So, gasoline skyrockets out of sight. Real estate toilets forever.
Inflation?
Not in this lifetime. Perhaps never.
You will need to have a good job and a steady income in the future to...the envelope please...own a car.
Take trips to Cancun? By a 75 inch flat panel TV? No, I said own a car.
The marginal dollar, which today flies around like a moth with ADD, will, well, it will not exist. People will be buying gasoline, food, and enough clothes to keep warm.
And, those "wealthy" enough to save? Well, they will save.
Pundits have been puzzled in recent years about why, when so many people were being scre*ed by the Bush's tax reforms and his "economy" where wages were stagnant, there was not a lot more anger and protest. Surprised that he could even get re-elected in 2004. I now begin to wonder if perhaps what opiated (pardon the word) the masses was the ridiculously easy access to credit. If houses were, in effect, being given away, that would go a long way to make people forget that their wages weren't keeping pace or that the rich were getting tax breaks that they were not. Just a thought.
How bad would it get if people needed more cash flow than the cost of payments to stay afloat. That would make it really simple to see the issue but very scary. I am sure glad that mosnster will be kept under the bed.
Hey, that "victory" in 2004? Accounting by Diebold.
Remember that "mandate". First thing W tries to do is gut Social Security, helping out his buds on Wall Street in the process.
What'ya bet most of those "approved" accounts would be deep into mortgage-backed securities? Guess we learned something from that horrible bankruptcy bill after all.
Losses in the distressed mortgage sector of the United States could reach $300 billion, only a portion of which has so far been accounted for by write-offs at major banks, according to a study released on Thursday by the Organization for Economic Cooperation and Development.
Starting this month, Freddie wont guarantee such loans, which seem to default more often than other loans.
Ya think?
Making a NINA loan is stupid, but making a NINA loan and then actually expecting things to work out in the end is insane. Wouldn't it be easier to go to a casino and blow the money on slots? At least then you might get your drinks comped.
Nina looked SO HOT in those 6 inch he els,and when she smiled and told me she didn't wear panties...I just knew i was gonna get lucky.How was i supposed to know she was SIV positive? and she never told me that her brother was a NINJA...god,what can i do ?i don't have wealth insurance...
Well, since our economy and financial system has been gutted by greedy, amora;, middle-aged nimrods from good schools and privileged backgrounds, I suggest that our next chairperson of the Federal Reserve be an African American lesbian with a night-school education, two children by artifical insemination, a lifetime subscription to Mother Jones, and piercings. It'd be refreshingly different -- and it couldn't be worse.
"The underwriting standards declined": golly, these abstract entities can be a real pest. Still, thank heavens that there were no humans involved in this.
The collapse of the U.S. subprime market ``was a shocker because no one expected it,'' Greenspan said.
HA HA HA HA! Except nearly everyone here and in many other parts of the blogging world. I personally had been waiting and expecting the implosion of securitized subprime mortgages since 2005. I guess "no one" really means, no one in a position to DO something to rein in lending, but with a vested interest in seeing the mania continue.
--
Greenspan's "I didn't Do It" tour continues. Reported on Boob-berg:
November 23, 2007
Greenspan (In Oslo): Housing Decline Was a Shocker Because No One Expected It!
Does anyone need proof that Greenspan is a liar? It is not his fault though; he was raised in a culture of fraud. The same culture that breeds the Bankrupters and Fraudsters of New York City (sub-rime was anything but a surprise to some of us cranks).
That is the greatest story never told about American finance an economy manipulated by a criminal gang. Legally sanctioned criminal gang, of course. That is the beauty of a "nation of laws."
``was a shocker because no one expected it,'' Greenspan said.
What an utter fool. I guess he never read any blogs like this one or ever heard of Peter Schiff. Many people thoughtfully spelled it out loud and clear. Greenspan and the rest of the Wall Street established crowd didn't want to hear it, and certainly did not want Joe public to hear it. God forbid that the preyed upon public would smarten up.
Is there some assumption out there that non-subprime losses are not real?
Well, if people who live like the middle class even though they don't have middle-class means are not "really" economically marginal wage-slaves, then I fail to see why any "losses" from their loans that are not subprime because subprime is aobut the poor not the middle class have to be treated as "real."
A general problem in this administration: Neocons believed their own BS; Bush believed his own BS; of course, Colin Powell now says he never believed his own BS, so does he get brownie points for uttering it when he didn't believe it?
I did notice that nowhere in the article does he write: So what else don't I know about?
If we're going to have to come to Jesus with recent mortgage lending risk taking ONE LITTLE PIECE AT A TIME, it's going to be a long, long, long unwind.
A kinder way to look at it is that competition forced it to lower its standards. THIS is where my head explodes. What are these people, 12? Have they NEVER heard "Well, if all your friends jumping off of a bridge, would you jump too?" Just 'cause everyone else is on their 12th drink, YOU DON'T HAVE TO KEEP UP. I mean, these guys are SUPPOSED to be the designated drivers, they had NO BUSINESS bellying up to the bar and trying to keep up with the drunken morons.
"A kinder way to look at it is that competition forced it to lower its standards. THIS is where my head explodes. What are these people, 12? Have they NEVER heard "Well, if all your friends jumping off of a bridge, would you jump too?" "
Becuase those naysayer at the top of the market will be replaced by the "yes" man. This is part of life in corporate everywhere... Someone in power must has a strong conviction and strong power base within the company (e.g. you own majority stake in the company or has very strong influence on the BOD) to suvive taking a strong stand against the tide.. Without the strong base, they will be fired for underperforming while everyone is doing the wrong thing (doesn't matter that it was proven right one or two years later) and new management will come in and sink the ship... It is corporate 101, nothing new...
I worked at the largest DC based S+L back in the late 1980s; one which ended up in RTC land. I still remember the idiot CFO talking about a bunch of loans gone bad: "they were good loans when we made them". I suppose that might be technically true until maybe, at least, the ink dried.
Paying commissions for loans without regards for loan quality is a recipe for debacle; always has been, always will be.
OK, who's Floyd ? Google tells me what PIW is ( Property Inspection Waiver and all that THAT implies ) but links for Floyd don't jive with anything. I KNOW my Pink Floyd and there's nothing about FNM and FRE, mortgages, even Moneyyyyy that has anything to do with Pink Floyd.
I tend to think Greenspan is more a liar than a fool.
In several interviews he admitted that the fed had lost control of long rates, to which he blamed on the falling of the Berlin wall and the spread of capitalism.
He noted that despite rapid increases in the short term rates, the long rates stayed low.
My question then is what was the desire to increase long rates all about?
What was he trying to do?
(I believe he saw what everyone else saw and wanted to slow the inflation of the bubble).
In any case, he obviously saw something that made him want to affect long rates.
"Starting this month, Freddie wont guarantee such loans, which seem to default more often than other loans."
So like uh, these loans were perfectly fine in August or September or October? No one at Freddie Mac thought maybe we should review our lending standards until this month? How much do these folks make? Why?
I looked up PIW and enjoyed wikipedia's list's juxtapositions. Some excerpts:
PIW\tPanel of Inventors Worldwide
PIW\tPeriod of Incapacity for Work
PIW\tPerson In Water
PIW\tPost Industrial Waste
PIW\tProperty Inspection Waiver
PIW\tPsychiatric Institute of Washington
Property Inspection Waiver?-
or perhaps...
PIW\tPanel of Inventors Worldwide
PIW\tPartnership in Wildlife (Nevada Department of Wildlife)
PIW\tPatent Images on the Web
PIW\tPeriod of Incapacity for Work (human resources management)
PIW\tPerson In Water
PIW\tPetroleum Intelligence Weekly (magazine)
PIW\tPhotoCD Imaging Workstation
PIW\tPikwitonei, Manitoba, Canada (Airport Code)
PIW\tPost Industrial Waste
PIW\tPounds per Square Inch Width
PIW\tProject Initiation Workshop
PIW\tPsychiatric Institute of Washington
PIW\tPublic Interest Watch (Washington, DC)
PIW\tPublicly Indexable Web (Internet)
Trading in derivatives slows to a trickle
By David Oakley and Sarah OConnor
Published: November 23 2007 01:38 | Last updated: November 23 2007 01:38
Liquidity in some of the worlds biggest derivatives markets has dried up this week amid increasing fears over the health of the international financial system.
Over-the-counter trading in derivatives of equities, credit and interest rates have all seen much lower volumes as problems in financial markets have prompted investors to sit on the sidelines.
EDITORS CHOICE
London creates niche for derivative sales - Nov-13
Unusual price swings in credit derivatives - Nov-05
Monolines left reeling by domino effect - Nov-01
RV Capital collapse sends warning to rivals - Oct-26
Banking staff face derivatives backlog - Oct-24
Confidence low after Asian sell-off - Oct-22
Analysts said flows had slowed to a trickle this week even lower than in the summer when the credit squeeze was at its peak as investor appetite for risk had diminished amid talk of potential bank defaults.
Although Thursday is typically slow because of the US Thanksgiving holiday, bankers said the week had been unusually light because of the growing fears that a big bank could go under as a result of losses in the US subprime mortgage and structured finance markets.
David Brickman, head of European credit strategy at Lehman Brothers, said: Generically, trading volumes [in credit derivatives] are a lot lower than they were in the summer.
The theory is that if people cant trade bonds, theyre going to go to CDS [credit default swaps]. But in an environment like this you cant get liquidity on single-name CDS either. That just leaves the indices.
Another credit analyst said: A lot of people have written off this year and hung up their boots until the new year. Theres no big bond issues in the primary market or activity in the secondary market. You cant make money when theres no liquidity.
These markets are usually highly liquid, turning over huge volumes every day. Outstanding contracts in equity, credit and interest rate derivatives amount to $400,000bn, dwarfing the $60,000bn in the value of share trading on the worlds 10 biggest stock exchanges, according to the latest figures from the Bank for International Settlements.
Nino Kjellman, head of equity derivatives Europe at Deutsche Bank, added: Liquidity has severely declined. In the current environment, appetite for risk is rare. Either people are sitting on the sidelines waiting for more visibility or, approaching year-end, they are reluctant to bet on risk.
We see that investors are increasingly prepared to lower their risk exposure, which creates an imbalance and causes liquidity to dry up.
Significantly, equity derivatives volumes have risen on the exchanges, such as Liffe and Eurex. Analysts said this was because exchanges tend to be used for hedging rather than speculative be
Google tells me what PIW is (Property Inspection Waiver and all that THAT implies)
Another DU miracle of risk analysis. I recently did an appraisal for an 80% LTV (V = purchase price) mountain property that was a given a $50 PIW. The buyers wanted an appraisal to be sure of the value for themselves -- something that DU didn't require, because of the warm fuzzies given by that 20% down payment.
Because this was a custom home in the mountains, there is no way an AVM could accurately predict the value -- even an appraisal is more art than science with this type of property.
But the DU risk analysis said it was a low probability for foreclosure, so a PIW was fine and dandy.
In regards to Stuart's post on derivative trading drying up, I have to ask why? Don't puts/calls go up in value the greater the volatility in the market? I would imagine a lack of options would be more of an indication of a consensus downgrade, wouldn't it?
And this quote is misleading and casts doubt on the reliability of the article: "Outstanding contracts in equity, credit and interest rate derivatives amount to $400,000bn, dwarfing the $60,000bn in the value of share trading on the worlds 10 biggest stock exchanges, according to the latest figures from the Bank for International Settlements."
400,000bn is only notional principal, not the true value/cost of the options. $60,000bn in share trading isn't a comparable number. Just shock value?
"In another troubling sign for jittery investors, an additional mortgage-related investment vehicle battered by rising defaults among subprime borrowers is being forced into liquidation."
Freddie Mac Risks Larger Credit Losses, Moody's Says (Update4)
(Adds comment from Freddie Mac in fifth paragraph.)
By Kabir Chibber
Nov. 23 (Bloomberg) -- Freddie Mac, the second-largest U.S.
mortgage-finance company, may report wider losses than it
forecast as the slump in credit markets worsens, Moody's
Investors Service said.
Freddie Mac, which reported this week a record loss of $2.02
billion for the third quarter earlier this week, may have
underestimated when it projected that 0.11 percent of the debt it
guarantees will go bad in the next two years, Moody's analysts
Brian Harris and Craig Emrick said in a report.
``Continued deterioration in the mortgage market, resulting
in further decline in these books, may lead to credit losses in
excess of their 11 basis point loss forecast,'' New York-based
Harris and Emrick wrote in the Nov. 21 report.
Freddie Mac, based in McLean, Virginia, said it expects
credit losses to continue to increase into next year. The company
and the larger Washington-based Fannie Mae guarantee 40 percent
of the $11.5 trillion U.S. home-loan market. The government-
That link says they announced in Feb they would no longer take the loans after Sept 1st.
Look, they always do it that way. They give lenders time to honor commitments and clear their pipelines. Do you remember the uproar in the summer when we were hearing about people showing up to closing and finding out their loan program is no longer offered by the lender? A lot of those lenders got smacked with civil penalties from their states: a loan commitment is, in many states, considered a legally binding contract. So Fannie and Freddie just never up and declare one day that they no longer buy a certain kind of loan, effective immediately. They announce that changes are effective with loans delivered to them on or after a certain date. Any lender who is not insane stops originating those loan types immediately, but will still close committed loans and deliver closed inventory out of the warehouse.
The point here is that Norris didn't pay any attention to this in February. If he had, he'd have heard of NINAs before because this PR uses the term. So he didn't realize this was coming, or that it finally happened Sept. 1, not yesterday.
The issue is that he went hummin' along until Freddie reported a bad quarter. And so suddenly attention is paid. And what does he write? "I had no idea this was going on!"
I find that amusing, in a fairly not very funny kind of way.
Is there some assumption out there that non-subprime losses are not real?
This happens a lot - lots of people don't include the Alt-A, Option ARM or old fashion ARM loans, made to people with decent FICO scores, when they are talking about "the subprime problem".
Witness the amazement at the recent IMF graph showing that the "1st reset" horror extends not thru 2009 but all the way thru 2011. It is only the "true subprime" stuff that ends in 2009, w/ alt-a and option arm happening in 2010 or 2011 (though the option arms could recast sooner, based on over-principal limits and everybody making minimum payments - see Tanta's UberNerd series for the amazing gyrations of the Option ARM mortgage.)
Hey, all it takes to get a decent FICO score is to pay all your credit card bills on time for 2 years - that is it! I went from 561 to 742 in 2 years with no other changes. (Well I paid down the cards too.) Shocked the hell out of me when the mortgage guy ran my credit reports.
But if someone used the the I/O payment of an ARM or a neg am payment of an Option ARM or the initial payment of teaser rate ARM to qualify on their house payment at 5x or 8x or more of their income, a hi FICO isn't going to help them at all.
" In regards to Stuart's post on derivative trading drying up, I have to ask why?"
In an inflationary model, bad (unbacked) paper is distributed equally across all paper, so nobody has reason to question anyone else's paper. All paper loses some value. And the cultural thinking was clearly biased towards inflation because the last crisis experience was the inflation of the 1970s.
In a deflationary environment, bad paper sinks only The Insolvent but it sinks them 100% so now you have to be careful of what paper you accept and hold.
What's happened in the past year is that mindsets have shifted from inflationary to deflationary expectations.
it wouldn't surprise me at all if Rove looked at the polling data for the 2000 election and saw how R's enjoyed a healthy margin of support from the "home-owner" deme, and as another brick in their effort to construct his "permanent majority" (LOL) got Federal policy-makers and overseers to swing behind the free-homes-for-everyone policy.
The real question is how much this credit bubble was intentionally engineered in 2002-2004 to avoid what happened to Poppy in 1991-92.
Obviously, free competition enforces minimum standards of performance. Less obviously, it also enforces maximums. And sometimes those maximums turn out to be pretty damn low.
From the article it appears that when you go around a circle you don't end up where you started. I think they're thinking of some more complicated structure, maybe a spiral or helix.
make no mistake about it. greenspan is a bad person. in the mid 1980's he came to the defense of a highly corrupt banking raider, charles keating who took advantage of deregulation and looted a bank called something like lincoln savings and loan.
keating and his officers invested in properties and the likes of dubious value and induced retirees to forgo, often unknowingly, safer fslic insured investments in favor of his riskier and non-profitable ventures. senator john mccaine and several other politicians along with greenspan defended Keating's bank even as it was obvious fraud had been committed.
greenspan has a record of screwing the average american infavor of supporting the elite. He should be tried for his crimes.
You know, I love this blog, but sometimes you all are so incredibly over the top, you remind me of my children when the reached that mid-teen stage when they were convinced they knew everything, that everything was corrupt, and they were the only righteous people. It gets tiresome.
So, Gretchen writes inflammatory garbage w/o acknowledging she knows nothing, and gets rightly skewered by Tanta. That seems an appropriate reaction.
Floyd Norris acknowledges that he had no idea what a NINA is, and he gets skewered, too! I see, our standard is that the general business press should be as knowledgable as the most expert of us? That's absurd. I say, Kudos, to Floyd for being honest about what he knows and what he doesn't. For in the NYT today, Bob Hebert as a ridiculously fact free Op-Ed about how the "subprime" mess is about black and brown people. Yech.
There's nothing wrong with a NINA per se. I'm a lender. If there's a borrower I know (e.g., b/c s/he's been a borrower of mine for years, making good payments), living in a house I know (e.g., b/c it's in my neighborhood), I have no problem doing a NINA, e.g., for a lower rate, at a low (sub 60) LTV.
The problem with NINAs is that they were done to absurdly high LTVs, to marginal credit borrowers. And they were encouraged b/c a broker could get an extra 50 bps YSP for pushing the 1pt (or whatever) higher "risk-based price." Tanta has rightly pointed out that some risks cannot be adequately "priced," but this is the nature of business cycles.
Early in Cycle: no one changes price based on risk: all mortgages get the same rate, all credit cards get the same rate.
Mid Cycle: an innovator starts risk-based pricing, and steals the prime customers away, while still making good returns on the less prime.
Late Cycle: every lender starts following suit. But then margins erode as pricing gets worse and worse (for the lender... that's better and better for the borrower).
End of Cycle: The underpricing of risk bites all lenders/investors in that @ss, so everyone stops lending again.
This article has it about right when it says the mortgage markets had "wide open credit" across the board. Maybe you think the MSM is too slow to catch on, but at least some of them ARE catching on.
Old meme: I'm better than you, because I have more credit and more debt.
New meme: Brother, can you spare a dime?
Easy Al officially joins the "no one could have seen the subprime collapse coming" crowd.
Greenspan Has No `Regrets' as Housing Slump Deepens (Update2) - Bloomberg.com
It is my fervent hope that CR becomes the mandatory home page for every browser at the Fed!
I prefer NINJA. no income, no job, no asset
So, gasoline skyrockets out of sight. Real estate toilets forever.
Inflation?
Not in this lifetime. Perhaps never.
You will need to have a good job and a steady income in the future to...the envelope please...own a car.
Take trips to Cancun? By a 75 inch flat panel TV? No, I said own a car.
The marginal dollar, which today flies around like a moth with ADD, will, well, it will not exist. People will be buying gasoline, food, and enough clothes to keep warm.
And, those "wealthy" enough to save? Well, they will save.
Pundits have been puzzled in recent years about why, when so many people were being scre*ed by the Bush's tax reforms and his "economy" where wages were stagnant, there was not a lot more anger and protest. Surprised that he could even get re-elected in 2004. I now begin to wonder if perhaps what opiated (pardon the word) the masses was the ridiculously easy access to credit. If houses were, in effect, being given away, that would go a long way to make people forget that their wages weren't keeping pace or that the rich were getting tax breaks that they were not. Just a thought.
How bad would it get if people needed more cash flow than the cost of payments to stay afloat. That would make it really simple to see the issue but very scary. I am sure glad that mosnster will be kept under the bed.
James,
You state half the truth.
Yes, easy credit permitted Bush to remain President, but you forget who provided it. Alan Greenspan.
So, yes, Bush took us this far down the garden path with easy credit, but he had a co-conspirator.
It has not been a pretty moment in American history.
He didn't know about NINA loans. [sound of head exploding]
They pay him for what, exactly?
Hey, that "victory" in 2004? Accounting by Diebold.
Remember that "mandate". First thing W tries to do is gut Social Security, helping out his buds on Wall Street in the process.
What'ya bet most of those "approved" accounts would be deep into mortgage-backed securities?
Guess we learned something from that horrible bankruptcy bill after all.
but he had a co-conspirator.
Most of us participated. Some more passively than others.
$300 Billion in Write-Offs Is Predicted
$300 Billion In Write-Offs Is Predicted - NY Times
Losses in the distressed mortgage sector of the United States could reach $300 billion, only a portion of which has so far been accounted for by write-offs at major banks, according to a study released on Thursday by the Organization for Economic Cooperation and Development.
RE: NINA loans..
Starting this month, Freddie wont guarantee such loans, which seem to default more often than other loans.
Ya think?
Making a NINA loan is stupid, but making a NINA loan and then actually expecting things to work out in the end is insane. Wouldn't it be easier to go to a casino and blow the money on slots? At least then you might get your drinks comped.
Nina looked SO HOT in those 6 inch he els,and when she smiled and told me she didn't wear panties...I just knew i was gonna get lucky.How was i supposed to know she was SIV positive? and she never told me that her brother was a NINJA...god,what can i do ?i don't have wealth insurance...
Well, since our economy and financial system has been gutted by greedy, amora;, middle-aged nimrods from good schools and privileged backgrounds, I suggest that our next chairperson of the Federal Reserve be an African American lesbian with a night-school education, two children by artifical insemination, a lifetime subscription to Mother Jones, and piercings. It'd be refreshingly different -- and it couldn't be worse.
"The underwriting standards declined": golly, these abstract entities can be a real pest. Still, thank heavens that there were no humans involved in this.
The collapse of the U.S. subprime market ``was a shocker because no one expected it,'' Greenspan said.
HA HA HA HA! Except nearly everyone here and in many other parts of the blogging world. I personally had been waiting and expecting the implosion of securitized subprime mortgages since 2005. I guess "no one" really means, no one in a position to DO something to rein in lending, but with a vested interest in seeing the mania continue.
--
Greenspan's "I didn't Do It" tour continues. Reported on Boob-berg:
November 23, 2007
Greenspan (In Oslo): Housing Decline Was a Shocker Because No One Expected It!
Does anyone need proof that Greenspan is a liar? It is not his fault though; he was raised in a culture of fraud. The same culture that breeds the Bankrupters and Fraudsters of New York City (sub-rime was anything but a surprise to some of us cranks).
That is the greatest story never told about American finance an economy manipulated by a criminal gang. Legally sanctioned criminal gang, of course. That is the beauty of a "nation of laws."
Jas
How many of those loans were subprime?
None. But that does not make the losses any less real.
The answer to this rhetorical question troubles me. Is there some assumption out there that non-subprime losses are not real?
``was a shocker because no one expected it,'' Greenspan said.
What an utter fool. I guess he never read any blogs like this one or ever heard of Peter Schiff. Many people thoughtfully spelled it out loud and clear. Greenspan and the rest of the Wall Street established crowd didn't want to hear it, and certainly did not want Joe public to hear it. God forbid that the preyed upon public would smarten up.
Greenspan's problem, he believed his own BS.
Floyd meets Nina, and he finds those loans default more often than those where like, you know, the borrower can pay back the loan. Wow!!!!
A question to all the smart people in this blog:
How much do banks get back on Ninja loans? 90 cents to the dollar, 70 cents? How much would they get back on average gambling in a Casino?
Floyd goes to Vegas and discovers his true vocation.....
The collapse of the U.S. subprime market ``was a shocker because no one expected it,''
No one and their half-trillion or so bubble blogs.
Alan Greenspan is a sociopath.
Alan Greenspan is a sociopath.
No, but he's a very old man. Does hindsight bias get worse as you grow older?
"Glory Days" or "Summer of 69" anyone?
Is there some assumption out there that non-subprime losses are not real?
Well, if people who live like the middle class even though they don't have middle-class means are not "really" economically marginal wage-slaves, then I fail to see why any "losses" from their loans that are not subprime because subprime is aobut the poor not the middle class have to be treated as "real."
You're welcome.
I wonder what would happen if we told him about PIWs.
he'd get down on his knees to pray. ba dum bum (ie rimshot). hey i'll be here all night!
anonymous = bd
Can someone please give little Floyd Norris another bowl of gruel?
Greenspan's problem, he believed his own BS.
A general problem in this administration: Neocons believed their own BS; Bush believed his own BS; of course, Colin Powell now says he never believed his own BS, so does he get brownie points for uttering it when he didn't believe it?
C'mon Tanta..I double-dog dare you to tell him what a PIW is!!
i should note that i pronounce "PIW" as "pee-yew"...
he'd get down on his knees to pray.
You're probably right.
I did notice that nowhere in the article does he write: So what else don't I know about?
If we're going to have to come to Jesus with recent mortgage lending risk taking ONE LITTLE PIECE AT A TIME, it's going to be a long, long, long unwind.
Revealed: massive hole in Northern Rock's assets |
Business |
The Guardian
Alan Greenspan is a sociopath.
He's a Randian. Same difference.
How long would it take for this guy to print out and read every post and comment from this blog over the last two years to catch up?
A kinder way to look at it is that competition forced it to lower its standards. THIS is where my head explodes. What are these people, 12? Have they NEVER heard "Well, if all your friends jumping off of a bridge, would you jump too?" Just 'cause everyone else is on their 12th drink, YOU DON'T HAVE TO KEEP UP. I mean, these guys are SUPPOSED to be the designated drivers, they had NO BUSINESS bellying up to the bar and trying to keep up with the drunken morons.
YAL posted it above... Latest news, comment and reviews from the Guardian |
guardian.co.uk busine...englandgovernor
Yal | 11.23.07 - 11:16 am | #
Is the BOE in major trouble???
Revealed: massive hole in Northern Rock's assets
"A kinder way to look at it is that competition forced it to lower its standards. THIS is where my head explodes. What are these people, 12? Have they NEVER heard "Well, if all your friends jumping off of a bridge, would you jump too?" "
Becuase those naysayer at the top of the market will be replaced by the "yes" man. This is part of life in corporate everywhere... Someone in power must has a strong conviction and strong power base within the company (e.g. you own majority stake in the company or has very strong influence on the BOD) to suvive taking a strong stand against the tide.. Without the strong base, they will be fired for underperforming while everyone is doing the wrong thing (doesn't matter that it was proven right one or two years later) and new management will come in and sink the ship... It is corporate 101, nothing new...
I worked at the largest DC based S+L back in the late 1980s; one which ended up in RTC land. I still remember the idiot CFO talking about a bunch of loans gone bad: "they were good loans when we made them". I suppose that might be technically true until maybe, at least, the ink dried.
Paying commissions for loans without regards for loan quality is a recipe for debacle; always has been, always will be.
OK, who's Floyd ? Google tells me what PIW is ( Property Inspection Waiver and all that THAT implies ) but links for Floyd don't jive with anything. I KNOW my Pink Floyd and there's nothing about FNM and FRE, mortgages, even Moneyyyyy that has anything to do with Pink Floyd.
So, what/who's Floyd ?
-K
I tend to think Greenspan is more a liar than a fool.
In several interviews he admitted that the fed had lost control of long rates, to which he blamed on the falling of the Berlin wall and the spread of capitalism.
He noted that despite rapid increases in the short term rates, the long rates stayed low.
My question then is what was the desire to increase long rates all about?
What was he trying to do?
(I believe he saw what everyone else saw and wanted to slow the inflation of the bubble).
In any case, he obviously saw something that made him want to affect long rates.
"Starting this month, Freddie wont guarantee such loans, which seem to default more often than other loans."
So like uh, these loans were perfectly fine in August or September or October? No one at Freddie Mac thought maybe we should review our lending standards until this month? How much do these folks make? Why?
I looked up PIW and enjoyed wikipedia's list's juxtapositions. Some excerpts:
PIW\tPanel of Inventors Worldwide
PIW\tPeriod of Incapacity for Work
PIW\tPerson In Water
PIW\tPost Industrial Waste
PIW\tProperty Inspection Waiver
PIW\tPsychiatric Institute of Washington
Best regards,
Property Inspection Waiver?-
or perhaps...
PIW\tPanel of Inventors Worldwide
PIW\tPartnership in Wildlife (Nevada Department of Wildlife)
PIW\tPatent Images on the Web
PIW\tPeriod of Incapacity for Work (human resources management)
PIW\tPerson In Water
PIW\tPetroleum Intelligence Weekly (magazine)
PIW\tPhotoCD Imaging Workstation
PIW\tPikwitonei, Manitoba, Canada (Airport Code)
PIW\tPost Industrial Waste
PIW\tPounds per Square Inch Width
PIW\tProject Initiation Workshop
PIW\tPsychiatric Institute of Washington
PIW\tPublic Interest Watch (Washington, DC)
PIW\tPublicly Indexable Web (Internet)
Getting a little carried away with the crispee, aintcha?
Good Lord is this is going to end badly.
Trading in derivatives slows to a trickle
By David Oakley and Sarah OConnor
Published: November 23 2007 01:38 | Last updated: November 23 2007 01:38
Liquidity in some of the worlds biggest derivatives markets has dried up this week amid increasing fears over the health of the international financial system.
Over-the-counter trading in derivatives of equities, credit and interest rates have all seen much lower volumes as problems in financial markets have prompted investors to sit on the sidelines.
EDITORS CHOICE
London creates niche for derivative sales - Nov-13
Unusual price swings in credit derivatives - Nov-05
Monolines left reeling by domino effect - Nov-01
RV Capital collapse sends warning to rivals - Oct-26
Banking staff face derivatives backlog - Oct-24
Confidence low after Asian sell-off - Oct-22
Analysts said flows had slowed to a trickle this week even lower than in the summer when the credit squeeze was at its peak as investor appetite for risk had diminished amid talk of potential bank defaults.
Although Thursday is typically slow because of the US Thanksgiving holiday, bankers said the week had been unusually light because of the growing fears that a big bank could go under as a result of losses in the US subprime mortgage and structured finance markets.
David Brickman, head of European credit strategy at Lehman Brothers, said: Generically, trading volumes [in credit derivatives] are a lot lower than they were in the summer.
The theory is that if people cant trade bonds, theyre going to go to CDS [credit default swaps]. But in an environment like this you cant get liquidity on single-name CDS either. That just leaves the indices.
Another credit analyst said: A lot of people have written off this year and hung up their boots until the new year. Theres no big bond issues in the primary market or activity in the secondary market. You cant make money when theres no liquidity.
These markets are usually highly liquid, turning over huge volumes every day. Outstanding contracts in equity, credit and interest rate derivatives amount to $400,000bn, dwarfing the $60,000bn in the value of share trading on the worlds 10 biggest stock exchanges, according to the latest figures from the Bank for International Settlements.
Nino Kjellman, head of equity derivatives Europe at Deutsche Bank, added: Liquidity has severely declined. In the current environment, appetite for risk is rare. Either people are sitting on the sidelines waiting for more visibility or, approaching year-end, they are reluctant to bet on risk.
We see that investors are increasingly prepared to lower their risk exposure, which creates an imbalance and causes liquidity to dry up.
Significantly, equity derivatives volumes have risen on the exchanges, such as Liffe and Eurex. Analysts said this was because exchanges tend to be used for hedging rather than speculative be
OK, who's Floyd ?
The author of the NYT article I linked to.
So like uh, these loans were perfectly fine in August or September or October?
Freddie Mac announced a long time ago that it would stop taking these loans. OK, well, in February of this year. Does that count as a long time ago?
Try here:
Calculated Risk: Freddie to Tighten Subprime Mortgage Standards
Google tells me what PIW is (Property Inspection Waiver and all that THAT implies)
Another DU miracle of risk analysis. I recently did an appraisal for an 80% LTV (V = purchase price) mountain property that was a given a $50 PIW. The buyers wanted an appraisal to be sure of the value for themselves -- something that DU didn't require, because of the warm fuzzies given by that 20% down payment.
Because this was a custom home in the mountains, there is no way an AVM could accurately predict the value -- even an appraisal is more art than science with this type of property.
But the DU risk analysis said it was a low probability for foreclosure, so a PIW was fine and dandy.
Tanta,
That link says they announced in Feb they would no longer take the loans after Sept 1st. So all through the summer Freddie was getting stuffed.
The collapse of the U.S. subprime market ``was a shocker because no one expected it,'' Greenspan said.
uff this guy has a nerves calling CR and prof. Roubini "no one"
really zero respoect
Greenspan is a Randian
Greenspan translated Ayn Rand from the original Klingon.
For my NJ area peoples:
The article leads one to wonder, is Floyd Norris "Uncle Floyd"?
In regards to Stuart's post on derivative trading drying up, I have to ask why? Don't puts/calls go up in value the greater the volatility in the market? I would imagine a lack of options would be more of an indication of a consensus downgrade, wouldn't it?
And this quote is misleading and casts doubt on the reliability of the article: "Outstanding contracts in equity, credit and interest rate derivatives amount to $400,000bn, dwarfing the $60,000bn in the value of share trading on the worlds 10 biggest stock exchanges, according to the latest figures from the Bank for International Settlements."
400,000bn is only notional principal, not the true value/cost of the options. $60,000bn in share trading isn't a comparable number. Just shock value?
"In another troubling sign for jittery investors, an additional mortgage-related investment vehicle battered by rising defaults among subprime borrowers is being forced into liquidation."
Adams Square Funding I Is Forced to Liquidate - WSJ.com
Freddie Mac Risks Larger Credit Losses, Moody's Says (Update4)
(Adds comment from Freddie Mac in fifth paragraph.)
By Kabir Chibber
Nov. 23 (Bloomberg) -- Freddie Mac, the second-largest U.S.
mortgage-finance company, may report wider losses than it
forecast as the slump in credit markets worsens, Moody's
Investors Service said.
Freddie Mac, which reported this week a record loss of $2.02
billion for the third quarter earlier this week, may have
underestimated when it projected that 0.11 percent of the debt it
guarantees will go bad in the next two years, Moody's analysts
Brian Harris and Craig Emrick said in a report.
``Continued deterioration in the mortgage market, resulting
in further decline in these books, may lead to credit losses in
excess of their 11 basis point loss forecast,'' New York-based
Harris and Emrick wrote in the Nov. 21 report.
Freddie Mac, based in McLean, Virginia, said it expects
credit losses to continue to increase into next year. The company
and the larger Washington-based Fannie Mae guarantee 40 percent
of the $11.5 trillion U.S. home-loan market. The government-
That link says they announced in Feb they would no longer take the loans after Sept 1st.
Look, they always do it that way. They give lenders time to honor commitments and clear their pipelines. Do you remember the uproar in the summer when we were hearing about people showing up to closing and finding out their loan program is no longer offered by the lender? A lot of those lenders got smacked with civil penalties from their states: a loan commitment is, in many states, considered a legally binding contract. So Fannie and Freddie just never up and declare one day that they no longer buy a certain kind of loan, effective immediately. They announce that changes are effective with loans delivered to them on or after a certain date. Any lender who is not insane stops originating those loan types immediately, but will still close committed loans and deliver closed inventory out of the warehouse.
The point here is that Norris didn't pay any attention to this in February. If he had, he'd have heard of NINAs before because this PR uses the term. So he didn't realize this was coming, or that it finally happened Sept. 1, not yesterday.
The issue is that he went hummin' along until Freddie reported a bad quarter. And so suddenly attention is paid. And what does he write? "I had no idea this was going on!"
I find that amusing, in a fairly not very funny kind of way.
Is there some assumption out there that non-subprime losses are not real?
This happens a lot - lots of people don't include the Alt-A, Option ARM or old fashion ARM loans, made to people with decent FICO scores, when they are talking about "the subprime problem".
Witness the amazement at the recent IMF graph showing that the "1st reset" horror extends not thru 2009 but all the way thru 2011. It is only the "true subprime" stuff that ends in 2009, w/ alt-a and option arm happening in 2010 or 2011 (though the option arms could recast sooner, based on over-principal limits and everybody making minimum payments - see Tanta's UberNerd series for the amazing gyrations of the Option ARM mortgage.)
Hey, all it takes to get a decent FICO score is to pay all your credit card bills on time for 2 years - that is it! I went from 561 to 742 in 2 years with no other changes. (Well I paid down the cards too.) Shocked the hell out of me when the mortgage guy ran my credit reports.
But if someone used the the I/O payment of an ARM or a neg am payment of an Option ARM or the initial payment of teaser rate ARM to qualify on their house payment at 5x or 8x or more of their income, a hi FICO isn't going to help them at all.
November 23, 2007
Bush Administration: People Miunderestimated Risks
" In regards to Stuart's post on derivative trading drying up, I have to ask why?"
In an inflationary model, bad (unbacked) paper is distributed equally across all paper, so nobody has reason to question anyone else's paper. All paper loses some value. And the cultural thinking was clearly biased towards inflation because the last crisis experience was the inflation of the 1970s.
In a deflationary environment, bad paper sinks only The Insolvent but it sinks them 100% so now you have to be careful of what paper you accept and hold.
What's happened in the past year is that mindsets have shifted from inflationary to deflationary expectations.
wrt the Bush-bashing up-thread, lemme join in:
it wouldn't surprise me at all if Rove looked at the polling data for the 2000 election and saw how R's enjoyed a healthy margin of support from the "home-owner" deme, and as another brick in their effort to construct his "permanent majority" (LOL) got Federal policy-makers and overseers to swing behind the free-homes-for-everyone policy.
The real question is how much this credit bubble was intentionally engineered in 2002-2004 to avoid what happened to Poppy in 1991-92.
What xofruitcake said at 11:37 am.
Obviously, free competition enforces minimum standards of performance. Less obviously, it also enforces maximums. And sometimes those maximums turn out to be pretty damn low.
From the article it appears that when you go around a circle you don't end up where you started. I think they're thinking of some more complicated structure, maybe a spiral or helix.
make no mistake about it. greenspan is a bad person. in the mid 1980's he came to the defense of a highly corrupt banking raider, charles keating who took advantage of deregulation and looted a bank called something like lincoln savings and loan.
keating and his officers invested in properties and the likes of dubious value and induced retirees to forgo, often unknowingly, safer fslic insured investments in favor of his riskier and non-profitable ventures. senator john mccaine and several other politicians along with greenspan defended Keating's bank even as it was obvious fraud had been committed.
greenspan has a record of screwing the average american infavor of supporting the elite. He should be tried for his crimes.
can anyone comment on the explicit vs implied support of the GSE by the US government? Can they fail or not ?
You know, I love this blog, but sometimes you all are so incredibly over the top, you remind me of my children when the reached that mid-teen stage when they were convinced they knew everything, that everything was corrupt, and they were the only righteous people. It gets tiresome.
So, Gretchen writes inflammatory garbage w/o acknowledging she knows nothing, and gets rightly skewered by Tanta. That seems an appropriate reaction.
Floyd Norris acknowledges that he had no idea what a NINA is, and he gets skewered, too! I see, our standard is that the general business press should be as knowledgable as the most expert of us? That's absurd. I say, Kudos, to Floyd for being honest about what he knows and what he doesn't. For in the NYT today, Bob Hebert as a ridiculously fact free Op-Ed about how the "subprime" mess is about black and brown people. Yech.
There's nothing wrong with a NINA per se. I'm a lender. If there's a borrower I know (e.g., b/c s/he's been a borrower of mine for years, making good payments), living in a house I know (e.g., b/c it's in my neighborhood), I have no problem doing a NINA, e.g., for a lower rate, at a low (sub 60) LTV.
The problem with NINAs is that they were done to absurdly high LTVs, to marginal credit borrowers. And they were encouraged b/c a broker could get an extra 50 bps YSP for pushing the 1pt (or whatever) higher "risk-based price." Tanta has rightly pointed out that some risks cannot be adequately "priced," but this is the nature of business cycles.
Early in Cycle: no one changes price based on risk: all mortgages get the same rate, all credit cards get the same rate.
Mid Cycle: an innovator starts risk-based pricing, and steals the prime customers away, while still making good returns on the less prime.
Late Cycle: every lender starts following suit. But then margins erode as pricing gets worse and worse (for the lender... that's better and better for the borrower).
End of Cycle: The underpricing of risk bites all lenders/investors in that @ss, so everyone stops lending again.
This article has it about right when it says the mortgage markets had "wide open credit" across the board. Maybe you think the MSM is too slow to catch on, but at least some of them ARE catching on.