Suggestion: Federal Funds Rate Should Be Decided by Auction

[greyhat]

I believe these people were not acting in good faith, failed to disclose the fact that these were crap products, were taking advantage of unsuspecting investors, etc.

Tell me, who would buy a CDO and why?

 

[imagep]

Tell me, who would buy a CDO and why?

Since I don't think that you are really that ignorant, I can only assume that you are attempting to lead me to a particular conclusion using the Socratic method.

I'm really not fond of that game, so why don't you just outright tell me what you are getting at.

 

[Khayembii Communique]

I think I have been quite clear about that, but since you seem to have a reading comprehension issue, I will say it again...

The people who packaged and marketed CDO's which contained large amounts of high risk mortgages, who also lead investors to believe that these were quality products. Also, the rating companies who gave these crap products high ratings. And a host of other people who aided in this, such as the ratings companies, and auditing companies, and even the government who looked the other way despite the fact that they knew that eventually this was going to become a major problem.

If you are one of those that believes that any transaction is "fair" or ethical just because there was a willing buyer and a willing seller, without regards to misleading promises or statements made on the part of the seller, then we will just have to agree to disagree on this subject. Morality is in the eye of the beholder. I believe these people were not acting in good faith, failed to disclose the fact that these were crap products, were taking advantage of unsuspecting investors, etc.

CMOS have various tranches with varying level of risk and therefore could be rated differently. Most CMO's had nothing to do with "misleading investors". And regardless of whether or not the bank was shorting the product, complete information about the product was provided, in nearly all instances, to the investor. The investor simply didn't look through it and trusted the rating. Further, excluding limited cases of fraud, the ratings agencies provided ratings on these products based on past performance, which is the exact same reason investors were gobbling them up (their interpretation of past performance, not simply ratings) and why everyone was so eager to get into the market throughout the entire process.

A bubble is based on a belief of unending increase in value. This is what happened in the tech bubble and this is also what happened with the mortgage bubble. Everyone believed prices would just keep going up indefinitely: banks, the government, home buyers, lenders, investors, securitizers.

 

[imagep]

CMOS have various tranches with varying level of risk and therefore could be rated differently. Most CMO's had nothing to do with "misleading investors". And regardless of whether or not the bank was shorting the product, complete information about the product was provided, in nearly all instances, to the investor. The investor simply didn't look through it and trusted the rating. Further, excluding limited cases of fraud, the ratings agencies provided ratings on these products based on past performance, which is the exact same reason investors were gobbling them up (their interpretation of past performance, not simply ratings) and why everyone was so eager to get into the market throughout the entire process.

A bubble is based on a belief of unending increase in value. This is what happened in the tech bubble and this is also what happened with the mortgage bubble.

I agree with all of that, but I don't agree with this:

Everyone believed prices would just keep going up indefinitely: banks, the government, home buyers, lenders, investors, securitizers.

It's entirely possible that home buyers believed that prices would keep going up indefinitely, but I really don't think that banks, most lenders, and securitizers believed that. The lower level guys probably just believed whatever they were told, or at least pretended to believe it (as such belief justified their actions and thus became rationalizations for screwing people just to make a fast buck), but those who had years of experience in economics/finance/investments couldn't have believed it.

I don't believe that bubbles grow bigger forever, and I'm just the village idiot. Did you believe that? So why would the wise CEO's and top executives on Wall Street believe that? Are you suggesting that just an ordinary shmuck like myself is actually smarter than the multimillion dollar a year CEO's on Wall Street?

My first introduction to anything about investments or economics was when I followed the gold and silver bubble during the late 1970's ( I was still in grade school, but for some reason it peaked my interest). I followed the prices up to amazing levels, and then back down to amazingly low levels. I was a just an ordinary teenager and discovered that bubbles happen, and pop.

Then around 1998-2000, I had an employee who would constantly threaten to quit her $12/hr job because she claimed that she was making more money as an investor than she did with her employment. And again, I watched the NASDEX bubble grow and pop.

Around 2004 or 05, my aunt in Cape Coral was telling me that she was going to get rich just by owning real estate there. Every month it was a story about how her net worth had grown by $50,000 in just one month. I kept asking her how it was possible that prices would continue going up that fast, because eventually no one would want to live their or be able to afford a house, and she just kept telling me that she didn't care why or how it was happening, but that she was just enjoying getting rich. A few years later, she was stuck with 5 houses that were worth less than $100k each, yet she had paid over a half million each (and at one point were worth upwards of a million bucks each on paper). She had lost every penny that she ever made, and probably then some.

Surely someone making millions of dollars on Wall Street with an Ivy League MBA could see exactly what I saw.

Or maybe I am just unusually brilliant.

 

[Khayembii Communique]

I agree with all of that, but I don't agree with this:

It's entirely possible that home buyers believed that prices would keep going up indefinitely, but I really don't think that banks, most lenders, and securitizers believed that. The lower level guys probably just believed whatever they were told, or at least pretended to believe it (as such belief justified their actions and thus became rationalizations for screwing people just to make a fast buck), but those who had years of experience in economics/finance/investments couldn't have believed it.

I don't believe that bubbles grow bigger forever, and I'm just the village idiot. and apparently you don't believe that either. So why would the wise CEO's and top executives on Wall Street believe that? Are you suggesting that just an ordinary shmuck like myself is actually smarter than the multimillion dollar a year CEO's on Wall Street?

You should research the tech bubble, when multimillion dollar a year CEO's on wall street did believe that we were "entering a new era of capitalism" and that prices would keep going up indefinitely. I think that you are giving the people too much credit. And as for people who were short the housing market, they didn't know it was going to decline to the extent it did, they didn't know when it was going to happen, and they had no power to change anything anyways. If these people knew, they would be extremely wealthy because they would have made a lot of money off it. Yes, there were people like Paulsen that shorted housing, but that was based on publicly available information and was not the status quo. And yeah you can quote me people like Paulsen who made a lot of money, but you can't tell me the name of anyone that worked at these mortgage shops that bundled the loans who become rich by shorting housing. Why? Because their entire business model was based on the status quo, and if they were short housing, they would have prepared for it by deleveraging and having an exit strategy for when banks stopped buying.

 

[imagep]

You should research the tech bubble, when multimillion dollar a year CEO's on wall street did believe that we were "entering a new era of capitalism" and that prices would keep going up indefinitely.

Most of those dotcoms had no profits, huge monthly burn rates of IPO capital, and no plan to generate an income. I saw that one coming also.

I think that you are giving the people too much credit.

Maybe. but if I am, that means that people with multimillion dollar salaries are just plain stupid and should be paid minimum wage instead. Or maybe you aren't giving them enough credit, and somehow are fooling youself into thinking that these people are that stupid, and honest.

I think we are just going to have to agree to disagree on this.

 

[Fisher]

I agree with all of that, but I don't agree with this:

It's entirely possible that home buyers believed that prices would keep going up indefinitely, but I really don't think that banks, most lenders, and securitizers believed that. The lower level guys probably just believed whatever they were told, or at least pretended to believe it (as such belief justified their actions and thus became rationalizations for screwing people just to make a fast buck), but those who had years of experience in economics/finance/investments couldn't have believed it.

I don't believe that bubbles grow bigger forever, and I'm just the village idiot. Did you believe that? So why would the wise CEO's and top executives on Wall Street believe that? Are you suggesting that just an ordinary shmuck like myself is actually smarter than the multimillion dollar a year CEO's on Wall Street?

My first introduction to anything about investments or economics was when I followed the gold and silver bubble during the late 1970's ( I was still in grade school, but for some reason it peaked my interest). I followed the prices up to amazing levels, and then back down to amazingly low levels. I was a just an ordinary teenager and discovered that bubbles happen, and pop.

Then around 1998-2000, I had an employee who would constantly threaten to quit her $12/hr job because she claimed that she was making more money as an investor than she did with her employment. And again, I watched the NASDEX bubble grow and pop.

Around 2004 or 05, my aunt in Cape Coral was telling me that she was going to get rich just by owning real estate there. Every month it was a story about how her net worth had grown by $50,000 in just one month. I kept asking her how it was possible that prices would continue going up that fast, because eventually no one would want to live their or be able to afford a house, and she just kept telling me that she didn't care why or how it was happening, but that she was just enjoying getting rich. A few years later, she was stuck with 5 houses that were worth less than $100k each, yet she had paid over a half million each (and at one point were worth upwards of a million bucks each on paper). She had lost every penny that she ever made, and probably then some.

Surely someone making millions of dollars on Wall Street with an Ivy League MBA could see exactly what I saw.

Or maybe I am just unusually brilliant.

Throughout most of the Bush years, the economy was falling apart piece by piece by piece but people were not paying attention because housing was booming. A booming housing market allowed people to play the refinance game to engage in personally wasteful consumerism that allowed the government and the markets to ignore what all was going very wrong. We were playing the violins on the deck of the Titanic as multiple other parts of the economy were lagging and faltering. I believe that the wheels came off in 2005, and between then and the 2008 collapse companies were scrambling with this fake it until you make it attitude. We started seeing companies do odd things because it pleased an irrational market like investing heavily in derivatives that were loaded down with their own bad debt and risk. As long as the markets were happy, they could get away with it, but as soon as the markets turned unhappy, the financial sector had nothing underpinning it. It was the old sign a note to yourself for a million dollars and then call yourself a millionaire scenario.

Why was this happening? In my opinion the unrealistic demands for dividends and growth performance in corporate stocks forced the companies to engage in increasingly risky financial transactions independent of actual sales performances. It would be comparable to you getting tons of cash advances on your personal credit card and put into your business so you appear to have more revenue so you can pay yourself more so you can get higher credit limits to get more cash advances. It is a finance death spiral.

 

[imagep]

Throughout most of the Bush years, the economy was falling apart piece by piece by piece but people were not paying attention because housing was booming. A booming housing market allowed people to play the refinance game to engage in personally wasteful consumerism that allowed the government and the markets to ignore what all was going very wrong. We were playing the violins on the deck of the Titanic as multiple other parts of the economy were lagging and faltering. I believe that the wheels came off in 2005, and between then and the 2008 collapse companies were scrambling with this fake it until you make it attitude. We started seeing companies do odd things because it pleased an irrational market like investing heavily in derivatives that were loaded down with their own bad debt and risk. As long as the markets were happy, they could get away with it, but as soon as the markets turned unhappy, the financial sector had nothing underpinning it. It was the old sign a note to yourself for a million dollars and then call yourself a millionaire scenario.

Why was this happening? In my opinion the unrealistic demands for dividends and growth performance in corporate stocks forced the companies to engage in increasingly risky financial transactions independent of actual sales performances. It would be comparable to you getting tons of cash advances on your personal credit card and put into your business so you appear to have more revenue so you can pay yourself more so you can get higher credit limits to get more cash advances. It is a finance death spiral.

So you are agreeing with me that they knew what they were doing, and what would eventually happen.

I'm actually sort of disappointed, I was hoping that someone was going to tell me that I am "unusually brilliant".

 

[Fisher]

So you are agreeing with me that they knew what they were doing, and what would eventually happen.

I'm actually sort of disappointed, I was hoping that someone was going to tell me that I am "unusually brilliant".

Well when we agree you are. :2razz:

I think a lot knew and a lot were just clueless because of other dodgy executives like CFO's

 

[greyhat]

Since I don't think that you are really that ignorant, I can only assume that you are attempting to lead me to a particular conclusion using the Socratic method.

I'm really not fond of that game, so why don't you just outright tell me what you are getting at.

These type of complex securities aren't for Pa & Ma; they are for institutional investors. They should have done better due diligence so their losses are theirs to own.

Ma & Pa lost their shirt off because in the midst of a bursting bubble they were over leveraged; and when the markets fell apart they panicked.

Like I said before, plenty of blame to go around but simply blaming WS is just a cop out and fails to acknowledge the complexity of the issue.

Caveat emptor amicus meus...