bostonbubble.com

[john p]

I think the word is "crescendo". Yea, that is it. And what we're talking about is a degree structural and a degree "Irrational" human nature.

The two courses of action to prevent progressive collapse due to human nature are: act strongly, or pretend that the issue is nominal and say it's a non issue...

When they wrote the Commodities Futures Modernization Act of 2000 we didn't have the powerful systems in place and the weight of the amounts growing in the Default Swaps that were hedged against the investments of Subprime Lending. Investing in real estate was thought to be this stable, even keeled gentle natured deal. The Credit Default Swaps that would have had to be paid if the Subprime went tits up was the big wild card. It was basically like the Insurance Company saying "Oh Shit" after Hurricane Katrina. The new financial regulations are similar to the Building Code changes after Hurricane Andrew which required the roof overhangs to have more securement etc.

http://photos.smugmug.com/photos/136440158-O.png

It was the resets of these Subprime Adjustable Rate Mortgages peaking coinciding with an unfavorable LIBOR index in which many of these were tied.

When the Subprime went south people began to unload their mortgage backed securities fast and Banks went into defensive mode and held their cash and were afraid of not having cash on hand so they didnt' lend it out to companies. Companies that needed working capital to buy inventories and traded on small margins were cleaned out. My brother-in-law worked for Linens and Things and when their cost of capital went up and the market contracted they lost their margin and they were dead.

Bush and Paulson loaned the TARP money to these banks to bridge over this emergency. This panic caused the companies to shed jobs at the end of 2008.

The chain of events was: invention of ARMS (prior to Bush), comingling of commercial and investment banks, Graham Leachy (prior to Bush), invention of credit default swaps in the Commodities Futures Modernization Act (prior to Bush), push for increased subprime lending (prior to Bush), failure to monitor GSE's (not Bush's fault), the LIBOR (not under Bush's control).

With all of that, the TARP, which arrested the panic had the money paid back by those that borrowed from the taxpayers. Now if all those jobs were a result from that chain of events, if we blame Bush and we allow Obama to say "When I came into office we were losing 750,000 jobs a month...." we are failing to understand the actual chain of events and when it came to a head.

Here's Say's Law again for you..... Now with all that money that ran for sanctuary during that period, if there was an emerging industry why didn't investment money flow right to it? It was like if they found rat poisoning in the meat at several Burger Kings, why didn't the customers go to MacDonalds? The investors just like the consumers chose to eat at home and keep their cash.

Now going back to my original comment, although this was a crisis that stemmed from a chain of events and was arrested with the temporary TARP, the next realm of the issue, the human nature aspect as to explaining the actual reasons for the collapse and how those reasons won't cause another, our President decided to "Never let a Crisis go to Waste". For almost the next year, Obama threw gasoline and fanned the flames of that burning building. This leader who asked us to fill ourselves with HOPE and envision a brighter future was now telling us "Run for your life, a wild Grizzly Bear is on the loose and he is going to eat you!"

I think this recovery will be when people finally realize that the politicians are total clowns and they screw, I'm going for it, now's just as good a time as ever and I'm not getting any younger and I'm not going to sit around like a fucking pussy. I think when people start to think this we'll be ready to invest again. A few great ideas or products that worked and people had to have wouldn't hurt either (Say's Law).

[mpr]

[FreedomCM]

[mpr]

[mpr]

[john p]

You say "C,C,C"? How about the Fox got to design the Henhouse? C,C,C doesn't matter when you allow subprime loans to be securitized and have the risk sent down the river. It was the government that allowed the securitization of subprime loans in the Amendments of the Community Reinvestment Act in 1995. They knew that Banks wouldn't agree to absorbing the risk for those that didn't meet the C,C,C criteria so they let them off the hook in the name of giving those without C,C,C a crack at owning a home. Now the private banks realized that if the Government was pushing this and guaranteeing it, then hell, why not get in on it and make some money and if things go belly up the Government will be forced to pick up the pieces and bail out everyone. Which is what they are doing, and the banks played it right. They are getting free money and they're investing it in long term government debt and getting 3-4% for NOTHING. They aren't even lending out the Bailout money. People try to defend the CRA by trying to say that it was a small player in the whole Bubble compared to the rest of the Industry, the point is that the whole industry was corrupt and it was't us versus them, both sides were in on it.

right from the horses mouth:

http://www.huduser.org/portal/publications/polleg/gse.html

from above, from fucking HUD:

[john p]

MPR said:

[john p]

I need to differentiate myself from some on the extreme right wing on this: Although HUD was pushing to increase affordability for the lower end by making lending standards "more flexible", these flexible standards were abused by not just the poor, but by the middle class and upper class buying second homes. People were buying second homes with little down payment or collateral. I am not saying that it was the poor and minorities that caused the problem, I'm saying that the "flexiblity" that was created for them was used across the whole spectrum.

What is funny is that the poorer neighborhoods were actually more affordable before the government implemented their "affordability" campaign. Just prior to 1977, they were almost giving houses away in the poor neighborhoods.

I get that if we didn't have this global uplift of modern banking and credit things would have been not perfect but not like they are, I just think we need to be honest about why the standards were made "flexible" so people understand that tough love is love and not racism.

[admin]

The Fed is going to be buying Treasuries again:

http://www.reuters.com/article/idUSN1318160120100813

I assume that this will cause some sort of departure from the typical relation between Treasuries, inflation, and mortgage rates that I mentioned earlier. I wonder whether this also invalidates the typical treatment of Treasuries as the "risk free" rate of return given that the rate of return is no longer purely market based.

- admin

[john p]

So do you think that mortgage rates might not as closely track the 10 year's?

[mpr]

[admin]

[john p]

MPR:

I get the sense that you feel that because of the complexity of the technology and existing financial products, the interest rate and other things are divorced from fundamental rational market theory.

I understand how this is possible the same way I understood how buying a home was impossible (for me) for a number of years. I get that people will break the rules if the rules aren't even close to being possibly adhered to.

I get the sense that you feel that the issues are "beyond" the realm of what conventional people see. For instance, take the Tea Party people who don't understand the complexity of spending more now to prevent dire straights tomorrow.

The Left says that Obama hasn't done a good job at explaining this and it is a "message" issue.

If you think this is true, help me understand what the message is and what these Tea Party People are missing. I mean they seem to be simple, honest folks who just see the simple value of not spending beyond their means and it not being in their DNA to take on that type of risk because that sort of stuff is what gets them into trouble. I see it almost as an important value so why do people want them to uproot that value? How can they maintain that value and get this higher understanding that is "beyond them".

I got to a period of my career where I started to gain enough confidence where if I didn't understand something,I found that it was usually incorrect. I would feel more comfortable asking questions. I guess I am a social populist because if regular folks start to reliquish their own values and allow other "elites" to tell them that things are beyond them, how would our Democracy work then? I think that we need policy that actually gears into what people understand, it needs to be brought down to earth and be simple. I think there is a level of sophistication to create solutions that do this.

If you had a Tea Party guy that was patient and intelligent, what would you tell him over a cup of coffee?

[mpr]

[balor123]