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even microsoft windows is more reliable - crashes only one out of five times
Interesting article in Barrons about new Legislation from Congress that will make things alot worse for Housing.
Frank's Subprime Cure Could Kill the Patient
Frank's Subprime Cure Could Kill the Patient - Barrons.com
"Frank's proposed measure, which his panel was to take up Wednesday, would impose stringent conditions on loans that didn't meet certain criteria; that is, what we've come to call subprime.
Loans that get the Good Housekeeping seal of approval would have to have documented income for the borrower; debt service-to-income ratio of 50% or less; no negative amortization; be made on the assumption of a fully indexed interest rate, not a teaser rate; have a fixed rate for seven years or an annual percentage rate that varies less than three percentage points over the index base rate. Also, the mortgage rate can be no more than three percentage points over the relevant Treasury rate for first mortgages and five percentage points over second liens.
If loans don't conform to these (and other criteria), the proposed legislation also would prohibit prepayment penalties and incentives for originators to steer borrowers to loans that are more profitable but more expensive to the borrower.
Further, the measure would require the lender to analyze the borrower's ability to repay the loan, which would all but eliminate no-documentation mortgages. Further, refinancing could only take place if there is a "net tangible benefit to the consumer."
Mortgage brokers also would have to be registered and regulated under the bill. If a state did not pass legislation requiring that, brokers in that state would be subject to Department of Housing and Urban Development rules requiring them to act "solely in the best interest" of the borrower,
According ISI's crack Washington team of Tom Gallagher, Andy Laperriere and Melissa Loesberg, "If passed, this legislation would virtually guarantee that the securitized subprime loan market -- when it returns -- would have much less risky loan features than has been the common practice the past few years and thus will be a small fraction of its peak size."
That in no small part would be because the secondary market for subprime -- on which originators, be they brokers or mortgage bankers, depend -- would shut down.
But, as they say on the infomercials, there's more. Borrowers who think they might have gotten a bum deal also have the right to "rescind" a loan that doesn't meet the bill's criteria for the borrower having a "reasonable ability to repay" and to be able to refinance so that it is a "net tangible benefit" to the borrower. Borrowers would be able to rescind their subprime loans for up to six years and receive all the principal and interest they paid, plus attorney's fees and related costs."
Tanta and others, Any comment on what we can expect in the earning report of Countrywide? Will there be surprises, or all skeletons are already out of the closet?
"That in no small part would be because the secondary market for subprime -- on which originators, be they brokers or mortgage bankers, depend -- would shut down."
Haven't they shut down already, or are there still greater fools to be found?
If only people would listen to Dave Ramsey and hold off buying a house until they had a 20% down payment and a 15-year fixed loan was not more than 25% of their take home pay. In such a world we would have few foreclosures and sane housing prices!
If there's an interpretation of that claim that isn't "Look, we know that brown people frequently cheat on their taxes, and tax cheats have great cash flow to make loan payments with!", would someone share it with me in the comments?
On Fire Tanta!!! Love it!!!
Assignee liability is a matter of getting clear on who the "lender" really is in the first place.
So if a salesman fraudulently misrepresents a product while selling it to me, I should be able to sue the manufacturer?
Just trying to follow the chain of logic here.
Anon 6:56 pm: did you wait all day for me to finally finish this post so that you could copy the article I am discussing into the comments?
C'mon. RTFP instead of cluttering up the thread.
Can't argue with your commentary/analysis, Tanta; makes good sense.
So if a salesman fraudulently misrepresents a product while selling it to me, I should be able to sue the manufacturer?
I don't understand your analogy. How does the salesman have a product to sell to you?
The comparison only works with brokers if you assume that the salesman is paid by the manufacturer, with extra spiff if he sells the really high-cost stuff, but he doesn't own the product (he's not a wholesaler, just a commissioned agent of the manufacturer). You still have to buy the product directly from the manufacturer, and the manufacturer has a reliable way to tell, before consumating the sale, that the salesman's representations were untrue. If the manufacturer then sold you the product anyway, sure you could sue. Why not?
Hey, this is like being back in the Navy, with this 'RTFP' stuff!
You should use 'Whiskey Tango Foxtrot' on occasion, too, Tanta.
Well, I presume one can already sue anyone with a direct hand in fraud. What the article describes is permitting "subprime borrower to sue Wall Street firms that underwrote securities backed by those loans". That is, not just suing the lender, but suing the entity who performed the securitization into MBSes and CDOs and such. Am I misunderstanding?
(Loved the "...we know that brown people cheat on their taxes..." bit, by the way. No argument at all with the rest of your piece.)
No doc loans only exist to deceptively report income either to a) the Lender, who wouldn't make the loan if he/she really knew what your income is, or
b) the IRS, who would want you to pay your fair share of taxes.
Problem (a) and problem (b) are easily correctible: require the income that the borrower states without documentation to be reported to the IRS.
Now that's a win-win solution.
Can one say giant cramdown to those boys on Wall Street who thought that it was blueskys forever with high coupon payments from those subprime peasants.
CramDOWN and suck it up. In other words, it will pay a lot to be able to go back and look through the forced sales and subprime bustouts to find honest folks who just needed George Bailey instead of the tan man;-}
Oh me o my the lobbyists are going to feast our lawmakers!
Someday this war's gonna end...
Nemo, Forsyth is the one asserting that assignee liability applies to a security underwriter who never took assignment of the loan. That's a rather tendentious description of the process.
The "assignee" part of this refers to whoever ends up legally owning that loan. It's a way of getting around this legal fiction that an originator with a warehouse line (provided by the IBs) who closes and loan and sells it (to the IBs) two days later (with an "assignment of mortgage"), is "really" the lender. Realistically, the security, the ultimate assignee, is the lender: if there weren't a securitization market to sell these loans into, they wouldn't have been made (at the moment, for instance, there is no securitization market for these loans and guess what! They aren't being made!) Even when the originators temporarily "own" these loans, they do so with money borrowed from the issuers of securities.
Allowing someone who merely takes assignment of a loan to avoid liability for predatory lending laws is a lot like allowing someone who comes up with some cute SPE concept to get assets off the balance sheet but still profit from them. It's hiding behind a legal fiction.
Whether you agree or disagree with the concept of assignee liability, you have to confess that Forsyth's formulation (they weren't even in the neighborhood when it happened!) is ridiculous. I mean, that's the excuse you hear from third graders.
Winners are Losers, Too
I put up a couple of charts showing Gasoline Station Sales for those interested.
Well, I presume one can already sue anyone with a direct hand in fraud. What the article describes is permitting "subprime borrower to sue Wall Street firms that underwrote securities backed by those loans". That is, not just suing the lender, but suing the entity who performed the securitization into MBSes and CDOs and such. Am I misunderstanding?
The success of such a lawsuit would probably depend on whether the plaintiff could show the transaction between 'lender' and 'securitizer' wasn't an 'arms length transaction'...
If the plaintiff can show the securitizer intended to be a silent party all along & intended to buy such loans beforehand - then the securitizer can probably be brought into the suit 'after the fact'.
My guess is Franks bill attempts to make the burden of proof here easier to attain.
I could be wrong though... ain't no lawyer & don't play one on TV even.
It's hiding behind a legal fiction.
Exactly. And every lawyer knows the deep pockets love to hide behind 'legal fictions'.
"I am curious: do other industries get away with results like that?"
If the Sox can pull off 75%+ over the next few days I for one will be happy as a clam....
The Centex blowup(Semtex?)and then the Merrill MOAB were really big losses. I wonder when the enormity of the losses will start to make a dent on psychology. What if puppies, not dollars, were lost instead? I try to make the analogy in tonights post.
dryfly, I think the point of assignee liability is to get around the no-due-diligence problem.
In other words, it's like buying from a fence: it doesn't matter if you "didn't know" the silverplate was stolen. If the cops trace the silverplate to you, you disgorge it. You don't get to keep it because you bought it, and you don't get to claim that you didn't know the stuff was stolen when you had to meet the seller at 4 am in a parking garage and pay in cash.
Investors and issuers are trying to claim that they had no idea what was going on here when they bought loans they knew were no-docs with interest rates of 12% with 5 back-end points paid to Bubba the Broker. That's the mortgage equivalent of buying silverware in a parking garage, and the claim that it didn't look suspicious is risible.
What do you want to bet that brown people really ARE more likely to cheat on their taxes? You think those illegal immigrants getting paid off the books are paying taxes? Get real. A real law-and-order group, those illegals. Count on them to follow the letter of the law!
I'm not saying NO "brown" illegals pay taxes. I'm saying the odds are very high that they pay them less often than white citizens do. (You brought up skin color, so don't slam me for mentioning it too.)
So get off your high horse, Tanta. You know damned well that illegals are less likely to pay their taxes than citizens are, so quit acting outraged if someone points it out.
RTFP, now that's funny!
Tanta's on fire.
So get off your high horse, Tanta.
It only strikes you as a high horse because you're so low to the ground. Get out of the gutter, Mark!
Go read the quote again. The man did not write "illegal aliens." He wrote "immigrants and minorities." I hate to break this to you, but that phrasing would include legal immigrants and citizens who happen to be members of minority groups.
Don't blame me for the Barron's writer's asinine formulation. And he's the one who is claiming that these folks have lots of money to pay mortgage loans with!
For at least 20yrs, FHA and VA loans tied with a govt. bond program for low income borrowers (ie...who these subprime loans help "save") more than did the job. They are still out there, but were never "profitable enough" for most mortgage cos. When I worked for CW and would originate bond loans, I was told to try to "flip these loans to 100% arms". The operations manager would ask me, "why do you not want more money for company?". I was basically told to sell Option arms or leave, which I did.
Last paragraph is excellent, Tanta.
OT but an interesting scorecard of writedowns...
http://static.seekingalpha.com/uploads/2007/10/24/writedowns_2.png
If there's an interpretation of that claim that isn't "Look, we know that brown people frequently cheat on their taxes, and tax cheats have great cash flow to make loan payments with!", would someone share it with me in the comments?
Where can I nominate this for line of the week? I'm still enjoying a hefty helping of lulz over this one.
In other words, it's like buying from a fence: it doesn't matter if you "didn't know" the silverplate was stolen. If the cops trace the silverplate to you, you disgorge it. You don't get to keep it because you bought it, and you don't get to claim that you didn't know the stuff was stolen when you had to meet the seller at 4 am in a parking garage and pay in cash.
Investors and issuers are trying to claim that they had no idea what was going on here when they bought loans they knew were no-docs with interest rates of 12% with 5 back-end points paid to Bubba the Broker. That's the mortgage equivalent of buying silverware in a parking garage, and the claim that it didn't look suspicious is risible.
But the 'fence analogy' only applies when an activity is clearly illegal... and some of these fishy loans were illegal but I doubt most were... just unethical & stupid (maybe will be illegal after frank gets done).
My guess is this goes 'civil' for now and all the plaintiff has to show is a 'preponderance of evidence' that the lender and securitizer were in complete cahoots even if the activity was ostensibly 'legal'... that a 'reasonable man' would conclude it wasn't an arms length transaction at all and if there are damages that the IB is liable too. That would be a nightmare for The Street.
Nemo - as usual, the article doesn't provide any helpful background.
Assignee liability is a feature of the Home Ownership and Equity Protection Act, which addresses mortgage refinancings with very high fees or very high APRs. The way that works is that such loans have additional protections including a list of barred features, an additional three-day waiting period, and extra disclosures. Liability for failure to comply with the law is passed to the assignee, because that's the only way the law would ever provide any real protection to borrowers.
There are proposals to extend assignee liability for other types of mortgages that seem to be predatory. I don't have a problem with that at all, except that I think the law must establish reasonably clear standards for how to comply.
If you want to buy a HOEPA loan, the seller is required to identify it as such. You would then be a fool not to check it for compliance. Because of the extra costs and liabilities, HOEPA did succeed in largely removing some very predatory tactics from the marketplace, while still preserving availability of these loans. But the difference is they are not mass-marketed to unknowing borrowers.
Forsyth really does come off as an idiot in this article. It is certainly possible that badly written legislation could cause problems, but it's hard to see how it would cause more problems than the unregulated market has created.
From the article:
Loans that get the Good Housekeeping seal of approval would have to have documented income for the borrower; debt service-to-income ratio of 50% or less; no negative amortization; be made on the assumption of a fully indexed interest rate, not a teaser rate; have a fixed rate for seven years or an annual percentage rate that varies less than three percentage points over the index base rate. Also, the mortgage rate can be no more than three percentage points over the relevant Treasury rate for first mortgages and five percentage points over second liens.
Right there I can tell you that I would never, ever create a loan program for any of my banks that had any of the first three provisions (no-doc, 50% plus DTI, or neg-am.) It would really get them into trouble. All the calculators any of provide actually block neg-am. No-doc or such high DTIs would be a violation of safety and soundness. I don't have single client who could write this way and stay afloat (unless, that is, they sold such loans off to some other sucker).
The last two provisions are too draconian. They should be 5 years for fixed rate, and 5 & 7 plus treasury yields. Right now the 30 year Treasury yield is 4.64. As it stands, a lot of FNMA loans would be carrying assignee liability, as well as pretty nearly all I/Os and most jumbos. This is not what anyone wants to achieve. You can't block out Alt-A and reasonable subprime.
But assignee liability is needed. Non-banks have bought up these subprime wholesale operations and absolutely wre
If you all want to see how the market was massively manipulated today, go and listen to this (warning bad language):
The Market Ticker
Next, go sign the petition.
Congress - Repair Our Financial System!
It's pretty stunning.
Darn it, that got cut off.
I'd like to add to Tanta's justified swipes the following: we have seen Ranieri's analysis that about 50% of the borrowers in the "subprime" pools really qualified for regular loan programs. If that is really true, than at best only 1/4 of the borrowers could have benefited - the 1/4 who didn't qualify for prime or near-prime programs and don't default. My guess is that that almost all of that 25% could easily qualify within a year or so for another type of program, bringing the real beneficiaries down to about 10%.
A lot of Forsyth's arguments make no sense.
Has anyone ever questioned why we are allowing people to take the home mortgage interest deduction when they couldn't prove up their income when getting the loan?
A simple change in the tax code would seem to alleviate a lot a ills...
McD's employee: I make $80K.
MB: Cool, here's your loan.
McD's 2 years later: I make $10/hr, how could I afford this loan.
Judge: Mr. Lender take a cramdown.
Sounds fair to me. And I mean that personally. I'm gonna quit my job because the limited-doc 30 yr fixed at 7% taken 8 years ago is crimping my lifestyle. Then maybe I can get a cramdown too.
So much about reading the bloody contract before signing it. I guess that's too much to ask people signing up for a huge 30 year loan to do.
My point is that BOTH sides we're making decisions based on greed, or at least based on the gambling table.
McD thinks he can buy it now with this toxic loan and flip it for even more. That's gambling on leverage.
MB thinks he can borrow short, lend long then sell the LT paper for some big bucks. That's also gambling on leverage.
IB is doing the same, and so on and so on and so on.
The whole lot of the gamblers deserve to go down in flames. Mr. Invisible Hand is pushing them right to the cliff. As long as that M-bLECh Super Sewer thing is still born...leave the gamblers work out a solution amongst themselves. Leave me out of it.
Mr Invisible Hand has already taken care of toxic subslime. No new Letg needed.
BTW I LOVE how legislation passed today can be used to change the terms of a contract written yesterday. Something in the Constitution says you can't do that. But hey it's Shrubboy's Amerika so, who cares.
My two cents.
Cheers,
Cheers,
I'll bet if you tallied up all the US taxes that all the undocumented immigrants who ever set foot in this country skipped out of paying you would a figure far far smaller than the sum of money (or should I say fake money?) that Citigroup has kept off the books in SIVs.
Fact of the matter is that most undocumented illegal aliens from either Mexico or outer space are taxed regressively. Most don't make enough money to owe much in the way of Federal or State income tax, but they pay sales on everything taxable they buy . . . and for their tax dollars they worry about getting turned into the INS and deported anytime they encounter the police, the fire department, school district officials, health department or safety inspectors, etc . . . but mercifully they are mostly so busy picking your food or cleaning your toilets or cutting your lawn that they don;t have time to get caught by any of the social service agencies their own sales tax dollars pay for.
Geez. If people got half as whipped up about the SEC and Tresury Dept under GWB giving the masterminds of Enron and Merril and Countrywide and Citigroup a free pass to fudge their books, then we wouldn't be in this mess. Ditto for the sinkhole of life, liberty, and property that is the war in Iraq. But some still pursue happiness by chasing immigrants and brown people, whether they are citizens, have green cards, or not. That's a great American tradition, esp in SoCal and Texas.
Thank you, Tanta. You're the bee's knees.
Joe
dryfly-
"preponderance of evidence"
Don't hold your breath in anticipation that anyone is going to be held accountable for all this malfeasance.
After all, this is America we're talking about.
Don't hold your breath in anticipation that anyone is going to be held accountable for all this malfeasance.
After all, this is America we're talking about.
Quincy k
Oh...I think that the cost of all this malfeasance is going to be socialized through the printing press and treasury. Nice to know that being frugal and responsible is something to be punished for. Glad I've scrimpted and saved so a bunch of gamblers can pay pennies on the dollar for their excessive debts and living high on the hog, whilst I receive nothing but a kick in the ass for being responsible.
Cheers,
dryfly,
congrats on your market call last nite. after the merrill news, you said there would be little impact. i thought that there would be. so, what do you think about the next week, or so??
"So there's your argument: people with capital to lend cannot be responsible for what kinds of loans get made, because they delegate the process of taking applications to brokers, and nothing that happens after the application is taken matters. "
Can you imagine this defense being raised in criminal court -- honest judge, I only hired the hit man...
Reading about this here and over on Blown Mortgage, where he quotes the actual bill, it seems to me that the real issue seems to be scope, i.e., where the liability stops. Does it go all the way to the investor who bought after the loan was chopped up or stop with those who created the pool? It also, seems that the risk applies where the "ability to pay" provisions weren't met. Also, the securitizer has an out with a modification or shows they met "safe harbor." End result, no more stated income as you can't meet the ability to pay requirements.
Would assignee liability extend to pension funds and the money market funds some of you have been so concerned about? And what would the appropriate measure of damages be for all these borrowers who put little or nothing down and lied about their income?
There was an error in my gasoline store sales charts (my formula for the CPI adjustment was broken, forgot to use Excel's "$" before copying cells). It has since been fixed. Sorry about that! (The conclusions remain the same though.)
"So there's your argument: people with capital to lend cannot be responsible for what kinds of loans get made, because they delegate the process of taking applications to brokers, and nothing that happens after the application is taken matters. "
I guess even CR posters do not know how bad things are on War Shriek. The financial pillars are shaking. The inverted debt pyramid is wobbling. The IB's are in deep doo doo. The UBS and Bank of Scotland just got a $30B Line of Credit from the Bank of England to cover their bad asset...erm...short term liquidity problems. Northern Rock is likely toast
Sinking Like A (Northern) Rock - Forbes.com
Bubbles always create paydays. Panicked politicians (i.e. people who's only talent is winning rigged popularity contests every few years) always want to do something (wrong). And esteemed buearorats (consligere's of the elite) are always dealing with the gov't created cartels and monopolies to try and push back the day of reckoning. But Mr.Invisible Hand always wins. And when you're in the big stinking pile of poop we're in...everybody loses.
Cheers,
congrats on your market call last nite. after the merrill news, you said there would be little impact. i thought that there would be. so, what do you think about the next week, or so??
I know nothing. Seriously. Just one of those things - dumb luck.
All I can say is I thought the market would digest all the bad news as 'whew, glad that's behind us'...
Ya maybe tomorrow.
Don't hold your breath in anticipation that anyone is going to be held accountable for all this malfeasance.
After all, this is America we're talking about.
LOL. Ya sometimes I forget.
stag mark should have a banner ad on cr's site...
he does so much advertising.
;----(
Would assignee liability extend to pension funds and the money market funds some of you have been so concerned about? And what would the appropriate measure of damages be for all these borrowers who put little or nothing down and lied about their income?
WTFs your point Nil? You think only trailer trash have should be 'responsible' for their 'actions'? If the IBs via their 'agents' mis-rep'ed the claims & caused damages they aren't 'responsible'?
My guess is if investors want to bring a civil action against Bubba for misrepresenting his income they probably can though something about stones and squeezing blood come to mind.
IBs though got plenty of blood... or at least did.
"For what its worth, a recent research report from Lehman* just caught my eye. The analysts looked at a pool of subprime ARM loans from older vintages that are current, and have always been current, but have never refinanced out of those old pools."
Hmm, I suppose they are even now trying to devise mortgage products that will more effectively encourage this behavior.
I know nothing. Seriously. Just one of those things - dumb luck. - dryfly
The more I read, the more I meditate; and the more I acquire, the more I am enabled to affirm that I know nothing. - Voltaire
The only true wisdom is in knowing you know nothing. - Socrates
I'd say you are in very good company.
where the liability stops.
at the super-pooper-scooper SIV, when they finally create it, right after SS is saved.
Aside from the liability thing, Barney's bill looks like something I would have written. Anybody disagree?
and this:
I'll bet if you tallied up all the US taxes that all the undocumented immigrants who ever set foot in this country skipped out of paying
Throw employers who don't withhold into jail. Problem solved. We don't have an illegal problem per se, we have a corrupt employer situation.
The only true wisdom is in knowing you know nothing. - Socrates
hey, here's what I wrote on HBB yesterday:
Hierarchy of Knowledge
Infant: Don't know what you know
Learner: Know what you know
Idiot: Don't know what you don't know
Enlightened: Know what you don't know
the bank of england warns shareholers of significant risks to shares and the financial system. here is a very frank, candid central bank. as opposed to ours, where everything is fine and contained, etc..
British investors warned of slide in shares - Telegraph
the bank of england warns shareholers of significant risks to shares and the financial system. here is a very frank, candid central bank. as opposed to ours, where everything is fine and contained, etc..
Telegraph | Error 404 | Sorry, the page you have requested is not available nshares125.xml
houston
Oh yeah. Responsible. Like when they said there should be no bail outs, and then like 2 days later bailed Northern Rock. Or the recent 30 bil to UBS(?) and Bank of Scotland. Sheesh read a few posts.
Cheers,
I'd like to add a comment on the last paragraph of the original post...specifically the bit about holding a lottery amongst homebuyers. If we theorize that easy access to large amounts of credit helped pump up house prices to begin with, then the lottery that is currently sitting at 25% failure (would you take that from your surgeon?) will steadily see worse and worse outcomes. I'd like to see where the odds in that lottery go in the next 18 months, as the Alt-A and option ARMs start to kick in en masse. I fear that the option ARMs may have a much, much higher failure rate.
So if a salesman fraudulently misrepresents a product while selling it to me, I should be able to sue the manufacturer?
Just trying to follow the chain of logic here.
Nemo
There can be liability under the legal theory of Agency.
From my standpoint, the assignee liability sought to be extended to trusts is merely an extension of this principle.
Here is a post at Credit Slips explaining some of the rationales for assignee liability.
Punditry,
Hint taken. I'll stop. Sorry.
only in jest...stag, if we can't rib one another on occasion, well, it'd be damn boring
Throw employers who don't withhold into jail. Problem solved. We don't have an illegal problem per se, we have a corrupt employer situation.
Ya know, on the surface that seems like a sound suggestion. I (peripherally) know someone who is serving 14 months time at the Atlanta USP minimum security work camp. His crime was to work a few regular people (3 I think, 2 were likely part time) and pay them under the table for a couple of years. Taking away 14 months of your life plus fines plus forfeiting your civil rights seems rather harsh for the crime of employing a few people and not reporting it. Personally (and not because I know the guy) it would seem more productive to merely fine the individual plus charge him 3x the unreported taxes. Maybe my opinion is skewed tho.
Punditry,
I was a bit uncomfortable posting my links anyway, for the very reason you described.
No hard feelings, I assure you.
Borrowers, brokers, lenders and securitizers: partners in buggery, the lot of them.
Feeling like playing hooky, but nervous about getting caught? The Excused Absence Network has got your back.
For about $25, students and employees can buy excuse notes that appear to come from doctors or hospitals. Other options include a fake jury summons or an authentic-looking funeral service program complete with comforting poems and a list of pallbearers.
Some question whether the products are legal or ethical or even work but the company's owners say they're just helping people do something they would have done anyway.
Millions of Americans work dead-end jobs, and sometimes they just need a day off, said John Liddell, co-founder of the Internet-based company Vision Matters
Page not found
Why doesn't this surpise me? I gotta get out of the US.
RayOnTheFarm
but now that he serves 14 months, 50 people need to pay into the system to support the 30-35g's it takes to house someone in the Pen...
that's adding to the GDP i think...
we need more prisoner's!!
I missed you today, Tanta.
You're gonna miss subprime lending when its gone. Just wait until 2011 and the avgerage San Diegoer has a 598 FICO.
Hey, the Sox made it to the World Series! They're up 6-1 in the 5th. I guess this means Nehemiah's got a chance, speaking of high-stakes lotteries.
Stag Mark
1) Appreciate the links
2) Never got the feeling they were just a means to a self promoting end
Amazing what bothers some people...
Okay, one question. What the heck is RTFP? Right to Fight People? Can't figure it out. Roll the Fat Pig?
I know I've seen enough WTFs posted lately to last me a lifetime. I can figure that one out.
The whack a mole game ( I'd use a wild-fire analogy but its a little fresh in our minds at the moment ) continues - now its more than one popping up at a time. While the SIVs issue keeps bubbling, now we have:
====================================
RV Capital goes into administration
By David Litterick
Last Updated: 1:29am BST 25/10/2007
One of the major market makers on Liffe has collapsed into administration after racking up losses of up to 20m (£14m) during the summer credit squeeze crisis.
Liffe yesterday declared RV Capital in default, meaning the exchange feared the company would not be able to meet its obligations, and barred members from dealing with it.
It is the first time in nine years that the derivatives exchange has taken such a step.
......
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/25/cnrvcap125.xml
btw, anybody know how much original material one can post with attribution of course and keep within the limits of "fair use" ?
-K
RTFP = Read The F***ing Post
Oh. Okay then. Now I'm enlightened. Mucho gracias.
I don't understand the premise of a borrower who has lied about his income somehow puts the lender at risk of the assignee liability. The proposed legislation requires determination of ability to pay.
Subtitle II section 201
"Provides that no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan (including all applicable taxes, insurance, and assessments).
To calculate monthly payments for principal and interest, creditors will make certain assumptions set forth in the legislation (including that the interest rate is a fixed rate equal to the fully indexed rate at the time of the loan closing)."
If the borrower has lied to the extent he has provided fraudulent "verified and documented information", then surely some smart wall street lawyer could prove the lender was defrauded and void the liability. The risk to the asignees comes when those in the loan chain have failed to make the ability to pay determination.
Outsider
You live a pretty clean life don't you:-)
Let the chips land.
By 8-2009 we'll see who still standing. I going to get as close to the ground as I can get.
jo6pac
As you know Tanta, I was instantly repulsed by Forsyth's logic, but simultaneously fascinated by the top-down manner in which Wall Street justifies the ends & the means.
Obviously the current global regulatory framework is not up to today's task.
Frank is doing his part. I would say go back to Glass Steagall, make investors pay for ratings, push as much derivative trading onto the exchanges as possible (extremely helpful for mark-to-market), and make the banks hold some capital for off-balance sheet ventures. Oh, and register the hedge funds with the SEC.
If Mr. Forsythe did as I do every other night, and said a short prayer for all the souls who are going to be tested by this debacle, maybe he will develop an appreciation for some of the shortcomings of unfettered capitalism.
Yeah. I guess I don't belong here, do I?
Outsider,
Been on this board a while, I don't know either, so I googled it. Pick one that fits:
Should a lender bear no burden for using a business plan that allows him to make thousands or higher magnitude of transactions without verifying the borrowers' bona fides?
Somewhere around the 50,000th of these things a lender ought to see a lying flipper coming. It does not seem such an onerous social policy to me to say that if we are to back you, you have to at least try to use the expertise that has been accumulated in your field of business over the last century.
Ruh Roh,
I got the Dow futures -177 points.
Never mind the -177, stale data on Bloomberg. Doh! My apologies.
From "Bill Allowing Mortgage Lawsuits," Edmund Andrews, NYT, 10-22-07:
...about half of all recent mortgages in recent years--and the vast majority of subprime loans--were made by lenders and brokers who fall outside the federal reserve banking system.
So where were our glitzy, Botoxed, proletariat-hugging California politicos when this orgy of unnatural financial acts was going on?
B of A to cut 3000 jobs...
Gotta pay for that bad Countrywide investment somehow,,,,
Outsider,
"Yeah. I guess I don't belong here, do I? :)"
Sure you do.
"So where were our glitzy, Botoxed, proletariat-hugging California politicos when this orgy of unnatural financial acts was going on?"
Trying to figure out how to spend thier share of the booty.
Four years after Arnold Schwarzenegger was elected governor of California, vowing to ``tear up the state's credit card,'' the actor and former body- builder is about to charge $7 billion to taxpayers' accounts.
California is selling notes tomorrow due in eight months to help pay its bills until tax revenue comes in, the largest short-term loan since Schwarzenegger took office and almost five times more than last year. Debt is increasing after cash receipts fell $777 million below the state's projections during the first three months of the fiscal year that started July 1.
Schwarzenegger is losing the revenue cushion he used to plug budget deficits as home foreclosure rates increase at a faster pace than the rest of the country. The rise in IOUs is an early sign that finances are deteriorating after four years of revenue growth won credit-rating upgrades and spurred gains of more than 20 percent on California bonds.
Schwarzenegger Discipline Shattered by Subprime Slump (Update2) - Bloomberg.com
Stag Mark,
I appreciate the links to your charts/posts. The info you provide is a bit offbeat and are often good sidebars for points brought up here.
My read was that Punditry was ragging on you but not bagging on you.
London Times
UK Financial System At Risk From New Shocks, Says Bank of England (Bank of England tells its public the truth so they can prepare in stark contrast to US Fed)
UK financial system at risk from new shocks, says Bank - Times Online
You know what? Let send them flowers!
READ THE FUCKING POST.
I thought
RTFP=rolling on the floor puking
...but that just might be my college days talking
It is apparently very difficult to have an original thought.
Calculated Risk: Monthly Retail Sales, November 14, 2006
I found it while trying to answer a question left for me. Check out the chart. Mine is per capita (simply because I was trying to figure out the economic health of each individual), but other than that it is the same. D'oh!
News Corp is buying WSJ - and that includes Barron's. Barron's is not in the famous "agreement in principle" between Dow Jones and News Corp. Ten years ago I thought Barron's was great. Today they have been outrun by the competition - mostly econ bloggers. News Corp knows how to run a newspaper. Maybe there will be some improvements.
NY Times
Reports Suggest Broader Losses From Mortgages
"At this juncture, economists say the troubles in the mortgage market could, all told, cost financial firms and investors up to $400 billion.
That is far more than the roughly $240 billion cost, adjusted for inflation, of the savings and loan crisis of the early 1990s, according to estimates of the combined financial toll of that crisis on both the federal government and private sector. The loss in total real estate wealth is expected to range from $2 trillion to $4 trillion, depending on how far home prices fall, according to several economists.
That would be significantly less than the losses suffered by investors in the stock market collapse earlier this decade, which erased more than $7 trillion, or about 40 percent, of market value."
Broader Losses From Mortgages - NY Times
NY Times - Reports Suggest Broader Losses From Mortgages (lots of numbers for the crunchers)
Broader Losses From Mortgages - NY Times
Stag Mark-
I, too, appreciate the occasional reminder to visit your site. I
figured Tanta would give you a heads-up if it needed doing.
I agree Forsyth's complaints are silly; the real problem with Frank's legislation is it's too late, has potentially serious unintended consequences, and as Misean alluded to, is already being precluded by that Unseen Hand.
Kind of like Omar Khayyam's:
The Moving Finger writes; and, having writ,
Moves on: nor all thy Piety nor Wit
Shall lure it back to cancel half a Line,
Nor all thy Tears wash out a Word of it.
make investors pay for ratings
i always forget...what's that supposed to make better?
"Some for the Glories of This World; and some
Sigh for the Prophet's Paradise to come;
Ah, take the Cash, and let the Credit go,
Nor heed the rumble of a distant Drum!"
Bloomberg - Bank of England Says Intervention May Be Required Over Credit Ratings
BOE Says `Intervention' May Be Required Over Credit Ratings - Bloomberg.com
Bank of England Financial Stability Report Oct. 2007
http://www.bankofengland.co.uk/publications/fsr/2007/fsrfull0710.pdf
Let's not be too racist about tax cheats. If you have ever worked retail or did some booking for small businesses, you would notice that the majority of those individuals under reporting income for the most part happen to be self employed. Self employed people tend to over report expenses. It is almost impossible for the IRS to scrutinize business expense summaries outside of an onsite audit. This flaw in the system allows people to expense just about anything. As long as their expense summaries do not exceed certain percentiles there is noting that would indicate to the IRS that they are expensing personal items like vacations, gas and boat repairs, capital purchases like furnature and even extended home renovations.
This administration has gone to great lenghts to underfund the investigative arm of the IRS. Only wage earners and "brokerage" investors pay taxes. But then again most of you who frequent CR already knew that.
Stag Mark,
Count me as one who also values your blog links. You bring good information to the table without pasting novels into the comments section.
Telegraph UK - Investors warned of slide in shares
"The credit crisis is far from over and British shareholders are at serious risk of becoming its next victims, the Bank of England warns."
..."the bank warns that the UK stock market is particularly vulnerable to a downturn."
"The bank also raises its danger level warning on all parts of the financial system and warns that the value of shares is now at risk."
"A deeper downturn in the U.S. and rising credit defaults could trigger a further round of asset price falls. Equity markets seem particularly vulnerable."
British investors warned of slide in shares - Telegraph
Minor correction:
"A deeper downturn in the U.S. and rising credit defaults will trigger a further round of asset price falls."
tj & the bear,
I cringe every time my name comes up today, because I know it isn't on topic!
I'd like to reply to everyone of course, but instead I'll simply quote the first lines of my first blog entry.
First off, I want to thank Calculated Risk for insipiring me to do this. Great site! I've hijacked their threads spewing my random banter in a most off topic fashion (well, generally). I therefore decided to focus my random energy on a site of my own.
It seems my blog hasn't solved the problem, lol. In any event, it isn't like I can stop. It is rather addicting. I'll just try not to "advertise" any longer. From now on you'll have to click on my homepage if you are curious, which is how it should be anyway.
Well... even if you link only through "homepage" please let us know when you post new material.
BTW, check this out:
FSO Editorials: "Remembering Black Monday: Q & A with Robert
Prechter" ~ 10.24.2007
Ah stag mark, don't stop with the links. As usual, the helpful have humility and we are left to suffer self-promoting fools. (Which we all know Tanta doesn't do very well.)
Interesting article in Barrons about new Legislation from Congress that will make things alot worse for Housing.
Just how is having house prices return to levels that ordinary people can afford, with conventional financing, "making things a lot worse".
Oh, you mean it will make things a lot worse for Wall Street, the mortgage brokers, the NAR, and the builders. Well of course.
Mr. Franks is tilting at windmills.
The role of the US government is to facilitate business' fleecing the general population.
"Another day older and deeper in debt" is US policy on several levels.
CR
Take a look at these charts...the Chinese were buying massive amounts of treasury's.. did our Fed not see this? Or is it all part of the plan...
charles hugh smith-Why Mortgage Rates Will Rise Despite Fed Rates Cuts
Well the real problem with the fenced silverplate analogy is that the fence has no property interest to sell. It wouldn't matter whether you bought the item in a store because the fence sold a few "fallen off of the truck," crates to the storeowner. The person that the property was stollen from still owns it. Whether you had reason to believe to that it was stollen is immaterial to the ownership question.
I would suggest the used car dealer analogy instead. If you discover that your car has a dialed back odometer, do you sue the dealer, or the salesman who wrote up your sale?
misean: "BTW I LOVE how legislation passed today can be used to change the terms of a contract written yesterday. Something in the Constitution says you can't do that. But hey it's Shrubboy's Amerika so, who cares."
Yeah, that's right - Bush has consistently fought the fight against understanding and applying the constitution as written. Good grief.
Bacon dreamz,
Even before the subprime capital markets collapse in February, the bigger investors were requiring more credit enhancement (in the way of subordination)than what the rating agencies were recommending. Why?
Because their internal credit analysts did not believe the rating agencies (who are under unfathomable pressure from the Masters of the Universe to keep credit enhancements low & put more money in their pocket). The rating agencies are an outsourced credit analysis function for many investors.
I trust the investors more than the dealers. How about you?
The rating agencies are an outsourced credit analysis function for many investors.
yup. that's my point. you like that situation? you want to exacerbate it? at least when investors know that the issuer is paying the fees, they might think twice about a rating. and hey, maybe if you don't trust a rating and you discover you don't know how to do the analysis yourself, you shouldn't be buying MBS. i would trust investors even less than i do now if they were paying the RA fees...
Great polemic, Tanta. These are the analyses that make me come back.
Love the Bank of England report.
Remind anyone else of Mary Poppins? Where young Michael Banks causes a run on the Bank of England by screaming repeatedly at the teller, "Give me back my tuppence!"
My argument is that the interests of the investors are purer thant the interests of the dealers. Incentives are more properly aligned.
Your argument is that they will think twice if we continue the current system (I can't make heads or tails of the rest of your thread). I know from your past posts that you appreciate how difficult & expensive it is to model & evaluate such dynamic cashflows. Then their is a counterparty credit component that has to be layered on top of that.
The investor wants a fair risk/adjusted returns over Treasuries for investing in mortgages. The dealers want volume. The current system encourages volume, and you think it is better?
Just trying to get at your beef over investor-paid ratings.
Clyde, this is going well for us because i don't think i understand what you're saying either, but at least you type well so you're one up on me. i suppose you were structured with a "shifting interest mechanism". while i unfortunately wasn't. a ha ha ha.
anyway, why would investors never pressure the RAs to get what they want? i can envision a number of scenarios where an investor (some of whom are also issuers) would not actually want the "correct" rating on a bond. also, wouldn't this just encourage investors to do even less of their own credit analysis because they pay the RA to do it; i think that is bad, don't you? Tanta compared this to lenders relying on FICO scores a while ago, which hasn't worked so well.
...i just don't really see how that actually changes the incentives of the RA; they still want volume and as long as investors are so dependent on them, that's how it's going to be, regardless of who's paying them.