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Helluva Monday

Wow... Happy Monday, everybody! I woke up this morning to the news of our crosstown rival Wachovia collapsing into the arms of Citigroup. We'll probably lose 10,000 jobs in Charlotte from that one. Now, I'm sitting here watching the Dow drop 10 points with every word I type after the House failed to pass the bailout. Good times.
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Comments

  • kuzi16kuzi16 Posts: 14,616 ✭✭✭✭
    im not for the bail out. I understand why the dow dropped. but at the same time its a bit of a victory for free markets.

    it aint gunna be fun. It aint gunna be pretty. We will survive it.
  • dutyjedutyje Posts: 2,263
    I had been against the bailout as well, but I really liked the structure they put together for what was on the table today. I am currently watching the Republican explanation of why they chose to reject the bailout bill. Boehner just said that they had enough votes for the bill this morning, but when Pelosi introduced the bill, they didn't like the tone of her speech, and so decided to reject the bill.

    WTF??? So your support or rejection of a written bill hinges on the unenforcible verbal speech given to introduce it to Congress? I strongly object to that. You either like the way it's written or you don't, and I can respect that... but to say that you switched your vote because you didn't like what somebody said... that's just irresponsible!!

    EDIT: I also watched a lot of the House proceedings as this unfolded... you should watch this sometime.. none of these clowns even know how these things work. It mostly worked like this: Pelosi would use official-sounding words to announce the next steps/procedures. Then some other Democratic congress-person would ask what that means, and someone would have to translate it into modern English. This is ridiculous. You all are professional lawmakers... you should understand what these words mean!
  • madurofanmadurofan Posts: 6,152
    dutyje:
    crosstown rival Wachovia
    You work for BoA?
  • LukoLuko Posts: 2,004
    Didn't watch any of this...the news articles I read summarizing the rejection of the plan said Republicans did it fearing a voter backlash. Whether that's the reason, or if it's because you don't like what Pelosi has to say, it doesn't matter. It is irresponsible. We need a bailout. Now. And I, too, like the one presented.
  • dutyjedutyje Posts: 2,263
    One more thing.... the time pressures behind all of this felt a lot like a trip to the car dealership... buy it now!! buy it now!! When it comes to major purchases, my motto has always been, "a once in a lifetime deal comes along every day."

    In other words, votes to pass this today would have likely resulted in the political equivalent of "buyer's remorse." So, as kuzi points out, maybe it's not so bad. No half-assed capitalism. If you support capitalist ideals, you support them all the way.

    OK.. I'm better now. This isn't the end of the world. My job will be gone sometime in the next year, I'm sure, but the economy as a whole will be better in the long run. It's true. Man, I can't wait for my next smoke.
  • kuzi16kuzi16 Posts: 14,616 ✭✭✭✭
    dutyje:
    I had been against the bailout as well, but I really liked the structure they put together for what was on the table today. I am currently watching the Republican explanation of why they chose to reject the bailout bill.
    yeah...this structure wasnt as bad as it first looked and i COULD have been ok with it but not happy.

    also keep in mind that it could have passed had it gone down to party lines.

    94 democrats voted against it as well.
    i would like to see that list. I bet Pelosi isnt happy with those people either.


    i guess you could look at it as irresponsible to vote based on how it was introduced, but at the same time if you are in the position that Pelosi is in where you have to introduce a bill that is controvercial and you know will come down to a very close vote, wouldnt you go out of your way to give a very nice and positive and nonpartisan introduction to it? instead she spent a few moments bashing the Bush economic policy and republicans in general. the problem with that is that it is not 100% Bush's or the republicans fault . Didn't Carter, Clinton, congressmen form both sides, AND Bush have something to do with it?
    she also called a natural correction in a market system "chaos". She claimed to be for "free markets" and somehow be for "regulation" in the same speech

    I watched the speech beginning to end and it was very devicive in nature. I could have been pushed to vote against it if i was a hard right republican also.


    side note..

    Nancy Pelosi: "I don't know what was so great about the depression, but that's the name they gave it."
    ....ummm the scope of it? maybe?
    just a guess.
  • kuzi16kuzi16 Posts: 14,616 ✭✭✭✭
    Duty,

    do your best to survive. I hope the best for you. I hope that the worst does not happen. most of the time it does not, but sometimes it does.

    hope for the best. Expect the worst. what usually happens is somewhere in the middle


    scary times

  • dutyjedutyje Posts: 2,263
    kuzi16:
    Duty,

    do your best to survive. I hope the best for you. I hope that the worst does not happen. most of the time it does not, but sometimes it does.

    hope for the best. Expect the worst. what usually happens is somewhere in the middle


    scary times

    I'm not too worried.. I always figure something out. I hear internet crime is pretty lucrative these days ;)
  • madurofanmadurofan Posts: 6,152
    kuzi16:
    the problem with that is that it is not 100% Bush's or the republicans fault .
    I read a very interesting article the other day, with all the voting records and bill introductions to back up these facts, that threw out the theory that Clinton was more to blame for the credit crisis than either party in the house. The Clinton administration (not congress) pushed the lowering of credit restrictions to allow more minorities to buy homes and those same lowered credit restrictions have quite a bit to do with our current problems. The author was quick to point out that there was little data showing that minorities actually benefited from these lower credit restrictions and even less to show that minorities are now defaulting at a higher rate than whites. The article seemed rather liberal actually as he went on to bash the Republicans and McCain's handling of the current situation but he said he just wanted to remind everyone that it was Clinton who lead the charge to lower these restrictions and not the current Republican President nor the current Democratic house.
  • kuzi16kuzi16 Posts: 14,616 ✭✭✭✭
    madurofan:
    kuzi16:
    the problem with that is that it is not 100% Bush's or the republicans fault .
    I read a very interesting article the other day, with all the voting records and bill introductions to back up these facts, that threw out the theory that Clinton was more to blame for the credit crisis than either party in the house. The Clinton administration (not congress) pushed the lowering of credit restrictions to allow more minorities to buy homes and those same lowered credit restrictions have quite a bit to do with our current problems. The author was quick to point out that there was little data showing that minorities actually benefited from these lower credit restrictions and even less to show that minorities are now defaulting at a higher rate than whites. The article seemed rather liberal actually as he went on to bash the Republicans and McCain's handling of the current situation but he said he just wanted to remind everyone that it was Clinton who lead the charge to lower these restrictions and not the current Republican President nor the current Democratic house.
    true, but Bush did not listen to the republicans that were trying to bring this to the front burner almost 5 years ago.
    but again why would he? there was VERY low unemployment, the stock market was high, average wage earned was up, and even a RECORD NUMBER OF MINORITIES OWNED HOMES. all of this made him look good at the moment.
    so yes it may have seeds in the Carter era, and have started into the mess now in the Clinton era, but Bush and the republican majority are just as irresponsible for not fixing it when it was brought up.
  • dutyjedutyje Posts: 2,263
    To clarify that a bit, Maddy... No amount of "pressure" from Congress or the White House had any effect on our lending guidelines. The introduction of Government-backed programs were the product of the Clinton administration's aggressive stance on lending guidelines. The private sector (such as BofA, Countrywide, WaMu, Wachovia...) originated these loans on behalf of the government, but none of these loans were held in our lending portfolios. They were sold to the government.

    However, here's where things break down... the lenders, having originated a good volume of these government-backed loans, thought that they were missing out on an opportunity to increase the volume of loans going into their own portfolios. Likewise, investors such as Fannie and Freddie looked at the volume going into these government programs. In order to capitalize on what was being seen as "lost opportunity," competing programs were created by these lenders, such that similar securities could be packaged up and sold to the investors. These "sub-prime" offerings are the well-publicized cause of this crisis.

    So, while the Clinton administration was not directly responsible for this, the programs initiated by that administration triggered a reactive "investor envy" in the market. The private sector decided to throw their money into loans that mimicked the public-sector programs... but these programs were meant to provide assistance to those who couldn't otherwise afford a mortgage. These programs were not created because they were a "good investment." That is the source of this "pressure." It's essentially private lenders getting into a volume pissing-contest with the government... and it turns out the government had a lot better resources to absorb this kind of collapse. Who'd have thought?
  • rusiriusrusirius Posts: 565 ✭✭
    dutyje:
    kuzi16:
    Duty,

    do your best to survive. I hope the best for you. I hope that the worst does not happen. most of the time it does not, but sometimes it does.

    hope for the best. Expect the worst. what usually happens is somewhere in the middle


    scary times

    I'm not too worried.. I always figure something out. I hear internet crime is pretty lucrative these days ;)
    Shoot me a PM... I'll send you my "Getting Started in Internet Crime" e-book...
  • madurofanmadurofan Posts: 6,152
    dutyje:
    To clarify that a bit, Maddy... No amount of "pressure" from Congress or the White House had any effect on our lending guidelines. The introduction of Government-backed programs were the product of the Clinton administration's aggressive stance on lending guidelines. The private sector (such as BofA, Countrywide, WaMu, Wachovia...) originated these loans on behalf of the government, but none of these loans were held in our lending portfolios. They were sold to the government.

    However, here's where things break down... the lenders, having originated a good volume of these government-backed loans, thought that they were missing out on an opportunity to increase the volume of loans going into their own portfolios. Likewise, investors such as Fannie and Freddie looked at the volume going into these government programs. In order to capitalize on what was being seen as "lost opportunity," competing programs were created by these lenders, such that similar securities could be packaged up and sold to the investors. These "sub-prime" offerings are the well-publicized cause of this crisis.

    So, while the Clinton administration was not directly responsible for this, the programs initiated by that administration triggered a reactive "investor envy" in the market. The private sector decided to throw their money into loans that mimicked the public-sector programs... but these programs were meant to provide assistance to those who couldn't otherwise afford a mortgage. These programs were not created because they were a "good investment." That is the source of this "pressure." It's essentially private lenders getting into a volume pissing-contest with the government... and it turns out the government had a lot better resources to absorb this kind of collapse. Who'd have thought?
    Very, very true duty but it was Clinton who introduced these programs and not only allowed private companies to do the same but encouraged it. Now I'm not for the government dictating to the private sector who they can lend to but when the fingers start pointing as to who "allowed" this to happen Clinton should be looked at more than anyone else.

    Kuzi, don't think for a second I'm defending Bush, that will never happen. I'm just pointing out this about Clinton. I was gonna go on a rant about Clinton but I just don't want to get into it. I prefer to stay out of the politics, nothign good can come of it.
  • dutyjedutyje Posts: 2,263
    A colleague passed along a good quote today, from a congressman who apparently said the bill puts the country "on the slippery slope to socialism. If you lose your ability to fail, soon you will lose your ability to succeed."

    I definitely agree with the idea that if you lose your ability to fail, soon you will lose your ability to succeed. I don't agree with calling it "socialism." I think that term is applied because of its negative connotations, and as a mechanism to induce fear, or more powerfully drive home a point.

    I think the bill had the potential to be a good investment for the American people. It was an opportunity to purchase securities at a bargain price, and to put a stop to these "golden parachutes" that executives are leaving with in this turmoil. However, I don't think that the magnitude of this lost opportunity is going to be significant to the American people as a whole. Also, the government really shouldn't be in the position of an "investor." The more the government gets its hands into the investing world, the easier it becomes to artificially inflate value in the market, which is what got us into this mess in the first place (see article referenced by Maddy).
  • kuzi16kuzi16 Posts: 14,616 ✭✭✭✭
    dutyje:
    I think the bill had the potential to be a good investment for the American people.
    if you are speaking in monetary terms then i may disagree. the american people wont see any of that money. the profit from it will just go to make government bigger. I am against that.

    if you are speaking in situational terms then you may be right. it means that the system wont be socialized forever and the potential to recover would be great.
  • urbinourbino Posts: 4,517
    I'm sorry, guys, but there is real data out there on sub-prime mortgages, and only about 25% of them were made by banks covered by the Community Reinvestment Act of 1977. The rest were the result of good ol' capitalism. Heaping blame on the CRA as the "seeds" of this disaster is like blaming the dinosaurs for the energy crunch. It just isn't possible to blame everything on Carter or Clinton -- not that conservative columnists don't try.

    What's more, even if all these mortgages had somehow been Carter or Clinton's fault, we still wouldn't be in this mess. This mess is the result of 2 things, not 1: excess sub-prime lending, and the creation and trading among banks and others of extremely highly leveraged debt instruments derived from these sub-prime loans. It takes both to create a disaster of these proportions, and the latter could not have happened without the banking deregulation long-demanded and finally imposed by Republicans in the Gingrich and DeLay years.
  • kuzi16kuzi16 Posts: 14,616 ✭✭✭✭
    i seemed to remember blaming every congress member, senate member, and president since Carter... if i didnt i meant to and my fingers didnt tap it out.

    as far as "good ol' capitalism" goes, this is the situation where a company made some bad decisions. Let it fail.

    this guy seems to agree.
    ...he has a slightly better edjumacation than I do.

  • rusiriusrusirius Posts: 565 ✭✭
    This article here pretty much perfectly sums up my feelings on this...
  • kuzi16kuzi16 Posts: 14,616 ✭✭✭✭
    rusirius:
    This article here pretty much perfectly sums up my feelings on this...
    good article

    i find that most people are against the bail out for one reason or another. this is more proof that the government is out of touch.

  • dutyjedutyje Posts: 2,263
    While I agree with the premise of the article (allow the contracts to be executed according to their original terms), I find myself stunned at how its authors, with so much background in financial high-academics, can be so far off-base with their conclusions. Simply put, the bailout would not cost taxpayers anywhere near the initial $700B investment. Also, while the financial institutions would benefit, the global economy would see benefit as well.

    How so? By purchasing these securities with the funds made available through the bailout, you inject some liquidity back into these lenders, giving them the freedom to make new loans at reasonable interest rates. The average consumer would benefit by becoming more eligible to receive a reasonably priced loan, and the drop in house prices would be controlled. Bailing out individual mortgage-holders would be just as bad as bailing out the lending institutions.

    The economy would be better-off in the short term if the bailout passes. However, the American Dollar would take a beating globally, and inflation would escalate out of control. In the long-term, we would have shown no accountability for poor economic decisions on the part of institutions or consumers. Look at how the market is reacting today. The American Dollar is showing incredible strength today. If we take our medicine now, and retract the credit markets, the Dollar will finally gain in value against foreign currency.
  • rusiriusrusirius Posts: 565 ✭✭
    dutyje:
    I find myself stunned at how its authors, with so much background in financial high-academics, can be so far off-base with their conclusions. Simply put, the bailout would not cost taxpayers anywhere near the initial $700B investment.
    You have to be careful here... As I've seen it discussed previously in this post I think some including possibly yourself are looking at these as mortgages... true mortgages... It's not... It's mortgage backed securities and as pointed out in the article MANY of these are imaginary derivatives... That's not an "investment" by any means... Instead more like buying the "London Bridge"... They have almost no actual value at all...
  • sanesane Posts: 151
    dutyje:
    the bailout would not cost taxpayers anywhere near the initial $700B investment
    No it would cost us more, if a bailout like the goes through then the US dollar will drop in worth, oil and all imported goods (food, parts for your car, computers, etc...) will go up in price and the lower/med class will feel the pain even more then they do now.

    dutyje:
    liquidity back into these lenders, giving them the freedom to make new loans at reasonable interest rates

    How is that going to help? Yes the stock market will even out but its not like the banks are going to start giving out loans like the use to. They are going to only give out loans to the upper class because most of the lower/mid class have f'ed them self's over by buying houses that they can't afford. The bailout doesn't help the underlining layer of failure it only helps the surface of it.
  • dutyjedutyje Posts: 2,263
    Considering I specialize in the Secondary Marketing aspect (products, pricing, re-packaging and re-sale of mortgages as securities, etc) of Consumer Real Estate Lending, I understand a thing or two about how this works. Let me explain the way "mortgage-backed" securities operate.

    A lender (let's just say Bank of America, since that's where I am at the moment) funds loans (either self-originated, or originated through a broker) to a consumer in order to facilitate the purchase of a home. The lender then bundles up a whole bunch of these loans into a package and re-sells that package to the Investment Banking unit. This Investment Banking unit subsequently offers up a "mortgage-backed security" to an investor. Typically, these instruments function just like a bond in that the investor is due a fixed rate of return, with limited or no risk. Other times, the loans themselves are the subject of the security, and the investor has essentially acted as a downstream purchaser of the loan and its associated risk. In rare instances, we've managed to package and sell the risk for these loans (a subject I won't even go into here). We also sometimes sell off the servicing rights (processing of payments, escrows, etc) to other servicers (we could own the Note, but you may make your payment to another party).

    The holder of the Note on the mortgage makes money on the inbound monthly payments toward that debt. Having re-sold mortgage-backed securities, we owe outbound payments to those investors. For the sake of simplicity, let's just say that we've offered a 4% ROI on a fixed-rate security for a bundle of mortgages carrying a 5-6% interest rate. The money we make is the difference between that 5-6% inbound payment and the 4% outbound payment.

    Now here's where the problems start. There is tolerance in the system (as well as things like Private Mortgage Insurance, and the ability to foreclose and re-sell) for delinquent borrowers. However, once this threshold is passed, the lender is no longer making money, but is obligated to honor the contracts in the sale of that mortgage-backed security.

    In other words, the contract value of the mortgage-backed security is now greater than the mortgages which are backing it. In the instance where the ROI for the mortgage-backed security is tied to the performance of those mortgages, this security loses value. However, on downstream fixed-rate offerings, the lender is the one losing money.

    The bailout plan would have put money into the system to purchase bundles of mortgages (yes, the Notes themselves) from the lenders, much the same way Fannie and Freddie act as downstream investors to purchase these loans on the secondary market. This gets the bad loans off the portfolios of the lenders, and gives them cash reserves to originate new, profitable loans. Also, the government would be purchasing the obligations tied to the mortgage-backed securities. This limits the outbound cash flow of the lending institution, and gives it the freedom to package the new loans into securities. Obviously, these securities are currently money-losing endeavors. However, the bailout plan was structured to provide a long-term "break-even" by making the lending institutions accountable for giving back the difference.

    EDIT:
    One more thing... in the instance where the ROI on the mortgage-backed security is tied to the performance of the bundle of Notes (the investor gets a portion of the inbound monthly payments), the problem isn't that these "have no value." It is just that these have lost value. These are now unattractive investments, and the holders of these securities are unable to find a buyer without drastically discounting the security. The government would negotiate a price for these securities, and get them off the books of the current holders. If the housing market continues to fail, the financial institutions would still be accountable for the losses. The financial institutions would be relinquishing their rights to any gains on these securities in exchange for the freedom to originate profitable loans.
  • sanesane Posts: 151
    @dutyje

    I understand, to a point all of what you have stated but I don't see how the ability to lend money is going to help, as the press has put it Main Street? Main Street's problem is not the need to get a loan its the need to pay the loans they already have.

    I personally don't think anyone should get any bailout, whether it be Main Street or Wall Street. If you got a loan you can't afford that's your own problem, if you gave loans that you shouldn't have that's your own problem. Don't think I'm just being an a$$ because its not affecting me, my sister is about to lose her house because she got a loan she can't afford.

    P.S. Thank you again for your in depth knowledge on financing and for taking the time to explain how the security's work.
  • rusiriusrusirius Posts: 565 ✭✭
    sane:
    I personally don't think anyone should get any bailout, whether it be Main Street or Wall Street. If you got a loan you can't afford that's your own problem, if you gave loans that you shouldn't have that's your own problem.
    Agreed... I spent a LONG time saving money and getting myself into a position where I could afford a house... I was fortunate enough to have my property values triple in the last 7 years or so, but the fact of the matter is, when I did buy the house it was in pretty bad shape... I spent a tremendous amount of time fixing it up before I could even move in... I made sure all my finances were in order, that I had a large sum saved up for a down payment, and perhaps most importantly that I could afford the damn payments...

    On the flip side, my sister-in-law bought a house a couple years back... I still remember the day my wife came home and said, "What are we doing wrong?!? We make WAY more money than my sister and her husband, and we live in this house... You should see the house they just bought..." It was freaking HUGE, brand new, and WAY beyond their means... Turns out when it came time to make the "bubble payment" that they had agreed to pay, they couldn't do it... Apparently their "plan" was to buy it and once the payment came around they'd just sell it, make a killing, and then buy an even bigger more extravagant house...

    Instead they got forclosed on and lost everything... You know what my response was to her? TOUGH ***... You bought a house knowing FULL WELL what the terms were... You bought a house you had no business buying and "took a risk" that you fully understood... You Lose...

    I get tired of seeing McDonalds drive through workers drive home in their SUV's to their 3 story $500,000 houses... I worked to get where I am and I'm damn proud of it...
  • dutyjedutyje Posts: 2,263
    Sane -

    The major Democratic objection to the bailout is that it doesn't do enough to help the individuals in upside-down mortgages. There's a secret about the upside-down mortgage, however. When you sell your house, and the sales price isn't enough to cover the outstanding balance on the mortgage, the remainder can just kind of "disappear." This process is known as a short sale, and is becoming much more common in the industry. It involves more paperwork, appraisals, and other due diligence to protect against fraudulent transactions or back-end payouts. The lender can go through its Private Mortgage Insurance provider to try to recoup the rest, or may just be stuck eating the difference.

    The bill also gave the opportunity for the new Note holder (the government) to re-negotiate the terms of the contract. Many of the subprime borrowers are suffering from escalating adjustable interest rates. The government may offer the opportunity to fix and/or reduce those rates. This will help to keep borrowers in their homes. This is also a better solution than giving the courts the authority to alter the terms on the Note, or requiring lenders to re-negotiate their agreements.

    With everything I've said lately, I feel I need to re-state my (current) position on the bailout. I think that, if a bill were to pass, this plan is very well structured. My original thought when I heard about a $700B bailout plan, was outrage at the idea we would do anything. I still believe that the best long-term solution is to allow the free market to play itself out, without the benefit of a bailout plan. It's a bitter pill, but we've got to swallow it sooner or later. However, if this bill were to pass, I would not be outraged.
  • sanesane Posts: 151
    @dutyje,

    Thanks, I did not know about that re-negotiation part, i figured it would have something like. I still think its a bad plan but its nice to see that they are pretending to care about us.
  • urbinourbino Posts: 4,517
    sane:
    I personally don't think anyone should get any bailout, whether it be Main Street or Wall Street. If you got a loan you can't afford that's your own problem
    In general, I agree with this. But there's a wrinkle that tends to get overlooked. It used to be that people's relationship with their banker was a trust relationship, not unlike with their doctor or lawyer: you counted on them to help you look out for your own best interests.

    But in recent years, banks have started looking at the relationship differently. Loan officers, etc., no longer see themselves -- and are no longer treated by their employers as -- a customer's trusted adviser. Their role now is to SELL. Even the language banks use internally is now about "selling" loans.

    I guess that's okay, but nobody really communicated it to customers. A lot of people in bad mortgage situations are in them because they trusted their banker to help them look out for their own best interests. They still thought the relationship was the old way, while the banker, OTOH, now understood his/her role the new way -- salesman.

    If people knew they needed to take the same attitude into their bank that they take into, say, car dealerships, a lot of these loans never would have been made. People didn't know that. They took the attitude into their bank that they take into their doctor's office, and they got sold something they couldn't afford.
  • dutyjedutyje Posts: 2,263
    That's a good point, Urby. Before I got into the mortgage industry, I remember sitting down with a lender to talk about financing a house. We hadn't even decided what home we were going to purchase, but we wanted to talk to a lender to see how feasible the prospect would be. Naturally, I computed basic estimates of the cost of the home we could afford based on our incomes and the ballpark interest rates. I nearly fell to the floor when the lender advised me that I could afford (and be approved for) a home that was triple (yes, triple!) the maximum value I had computed in my head.

    When I came to work for the banks, the environment was very interesting. Failure to originate a loan for credit reasons was a bad thing. When appraisals came in low, the loan officers were threatening the appraiser with taking them off the approved-vendor list unless the appraisal was modified. All of the classic, conservative lending practices of old had been thrown out in an effort to become the nation's "#1 Lender."

    Regardless of all this, I feel the borrowers themselvse are accountable for their own financial situations. Getting a mortgage is a risk, I don't care how much money you're bringing to the table. It is your responsibility to minimize this risk, and to accept the consequences when things don't go as planned. The above is evidence that the lenders made their bed, and should be made to sleep in it. The borrowers, unfortunately, hold the same responsibility.
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