge CDOs, but when the bailouts started they moved the CDSs to trading accounts (showing profits on them, since the govt was bailing them on the CDO losses) ? This should be investigated.

72 corntrollio 2011 Aug 30, 9:16am

Banks make money writing loans. It's very profitable. If there is an insatiable market for loans even when they are low quality (low standards), that banks and mortgage brokers can sell to people that are securitizing them in ways that hide their risk, at interest rates that obviously dictate the rates the mortgages are written at, then and only then can such lending occur.

Let me cut you off right there. You are saying "CDOs caused the housing bubble." That's a facile thing to say. Sure, CDOs were involved, duh. But it's the breakdown in lending standards, the poor understanding of investments, the bad ratings, etc. that caused the whole thing to fall. Banks wanted to make money through fees, so they wanted to securitize as much as possible; bondholders wanted more AAA assets, so they bought it; and bondholders who wanted risky assets bought lower tranches.

All of these parties didn't do their due diligence, but that has nothing to do with whether securitization, mortgage-backed securities, or CDOs are inherently problematic -- they aren't.

I did just now. You haven't suggested that link earlier, yet you act like you have. Why?

It was in the article. You could have clicked through and found the recessions NBER was referring to instead of trying to guess and make up numbers yourself. You never even bothered to LEARN about the methodology before you questioned it!

It doesn't even report timeline of Great Depression as a recession, instead listing two contraction periods 29-33 and 37-38. Apparently 33-37 were blissful times, weren't they? Doesn't it look a bit suspicious to you?

No, it doesn't look suspicious at all. A recession has a technical definition. You can say, "oh, the economy sucks," but it might not be in a recession. In fact, there was a bit of a bear market rally during some of those years.

I never intended to blame morgage backed securities in general for the bubble, and I doubt that Thunerlips did either.

Then don't say:

Far more of the interest rate factors causing the bubble can be attributed to the "shadow banking system" and mortgage back securities, specifically CDOs.

frankly I never did take the time to fully understand tranches, and the way that the risky parts of loan portfolios ended up in these CDOs.

If you don't understand them, then how can you blame them?

Also, while it's true that I wasn't blaming the broader MBS market but specifically CDOs, I believe that the CDS (credit default swap) market may have contributed to mispricing of MBS beyond just CDOs. MAny people place a lot of blame there.

How did credit default swaps contribute to mispricing? What do you think was the problem there? It seems like it's more likely that failure to understand CDOs lead to mispricing of credit default swaps.

I think it's far easier to point to the CDS market as problematic in and of itself.

I'm not quite sure what would be wrong with Goldman hedging positions in and of itself. What seems more problematic is that Goldman took the opposite side of the trade from its clients, trying to claim they were just hedging.

FortWayne says

because in our bubble inflation economics price of a house comes down to "how much a month". You allow a poor broke prick out there to borrow up to his ears (while passing the risk onto taxpayers) and now everyone else has to do the same in order to buy in.

I think you misunderstood my question. If these people are particularly and uniquely F'd in the A by inflation, then why shouldn't they have lower taxes?

Dan8267 says

You are welcome to present your evidence against the myriad of evidence and mathematical analysis on instant runoff voting. Do know that this is a highly studied area and the people who advocated IRV do so after intensive, mathematical analysis. I.e., this is not something for the casual bullshitter to argue.

I'm not casually bullshitting. It may be highly studied, but what is your summation of how mathematically it is more accurate? You should be able to explain the mechanism at minimum if you are espousing it.

Dan8267 says

Regardless of where you stand on any political issues, the way in which elections should be run is a matter of game theory, not politics.

I'm not sure if "game theory" is what I'm looking for either. I'd prefer "fairness and representativeness" (if the latter is a word). Why is instant-runoff (of which there are multiple mechanisms, so pick one) better than open primaries or something else?

73

marcus 2011 Aug 30, 9:52am

Let me cut you off right there. You are saying "CDOs caused the housing bubble." That's a facile thing to say. Sure, CDOs were involved, duh. But it's the breakdown in lending standards, the poor understanding of investments, the bad ratings, etc. that caused the whole thing to fall. Banks wanted to make money through fees, so they wanted to securitize as much as possible; bondholders wanted more AAA assets, so they bought it; and bondholders who wanted risky assets bought lower tranches.

I never said that CDOs caused the housing bubble. Only that they had a bigger role than the fed.

What I hear you saying is that you are still arguing with me, and I've got it wrong, at yet at the same time you are agreeing with and rewording almost everything I said.

marcus says

frankly I never did take the time to fully understand tranches, and the way that the risky parts of loan portfolios ended up in these CDOs.

If you don't understand them, then how can you blame them?

Almost nobody understands them. At least unlike you, I understand them more than enough for my purposes (such as commenting on them), and way more than you, it would seem.

and bondholders who wanted risky assets bought lower tranches.

CDOs are made out of multiple tranches. That's the whole point. They mixed high risk ones with lower risk ones all in one CDO, and then they called them lower risk than they were, and they were so complex that they are hard to evaluate.

marcus says

I never intended to blame morgage backed securities in general for the bubble, and I doubt that Thunerlips did either.

Then don't say:

Far more of the interest rate factors causing the bubble can be attributed to the "shadow banking system" and mortgage back securities, specifically CDOs.

YOu are wasting my time now. Do you know what "more" refers to ? More than it can be blamed on the fed was my context.

This is all stupid. The fact that I say a big factor in the RE bubble was what happened to CDO and CDS market and even more broadly to the impact of the CDS market on the MBS market, doesn't mean that I am saying that mortgage backed securities can't work, or even that cdos can't work.

How did credit default swaps contribute to mispricing?

The false sense of security given by those who thought that in the unlikely event that the RE market turned around or if the CDOs became more risky for whatever reason, they would be able to turn on a dime and hedge with CDSs.

Also, CDOs probably become part of a "trading vehicle" for those who were buying CDOs against CDSs as part of a trading strategy, ie market makers in the shadow banking system, rather than because of the long term risk of holding the CDOs. They say the total value of the unregulated CDS market represented underlying securities exceeding the amount in existence. This could create more demand for CDOs for those who want to own something against their CDSs, even on a temporary basis, as I said, essentially as a "trading vehicle."

It seems like it's more likely that failure to understand CDOs lead to mispricing of credit default swaps.

Obviously not everyone misunderstood them. Pension funds and many people who were holding them in their portfolios may not have understood. The traders are just trading them, and would have far more incentive to understand, but even they didn't need to, to trade them in the short term

But sure, I would agree that it's not just the tail wagging the dog.

74 corntrollio 2011 Aug 30, 10:14am

Almost nobody understands them. At least unlike you, I understand them more than enough for my purposes (such as commenting on them), and way more than you, it would seem.

No, the point is that you don't understand them. You said you didn't even understand the tranches. Were you lying then or are you lying now? I quote:

frankly I never did take the time to fully understand tranches, and the way that the risky parts of loan portfolios ended up in these CDOs.

CDOs themselves were, again, not the problem. There is a right way to make CDOs. It's done all the time with all kinds of assets. The problem is that it was done the wrong way because of perverse incentives. Poor lending standards created a poor CDO. Poor lending standards also made it hard to evaluate things.

Also, CDOs don't have to be created using mortgages. For another thing, they weren't nearly as big as the MBS market:

Hard to evaluate is not the same as impossible to evaluate. They were poorly evaluated, but it wasn't impossible to do so.

The false sense of security given by those who thought that in the unlikely event that the RE market turned around or if the CDOs became more risky for whatever reason, they would be able to turn on a dime and hedge with CDSs.

But doesn't that suggest the CDS was at least more mispriced, not the CDO? The CDS didn't adequately reflect the risk of the CDO. Sure, it could be a little of both, but part of the problem was that CDSs weren't even close on estimating the risk -- not enough capital requirements, etc. When we go to the CDO, there was plenty in there on its own that suggested its own mispricing, without even considering CDSs.

75

Bap33 2011 Aug 30, 10:28am

the removal of proper lending standards, and the B.Frank promise of Gov backing of any loan wrote without standards, were step 1 in the path to Bubbletopia.

76 corntrollio 2011 Aug 30, 10:47am

he B.Frank promise of Gov backing of any loan wrote without standards

Except that this didn't happen. Not to the extent you're claiming anyway.

77 lenar 2011 Aug 30, 11:18am

It was in the article. You could have clicked through and found the recessions NBER was referring to instead of trying to guess and make up numbers yourself. You never even bothered to LEARN about the methodology before you questioned it!

LEARN is capitalized because it's an acronym? Or because it's an effort at persuasion in your lifelong quest for knowledge (by others)? FYI, that link in the article isn't even underlined. If you wish to be clear, please be.

No, it doesn't look suspicious at all. A recession has a technical definition. You can say, "oh, the economy sucks," but it might not be in a recession. In fact, there was a bit of a bear market rally during some of those years.

So, the data is not suspicious to you -- it's just irrelevant, right? Or are you saying that Fed is good because it made us meet some technical definition better, even though that technical definition has little correlation with actual quality of life?

See, we are on the topic of recessions. The word has a negative connotation and basically, for the purposes of this conversation, means that economy sucks. Apparently you are talking about some other kinds of recessions - ones where things are great. I'll take one! And to heck with Fed if needed! Sounds much better than living during Fed-induced 33-37 which, however, look great in that table.

Or how should we interpret that data now? And how is it helpful in figuring out value of Federal Reserve?

78

tatupu70 2011 Aug 30, 11:26am

Or are you saying that Fed is good because it made us meet some technical definition better, even though that technical definition has little correlation with actual quality of life?

OK--what is your definition of recession then? What statistics do you look at?

79 lenar 2011 Aug 30, 11:58am

tatupu70 says

OK--what is your definition of recession then? What statistics do you look at?

Why would I want a definition of my own? Any accepted definition is fine, including the one used by NBER (although that one is vague and subjective)

What I am stating though is that in this light NBER data is meaningless as a pro-Fed (or anti-Fed) argument. It's just meaningless in this context. Orthogonal to the issue. corntrollio will need to continue his quest for knowledge and find a better argument.

80

Dan8267 2011 Aug 30, 12:10pm

what is your summation of how mathematically it is more accurate?

Instant runoff voting is more accurate than plurality voting because IRV solves Wolf's Dilemma thereby allowing those who want to vote for a third party candidate to do so without "throwing away their vote".

Some people also argue that IRV promotes positive, issue-oriented campaigns and coalition-building because candidates know that winning may require being the runoff choice of their opponents' supporters. But that's just a bonus. Solving Wolf's Dilemma is worth the change.

Now, some people would argue that proportional representation or approval voting is better than IRV, but NO ONE argues that plurality voting is better than IRV. And I mean NO ONE.

81

marcus 2011 Aug 30, 12:12pm

B.Frank promise of Gov backing of any loan wrote without standards

Gosh, how surprising that you would put the blame there.

82

marcus 2011 Aug 30, 12:24pm

http://www.portfolio.com/interactive-features/2007/12/cdo

No, the point is that you don't understand them. You said you didn't even understand the tranches. Were you lying then or are you lying now? I quote:

Wow. I was just being humble, and also acknowledging that extremely few fully understand this topic, including you, as proven by your saying: "and bondholders who wanted risky assets bought lower tranches"

But the pissing contest or arguing for the sake of arguing is of no interest to me, and its clear you have no interest in comprehending most of what I said anyway. I've said all I wanted to. You win okay ?

83

marcus 2011 Aug 30, 12:36pm

Interesting graphic for thinking about CDOs

84

marcus 2011 Aug 30, 12:39pm

85

marcus 2011 Aug 30, 12:45pm

Credit deafault swaps, are unregulated dervatives designed to go up in value in proportion to the probablility of CDOs or other debt instruments defaulting. Except they were unregulated and the sellers basically selling this sort of insurance didn't really have a way to hedge their position.

Mind boggling if you think about it, as the nightmare unfolded, where does AIG turn ? Will someone sell them credit fault swaps to hedge their short position in swaps ?

86

marcus 2011 Aug 30, 12:58pm

http://www.youtube.com/watch?v=GkAtUq0OJ68

B.Frank promise of Gov backing of any loan wrote without standards

87

tatupu70 2011 Aug 30, 11:59pm

What I am stating though is that in this light NBER data is meaningless as a pro-Fed (or anti-Fed) argument. It's just meaningless in this context. Orthogonal to the issue. corntrollio will need to continue his quest for knowledge and find a better argument.

How is it meaningless? If you're using recessions as the measuring stick, then the data is completely revelant.

88

Bap33 2011 Aug 31, 12:54am

Bap33 says

he B.Frank promise of Gov backing of any loan wrote without standards

Except that this didn't happen. Not to the extent you're claiming anyway.

what did happen, and is recorded fact on all sides, in B.Frank and his boyfriend Franklin R., let it be known that loans would be covered that were non-traditional and un-safe loans. Period. There is no reason, or way, to avoid that simple, common, fact. I am only suggesting these things were part of the required "foundation" from which this whole thing was built and busted. I was not making an empty political jab, for jab's sake.

If, the Freddy, Fanny, FHA, XZY, insurance on risky loans was not there, the bubble does not happen. But that is only part.

The fact that banks even allowed any type of risky loans to be wrote beyond a certian safe percentage of their net worth indicates something else went on too, doesn't it?

The lenders willing to help non-AMerican, non-qualified, people sign docs for a home are part of the issue.

The buyers willing to lie, cheat, gamble, are part of the issue.

Wall St. playing with trades had to wait until the loans were wrote ... but, they can have a part of the crap too.

But, no matter how far the "part of the issue" goes, it still points back to a few required facts about home loans that were needed to make the bubble begin ... and that was allowing loan access to people that should not have had access. And that access was instigated by Gov promise of backing the loans for the banks.

If the pool of buyers were reduced to only people that could pay cash on the spot, then two things happen: 1) Houses get really cheap. 2) Very few people buy homes and the RE monster starves.
Contrast that with this: If anyone willing to say their name is Fred gets a Gov insured 110% loan for any house they choose, then two things will happen: 1) Houses get very expensive. 2) Everyone buys a home and the RE monster gets fat.

I have had very little luck finding who told the banks to get so lax in their stewardship of depositors funds. What went on was criminal. It was changed, in my opinion, to line the pockets of certian people. And that part, with no doubt, crosses all political boundries.

marcus, beso mi culo. Chow.

89

tatupu70 2011 Aug 31, 1:44am

what did happen, and is recorded fact on all sides, in B.Frank and his boyfriend Franklin R., let it be known that loans would be covered that were non-traditional and un-safe loans. Period.

Except it's not a fact at all. Please provide any evidence to back this up.

And a quote saying "home ownership is good" is not it.

90

tatupu70 2011 Aug 31, 1:47am

I have had very little luck finding who told the banks to get so lax in their stewardship of depositors funds.

Of course you have, because nobody "told" them to do it. They did it because they were making lots of $$$ doing it. It was the free market at work.

All the talk about Freddie and Fannie is complete bullshit. It has been proven that they were actually very late to the game. They only started buying crappy loans because everyone else was doing it and they wanted to make money too.

91 lenar 2011 Aug 31, 3:49am

tatupu70 says

How is it meaningless? If you're using recessions as the measuring stick, then the data is completely revelant.

I started responding but then realized that I'm rephrasing what's already been said and adding no new info. Please reread; starting with "1:09 pm" or perhaps further. If it still doesn't make sense, answer this: the data is relevant to what? What was the initial question that we were trying to address? and I'll take it from there.

92

tatupu70 2011 Aug 31, 3:59am

I started responding but then realized that I'm rephrasing what's already been said and adding no new info. Please reread; starting with "1:09 pm" or perhaps further. If it still doesn't make sense, answer this: the data is relevant to what? What was the initial question that we were trying to address? and I'll take it from there.

I don't see where you've ever addressed my point, so if it's not too much trouble, why don't you rehash it.

Data has been presented by Controllio. At first you seemed to disagree with the definition of recession/depression. Now you appear to be just ignoring the data entirely because you find it "meaningless".

The question is why?

93

Huntington Moneyworth III, Esq 2011 Aug 31, 4:26am

Moneyworth's Political Advice #345:

American politicians agree on everything. The only notable differences: Republican politicians prefer it in the bottom, Democrat politicians swallow, Green Party politicians prefer to toss salad, and the Tea Party politicians love to be teabagged. Libertarian politicians are notable for their preference that you are free to do whatever you desire while Socialist politicians prefer you do them all together collectively. Now go out and enjoy the governmental fruits of others labor.

94 corntrollio 2011 Aug 31, 4:54am

So, the data is not suspicious to you -- it's just irrelevant, right? Or are you saying that Fed is good because it made us meet some technical definition better, even though that technical definition has little correlation with actual quality of life?

That makes no sense -- I'm the one citing the data, so why would I think the data is irrelevant? I said post-Fed we have had shorter and less frequent recessions per the data provided by NBER. Do you disagree? If so, what metric would you use instead of NBER's metrics to determine that this is untrue? I'm fairly certain that NBER's data meets NBER's metrics, so why would the data be suspicious?

What I am stating though is that in this light NBER data is meaningless as a pro-Fed (or anti-Fed) argument. It's just meaningless in this context. Orthogonal to the issue.

Why is it orthogonal? Do you think the frequency and duration of recessions is irrelevant to whether the Fed is helpful or not? If so, what is your better metric for determining this?

I don't think you've given a coherent anti-Fed argument in any case. What is your case against it?

Wow. I was just being humble, and also acknowledging that extremely few fully understand this topic, including you, as proven by your saying: "and bondholders who wanted risky assets bought lower tranches"

I'm not sure why that means I don't understand the topic. I can explain CDOs, MBSs, CDS, and any other financial term quite easily and also point to other sources if people feel my explanation is unclear. It's not a pissing contest -- I asked substantive questions about these topics and gave substance arguments about them, and it seemed like you didn't fully understand some of them and admitted as such. If I'm mistaken, and you actually understand these issues, fine, but it wasn't clear from your posts.

The key to any securitization and CDO-creation was finding someone who would buy the lower tranches because if you couldn't sell the low tranches, you couldn't sell the top ones either. There was a lot of self-dealing within this area, as anyone who was involved in this sort of structured finance can tell you.

Where we disagree is that you've consistently said: CDOs are the reason for the bubble and inherently cause them. I'm saying, no, CDOs are fine and don't necessarily or inherently cause bubbles -- it is the way they were implemented and rated that caused the bubble -- crappy lending standards, crappy ratings, and crappy oversight by bondholders. CDOs are not doomed to fail unless people create and buy them in a way designed to fail.

http://www.businessinsider.com/fannie-freddie-karl-smith-2010-9

If, the Freddy, Fanny, FHA, XZY, insurance on risky loans was not there, the bubble does not happen. But that is only part.

What specific types of risky loans had government-backing? The riskiest loans were not government backed, and those types of loans increased during the boom, and government-backed loans decreased during the boom. Plenty of data on this, here is just one source:

tatupu70 says

They only started buying crappy loans because everyone else was doing it and they wanted to make money too.

But even so, which loans are you suggesting that FNM/FHM were buying? What types? Which crappy loans?

95

tatupu70 2011 Aug 31, 5:16am

But even so, which loans are you suggesting that FNM/FHM were buying? What types? Which crappy loans?

Your businessinsider article sums it pretty well. Crappy may not have been the best adjective. Perhaps riskier works better.

96

Bap33 2011 Aug 31, 5:31am

geeeze .... you MUST be kidding man.

Ok, lets just do simple as pie YES and NO, shall we?

Was there ever a time where a home loan required 20% down payment?
Was there ever a time that a loan required proof of income to support the payment?
Was there ever a time that a loan required a SS number and tax records and work history?

IF, there EVER was a time, in Calfifornia, in the last 50 years, that these things WERE required ... WILL SOMEONE PLEASE POINT TO THE WHO/WHAT and WHEN THAT CHANGED IT??? Lets just start there, ok? Not some mumbo jumbo bullshit, but a plain old, "So-n-so who was a such-n-such did this-n-that on XX/XX/XXXX and this resulted in the removal of lending standards." Lets see that, please.

And then, once you left-leaners at least admit something had to happen somewhere to change how things were done in the banks, where the buyers sign the loan docs ...... loan creation it may be called ...... then we can move on to what had to happen next .... something that had to allow the banks to put depositor funds at risk beyond their allowable risk percentages ..... SOMEONE (or a Gov planted commitee) mad that happen ... geeezus

You guys are willing to argue about what room burned down first, and unwilling to admit who put the lit matches in the gasoline. It was the "make everyone a buyer" crowd that lit the matches. Why deny it?

97

marcus 2011 Aug 31, 5:39am