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Blowing the Whistle on the Mortgage Bubble

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Re: Blowing the Whistle on the Mortgage Bubble

#91

Post by danielweber »

liber8 wrote: post #65
Irregardless wrote: post #55

My reaction while reading most of this was "Why didn't any of you try harder to let someone know? Why didn't you email everyone? Why didn't you call all the people you emailed? Wasn't there ANYONE important who would listen!?" After reading the whole thing, I was a little shocked to realize the answer is "No, there was no one important who would listen." The accountant who essentially documented the impending collaps…

It's not that a special somebody wouldn't have listened. This wasn't as big an information problem as most people make it out to be. As this, and many other articles explain, bankers and underwriters knew bank fraud was widespread. The general public, who took out the loans, knew they were defrauding banks. Wall Street knew the rating agencies were full of shit. But everybody was making a killing as long as real prop…

But everybody was making a killing

I think Upton Sinclair said "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"

Everybody loved the real estate bubble. We were all going to be rich forever and not have to do any work.

I think even if the President (regardless of party) had tried to stop the bubble, he would have been laughed out of office.

Re: Blowing the Whistle on the Mortgage Bubble

#92

Post by sillysaurus »

liber8 wrote: post #65
Irregardless wrote: post #55

My reaction while reading most of this was "Why didn't any of you try harder to let someone know? Why didn't you email everyone? Why didn't you call all the people you emailed? Wasn't there ANYONE important who would listen!?" After reading the whole thing, I was a little shocked to realize the answer is "No, there was no one important who would listen." The accountant who essentially documented the impending collaps…

It's not that a special somebody wouldn't have listened. This wasn't as big an information problem as most people make it out to be. As this, and many other articles explain, bankers and underwriters knew bank fraud was widespread. The general public, who took out the loans, knew they were defrauding banks. Wall Street knew the rating agencies were full of shit. But everybody was making a killing as long as real prop…

As someone who is completely ignorant of investment strategies, would anyone explain how to make a fortune off of an impending financial collapse (when you predict the timing perfectly)? That sounds very interesting.

Re: Blowing the Whistle on the Mortgage Bubble

#93

Post by nicholasjarnold »

wcgortel wrote: post #88
patio11 wrote: post #2

Worth it just for the email in the middle by a Citi underwriter. http://cybercemetery.unt.edu/archive/fcic/20110310201200/htt... I don't agree with every stylistic choice, but that's some of the best professional writing in the fling-a-firecracker-outside-of-your-silo circumstance that I've ever seen. ("I do not believe our company has recognized the material financial losses inevitably associated with the above Citi…

I sent a similar email to the CEO of my bank in 2007 -- there was a product I was involved in that (it was clear) was not understood by our sales force or by our investors. I'll spare the details, but I was called into his office and reminded that the "e" in email stands for "evidence."

I cannot express how angry reading comments like this makes me. Clearly many of these guys at the top (bank CEO's, fund managers, ect.) were systematically defrauding everyone in order to turn a larger profit. Call me naive, but isn't this shit (the massive fraud perpetrated on us by banks) supposed to result in hefty jail sentences?

Re: Blowing the Whistle on the Mortgage Bubble

#94

Post by danielweber »

wcgortel wrote: post #88
patio11 wrote: post #2

Worth it just for the email in the middle by a Citi underwriter. http://cybercemetery.unt.edu/archive/fcic/20110310201200/htt... I don't agree with every stylistic choice, but that's some of the best professional writing in the fling-a-firecracker-outside-of-your-silo circumstance that I've ever seen. ("I do not believe our company has recognized the material financial losses inevitably associated with the above Citi…

I sent a similar email to the CEO of my bank in 2007 -- there was a product I was involved in that (it was clear) was not understood by our sales force or by our investors. I'll spare the details, but I was called into his office and reminded that the "e" in email stands for "evidence."

It's no much that ignorance is rewarded, as that spreading information is punished.

Re: Blowing the Whistle on the Mortgage Bubble

#95

Post by ww520 »

The people in the high-up knew. A lot of people in all levels knew. People knew it was a bubble and it cannot last. What people didn't know was how to pop the bubble gently to have a soft landing. Remember real estate and mortgage were majority drivers of the economy from 2000 on after the Dotcom and stock crash. Popping the bubble meant wrecking the economy. People were really uneasy in deliberately engineering a recession. The longer the wait the worst the crash.

Re: Blowing the Whistle on the Mortgage Bubble

#96

Post by liber8 »

sillysaurus wrote: post #92
liber8 wrote: post #65

Earlier quoted context omitted.

It's not that a special somebody wouldn't have listened. This wasn't as big an information problem as most people make it out to be. As this, and many other articles explain, bankers and underwriters knew bank fraud was widespread. The general public, who took out the loans, knew they were defrauding banks. Wall Street knew the rating agencies were full of shit. But everybody was making a killing as long as real prop…

As someone who is completely ignorant of investment strategies, would anyone explain how to make a fortune off of an impending financial collapse (when you predict the timing perfectly)? That sounds very interesting.

There are many ways to do this, but the simplest explanation is: you enter an agreement to borrow an asset and agree to give that asset back at a certain date in the future. You then immediately sell the asset. Then, on the date certain, you buy that asset back and give it back to the lender. This is called "shorting" and is very easy to do with fungible assets like publicly traded stocks, bonds, or even collateralized debt obligations. It's so easy and common that you could open up a brokerage account and the broker will actually lend you money to do this.

The problem is timing. Many, many people saw this collapse coming, and most of them got hosed by betting on it. In the above example, say that you borrowed and sold 10,000 shares of Genworth Financial stock on January 1, 2007 because you knew they were sitting on a pile of bad mortgages and the stock price would tank when the music stopped. If you agreed to give that stock back on July 1, 2007, you would have lost money, because the stock went up. If you had just made this bet a few months later, as a few people did, you would have made a killing.

Re: Blowing the Whistle on the Mortgage Bubble

#98

Post by gnaritas »

patrickgzill wrote: post #69
mpyne wrote: post #35

Earlier quoted context omitted.

Exactly. Even when the money was made of gold, it was still worth exactly what people thought it was worth, nothing more or less.

Gold has an intrinsic value, 1 gram of cotton based paper with some ink on it, does not.

Gold's value is not at all based on it's intrinsic value and I think you know that. Gold is just as much a scam as paper money.

Re: Blowing the Whistle on the Mortgage Bubble

#99

Post by ultraswank »

Irregardless wrote: post #55

My reaction while reading most of this was "Why didn't any of you try harder to let someone know? Why didn't you email everyone? Why didn't you call all the people you emailed? Wasn't there ANYONE important who would listen!?" After reading the whole thing, I was a little shocked to realize the answer is "No, there was no one important who would listen." The accountant who essentially documented the impending collaps…

There were people who were posting their stuff on the internet. http://www.calculatedriskblog.com/ was a great resource before the crisis documenting how far off the rails the mortgage business had gone. I wouldn't say it went viral, but it did garner a lot of attention for a finance blog. Paul Krugman even mentioned it on his blog. Of course almost everyone I talked to about it back in 2007 treated me like I just said Stanley Kubrick filmed the moon landing. Back then it was pretty hard to say "Alan Greenspan is wrong and the guy on this blog is right" and have anyone take you seriously.

Re: Blowing the Whistle on the Mortgage Bubble

#100

Post by api »

liber8 wrote: post #65
Irregardless wrote: post #55

My reaction while reading most of this was "Why didn't any of you try harder to let someone know? Why didn't you email everyone? Why didn't you call all the people you emailed? Wasn't there ANYONE important who would listen!?" After reading the whole thing, I was a little shocked to realize the answer is "No, there was no one important who would listen." The accountant who essentially documented the impending collaps…

It's not that a special somebody wouldn't have listened. This wasn't as big an information problem as most people make it out to be. As this, and many other articles explain, bankers and underwriters knew bank fraud was widespread. The general public, who took out the loans, knew they were defrauding banks. Wall Street knew the rating agencies were full of shit. But everybody was making a killing as long as real prop…

This makes me think of peak oil and the fossil fuel crisis, where you have physicists and such ringing the alarm bells and nobody is really paying attention.

"But we just found more oil!"

And we will, until we don't.

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