For landlords looking to rent (.pdf):
Much hyped “foreclosure prevention programs” relying on voluntary loan modifications are failing to reach a significant number of troubled homeowners and are often backfiring when they do so, according to newly updated research released today by the National Association of Consumer Bankruptcy Attorneys (NACBA). The across-the-board failure of these much ballyhooed “fixes” for the foreclosure crisis are expected to result in the new President and Congress facing considerable new pressure to clear the way for court-supervised loan modifications that will prove more beneficial for homeowners.
The findings released today by NACBA come on the heels of a dire new projection from Credit Suisse that “over 8 million foreclosures (are now) expected” over the next four years in the U.S. That astounding level accounts for 16 percent of all mortgages –- including 59 percent of all subprime mortgages and more than 11 percent of all other mortgages, including Alt-A, options ARMS and even those in the prime category. This new forecast from Credit Suisse is up sharply from the two to six million foreclosure range cited in previous estimates from industry sources.
No idea how reliable the Hastings Group is, but we have been discussing Alt-A’s and ooptions ARMS in he comments here for a while as the next shoe to drop. 60 Minutes devoted a segment to this last Sunday, but I was still on a Steelers high after the Ravens defeat and forgot to blog about it:
When it comes to bailouts of American business, Barney Frank and the Congress may be just getting started. Nearly two trillion tax dollars have been shoveled into the hole that Wall Street dug and people wonder where the bottom is.
As correspondent Scott Pelley reports, it turns out the abyss is deeper than most people think because there is a second mortgage shock heading for the economy. In the executive suites of Wall Street and Washington, you’re beginning to hear alarm about a new wave of mortgages with strange names that are about to become all too familiar. If you thought sub-primes were insanely reckless wait until you hear what’s coming.
***The trouble now is that the insanity didn’t end with sub-primes. There were two other kinds of exotic mortgages that became popular, called “Alt-A” and “option ARM.” The option ARMs, in particular, lured borrowers in with low initial interest rates – so-called teaser rates – sometimes as low as one percent. But after two, three or five years those rates “reset.” They went up. And so did the monthly payment. A mortgage of $800 dollars a month could easily jump to $1,500.
Now the Alt-A and option ARM loans made back in the heyday are starting to reset, causing the mortgage payments to go up and homeowners to default.
This really is terrifying stuff, especially when you consider the massive job losses and the potential of everything associated with the auto industry going down in flames. It makes Ben Stein’s panic the other day seem pretty damned reasonable.
DougJ
It’s amazing how much economic damage Obama has managed to inflict on the country in the six weeks since he’s become president elect.
bago
I just snowboarded down Queen Anne from my front door. Sweet.
Props to the ultra heavy beat.
Also.
joe from Lowell
I thought Alt-A was just a classification of risk, not a type of mortgage like a "Suicide Exploding Balloon Option Shoot Broken Glass Right Into Your Eye ARM."
No?
Zifnab
In before "This Can Only Be Good For McCain"!
ColoRambler
That’s not even the worst of it. The reset-after-a-few-years is a standard feature of any old ARM, not just the option variety. An option ARM had multiple payment options, hence the name. They varied, but typically your options were: (1) traditional principal-and-interest (based on 30 year term) payment, (2) interest-only payment, and (3) minimum payment. Naturally, lots of folks got qualified for one of these based on the minimum payment. Unfortunately, the minimum payment is even lower than the interest-only payment! Which means the borrower has unpaid interest every month that the lender tacks onto the balance. After a few months in a declining market, poof, upside-down you go!
Comrade Stuck
It’s like watching a slow motion trainwreck where the conductors are taking every step possible to maximize the damage.
Funhouse Proverb — There is actually no such thing as a bottomless pit — Only a Deep Hole to China.
MattF
Anyone who never heard of Alt-A or option ARMs just isn’t paying attention.
Anyhow, the original concept here was that since, as everyone knows, real estate prices never go down, all that the happy no-doc, no-credit, no-down payment home owner would have to do is refinance at reset time. And, just to make things as easy as possible, the various financial wizards added penalties to make sure that refinancing would be with the original lender (in order not to lose those transaction fees). A sure thing, if ever a one there was…
TheFountainHead
"American ingenuity when fucking ourselves will not be outdone by American ingenuity when fucking ourselves!!"
WMass
I know that bitching about the people who did this is not particularly productive, but the level of greed and stupidity is staggering. It’s hard to decide who is more retarded, the banks who gave out these mortgages or the people who signed up for them. I suppose it all hangs on the idea that home values will keep increasing faster than inflation forever, a concept so stupid that my dog knew it was bullshit. Among other things, none of these people who signed up for the really dumb mortgages should be bailed out. Owning a house is a big responsibility, and these folks have clearly demonstrated that they are simply not up to it.
Napoleon
You are correct.
Napoleon
By the way, even with all that bad news about how the economy is getting worse and worse the thing the Congressional Republicans have the biggest hard on for is how they can stick it to a bunch of blue collar workers in Detroit.
comrade rawshark
How will they spin CRA as the cause of this?
Perry Como
LOL. Try $8.5 trillion and counting.
Mike Toreno
In response to ColoRambler, yeah, the interest rate on an Option ARM is 1% for the first MONTH, the rate then rises to some reasonable level, but the minimum payment stays what it was with the rate at 1%, so you have like a 4.5 or 5 percent interest rate or something but are making a payment based on a 1% interest rate, and negatively amortizing like crazy. At some point the payment switches to whatever it takes to amortize the loan over the remaining time.
I actually applied for an option ARM, I didn’t understand what it was, they said the rate was at 5% for 5 years, I said oh boy, pay 1% interest, save the money, pay off the loan! I looked at the papers and saw that the 1% was for the first MONTH, and said wtf is this and didn’t pursue if further.
The current interest rate environment should create some relief, I think rates are now below what they were when these Option ARMS were being promoted. That won’t provide a huge amount of relief, but it’ll help some, if people can get their rate down by a point or half a point, or if the interest resets to a lower rate, that’ll cushion the payment increase to some extent.
Xenos
Alt-A is going to default at a much greater rate than 11%. Think 40%, but not until the resets hit in 2010. Hyperinflation might make them affordable, but not a lot of no-doc types will have steady income.
If Obama decriminalizes drugs, expect an Alt-A default rate of 60%.
Zifnab
I really have to tac this up to stupidity over greed, if only because despite repeated efforts resulting in failure, you can never find a shortage of folks looking to bleed that stone.
Once you’ve given out your millionth subprime loan, where the hell do you think this money is going to continue to come from?
"Well, they can only afford $800 / month, but we’re gonna stick’m with $1500 in two years."
"How will they pay for that?"
"Damned if I know."
"Okily dokily!"
Walker
@Xenos:
That’s an insight I had not heard. Where is that coming from?
Zifnab
@comrade rawshark:
Easily. Immigrants and black people did it. QED.
They’re crazy smart and ridiculously connected. I’m amazed they didn’t try this shit in the previous 27 years when CRA was originally passed. But whateva.
r€nato
If you’ve been reading Irvine Housing Blog or Calculated Risk any time over the past, oh, 12 months or so, the coming psunami of "Option ARMs" and "Alt-A" loan defaults and foreclosures is old, old news.
Xenos
@Walker: I made it up. I confess – that was right out of my ass, so to speak. Maybe I should have come up with a spoof handle so I could rant amusingly about it for a while. Still, I would not be surprised to see a lot of people taking the Delorean approach to financing. Decriminalization would be financially devastating to such people.
As to the Alt-As resetting starting in 2010, these products were not sold much until after 2005. These loans are not so much fraudulent (although a lot of them are) but where they are legitimate they are made to people with inconsistent income – entreprenuers, small businessmen, and so on. A class of people who will face a lot of strain in the next few years, and who will not be sentimental about making a business decision to walk away from a house payment that is killing them.
r€nato
Congratulations, you did more due diligence than millions of people who took out these bullshit loans.
I hesitate to sound like a heartless libertarian/conservative… but there is certainly a measure of blame to be doled out to people who didn’t read the goddamned documents. You didn’t have to read all of the fine print to figure out whether the loan was a time bomb or not.
Punchy
I really dispise those peeps with the "buyers shoulda known bettah!" crap. Look, if I go to buy a house, I’m clueless to all the jargon. I’m paying a bank/mortgage broker/whatever a sizeable fee to be a fucking professional and give me solid advice. If they tell me that, hell yeah, I’ll be able to re-fi that mortgage increase in 5 years, why the fuck would I have any reason to not believe him?
You self-righteous chumps dont spend 8 hours googling what the fuck a cold virus does to the mucosal layer of the trachea, do you? No, you just go to the doc and have him explain it, thanks to his training. So knock off this "you should have researched what you were doing" bullshit. You trust the experts, otherwise you get nowhere in life, always googling everything all the time.
And this rant is brought by someone who dudnt even own a house, so I’m not that bitter under-water owner. Just a guy who feels for those who were lied to.
DougJ
It’s pretty clear that the best way to handle this would be to eliminate capital gains taxes and go back on the gold standard.
r€nato
only if your credit rating is 700 or above. Not many people are going to qualify for this super-cheap refinancing; if you’re already having trouble keeping up with your debt load, you’re kinda screwed. It was a lot easier to refi a few years ago. Shit, my lender put me in a no-documentation streamline refi in 2002, cutting the interest rate by 2.125 points. No way I would get that easy of a refi today.
Zifnab
Punchy, if you go to a car dealership and someone sells you a Pinto, telling you its the hottest car on the market with the coolest features and the slickest ride. And you throw down $20k, hop in your new ride, roll into a fire hydrant, and explode – is it the dealer’s fault for selling you a rolling bomb? Absolutely. But it is, in some ways, you’re own fault for not knowing what the fuck a Pinto is.
Dreggas
@joe from Lowell:
Alt-A is the liar loan. You can say you make a million dollars and have a ton of assets but never have to prove it to get the loan. But before people start blaming that on nefarious borrowers who lied their asses off in some grand plot to get a home, the mortgage companies invented Alt-A so they could make more loans to people no matter who they were or whether they could afford the payments.
DougJ
I just googled "Free Republic who caused the financial crisis" and got this thread
————————-
To: mfsheldon
Chrissy Dodd, Bahney Fwank, Foney Mae and Fraudy Mac. And that’s just a start. Political correctness needs to be thrown in there too!
2 posted on Thu Sep 25 23:15:46 2008 by FlingWingFlyer (Barack Hussein Osama is a liar.)
[ Post Reply | Private Reply | To 1 | View Replies]
To: mfsheldon
Yep That’s it in a nutshell!
3 posted on Thu Sep 25 23:18:53 2008 by tallyhoe
[ Post Reply | Private Reply | To 1 | View Replies]
To: FlingWingFlyer
clinton’s fingerprints are on this too
4 posted on Thu Sep 25 23:19:00 2008 by tioga (Obama you are STILL a senator, how about debating the bill for our financial security?)
[ Post Reply | Private Reply | To 2 | View Replies]
Zifnab
@DougJ: Why do you hate America?
DougJ
From the same thread, this good too:
Is Pualson just an opportunist? (He’s in the right business to be always on the lookout for opportunities). I think it’s all too possible he’s seen that this is the bottom of the subprime downturn, and this is the time to buy up the bad loans at bargain basement prices. He claims he’s doing it for the taxpayers, but what will his cut be to do this?
That’s right, "Pualson" is going to get a cut on Treasury transactions.
r€nato
Punchy, sorry your analogy doesn’t hold up and inexperienced buyers definitely deserve X% of the blame. Not 100% but not 0% either. It’s just flat out insane to sign a mortgage without knowing the terms and ‘trusting’ the loan officer or mortgage broker. They are not looking out for your interests any more than the seller’s real estate agent is.
That being said, this crisis was not as simple as boiling it down to idiots who didn’t bother to read the loan docs. There were quite a few cases where the old switcheroo was pulled on borrowers – they were told they were getting one rate and payment, and when they showed up for the signing they were given something different and given the hard sell, high pressure snow job to sign off anyway.
Borrowers who qualified for prime loans were steered into more profitable sub-prime loans. Documents forged and falsified. Etc, etc.
Still, the bottom line any time you are dealing with any sort of investment – especially real estate – is, caveat emptor. If you don’t understand what you are signing, for god’s sake pay an attorney to look over the documents.
DougJ
I have to stop reading these Freeper threads on economics. I’m giving an exam and the kids are wondering why I’m laughing so much.
Napoleon
Chuck Todd to be NBC’s White House correspondent!
Montysano (All Hail Marx & Lennon)
@Zifnab:
When Phil Gramm’s Commodity Futures Modernization Act passed in 2000, it deregulated the swaps market. One of the consequences of this was that, for many (most?) mortgages, the act of collecting on the mortgage was divorced from the issuance of the mortgage. All the mortgage broker had to worry about was getting a signature on the dotted line. Whatever ugliness that ensued was someone else’s problem….. in theory.
TheFountainHead
Actually, the Pinto’s problem was that it had saddle-bag gas tanks. So if you rolled into a fire-hydrant, you’d get wet. Also, the Pinto was actually the first car to introduce a list of safety features that had never been seen in autos before. So it really gets a bad rap for one poor design choice that was only REALLY an issue if you were T-boned.
But back to your regularly scheduled programming…
r€nato
Yeah DougJ, don’t do that to yourself! It will make you lose all hope that all this wonderful 21st century communications technology has done a damned thing to evolve the collective consciousness.
Montysano (All Hail Marx & Lennon)
@r€nato:
Very true, but many people were unaware that The Banker had undergone a transition from a cautious, conservative person who would not allow you to do something stupid, morphing essentially into a character from Glengarry Glen Ross.
Punchy
@Zifnab:
Not even close for a comparison. This isnt about a house failing–I can look at a house, like a car, and know if it’s a piece of shit. Fuck ME if I still buy it or the Pinto. But the mortgage papers (that I’ve seen) are just a whore’s bath of acronyms and percentages and fine print. Pure numbers and inside-baseball jargon. Even then, if I’ve done my due diligence and inquire about what to do in 5 years when my mortgage will increase, if the "professional" tells me that it’s standard practice to re-fi it (and it turns out to be a lie), then fuck HIM for lying to me.
Again, the doc comparison. Why do you fail to ask about the pharmacokinetics, the clearance rate, and the catabolic pathway of the active agent in a drug you’re prescribed? Does that make you a fool? No, you simply trust your doc is looking out for you, as he’s ethically required to do. You trust he knows more about this shit than you, and act on his advice. No fucking different than a scientist asked to interpret and analyze 85 archaic, ecclectic banking terms. Cant be done.
Grumpy Code Monkey
@WMass:
I say the banks. When the bankers and the mortgage brokers are telling you that yes, you can afford that $250K house on a $30K salary and here’s how, most buyers are going to trust them because, hey, they’re the fucking bank, they know what they’re doing.
The buyers themselves aren’t totally blameless, but I can see how easily you can let yourself be convinced that this will work, especially when everyone with an MBA is telling you that there’s no way you can lose.
r€nato
indeed, if you told your average $10 an hour worker that he could borrow $500,000 with no money down to buy into the American dream, how many of them would say ‘no’?
There was one semi-famous case of an undocumented Mexican landscape worker making $14,000 a year who was given a nothing-down loan to buy a $720,000 house.
If you’re making those kinds of galactically stupid loans, you deserve to lose everything and I’d have a hard time blaming the borrower.
r€nato
unlike the doctor, no matter what they tell you neither the bank’s loan officer nor the mortgage broker nor the used car salesman nor the guy in the boiler room who calls you on the phone trying to sell you a penny stock is ethically required to look out for your best interests.
A little healthy skepticism of authority would serve ALL of us well, whether it’s in finance or medicine or politics. I can’t help but think that this blind following of authority contributed to such disasters as Bush’s election and the Iraq war, as well as the residential RE meltdown.
linda
ot, but this poor pooch:
http://www.chicagotribune.com/news/orl-pddog20081217055516,0,3788059.photo
r€nato
oh my.
Out here in Arizona, pretty much every dog which gets to go romp in the desert even semi-regularly, learns a similar lesson sooner or later only with cholla cactus, not porcupines.
I’ve yet to hear of the dog which has needed more than one encounter with a cholla to learn that they are not play toys…
Punchy
@Montysano (All Hail Marx & Lennon): What Monty said. If I knew the banker had jettisoned all pretense of being honest and professional, I’da wiki’d every single item in the forms. But many, many people surely were duped into thinking the banker/broker really gave two shits about their payments and rate and ability to make it all work.
r€nato
You know, though I have heard some horror stories about really toxic loans, I ran the numbers once on a $300K loan which started out at 2% then converted to a fully-amortizing loan at something like 6% or 7% once the outstanding principal hit 115%.
The increase in payment was not outrageous – something like $300 to $400 a month – but when you are barely making the payment as it is, that can be a bridge too far to cross. Plus, when you look at either taking a second job for the next nearly 30 years to pay for a home whose value has plummeted 30% or more and for which you didn’t have to make a down payment… it’s pretty easy to understand why people choose to walk away.
TheFountainHead
When I was seven years old I fell headlong into a Cholla. Lesson learned.
Brick Oven Bill
The CRA started the game. Fannie-Freddie created the profit mechanism for the political class, who learned how to enrich themselves by dumbing down the electorate, and transferring the risk to you and me.
But I believe Paulson is the ringleader. Goldman originated a large percentage of the CDOs when Paulson was at its helm. I believe that Goldman was aware of fraudulent assumptions and this is why they were not holding the CDOs when they went south. By this time Paulson had been inserted as Treasury Secretary.
Goldman would have had to buy back the CDOs at face value if fraud had been proven, so, I believe the deal was to get the taxpayer to make the CDO holders whole or else. Thus our current mess.
The only end game I can see is to collapse the currency. Populations that have become dependent on the government will become desperate. This will affect all of us. Make sure you are on good terms with your neighbors.
passerby
Seems about right.
If the buyer defaults and the bank forecloses on the house, wouldn’t the bank then own the house and could re-sell thereby putting another buyer on the hook?
The lenders created this bubble knowing full well these ARM’s were only short term assets that they figured would be bundled and sold before the chickens came home to roost.
Meanwhile, lenders were making money hand over fist. Everything was rosy. How many of them knew they were killing the goose that laid the golden egg? How many cared?
Doesn’t anyone feel shame anymore?
Dreggas
Hate to tell ya Punchy but the mortgage brokers and loan officers weren’t bound by anything to tell you what you were getting into. Their sole focus was to get your signature because 90 days later that loan would be some other company’s problem.
I watched people go from working in IT making a decent living to becoming filthy rich not by being moral upstanding citizens but by getting as many people loans as they could because they were paid, not hourly or on a regular salary, but by commission.
It only took a short time and negligible training to become a loan officer/account executive and hardly any of it was based on "ethics".
Zifnab
@Punchy:
That’s the problem, Punchy. If you decide it’s not your job to learn the fine print or if you just take the "professional" salesman at his word you’re still on the hook for whatever you signed on to. That makes it your responsibility, like it or not. Annoucing that "buying a house is confusing and hard" doesn’t absolve you of your sins of ignorance.
That said, when you set aside a big (say – $700 billion) pot of money to fix the markets, you still have to decide who gets helped and who gets nothing. The "buyers should have known better" argument gets bandied about most often when the sellers are asking for a bigger slice of the bailout pie. If everyone was being equally fucked, I don’t think anyone would care whose "fault" it is that the mortgage got signed. So I agree with you that buyers got screwed. And they shouldn’t get any less help (and should probably get more help) than the sellers.
And I don’t expect everyone to know what a Pinto is walking into an auto dealership. It’s an old, fairly obscure car. I shouldn’t have to take a college course on auto history just to find a new ride. But if I’m buying a specific vehicle – or applying for a specific type of brand new mortgage – and I don’t do ANY research on the topic, I’m putting my own foot in the bear trap on this one.
You didn’t have to look too deep to figure out that these loans were bad. But, luckily for the mortgage con artists, a large number of Americans didn’t feel they had to look deep enough. The ARMS could have been avoided. They could have been spotted by educated individuals. This could have been the sort of con story you hear on 60 Minutes – about the handful of nice young families that got tricked by a scam that eventually got nipped in the bud.
But not enough people did read the fine print. Not enough journalists did highlight what a scam this would become. Not enough mortgage brokers could say no to all the free money flowing their way. It was a full blown breakdown of the system. And one of the gears in that system was the guy who walked into the bank willing to take a zero down, 1% adjustable rate mortgage against a house that cost ten times his annual income.
It’s worth noting that lots of people bought Pintos, too.
Fair enough. But if the doctor says, "You need Chemo!" do you at least have the sense to find out what chemo is? A lot of these guys didn’t.
sparky
@TheFountainHead: i kan haz taxpayer-funded bonus?
4tehlulz
The banks; there will always be people who think they can afford something but can’t. The banks are the ones who establish who actually can before giving the money out and should stick to those guidelines.
Dreggas
One thing to keep in mind is while some banks bear the resposnibility, this wasn’t a mess created by the banks but rather by companies who operated independently of the banking system. In other words mortgage brokers who made loans based on their company’s warehouse line of credit coupled with the money they made on these loans. They then sold these loans off for a profit which is how they made their money.
Thanks to the CFMA the selling of these loans was made easier. Think of it as a game of hot potato but the potato, once out of your hands will never be in them again.
WMass
@Punchy:
"Again, the doc comparison. Why do you fail to ask about the pharmacokinetics, the clearance rate, and the catabolic pathway of the active agent in a drug you’re prescribed?"
Dude, some of us do that, thanks to the miracle of the internet. It’s called doing your own research. Pre-WWW it was insanely difficult, but now it just takes an hour or so. It’s just not that hard to use Google, you know?
If you go through life assuming that everyone you deal with is competent and honest, you will get screwed on a regular basis.
The Moar You Know
@r€nato: I did both. Worked a year in a real estate office right out of college as I knew I’d want to buy a house someday and figured I’d better know what I was getting into. Then, many years later when I finally had the money, I did not use a real estate agent – I got a lawyer.
@Punchy: It’s only the biggest investment you’ll ever make. I feel absolutely no pity for people who signed documents "without knowing what they were getting into", because they should have taken the time to figure it out. You wouldn’t get married because some "expert" told you your spouse was a really awesome person, would you? Christ, of course you wouldn’t. You’d get to know them first. Buying a house is just as big of a commitment. And, having worked in a real estate office, Punchy, let me just say this – you had fucking better understand every single thing you are asked to sign when you buy a house and not take an agent or broker’s word for anything, because every one of them I’ve ever met has been, at best, a pathological liar.
Better yet, get a real estate lawyer. Best money I ever spent in my life.
Disclaimer:
Yeah, I do. Guilty.
The Other Steve
WHAT!? NO! BERNIE MADOFF TOLD ME SHE WAS AWESOME!
HELP ME OBAMA! HELP ME!
Nicole
@r€nato:
Actually, I would argue that ethically they should be; the problem is that legally they are not. A doctor is legally required. If it were up to a doctor’s ethics, I’d be curious to see how things would play out. I know a dermatologist who pitches all kinds of cosmetic options to his clients, most of which are quite expensive.
A friend of mine and his wife set out to buy a house and at every turn were confronted by very aggressive lenders who pushed them to take on more than they felt they could afford. He even had one sales agent tell him that he felt, "in good faith" he shouldn’t be selling them a house as small as what they wanted. In good faith, indeed. To borrow from a poster in an earlier thread, once again, irony lies bleeding at the side of the road.
No. The blame for this lies on unscrupulous lenders and a gov’t that encouraged them.
Brick Oven Bill
Fannie-Freddie was the political mechanism that removed risk from the banker’s decision-making process. The bankers and buyers both share blame. But I believe fraud was committed at the government level. The Directors of Fannie-Freddie should be tried. They were paid to manage risk on our behalf and most likely willfully failed to do their job.
The consequences of their failure will affect all Americans.
Jon H
Credit Suisse is doing something awesome.
The bonus they’re paying to their investment bankers this year is going to be made up, in part, of the illiquid mortgage turds that those bankers have laid on Credit Suisse’s balance sheet.
Xenos
@Grumpy Code Monkey: One theory I heard, which the educators here can support or criticize, is that the educational preparation for bankers is very different today compared to 40 years ago.
Back then most bankers in the lending business were history majors who went into community banking as a dull, decent, respectable career. They learned finance on the job, but did so with the benefit of an education that taught them a thing or two about history and human nature.
Nowadays the banks and mortgage brokerages are staffed with finance majors, who come to their first job with all the skills they need and little of the broad education you need to understand the larger human society the banks are operating in. So they do their job well, and with all due alacrity, they drive their employers right off the fucking cliff that three prior generations of bankers easily saw coming.
There is a parallel here to Wall Street, which came to rely on quantitative geniuses to drive the decisionmaking for hedge funds. The geniuses had no appreciation for how a complex system, no matter how brilliant, will give cover for so much crooked behaviour that the whole enterprise will eventually collapse.
Although it is long, this is a great blog post on that subject.
Faux News
Um, are you assuming that BJ posters you know, actually have jobs?
We spend at least 16 hours a day, in our parents’ basements, eating cheetos and Mountain Dew, googling whatever random thought is currently running through our ADHD brain. That and looking at a lot of porn too.
I hope this helps to answer your question.
The Grand Panjandrum
Shocking! The Bush Administration when not lying or committing War Crimes is also mismanaging the goverment. Say it ain’t so!
Conservative estimates on remaining problem investment derivatives is $40 trillion. Merry Fucking ChriFSMas, eh?
These rat-bastards didn’t even kiss us while they were fucking us.
Zifnab
Firstly, banks still accepted the mortgage applications. The brokers didn’t get their loans from nowhere. Eventually, a bank had to sign off on something.
Secondly, it was the banking managers who set it up this way. No one was being forced into giving these loans. That the brokers were given commissions and told to sell, sell, sell doesn’t make the individual brokers bad people. They were given a job and a very nice incentive and – like the used car salesman – its hardly reasonable to act shocked when they do their jobs.
Bear Sterns and Merril Lynch bought these duds in bulk. WaMu and Countrywide issued them like there was no tomorrow. Fannie and Freddie were more than happy to back everyone up. And the very fact that we had a multi-trillion dollar insurance market based companies hedging their bets for when all these mortgages went belly up indicates – to me at least – that it was no mystery whether the house of cards would remain standing.
WMass
@Jon H:
It’s awesome if those funds go under. But what if the government bails them out? Then the funds might be worth quite a lot. Perhaps that arrangement is more about public relations than actually punishing those execs.
Evinfuilt
Okay, I admit, this whole financial mess is my families fault.
1. Me, I bought a house with a sub-prime loan, expecting to refi in a few years. 4 years later, no refi due to house marketing killing value of house, but at least I’m still paying. I nearly got a refi via project HOPE, but they stopped answering questions (explains why only a few hundred people have finished refi via that system, very poorly designed.)
2. My sister, she’s a sub-prime broker in another state. I heard her complain that bonuses will be low again this year… Poor baby.
3. My parents, who voted for Bush twice, just because ;)
Reverend Dennis
That they were anxious to hear the lies didn’t help. For most people, buying a home is the biggest single purchase that they make in their lifetimes. That makes it Google-worthy. It even makes it worthy of asking "When will my payment go up and how much will it be?" People were chumped because they wanted to be chumped. They believed that home prices would continue to go up and up and up forever.
You can’t cheat an honest man.
Zzyzx
Whenever I hear someone say that people should have known better before signing these mortgages, I think of my grandmother. She was an intelligent and compassionate woman who rose high in the Baltimore City school system (no, not as a math teacher). However, for the life of her, she could not get it in her head that any number times 0 is 0. I spent years trying to tell her that.
Some people have blind spots due to either how their brain works or a lack of confidence and saying that they should just have known better is roughly equivalent to telling an alcoholic, "Why don’t you just drink less? That’s what I do and it works just fine." It’s true in theory but completely useless in practice.
bago
See, I always thought CTRL-A was select All. Oh, you meant ALT-A? Nevermind.
The Grand Panjandrum
@Faux News:
Speak for yourself! I do NOT have ADHD.
ThatLeftTurnInABQ
Word.
If Obama’s team is smart, there will be positions created in Treasury, Commerce, Labor Dept., etc., who are paid to do nothing but read the econ blogs all day long and when something important comes up send a "Houston, we have a problem" memo up the foodchain.
Case in point: Yves Smith has been pounding on her soapbox for months now that the system of using LOC (Letters of Credit) for international trade in bulk goods (iron ore, wheat, etc.) has fallen apart and none of the powers that be seem to be paying attention because that business is a backwater at the banks which nobody pays any attention to because it generates little profit for the issuing bank and is not as sexy as grinding out quant analysis on SIVs. Seems like somebody at the Fed or Treasury should be paying attention to something that underpins our global system of food distribution, but then again I guess we can just wait until the fecal material hits the rotating blades and let the State Dept. and the DOD sort it out.
While we are counting up future tsunamis that haven’t hit our coastlines yet, also keep an eye on the impending wave of defaults in Commercial Real Estate.
The good news is that CRE wasn’t as badly overbuilt as residential RE during the bubble, with some exceptions (like lodging). The bad news is that while jingle mail never really took hold in the subprime real estate collapse, commercial tenants are far more likely to just break their leases and walk away, which means that CRE default rates will be much higher than what we’ve seen so far in residential RE.
Every empty shopping mall you see is a financial black hole waiting to happen.
Punchy
I agree with most of this. I’m all about personal responsibility. But certain things in life are really difficult to comprehend, banking terms and conditions being one of them, and taking the notion that the buyer must research every single term on a licensing agreement or patent application or mortgage agreement is simply not reality. That’s not what most people expect to have to do–that’s an extraordinarily cynical, distrustful, and somewhat paranoid attitude to have 24/7.
Hence, my sympathy and understanding for those people who perhaps asked about the first dozen terms they failed to understand, but grew weary about asking about the other 2 dozen. At some point they decided to just trust their broker. Does this make them foolish? Dunno. But to take the trust-noone, read and understand every single term and form, and spend a week researching the whole slew of documents is just a shitty way to have to live.
Xenos
@Reverend Dennis:
"You can’t cheat an honest man." W.C. Fields (I think)
Reverend Dennis
@Xenos:
W.C. Fields; correct. He also said "Never give a sucker an even break and never smarten up a chump."
pharniel
also in ’06 the FHA was thinking of making it mandatory that all loans be calculated at the fully amoritized amount when determining elegibility.
so basically the bushs allowed this to happen by holding open the door that others were trying to close on that dam. i think i just upped the MMI but oh well.
I have a degree in mathematics and it STILL took me 6 months and a few Tanta posts before i got how this worked.
Jon H
"It’s awesome if those funds go under. But what if the government bails them out? Then the funds might be worth quite a lot. Perhaps that arrangement is more about public relations than actually punishing those execs."
Possible. But it’s still good to see them eating their own dog food, as it were.
Xenos
Tanta deserves a (posthumous) Pulitzer. RIP.
Punchy
Really? Your doc says "take this QOD", and you say "wait, lemmie go home first, gimmie 3 days to look up this and all its metabolites, gimmie another day to understand the mathematics behind 2-compartment model metabolism, allow me to pontificate on the pros and cons of such a formulation with its myriad excipients, then I’ll take another half-day off of work to come back for that script".
I’m so glad you’re so thorough. I bet with all that 2 hours you have left at the end of the week, you have a bitchin’ time. Due diligence, no matter what it takes, right?
Zifnab
Right. That’s why I rent. Walking away from a bad rental is a hell of a lot easier than disentangling yourself from a bad mortgage.
Buying a house shouldn’t be something you do more than once a decade. It’s a big deal. I considered buying a house before my last move and I went to my parents, my friends who had friends in the real estate business, my co-workers, housing blogs, anyone who could give me an extra bit of info on how to get it right. When the numbers didn’t crunch properly for me, I walked away.
That doesn’t mean I couldn’t (or didn’t) make a bad decision. But buying a house is a big deal. You don’t have to be a hard core paranoid cynic 24/7, but when several hundred thousand dollars is on the line it doesn’t hurt to kick it up a notch.
It’s easier to just go to another doc and get a second opinion. Happens all the time.
WMass
@Zzyzx:
I seriously doubt that all the people with shitty mortgages are fundamentally incapable of understanding what’s going on. A very small minority, perhaps, but most of these folks were to fucking lazy to spend a few hours researching the biggest financial transaction of their lives.
Punchy
Yeah, that’s the same fucking thing. Exactly. I spend 1-2 years with a GF, getting to know her that well, so I should likewise spend 1-2 years, sleeping with my mortgage papers to make sure I understand them. How dare I buy a house in less time than I date my GF!! What a fucking idiot I must be.
Yep, great analogy. Fits perfectly. Shall I also spend 9 months researching that used car I see in my neighbor’s yard? Because of course it’ll be there in 9 months, right?
Damn.
satby
Yep the big shitpile (to use Atrios’ term) is partly my fault too. After a divorce I refi’d into a 5 year interest only ARM because I had over $100K in equity in my home and needed the cash flow more as a single parent, rate to reset in 2010. I still included a bit extra and paid down some principal on the loan, but last year when I was ready to sell and downsize because the kids were grown, the market tanked. Got a renter instead and used some of my (lower) equity for a downstroke for a smaller cheaper house.
It all worked great for 6 months, then the renter got laid off. He’s a relative, so I reduced the rent and now pay 1 and 1/2 mortgages. Market is still tanked so I can’t sell yet anyway. I make very good money and I’ve paid one or the other late for the last 2 months.
And I read and understood every word on the contracts, I’m also a paralegal.
Shit just happens and people run into trouble. We weren’t all stupid, we weren’t all gullible fools, some of us planned for contingencies even (I assumed the market would drop at least 20% and factored that into all my equations).
A lot of people have lost jobs, or medical problems, or have had family members in crisis and living paycheck to paycheck. And we’re all going to have some trouble keeping up. Be glad it’s not you, and think about what it means that the gamblers on Wall Street get help and bonuses, but the guys who make things and tried to play by the rules get the shaft and lectures about being responsible.
Xenos
@Reverend Dennis: Never giving suckers an even break is applicable here, too. If you told these buyers that the mortgage was toxic most of them would have told you to fuck off, they wanted to buy the house and this was the way to do it.
WMass
@Punchy:
I don’t have any training in the field of medicine, but I’ve found that I can find out everything about a drug I need to in less than an hour. It’s just not that hard.
Reverend Dennis
One aspect of the financial bailouts that my own ignorance makes incomprehensible to me is that the gains that were made were all on paper and were the result of leveraging (Up to 43X the original asset) then the Credit Default Swaps, etc., were piled on for good measure. All on paper. Nonetheless, we’re making the financial sector whole (Supposedly) with real money.
Seems to me that those trillions of real money could have been spent to better effect just making sure that those who need it get fed, clothed, housed and medical care.
Montysano (All Hail Marx & Lennon)
@Brick Oven Bill:
Please tell us how the CRA started anything, and show your work as you go. I’ve read in several places (I’m at work, no time for linkage) that CRA loans have performed well.
As to Fannie & Freddie: they jumped into the game because they were losing so much market share to the non-CRA mortgage brokers like Countrywide.
The NPR program This American Life had a great show about this. The takeaway: the Wall Street Boyz hired math, statistics, and even physics gurus from the likes of MIT. Their job was to crunch numbers, creating the model for spreading the risk through bundling. They were the smartest guys in the room. It was unpossible that they could be wrong.
They were wrong.
WMass
@Punchy:
And by the way, you don’t have to get a Master’s in international finance to figure out what how your payment would change in a few years. A few hours is all it would take, or paying a lawyer a couple of hundred bucks for an independent explanation. But why put the slightest effort in? It’s only a few hundred grand, right?
The Moar You Know
@Punchy: Agreed. Yet here we are.
The problem as Zif and others have noted above is that housing in an industry where there in no legal obligation for any lender, agent, banker or broker to be honest with you, and worse yet, there are no legal penalties for them if they lie their asses off. This is why you must read everything (and there is a lot and a lot of it is not easy to understand) and if you read it all and you still don’t understand it, you need a lawyer, as I stated above. I would not buy a house without one. Nobody should. The financial consequences of you not understanding what you are getting into with a housing loan are, IMO, much worse than most divorces.
pharniel
@satby – we’re all subprime now
Reverend Dennis
@Xenos:
The buyers didn’t want to hear it. Their heads were full of endless increases in home values, HELOC’s, re-fi’s, etc. They sold themselves in many cases. Don’t worry – be happy.
The Moar You Know
@Punchy: You’re not an idiot, you just are ignorant of the current nature of real estate practices and law. No harm in ignorance, it is easily rectified.
I took much longer than two years to understand mortgage contracts, bank loans, and everything involved with buying a house. My friendly advice to you, again, is that you had better do the same or you can get skullfucked sixteen ways from Sunday, because it will be your name on the loan and you will be the one to deal with the conseqences, not anyone else.
Punchy
@WMass: Hey, but why stop there? Why not pay a few hundred bucks to hire a private investigator to check on the credentials of the lawyer you’ve hired to check the material the broker gave you? And I guess it’d be a good idea to run that PI’s name through the BBB, the sex-offender registry, and perhaps check his prints on AFIS. Of course, one would be remiss to not look into the background of the programmer who designed that registry, just in case he was some guy deliquent in his child support and faked his way into getting the gig.
Cant be too careful. Trust NO ONE. Investigate EVERYTHING. I’m going to call Southwest Airlines, and find out who my pilot will be. Gotta make sure he’s never had a heart murmur.
Comrade Stuck
@TheFountainHead:
You can triple your fun with the Jumping, or Teddy Bear variety. Many bandaids needed.
WMass
@Punchy:
It must be terrible to live in such a binary world. Either investigate absolutely nothing or absolutely everything? Believe it or not, there are options in between.
Sensible people consider what’s at risk, what can be reasonably done to minimize that risk, and make a judgement about how much effort it’s worth putting into it. You don’t spend ten hours to minimize the risk of losing $5. On the other hand, ten hours effort might be worth putting in if a few hundred grand is at stake.
mak
As for those who say that the mortgage broker or banker who assures you that you can afford a home when you cannot has no ethical or legal responsibility to be truthful, well, you’re wrong. Promising that one can afford a loan or that he’ll be able to re-fi when the time comes, knowing it not to be true, is the very definition of fraud.
steve
@ satby…that you got divorced and are a single parent is relevant to what?
J. Michael Neal
I’ll put it a little different. I think a part of the problem is that a lot of people in finance went in to it for no reason other than that they wanted to make a lot of money. They didn’t really like the subject. They would have preferred to do something else, all things being equal. Instead, they went for the cash.
This makes them prone to errors that someone who loved the subject wouldn’t make. They are predisposed to think that a particular set of behaviors is going to be profitable, because that’s all they are concerned about. They don’t stop to think through all of the implications of what they are doing.
I went into finance because I love it. At least, I love parts of it, and those are the parts that I stick with. Because I love the subject, I really try to understand it. For me, it’s not about making a lot of money, though, when it works, that’s a great side benefit.
If finance and marine biology paid the same, I’d have gone into finance. We’d be a lot better off if those who would have picked marine biology went into that, instead. We need to change the incentives so that smart people who really love something else don’t go into finance.
satby
@pharniel:
Yeah, in a way that is what I’m saying. There are folks commenting here who are so positive these kinds of things will NEVER happen to them because they did their homework and made wise decisions.
Other wise deciders lost their jobs last week. Some more will be filing for bankruptcy due to medical bills not covered by insureance (one of the most common reasons for bankruptcies).
When they talk in the news about this being the worst economic crisis since the Great Depression what exactly do people think that means?
J. Michael Neal
NO! For god’s sake, would people please Google the term "notional value"?
Badtux
Many of these agreements were looked at by lawyers in states like New York where lawyers are traditionally involved in real estate transactions, and they were just as clueless and gullible as everybody else involved.
I bought a house in early 2001. I was in a state where there are no residential real estate lawyers (tradition in that state is no lawyer involvement in residential real estate transactions, no demand = no supply) and if I’d gotten a lawyer who wasn’t experienced in all those acronyms and sh*t he would have been just as clueless as me. Instead I did what everybody else does in that state — I hired a buyer’s agent to look out for my interests. Unfortunately, whether you hire a lawyer or a buyer’s agent, they face no (zero) sanctions if they steer you into a bad deal, despite all that fancy verbiage in the law about how they have a fiduciary duty to you. I was lucky and didn’t get taken advantage of too badly, but I have an entire file box full of papers from those transactions (buying the house, and selling it some time later). Now, tell me that you’re going to blame some barely-literate schlub for not understanding the full implications of a full filebox of legalese… especially when his lawyer supposedly looked at these papers (if he’s in New York State) and okay’ed them all. That’s nonsense.
Finally, regarding Alt-A’s — that is a term that applies to a large variety of loans. Most Alt-A’s were loans to people who had FICO scores in the 590-630 range or who had no FICO at all because they had paid cash for everything all their lives, thus disqualifying them from "prime" lending, but whose income would supposedly qualify them for the loan. Some liar loans were also issued as Alt-A’s when the person had prime FICO’s but no doc for income, but Fannie/Freddie never bought those, just as Fannie/Freddie never bought option ARM’s, another "alt-A" loan sold to people who had prime FICO’s but whose income didn’t support prime rate. The dude above blaming Fannie Mae — an institution that has existed since the 1930’s — for the Alt-A crisis simply are pulling cr*p out of their a$$es, because Fannie/Freddie had nothing to do with the Alt-A loans that are going sour shortly. Fannie/Freddie’s Alt-A default rates are no different from the default rates on Fannie/Freddie’s prime loans, which for that matter aren’t much higher than they’ve ever been — it’s just that Fannie/Freddie can’t sell the foreclosed property to pay off the loan anymore thus have cash flow issues. So it was nothing that Fannie/Freddie did that caused this crisis, indeed, at the height of the bubble Fannie/Freddie accounted for less than 30% of all real estate lending. Fannie/Freddie are collateral damage from the collapse of the bubble, not the cause.
J. Michael Neal
In many cases, the problem isn’t that the borrower didn’t know that the payments would increase. It’s the the lender told them that it didn’t matter, because they’d be able to refinance. Understanding how banks make the decision to give a mortgage in the first place, and thus how they make the decision whether or not to refinance, is a lot more complicated. That’s what you are complaining people should have known.
Where were they supposed to find this information? Googling? Did you bother doing that back when this was an issue? The vast majority of places you would have looked for expert opinion on the subject were telling you exactly the same thing that the mortgage broker was telling you: refinancing will be a piece of cake.
You are not only insisting that people do the research, you are insisting that they be able to tell the bullshit from the true information. If they could do that, they wouldn’t have needed to research it in the first place.
Comparing it to buying a Pinto is stupid, because, if you do even a tiny amount of research, you’d find out that buying a Pinto is a really bad idea. That’s not true, or, at least, it wasn’t true, about buying a house.
satby
@steve:
I had to refinance to remove my ex-husband’s name from the mortgage, and because I had a great deal of equity and a much lower cash flow (ex defaulted on child support) the reduced payments of interest only ARM made sense, since I intended to sell the house when my youngest graduated from HS.
Make sense? Or did you think I was trolling for some sort of sympathy?
Again, shit happens, divorces are one reason houses get sold or refinanced. In a bad market, it can be devastating.
WMass
@J. Michael Neal:
Look, I know that you can put a reasonable amount of effort in and still get screwed, life is risk. But all this complicated refinancing stuff depended on one very simple concept: that house values would rise faster than inflation forever. You don’t have to be a genius to see how brainlessly stupid that concept is. And yes, lots of us figured that out years ago. If I had fallen for that bullshit, I would be in a much nicer house than I am now. Or perhaps sleeping on my brother’s couch, because I got foreclosed on.
Punchy
Thank you, thank you, thank you. You said in 1 paragraph what I failed to express in an afternoon (although if the boss asks, only 15 minutes).
The Other Steve
Can you please explain then how other entities such as Countrywide, GMAC, IndyMac, WaMu and so on got into this so heavily and have since collapsed… Because these were all companies that weren’t backed by the government the way Fannie/Freddie was.
Thank you, I appreciate your insight.
satby
@WMass:
Not necessarily. I factored a 20% drop in my calcs, which was the most dire prediction of the bubble burst potential at the time.
The current crisis that precipitated the Wall Street bailout is that credit is not being offered very much anywhere right now, and even people with great credit are having trouble securing loans. So people who need to refi a problematic mortgage now probably have worse credit scores and less ability to get financing than they had when they took out the original loans. Add in that housing prices are falling faster and farther than most predictions and a lot of equity that would have supported a refi evaporated. Equity that existed before the bubble in some cases.
Trouble in River City. And lots of other places too.
J. Michael Neal
I think you vastly overestimate how easy it is to understand an underlying concept when all of the experts are giving it to you wrong. I don’t care how obvious something appears to many of us. If you don’t know a subject, and all of the people who do are saying something, it’s really hard to dismiss that.
Face
Gotta a friend who, thru a divorce, had basically a must-sell house. She got out at a price reasonably close to the asking, but soon afterwards her neighborhood’s value tanked. Had she divorced even 2-3 months later, she would have taken a $30-40K decline in sale price. Any form of a forced sale in a shitty market is leaving all sorts of people tens of thousands in the hole, plus all the difficulty in acquiring new financing. What a f’in mess.
J. Michael Neal
Also, the number one cause of this whole disaster isn’t stupid people borrowing money, or stupid people lending money. It’s the (im)balance of payments problem. Because of the trade deficit, foreign countries, mainly but not exclusively Asian, had huge piles of dollars that they had to park somewhere. There were too many dollars chasing too few investments. They picked mortgages, but, had the mortgages not been made, they’d have had to put the dollars somewhere else.
Like all instances of hyperinflation, this was a monetary problem. In the same way, there is no ultimate solution to it unless Japan, Korea, Germany, and particularly China, decide to stimulate internal demand. If the rest of the world insists on debasing its currencies so that they can continue to base their economies around exporting goods to people who speak English, there isn’t a damned thing we can do.
Now, whenever they do decide to stop subsidizing our purchase of their stuff, it’s going to lead to a very painful transition. It’s going to be ugly here. Putting it off only makes it worse for us, and for them. The Chinese need to start buying stuff.
ThatLeftTurnInABQ
I think what put otherwise smart and sensible people off their guard was that they were relying on outdated cultural stereotypes about bankers, stereotypes which were based upon years of commercial banking practice dating back to the last Depression.
In the Ancien Regime of mortgage lending, bankers were supposed to play the role of the risk adverse penny pinching miser, and the borrower was the starry eyed dreamers who wanted more than they could afford. Getting a large loan like a mortgage was understood to be a bit of Kabuki theater: you asked for what you wanted, and the banker would tell you: “No, I’m afraid you can’t afford that much. Here’s how much you can afford, that I’m willing to risk on you”.
In this scenario buyers didn’t have to be financial experts or even know much about risk management or housing markets or how much house they could afford – because it was the banker’s job to figure those things out. When buying a house you basically expected to get a bit of free financial planning advice thrown in as part of the loan origination process, covered by the money the bank would make originating and servicing the mortgage.
What broke this model was securitization. What buyers didn’t grasp was that the Ancien Regime had been overthrown as a result of the securitization of mortgages, the old stereotypes no longer applied, and they were no longer dealing with penny pinching misers, but speculators disguised as mortgage bankers, who stood to get rich selling shares in what was basically a giant Ponzi scheme. In order to fit into the new regime, buyers needed to take on the role of risk analyst that formerly had been occupied by their lender. And very few people knew and understood that this was the case.
satby
@Face:
See, I think what Punchy and I and other people are trying to point out is that it isn’t as simple as just blaming stupid, gullible buyers getting more house that they should have.
We always "blame the little guy" in this country and seldom look at the way the market and the economy is stacked against the average person.
Warren Buffet said it best (paraphrasing): "if there is a class war in this country, my class is winning".
ThatLeftTurnInABQ
Bingo.
Given the monetary flows involved, and the way that risk was being mispriced as a result of the Fed keeping rates too low for too long, some sort of monstrous asset price bubble was going to emerge somewhere. It might have been in equities rather than houses, except equity investors had just been burned via the Dot.com bubble. So instead all that liquidity flowed into the housing market by way of the bond market and securitization.
J. Michael Neal
I’m not even convinced that the Fed’s interest rate policies were a major problem. A minor one, sure, but not the biggie. It was a situation where rational decision making on currency issues was thrown out the window, so who knows, but it’s not clear to me how the Fed raising interest rates would have done anything to weaken the dollar and prevent the investment maladjustment. It undoubtedly influenced that the bubble was in mortgages, but not that there was a catastrophic bubble per se.
Then again, I can see an argument for how mortgages was a particularly destructive place for the catastrophe to happen.
Xenos
@ThatLeftTurnInABQ:
You could call that the hydraulic theory of the housing bubble. But did it have to go into housing? Or maybe it went into housing and also went into all the other asset classes too.
Somehow, it was housing that caught the imagination of the public in such a way that there was this tremendous suspension of disbelief. It was at its worst in California, which had a huge slump in the mid 90s, and the Northeast, which had a huge slump in the early 90s. So we all knew what was going to happen here, right?
I could not sleep at night worrying about this stuff in 2004. Maybe I am just neurotic, but why didn’t all these people remember back just 15 damn years?
WMass
@J. Michael Neal:
"I think you vastly overestimate how easy it is to understand an underlying concept when all of the experts are giving it to you wrong"
That’s a fair point. I suppose it’s one of those times when I’m glad to be an individualistic pessimist. Sometimes it’s a pain in the ass, but at least I don’t get cheated too often.
ThatLeftTurnInABQ
IIRC it did flow into other asset classes. I think housing is in the limelight because that sector had the biggest immediate impact on Joe6pack in a way that say exploding prices for Impressionist paintings did not. But other asset classes also had their own bubbles, in proportion to how easy they were to securitize and sell.
That is why the deleveraging of this bubble is so destructive, because the inflationary phase of the bubble was pervasive and systemic. Nowhere is safe anymore – there is no high ground to flee to. Note that even after the housing bubble started to collapse the same speculative behavior moved into the commodity markets earlier this year and tried to inflate a new bubble there, so some investors still hadn’t learned anything from the consecutive collapse of the Dot.com boom and housing.
Maybe now they get it. Once is an accident, twice is coincidence, and three times means somebody is trying to tell you something.
Zifnab
People want a return on their investments. The dot.com boom and the housing bubble were attempts to get obscenely good returns on investment, but now they’re just looking for a safe mattress to shove it all under.
Case in point – US Treasury Yields turned negative this week. That’s right, people are paying the government to hold their money. We haven’t seen banking like this since the freak’n Knights Templar.
Wonder how many of those bonds Norquist bought, eh? Consider this a "way to fuck up the economy, noobs" tax.
S
Someone was not impressed by the Shapiro selection.