Does this freak anyone else out?
http://online.wsj.com/article/SB122165238916347677.html?mod=article-outset-box
Does this freak anyone else out?
http://online.wsj.com/article/SB122165238916347677.html?mod=article-outset-box
http://www.scribd.com/doc/2190705/CDO-Powerpoint-SubPrime-Primer
not at all (some NSFW words)
I've given this some thought. Consider this: What would have happened if 2-3 years ago, the US government said "We're going to nationalize the entire mortgage industry, effectively taking ownership of virtually all real estate property in the country, and we're going to only pay pennies on the dollar"? There would have been tremendous outrage. Now, fast-forward to today. What happened? The US government has effectively taken ownership of virtually all real estate property in the country by taking over all the mortgages at pennies on the dollar. AIG was (is) one of the biggest backers of the morgtages through selling insurance on the debt, thus they got sucked up with the rest of the mortgage industry. When Chavez nationalized his oil industry, giving pennies on the dollar to the oil companies, outrage. Same with other countries and other industries. But this happens here, and it's a "bailout" and we welcome it.
Just thinking....
its a freaking mess.
the choices are this as far as I know..
or
Either way. We lost..
Yeah it's pretty messed up. I live in a socialist country but we're way too capitalist to even think about doing anything like that.
The govt didn't "nationalize" Fannie and Freddie and they don't "own" most of the real estate in the country.
Nationalize and own are very strong words for what has happened. That is definitely not the govt's position. They are intended to be short term helping hands. Good 'ol election year hype is responsible for most of this initially. Go online and look up the actual numbers.
Basically what we've just witnessed was like a run on a bank. It was a pretty much a campaign year stunt with a lot of media sensationalism thrown in for good measure that got out of hand. If you'll check the actual numbers you'll find that foreclosure rates in most states is very near normal. Many states are below normal, the last figures I saw said Texas foreclosures were below normal. Most of the issues are confined to 7 states. They break down into 2 different kinds of issues.
In the last few years Florida, Nevada and California have had runaway, baseless housing inflation and it's caught up with them. Even with property value decreases they are still way above where values ought to be and way above values of even a few years ago. In other words it has been a "market correction" as the big boys like to call it.
The other 4 states are mostly manufacturing states where the industry has left the state for either non-union states, lower cost union areas or overseas (once again usually in response to union costs).
Now as to the Fannie/Freddie mess it is interesting since I am actually in the middle of a research project on that for work. It seems the current "crisis" was precipitated by an abrupt change in Fannie's/Freddie's directive from the Govt. in 1999. I'll wait for a minute while you figure out who was in office then and who controlled congress at that time.
That's the problem with the quasi-governmental aspect of them. While they are private shareholder owned corporations, the govt still sets their standards. So don't anyone go shouting greedy wallstreet or anything like that.
At that time a large, largely Democratic voting Special Interest Group moaned and groaned that their members "culturally" (that's a key word because now that triggered the bleeding heart PC groups) didn't save money or have as high of credit scores as the mortgage standards of Fannie and Freddie so it meant that Fannie & Freddie were actively discriminating against their group and Fannie needed to change.
Remember it was "cultural" so therefore we couldn't really expect them to change their habits and education of that group was demeaning and completely out of the question.
So we got a very PC and fine sounding new mission statement from Fannie Mae: Our Mission is to tear down barriers, lower costs, and increase the opportunities for home ownership and affordable rental housing for all Americans. Because having a safe place to call home strengthens families, communities, and our nation as a whole.
And all the prudent underwriting guidelines that had built FHA, VA, Fannie and Freddie were thrown out the window. At that point all of us in the industry knew it was just a matter of time. (I'm not bitter, why should I be bitter?)
Interesting times, indeed.
Reminds me a lot of JP Morgan trying to stop the stock market crash by buying. I think it will be just as successful.
carguy123, that's an interesting perspective on freddie and fannie. I had not heard that before. It fits.
I would argue, though, that if you get right down to it, the feds are now approaching ownership of a huge chunk (not all) of U.S. real estate. Let's look at me, for example. I "own" a house on 10 acres. Do I really own it? Or does Countrywide own it? Lets say that I, like most mortgage borrowers, owe more on my mortgage than my equity is. Lets say, for the sake of argument, that my property is worth 100 units, and I owe 75 units to Countrywide. If I don't pay Countrywide every month, who is going to be living there and who makes that decision? Who owns the property? Me or Countrywide? OK, then, if one says that based on that particular view, Countrywide owns my property, and Countrywide loaned me the money, then sold my mortgage as part of a bond along with 999 other properties, and that bond was bought by the Chineese, and the other 999 mortgagees were all illegal aliens who got their loans on the "you don't need no stinkin' SS number to get a loan at our bank" program and went back to where ever they came from when the economy tanked, and the Chineese said: "We want our money back." Countrywide has stepped out. "Not our problem, we just service loans." Fannie Mae says, "we'll give you your money as long as you keep the cheap tools coming from Harbor Freight (English Wheels on sale for $150)" and gives the Chineese their money, basically purchasing the bond from the Chineese. Now Fannie owns the bond. The bond is backed (somewhere, they got fuzzy on that) by the 1000 properties. The Feds own the real estate.
Actually, this is not much different than the Fed bailout of Chrysler back in the Iacocca days. The Feds are loaning money to AIG. Of course, if AIG goes belly up the Feds (actually, We the People) will own a bunch of worthless insurance policies and the liabilities that go with them.
Countrywide has a claim against your property, but you own it. As long as you fulfill your obligations they can't touch it.
But one good thing that would come out of govt ownership of Fannie/Freddie is that properties that were foreclosed upon in "blighted" areas could be kept, razed and then the area could be redeveloped. That is if you could keep the SIGs out of the equation.
So basically China owns the US?
A little off the subject, but did anyone else see the story on GM on CNBC last night? GM now sells more cars in China than the US...that's scary on a number of levels.
And now back to the topic at hand, the dems must be jumping for joy at all the "bailouts". I have a feeling they'd like to control the land to begin with.
racerdave600 wrote: A little off the subject, but did anyone else see the story on GM on CNBC last night? GM now sells more cars in China than the US...that's scary on a number of levels.
No scary simple. they are expanding we are retracting.
If you look at countries based upon their average ages.. you can easily predict leading and lagging markets. or at least those that will lead soon.
So does this mean my insurance rates will go down?
racerdave600 wrote: And now back to the topic at hand, the dems must be jumping for joy at all the "bailouts". I have a feeling they'd like to control the land to begin with.
I read that it was the Domocrats doing anyway. Lifted from Boortz.com
DEMOCRATS NOT TO BLAME? NONSENSE
Now .. .about Nancy Pelosi. She says the Democrats share absolutely none of the blame for the current financial goings-on. She's wrong. In fact, she's lying because she knows here statement to be untrue. I'm going to unload on this when I get back, but here's your primer:
Almost all of the financial problems we see today are based on bad mortgage lending. That would be lending money to people to buy homes who didn't qualify for a loan.
The Democrats, under Clinton, strengthened a government-created monster called the "Community Reinvestment Act." This law was then used by "activists" and "community organizers" (like Obama?) to coerce lending institutions to make these bad loans ... millions of them.
Now we see what happens when political "wisdom" supplants good loan underwriting. When private financial institutions are virtually forced to make loans to people with a bad credit and job history .. this is what you get. Enjoy it.
The Democrats have offered us a candidate who is very anti-private sector. Obama believes that America is great because of government and those who, like him, deride the profit motive. If Americans are stupid enough to believe his socialist drivel and put him in office .. .then we will get just what we so richly deserve. This week is just a preview.
Amen, we are living with policies put into place years ago. They have just come to a head now.
[fans embers of political debate]
And so it goes... Clinton was asleep at the switch and Bush got 9/11, he and Congress directed Fannie and Freddie to ease underwriting restrictions and Bush got the mortgage crisis.
[/fans embers]
Embers burst into flame, J Man scuttles away, having completed his mission. 
You guys. You just don't understand economics. It's like Bill Cosby said when he asked his wife for sons and got 7 daughters. His wife said "It's the male x or y chromosome that determines the sex of the child" and his reply was that he wasn't believing any of that stuff, it was whoever touched it last's fault.
While I'm tempted into getting into a political debate, I'm not...
But one question.
Had these institutions had real issues, I heard on the radio that the overall net effect would have been basically higher interest rates. The reason being the lack of trust in banks and whatnot.
This may be a dumb question, but what's so bad about that? We've been hovering in the 5% range for a LONG time now, but when I bought my house, the original rate was 8.5%. That was in 1993, and just the beginning of a boom.
I'm kind of confused by the problem of high rates. People will still buy homes. It will naturally slow, but more than likely, the rate of increase of property values will slow to a more natural rate as fewer buy homes.
It seems as if the Fed is trying to force things to happen, when some cyclical patterns need to just play out.
Did anyone else buy a house at above 7%? It was STILL the right thing to do....
Eric
ps- if what clinton did was so bad, why didn't Bush correct it? Had plenty of time to, and enough control.... Just sayin.
Jensenman wrote: [fans embers of political debate] Bush got 9/11, he and Congress directed Fannie and Freddie to ease underwriting restrictions and Bush got the mortgage crisis.
No, you weren't listening. The easing of underwriting standards happened on Clinton's watch in exchange for the hope of some votes.
alfadriver wrote: While I'm tempted into getting into a political debate, I'm not... But one question. Had these institutions had real issues, I heard on the radio that the overall net effect would have been basically higher interest rates. The reason being the lack of trust in banks and whatnot. This may be a dumb question, but what's so bad about that? We've been hovering in the 5% range for a LONG time now, but when I bought my house, the original rate was 8.5%. That was in 1993, and just the beginning of a boom. I'm kind of confused by the problem of high rates. People will still buy homes. It will naturally slow, but more than likely, the rate of increase of property values will slow to a more natural rate as fewer buy homes. It seems as if the Fed is trying to force things to happen, when some cyclical patterns need to just play out. Did anyone else buy a house at above 7%? It was STILL the right thing to do.... Eric ps- if what clinton did was so bad, why didn't Bush correct it? Had plenty of time to, and enough control.... Just sayin.
I'm with you on most of your points. I bought a house at a 12% ARM because the fixed rate option at the time was 16%. Historically, at least in most people who are alive today lifetimes, any rates below 8% qualify as very low.
And yes, most of this was election year hype gone wrong, or is it too far? It was like a run on a bank and the confidence factor was the main cause. Of course the hype is what caused the confidence factor to drop.
In most cases the fact that you CAN buy a house at any interest rate is due to Fannie and Freddie.
As far as Bush cleaning up the mess? Well he coulda, but the cost was just what he got by not cleaning up the mess. You could foresee the mess of cleaning it up but you couldn't foresee the mess if he didn't. It's back to politics as usual. Would you want to be the one to say to this large group of people. "Hey, you're a flake and we don't care if you ever own a home." That's what the Dems would have said he said no matter how he said it. You're damned if you do and damned if you don't.
In any case, look at default rates of FNMA/FHLMC loans alone. Drop out the "B" loan stuff and you find the default rates are very close to normal in all states except 7.
carguy123 wrote:Jensenman wrote: [fans embers of political debate] Bush got 9/11, he and Congress directed Fannie and Freddie to ease underwriting restrictions and Bush got the mortgage crisis.No, you weren't listening. The easing of underwriting standards happened on Clinton's watch in exchange for the hope of some votes.
Which is what my original post said, if you go back and read it carefully. Sometimes my linguistics can be confoozin'. 
What wazzat about Clinton being the first black President?
So essentially every tax paying American is endorsing Manchester United?!
I will have none of that!
LFC for 08-09 Premier League Champions
Besides the fact that we operate under a completely debt based monetary system the other interesting part to consider is this:
For years the government has discouraged us to save since the Fed offers money at a lower interest rate than inflation. Add to that, that if we do save and a bank pays us interest we pay taxes on the earnings. But if we borrow money from a bank to buy a house, the money we pay the bank in interest we get a tax break on. So it seems to me that the government has been encouraging us all to live beyond our means for years and we as a country have taken them up on their offer. Now, one result of our negative savings rate is that the banks don't have money for reserves so they cannot loan out 10x the amount due to the evils of fractional reserve banking. So Fannie and Freddie come along and buy the mortgages so the banks can again have money to lend. Since the required reserves are so low they can really loan out 10x the money they have.
The confusing thing to me is how it all went wrong because it seems like such a great system.
I guess it is if you are a big banker.
I guess it's nice to know that we own the insurance on the houses as well as the houses now. Now we just need a good 5 year plan.
From each according to their ability to each according to their need....our new national motto.
Karl Marx must be happy in his grave about now.
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