patrick.net

RayAmerica says

By the way, Countrywide went under primarily because a full 19% of their loans processed were subprime loans. They were the largest mortgage company in the world, and unlike other lenders, they had the necessary funds available to allow them to portfolio these loans for what they planned on being a temporary basis. Once the subprime borrowers’ financial situation improved, they would then refinance into a conventional loan and Countrywide would then sell it to Fannie for bundling on the secondary. When prices deflated, the subprimes could not be refied because there wasn’t enough equity to “make” the loan. Another words, the loan to value was negative. If everything worked according to plan, Countrywide would have made money on two loans instead of one. One being the subprime, the other on the new refinanced conventional loan, in effect doubling their business with one client.

Exactly my point. It had nothing to do with Freddie and Fannie

tatupu70 says

Exactly my point. It had nothing to do with Freddie and Fannie

Uhhhh, my "by the way" illustration re: Countrywide had zero to do with Fannie & Freddie.

RayAmerica says

tatupu70 says
Exactly my point. It had nothing to do with Freddie and Fannie
Uhhhh, my “by the way” illustration re: Countrywide had zero to do with Fannie & Freddie.

Again--that's my point. The bubble happened because lenders like Countrywide didn't understand the risk of the loans they were issuing. You even say it yourself here:

tatupu70 says

Once the subprime borrowers’ financial situation improved, they would then refinance into a conventional loan and Countrywide would then sell it to Fannie for bundling on the secondary

The problem was the subprime and Alt-A garbage. And as you state--Fannie and Freddie weren't the main culprits in that area.

tatupu .... move on. You really are incapable to understand this.

From the WaPo article I linked above:

In 2006, at the peak of the boom, lenders made $255 billion in option ARMs, according to Inside Mortgage Finance, a trade publication. Most option ARMs were originated by OTS-regulated banks.

Concerns about the product were first raised in late 2005 by another federal regulator, the Office of the Comptroller of the Currency. The agency pushed other regulators to issue a joint proposal that lenders should make sure borrowers could afford their full monthly payments. "Too many consumers have been attracted to products by the seductive prospect of low minimum payments that delay the day of reckoning," Comptroller of the Currency John C. Dugan said in a speech advocating the proposal.

OTS was hesitant to sign on, though it eventually did. Reich, the new director of OTS, warned against excessive intervention. He cautioned that the government should not interfere with lending by thrifts "who have demonstrated that they have the know-how to manage these products through all kinds of economic cycles." Reich, through a spokesman, declined to be interviewed for this article.

The lending industry seconded Reich's concerns at the time, arguing that the government was needlessly depriving families of a chance at homeownership. IndyMac argued in a letter to regulators that in evaluating loan applications it was not fair to rule out the possibility that a prospective borrower's income might increase. "Lenders risk denying home ownership to qualified borrowers," chief risk officer Ruthann Melbourne wrote.

The proposal languished until September 2006, when it was swiftly finalized after a congressional committee began making inquiries.

The long delay in issuing the guidance allowed companies to keep making billions of dollars in loans without verifying that borrowers could afford them. One of the largest banks, Countrywide Financial, said in an investor presentation after the guidance was released that most of the borrowers who received loans in the previous two years would not have qualified under the new standards. Countrywide said it would have refused 89 percent of its 2006 borrowers and 83 percent of its 2005 borrowers. That represents $138 billion in mortgage loans the company would not have made if regulators had acted sooner.

(end quote)

CFC's business model was writing bad loans. As was WaMu's, IndyMac's, Downey's.

RayAmerica says

Once the subprime borrowers’ financial situation improved, they would then refinance into a conventional loan and Countrywide would then sell it

No, subprime people as a rule don't improve their financial situation, CFC's business model was simply predatory lending. "The Wall Street Journal reported in 2006 that 61% of all borrowers receiving subprime mortgages had credit scores high enough to qualify for prime conventional loans." -- wikipedia.

Only Mozilo may be going to jail, but what happened in 2003-2007 is simply the expected result of DE-REGULATION, not over-regulation.

Interest rates and leverage are a powerful combination when let loose. Qualifying everyone on the 2-3% teaser rates, not verifying income, not verifying debts, WILL result in prices doubling or tripling.

The presence of FNM/FRE -- "writing checks their body couldn't cash" -- was certainly contributory to this appreciation, necessary but not sufficient. It was the Bush Admin, and the Fed, removing any semblance of oversight over lending standards that led to prices running way out of historical bounds.

http://www.ritholtz.com/blog/2009/02/us-existing-house-price-median-family-income/

RayAmerica says

tatupu …. move on. You really are incapable to understand this

lol. Please enlighten me. I can assure you that that is not the case.

tatupu70 says

lol. Please enlighten me. I can assure you that that is not the case.

Obviously you have some type of learning disorder. CBOEtrader couldn't get through to you either. LOL

Ray--

That's what I figured you'd say. Name calling is usually what people resort to when they know they are beat...

tatupu70 says

That’s what I figured you’d say. Name calling is usually what people resort to when they know they are beat…

Not name calling at all. Just simply stating a fact.

Ray--

Good one. You still got it. Any time you want to get back on topic and discuss why you don't understand the causes of the housing bubble--I'll be here.

tatupu70 says

Good one. You still got it. Any time you want to get back on topic and discuss why you don’t understand the causes of the housing bubble–I’ll be here.

I find it interesting that you simply ignore the fact that Fannie & Freddie bought, processed, packaged, bundled and sold to the secondary market 80% of all residential home loans. AGAIN, (try reading very slow ... one word at a time) without Fannie & Freddie, the loan originators have virtually no avenues in which to sell their loans that they BROKERED. Ignoring that fact doesn't make it go away .... isn't "ignore" a root of the word "ignorant?" Also, read SLOWLY CBOEtrader's posts as well. You just might learn something, although I have serious doubts.

Ray--

RayAmerica says

I find it interesting that you simply ignore the fact that Fannie & Freddie bought, processed, packaged, bundled and sold to the secondary market 80% of all residential home loans.

I'm not ignoring it at all. I think you'll find that I've commented several times that Freddie and Fannie were part of the problem. They just weren't the main cause. And it's very obvious--just look at where the troubled assets are. Banks, Wall St., AIG, etc. If it was only Freddie and Fannie buying them, then all of the troubled assets would be on their books.

RayAmerica says

without Fannie & Freddie, the loan originators have virtually no avenues in which to sell their loans that they BROKERED

That is just completely incorrect. Wall St. was buying up the securtized mortgages like they were candy. If I have time this evening I'll find some links for you so you can understand what really happened...

Troy says

House Financial Services Committee hearing, Sept. 25, 2003:
Rep. Frank: I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing.

Barney Frank's "friend" at Fannie Mae also benefitted to the tune of millions in bonuses. But we really don't want to say such things. Barney is exempt when it comes to any criticism or accountability when it comes to his very significant contribution to the housing collapse.

"Wage-price spirals only work when labor is organized and work is available. This isn’t the 70s anymore, back then Indians might as well had been living on the moon and China was still in mass disorder under the Gang of Four, not the current high-tech powerhouse providing the bulk of our goods it is now."

Massive inflation isn't the product of a wage price spiral. Wage & price spirals are a product of inflation. How organized was the labor in all the Latin America countries. How about the Soviet Union? How organized was the labor in Zimbabwe? A bankrupt government trumps any sort of labor movement. But if you really want a good example, take a look at unionized government workers. They aren't taking any pay cuts.

theoakman says

But if you really want a good example, take a look at unionized government workers. They aren’t taking any pay cuts.

Central to my point. Some sectors have pricing power with wages, most don't.

I listed government services in my list above (in addition to energy and health care) about sectors that are inflation-protected. But AFAICT the takehome pay from Walmart sets the base of the entire real estate sector.

How about the Soviet Union?

aha haah hah aha hah hah. Do you really have to ask that question about how "unionized" the Soviet Union was?

A bankrupt government trumps any sort of labor movement

This nation is far from Chapter 7. Chapter 11, OTOH. . .

Troy says

This nation is far from Chapter 7. Chapter 11, OTOH. . .

Not too far. When a government has $100 Trillion in obligations and continues to run huge annual deficits, bankruptcy isn't out of the realm of possibility.

RayAmerica says

Not too far. When a government has $100 Trillion in obligations and continues to run huge annual deficits, bankruptcy isn’t out of the realm of possibility.

Now, now, now. We've been over this. The government doesn't have $100 Trillion in obligations... Let's try to limit the number of falsehoods that you post, please.

tatupu70 says

Now, now, now. We’ve been over this. The government doesn’t have $100 Trillion in obligations… Let’s try to limit the number of falsehoods that you post, please.

Now, now, now .... AGAIN. Former Sec. of the Treasury Paul O'Neill said that when referring to our "national debt" without adding the off budget obligations of the government is false and dishonest. Bush didn't appreciate such honesty and showed him the door after only about 1 year at Treasury. I think an honest former Treasury Secretary has more knowledge and credibility than both of us combined. I rest my case.

RayAmerica says

When a government has $100 Trillion in obligations and continues to run huge annual deficits, bankruptcy isn’t out of the realm of possibility.

1. Single Payer Reduces the $70T Medicare A&B shortfalls to $0.
2. Renegotiate Medicare Part D to eliminate the $15T giveaway to Big Pharma.
2. Make a FICA donut (hold the FICA limit at $125,000 and add a 3% surcharge on incomes over $250,000) to cover the $15T Social Security funding gap.

$100T problem solved.

But I agree, the way things are going is BK, due to a rather dysfunctional political environment if not polity itself. Too many retards, not enough workers. We don't have the national smarts to get there from here. To the History Book we go . . .

Troy says

But I agree, the way things are going is BK, due to a rather dysfunctional political environment if not polity itself. Too many retards, not enough workers. We don’t have the national smarts to get there from here. To the History Book we go . . .

I read once but forgot the source regarding another disfunctional country: "Those that are willing, can't. Those that can, won't." i.e. there are people that know WHAT to do but can't because they don't have political power; those that are in power won't because they won't risk losing their power. Seems to me like an accurate description of the times we're living in.

RayAmerica says

Now, now, now …. AGAIN. Former Sec. of the Treasury Paul O’Neill said that when referring to our “national debt” without adding the off budget obligations of the government is false and dishonest. Bush didn’t appreciate such honesty and showed him the door after only about 1 year at Treasury. I think an honest former Treasury Secretary has more knowledge and credibility than both of us combined. I rest my case.

Let's see. I have two young kids. They will eventually be going to college--hopefully at the local state school that their Daddy graduated from. So, do you consider me to be in debt for the $80+K now? When I go get to apply for a loan, is that considered a liability? Consider your case to be unrested.

tatupu70 says

Let’s see. I have two young kids. They will eventually be going to college–hopefully at the local state school that their Daddy graduated from. So, do you consider me to be in debt for the $80+K now? When I go get to apply for a loan, is that considered a liability? Consider your case to be unrested.

Not remotely close to the same thing and you know it. But nice try. I'm resting peacefully, thank you.

RayAmerica says

Not remotely close to the same thing and you know it. But nice try. I’m resting peacefully, thank you.

Really? Please explain why they aren't even "remotely" close?

RayAmerica says

I already made my point. I stand by what an honest, fired, former Treasury Secretary said about the national debt.

So, what you're saying is you don't know...

tatupu70 says

So, what you’re saying is you don’t know…

So what you're saying is you can't read ...

Ray-- You said:

RayAmerica says

Not remotely close to the same thing and you know it.

I asked why my analogy wasn't "remotely close". Repeating what a former Treasury Secretary said does not answer the question. The Secretary certainly wasn't addressing my analogy, was he?

tatupu .... do you intend on financing your kids' college education without the funds available to pay for the loans? Do you have a printing press in your basement that you're not telling us about? Sec. O'Neill was referring specifically to UNFUNDED liabilities. That fact that there are not ample tax credits in place to fund these liabilities does not make those debts and liabilities magically disappear.

RayAmerica says

do you intend on financing your kids’ college education without the funds available to pay for the loans

I do not have the $80K in the bank today. So yes, it is an unfunded liability.

RayAmerica says

Do you have a printing press in your basement that you’re not telling us about?

I don't, but I'm not sure how that's relevant to the discussion. The amount of debt that a country (or person) has does not depend on whether it owns a printing press.

RayAmerica says

That fact that there are not ample tax credits in place to fund these liabilities does not make those debts and liabilities magically disappear.

No it doesn't. The fact that we don't actually owe this money at present does, however.

tatupu70 says

I do not have the $80K in the bank today. So yes, it is an unfunded liability.

There's hope for you after all. You're beginning to understand what an unfunded liability is. It's nice to see I'm having a positive effect on you.

RayAmerica says

tatupu70 says

I do not have the $80K in the bank today. So yes, it is an unfunded liability.

There’s hope for you after all. You’re beginning to understand what an unfunded liability is. It’s nice to see I’m having a positive effect on you.

Good, then you realize that it's not part of my debt then? And that the US debt is NOT $100T?

tatupu70 says

Good, then you realize that it’s not part of my debt then? And that the US debt is NOT $100T?

I don't agree with you at all. First and foremost, yours is a silly argument because you haven't incurred any debt yet, whereas, the federal government does have actual ongoing obligations that are unfunded. Social Security, for an example, is an obligation. There are no surpluses due to the fact that every administration since LBJ has stolen the surplus money and replaced them with special IOU T-bonds that are by law, unsellable. Question: what are those IOUs? They are debts owed by the federal government, to the tune of over $300 Billion per year, and are NOT counted in the general budget.

tatupu70 says

Good, then you realize that it’s not part of my debt then? And that the US debt is NOT $100T?

AGAIN, I stand by what former Treasury Secretary O'Neill stated. It is part of our debt because it is UNFUNDED liabilities and obligations.

RayAmerica says

I don’t agree with you at all. First and foremost, yours is a silly argument because you haven’t incurred any debt yet, whereas, the federal government does have actual ongoing obligations that are unfunded. Social Security, for an example, is an obligation. There are no surpluses due to the fact that every administration since LBJ has stolen the surplus money and replaced them with special IOU T-bonds that are by law, unsellable. Question: what are those IOUs? They are debts owed by the federal government, to the tune of over $300 Billion per year, and are NOT counted in the general budget.

Ray--again, you make my point without realizing it. Here's the difference. The IOUs that you mention is debt. The POTENTIAL liabilities IN THE FUTURE are not. Yes, they are unfunded--as of now. But so is my kids education. Presumably I will find a way to save money by spending less or getting raises at work--just as the government will by spending less or raising taxes (such as eliminating the cap on social security tax). That's why it is not debt yet. Not until money is actually owed to someone.

RayAmerica says

AGAIN, I stand by what former Treasury Secretary O’Neill stated. It is part of our debt because it is UNFUNDED liabilities and obligations

The Secretary was likely trying to make a point--that we need to do something about our current account deficit. By providing an example with future liabilities in it, the numbers become more alarming. And would hopefully get Congress to actually do something. But it is still factually incorrect to include it as debt.

tatupu70 says

Presumably I will find a way to save money by spending less or getting raises at work–just as the government will by spending less or raising taxes

You bring up another point. What are the chances the government will spend less? How can they raise taxes in an economy that has hit a wall, which will only remove more capital needed to fuel growth?

RayAmerica says

You bring up another point. What are the chances the government will spend less? How can they raise taxes in an economy that has hit a wall, which will only remove more capital needed to fuel growth?

I notice you didn't respond to my point, but it's OK. I'll assume you agree.

I think the government will reduce spending in the future. They will have no choice.

And it's easy to raise taxes without killing growth. You just have to target the right people. ie--removing the cap on FICA. Or reinstating the old captial gains tax rate....

RayAmerica says

which will only remove more capital needed to fuel growth?

ahaha ahaha ha hah. All the tax cutting of 2001-2003 didn't do sh--.

90% of the capital market is Las Vegas and downright harmful to the economy.

The Tishman Speyer deal to spend $5.5B to kick out rent control people out of 11,000 units being a prime example.

Capitalism is self-devouring. It works great when there is a continent free for the plundering, not so great when all the easy investments have been made.

tatupu70 says

RayAmerica says

AGAIN, I stand by what former Treasury Secretary O’Neill stated. It is part of our debt because it is UNFUNDED liabilities and obligations

The Secretary was likely trying to make a point–that we need to do something about our current account deficit. By providing an example with future liabilities in it, the numbers become more alarming. And would hopefully get Congress to actually do something. But it is still factually incorrect to include it as debt.

This is silly. You have a moral obligation to send your kids to college. You could opt out without any implications other than being sent to a really bad nursing home later on. SS and medicare represent a legal obligation written into the law. They are debt unless repudiated by changing the laws, just like repudiating tbills would require a legal change (a vote would have to be taken to default on tbills). Either could be done, but it would be very ugly. If you have a legal obligation to pay money it's debt plain and simple. If you are saying it's not debt because the law could be changed then any money owed by the government isn't debt because the law could be changed. Voila America just became debt free.

bob2356 says

If you are saying it’s not debt because the law could be changed then any money owed by the government isn’t debt because the law could be changed. Voila America just became debt free.

I'm saying it's not debt because it's not actually owed to anyone yet. It's a projection based on our current understanding of lifespan, demographic trends, estimates of tax receipts, etc. Obviously, it's important to have an idea of what the future financial picture will be, but it's not debt until you've BORROWED money to pay the benefits. Then it's debt.

tatupu70 says

I think the government will reduce spending in the future. They will have no choice.

I've been hearing this since the Carter days. The only thing that will force Government to dramatically reduce spending will be either a march on Washington with millions carrying pitch forks or a complete economic collapse. In Washington, a "cut" in spending is a reduction of spending expansion.