Tune in at 11am to hear Bush's Homeowner Bail-out Plan

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White Coat Investor
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Tune in at 11am to hear Bush's Homeowner Bail-out Plan

Post by White Coat Investor »

1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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zhiwiller
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Post by zhiwiller »

Can I has moneys too now plz? kthxbai. :roll:
Buffett_wannabe
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Post by Buffett_wannabe »

Can I has moneys too now plz? kthxbai.
No you can't Not yours

Im in ur ARM resettin ur rate
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jeff mc
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Post by jeff mc »

Buffett_wannabe wrote:
Can I has moneys too now plz? kthxbai.
No you can't Not yours

Im in ur ARM resettin ur rate
:lol:
funny... but plz no lolcat pix!

i is in ur backpocket helpin ur lame neighbors
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Raybo
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Post by Raybo »

This is a fine example of how American politicians deal with problems. First, they change laws without really understanding what might happen (in this case, bank reform and internet lending). Then, they wait until a problem gets out of hand. Next, comes the "I'm on top of this" and "The economy is fine" talk. Then, comes the bailout of big business supporters in the guise of helping the people impacted. Last, mission accomplished is announced.

Preventing defaults will not help people anywhere near as much as it will banks.

[political remarks removed by moderator]

Ray
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zhiwiller
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Post by zhiwiller »

chuck D wrote:
Buffett_wannabe wrote:
Can I has moneys too now plz? kthxbai.
No you can't Not yours

Im in ur ARM resettin ur rate
:lol:
funny... but plz no lolcat pix!

i is in ur backpocket helpin ur lame neighbors
Come on, just one? I got inspired. :D

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Post by mptfan »

"The president will discuss a number of initiatives and reforms intended to help homeowners with subprime mortgages keep their homes," the official said. "He will also discuss reform efforts to prevent these kinds of problems from arising in the future."

"The need for rigorous enforcement of predatory lending laws and stronger, more transparent lending practices are also on the agenda for the statement, the official said."

[political remark removed by moderator]
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alvinsch
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Post by alvinsch »

mptfan wrote:"The president will discuss a number of initiatives and reforms intended to help homeowners with subprime mortgages keep their homes," the official said. "He will also discuss reform efforts to prevent these kinds of problems from arising in the future."

"The need for rigorous enforcement of predatory lending laws and stronger, more transparent lending practices are also on the agenda for the statement, the official said."
Another interpretation would be that congress will be coming back into session next month looking to bail out every possible vote out there and looking to further regulate / tax anyone daring to make money. Doing something a little distasteful now to limit the "outrage" may head off congress from being able to do something really bad (i.e. remember triangulation from the Clinton administration).

Wikipedia definition of triangulation:
Triangulation is the act of a candidate presenting his or her ideology as being "above" and "between" the left and right sides of the political spectrum. It involves adopting for oneself some of the ideas of one's political opponent. The logic behind it is that it not only takes good ideas away from your opponent, but that it insulates you from attacks on that particular issue. It is a tactic commonly used in third way politics.
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moneyhoney
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Yipee

Post by moneyhoney »

Makes me want to run out and buy a house, knowing the feds have my back. Not only will they subsidize my cost to own thru tax writeoff, and give me a windfall when selling thru cap gains exemption, but also will be there to take care of me if the deal goes south because I screwed up and took on more debt then I could prudently handle. It's amazing hearing all diatribes there are about how bad single payer ( socialized ) healthcare would be, but nary a peep about socialized home ownership. Where's the consistency?
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ElJay
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Post by ElJay »

Raybo wrote: Then, comes the bailout of big business supporters in the guise of helping the people impacted. Last, mission accomplished is announced.
You're exactly right... [political comment removed by moderator]
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Post by matt »

AP article subtitle: "Bush Outlines Proposals to Help Homeowners With Risky Mortgages Keep Their Homes "

Bush could have said, "I recognize that the mortgages are risky as long as the risk never shows up. If it does, I will bail you out. Responsible borrowers will pay for it. Good day day to you all."
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Post by Kenster1 »

Oh then it is true? Investing in real-estate (homes) is safer than stocks.

:roll:
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Post by mickeyd »

Bush could have said, "I recognize that the mortgages are risky as long as the risk never shows up. If it does, I will bail you out. Responsible borrowers will pay for it. Good day day to you all."
I'm looking for him to delete the risk on those penny stocks that I threw good $ at last year.

If he could only substitute "mortgages" with "penny stocks" I'd be a happy camper. Oh yea, substitute "borrowers" with "speculators" and it would be a nearly-perfect risk-free world. :lol:
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stratton
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Post by stratton »

Maybe they ought to forgive 1099s on foreclosures for a year or two? Remove the "add insult to injury factor." How much of the tax on a 1099 for a foreclosure is ever collected by the IRS?

Paul
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please don't call our bail out a "Bail Out"

Post by xerty24 »

"It's not the government's job to bail out speculators or those who made the decision to buy a home they knew they could never afford" -GWB

I guess it's their job to bail out everyone. Or at least to "do something," probably stupid with my money. :(
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Post by WiseNLucky »

What's scary is the discussion on NPR this morning about a German bank that is going out of business because of the US subprime issue. The person being interviewed says the US government must pay the mortgages of affected individuals as soon as possible, bailing out the borrowers instead of the lenders. Seems like both get bailed out to me. He says it could be done with low cost loans, effectively turning a variable rate mortgage into a low-rate fixed mortgage.

I'd rather take the hit to my portfolio than reward a bunch of morons who took on way too much risk. But that's just me.
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Post by Pacific »

Admin Tashina: post deleted for political content
sftrade
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Taste of the Florida market

Post by sftrade »

http://centexsummerclearance.com/

Centex is having discounting > 50% in select areas. Apocalypse now! for housing atleast
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Re: Taste of the Florida market

Post by Ted Valentine »

sftrade wrote:http://centexsummerclearance.com/

Centex is having discounting > 50% in select areas. Apocalypse now! for housing atleast
Nahh. I haven't seen houses on woot.com yet.
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Post by jnojr »

[ post deleted for political content]]

RINOism runs rampant.
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Post by Common Cents »

We responsible borrowers are paying the tab yet again.

Take heart, only 508 more days until 1/20/09.
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Post by Shawn »

[post deleted for political content]
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Post by Index Fan »

Welcome my friends to the show that never ends, Using Other People's Money To Give To People To Get More Money And Votes For Re-Election.

What a world.
Last edited by Index Fan on Sat Sep 01, 2007 12:46 am, edited 1 time in total.
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Random Musings
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Post by Random Musings »

These plans reek of socialism.

Anyway, sooner or later, the piper will come for all the credit build-up.

RM
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Post by Sunny Sarkar »

Just wondering since I wasn't here at that time... how did the country react to the LTCM bailout?
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Post by Sunny Sarkar »

mptfan wrote:"The president will discuss a number of initiatives and reforms intended to help homeowners with subprime mortgages keep their homes," the official said. "He will also discuss reform efforts to prevent these kinds of problems from arising in the future."

"The need for rigorous enforcement of predatory lending laws and stronger, more transparent lending practices are also on the agenda for the statement, the official said."
And only a year ago or so he was championing personal responsibility in order to hand over social security to wall street.
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Post by Stephen001 »

So, my wife and I refinanced and refused to go with one of those silly adjustable loans with the succor entry level rates and instead got a 10 year fixed. We pay more interest up front than the succor ARM's and now I'm supposed to pay even more (taxes) to bail out the idiots who took the sub-prime and ARM's?

I think the bottom line here is not that Bush wants to suddenly help stupid people. But rather, the government is very worried about our economy crashing down, the panic that has been in the air, and they want to do the bare minimum to keep us from a depression by supporting the banks and borrowers. And no doubt there is political grand standing going on too. "We will care for you".

I don't know if the government can engineer a "soft landing" or not but I believe they are trying to do so. Problem being that the engineering can lead to other problems.
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Post by indexfundfan »

Stephen001 wrote:So, my wife and I refinanced and refused to go with one of those silly adjustable loans with the succor entry level rates and instead got a 10 year fixed. We pay more interest up front than the succor ARM's and now I'm supposed to pay even more (taxes) to bail out the idiots who took the sub-prime and ARM's?
Well-put. On this board, I think many rightfully do not have much sympathy for the so-call "financial idiots".
My signature has been deleted.
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Post by baw703916 »

Sunny wrote: And only a year ago or so he was championing personal responsibility in order to hand over social security to wall street.
Ah, but the difference is that that would have made money for investment bankers/brokerages/fund managers. This is costing them money, so something had to be done!

I think we need to declare a "war on bad loans", complete with a new cabinet-level Department of Bailouts.

Best wishes,
Brad
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Post by sgeeeee »

I don't mind the whining about our tax dollars bailing out financial idiots, but let's all remember that there are financial idiots on both sides of these loans. This money is really about bailing out financial institutions that made loans to people who any idiot knew couldn't pay. [ edited for political content]
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craigr
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Just a reminder...

Post by craigr »

Just a reminder to everyone that the Bush administration set the stage to make all these bad loans a possibility:

http://www.lewrockwell.com/bovard/bovard8.html

http://www.diehards.org/forum/viewtopic ... ages#63174

http://www.diehards.org/forum/viewtopic ... ages#55906
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Post by Index Fan »

And while we're at it, let's not forget those activists and politicians who demanded an expanded 'right to credit' for those who were not very credit-worthy. Plenty of blame to go around here.
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Post by craigr »

Oh yes. I didn't mean to exclude anyone. There's plenty of blame to go around from govt. busy-body intervention to banks thinking they'd get a bailout if it blew up.

Again though it's interesting that such a relatively small thing can cause such a panic situation in the banking system. It makes you wonder just how fragile the whole system really is when people with bad credit in the US can make banks around the world have problems. I'd hate to think what would happen if something really serious were to happen in the US.
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Post by tashina »

Let's keep this to economics and stop the political sniping.
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Post by Barry Barnitz »

Why is the foreclosure rate so high in Indiana? by John Tatom
Networks Financial Institute at Indiana State University ( August 2007)
The state of Indiana has had a major foreclosure problem, especially since the 2001 recession. As the nation confronts an emerging surge in foreclosures associated with an explosion of subprime loans in 2004-06, the Indiana foreclosure rate is likely to surge to record territory. Two neighboring states, Michigan and Ohio, join Indiana in having the nation’s highest foreclosure rates. In fact, Ohio has led the nation since 2003, knocking Indiana into second place since then. Meanwhile, Michigan climbed to third place since mid-2006. This report provides a perspective on the crisis in Indiana and its sources. The principal source of the high foreclosure rate in Indiana is the predominance of high risk loans, originally from FHA and later from subprime lenders. Slow house price appreciation and slow employment growth are statistically significant factors accounting for state foreclosure rates, but these factors have not been especially weak since 2001 and they are highly correlated with the share of risky loans. Other factors that are frequently mentioned do not fit the pattern of emerging foreclosure from 1995-2006, or they are not large enough to have had much substantive effect on the overall foreclosure picture. These include auto sector and manufacturing production and employment or predatory lending and mortgage fraud. Education of borrowers, especially first-time buyers, and the education of lenders in traditional prudent lending practices are more likely to foster lower foreclosure rates than other remedies and to do so without reducing homeownership rates.
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Post by stratton »

I can personally attest to deluded buyers out there. In 2004, at a place I was contracting, an employee was telling me about this great mortgage he got with a 1.0% rate and no fees. Pointing out money has a certain "cost" and 1.0% is way below market rate, someone has to pay fees etc. didn't endear me to him. Even trying to get him to read through the contract details and best estimates before closing just made him madder.

I don't point out problems with these kinds of loans any more unless asked for an opinion. Luckily, the older the person generally the more suspicious they become of strings attached to "too-good-to-be-true" things like loans.

Paul
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Post by baw703916 »

There still are radio commercials playing in the DC area (one of the more bubbly markets) advertising a 1.75% payment rate (they don't say for how long or how much interest you're getting charged), which also says "unlimited cash-out loans available."

Predatory lending isn't dead just yet...

Best wishes,
Brad
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Post by tfb »

Sunny wrote:Just wondering since I wasn't here at that time... how did the country react to the LTCM bailout?
LTCM didn't involve taxpayer money. NY Fed twisted arms of some Wall Street firms and had them put money into LTCM. Read the book "When Genius Failed" for the full story.
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Post by sgeeeee »

this post and two follow-up posts deleted by site admin Alex - see below post by Tashina about the forum policy for complaining about moderator actions
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Post by Mel Lindauer »

this post and two follow-up posts deleted by site admin Alex - see below post by Tashina about the forum policy for complaining about moderator actions. But I will leave the policy quote:
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A workout instead of a bailout

Post by bobcat2 »

One possible workout for homeowners with mortgage payments they can no longer afford would be for the lender to renegotiate a lower interest rate in exchange for a shared appreciation mortgage. For example, lowering the interest rate from 8% to 6%, but when the house is eventually sold the lender gets half the appreciation.

Below a is link for more information on this and a couple of other possible sensible solutions to the lending mess:
http://www.boston.com/news/globe/editor ... ding_mess/

Bob K
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Post by tashina »

Heya sgeeeee,

I'm the one who edited your post. Sorry, I forgot to put my name on the edits (was in a hurry). The thread was full of "Democrats are .... " and "GWB thinks this" and I removed anything I thought was pretty much purely political. I am not terribly political myself and may not be the best political moderator here.

Looking back at my edits, they all still look political to me. You and me go way back but I have to edit posts by friends the same way I do for everyone here. I follow the policies here just like you do. Below is the procedure to follow if you feel you were edited unfairly. Since I was the person doing the editing, I would not take part in the Advisory Panel discussion.

Thanks Mel, for defending the edit, but we need to stop discussing this on this thread. Let it stay on topic and we can take care of this either by moving on, or by taking it to the panel. Any more discussion of this topic on this thread will be deleted.

If a member has a post edited or removed and wants to argue about it, use a Private Message to another Moderator or a Site Administrator.

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Re: A workout instead of a bailout

Post by Valuethinker »

bobcat2 wrote:One possible workout for homeowners with mortgage payments they can no longer afford would be for the lender to renegotiate a lower interest rate in exchange for a shared appreciation mortgage. For example, lowering the interest rate from 8% to 6%, but when the house is eventually sold the lender gets half the appreciation.

Below a is link for more information on this and a couple of other possible sensible solutions to the lending mess:
http://www.boston.com/news/globe/editor ... ding_mess/

Bob K
Bob

Thanks for injecting a 'policy' comment into a thread that has otherwise degenerated.

The general sentiment here, which rather amazes me, seems to be 'punish the borrowers for their stupidity'.

It amazes me because of course we know, here, all about the fund management industry, which 'punishes' tens of millions of Americans for their stupidity in not using low-cost index funds. i.e. the financial services industry is out for its own profitability and commission revenue, *not* primarily for the benefit of the consumer.

So we seem to assume that the financial services industry, which is guilty of pushing high cost fund management solutions on millions of naive Americans, is not guilty of pushing inappropriate mortgage solutions on millions of Americans?

A quick read of the New York Times investigation into Countrywide's lending practices will convince you that there was real abuse going on here.

(that's not to deny the need for greater financial education and self restraint by Americans. Housing in the US became an absurd bubble, with cheerleaders across the industry and government. But it is the nature of bubbles that they suck everyone in (former dot com millionaire here-- although I have the defense that it was my employer's stock which was overvalued). Shall we outlaw financial bubbles?

A second effect which has been ignored so far (by that same financial services industry and its cheerleaders, such as the Wall Street Journal) until the last 12 months or so is the broader macroeconomic effect of those practices.

In the case of retirement savings, it will be decades before we know the effect (but the British answer is already coming clear, because we privatised part of our state pension system in the 80s: 10s of billions in government bailout coming).

In the case of mortgages, we do know the answer already. The US could be entering a prolonged housing slump, which could have significant impacts on the growth of the economy over the next several years.

And the human toll, which I have seen first hand through 2 major housing crashes in my own life: the painful cost to lives, marriages, health, financial security of the loss of home.

What the Boston Globe is suggesting is new institutional arrangements which can reduce those costs for all parties, and help the market to deflate on its own terms, till we get back to more normal macroeconomic and housing market conditions.

It's that kind of creative thinking America's politicians and business leaders need right now: an institutional framework where those who will never be able to own their own homes can get out from under, and move on with their lives, and the pain is shared across investors, lenders and borrowers.
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A Potential Cure for Sympathetic Bias by Credit Agencies

Post by bobcat2 »

Hi Valuethinker,

Here's a potential cure for keeping these problems from happening in the first place. Namely, rotate the credit rating agencies the way that baseball rotates umpires. David Warsh at Economic Principals looks at how the credit rating agencies practices have added to the woes in real estate lending.
Blame for the crisis in real estate lending seems to be zeroing in on the credit-rating agencies that, starting in 2000, signed off on the complex new debt instruments that have proved to be so vulnerable and opaque....

Behind the scenes, the rating agencies took an active hand in devising the new securities. The Economist last week described the process this way: "Like schoolgirls asking for help with their homework, the banks would go to the agencies and ask how... the collateralized debt obligations they were putting together would score."

The rating firms' compensation in turn rose with their participation in fashioning the new instruments: they earned about twice as much evaluating a pool of mortgage loans as rating a conventional corporate bond. No wonder, then, that they were slow last year to acknowledge that their optimistic default-risk assumptions were failing to work out in practice.

"It was always about shopping around" for higher ratings," one former Moody's executive told the WSJ reporters. Banks and mortgage-firm proprietors preferred to describe their efforts as seeking "best execution" or "maximizing value." An executive at Standard & Poor, a McGraw-Hill subsidiary, said "We don't negotiate the criteria. We do have discussions."...

Levy and Peart propose a simple solution: randomization. Rotate ratings firms the way that baseball rotates umpires. If they were assigned by lottery, rating agencies would have enhanced incentives to take the public interest into account -- and diminished incentives to try to please underwriting institutions that were paying the bills.
Link to article:
http://www.economicprincipals.com/issues/07.08.19.html

Bob K
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.
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How Rating Firms' Calls Fueled Subprime Mess

Post by bobcat2 »

From Calculated Risk:

First we have Calculated Risk quoting the WSJ.
It was lenders that made the lenient loans, it was home buyers who sought out easy mortgages, and it was Wall Street underwriters that turned them into securities. But credit-rating firms also played a role in the subprime-mortgage boom that is now troubling financial markets. S&P, Moody's Investors Service and Fitch Ratings gave top ratings to many securities built on the questionable loans, making the securities seem as safe as a Treasury bond.

Also helping spur the boom was a less-recognized role of the rating companies: their collaboration, behind the scenes, with the underwriters that were putting those securities together. Underwriters don't just assemble a security out of home loans and ship it off to the credit raters to see what grade it gets. Instead, they work with rating companies while designing a mortgage bond or other security, making sure it gets high-enough ratings to be marketable.

The result of the rating firms' collaboration and generally benign ratings of securities based on subprime mortgages was that more got marketed. And that meant additional leeway for lenient lenders making these loans to offer more of them.
...
The subprime market has been lucrative for the credit-rating firms. Compared with their traditional business of rating corporate bonds, the firms get fees about twice as high when they rate a security backed by a pool of home loans. The task is more complicated. Moreover, through their collaboration with underwriters, the rating companies can actually influence how many such securities get created.
Followed by Calculated Risk quoting Bloomberg.
Moody's Investors Service and Standard & Poor's, the arbiters of creditworthiness, are losing their credibility in the fastest growing part of the bond market.

The New York-based ratings firms last month gave a new breed of credit derivatives triple-A ratings, indicating they were as safe as U.S. Treasuries. Now, investors are being offered as little as 70 cents on the dollar for the constant proportion debt obligations, securities that use credit-default swaps to speculate that companies with investment-grade ratings will be able to repay their debt.

``The rating doesn't tell me anything,'' said Bas Kragten, who helps manage the equivalent of about $380 billion as head of asset-backed securities at ING Investment Management in The Hague. ``The chance that a CPDO won't be triple-A tomorrow is a lot greater than it is for the government of Germany.''

The legacy built by John Moody and Henry Varnum Poor a century or more ago is being tarnished by losses on securities linked to everything from subprime mortgages that the firms failed to downgrade before it was too late to high-yield, high- risk loans.
Link to entire article:
http://calculatedrisk.blogspot.com/2007 ... firms.html

Bob K
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.
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Re: A Potential Cure for Sympathetic Bias by Credit Agencies

Post by Valuethinker »

bobcat2 wrote:Hi Valuethinker,

Here's a potential cure for keeping these problems from happening in the first place. Namely, rotate the credit rating agencies the way that baseball rotates umpires. David Warsh at Economic Principals looks at how the credit rating agencies practices have added to the woes in real estate lending.
Blame for the crisis in real estate lending seems to be zeroing in on the credit-rating agencies that, starting in 2000, signed off on the complex new debt instruments that have proved to be so vulnerable and opaque....

Behind the scenes, the rating agencies took an active hand in devising the new securities. The Economist last week described the process this way: "Like schoolgirls asking for help with their homework, the banks would go to the agencies and ask how... the collateralized debt obligations they were putting together would score."

The rating firms' compensation in turn rose with their participation in fashioning the new instruments: they earned about twice as much evaluating a pool of mortgage loans as rating a conventional corporate bond. No wonder, then, that they were slow last year to acknowledge that their optimistic default-risk assumptions were failing to work out in practice.

"It was always about shopping around" for higher ratings," one former Moody's executive told the WSJ reporters. Banks and mortgage-firm proprietors preferred to describe their efforts as seeking "best execution" or "maximizing value." An executive at Standard & Poor, a McGraw-Hill subsidiary, said "We don't negotiate the criteria. We do have discussions."...

Levy and Peart propose a simple solution: randomization. Rotate ratings firms the way that baseball rotates umpires. If they were assigned by lottery, rating agencies would have enhanced incentives to take the public interest into account -- and diminished incentives to try to please underwriting institutions that were paying the bills.
Link to article:
http://www.economicprincipals.com/issues/07.08.19.html

Bob K
I am less concerned about institutional investors (who are playing in an adults-only game: if they can't see the conflicts of interest inherent in the ratings agencies, then what are they doing as investors?) than I am about the problems of 'work out' for overleveraged homeowners.

We now have homeowners, dealing with mortgage service companies, who can't even get to the underlying owners of their mortgages to do a deal/ reschedule. The system could be completely paralysed. These people are going to be out on the streets, literally, if there is not some form of industry-wide rationalisation.

Many of these subprime borrowers were lured into borrowing too much money, or disallowed FHA loans for which they were eligible, by unscrupulous lending practices. The Countrywide case of changing the computer programme so it would disallow FHA loans is a classic (by excluding the borrower's bank account balances).

*that* is where I think the core of the abuse is-- against the most vulnerable borrowers. Reading the Countrywide article in the NYT (13% of the US mortgage market) one has a sense of an industry that geared itself up to flog money at people who didn't understand what they were taking on.

The housebuilding, home finance industries cheered them on with endless projections of rising housing prices, strategies to reduce required downpayments and lower initial interest payments (at the cost of ratcheting up later), and admonitions to 'get on the home ownership ladder, whilst you still can'.

By analogy, I am not asking the US government to step in to protect institutional pension fund investors from active managers, but I am concerned that individual US investors, ill informed, make too little use of low cost solutions like index funds (and, in their 401ks, their employers have positive *incentives* to avoid offering them).
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tfb
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Re: subprime and active fund investing

Post by tfb »

Valuethinker wrote:By analogy, I am not asking the US government to step in to protect institutional pension fund investors from active managers, but I am concerned that individual US investors, ill informed, make too little use of low cost solutions like index funds (and, in their 401ks, their employers have positive *incentives* to avoid offering them).
To continue your analogy, nobody put a gun to their head and forced them to buy active funds. They were marketed to and they accepted the idea of beating the market. They are free to stop investing that way at any time. It doesn't mean the Federal government ought to make up the difference for the money they lost or didn't earn from investing in active funds. Some actually made more than they would have in index funds. Are we going to make them cough up the difference?

The same goes for borrowers. Not knowing who really owns the mortgage is not a problem. I don't know who really owns my mortgage. But if I ever want to refinance, I don't anticipate any problems. I would get a new loan and pay off the old one. The servicer would process the payoff like they always do. The problem with some subprime borrowers is that they can't qualify for a refinance loan. Guess what, that means they don't qualify being in that house in the first place. What's wrong with losing something that you didn't qualify to begin with? Some subprime borrowers who sold early actually made handsome profit exactly as they intended. They speculated and won. *They* should be subsidizing the current borrowers.

RE: shared equity or guaranteed renting. Why should the current occupants of the house be given priority over other renters? Let's not screw up the rental market. Let the new owner of the house decide who they rent the house to and at what price. Let them decide if the tenant has become problematic and has to be evicted. Lenders wanted to lend money. They didn't want to take on real estate risk. Or else they would buy properties themselves. They wouldn't have to share the appreciation with anyone that way. It's a bad idea to force real estate risk into the lending market. The market rate would have to be higher to compensate for the added risk. This defeats the purpose of doing shared equity.
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richrf
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Re: A Potential Cure for Sympathetic Bias by Credit Agencies

Post by richrf »

Valuethinker wrote:
I am less concerned about institutional investors (who are playing in an adults-only game: if they can't see the conflicts of interest inherent in the ratings agencies, then what are they doing as investors?) than I am about the problems of 'work out' for overleveraged homeowners.

We now have homeowners, dealing with mortgage service companies, who can't even get to the underlying owners of their mortgages to do a deal/ reschedule. The system could be completely paralysed. These people are going to be out on the streets, literally, if there is not some form of industry-wide rationalisation.
The way I look at it is this: If the mortgage companies knew that they could not off-load the over-leveraged loans, they would never have made them in the first place. The only way they were able to off-load the loans were with the help of the credit agencies. The homeowners would have been spared, had the mortgage companies have to assume the full risk of what they were doing. In any case, the two parties would now be in a better position to negotiate.

I'm not sure if there is a way to legislate greed and disgusting ethics, such as been exhibited by the who financial market. But the one thing that can be done, is for the Feds to stop feeding the frenzy. Each time they do, it gets worse. First the Internet Bubble and now housing has been crushed unless foreigners come in and buy up all the excess that has been created with the reserves that they have. On the otherhand, they may decide to buy Treasuries and Gold. Who knows?

Rich

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TFB

Post by bobcat2 »

It seems to me that the lender has an option in this situation. The lender can foreclose the mortgage and take-on all the equity risk. Or, the lender can do a workout with the borrower and renegotiate a lower interest rate in exchange for a shared appreciation mortgage and take-on some of the equity risk.

Bob K
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.
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tfb
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Re: TFB

Post by tfb »

bobcat2 wrote:It seems to me that the lender has an option in this situation. The lender can foreclose the mortgage and take-on all the equity risk. Or, the lender can do a workout with the borrower and renegotiate a lower interest rate in exchange for a shared appreciation mortgage and take-on some of the equity risk.

Bob K
If I were the lender, I would still want to cut my loss incurred so far rather than taking on real estate risk on an on-going basis. What if real estate drops another 20% a year from now? Then I will be in a bigger hole than I'm in today. Can't do that. The gains are shared but the risks are not. If after negotiating the shared equity deal, the lender wants to sell the property, they will find the market valuing their property at lower prices because the new owner will have to share the appreciation with the tenant while taking on 100% of the risk. The lower price negates the benefits of avoiding a foreclosure.
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