NationStates Jolt Archive

The home loan industry and people got themselves into this mess that has turned into a crisis. The home loan industry is at fault for creating loans such as variable rate mortgages, interest only mortgages, and approving so many sub-prime loans. They should have known the bubble would burst.

People are to blame for this mess as well. Folks with interest only loans were able to buy housed they would never have afforded otherwise and didn't seem to care, or understand, their mortgage payments would increase significantly after a few years. And because they never paid any principle, their home could be worth less than what they owed. Thus, they couldn't tap into any equity and if they sold, they would end up with a huge debt. Those with variable rate mortgages were/are in a similar situation although they could have some equity.
Why? Why do people buy more house than they can afford

To exacerbate the situation, the minimum credit card payments have increased from 2% of the outstanding balance to 4%. This resulted in a doubling of credit card payments when mortgage payments were increasing. Oh, and don't forget the bankruptcy laws were also changed making it more difficult for people who got themselves in deep an easy way out.

Now there is talk of a government bail out. Why should people who are responsible in managing their money and not buying more house than they can afford (or in many cases even need) have to pay tax dollars to bail out irresponsible people and mortgage companies.

http://www.marketwatch.com/news/story/any-bailout-home-loan-mess-would/story.aspx?guid=%7B07CF1D1D-C6E1-4A01-AEE8-30CD0B81D772%7D

No.

It's also way more complex than you are making it sound.

No I don't believe so at this point. However I do think the government is partially responsible for this whole problem. New legislation couple with overspending and a weak dollar has helped this problem along.

No I don't believe so at this point. However I do think the government is partially responsible for this whole problem. New legislation couple with overspending and a weak dollar has helped this problem along.

Agreed.

No I don't believe so at this point. However I do think the government is partially responsible for this whole problem. New legislation couple with overspending and a weak dollar has helped this problem along.

The weak dollar was, in part, caused by this problem. Obviously a quick fix would be to lower interest rates, but that is not possible because many of these bogus mortgages were repackaged and sold overseas.

I know you are a big rental prop guy, but I gather you are old school, where cash flow positive is the idea. The expansion of credit compared to wage income has made that impossible in many areas, leading to ponzi investing. In short we are fucked.

In conclusion: I told people at the beginning if this year to short CFC, WM &c. and buy slight out of the money July, August, Sept, Oct and leaps puts on them.

No.

It's also way more complex than you are making it sound.

Ok, so explain it me.

The weak dollar was, in part, caused by this problem. Obviously a quick fix would be to lower interest rates, but that is not possible because many of these bogus mortgages were repackaged and sold overseas.

Downward spiral we go. I love rollercoasters.


I know you are a big rental prop guy, but I gather you are old school, where cash flow positive is the idea. The expansion of credit compared to wage income has made that impossible in many areas, leading to ponzi investing. In short we are fucked.

Cash flow positive is the idea for rental properties. That is the lynch pin to any large rental property holder. I have held many of my properties for years. Even with the dark days coming I will be alright based off my low debt ratio. In fact a couple business partners and I are mulling over starting a REIT to take advantage of the situation. We are looking at numerous avenues of attack but most likely when the situation becomes better we will be much farther ahead. There are going to be some dark days for many people coming up soon. I do feel sorry but can't help to say that we all told you so. Those that remember the past that is.


In conclusion: I told people at the beginning if this year to short CFC, WM &c. and buy slight out of the money July, August, Sept, Oct and leaps puts on them.

I know what you are explaining here but If you want the average person here to understand I would explain this better. ;)

Absolutely not. That's no better than Greenspan's stupid decision to cut interest rates from 6.5% to 1% back in 2001-2004, which helped fuel the housing bubble in the first place and which encouraged the spread of risky lending.

Bailouts do nothing but encourage the same predatory lending and irresponsible practices that created the problem in the first place and does nothing to solve the problem. The free market entails responsibility for your actions, and that includes taking losses on your business decisions if they fail. These companies need to take their losses and learn their lesson, even if it means they go bankrupt. The Federal Reserve should provide liquidity to prevent a chain reaction throughout the banking system, but there should be no bailout of these companies.

What we need is to create a strict regulatory framework for subprime lending and place hedge funds and private equity under the same government oversight and regulation as publicly traded companies.

What we need is to create a strict regulatory framework for subprime lending

I agree that a new look at the subprime market and how it works is needed.

Would you include a strict goverment regulatory framework for the credit rating system that has been developed?

I agree that a new look at the subprime market and how it works is needed.

Would you include a strict goverment regulatory framework for the credit rating system that has been developed?

I might, but the current credit monitoring system works pretty well for most situations. What might help would be a government system for people with bad credit to repair it in order to rebuild their finances; it would also help to educate them in ways to avoid predatory lending practices. Ultimately, unscrupulous lenders played on insecurity and ignorance in order to ensnare them in to loans they couldn't pay, but as long as credit was cheap lenders could make money hand over fist. However, when the bills came...it was all over.

Arguably the worst excess was the stated-income loans, which represented a complete and utter ethical lapse in the lending industry.

Cash flow positive is the idea for rental properties. That is the lynch pin to any large rental property holder. I have held many of my properties for years. Even with the dark days coming I will be alright based off my low debt ratio. In fact a couple business partners and I are mulling over starting a REIT to take advantage of the situation. We are looking at numerous avenues of attack but most likely when the situation becomes better we will be much farther ahead. There are going to be some dark days for many people coming up soon. I do feel sorry but can't help to say that we all told you so. Those that remember the past that is.


And that's the problem. You're fine because you are sensible. You are what minsky would call a hedged investor, you figure it out based upon the downside, so you can lose money on the underlying asset and remain solvent. (In theory).


The problem is that now, there are trillions of dollars in CMOs which are backed by dubious valuations on the underlying collateral and funded by ponzi investors. Added to this, fitch &c. have given completely bogus ratings to those securities. Nobody knows what anything is worth anymore, and nobody can trust anyone else.

Banks don't trust banks anymore. We are teh fucked. Still, I lol because I took my own advice. Also, I avoided markets without market makers, so I figure I should be fine in the coming credit Armageddon.

Arguably the worst excess was the stated-income loans, which represented a complete and utter ethical lapse in the lending industry.


Those could be abused so easily by the lender and creditor at the same time. One way people were showing that they had large incomes would be to open multiple accounts and just write checks to each other until they got to the desired income flow. That was only if the bank asked for some bank statements. As long as they had a half-ass credit score they could do 100% financing. People were renting and betting on fast appreciations in the local RE markets. Imagine someone getting themselves into that trap!

who would you bail out? the people who have been encouraged to buy houses that they cant afford or the companies who made loans that they knew werent any good?

I might, but the current credit monitoring system works pretty well for most situations. What might help would be a government system for people with bad credit to repair it in order to rebuild their finances; it would also help to educate them in ways to avoid predatory lending practices. Ultimately, unscrupulous lenders played on insecurity and ignorance in order to ensnare them in to loans they couldn't pay, but as long as credit was cheap lenders could make money hand over fist. However, when the bills came...it was all over.

Arguably the worst excess was the stated-income loans, which represented a complete and utter ethical lapse in the lending industry.

Well look. The subprime market has always existed, and it always will. There are severe misconceptions as to what the 'subprime' market really is.

What has fucked us is:

A) FICO scores are bogus. Nobody knows exactly how they are calculated, nor do they ever consider an individuals yearly income. You can make a trillion dollars a year and still have a subprime credit score. Moreover, until recently fair isaacs allowed people to transition from subprime (avg. score <640-680) to prime by 'renting' a better credit line. The whole thing is shit. This is a problem because none of the CMOs are actually traded in a liquid market, but are valued based upon models which didn't consider these types of things.

B) You can have a ten billion fico score (or 850) but if you told teh pork pies on your application for an alt-a mortgage (not subprime) you still can't pay it if the monthly 'nut' is higher than your monthly income. This was fine until recently because the appreciation of the underlying asset - the house - was enough that you could "pull cash out" with a refi to cover the difference. That has stopped. This is a problem because none of the CMOs are actually traded in a liquid market, but are valued based upon models which didn't consider these types of things.

C) House prices are falling. This is a problem because none of the CMOs are actually traded in a liquid market, but are valued based upon models which didn't consider these types of things.


In short, everyone is fucked.

There is an old saying - it's never as bad as it seems nor is it ever as good as it sounds. Another relevant one is, 'it is never different this time'.

This is the same 'end of the world' bullshit we heard after the tech bubble burst in 2000. Everyone wanted to blame everyone else but themselves. The dickhead who paid $450/share (with leverage!) for YHOO was never at fault - it was always someone else. When he lost his ass it was natural - nothing more than reality finally sinking into what had been best described as irrational exuberance. Statements like 'new economy' rang hollow finally. Yet the dumbass didn't learn. He went to real estate instead.

"You can't lose money with real estate' was the mantra. Everyone had to get in and everyone leveraged themselves to the hilt doing so. Once again we discovered - it is never different this time. Now we want to blame the lenders, blame the banks, blame everyone except the idiots who overpaid for property with borrowed money they cannot afford. (ya-hooo-oooo)

Some people talk about things like 'predatory lending' with obviously no understanding of what it is. It is laughable how quickly some people want to lay blame on the same old targets rather than actually understand that the problem - which is, always has been, and always will be simple human behavior - the vast majority of people are idiots - too lazy and conceited to actually learn.

Idiots borrow money they cannot afford and morons are the ones who give it to them. Neither one benefits when the game is finally over. Reality always wins. We are now in a phase where the real estate exuberance is finally over. The tide is out and we can see who's not wearing any trunks.

I have no sympathy. None. Not for the lenders nor for the borrowers. Disclosure in the US is so thorough as to be almost counter-productive. Everyone knew what they were doing - and they did it to themselves. Both sides are getting exactly what they deserve.

As this washes out and people mop up the strong and prudent will survive. Values will get back to normal and credit will return to being something earned and valued.

Risk is good. Without risk there would be no need for prudence. Failure is healthy.

The smart thing to do right now? The smart thing to do now is the same thing as it always has been. Live within you means, understand your obligations before undertaking them, save for the future and diversify your assets. Landlord is a business - not a job nor an investment. It is risky and complicated - just like any other business.

If you are going to try running you own portfolio at least read a book on the subject. I am always amazed at how many people say they do their own 'investing' yet when I ask them what books they have read on the subject (Warren Buffet? Peter Lynch? Benjamin Graham? ) they always give me the same 'deer-in-the-headlight look. Morons all of them. They are the ones who donate their future capital gains to my portfolio each time the market takes a swing. Thank Gawd for the ignorant!!!

If you are going to use a professional - shop around. Ask questions. Learn about what makes one better than the other. Investment advisors are just like everyone else - there's only a few good ones surrounded by morons.

No.

The only exception is if it really starts getting to the banks, because that's where it links into the "real economy". If banks are risking not being able to give people the money they have in accounts, that's when there are government-run default insurance policies. I might not agree with them ideologically, but it's better than repeating 1929 over and over again.

By the way, the German government bailed out an investment bank a few days ago (though not really well enough, it's still being split up and swallowed by Deutsche Bank, Commerzbank and Hypo, I believe).

EDIT: Oops, I misunderstood you. I thought you were talking about bailing out the investment banks with all their subprime-based securities. I'm sorta biased in how I'm looking at this right now, because Deutsche Bank is absolutely tanking it, and I've got a bunch of shares in them. :(

The people who got loans they couldn't afford in the first place are on their own.

EDIT: Oops, I misunderstood you. I thought you were talking about bailing out the investment banks with all their subprime-based securities. I'm sorta biased in how I'm looking at this right now, because Deutsche Bank is absolutely tanking it, and I've got a bunch of shares in them. :(


I told people not to go long in financials in Feb. I would sell now. It's only going to get worse.

(disclaimer - this is NSG, so not investment advice because suing is problematic).

I told people not to go long in financials in Feb. I would sell now. It's only going to get worse.

(disclaimer - this is NSG, so not investment advice because suing is problematic).

Nothing to sue you on there, all you said is what you would do, you have not instructed anyone to do anything. Having said that, I agree.

I told people not to go long in financials in Feb. I would sell now. It's only going to get worse.
Precisely. I'm gonna sell, get the money here and buy a bunch of BHP Billiton. Seems like there's nothing much the miners can do wrong at the moment, no matter what. :p

The sad thing is that apparently Deutsche Bank isn't even particularly involved in the subprime securities business. They always reckoned it was a bit too risky. But right now, it seems to be all about guilt by association.

All in all, everyone sorta expected all this. Now people are going to put risk back in their equations, the takeover boom comes to an end, and by the time it starts again I'll be sitting in some investment bank raking in the cash. It's all planned out. :D

Precisely. I'm gonna sell, get the money here and buy a bunch of BHP Billiton. Seems like there's nothing much the miners can do wrong at the moment, no matter what. :p

The sad thing is that apparently Deutsche Bank isn't even particularly involved in the subprime securities business. They always reckoned it was a bit too risky. But right now, it seems to be all about guilt by association.

All in all, everyone sorta expected all this. Now people are going to put risk back in their equations, the takeover boom comes to an end, and by the time it starts again I'll be sitting in some investment bank raking in the cash. It's all planned out. :D

If you are looking for a commodities play I would choose to own the underlying asset rather than shares in a mining company. My personal feeling is that everything is going to get roached so now is not a good time to go long on anything. (Though I am long soy, wheat and sugar, but it's dollar denominated so it might not work for you).

That said, I've always been a sell a little bit early, buy a little bit late type of person. Your risk exposure is your own.

who would you bail out? the people who have been encouraged to buy houses that they cant afford or the companies who made loans that they knew werent any good?

If you bail out the people by guaranteeing their loans or giving them money to make payments, you are also bailing out the companies that made the loans.

There are risks in any kind of investment. Investors and businesses sometimes get into jams. If government bails out people who lost money in the risky business of investing, this makes risky investments much less risky and it just seems wrong.

Those could be abused so easily by the lender and creditor at the same time. One way people were showing that they had large incomes would be to open multiple accounts and just write checks to each other until they got to the desired income flow. That was only if the bank asked for some bank statements. As long as they had a half-ass credit score they could do 100% financing. People were renting and betting on fast appreciations in the local RE markets. Imagine someone getting themselves into that trap!

Don't have to imagine--this has all happened before. Savings and Loan scandal in the 80s. Double digit inflation in the 70s had people believing that they could borrow, build and flip quick enough to make a profit even on 100+% financing, and when the market got oversaturated, they re-fied at overvalued prices. This is going to hit a lot more people, but it's the same thing at heart.

If you bail out the people by guaranteeing their loans or giving them money to make payments, you are also bailing out the companies that made the loans.

A better idea would be to let buyers convert into fixed rates they can afford. There is a good argument to be made for helping people avoid foreclosure--the market is already oversaturated--we don't need even more houses on it.

A better idea would be to let buyers convert into fixed rates they can afford.
At the expense of...

At the expense of...

The companies who made the loans in the first place? It's not going to work for everyone, obviously, but if you can show, for instance, that a mortgage broker was deceptive about the terms when he sold you an ARM when you would have qualified for a fixed, then you ought to be able to have someone help you out. By the way, that's happened a lot, especially in minority communities, because mortgage brokers made more money on the more exotic instruments.

The key really is to try to keep people in houses if they can afford them, because we've already got too much inventory on the market. If you dump a shitload of repossessions on the market, then the individual home-seller is going to be fucked, and hard, and without lube.

It's not going to work for everyone, obviously, but if you can show, for instance, that a mortgage broker was deceptive about the terms when he sold you an ARM when you would have qualified for a fixed, then you ought to be able to have someone help you out.
If there was deception, I'd agree with you. But in all other cases...we've got to remember that it was the home buyers who signed the contract. They made the promise to repay that loan.

That being said, if the choice is between temporarily lower repayments or potentially losing a lot more on a foreclosure sale in a crappy market, I would think a few lenders would agree. Though government laws are unlikely to provide the flexibility that is needed.

If there was deception, I'd agree with you. But in all other cases...we've got to remember that it was the home buyers who signed the contract. They made the promise to repay that loan.

That being said, if the choice is between temporarily lower repayments or potentially losing a lot more on a foreclosure sale in a crappy market, I would think a few lenders would agree. Though government laws are unlikely to provide the flexibility that is needed.

I forget who it was--maybe Krugman--but someone was writing a couple of days ago that one of the problems with the current system is that with these loans being packaged, sold and securitized, if a borrower gets in trouble, it's not very clear who he or she is supposed to call to see about making arrangements before default or foreclosure kicks in. In the not so long ago, when local banks did your mortgage and they probably did your checking and savings accounts as well, this was less of an issue. You might have a personal relationship with a bank, and if the local area is going through a bad economic period, the bank might decide to take interest payments and drop the principal onto the back of the mortgage or something similar. But who do you go to now? The servicer? The loan holder? Who even knows who that is anymore? Makes me more than a little glad I'm renting right now.

Don't have to imagine--this has all happened before. Savings and Loan scandal in the 80s. Double digit inflation in the 70s had people believing that they could borrow, build and flip quick enough to make a profit even on 100+% financing, and when the market got oversaturated, they re-fied at overvalued prices. This is going to hit a lot more people, but it's the same thing at heart.

Im old enough to remember all of those past fun times. Will be interesting to see if we go back to some of the pre-housing boom financing.

There is an old saying - it's never as bad as it seems nor is it ever as good as it sounds. Another relevant one is, 'it is never different this time'.

This is the same 'end of the world' bullshit we heard after the tech bubble burst in 2000. Everyone wanted to blame everyone else but themselves. The dickhead who paid $450/share (with leverage!) for YHOO was never at fault - it was always someone else. When he lost his ass it was natural - nothing more than reality finally sinking into what had been best described as irrational exuberance. Statements like 'new economy' rang hollow finally. Yet the dumbass didn't learn. He went to real estate instead.

"You can't lose money with real estate' was the mantra. Everyone had to get in and everyone leveraged themselves to the hilt doing so. Once again we discovered - it is never different this time. Now we want to blame the lenders, blame the banks, blame everyone except the idiots who overpaid for property with borrowed money they cannot afford. (ya-hooo-oooo)

Some people talk about things like 'predatory lending' with obviously no understanding of what it is. It is laughable how quickly some people want to lay blame on the same old targets rather than actually understand that the problem - which is, always has been, and always will be simple human behavior - the vast majority of people are idiots - too lazy and conceited to actually learn.

Idiots borrow money they cannot afford and morons are the ones who give it to them. Neither one benefits when the game is finally over. Reality always wins. We are now in a phase where the real estate exuberance is finally over. The tide is out and we can see who's not wearing any trunks.

I have no sympathy. None. Not for the lenders nor for the borrowers. Disclosure in the US is so thorough as to be almost counter-productive. Everyone knew what they were doing - and they did it to themselves. Both sides are getting exactly what they deserve.

As this washes out and people mop up the strong and prudent will survive. Values will get back to normal and credit will return to being something earned and valued.

Risk is good. Without risk there would be no need for prudence. Failure is healthy.

The smart thing to do right now? The smart thing to do now is the same thing as it always has been. Live within you means, understand your obligations before undertaking them, save for the future and diversify your assets. Landlord is a business - not a job nor an investment. It is risky and complicated - just like any other business.

If you are going to try running you own portfolio at least read a book on the subject. I am always amazed at how many people say they do their own 'investing' yet when I ask them what books they have read on the subject (Warren Buffet? Peter Lynch? Benjamin Graham? ) they always give me the same 'deer-in-the-headlight look. Morons all of them. They are the ones who donate their future capital gains to my portfolio each time the market takes a swing. Thank Gawd for the ignorant!!!

If you are going to use a professional - shop around. Ask questions. Learn about what makes one better than the other. Investment advisors are just like everyone else - there's only a few good ones surrounded by morons.

I didn't even need to read the whole post. I just read enough to know that - Yep.

This post wins.

A better idea would be to let buyers convert into fixed rates they can afford. There is a good argument to be made for helping people avoid foreclosure--the market is already oversaturated--we don't need even more houses on it.

Part of the trouble - like I said the whole thing is far to complex for this forum, so I won't go into it - is that they can't convert to fixed rates that they can afford. Many FBs qualified on pay option or IO teaser rates. As such the only fixed rates they can really afford are negative, which is never going to happen.

Also, there really aren't any white hats in this whole affair. People making 7-8$ an hour are damn well aware that they can't afford $750,000 houses.

Part of the trouble - like I said the whole thing is far to complex for this forum, so I won't go into it - is that they can't convert to fixed rates that they can afford. Many FBs qualified on pay option or IO teaser rates. As such the only fixed rates they can really afford are negative, which is never going to happen.

Also, there really aren't any white hats in this whole affair. People making 7-8$ an hour are damn well aware that they can't afford $750,000 houses.

You said it, mister.

I knew this was going to happen three years ago. Not that that makes me prescient - a lot of people knew this was going to happen. The reason I say that though is because of my friend Nicole. Nicole is a bartender at a boobie bar. She makes about $35,000. Three years ago she qualified for a loan on a $350,000 condo. I begged her not to do it, but the thought of owning her own condo was too much for her to resist so she signed the paperwork. I haven't talked to her for a while so I'm not sure if she's actually in foreclosure yet, but I know she still works at the strip bar because my roommate is also a bartender there. Anyways, if she could qualify for a loan, somethiing there's no way in Hell someone making $35,000 could have qualified for in 1995, then they were literally giving these loans to anyone who could write their name.

Absolutely not. That's no better than Greenspan's stupid decision to cut interest rates from 6.5% to 1% back in 2001-2004, which helped fuel the housing bubble in the first place and which encouraged the spread of risky lending.

Bailouts do nothing but encourage the same predatory lending and irresponsible practices that created the problem in the first place and does nothing to solve the problem. The free market entails responsibility for your actions, and that includes taking losses on your business decisions if they fail. These companies need to take their losses and learn their lesson, even if it means they go bankrupt. The Federal Reserve should provide liquidity to prevent a chain reaction throughout the banking system, but there should be no bailout of these companies.

What we need is to create a strict regulatory framework for subprime lending and place hedge funds and private equity under the same government oversight and regulation as publicly traded companies.

I agree with most of what you say, but not the last part.

I think if these predatory lenders realize there's no safety net (aka Government Bailout) then they'll self-regulate. I'd like to avoid adding additional Federal involvement.

You said it, mister.

I knew this was going to happen three years ago. Not that that makes me prescient - a lot of people knew this was going to happen. The reason I say that though is because of my friend Nicole. Nicole is a bartender at a boobie bar. She makes about $35,000. Three years ago she qualified for a loan on a $350,000 condo. I begged her not to do it, but the thought of owning her own condo was too much for her to resist so she signed the paperwork. I haven't talked to her for a while so I'm not sure if she's actually in foreclosure yet, but I know she still works at the strip bar because my roommate is also a bartender there. Anyways, if she could qualify for a loan, somethiing there's no way in Hell someone making $35,000 could have qualified for in 1995, then they were literally giving these loans to anyone who could write their name.

That almost happened to me and my ex. We were all set to buy a $220,000 house out in the country when I was making 50k a year + about 20k in high interest debt. We had 3 kids. She wasn't working at all and we figured that we had just enough income to barely make the mortgage payments. The builder/lender happily offered us the loan. I can only imagine what we'd be going through later on as the interest rate spiked as well as all the incidental expenses piled on.

Fortunately, circumstances prevented us from going through with it, but it was a close one.

I didn't even need to read the whole post. I just read enough to know that - Yep.

This post wins.

I agree with MS too, with one slight difference:

I DO see some lenders as being predatory. Take Capital One for example. This is a company that specifically trolls for people with no/bad credit. They do this in the hope of earning huge fees for late payments and overlimit fees. They're slow as dirt to report GOOD credit but lightning fast in hitting you when they can get money. They take advantage of the fact that most people don't read their credit agreements and those who do typically don't fully understand.

I mean, yes, if you're going to sign a piece of paper you have an obligation to yourself to read it and understand it before you sign, but the average joe is still no match for an expert in legal-ese who knows how to throw out the net.

This is what these people count on. Somewhere in the bowels of Capital One's HQ there are risk analysts who have figured out the best way to wring the most out of their victims/customers with a given number of charge-offs and so on. They know what they're doing.

Actual fraud is incredibly rare. If someone has committed fraud, they are already breaking the law. There is absolutely no need for new laws and new regulations. In the instance of fraud, the victims can sue the fraudulent party to recover damages. Those who were not victims of outright fraud are victims of their own greed. There is no need for a bailout – that would only encourage more risk taking because people will make all sorts of dodgy deals because they can make big money, or the government will bail them out, so why not let one’s greed run wild?

If you are working class, you cannot afford a multi-million dollar house. If you are too stupid to understand that you cannot live in a mansion if you only make $25k, then you deserve to go bankrupt, and those that made that loan deserve to lose their investment.

This is no different than people complaining that some credit cards charge too high an interest rate so government should cap it. The moment that happens, poor people suddenly cannot get credit. If you slap regulations on sub-prime mortgages, you greatly limit the ability of low income people to purchase property (not that this is necessarily a bad thing). Without government regulation (and without the tacit agreement that the government will bail out the losers if the market goes sour) markets are far more efficient – poor people who are a good risk can get the loans they want, financial institutions can make those loans, and everyone wins.

The problem with the mortgage industry (especially with Freddie and Fannie) is that there is a basic understanding that the government will intervene if the market goes bad. Thus, if the market continues up, everyone can make out like bandits, if the market goes down, most will not have to face the full consequences of their greed.

So lets bail out the market, let everyone get greedy and just add the losses to the government debt, then we can do it all again in another 25 years.

I think if these predatory lenders realize there's no safety net (aka Government Bailout) then they'll self-regulate. I'd like to avoid adding additional Federal involvement.

The problem was, there really was no safety net or regulation for these kinds of loans. They failed to self-regulate then, and I seriously doubt they would do so even with the lack of a government bailout. These events serve as a wake-up call for the need to regulate the sector.

We've seen the risk that lack of regulation, transparency and oversight in the hedge fund market has posed before (recall LTCM's near collapse in 1999 or Amaranth's collapse in 2005), and this is a clear call to action on the part of the world's financial regulators. Hedge funds and private equity should be treated the same as any other investment and equal laws should apply. These funds have been able to conceal their activities and losses in a trillion-dollar shell game for too long, and it's time we make the changes necessary for financial stability.

Mind you, this doesn't preclude monetary actions like increasing liquidity for lending, which was a good idea, but it does preclude bailing them out with taxpayer money.

Hedge funds and private equity should be treated the same as any other investment and equal laws should apply. These funds have been able to conceal their activities and losses in a trillion-dollar shell game for too long, and it's time we make the changes necessary for financial stability.
But the whole point of being a private company is not having to disclose all this information to outsiders and competitors. Especially with that ... thing Sarbox in force now.

But the whole point of being a private company is not having to disclose all this information to outsiders and competitors. Especially with that ... thing Sarbox in force now.

I also think Sabanes-Oxley should be repealed or seriously changed. It was supposed to be a good thing for companies to go public as opposed to remain privately held...but SarbOx changed all that.

This quandary seems interesting to me. On its face this appears to be the same group of people (i.e. capitolists and big business types) that decry things such as universal healthcare as "socialist evil", then turn around and ask for what essentially boils down to corporate socialized banking.

I don't want to use the word hypocrisy, but it seems to fill all too well.

There is an old saying - it's never as bad as it seems nor is it ever as good as it sounds. Another relevant one is, 'it is never different this time'.

This is the same 'end of the world' bullshit we heard after the tech bubble burst in 2000. Everyone wanted to blame everyone else but themselves. The dickhead who paid $450/share (with leverage!) for YHOO was never at fault - it was always someone else. When he lost his ass it was natural - nothing more than reality finally sinking into what had been best described as irrational exuberance. Statements like 'new economy' rang hollow finally. Yet the dumbass didn't learn. He went to real estate instead.

"You can't lose money with real estate' was the mantra. Everyone had to get in and everyone leveraged themselves to the hilt doing so. Once again we discovered - it is never different this time. Now we want to blame the lenders, blame the banks, blame everyone except the idiots who overpaid for property with borrowed money they cannot afford. (ya-hooo-oooo)

Some people talk about things like 'predatory lending' with obviously no understanding of what it is. It is laughable how quickly some people want to lay blame on the same old targets rather than actually understand that the problem - which is, always has been, and always will be simple human behavior - the vast majority of people are idiots - too lazy and conceited to actually learn.

Idiots borrow money they cannot afford and morons are the ones who give it to them. Neither one benefits when the game is finally over. Reality always wins. We are now in a phase where the real estate exuberance is finally over. The tide is out and we can see who's not wearing any trunks.

I have no sympathy. None. Not for the lenders nor for the borrowers. Disclosure in the US is so thorough as to be almost counter-productive. Everyone knew what they were doing - and they did it to themselves. Both sides are getting exactly what they deserve.

As this washes out and people mop up the strong and prudent will survive. Values will get back to normal and credit will return to being something earned and valued.

Risk is good. Without risk there would be no need for prudence. Failure is healthy.

The smart thing to do right now? The smart thing to do now is the same thing as it always has been. Live within you means, understand your obligations before undertaking them, save for the future and diversify your assets. Landlord is a business - not a job nor an investment. It is risky and complicated - just like any other business.

If you are going to try running you own portfolio at least read a book on the subject. I am always amazed at how many people say they do their own 'investing' yet when I ask them what books they have read on the subject (Warren Buffet? Peter Lynch? Benjamin Graham? ) they always give me the same 'deer-in-the-headlight look. Morons all of them. They are the ones who donate their future capital gains to my portfolio each time the market takes a swing. Thank Gawd for the ignorant!!!

If you are going to use a professional - shop around. Ask questions. Learn about what makes one better than the other. Investment advisors are just like everyone else - there's only a few good ones surrounded by morons.QFT.

Here is my advice: If you need Financial advice.. ask thiz guy :D

I told people not to go long in financials in Feb. I would sell now. It's only going to get worse.

(disclaimer - this is NSG, so not investment advice because suing is problematic).I dont agree, If you have spare money, Now its the time to find bargains in the stock markets.
Now is the time to buy.

Now is the time to buy.
Not financial stocks I don't think. Unless you're going for the really long term.

Not financial stocks I don't think. Unless you're going for the really long term.hmm

what is a "financial" stock ?

QFT.

Here is my advice: If you need Financial advice.. ask thiz guy :D

Thanks :fluffle:

I didn't even need to read the whole post. I just read enough to know that - Yep.

This post wins.

Thanks :)



hmm

what is a "financial" stock ?

Here is a website with a FANTASTIC tool to help you see what publicly traded companies belong in which sector. The bigger the box the larger the company.

http://www.smartmoney.com/marketmap/

Let the JAVA app load then run your cursor over the boxes and see the companes which pop up. Take a look at the legend and play also.

The colors of the boxes have to do with their performance for a given period - the default is for the day. It is neato.

If there was deception, I'd agree with you. But in all other cases...we've got to remember that it was the home buyers who signed the contract. They made the promise to repay that loan.

That being said, if the choice is between temporarily lower repayments or potentially losing a lot more on a foreclosure sale in a crappy market, I would think a few lenders would agree. Though government laws are unlikely to provide the flexibility that is needed.


In the 90s there were some loans re-negotiated - but most were settled with a 'short sale' where the lender accepts a payoff for whatever the house sells for, posts the debt as settled (as opposed to paid in full) and gives the home owner a small payment - most often just enough for deposit on an apartment.

Not financial stocks I don't think. Unless you're going for the really long term.

I'm buying* Blackstone. It looks like it's going to have strong upward pressure in the near future.

*On my model portfolio. I don't have enough money to have meaningful investments IRL.

I'm buying* Blackstone. It looks like it's going to have strong upward pressure in the near future.

*On my model portfolio. I don't have enough money to have meaningful investments IRL.

Looking into the investment unit it looks as if a few were burned on the IPO. It is still trading nearly $6 under.

I'm buying* Blackstone. It looks like it's going to have strong upward pressure in the near future.
Mmmmh, we'll see, I guess. I'm thinking Blackstone heavily relies on cheap credit based on low prices for risk. Maybe they've moved beyond that (it's not like I've been keeping up), but at least for a few months there's gonna be a lot of turbulence and the golden days will be over.

That being said, the expertise and skill doesn't suddenly vanish, so Blackstone is as well-placed as anyone to do well in a difficult environment.

Looking into the investment unit it looks as if a few were burned on the IPO. It is still trading nearly $6 under.
Hehe, everyone gets burned on an IPO. :D

Except if you're important enough to get approached directly by the underwriter, I guess.

Looking into the investment unit it looks as if a few were burned on the IPO. It is still trading nearly $6 under.

Yup. I always try to wait for IPOs to correct and bottom before buying. Take Baidu.com for example, if you bought it early you would have gotten burned when it plunged by 50%, but if you had waited and bought it in early 2006, you would have seen it quadruple to nearly $200.

Before you get too carried away congratulating yourselves consider this;

http://www.investopedia.com/articles/05/032905.asp

....In 2001 Dalbar, a financial-services research firm, released a study entitled Quantitative Analysis of Investor Behavior, which concluded that average investors fail to achieve market-index returns. It found that in the 17-year period to Dec 2000, the S&P 500 returned an average of 16.29% per year, while the typical equity investor achieved only 5.32% for the same period - a startling 9% difference! (edit-or 1/3 of the total return!)
(snip)
That said, investors can be their own worst enemies. Trying to outguess the market doesn't pay off over the long term. In fact, it often results in quirky, irrational behavior, not to mention a dent in your wealth....


It is a good read - but be prepared to take a few hits to the ego. Nearly everyone will see themselves in this. Back to my earlier comment about arrogance... It is, quite honestly, too hard for the average investor to get over themselves. If that is you (and quite likely is) don't feel bad - it is quite normal.

If you want a simple test - pull out your written investment strategy. It must include not only buy strategy but also sell strategy. It must include allocation strategy as well as accumulation goals. It should include specific risk tolerance definition and is helpful if it can be back-tested.

If you lack a written investment strategy then the chances are good that you are among the 95% of investors who are average - no shame in that. If you work with an advisor who cannot produce this on demand then you ought to really reconsider that relationship... Once again - no shame in that... for you or the advisor. Nothing wrong with being average. but,,, IMHO if you have read this far then you deserve better than average. Quite frankly - if ALL you get is the index average you've already TRIPLED the performance of the average investor! - grok THAT for a while...