patrick.net

I suspect that in the 19th century, journalists where just more willing to acknowledge depressions than they are now. Covering depressions, like covering falling housing prices, doesn't sell ad space -- except here on patrick.net.

Bellingham Bob says

The bubble was 2004-2007. This was when all the suicide lending programs (that are banned now -- pay option/negative am, teaser rates with prepay penalties, liar loans, etc) became widespread.

I agree with you both that financial innovation was a key contributor, maybe THE factor.

But what about the reserve requirements being reduced steadily over the time period?

The commercial banks had to write the loans to sell on to the investment banks to bundle, right? And the investment banks also leveraged even more heavily thanks to low reserve requirements?

A discussion here by Ritholtz:
http://www.ritholtz.com/blog/2011/05/excessive-leverage-helped-cause-the-great-depression-and-the-current-crisis-and-government-responds-by-encouraging-more-leverage/

Also, low rates encouraged investors to seek the better rates available in MBS, particularly the subprime tranches?

If rates had been higher, would MBS have been as attractive?

marcus says

Maybe part of it is that enough time had passed since the Volker era, that the market perceives inflation more or less permanently out of the system.

This, I think, is a potential weakness for us - we have experienced only mild inflation for so many years, that the possibility of it returning in the US is 'inconceivable'.

But there is no sign of inflation that I can see right now, except among certain commodities.

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.

In the case of Republicans, they don't want the government taking tax money and giving it to poor people who didn't earn it.

You mispelled two words. Allow me to correct.

In the case of Republicans, they don't want the government taking your money and giving it to other people who didn't earn it.

Much better.

This, I think, is a potential weakness for us - we have experienced only mild inflation for so many years, that the possibility of it returning in the US is 'inconceivable'.

Delusion? Meet thunderlips11.

Only if you subtract all the costs that make CPI look like the big fat joke that it is.

thunderlips11 says

If rates had been higher, would MBS have been as attractive?

But the rates were in large part determined by the demand for, and the price people were paying for the MBS. Here is where investors understanding the CDOs and the fraufulent ratings were big factors.

Clearly no money down or 3 percet down loans at decent interest rates would not have been occuring if not for the CDOs.

Could the Fed have understood what was happening, and made it more difficult, or even warned about what was happening. Sure.

When I look at the RE bubble, and also what happened to oil in 2005, I can't help but wonder whether at least many hoped this would cause a general inflation, not realizing that in the global market, it just wasn't going to happen (yet).

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

As you know, they were rated as triple A even though they were made out of junk mortgages, and I guess those who knew they were junk figured they could hedge with derivatives such as credit default swaps.

Not all the mortgages in an MBS were junk. Just a "marginal" percentage of the MBS was junk. But even that wasn't junk.

It was only junk once the mortgage holder stopped making payments.

Relax any standards and you'd get exactly what you asked for - eventual chaos and a breakdown of the system altogether.

Look at today's rates--there don't seem to be any bubbles inflating right now.

Higher education?

The re-inflating of the housing bubble to try to stablilize prices?

Are you looking with your eyes closed?

wtfcapinv says

Not all the mortgages in an MBS were junk. Just a "marginal" percentage of the MBS was junk. But even that wasn't junk.

Mortgage Backed Securities is a general term. And of course many are extremely high quality.

Mortgage CDOs are a more specific type of MBS that are (were) more likely to contain at least some junk. They were complex, containing multiple tranches and complicated rules for who gets paid first etc.. Somehow some CDOs were perceived to be far less risky than they were and not only because Real Estate prices turned around, they were mispriced even if Real Estate had flattened out at its peak.

wtfcapinv says

Only if you subtract all the costs that make CPI look like the big fat joke that it is.

Please be more specific. To what costs do you refer?

wtfcapinv says

The re-inflating of the housing bubble to try to stablilize prices?

Really? Where is the housing bubble re-inflating? Please show me some data of prices rising like a bubble.

wtfcapinv says

Higher education?

Sorry, forgot to address this one. Is it your theory then, that people are choosing to go to college because of low interest rates?

You can argue that the availability of loans increases the cost of higher education, but most studies I've seen still show that a college degree is a good investment. Hardly a bubble.

Please be more specific. To what costs do you refer?

Really? Are you not aware of the changes made to CPI in the last 25 years?

Energy and medical costs are subtracted. The figure just ignores them.

Where is the housing bubble re-inflating? Please show me some data of prices rising like a bubble.

What compelling factor builds the case that a home that sold for $200,000 in 1996 is worth $800,000 today despite having no improvements made to it in 15 years?

$800,000 is the prices that low interest rate policy is attempting to stablize, ie re-inflate, so that it does not fall back to its actual, pre-bubble blowing value.

Interest rates are not rising because of Fed policy that is losing support among the voting members of the FOMC. They are being held at their current, near zero, rates by design and the Chairman just told you that he's going to keep them there until 2013. 3q2012 is on or about the time that most of the alt-a, teaser, and adjustable rate 3/1 and 5/1 mortgages in the United States will reset.

Is it your theory then, that people are choosing to go to college because of low interest rates?

Consumers are choosing to borrow where credit issuers will approve them. The same 'borrow against the future to prevent infalation today' nonsense that has led us into this mess.

That process will not halt until the people start electing people to put a halt to it.

lenar says

According to your quote, there was a recession every 4.1 year or so. This suggests a fairly short cycle and makes me question the "longer in duration" part of your statement. It also makes me wonder about their used definition of a recession.

Did you even read what I wrote? Did you click through to the link on the NBER site?

http://www.nber.org/cycles/cyclesmain.html

tatupu70 says

The lack of loan underwriting standards is much more to blame. Or people taking on more debt than they can afford. However you want to phrase it/whoever you want to blame.

Right -- lending standards fell apart. When you look at the scope of loans, you will see that government-backed loans dropped during the boom and private lending went up.

Dan8267 says

History of Depressions in the United States

Yes, if you use inconsistent definitions, you get different results. Please explain your methodology of how you determined that 2000-2011+ is a depression. Even if you make the argument that the post dotcom bubble recovery got obscured by the credit bubble, as I have argued, there isn't really an identifiable depression there by any statistics.

marcus says

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

Honestly, I'm not sure that you understand securitization and why it has benefits. For many years before the current bubble, we successfully used securitization without having a massive bubble. The statement below shows you don't quite get it:

marcus says

Clearly no money down or 3 percet down loans at decent interest rates would not have been occuring if not for the CDOs.

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.

wtfcapinv says

That process will not halt until the people start electing people to put a halt to it.

Who is your local congressperson, and why haven't you lobbied him/her to vote the way you want?

tatupu70 says

Really? Where is the housing bubble re-inflating? Please show me some data of prices rising like a bubble.

I believe the government is trying to re-inflate housing somewhat through its policies. I don't think it has achieved a "bubble" (however you define that), but it has certainly propped up housing in various ways.

tatupu70 says

You can argue that the availability of loans increases the cost of higher education, but most studies I've seen still show that a college degree is a good investment. Hardly a bubble.

Depends on the college. Paying $40K/year to Online Craphole State is probably not a good investment. Paying $55K/year to an Ivy League school probably is. The trajectory of tuition and student loan debt vs. CPI or other metrics seems out of whack, if not a "bubble."

wtfcapinv says

Consumers are choosing to borrow where credit issuers will approve them. The same 'borrow against the future to prevent infalation today' nonsense that has led us into this mess.

Please explain what this means -- it sounds like utter gibberish to me. What are you trying to say exactly?

You can argue that the availability of loans increases the cost of higher education, but most studies I've seen still show that a college degree is a good investment. Hardly a bubble.

Be wary of an industry policing itself. They have a way of never seeing the fallacy of the self serving paradigm of destruction.

wtfcapinv says

Energy and medical costs are subtracted. The figure just ignores them.

Energy and Medical costs are most definitely NOT subtracted.

Here's the last report for you:

http://www.bls.gov/cpi/cpid1107.pdf

wtfcapinv says

Really? Are you not aware of the changes made to CPI in the last 25 years?

Energy and medical costs are subtracted. The figure just ignores them.

Which measure of CPI are you talking about? CPI-U includes them. I haven't read the spec for the other CPI measures in a while. Have you ever read them?

wtfcapinv says

What compelling factor builds the case that a home that sold for $200,000 in 1996 is worth $800,000 today despite having no improvements made to it in 15 years?

Show me the house you are talking about, and I'll answer. The US, in general, is pretty much back to historical norms for housing prices. We are not in bubble territory by any means.

wtfcapinv says

Interest rates are not rising because of Fed policy that is losing support among the voting members of the FOMC. They are being held at their current, near zero, rates by design and the Chairman just told you that he's going to keep them there until 2013. 3q2012 is on or about the time that most of the alt-a, teaser, and adjustable rate 3/1 and 5/1 mortgages in the United States will reset.

Mortgages are not tied to any rate that the Fed sets. As has been pointed out several times before, mortgage rates follow 10 year Treasuries most closely and have very little correlation with Fed rates. If anything, the Fed usually follows rather than leads mortgage rates.

10 yr. treasuries and mortgage rates are not rising because of turmoil in Europe and the generally uncertain prognosis of economic health.

wtfcapinv says

Consumers are choosing to borrow where credit issuers will approve them. The same 'borrow against the future to prevent infalation today' nonsense that has led us into this mess.
That process will not halt until the people start electing people to put a halt to it.

That is complete nonsense. I don't even know what you are trying to say.

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.

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."

corntrollio says

I believe the government is trying to re-inflate housing somewhat through its policies. I don't think it has achieved a "bubble" (however you define that), but it has certainly propped up housing in various ways.

The government is trying to stabilize housing prices, yes. Of course they are.

corntrollio says

Depends on the college. Paying $40K/year to Online Craphole State is probably not a good investment. Paying $55K/year to an Ivy League school probably is. The trajectory of tuition and student loan debt vs. CPI or other metrics seems out of whack, if not a "bubble."

Sure--if you have to pay 80% of an IVY league cost to go to a crappy online school, then that is a bad move. But people here throw around bubble all the time. If higher education is a decent investment then how can it be in a bubble?

tatupu70 says

wtfcapinv says

Consumers are choosing to borrow where credit issuers will approve them. The same 'borrow against the future to prevent infalation today' nonsense that has led us into this mess.
That process will not halt until the people start electing people to put a halt to it.

taputu says

That is complete nonsense. I don't even know what you are trying to say.

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.

FortWayne says

Policies which confiscate the earnings of the working class and pay off the debts of deadbeats and debtors.

What specific policies confiscate the earnings of the working class to pay off the debts of deadbeats and debtors?

By any standard, FortWayne and wtfcapinv tend to complain that the working class don't pay enough taxes given their constant haranguing that the bottom 47% (or whatever number) of taxpayers don't pay federal income tax.

How do you reconcile the two beliefs? Furthermore, how do you reconcile the fact that it was the working class who are some of the deadbeats and debtors, given that subprime lending rose sharply?

corntrollio says

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.

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".

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?

marcus says

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.

corntrollio says

Did you even read what I wrote?

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

corntrollio says

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?

corntrollio says

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.

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.

corntrollio says

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.

corntrollio says

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.

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.

marcus says

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.

marcus says

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.

lenar says

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!

lenar says

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.

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.

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?

marcus says

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?

corntrollio says

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.

corntrollio says

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.

corntrollio says

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.

corntrollio says

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.

corntrollio says

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."

corntrollio says

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.

marcus says

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.

marcus says

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.

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.

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.

corntrollio says

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.

corntrollio says

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?

lenar says

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?

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.

corntrollio says

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.