patrick.net

Bap33 says

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

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

corntrollio says

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 ?

Interesting graphic for thinking about CDOs

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

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 ?

Bap33 says

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

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

lenar says

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.

corntrollio says

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.

Bap33 says

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.

Bap33 says

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.

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.

lenar says

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?

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.

lenar says

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?

lenar says

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?

marcus says

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.

Bap33 says

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:

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

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?

corntrollio says

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.

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?

corntrollio says

Where we disagree is that you've consistently said: CDOs are the reason for the bubble and inherently cause them.

I never said this and I previously corrected this statement at least twice and you still repeat it.

This outright clearly repeated statement would be easily understood by you way before some of the more complex points I made. Proof that you have no interest in hearing me.

Once again: My point was that this CDOs and CDSs were A BIGGER FACTOR THAN THE FED, as a catalyst to the bubble.

Why would I have any interest in correcting, arguing with, or adding to anything else you say ? By the way, when one is adding to what someone else says, rather than contradicting it, even if it is only partially correct, it doesn't always have to be presented as an argument (that is, as if they are wrong and you are contradicting them, when for the most part you aren't)

Bap--

You seem to be under the impression that the government sets loan standards. There is no document that tells bankers who they can and can't loan money to. Banks and S&Ls have internal guidelines that they use, but these are devised and written by guys at each bank/S&L and undoubtedly differ from one to another. It's why some banks went under and some survived fine.

You're right that the reduced lending standards were the major culprit--where you are wrong is that is was the government that caused it.

Banks do get loan standards from Fannie/Freddie. That recent regulatory bill by Frank-Dodd forces banks to keep certain risk without selling it. Meaning they can't give deadbeat loans and sell them off packaged, they have to hold certain risk themselves.

Tat, you are right, that is what I figured to be the case. ANd what you are saying makes sense, if there are no Gov mandated standards for banking/lending. But, the Gov does make mandate standards to the banks ... I think? If not, then why would B.Frank be suggesting that his commitee wanted GB to regulate the lending more in his "blame Bush" interview? It seems as though the misconception of Gov fingers in the lending pie runs on both sides of this issue. But, at any rate, I am under that assumption, that banks are held to laws for proper conduct. It may just be waht being "FDIC insured" requires, or something. But, I could be very wrong, as I know zero about the subject.

This is from The American Spectator. The story suggests that both political parties were idiots and responsible for screwing with lending practices - and I agree. Gov sponsored reduced standards began this slide into poopdom.

http://spectator.org/archives/2009/02/06/the-true-origins-of-this-finan#

FortWayne says

Banks do get loan standards from Fannie/Freddie.

Not really. They get standards for loans that Freddie/Fannie will buy from them on the secondary market. That's much different than underwriting standards.

And you're right--Frank/Dodd does try to stop a repeat of the mess by making sure banks keep a skin in their game. As far as I can tell, however, it doesn't force underwriting standards.

Bap33 says

This is from The American Spectator. The story suggests that both political parties were idiots and responsible for screwing with lending practices - and I agree. Gov sponsored reduced standards began this slide into poopdom.
http://spectator.org/archives/2009/02/06/the-true-origins-of-this-finan#

I'm sorry to hear that. The article is complete BS. Its conclusions have been proven incorrect.

http://www.businessweek.com/magazine/content/10_49/b4206102236772.htm

http://www.nytimes.com/2010/11/21/books/review/Barrett-t.html

http://www.theatlantic.com/national/archive/2010/07/the-governments-role-in-the-housing-bubble/60333/

http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

Both government failed regulation and deregulation contributed to the crisis. In testimony before Congress both the Securities and Exchange Commission (SEC) and Alan Greenspan conceded failure in allowing the self-regulation of investment banks.[113][114]

.
.

The Financial Crisis Inquiry Commission reported in January 2011 that "the CRA was not a significant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of high-cost loans—a proxy for subprime loans—had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law."[92]

Believing the CRA had anything to do with the $14 TRILLION debt bubble that powered the Bush Boom is a pretty good indicator that you have pudding for brains.

Poor people buying ghetto houses weren't borrowing much of that $14T.

http://research.stlouisfed.org/fred2/series/HHMSDODNS

The GSEs, on the other hand, did in fact enable operators like Countrywide (and hundreds of other bad actors) to issue more 80/20 loans. The 80 part they sold to FRE/FNM, and the 20% they syndicated in CDOs (with the connivance of the ratings agencies).

That was bad, leaving them with no skin in the game (as long as the loans didn't default in the first 6 months or so).

CRA was signed into law in 1977. If it was the cause of the collapse, I guarantee you that the collapse would have happened MUCH sooner, not 30 years later. If you want to know the causes of the collapse, al lone has to do is go back to 2000, when Gramm-Leach and the Commodity Futures Modernization Act was passed. Those are the culprits and the sponsors of these bills should be imprisoned.

There is a somewhat coherent argument to be made that lenders that desired to merge their way to greatness (eg. WaMu) needed to be on .gov's good side, which largely meant conforming to .gov's stated desire to open up lending to everyone.

But pinning this on Barney Fag is highly dis·in·gen·u·ous. The Dems were the minority in the House from 1995 ~ 2006, they couldn't do shit (other than try to keep the system honest via speechifying, which they largely failed to do).

The destruction of my country 1998-2006 was largely a Republican endeavour, and entirely a conservative one.

Great job, conservatives.

You mofos were pretty thorough.

Bellingham Bob says

Believing the CRA had anything to do with the $14 TRILLION debt bubble that powered the Bush Boom is a pretty good indicator that you have pudding for brains.

Very true. The reality is that CRA-enabled loans have much lower default rates than the private loans made during the bubble.

Somehow magically the CRA passing in 1977 caused a worldwide credit bubble more than 25 years later, even in places where the CRA doesn't exist. Who knew?

FortWayne says

Banks do get loan standards from Fannie/Freddie.

That only applies if the bank wishes to sell the loan to FNM/FHM. If it does not, as was the case during the boom, those standards do not have to be met.

tatupu70 says

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

Yeah, fair enough. The Alt-A and interest only models were broken for the most part at the time. Traditional subprime makes sense, but all this other crap we call "subprime" was highly problematic. Luckily FNM/FHM barely got into those types of loans, and it wasn't really a significant factor for their financial troubles.

Bap33 says

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.

It was not the government. It was banksters. Happy? Only ideologues think it was the government, but data shows them to be wrong.

"WILL SOMEONE PLEASE POINT TO THE WHO/WHAT and WHEN THAT CHANGED IT??? "

80/20 -- "piggyback" loans was a big change. This opened the door to many many more borrowers.

When I was helping my sister get a house in 2001 they needed 10% 5% down -- and documentation from me that my $10,000 was a gift -- so the rules were changed after 2001.

What also changed was the SEC allowing Wall Street to lever up as much as they wanted. This change came in 2004 and is basically responsible for killing Lehman and perhaps still Citibank.

http://www.parapundit.com/archives/005558.html

There was also the 2003 change of "Cutting Red Tape":

http://dorkmonger.blogspot.com/2008/11/cutting-red-tape.html

Also:

"In VDARE.com on September 28, 2008, I explained how one central element in the housing bubble, President Bush's message to federal regulators to loosen up on zero down mortgages and liar loans in the name of increasing minority homeownership by 5.5 million households at his October 15, 2002 White House Conference on Minority Homeownership, was tied to the Karl Rove's grand strategy of wooing Hispanic voters to the GOP:"

http://isteve.blogspot.com/2009/06/mr-ritholtz-has-question.html

Karl Rove sold us out to the "invaders". Hah ahaa haah haha ah ha!

Good one.

corntrollio says

It was not the government. It was banksters. Happy? Only ideologues think it was the government, but data shows them to be wrong.

Bellingham Bob says

President Bush's message to federal regulators to loosen up on zero down mortgages and liar loans in the name of increasing minority homeownership by 5.5 million households at his October 15, 2002 White House Conference on Minority Homeownership, was tied to the Karl Rove's grand strategy of wooing Hispanic voters to the GOP:"
http://isteve.blogspot.com/2009/06/mr-ritholtz-has-question.html
Karl Rove sold us out to the "invaders". Hah ahaa haah haha ah ha!

Bellingham Bob says

The destruction of my country 1998-2006 was largely a Republican endeavour, and entirely a conservative one.

corntrollio says

It was not the government. It was banksters. Happy? Only ideologues think it was the government, but data shows them to be wrong.

wow ..... anyone else see that as really funny?
Gov aint responsible unless it happens to be a bad thing that can be blamed on anyone conservative? Wow

Liberalism is a mental disorder - pass it on

@tat,
thanks for the post.
that article sure seemed square

Government on both sides can be blamed for deregulation, but it has definitely always been more more of a republican policy.

In fact, you can easily find republicans now who say regulations (rather than over capacity, lack of demand, and deleveraging) are the problem in our economy , and it's all Obamas fault !

Oh, and Obama raised taxes too !!

tatupu70 says

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.

No trouble.
If that data is correct, it's irrelevant. If it's relevant, it's incorrect. Why? Because it reports one of the economically worst periods in modern US history (33-37) with positive connotation. It also states that we had recessions 03/2001-11/2001 and 12/2007-06/2009 but none in between, or around those dates. The data ends at 9/2010, so apparently we were out of recession by 11/2001 and by 6/2009. Could it be? Sure, NBER is free to call recession whatever they want. But at some point logic says: "Wait a minute! Their definition fails to reflect the actual quality of life, or the actual state of economy!" This bluntly disqualifies data built on NBER definition of recession as an argument regarding merit of Fed. After all, we should care about whether or not our lives are better - not how well they now fit into some arbitrary definition.

There are many definitions of recession. Some economists use a specific drop in GDP, some - specific unemployment numbers, some - specific rate of growth of unemployment numbers, some - combination of the above. This conversation got me curious about NBER definition of a recession. I expected to see terms like "expansion" and "contraction" -- terms that define direction and are parts of a normal business cycle. They don't help much with actual state of affairs and still would be meaningless, but at least they define direction, somewhat precisely. This would make sense out of NBER classification of 1933-1937.

However, reality turned out better than that.
Wikipedia says: "The NBER defines an economic recession as: 'a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.'"
Not a single number! The closest that they come to precision is using terms "few months" and "significant decline". Their definition allows for more wiggle room than a retired porn star.

Do you still feel like using that table as a pro-Fed argument? Really?

corntrollio says

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

Here is a quick test on reading comprehension. No cheating, no scrolling up. Have I already indicated my (supposedly) anti-Fed position in this thread?

lenar says

Do you still feel like using that table as a pro-Fed argument? Really?

What are you suggesting that's better? A big nothing so far. The NBER is just one standard for determining a recession. They have a good track record of doing so, and are considered one of the standards by many many people. If you disagree, find another standard that disagrees with what I said in response to dan.

corntrollio says

What are you suggesting that's better? A big nothing so far.

Imho, it's better to say nothing than it is to say something that spreads misinformation. But that's just me.

lenar says

corntrollio says

What are you suggesting that's better? A big nothing so far.

Imho, it's better to say nothing than it is to say something that spreads misinformation. But that's just me.

If the NBER were spreading misinformation, then you might have a point.

tatupu70 says

If the NBER were spreading misinformation, then you might have a point.

I think they are. "Hey folks, the recession ended in 2Q09" is just BS.

We were in a "recession" in the early 1970s when capacity utilization fell under 80%.

http://research.stlouisfed.org/fred2/series/TCU

Now, we're still under 80% but no "recession". Pull the other one.

tatupu70 says

If the NBER were spreading misinformation, then you might have a point.

argumentum ad ignorantiam.

lenar says

tatupu70 says

If the NBER were spreading misinformation, then you might have a point.

argumentum ad ignorantiam.

Good one.

Still waiting for your defintion of recession. Typically when one disagrees with data, they will explain why and then offer other data backing up their concerns. Is that too much to ask of you?

You mention quality of life and general state of the economy. Please--show me some data quantifying that and then how it was better before the Fed and got worse after the Fed. Then you'll have a point.

tatupu70 says

Typically when one disagrees with data, they will explain why and then offer other data backing up their concerns.

So let's see. I explained why your logic is flawed (see the "irrelevant if correct, incorrect if relevant" post). Your objection to the explanation is that I didn't offer an alternative. Is this a correct summary?

Boy am I glad you aren't on Wolfskehl committee. You would've forced the committee to accept the very first (incorrect) proof of Fermat Last Theorem because the committee didn't have a proof of their own.

tatupu70 says

Please--show me some data quantifying that and then how it was better before the Fed and got worse after the Fed.

I respect your conduct in this conversation (while disagreeing with your logic). I wouldn't want to resort to the "reading comprehension" test from above.