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America’s housing system still has not been properly reformed

economist.com

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Re: America’s housing system still has not been properly reformed

#101

Post by erichocean »

mjevans wrote: post #87
chollida1 wrote: post #21

Earlier quoted context omitted.

Sure. The short answer is..... You(party A) and party B have a contract. You want to eliminate the risk that Party B goes bankrupt and can no longer pay you. You go to party C who will take small payments from you each month/quarter and in return they will pay you if party B goes bankrupt. Now the important things to note are: 1) The amount you pay party C is based on how you and party C analyze the bankruptcy risk o…

Why is that type of betting (gambling) allowed? That's just plain insanity.

It's not betting (gambling), it's insurance. Is insurance insane?

Re: America’s housing system still has not been properly reformed

#102

Post by erichocean »

mcnees287 wrote: post #38
ThrustVectoring wrote: post #34

Earlier quoted context omitted.

The 100x is more because companies weren't really able to sell these contracts. Instead, they'd make another one with the opposite position to mitigate their risk. In case of default, there'd be a lot of offsetting payments.

I think the comment is referring to the fact that one can write CDS on top of an underlying instrument. So, if I have $100 million in MBS, other parties, or even myself, can write CDS contracts that reference my $100 million MBS. What I have just done is to create more exposure than the underlying MBS. The MBS is still only $100 million, but the total outstanding contracts on the pool (MBS + CDS) is now much larger.…

> They are one of the few who did not offset like you are saying.

Which just goes to show important the offsets actually are in practice.

Re: America’s housing system still has not been properly reformed

#103

Post by [deleted] »

woodandsteel wrote: post #77
mcnees287 wrote: post #26

Earlier quoted context omitted.

It sounds like a reasonable theory on its face. However, the outcome of this is likely that banks will stop making loans all together. If they were to offer mortgages at all, it certainly would not be a 30 year fixed rate product. It's not correct to say that banks can sell off all of their risk through securitization. They do in fact retain some of the risk. Though most has been transferred. The buffer is (in theory…

>However, the outcome of this is likely that banks will stop making loans all together. Really? We had a healthy mortgage market for a great many decades before mortgage backed securities were invented. And if mortgages are such a bad idea that banks can't make money off of them, then we shouldn't have them.

[deleted]

Re: America’s housing system still has not been properly reformed

#104

Post by evanpw »

woodandsteel wrote: post #77
mcnees287 wrote: post #26

Earlier quoted context omitted.

It sounds like a reasonable theory on its face. However, the outcome of this is likely that banks will stop making loans all together. If they were to offer mortgages at all, it certainly would not be a 30 year fixed rate product. It's not correct to say that banks can sell off all of their risk through securitization. They do in fact retain some of the risk. Though most has been transferred. The buffer is (in theory…

>However, the outcome of this is likely that banks will stop making loans all together. Really? We had a healthy mortgage market for a great many decades before mortgage backed securities were invented. And if mortgages are such a bad idea that banks can't make money off of them, then we shouldn't have them.

The secondary mortgage market isn't a recent invention. It's been an explicit policy goal of the US government at least since the Great Depression.

Re: America’s housing system still has not been properly reformed

#105

Post by talmand »

roywiggins wrote: post #85
talmand wrote: post #59

Earlier quoted context omitted.

Shorting is a risk. Shorting with big money is a big risk. In this case though, my impression is that certain people who actually looked at the data knew it would happen. Not like "I think it will happen", it was "it will happen sometime in this month of this year" kind of thing. Because they knew when those stupid ARMs would kick in with their adjustable rates on top of the obvious number of failed mortgages. The ri…

The other risk was that the entity on the other side of the bet would be wiped out in the crash and not be able to pay out.

That was part of the problem in delaying them from cashing out.

Re: America’s housing system still has not been properly reformed

#106

Post by mcnees287 »

cylinder wrote: post #99
mcnees287 wrote: post #26

Earlier quoted context omitted.

It sounds like a reasonable theory on its face. However, the outcome of this is likely that banks will stop making loans all together. If they were to offer mortgages at all, it certainly would not be a 30 year fixed rate product. It's not correct to say that banks can sell off all of their risk through securitization. They do in fact retain some of the risk. Though most has been transferred. The buffer is (in theory…

It's quite simple to get a mortgage in other countries where banks don't securitize. And if you get into trouble they will work with you rather than immediately foreclose. Fixed rate mortgages for 30 years are a scam. How can a consumer predict interest rates over 30 years? If they go down they have to spend money on fees to refinance which benefits the Lenders. Adjustable rate mortgages are far better and allow for…

I see. You are clearly a troll. But a clever troll, as you have some background knowledge here.

Re: America’s housing system still has not been properly reformed

#107

Post by talmand »

sliverstorm wrote: post #97
talmand wrote: post #59

Earlier quoted context omitted.

Shorting is a risk. Shorting with big money is a big risk. In this case though, my impression is that certain people who actually looked at the data knew it would happen. Not like "I think it will happen", it was "it will happen sometime in this month of this year" kind of thing. Because they knew when those stupid ARMs would kick in with their adjustable rates on top of the obvious number of failed mortgages. The ri…

"take steps" kind of sugar coats it, from the film it sounds like the banks strongarmed the ratings companies to lie about the quality of the derivatives as the ARMs folded.

That was my impression from sources outside the film as well. Like it was stated in the film, "if we rate them lower they'll go down the street to our competitor".

Re: America’s housing system still has not been properly reformed

#108

Post by nstj »

chollida1 wrote: post #69
soperj wrote: post #40

Earlier quoted context omitted.

Pretty much everyone is saying that interest rates are going up in the US and are going to go up soon. Alan Greenspan just came out today saying people are going to be surprised how quickly they go up.

> Pretty much everyone is saying that interest rates are going up in the US and are going to go up soon. I wouldn't say that. According to Bloomberg's interest rate predictor the probability of a hike before the end of the year, ie the definition of soon, is less than 50%. Even if you go out to the end of 2017 you still only get to 67% probability of a fed hike. And 67% is a far cry from "pretty much everyone". And e…

Not that people's bets mean much, but you can look at how financial markets expect rates to move using the interest rate futures market. These contracts allow you to infer what the market really expects rates to do (as people are putting their money where their mouth is - to the tune of billions of dollars rather than an off the cuff comment on a financial news show). Free data for the 30 day future contract/bet is available from Quandl - which is a great site for checking out free financial data: https://www.quandl.com/collections/futures/cme-30-day-fed-fu...

Re: America’s housing system still has not been properly reformed

#109

Post by JimboOmega »

jazzyk wrote: post #72
pessimizer wrote: post #56

Earlier quoted context omitted.

It's important to mention that they've been saying that for 7 years now, and that Alan Greenspan has been wrong about everything. We haven't even been able to get inflation up past 1.7%.

Agree on Greenspan, but do you really believe that the inflation rate has been 1.7%? Actual inflation is estimated to be anywhere from 3-7%, depending on the source. The Fed, setting interest rates way below the actual inflation, is actually taking money from savers and retirees (rather than rewarding them), or forcing them to be reckless with their money by investing in principal-at-risk investments (which they shou…

What source is that? The ones that don't say inflation is 1.7%?

I'd like to point out as the other poster did that you shouldn't look at housing in development constrained areas (though that's a very interesting sidebar to the whole thing - how much of development constraint exists to prop up housing prices)?

Incidentally "official" inflation in the SF Area is 2.7%, still not 3-7%. (http://www.bls.gov/regions/west/news-release/consumerpricein...)

Re: America’s housing system still has not been properly reformed

#110

Post by randyrand »

chollida1 wrote: post #69
soperj wrote: post #40

Earlier quoted context omitted.

Pretty much everyone is saying that interest rates are going up in the US and are going to go up soon. Alan Greenspan just came out today saying people are going to be surprised how quickly they go up.

> Pretty much everyone is saying that interest rates are going up in the US and are going to go up soon. I wouldn't say that. According to Bloomberg's interest rate predictor the probability of a hike before the end of the year, ie the definition of soon, is less than 50%. Even if you go out to the end of 2017 you still only get to 67% probability of a fed hike. And 67% is a far cry from "pretty much everyone". And e…

nice definition of 'soon' you pulled out of your ass.
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