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dnavas
Posts: 84
Joined: Sun Nov 11, 2007 3:59 am

Post by dnavas »

MSimon wrote:Obviously you are unfamiliar with the hue and cry over redlining and "The Community Redevelopment Act".
That would be an incorrect assumption.
It's called the Community Reinvestment Act, and it's been on the books since Carter.

The hue and cry is clearly political in nature, and the data does not back up what it asserts. I have no interest in spouting, which is why I included actual data points and timelines, rather than links to editorials. The timeline for the growth in subprime lending has two points of interest. One is in 1997 where subprime lending volume grew from *well* under $100b/yr to a little less than $200b/yr. Wow, huh? That spike is worthy of investigation, however, the funny thing about that growth is that it was a one time event. Lending stayed just under $200b/yr all the way through 2002. In 2002, subprime lending grew explosively (non-stop) until 2006.

What funded that growth was greed. Subprime mortgage lending does not grow to be nearly a quarter of the mortgage lending market on the back of a 30 year old act starting 25 years after its enactment. The obvious impetus for that growth was the Fed's aggressive rate cutting and its promise to keep rates low. It allowed overly aggressive bond pricing, which was further topped off with no-doc ARM refinancing, and followed-through by a corrupt for-hire RE assessment process. Mortgage brokers, eager to make upfront fees, paid for-hire assessors to overstate home values. This pervasive over-valuing supported (ironically) higher/safer bond security ratings, because, as long as housing prices go up, the cost of defaults remains low. Rising housing prices allowed frequent refinancing, which further depressed default rates. So, not only were defaults low, what few there were had a minimal impact on earnings. Therefore, your subprime bonds were as safe as treasuries. QED.

The CRA has very little to do with any of this. Roughly half of all sub-prime loans were made by mortgage brokers not covered by CRA, and half of the remaining were made by affiliates not fully covered under the act.

As for the blip in '97, my bet is that it was the Fed rendering Glass-Steagall obsolete by allowing bank holding companies to engage in the securities underwriting business. With the ability to securitize their loans, this allowed a greater monetizing of their existing lending arms. However, I have a lot fewer facts there. Regardless of facts, however, no doubt this will become a liberal talking point, to which I would like to point out that our current crisis would be a lot WORSE if banks like, oh, BAC, couldn't buy out investment firms like, oh, Merrill.

There's going to be a lot of partisan finger pointing going on. It helps to have the facts.

dnavas
Posts: 84
Joined: Sun Nov 11, 2007 3:59 am

Post by dnavas »

>>>"I" think the main fault lies with governmental meddelling by the same people who set the bad example of pilling debt on top of debt.

Oh, we can definitely agree on that!

-Dave

scareduck
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Joined: Wed Oct 17, 2007 5:03 am

Post by scareduck »

dnavas wrote:What funded that growth was greed.
That and the elimination of proof-of-income requirements, IIRC, a creation of Phil Gramm's.

dnavas
Posts: 84
Joined: Sun Nov 11, 2007 3:59 am

Post by dnavas »

scareduck wrote:That and the elimination of proof-of-income requirements, IIRC, a creation of Phil Gramm's.
I really doubt that. Gramm's name comes up mostly in lefty blogs due to the Gramm-Leach-Bliley Act which partially repealed Glass-Steagall (I mentioned that above). It intersects with CRA in an amusing way, which the right-wing bloggers pick up on.

One amusing statement I read indicates that the lack of oversight on CDS (which imperiled AIG) might be related to this bill as CDS is not considered insurance, even though it kind of is (which is why AIG was in that business). If CDS had been considered insurance, there would have been tighter oversight.

I doubt that would have helped. and Glass-Steagall already had a bullet hole in it when the Fed changed its interpretation in '97. I don't buy the Gramm-created-bank-crisis line of argument either. :shrug:

I haven't run across the notion that Gramm single-handedly created the no-doc loan, though....

-Dave

MSimon
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Post by MSimon »

A little video education. The Mortgage Crisis in 10 minutes:

http://www.youtube.com/watch?v=H5tZc8oH--o

Enjoy.
Engineering is the art of making what you want from what you can get at a profit.

easyBob
Posts: 16
Joined: Thu Sep 18, 2008 1:42 pm

Post by easyBob »

MSimon wrote:A little video education. The Mortgage Crisis in 10 minutes:

http://www.youtube.com/watch?v=H5tZc8oH--o

Enjoy.
Not bad. I still prefer to blame the start of it all on the federal reserve. Manipulation of interest rates can trigger it all. So, if you haven't heard, all the bad stuff happened during the boom cycle. The bust is just (trying) to clean up the mess.

And please people, turn off your TVs and stop blaming "Greed". You might as well blame rainbows.

-Chris

MSimon
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Post by MSimon »

easyBob wrote:
MSimon wrote:A little video education. The Mortgage Crisis in 10 minutes:

http://www.youtube.com/watch?v=H5tZc8oH--o

Enjoy.
Not bad. I still prefer to blame the start of it all on the federal reserve. Manipulation of interest rates can trigger it all. So, if you haven't heard, all the bad stuff happened during the boom cycle. The bust is just (trying) to clean up the mess.

And please people, turn off your TVs and stop blaming "Greed". You might as well blame rainbows.

-Chris
I blame greed and fear. It is an endless cycle. Greed gets us into the mess. Fear gets us out. Once out greed again takes over and off we go.

However, putting a check on greed reduces the shocks. "You mean I can get a mortgage with No Income, No Job, and No Assets? Were do I sign up?"

"ACORN has offices down the street. They are experts. Besides we want to expand our bank and without enough loans to low income people we can't expand and with no income, no job, and no assets I'm sure you will qualify as low income."
Engineering is the art of making what you want from what you can get at a profit.

easyBob
Posts: 16
Joined: Thu Sep 18, 2008 1:42 pm

Post by easyBob »

I still blame the Fed. Res. Interest rates, just like prices, would, in a real free market, adjust to the millions of market actors saving and borrowing....As interest rates go down, there can be increased borrowing (the very act of dropping interest rates is a signal to borrow), and that is all good and fine. When banks start to not have enough money to lend out, they would start to raise rates. The increase in the rates would be a signal to start saving more...Just like how supply and demand dictate prices, savings and borrowing dictate interest rates.

When you keep those rates too low for too long, there will be massive amounts of malinvestment (capital being used for things that, at higher rates, wouldn't have been). In the free market, rates would have gone up a long time ago, not allowing unprofitable paths to be taken (because of the higher rates). With the rates artificially low, those unprofitable paths now become profitable, but only when the rates are that low. As soon as the rates go up, or are forced up by the feds., the problem revels itself, and the market tries to adjust by liquidating all the bad debt, and putting that capital to better use.

It gets more complicated than that, but I think I explain it well, and simple. :)

-Chris

MSimon
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Post by MSimon »

Easybob,

One little problem. Gold supples grow at the rate of 1% a year and economic growth has been at the rate of 3% a year. If we relied on gold with that kind of growth we would be in constant deflation. That will not work. In a deflationary cycle you can't get credit.

In any case a monetary system based on gold did not prevent tulip mania.

Nice video from 2004. Republicans saying system not broke don't need fixing. Rs say yes it does.

http://www.classicalvalues.com/archives ... broke.html

Simon
Engineering is the art of making what you want from what you can get at a profit.

rj40
Posts: 288
Joined: Sat Feb 09, 2008 2:31 am
Location: Southern USA

Post by rj40 »

What ‘ffect might a positive Polywell report have on world markets. Especially this crisis? Many markets, especially short-term, are driven by emotions. I think it would help the markets spike, at least for a bit. Over the long term, as things start to come on-line, things could really pick-up.

Here is another take on things.

http://www.npr.org/templates/story/stor ... d=90327686

Anyone have numbers on what % NINAs contributed to this mess?

And what is greed anyway? Am I greedy for wanting a library full of books that I have already read? Heck, I could donate them and use the local library if I wanted to re-read. Still, I keep them. Is that greedy? Much of the world is still hungry and even fresh water can be a problem. Am I greedy for taking one shower a day? Is it greedy for some kid in India to want BFRs to work so they have the opportunity to live better? How much better? Where is the cut-off?

What about someone who is very smart, works very hard and does things few others can figure out how to do – but demands more money for it. Is that person greedy? If Polywell works, and Rick Nebel and his team ask/get a lot of money for it, gee, I think that’s great. I hope they get very rich indeed. Would they be greedy? At what $ amount would they be greedy? $25 Billion a piece? $50 Billion? Why?

This whole “greedy bastard’s” thing just doesn’t move me. The notion of short-sightedness does.

dnavas
Posts: 84
Joined: Sun Nov 11, 2007 3:59 am

Post by dnavas »

easyBob wrote:stop blaming "Greed". You might as well blame rainbows.
"greed" is responsible a lot like gravity is responsible for the death of someone who took a long walk off a short balcony.... Greed and Fear are the operative forces in the market, so yeah, I admit to a certain glibness there.

Here are two really interesting reads:

http://news.goldseek.com/MillenniumWave ... 635014.php

http://www.edge.org/3rd_culture/taleb08 ... index.html

As for Nina's, it would be hard to quantify responsibility, really. We've barely scratched the surface of all of the items which caused malinvestment/bad-lending, and there are really three elements at work:
1) overpaying for bad loans
2) leverage
3) revaluations

One could argue that the 2004 SEC move to allow a laundry list of investment firms to raise leverage levels from 12:1 to 30 or 40:1 was a contributing bad move (Merrill, Morgan Stanley, Bear Stearns, Goldman -- do these look familiar to anyone ;^/).

And then there's FASB 157 which forces mark-to-market on illiquid assets using the last trade print. In a panic selling environment, that's not a particularly useful rule. Paul Kedrosky wrote back in Nov of 2007 (right before it went into effect):
Relatedly, and not to get all obscure and accounting geek-ish, but it's hard not to wonder if FASB Rule 157, which comes into force this Thursday, will turn out to be the fire that lights the final fuse here. While it's laudable and all to force transparency and push market pricing, when everyone is forced to find a market price for illiquid instruments simultaneously during a credit crisis the result is a regulation-imposed death-spiral, with devastating implications all around.
Prescient, or just another of many kicks to the groin?

-Dave

easyBob
Posts: 16
Joined: Thu Sep 18, 2008 1:42 pm

Post by easyBob »

MSimon wrote:Easybob,
One little problem. Gold supples grow at the rate of 1% a year and economic growth has been at the rate of 3% a year. If we relied on gold with that kind of growth we would be in constant deflation. That will not work. In a deflationary cycle you can't get credit.
If people save, then people can borrow. That depends on the rate of interest, not gold supplies growth rate vs. overall growth rate. This of course, is not what we have now. Commodity credit vs. Circulation credit. Commodity credit depends on savings, and doesn't effect the purchasing power of money. Circulation credit happens when banks just credits the debtor on a deposit account. This also depends on interest rates, but when they are held artificially low, there is going be a lot of borrowing, and not much saving. Results: bubbles.

And I would prefer to have deflation rather than inflation (which is what now?) I'm interested in knowing where you heard that you can't get credit when there is deflation?
In any case a monetary system based on gold did not prevent tulip mania.
Correct, it actually was apart of it. Large amounts of gold and silver where now coming in from Asia and the new world. Kings and the likes loved to change the value of the coins they minted...and also "trim" their coins too (old school inflation: debase, then decree). The increase of gold and silver in Europe from those new places (and of course, from taking from other states) caused a drop in the value of the gold and silver.

And in Holland, thanks to their banking system, they nearly tripled the amount of precious metals they had, in just 11 years.

"Under the stimulus of "free" coinage, an immense quantity of the precious metals now found their way to Holland, and a rise of prices ensued, which found one form of expression in the curious mania of buying tulips at prices often exceeding that of the ground on which they were grown."

This is the exact thing that is happens now with the fiat system, except there is no gold or silver involved. Granted, now, it wouldn't happen until we start mining operations on asteroids or other planets. But, I don't see that as a problem. I see the market adjusting, not failing. I see it doing what it has to do to get to market clearing price levels again. I also really think that in a 100%, true free market, gold supplies would limit themselves. If it cost you more than and ounce of gold to dig an ounce of gold, well, it wouldn't be to smart to continue.

What I don't like, is the idea that growth stems from credit. You cannot grow on debt alone. Just like in tulipmania, the bubble will burst. And if you think what happened then was bad, just wait. There is a good chance that this is the largest credit bubble in human history....boy, that sounds fun!

You should read: The Trade Cycle and Credit Expansion: The Economic Consequences of Cheap Money by Mises

-Chris

easyBob
Posts: 16
Joined: Thu Sep 18, 2008 1:42 pm

Post by easyBob »

dnavas wrote:"greed" is responsible a lot like gravity is responsible for the death of someone who took a long walk off a short balcony.... Greed and Fear are the operative forces in the market, so yeah, I admit to a certain glibness there.
So, how do you calculate "Greed" then? m/s^2? See what I'm saying? It's subjective. But what I've posted about (interest rates influencing savings and borrowing) can be observed.

This is a science forum, isn't it? ;)

-Chris

olivier
Posts: 155
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Location: Cherbourg, France

Post by olivier »

easyBob wrote:So, how do you calculate "Greed" then?
FWIW it seems there are some attempts to do so. :wink:
The only book I read on this matter, economic predation to be precise, is only available in French. I would be surprised if no forum member had a good reference in English language.

MSimon
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Post by MSimon »

easyBob,

For some reason the value of all the gold on earth doesn't match the value of all the currency on earth. So unless you want a really bad collapse there is no turning back.

And it is not a matter of saving and borrowing. If the central bank is reasonably good it can match the growth in currency to the growth in the economy and the currency has a reasonably constant value.

Thus we average about a 3% a year growth in the USA.

With a gold supply growing at 1% that would be the rate of growth you got.

A doubling in 70 years vs 24 years. So at the end of a human lifetime the economy would be 4X larger. It seems to me that it is a shame to give up that kind of growth to avoid a financial panic every 70 years or so. YMMV.
Engineering is the art of making what you want from what you can get at a profit.

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