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paganmonkeyboy
climber
mars...it's near nevada...
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Sep 17, 2008 - 09:19am PT
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ya know, everyone wants to blame Joe Subprime for buying more than he can afford, and to a certain extent he is to blame, yes...but not all of this can be placed on reckless consumers' shoulders imho...
what about predatory lenders ?
what about an economy based on debt management instead of producing real tangible assets ?
what about a complete lack of oversite ?
Dirt - you get it - It's class warfare, and don't believe for a second you have the same opportunities as the UberRich - You Don't. They tell you that you do, over and over and over so you aren't burning down their palace, but the reality is You Don't. The field is not level, corporate power is becoming vaster and more consolidated Daily, and you are crazy if you think the system looks at us like it does the Uber-rich...
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dirtineye
Trad climber
the south
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Sep 17, 2008 - 09:43am PT
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PMB wrote:
"what about predatory lenders ?
what about an economy based on debt management instead of producing real tangible assets ? "
Have you seen the documentary abour credit card debt called "Maxed Out"?
IN one segment, this PhD woman from an ivy league school talks about hwo she was asked to give a seminar to Citicorp, I believe, she talked about how they could cut out a LOT of bad debt if they just gave credit to people in amounts they could actually afford. She talked for a few hours, then a man at the back spoke. Everyone turned and paid attention, and she realized that this was the guy with the power.
HE said basically, "we make all our profit on those people who will never be able to pay off their balance, and are stuck making the minimum payment for life."
Another segment dealt with a lawyer who got a case before a judge, adn the judge asked the credit card company "how much is interest and penaties, and how much is principle?" and they said they couldn't answer that.
So the Judge asked well, for the last two years, how much is interest and how much is principle, and it turned out that for every dollar in principle, the cc company wanted two dollars in interests and fees.
And here is another little anecdote from a friend's life, and this is becoming a common trick apparently, this one from Capitol One. They start sending your bill the day it is due, so that when you get the stub they want you to send in, there is no way to pay on time, so they charge a late fee. THE y offer to let you do an electronic payment, which also has a fee (good grief, it's CHEAPER to do that , but they charge a FEE For it??? SCAM) They do this late mailing on purpose, and when you complain they claim the bill is a courtesy, and you should just know when to pay. (of course you don't have the stub with all the info they say like to have) After racking up 150 dollars in late fees, which they refused to remove even though she had never had a late payment before, my pal canceled the card.
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Karl Baba
Trad climber
Yosemite, Ca
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Sep 17, 2008 - 11:15am PT
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One of the major flaws of capitalism is that, if unregulated, monopolies and cartels spring up that hold so much power that markets (and people) are no longer free. Somebody corners the market on something and has those who need that product by the balls.
The current mess is more complicated but is something like putting the real estate in our country in a big blender and making it into a smoothie that nobody can pay for. We need to save the smoothie makers (we think) because we think that will protect us but, in the end, somebody's going to drink that smoothie, the richest of the rich, the last man standing.
Peace
Karl
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JEleazarian
Trad climber
Fresno CA
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Sep 17, 2008 - 01:58pm PT
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The Glass-Steagall Act would not have prevented the subprime lending downturn. Before Glass-Steagall, people still invested in subprime loans. I represented both borrowers and lenders in connection with working out those loans. As to "predatory lending," I've represented many financial institutions, none of which intentionally made a loan to acquire the collateral.
I've certainly seen plenty of "hard money" lenders (not financial institutions that would have been subject to Glass-Steagall or any other relevant regulation) make loans with an eye toward acquiring collateral. I've also represented many debtors against "vulture capitalists" (i.e. those that acquire secured debt -- usually at a deep discount -- with the intent of acquiring the collateral). Banking regulations actually encourage this, and have done so since the New Deal. A non-performing loan is devastating to a bank's profitability. It's better for the banks to unload these "special assets" at a discount, even if they could be paid in full with patience.
Finally, for Karl, you're aiming at a straw man. No one on this board is arguing for NO regulation. This issue is whether the current regulatory scheme is better than having more regulation. Thus far, all anyone demonstrated is that the current regulatory scheme is imperfect. It doesn't follow that more regulation is better.
Since I see I've made this point twice, I'll sign off on this thread. With the cool weather that's come in here, it's time to go climb!
John
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klinefelter
Boulder climber
Bishop, CA
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Sep 17, 2008 - 02:24pm PT
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DECEMBER 20, 2006
G.W. Bush - "As we approach the end of 2006, the American economy continues to post strong gains...The recent report on retail sales shows a strong beginning to the holiday shopping season across the country...and I encourage you all to go shopping more."
SEPTEMBER 27, 2001
G.W. Bush - "Get on board. Do your business around the country. Fly and enjoy America's great destination spots. Get down to Disney World in Florida. Take your families and enjoy life, the way we want it to be enjoyed."
circa SEPTEMBER, 2001
G.W. Bush - "Americans must get back to work, to go shopping, going to the theatre [sic], to help get the country back on a sounder financial footing"
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stevep
Boulder climber
Salt Lake, UT
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Sep 17, 2008 - 02:29pm PT
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I don't have much good to say about Franklin Raines. However, he's less responsible for this mess than Phil Gramm and the rest of the deregulation crowd.
More generally, I do expect the govt. to protect us from the Wall Street folks whose goal is to assume large amounts of short-term risk, because hat is the best way to line their own pockets.
Far fewer of those sub-prime loans would have been made, and the economy as a whole would have been less exposed to this risk if there had been better regulation. And certainly there are Dems (and supporters of Dems) that are partly responsible for this problem. But way less so than Repubs, whose main refrain seems to be Greed is Good.
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jstan
climber
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Sep 17, 2008 - 02:37pm PT
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As I remember it to get a mortgage you used to have to:
1. Make a down payment of about 20%
2. Document Income
3. Provide documentation for Net Worth and other liabilities
Then later on when credit evaluations came into existence you got a credit score based on past history of your transaction record.
Most ( and sometimes all) of this went out the window and the government associated(?) entities continued to package these creative(?) loans into securities.
With any sensible government oversight these pseudo government entities would have had to post and maintain additional loan loss reserves to fund the additional risk and the securities would have been sold to the general market only as repurchase agreements having indefinite period.
Why were these creative loans treated the same as loans meeting the standard requirements?
Why?
When the government associated entities found they could no longer fund the additional loan loss reserves the creative mortgages would have remained the properties of whomever wrote the loan. Which is where they should have remained. If that entity were a bank, that bank would have had to explain their business model to the bank examiners of the FDIC. They would not have been able to slip this worthless paper through a crack and so take the profit while avoiding examination.
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Chris Roderick
climber
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Sep 17, 2008 - 05:11pm PT
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The problem is leverage. At my broker if I have a $100 in there I can borrow another $100 to buy stocks. So if I buy $200 in stocks and it stays at that $200 level I have 50% equity. (assets minus debt divided by assets) If it goes to below 40% equity my broker will sell out my stock and repay himself his loan and give me the remainder.
The investment banks, on the other hand, have balance sheets with 30 to 1 debt/equity ratios or, to compare it to the numbers above, 3.23% equity (1/31). Doesn't take much of a move against them for that equity to get wiped out, but they were more concerned about meeting their quarterly earnings-per-share dick-measuring and bonus-determining contests than performing their fiduciary duty of protecting the shareholder's capital.
One of the hazards of the separation of management from ownership.
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TradIsGood
Chalkless climber
the Gunks end of the country
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Sep 17, 2008 - 05:58pm PT
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In fact, had Glass-Steagall not been repealed, this particular economic meltdown could not have occurred. There was a damn good reason that commercial banking and investment banking activities were separated in the first place.
If it weren't repealed JPMorgan Chase could not have bought Bear, Bank of America could not have bought Merrill, HSBC could not have bought Lehman Brothers brokerage subsidiary.
The second part is true. But the banks abilities to purchase these companies safely is precisely because of their ability to raise money by borrowing from thousands of individuals instead of just a few institutions who can pull their money out essentially overnight as happened with the above mentioned investment banks driving them into bankruptcy.
The oversight and risk management of these institutions is going to become even more important. You can expect Morgan Stanley to follow shortly. I will go out on a limb here and predict that Goldman will lose its independence within the year as well.
All of this occurred really because of credit instruments manufactured that were too complex to be valued effectively and were thus both overvalued and illiquid. It happened in the 90s as well, but not on the same scale.
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TradIsGood
Chalkless climber
the Gunks end of the country
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Sep 17, 2008 - 05:59pm PT
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bookworm, use the [ url = "..."] syntax [ /url] to fix your post, please!
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Binks
Social climber
i am of the universe and you know what it's worth.
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Sep 17, 2008 - 06:14pm PT
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Tomcat wrote "Interesting that Joe Subprime is only mentioned at the start of the article and never appears again"
Joe Subprime is responsible for managing Joe Subprime's risk. These firms are responsible for managing the risk of the collective "Joe Subprimes".
Whose is the bigger failure? Pretty obviously a systemic failure, not to be laid at the feet of "Joe Subprime."
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Dr. Rock
Ice climber
Castle Rock
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Sep 17, 2008 - 06:37pm PT
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Halifax UK is failing.
Russia is having problems.
I am pulling my Vanguard, f*#k the penalty, this is the big one.
The Govt is scared shitless that there will be a run, but don't tell anybody.
I predict a run next week.
China might make it.
But that's it.
You guys hang to the Titanic while I get my money out, OK?
It's just a bunch of suits shootin their mouths at this point.
Talk ain't gonna help, we are going down.
I no longer have any faith in the future of the world economy.
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TGT
Social climber
So Cal
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Sep 17, 2008 - 07:07pm PT
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This all started better than ten years ago
The chief culprit isn't mentioned in this article. The youngest sec of housing ever Andrew Cuomo
http://tinyurl.com/4fd9fp
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Buckwheat
Big Wall climber
No. Cal
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Sep 17, 2008 - 07:19pm PT
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Who is in charge of banking oversight... democrats, esp barney frank and senator dodd.
who recieved the most donations from fanny may and freddie mac... OBAMA.
who runs fannie may and freddy mac ex DEMOCRATS. Some are now Obamas finacial campaign advisors, Frank Reigns, etc. Shall I keep going??
This is a democrat scandal that has just begun.
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Curt
Boulder climber
Gilbert, AZ
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Sep 17, 2008 - 09:46pm PT
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"...The Glass-Steagall Act would not have prevented the subprime lending downturn. Before Glass-Steagall, people still invested in subprime loans..."
I assume you mean before the repeal of Glass Steagall? Anyway, that is a ridiculous assertion. Sure, people invested in sub-prime mortgages when Glass-Steagall was in place. However, it is only because regulators were asleep at the switch (and Glass-Steagall was repealed) that securitizing and reselling these crappy mortgages got out of hand.
"...No one on this board is arguing for NO regulation. This issue is whether the current regulatory scheme is better than having more regulation. Thus far, all anyone demonstrated is that the current regulatory scheme is imperfect. It doesn't follow that more regulation is better..."
Another completely nonsensical comment. Of course more regulatory oversight of these financial institutions would have been better.
Curt
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jstan
climber
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Sep 17, 2008 - 10:09pm PT
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Buckwheat:
Prior to 2006 the Dems could not even schedule a meeting room. Probably the lowest point to which this republic has ever sunk. After 2006 they were looking at a 49/51 majority in the Senate. Are they blameless? No. Of course not. But if you support only blameless people, you are going to be a pretty irrelevant person.
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philo
Trad climber
boulder, co.
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Topic Author's Reply - Sep 25, 2008 - 03:33pm PT
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“Capital must protect itself in every way... Debts must be collected and loans and mortgages foreclosed as soon as possible. When through a process of law the common people have lost their homes, they will be more tractable and more easily governed by the strong arm of the law applied by the central power of leading financiers. People without homes will not quarrel with their leaders. This is well known among our principle men now engaged in forming an imperialism of capitalism to govern the world. By dividing the people we can get them to expend their energies in fighting over questions of no importance to us except as teachers of the common herd”.
J.P. Morgan.
on the verge of creating the FEDERAL RESEVE.
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stevep
Boulder climber
Salt Lake, UT
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Sep 25, 2008 - 04:12pm PT
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Joe Subprime should have known better.
But there never should have been so many Joe Subprimes. Too little oversight on lending regulations and too little oversight on packaging those loans into securities that were too risky.
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goatboy smellz
climber
स्कन्ध
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Sep 25, 2008 - 10:12pm PT
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U.S. government seizes Washington Mutual
http://www.iht.com/articles/2008/09/26/business/26wamu.php?pass=true
"The U.S. government on Thursday made the largest bank seizure in American history, taking over Washington Mutual, the severely troubled savings and loan, and selling pieces of it to JPMorgan Chase in an emergency deal intended to avoid sticking the taxpayer with a bill for another bank, according to people briefed on the plan.
For weeks, the Federal Reserve and the Treasury Department had been nervous about the fate of WaMu, among the worst-hit by the housing crisis, and had pressed hard for the bank to sell itself. As panic gripped financial markets last week after the collapse of the investment bank Lehman Brothers, U.S. regulators stepped up their efforts, working behind the scenes, and at times going behind WaMu's back to work privately with potential bidders.
Indeed, the seizure and the deal with JPMorgan came as a shock to Washington Mutual's board, which was kept completely in the dark: the company's new chief executive, Alan Fishman, was flying from New York to Seattle at the time the deal was brokered, according to these people.
The shot-gun acquisition marks the second time since the housing crisis began that the government has pushed a troubled bank into the arms of JPMorgan Chase. In March, JPMorgan rescued Bear Stearns as it teetered into bankruptcy protection.
The deal will give JPMorgan branches in California and other markets where it does not have a footprint. But JPMorgan will also inherit a big loan portfolio of troubled mortgages and commercial real estate.
U.S. regulators had been trying to broker a deal for Washington Mutual because a takeover by the Federal Deposit Insurance Corp. would have dealt a crushing blow to the deposit insurance fund. The fund, which stood at $45.2 billion at the end of June, had been severely depleted after suffering a debilitating loss from the sudden collapse of IndyMac Bank. Analysts say that a failure of Washington Mutual would have cost the fund upwards of $20 billion to $30 billion.
"WaMu's impact could be enormous," said Jaret Seiberg, a banking industry analyst at the Stanford Group in Washington. "That is why we believe Washington Mutual is too big to fail in a conventional sense and you would have to see some sort of government stabilization effort."
"They were a deal machine in the late 1990s and spent the early part of this decade concentrating on residential mortgages," said Frederick Cannon, a banking analyst at Keefe Bruyette & Woods "The thrift business model was breaking down, even as they were building it up."
The takeover of Washington Mutual is yet another black-eye for its primary federal regulator, the Office of Thrift Supervision. It also oversaw IndyMac Bank, another big lender that suddenly collapsed in mid-July, and several other deeply troubled savings banks. Washington Mutual was the largest institution under its watch.
Washington Mutual long insisted that it could remain independent, but the giant thrift had quietly hired Goldman Sachs early last week to identify potential bidders. Among the banks that expressed interest were Citigroup, JPMorgan Chase, HSBC, Banco Santander, TD Bancorp and Wells Fargo. Each had different reasons for making an offer, but nobody could make the numbers work. Several deadlines past without anyone submitting bid.
Washington Mutual had struggled to find a partner earlier this year willing to inject fresh funds in its ailing business. This spring, it balked at an offer from JPMorgan to buy the entire company. Instead, TPG, the big private equity firm, led a group of investors that made a $5 billion capital injection in April."
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