The Countdown: Federal Reserve MBS Purchases 98.4% Complete
Submitted by
CalculatedRisk on Thu, 03/11/2010 - 2:13pm (155 comments)
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Naomi Klein: Thanks a million, Ayn Rand, for setting the greedy free |
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Do we have a fireworks icon? I know many were hoping for
and 
. But I think the party will be a let down in April ...
I do think it will be enough to slow the refinance activity.
best to all
So Citi traded ~1.2 billion shares today, and NYSE volume was 5.2 billion shares?!
Patchwork Pension Plan Adds to Greek Debt Woes - NY Times
the Greek government has identified at least 580 job categories that are deemed to be hazardous enough to merit retiring early — at age 50 for women and 55 for men.
The law includes some predictably dangerous jobs like coal mining and bomb disposal. But it also covers positions like radio and television presenters who are thought to be at risk from the bacteria on their microphones and musicians playing wind instruments who must contend with gastric reflux as they puff and blow
The Greek Hurt Locker sequel : The Orchestra Locker
YouTube - Europe - The Final Countdown (Live)
Thread tunes.
Mission accomplished! DOW 10k, S&P 1k, NASDAQ = Apple/Cisco on Roids.
HAPPY MEALS FOR EVERYBDOY!
... yeah, whats up with the insane volumes of C trades? id like to dump all those share in Goldman Sachs lap and detonate with C4!.
bleh wrote:
I'd like to dump all those share in Goldman Sachs lap and detonate with C4!.
C^4 would be pretty risky unless you had inside information...
Is there a market for MBS other than the Fed?
What else can they do to keep mortgage rates low?
I guess I am a stuck in the mud over the rates.
Won't the refinancing racket be crimped by the crazy new you-have-to-pay-it-back rules?
Or is mirror-fogging still in effect?
Thanks for the link Cinco. Naomi is always sharp.
When I refi'd in November, my lender had the nerve to insist the equity be at least 20%. And no cash-out refi's.
Dark ages, I tell ya.
josap wrote:
Is there a market for MBS other than the Fed?
Hu wants them? Widows and orphans?
Cinco-X wrote:
This is good;
CR,
Do you think their buying out delinquent mortgages will offset the end of the Fed purchases at all? That's cash that needs to find a home.
josap wrote:
Remember the Dodge commercial where some guy is daydreaming of driving a Hemi truck so that someone will ask him, "Hey, is that a Hemi?"
His response: "You 'bout ta find out!"
Bubblisimo Gerkinov wrote:
According to Greenspan, rampant inequality is caused by lousy high schools (which also have nothing to do with his ideology's war on the public sphere).
The ironic part is that every single one is the product of trying to socialize or globalize something -- housing, stock ownership, work, and education, on the supposed behalf of the "have-nots" by the "have-mores".
Bubblisimo Gerkinov wrote:
What have I DONE!
Mook wrote:
That's my point.
There may be buyers, but no one is saying they will buy.
And if there are buyers I would expect the rates to be higher as the risk is higher.
I could be very wrong, but it just makes sense to me.
Obama’s Trade Goal Fights His Clean-Energy Plan (Update4) - BusinessWeek
Sovereign credit-default swaps: Smokescreen | The Economist
Here's an interesting comment on this article:
Perhaps this is the most misguided aspect of CDS's, hedging, etc. Risk cannot be be diminished, only transferred. When TPTB hedge to reduce or eliminate their risk, it ultimately means it has to be transferred somewhere else, and it seems as though that somewhere else is the taxpayers. Why should we be funding their risk free boondoggles?
josap wrote:
I don't think anyone isn't expecting rates to rise if the Fed stops purchasing MBSs. The only open question is by how much.
CR is on record with ~35 bps, give or take. Ghostface thinks it'll be more like 2%, IIRC.
I tend to come down somewhere in between. About a percent, would be my guess.
Ironically, I think one of the things that will keep rates from skyrocketing (i.e. reaching their true risk-adjusted equilibrium yield) is the unspoken understanding that if they do threaten to get out of control, the Fed will belly back up to the MBS buffet faster than you can say "Too Big to Fail."
Has the final countdown really started? MP whats the latest time check?
ResistanceIsFeudal wrote:
Ideological posturing is the trap ... IMO.
The
phucked up. For Greenspan to turn around and scream 'war on capitalism' because people are pissed at the results is disingenuous at best.
ResistanceIsFeudal wrote:
Hey isn't that the 4x bullish C ETF?
energyecon wrote:
There were a couple times last summer when Citibank accounted for 25~30% of NYSE volume. The computers sure do love to trade C.
Oxtail wrote:
We are close to 23% here I think...
From
thread:
Liked both teh greeks for double inverse value erosion - 'psi' and 'iota' - LOL!
anyone know when the FHA gets some more money to keep the mortgage market alive with? they're long since below their minimum statutory capital (2% I believe)
Kauai_Kahuna wrote:
Indeed it has! YouTube - Europe - The Final Countdown
Heh, maybe the Fed can reduce its BS by taking these MBS thingies and bundle them up, get them rated for credit worthiness, do some slicing and dicing and; oh wait, never mind
One Thousand Names for Fraud | The Economic Populist
EvilHenryPaulson wrote:
I thought the FHA only guaranteed loans? Are they now actually buying them?
Barley wrote:
Why would they need them rated? They're backed by the full faith and credit of the US Gub.....oh, never mind
Ironically, I think one of the things that will keep rates from skyrocketing (i.e. reaching their true risk-adjusted equilibrium yield) is the unspoken understanding that if they threaten to, the Fed will sit right back down at the buffet.
Maybe ... maybe not
``If you have a bazooka in your pocket and people know it, you probably won't have to use it,'' U.S. Treasury Secretary Hank Paulson said at a July 15 Senate Banking Committee hearing.
Just getting a chance to dig into the Hatzius et. al. paper from the Econobrowser post:
Econbrowser: A new index of financial conditions
http://research.chicagobooth.edu/igm/events/docs/2010usmpfreport.pdf
black dog wrote:
On the other hand, low actual demand for loans may keep rates from rising too much right away. I think we may be returning to the old norm, where you could only get credit if you didn't really need it.....
Only with a permit and extremely high sin tax's.
Greece and Iceland are just previewing the coming global taxpayer revolt/backlash against higher taxes in times of lower services.
When it peaks in 4-5 years, it will be as bad here as anywhere.
There will be some pretty big "tax revolt" type leaders emerge around the world and in the U.S. Both good and bad ones.
When taxpayers start shutting off the taps, bondholders generally will pay before (and more than) pensioners.
Pensioners are rabble and take to the streets.
Bondholders are fatcats who should understand the risks and deserve what they get.
In the U.S., I think the most vulnerable state GO debts include NJ, CA, CT, NY, IL and PA. I would not be buying any of these GOs with maturities longer than five years.
What the hell does this one mean? Translation for this acronym, please?
I'm guessing Half-Amortized Pre-Packaged Yield Mortgage Equity Advanced Leveraged Securities Funded On Real Estate Verified Enhanced Return Yellow Book Deals Offered Yesterday, but I could be wrong.
Alright,
ers.
BFF Poll for this week is up.
Cinco-X wrote:
They get money for insuring the loans, they have to keep so much % of outstanding loans as a reserve in case of default
If this was a recovery, re-funding them to their minimum level would be one of the top priorities. Heck if this was a recovery, banks would be issuing and holding their own mortgages, especially if it let them sell an existing delinquent property of theirs.
instead I fear a grind onward, with a constant drip-drip-drip of the unofficial intravenous fiscal policy
Europe's in the can (in the film sense), and the US is a matter of months behind
The govt has no solution, so instead they will bang the war drum as it is harder to judge them on that front. They only need to be presentable for 3-4 months before the election, which in turn is based on actions/events initiated 2-3 months before that
@ cinco
FWIW, I don't think rates will get much higher in the near term. Despite all the bleating from the MSM about a recovery I think the smart money knows a
is coming.
Gnome - I voted and a
back at ya
Hatzius last year predicted a $4 trillion FR balance sheet.
black dog wrote:
Ya'; that too......
blackdog I'm agreeing w/ ya. Not necessarily the double dippy thingy but prolly because koolaid is so very addictive and that there does not seem to be any wage pressure...I'm also saying, however, will be inflation issues cause of commodities.
Note everytime I see the tile w/ those
s and coconut heads it rips me up!
Who buys $50 billion a month? Or do they up treasury purchases in order to drive other bond buyers back in the the MBS mess.....er market.
how much of that GO is sitting in pension funds and MM?
the rabble ARE the bagholders this time.
The Fed's activity has accounted for about half the market in MBS.
Name me another major market wherein you can pull 50% of the buyers and the price won't change dramatically?
Barley wrote:
Cinco-X wrote:
Sure it can. I do it all the time. Avoidance, reduction, mitigation, education, innoculation, technology...
Some mood music:
Snow Patrol-The Lightning Strike
TJ and The Bear wrote:
Is it really a market, or is that really all theater?
some investor guy wrote:
I meant financial risk; if you avoid taking on risk then someone else has to keep it. You reduce your risk by passing it on to someone else and they get a piece of the action for their troubles. Education? Technology? It seems like the latter in particular has actually increased risk by fooling folks into think they understood and could control risk. I do not buy your argument..
Somebody is buying them. BIS is showing an increase in outstanding securitised financial instruments of about $1.5 trillion over the same period the Fed has been buying.
At a guess, the money the Federal reserve gave the banks has been turned straight around into more securitized instruments, probably with some of the income from the existing ones being turned back into repurchases.
sm_landlord wrote:
It's the best market money can buy.........
sm_landlord wrote:
The theater tickets are pricy and the play isn't sustainable.
Bernanke's Dilemma: Hyperinflation and the U.S. Dollar -- Seeking Alpha
Speaking of which... how does this affect the apparent solvency of the zombie banks? I'm thinking that if they've still got a lot of bad MBS's on their books, and the Fed's artificially created market is allowing them to "mark to market" at a ridiculous level, what happens when the Fed exits? Will that force them to mark to whatever actual market price exists? Or have they dumped enough of their MBS's now for this not to matter? Or is everyone going to be more blatant now about pretending "mark to market" doesn't exist?
I expect the grim financial reap and his band of dancing bears to appear in about August.
Cinco-X wrote:
It's the best market OPM can buy.........
Mook wrote:
I tend to come down somewhere in between. About a percent, would be my guess.
Hey now, I think spreads will widen about 100bps, to around 150bps or so, the historical average.
But there will be a lot more volatility.
Don't forget too that MSR servicer selling will drive up the treasury yield as well.
GENEVA (AP) - Information on 24,000 HSBC customers with Swiss accounts has been stolen, the British bank said Thursday, potentially exposing large numbers of international clients to prosecution by tax authorities in their home countries.
A former IT employee of Swiss subsidiary HSBC Private Bank (Suisse) SA, identified by French authorities as Herve Falciani, stole the information between late 2006 and early 2007, the bank said. The accounts, held by individuals worldwide, were all opened before October 2006 and some 9,000 have since been closed.
Question: Can the IRS use stolen data to prosecute someone, some company?
The Chicago School--why does anybody still listen to it | Angry Bear
That brown pile of sludge on top should be but a thin ribbon of excrement sloping downward if they had to price it honestly. But that would imply an honest banker.
We might need a blue moon icon?
Fannie and Freddie are guaranteeing securitizations without limit. If the banks do not buy the resulting MBS, Fannie and Freddie will dutifly put them on their own balance sheets. Problem solved. No change in conforming mortgage rates.
Barley wrote:
I think the French and German tax authorities already have.
TJ and The Bear wrote:
Actually more like 70%.
"Name me another major market wherein you can pull 50% of the buyers and the price won't change dramatically? "
Exactly.
I refer you again to this chart.
Casey's Charts - Fed MBS Purchases Matched by Foreign Sales
You think Hu is going to step up?
Cinco-X wrote:
Yes, you can reduce that too. For example, if you want to have less real estate price risk in aggregate, you reduce irresponsible underwriting, have higher downpayment requriements, and avoid certain types of development restrictions which destablize markets.
Regulators try to reduce some types of financial risk via disclosure.
Financial decisions also spill over into the real world. More foreclosures means a higher risk of crime and fires, for example.
Barley wrote:
There is no fruit of the poisonous tree with the IRS. Only penalties.
Anon2 wrote:
They don't have the room on their balance sheets, not after the delinquency buyouts.
Anon2 wrote:
Perhaps you are wrong.
Rob Dawg wrote:
I wish; it seems they pillaged our wealth in the process of buying them..........
some investor guy wrote:
Fine! You can reduce your risk by not getting out of bed too, but you reduce your potential reward even more.
ghostfaceinvestah wrote:
Like I say, if you can figure out who owns debt guaranteed by the Federal govt, but doesn't do most of their transactions in dollars, those are the people that you want to pay off their bonds with printed money. It works better than paying US bondholders off that way. It has less of a tendency to generate inflation in the US. It may even lead to higher US imports.
Anon2 wrote:
How? Do they have that kind of cash on hand?
Let me put it another way...
The GSE's accounted for just under half the residential mortgage market pre-bubble. Obviously they were still the 800-pound gorilla, but there were lots of other players. What would've happened to mortgage rates had the GSEs stopped buying then?
Cinco-X wrote:
If you believe modern portfolio theory, you can reduce much of your risk through diversification, while increasing returns.
Cinco-X wrote:
Depends on who's next to you.
There is no fruit of the poisonous tree with the IRS
Really??
I might hope that some enterprizing law firm would, on behalf of some anon. clients test this, if true.
TJ and The Bear wrote:
They would have reached market rates. What a horrible thought. Gov't intervention is a right.
some investor guy wrote:
Isn't that the sort of thing that got us here?
Cinco-X wrote:
Spot on- it actually goes further risk can't be eliminateonly transformed. When you buy insurance all that you have done is trade one risk e.g. your house burning down for another risk - the insurance company won't honor the claim.
what all the criticism of naked CDS misses is that for every buyer there is a seller. I think lots of people who make the valid observation that most insurance requires an insurable interest miss is that buying a CDS on a sovereign without owning the bonds is not the same as buying insurance on somebody elses house or life. In the case of the latter the person buying the insurance actually has the ability to influence the outcome. I don't think that there is a single investor/institution or even a group that can cause the sovereign to default without the help of the sovereign.
The "Repo 105" Scam: How Lehman Fooled Everyone (Including Allegedly Dick Fuld) And How Other Banks Are Likely Doing This Right Now | zero hedge
Why do I feel as if our Financial System is being run by carnies ?
Barley wrote:
I have no idea. Just know that the IRS wants its money.
March 11, 2010
"U.S. President Barack Obama, speaking at the Export-Import Bank conference March 11, reiterated the importance of doubling U.S. exports over the next five years, which he said will support 2 million American jobs, AP reported. Obama also re-established the President’s Export Council, naming Boeing President and CEO Jim McNerney and Xerox CEO Ursula Burns to lead the council, which will advise the president on international trade."
pavel.chichikov wrote:
I missed the part where our trading partners reiterated the importance of doubling U.S. imports over the next five years.
Barley,
The police break the law ALL THE TIME while "enforcing the law"
So I see no reason why the IRS wouldn't use the info if they had it.
That came right after the currency devaluation.
Cinco-X wrote:
Doesn't that depend on if you sleep alone?
pavel.chichikov wrote:
"Obama went on to say that it was important also to increase the prices of houses, increase wages, and convince Oprah not to retire."
*reiterated the importance of doubling U.S. exports over the next five years, *
I would say the Admin will be 110% successful at meeting this goal!
(ie exponential growth in sending our debt to other bag holders)
Great article. Long, but very good overview.
Cinco-X wrote:
Modern LEVERAGED portfolio theory might have been part of the problem. You can create bubbles without leverage, but they aren't as big, and the resulting problems aren't as bad.
sporkfed wrote:
Might be a repeat. Seeking Alpha... on Hyperinflation
2 theories Increasing money supply (Mish's view, as in monetarists), and psychological, the loss of trust.
IMO worth a read.
Bernanke's Dilemma: Hyperinflation and the U.S. Dollar
Bernanke's Dilemma: Hyperinflation and the U.S. Dollar -- Seeking Alpha
I agree great article x 10
some investor guy wrote:
---Going All-In?
crazyv wrote:
What is it with these false conservation theories? This is as wrong as the people who say that money can't move to the sidelines of the financial markets.
Risk is avoided all the time. If you don't believe me, try not using your brakes on your drive home tonite.
Freddie and Fannie have unlimited balance sheets. The Gov't is providing unlimited capital and against which any amount can be borrowed until, of course, the market no longer trusts the US govt. And yes Elvis, I may be wrong, it wouldn't be the first time or the last. But I have been right a few times.
Jim Sinclair: Part II
different perspective to say the least
broward<
You weren't at City Grill in Portland last night were you?
ghostfaceinvestah wrote:
the question is what were the other 50-30% thinking. IMO given the way money is given to managers underperforming your competition by a little is just as bad as under performing them by a lot. Either way you get cut. I think this leads to a mind set of trying to pick up nickles in front of a steam roller. There is the possibility that you have a lot of people buying hoping to capitalize on the carry- figuring that as long as he Fed was purchasing there would be little price depreciation and a 4 point carry is not bad.Getting away with that for a few months could be the difference between keeping the account and not.
I think the best way to describe this is running yellow lights- it is possible to get away with it for a long time perhaps forever- but once in while the results are catastrophic. I think that is what the financial markets have become- no more gentle repricings.
some investor guy - Ya but w/o leverage, and some one covering, sorry backstopping, my ass, sorry, I mean losses, how on earth can I get rich and seek my birth right as nobility and sit next to God?
Hatzius paper is an interesting read, if you go in for econometrics by the metric sh!t ton...though the conclusions are interesting for their new Financial Conditions Index (FCI).
So whither non-mortgage ABS issuance, commercial mortgage debt and repo loans in 1Q2010 vs. 4Q2009? Those were the factors driving the downturn in the Hatzius et. al. FCI in the second half of 2009...
Here is something else most people are missing, but hopefully you who have followed my posts have caught on.
Look at the net purchases this week. $10B (forget gross purchases, it was a roll week, not important what that means).
Agency Mortgage-Backed Securities Purchase Program - Federal Reserve Bank of New York
Of the $10B, there were ZERO Ginnie Mae (i.e. FHA) purchases. Not one single bond.
Despite the FHA making up almost half the market, the Fed is buying almost none of their paper.
Why not? Well, unlike Fannie and Freddie, the FHA has full faith and credit. There is a market.
So my prediction on mortgage spreads actually has a caveat. I don't think Ginnie/FHA rates are going to be affected much at all. They will probably be dragged up some.
But Fannie/Freddie rates will increase. Fannie/Freddie mortgages will become less competitive versus FHA mortgages, so more of the market will move to FHA. Which is not a bad thing. Fannie/Freddie should be put into runoff immediately and all the business directed to FHA, IMHO.
Anon2 wrote:
Not quite. They've guaranteed the bonds. That has no effect on the balance sheet.
And it does not provide them with cash to dole out for the conforming mortgages, so they can't just go out to purchase and deposit them on their own balance sheet.
HomeGnome wrote:
No, I'm in Seattle right now but I could bop down to Portland on Saturday if you're around.
I've got an in-person interview here tomorrow morning.
JP wrote:
---They can get a Liar Loan.
Uhhh, you seem to be assuming it isn't.
HomeGnome wrote:
It would be good for them to know how the other half lives.
JP wrote:
Maybe not yet.
I suppose he will come up with a program to buy the stuff and give it away to foreigners.
Anon2 wrote:
Not true. And they have already used up a lot of their cap room buying delinquent loans.
US Treasury Ends Cap On Potential Aid To Fannie, Freddie - WSJ.com
"Treasury, in a press release, said it was committed to shrinking the size of Fannie's and Freddie's mortgage portfolios. A senior Treasury official said Treasury would give the companies flexibility to avoid selling off securities next year by allowing them to base their reductions on the cap on the size of the portfolios--$900,000--rather than their actual size at the end of 2009. Currrently, each firm's portfolio stands at more than $700 billion."
broward<
Nice view at City Grill.
Went to Wildwood and it was horrid.
Heading out to DeChutes? for Happy Hour in a few.
Living in South Carolina (where public trans is almost non existent), we are really enjoying the MAX.
Too much on the schedule on Sat already but maybe next time I'm on the left coast.
Yancey Ward wrote:
Didn't 8/10th of the ARRA go to buying capital in foreign countries, or something like that?
extend and pretend is pretty boring. Can we just cut to the chase?
HomeGnome wrote:
I grew up in LA where only poor people ride the bus, it's a huge stigma.
MAX is the first mass-transit I've ridden that I liked better than driving.
I think it works okay largely because of scale, i.e. size of Portland right now.
12th Percentile wrote:
If we had we'd be in full V recovery by now and you'd have missed all the
some investor guy wrote:
You forgot the
.
crazyv wrote:
A lot of it was just index fund buying, there are bond indexes that contain agency MBS that need to buy, plus there are MBS REITS that need to buy, so there are always kind of forced buyers around the fringes, though were possible most of them went to Ginnies if they had that discretion. But the bulk of the buying that the Fed replaced was China and other FCBs.
Of course it is possible they will step back in, probably not at these prices though, and that means they will be buying less of something else.
Bottom line is the Fed is creating money to buy MBS, and the ending of that money creation will have an impact on all markets.
broward<
I was talking about the light rail here in Portland.
Is everyone here super friendly?
Rob Dawg wrote:
are you talking 2001 or 2007?
there's no way the 2008 crash would have recovered by now.
ghostfaceinvestah wrote:
Yes. End of MBS buying will end in a Massively Bad Scene.
HomeGnome wrote:
I know.
It's my experience that Portland is a much friendlier city than Seattle.
Buy now or be priced out forever. I love it... We still economist saying the bottom is in for Hawaii, and real-lie-tors saying you got to stretch to your maximum pain level and buy now!
Buy Now? Or Save More Money For A Bigger Down Payment? | Honolulu Real Estate Views
Cinco,
No way!
Yancey Ward wrote:
A bunch of the money for MA went to out of state and Canadian contractors.
broward<
Almost everyone thanked the bus driver as they were exiting the bus this morning.
That would never happen in SC.
Alright, time to go to Happy Hour(s)
Bottom line is the Fed is creating money to buy MBS, and the ending of that money creation will have an impact on all markets.
First I need these
Then we can script the memo:
Now we need to end this shit of the Fed not buying all the junk we create on behalf of the Amerikan people. So when the time comes rock the cradel. Rock it big time.. Short the USD. Tank the markets. Announce massive layoffs. Hire another 250 lobby bobbys. Now go and do Gods work
Signed
Hmmmm....CR has a pretty good record of calling events correctly. Yet I sense a longing for
Can the UK make my vacation cheaper in time by having a currency problem? Is it too much to hope that the Euro dies? Please let glod go up and up so my wife stops frowning at me...
Let us hold hands and step back into a time when life was simpler. The grass greener. Oh, the memories I don't have
YouTube - String of Pearls - Glenn Miller
The End of the Recovery?
A bunch of the money for MA went to out of state and Canadian contractors
Good maybe it was cost effective.
broward wrote:
The 2001 recovery would have been post-war typical. Probably on the mild side. The 2007 recession needed to incorporate the 2001 recession plus the 2007 recession. That's partly why it is deeper and longer than "expected."
nova wrote:
The Simple Life with Paris and Nicole. Those were the days.
nova wrote:
Rob Dawg wrote:
disagree, 2001 was the real crash but Greenspan limited it by inadvertently creating the housing bubble.
in any event, oligopolies almost always alter the playing field so what's happening is what would have happened.
Even if Feds revised workweek for better work distribution, you'd still have a problem with olligopic manipulation, which is also part of the Great Depression.
ghostfaceinvestah wrote:
Not sure how much effect the end of money creation will have. The funds are going to the lenders, the lenders are sitting on it. So it may not effect much.
nova wrote:
Willoughby
Rob Dawg wrote:
You can always ditch that place and head to Bend, Rob.
Lots of new, big, empty houses.
Rob Dawg wrote:
when our love was new
YouTube - Broadcast Yourself.
Willoughby,
Nice RD. I never saw that one. I am glad he made it. I hope we all do someday.
broward wrote:
Bend, Ore?
Bank Failure Thursday? Noooooooooooooooooooooo
OK tg,
I see your King with the Ace
YouTube - Frank SINATRA - It Was A Very Good Year (Reprise)
John Stark wrote:
FDIC: Failed Bank Information - Bank Closing Information for LibertyPointe Bank, New York, NY
Rob Dawg wrote:
Yes, just an example, I've never been there myself.
Just funning with you, I'm on my second shot of glenmorangie, which means I can admit briefly that unlike a few people here, I respect you, in spite of a bit of rigidity. You sometimes remind me of Billy Beck that way.
broward wrote:
B@st@rd!
Don't mistake surety for zealotry. Jealous as to your dram o'the gods. Single malt is a peculiar acquaintance. Blends are everyone's friend until they aren't.
ghostfaceinvestah wrote:
FHA defaults have been skyrocketing and it will need more money soon as well.
Cinco-X wrote:
Risk isn't linear and it isn't always zero sum. For example - if you have four participants and they are heavily coupled [doing business in such a way one owes the other owes the other]. If the risk is spread such that all take a hit and that hit is small enough that no single one of them fails then none of them fail even though all feel some 'pain'. On the other hand - if the same exposure is concentrated on one & it fails and if the others are too closely coupled then they too might fail [prolly would]. It causes a domino effect.
It is a similar analogy to structural elements [bridges & buildings] - you don't need to exceed the failure load for all members simultaneously - just need to exceed the failure loads for critical members that are not 'sufficiently backed up'. The the whole structure collapses even though the overall load is way below that believed to threaten the whole building.
The financial engineers thought they had redundancy & back up but they didn't. Its not impossible to design it in but it sure wasn't designed in this time. And 'stress testing' is only a start [and a bad one] unless & until they better understand how forces propagate & concentrate inside our financial structures. It's clear now there were some 'stress risers' the wonks missed.
dryfly wrote:
The financial termites systematically eliminated redundancy and robustness and factors of safety and then proceeded to eat the support members until it collapsed.
Rob Dawg wrote:
+1 Exactly.
dryfly wrote:
You have no idea how much it annoys me to hear "engineer" used for honorable professions like waste collection never mind things like market gambling.