[PassedOut]

mike777, on Apr 27 2010, 07:37 PM, said:

I am a bit surprised you could charge and get enough rent to cover all of that plus a profit......well done......

If you dont mind being a landlord and all that comes with it....great.

For every rental I bought, I passed on very many. The numbers had to look right. Otherwise, why buy?

My experience was that duplexes, triplexes and townhouses weren't a lot of trouble. Families would stay for years and keep the places nice. Apartment buildings with lots of units, though, were a big hassle with more turnover and a higher percentage of careless tenants. That did sour me on apartment buildings as I got older, and we don't have any rentals now.

[Winstonm]

For anyone interested, here is a chart of home prices in the U.S. from 1970-2010. I can't get it to post so here is one of many links that used this same chart.

http://vreaa.wordpress.com/2010/03/26/us-s...sted-1970-2010/

Home prices went parabolic in the 2000's - they are getting back close to normal averages. It's not a particularly bad time to buy, but I wouldn't expect a house to suddenly start rocketing up in value over the next 5-10 years.

The unwinding of credit is still occurring, although not as fast as before. But it most likely will take a few years yet before all the interventions of the Federal Rerserve are apt to kick-start any serious inflation.

[pdmunro]

Any of this sound familiar?

"The Senate committee hearings that Pecora led probed the causes of the Wall Street Crash of 1929 ... Pecora's investigation unearthed evidence of irregular practices in the financial markets that benefited the rich at the expense of ordinary investors, including exposure of Morgan’s “preferred list” by which the bank’s influential friends (including Calvin Coolidge, the former president, and Owen J. Roberts, a justice of Supreme Court of the United States) participated in stock offerings at steeply discounted rates. He also revealed that National City sold off bad loans to Latin American countries by packing them into securities and selling them to unsuspecting investors, that Wiggin had shorted Chase shares during the crash, profiting from falling prices, and that Mitchell and top officers at National City had helped themselves to $2.4 million in interest-free loans from the bank’s coffers.

http://en.wikipedia....erdinand_Pecora

[hrothgar]

 hrothgar, on 2010-April-16, 14:57, said:

I'd like refer people back to some of my earlier posts regarding the covariance of the assets that made up a CDO...

More specifically, recall that the CDOs only work when the underlying securities are independent of one another.

Guess what happens to a CDO when someone is cherry picking all of the underlying assets to have the same set of characteristics?

Do you understand why this type of information might have a material impact on the value of the asset?

With this said and done, CDOs are constructed from hundreds (sometimes thousands) of mortgages...

I can guarantee you that the entities buying these CDOs had neither time nor the information required to inspect all of the loans that made up an individual CDO. Rather, these entities trusted that the companies selling the CDOs would provide appropriate disclosure regarding the nature of the products being sold.

It is alleged that Goldman Sachs did not provide appropriate disclosure.

If the statements being made are true - Goldman Sachs sold a structured product without describing all material information about the nature of said instrument - then I suspect that a number of folks are headed off to jail...

FWIW, there is an interesting paper being presented at the American Economic Association this Saturday. You can read a summary at:

http://www.bloomberg...the-ticker.html

Here's the relevent quote from the Bloomberg article:

Quote

Using a unique database published by the investment firm Pershing Square Capital Management, Faltin-Traeger and Mayer identified the underlying bonds in some 528 ABS CDOs issued between 2005 and 2007, and compared their performance to similar bonds that weren't included in CDOs.

They found that the bonds in the CDOs performed a lot worse. Even if one holds observable characteristics such as initial ratings and yields constant, the bonds in the CDOs suffered ratings downgrades that were 50 percent to 90 percent more severe. As of June 2010, for example, bonds with initial triple-A ratings had been downgraded by an average 11.84 notches, compared to 5.99 for those not in CDOs. The bonds in the CDOs were also more likely to have been rated by all three major credit-rating firms.

The research provides strong support for the idea that banks -- with the help of pliant ratings agencies -- put together the CDOs and sold them to investors in a premeditated effort to get rid of some of their most toxic assets, or to provide vehicles for clients who wanted to bet against the worst possible assets. As the authors put it: "It would have been very hard to randomly choose securities with such poor ex-post performance."

The lawyers are going to have a field day...

[blackshoe]

 Winstonm, on 2010-April-27, 20:19, said:

For anyone interested, here is a chart of home prices in the U.S. from 1970-2010. I can't get it to post so here is one of many links that used this same chart.

http://vreaa.wordpress.com/2010/03/26/us-s...sted-1970-2010/

Home prices went parabolic in the 2000's - they are getting back close to normal averages. It's not a particularly bad time to buy, but I wouldn't expect a house to suddenly start rocketing up in value over the next 5-10 years.

The unwinding of credit is still occurring, although not as fast as before. But it most likely will take a few years yet before all the interventions of the Federal Rerserve are apt to kick-start any serious inflation.

Be interesting to see what housing prices looked like say from 1925 to 1970.

[Winstonm]

 hrothgar, on 2012-January-10, 10:15, said:

FWIW, there is an interesting paper being presented at the American Economic Association this Saturday. You can read a summary at:

http://www.bloomberg...the-ticker.html

Here's the relevent quote from the Bloomberg article:



The lawyers are going to have a field day...

Between the CDOs and the fraudulent robosigning foreclosures, there must be millions of jail years available for the losers.

[y66]

Interesting development in this long running story: From Anonymity to Scourge of Wall Street

Quote

The architect of a recent legal crackdown on Wall Street’s dubious mortgage practices was not the attorney general, a United States attorney or a rising star in the Justice Department. Instead, it was Leon W. Weidman, an unassuming 69-year-old career prosecutor, toiling away in anonymity 3,000 miles from Washington.

For much of his 43 years as a government lawyer, Mr. Weidman led a small group of federal prosecutors in Los Angeles. In the 1990s and 2000s, he and his team brought nearly 200 civil fraud lawsuits against two-bit mortgage crooks and small-business cheats, using an obscure federal law created in the aftermath of the savings and loan crisis a quarter century ago.

Now the work of Mr. Weidman, a onetime engineer who earned his law degree at night, has leapt to a bigger stage: the government’s campaign to punish Wall Street for the financial crisis.

His pioneering use of the law — the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, or Firrea — underpinned the Justice Department’s tentative $13 billion settlement with JPMorgan Chase. The United States attorney in Manhattan, Preet Bharara, has deployed the statute most often, filing civil fraud actions against Wells Fargo, BNY Mellon and Bank of America, among others. A jury found Bank of America liable in that case last week.

The wave of cases has ignited a legal controversy, raising the question of whether federal prosecutors, in dusting off an old statute, are misapplying the law. So far, judges have blessed the government’s tactics.

“It’s been an extremely effective tool,” said Mr. Weidman, who lives in West Los Angeles with his wife, an artist, and their 95-pound Labradoodle.

[mike777]

1) yes lawyers run banks...not bankers


2) Yes the AG is very very powerful you prove that.

3)"Now the work of Mr. Weidman, a onetime engineer who earned his law degree at night, has leapt to a bigger stage: the government’s campaign to punish Wall Street for the financial crisis" Your comment says it better than I could ever.

4) the fact that ownership did not stop this is most important or even try to stop this as far as I can see is most important.
--------------


side note as someone who worked there I can attest to all of this and more idiot leading idiot is kind. At some point we throw up our hands and stop caring.

If your reaction is throw the rascals out and start over...ok...cannot be worse.

[FM75]

 Winstonm, on 2012-January-10, 18:46, said:

Between the CDOs and the fraudulent robosigning foreclosures, there must be millions of jail years available for the losers.

Given that tens of millions of homebuyers were gambling on the real estate market with somebody else's money, you might expect that. But nearly none of those fraudster's has ever been prosecuted, and likely never will be. They are immune from civil suits, since they have no assets. They are semi-immune from criminal suits because there are so many of them. So the lenders got stuck, and when they failed, the honest taxpayers got the shaft. Too big to fail - ever since The Great Depression. All of the government programs since then have bolstered the behavior that causes the problem. Bailouts = moral hazard. Eliminated them and the system changes profoundly.

If the country changed the banking laws and allowed for banks to go bankrupt like any other corporations, things might change. But that means that people placing deposits in a lending institution would be expected to make intelligent decisions about those institutions' credit quality (ability to repay the money that they "deposited"). It also means that you (the depositor) are taking the risk and not transferring it to your taxpaying buddies.

What can you take away from this? If you have really sound analytical capabilities, you could correctly arrive at the answer that the system has weaknesses - that the system is the problem.

If you do not have that, then you will take the easy road and search for a single culprit, most likely the one that by your upbringing, you have been biased against since early youth. If you can only find a small number of culpable players, you do not understand the market at all.

[Winstonm]

 FM75, on 2013-November-05, 22:34, said:

Given that tens of millions of homebuyers were gambling on the real estate market with somebody else's money, you might expect that. But nearly none of those fraudster's has ever been prosecuted, and likely never will be. They are immune from civil suits, since they have no assets. They are semi-immune from criminal suits because there are so many of them. So the lenders got stuck, and when they failed, the honest taxpayers got the shaft. Too big to fail - ever since The Great Depression. All of the government programs since then have bolstered the behavior that causes the problem. Bailouts = moral hazard. Eliminated them and the system changes profoundly.

If the country changed the banking laws and allowed for banks to go bankrupt like any other corporations, things might change. But that means that people placing deposits in a lending institution would be expected to make intelligent decisions about those institutions' credit quality (ability to repay the money that they "deposited"). It also means that you (the depositor) are taking the risk and not transferring it to your taxpaying buddies.

What can you take away from this? If you have really sound analytical capabilities, you could correctly arrive at the answer that the system has weaknesses - that the system is the problem.

If you do not have that, then you will take the easy road and search for a single culprit, most likely the one that by your upbringing, you have been biased against since early youth. If you can only find a small number of culpable players, you do not understand the market at all.

What a bunch of hogwash. It was not the purchasers who pulled the wool over the eyes of the hardworking but naive Wall Street bankers. The history is fairly simply. Phil Gramm and many others lobbied heavily for free markets and deregulation, which they got. Alan Greenspan dropped interest rates to 1% when the markets collaped in 2000 or so. This led to a clamor for yield from institutional investors, which led to inventive loans and loan products, which led to Wall Street brokering those products and making millions and millions of dollars, so much money that no one could be bothered to check if the underlying loans were any good, and with no minding the store and no regulatory agency to prevent it, mortgage companies, which were outside the scope of normal banking practices, make liar loans and no doc loans not to hold but to sell to Wall Street for a fee.

As for picking a bank, Glass-Steagall used to guarantee that banks that took deposits did not also gamble with that money - but when GS was repealed, it became a free-for-all again, and all banks - investment and deposit - began to speculate.

[FM75]

 Winstonm, on 2013-November-05, 22:53, said:

What a bunch of hogwash. It was not the purchasers who pulled the wool over the eyes of the hardworking but naive Wall Street bankers. The history is fairly simply. Phil Gramm and many others lobbied heavily for free markets and deregulation, which they got. Alan Greenspan dropped interest rates to 1% when the markets collaped in 2000 or so. This led to a clamor for yield from institutional investors, which led to inventive loans and loan products, which led to Wall Street brokering those products and making millions and millions of dollars, so much money that no one could be bothered to check if the underlying loans were any good, and with no minding the store and no regulatory agency to prevent it, mortgage companies, which were outside the scope of normal banking practices, make liar loans and no doc loans not to hold but to sell to Wall Street for a fee.

As for picking a bank, Glass-Steagall used to guarantee that banks that took deposits did not also gamble with that money - but when GS was repealed, it became a free-for-all again, and all banks - investment and deposit - began to speculate.

Q.E.D. Thanks for playing.

[mycroft]

Okay, I fit in my "I can see the problem, therefore I'm blind" bubble as much as at least two of the previous two posters, but how many of those "gamblers in the real estate market" were buying the homes they lived in, that the professionals told them (because they got paid by the sale, and *their company sold off all the risk, so there was no reason for the company to care*) were affordable? For the first time?

I can't be the only one - the only two differences being that in Canada, the banks can't do a lot of the stuff that happened in the U.S. and the U.K. so the minefield wasn't as thickly strewn, and I actually *could* afford the mortgage given me (and I knew enough to make sure I got a straight-up fixed-rate, not anything I couldn't understand).

So much of the world operates on keeping the consumers uneducated, and then claiming it's their fault that they did something that (with the correct education, like they have) was obviously stupid. If there's one thing you can credit lawyers as a profession for (and there may only be one thing), it's that having set up the world so that lawyer "always" beats no-lawyer, they at least really push for you to *get one* if you even think you need one.

[FM75]

 mycroft, on 2013-November-06, 12:06, said:

Okay, I fit in my "I can see the problem, therefore I'm blind" bubble as much as at least two of the previous two posters, but how many of those "gamblers in the real estate market" were buying the homes they lived in, that the professionals told them (because they got paid by the sale, and *their company sold off all the risk, so there was no reason for the company to care*) were affordable? For the first time?

I can't be the only one - the only two differences being that in Canada, the banks can't do a lot of the stuff that happened in the U.S. and the U.K. so the minefield wasn't as thickly strewn, and I actually *could* afford the mortgage given me (and I knew enough to make sure I got a straight-up fixed-rate, not anything I couldn't understand).

So much of the world operates on keeping the consumers uneducated, and then claiming it's their fault that they did something that (with the correct education, like they have) was obviously stupid. If there's one thing you can credit lawyers as a profession for (and there may only be one thing), it's that having set up the world so that lawyer "always" beats no-lawyer, they at least really push for you to *get one* if you even think you need one.

So one thing you should know - You sold a mortgage when you bought a house. That sale becomes a liability for you and an asset to the buyer - who typically resells it to another buyer, sometimes retaining the obligation to "service" the loan, which means collecting payments and passing them on to the new owner, as well as other related obligations. So you were not "given" a mortgage.

You are also right about another key perception of the market. Lenders (direct lenders, such as banks) in the US became obligated to lend where they might not otherwise have lent - to buyers who they deemed not good credits, because of an act of Congress (well meaning, of course, but with unexpected consequences). That is where things like the mortgage insurance industry comes into the picture - think of them as credit reinsurers. Once the assets are sold, they get repackaged into packages more suitable to the ultimate investors - some of whom have long term liabilities, such as pension funds, life insurance companies. They typically have credit quality requirements to meet which may be either regulatory or investor imposed. So step in rating agencies, who have models based upon nearly 100 years of the performance of the mortgage market. (One nasty wrinkle - there was no history to back liar loans. They did include modelling to handle loss of market value, which for the most part was based on the loss of home values in the great depression when loan to value ratios where much lower, and some recent housing recessions that were not even close to as severe as the 2006+ recession.)

The mortgage finance system is way too complex to explain here, but fundamentally you could pull out any single component and the crash could not have happened. That is why it is important to understand that the problem is systematic. Blaming a single culprit would only be done by someone who does not understand what really happened. Remove the ratings agencies, or the law that Congress passed, or "liar" borrowing, or long term buyers of mortgages - pension funds, etc., or the intermediaries - investment banks, or even the law preventing banks from going bankrupt, and the entire problem becomes far less likely. I have left out a number of other less direct problems that contributed to the CREDIT CRISIS, because explaining them has nothing to do with mortgages.

[y66]

JPMorgan Settlement Offers Look Into Mortgage Machine

Quote

JPMorgan Chase and the Justice Department reached a record $13 billion settlement on Tuesday, wrapping up a series of state and federal investigations that offer a rare glimpse into Wall Street’s mortgage machine before the financial crisis, when it churned out billions of dollars in securities that later imploded.

At the heart of the civil settlement, which materialized after months of wrangling, is a statement of facts negotiated with the government that provides details into how JPMorgan assembled mortgage securities sold from 2005 through 2008. While the bank did not admit any violations of law, its decision to approve the statement was one of a few critical concessions it made in order to strike the deal.

The statement shows that as JPMorgan packaged the residential mortgages into complex securities, the bank promised to alert investors to any flaws that might raise questions about the loans, according to the statement.

Investors relied on the bank to vet the underlying loans, which mortgage lenders across the country originated with varying degrees of quality. Still, investors were kept in the dark, the government’s statement found.

They were told, the statement of fact says, that the lenders originating the mortgages had “solid underwriting platforms” and that JPMorgan itself would provide another level of assurance by ensuring that the loans were independently scrutinized.

To do that, the bank hired Clayton Holdings and other third-party firms to examine the loans before they were packed into investments. Poring through the mortgages, the firms scoured them for potential red flags like borrowers who had vastly overstated their incomes or appraisals that inflated property values, the statement of fact shows.

But even when problems were found, JPMorgan sometimes ignored the warnings. According to the statement of facts, an analysis for JPMorgan performed from the first quarter of 2006 through the second quarter of 2007 on 23,668 loans found that 27 percent — about 6,238 loans — should have been categorized as “event 3,” meaning they did not meet underwriting standards. Still, JPMorgan ultimately decided to accept the loans anyway or altered their classification to a higher rating.

[Winstonm]

It always sucks when facts do not fit ideological fantasies:

Quote

The Community Reinvestment Act of 1977 seeks to address discrimination in loans made to individuals and businesses from low and moderate-income neighborhoods.[7] The Act mandates that all banking institutions that receive Federal Deposit Insurance Corporation (FDIC) insurance be evaluated by Federal banking agencies to determine if the bank offers credit (in a manner consistent with safe and sound operation as per Section 802(b) and Section 804(1)) in all communities in which they are chartered to do business.[3] The law does not list specific criteria for evaluating the performance of financial institutions. Rather, it directs that the evaluation process should accommodate the situation and context of each individual institution. Federal regulations dictate agency conduct in evaluating a bank's compliance in five performance areas, comprising twelve assessment factors. This examination culminates in a rating and a written report that becomes part of the supervisory record for that bank.[8]

The law, however, emphasizes that an institution's CRA activities should be undertaken in a safe and sound manner, and does not require institutions to make high-risk loans that may bring losses to the institution.[3][4] An institution's CRA compliance record is taken into account by the banking regulatory agencies when the institution seeks to expand through merger, acquisition or branching. The law does not mandate any other penalties for non-compliance with the CRA.

[PassedOut]

 FM75, on 2013-November-07, 17:12, said:

Lenders (direct lenders, such as banks) in the US became obligated to lend where they might not otherwise have lent - to buyers who they deemed not good credits, because of an act of Congress (well meaning, of course, but with unexpected consequences).

Surely not. Where did you get that idea?

[Winstonm]

 PassedOut, on 2013-November-21, 11:09, said:

Surely not. Where did you get that idea?

There has been a claim that the Community Reinvestment Act was the catalyst for the bad loans - but as my post above shows, the CRA did not require bad loans, and it only applied to banks that received FDIC insurance, i.e., at the time of the credit crisis non-investment banks - the bad loans that led to the credit crisis were not bank loans at all, but loans made by and large by mortgage lending businesses - companies that comprised the so-called "shadow banking system" - that fell outside of the scope of CRA and other normal banking regulations. The non-bank entities making those loans could have been regulated by the Federal Reserve, but the Fed chose not to take on that responsibility.

[mike777]

Clearly there was little to no due diligence. No one bothered to check on these loans as they are sold and resold.

It reminds me of a true story regarding H-bombs.

1) step one keep H-bombs in same bunker as standard bombs.
2) step two: Some H- bombs were plucked out of storage, no one checked to see which ones they were.
3) step three: a different crew carries the bombs to the plane, no one checks on the bombs.
4) step four: yet another crew loads the bombs onto plane and leaves plane unguarded, yep again no one checks the bombs.
5) step five: the pilot and crew fly bombs across country, leaves the plane alone upon arrival, yes pilot did not check out bombs.

In this case H-bomb loans were kept in same place as standard loans and no one bothered to check until they blew up.
------------------------


To be fair due diligence is hard, really hard to do and so many just assume others have done it. One simple example, when I bought this home we paid a guy come out and check out the house. This guy did this for a living and our real estate agent recommended him.

It turns out the guy only checks out about half the house. In fact later we find out this is pretty common. Even then the half he checked out he did wrong and we got a few thousand from the guy to keep us from suing him and the local real estate company put pressure on him to pay up.

[Winstonm]

Mike,

I think your h-bomb analogy is good. The odd thing about the crisis is how rapidly it developed - the majority of the really bad loans were made between 2005 and 2008. During that period, loans were originated by many non-banks, unregulated entities who were able to quickly sell those loans to Wall Street Banks. The key ingredient was time - fast loans, fast processing, and fast turnover left the mortgage brokers without risk.

But no one talks about motivations - what was the underlying cause of the willingness to bundle and sell mortgages without due diligence enforced? As always seems the case, it was the chase for yield that created the demand for the MBS. The chase for yield occurred because the yield curve was flattened artificially by the Greenspan Fed in response to the collapse of the NASDAQ bubble, and then those historically low rates (at that time) were kept low for too long.

This left many investment managers searching for yield. When the (now disproved) models showed almost no risk with MBS, the party started in earnest. More and more innovation became the norm as churning out loans became the profit center for the shadow banks, while the Wall Street appetite for those loans was gluttonous.

Instead of making and holding good loans, mortgage profit became a package and sell industry where everyone tried to earn fees for service, and only the last ones in the daisy chain, who ultimately bought the mortgage-backed securities, held any risk.

These were not bad people doing bad things. These were normal people making normal decisions based on bad data that arose from artificial circumstances - the Fed's interventions that created an environment that left money managers scrambling for yield.

[mike777]

These were not bad people doing bad things. These were normal people making normal decisions based on bad data that arose from artificial circumstances - the Fed's interventions that created an environment that left money managers scrambling for yield



Winston you say it well, I call it moral hazard.

"In economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could result will not be felt by the party taking the risk. In"