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Blowing the Whistle on the Mortgage Bubble

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Re: Blowing the Whistle on the Mortgage Bubble

#121

Post by rcavezza »

wcgortel wrote: post #112
SkyMarshal wrote: post #110

Earlier quoted context omitted.

>Edit: shameless plug. My stealth mode thing should change this a little bit (for certain investors). Plugging a stealth mode startup? C'mon man spill it, you know you want to, and now we're all curious.

My thing takes your investment capital and cohorts it sensibly against your time horizons. It's new. A lot of what you get from an is along the lines of "Oh, you want this money in seven years huh? You should probably just buy a bunch of bonds." That's crazy. A .15% change in interest rates will wipe out a year's worth of interest on the long bond. My thing is an invented modification of a CDO/CLO that keeps your glo…

Would you say it's a customizable investments that roughly equate to targeted retirement year fund? For example, a target 2025 retirement date mutual fund, but more specialized for short term investments?

Re: Blowing the Whistle on the Mortgage Bubble

#122

Post by patrickgzill »

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.

I am simply gob-smacked that people who are communicating over the Internet (needs gold, even if you are using fiber for much of the way) via their computers or smartphones (needs gold) don't realize how much gold is used in modern tech. Admittedly, fractions of a gram, but times millions of items!

And gold has been used in jewelry, art, decoration as well as monetary purposes for 1000s of years.

I would expect at the least, American readers to be familiar with the "Continental currency" and its devaluation to 1% of it previous value: http://en.wikipedia.org/wiki/Early_American_currency#Contine...

Re: Blowing the Whistle on the Mortgage Bubble

#123

Post by dllthomas »

wcgortel wrote: post #106
nicholasjarnold wrote: post #93

Earlier quoted context omitted.

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?

I mean, you're justified in a way. I don't think it's fraud though. Consumers are equally complicit. What I mean by that is that as the buyer of a product, you usually would go out and read the reviews, kick the tires, etcetera. At this time, many buyers of investments didn't do that at all. Our sales guys didn't understand the product for sure, but if they had a customer who asked the right question they would have…

It doesn't have to be fraud against the consumers, does it? If consumers were equally complicit, that just means it wasn't the consumers who were being defrauded. It's conspiracy to commit fraud against whoever they were making misrepresentations to.

I'm not sure it's really fair to say that consumers were equally complicit, though - the people being paid to understand this stuff probably had more intent.

Re: Blowing the Whistle on the Mortgage Bubble

#124

Post by wcgortel »

rcavezza wrote: post #121
wcgortel wrote: post #112

Earlier quoted context omitted.

My thing takes your investment capital and cohorts it sensibly against your time horizons. It's new. A lot of what you get from an is along the lines of "Oh, you want this money in seven years huh? You should probably just buy a bunch of bonds." That's crazy. A .15% change in interest rates will wipe out a year's worth of interest on the long bond. My thing is an invented modification of a CDO/CLO that keeps your glo…

Would you say it's a customizable investments that roughly equate to targeted retirement year fund? For example, a target 2025 retirement date mutual fund, but more specialized for short term investments?

I'd say similar in intent to those funds, but starkly different in terms of execution and associated risks.

A target date fund approaches your goals by varying the percentage of the portfolio invested in bonds and cash.

My approach doesn't rely on those fixed income instruments to mitigate risk, so isn't exposed to rising interest rates as directly.

In short, it's a new kind of target date fund (in a sense) that is smarter in the present environment.

Re: Blowing the Whistle on the Mortgage Bubble

#125

Post by JackFr »

gtrubetskoy wrote: post #114
twoodfin wrote: post #109

Earlier quoted context omitted.

If you apply for a loan and misrepresent your financial situation, this is not fraud (which is a crime) it's a lie, and lying is NOT a crime. Lying is absolutely a crime if it's considered perjury, and many (all?) loan applications require you to certify the accuracy of statements under penalty of perjury.

Taken out of the context of a loan, you're right. But borrowing is a special case. Because if the responsibility were entirely on the borrower, then it would be advantageous to the bank that you lie on the application. Then they could take all your material possessions as soon as you fail to make a payment and send you to prison to boot. (Which is not far from what happened with the mortgage crisis.) This is how loan…

You are either trolling or grossly misinformed about a number of things.

Your belief is that by intentionally misrepresenting yourself to a bank and obtaining a loan you otherwise would not have been able to obtain, that is, willfully and knowingly entering into a contract in bad faith -- you are the victim of a crime. That is ludicrous at its face.

If someone issues you a loan in good faith, and you cannot repay, it is indeed their loss. They have not committed crime however.

In the case of a personal loan if you fail to repay, the bank can go to court and get a judgement against you. With that judgement they might be able to make a claim on such assets as to make themselves whole. They cannot "take all of your material possessions" let alone send you to prison. This is very far from what happened...

In the case of a mortgage, the can foreclose on the property, liquidate it and use the proceeds to make themselves whole. Note that anything collected in excess of the loan must be passed back to the borrower. (This rarely happens, because if the property were worth more than the loan, the borrower would just sell or refinance.) After a foreclosure and sale, if the bank is still not whole, in many states they may not come after the borrower for the balance (this is called "no-recourse") in other states they can ("recourse"). In the industry so called "subprime" loans were often referred to a "home equity", because there was an acknowledgement that these were borrowers were greater risk, but the loan was guaranteed by the value of the home, and as long as home prices did not drop significantly they were of little risk.

It is almost never advantageous for the bank for the not to repay a loan, as the most the bank can do is be made whole by recovery, and almost never is.

Finally that is not how loan sharking works.

Re: Blowing the Whistle on the Mortgage Bubble

#126

Post by ChuckMcM »

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…

"After reading the whole thing, I was a little shocked to realize the answer is 'No, there was no one important who would listen.'"

There is a scene in the Fifth Element where Gary Oldman knocks a glass off the table to demonstrate how destruction is "good" for the world because it gives all the support actors a chance to play their role. Its a pretty chilling example when you realize that there are people who actually think that way on a daily basis.

I heard a story when visiting London, which may have been completely fabricated, in the context of comparing the morals of banking vs gambling. It told of a book maker who learned that a critical soccer player's girlfriend was planning to commit suicide. Rather than report that information to the authorities to save the girl he used it to bet against the team (the favorite) and won a much bigger return than he would have otherwise when her attempted suicide kept their star from playing. Part of our discussion was whether or not the 'criminal element' which was attracted to gambling (I grew up in Las Vegas just as they were cleaning out the Mafia influence there) was the same or different than the people attracted to Banking. In both contexts 'score keeping' was a simple metric of how much money you had.

If you are an "important person" and someone communicates to you that something is rotten in the bowels of the system and its going to come exploding out in a vile smelly mess. You might ask yourself, "What am I going to do with this information?" What would a gambler do? What would a banker do? What would a politician do?

If you are a TV news conglomerate you might say, "Hmm its one small story of abuse now, but if it really does take out a big chunk of the financial industry its going to be huge! Lets sit on it and plan on how we're going to get big market share from people tuning into us for our indepth coverage!"

If the person getting the information convinces themselves that there is nothing they personally can do to stop it, they can give themselves permission to exploit it (which is usually, but not always, easier). If you can profit handsomely if it happens, and not so much if it doesn't, then what? You see a shark in the water do you yell "Shark!" or do you start recording video thinking about the 10 million YouTube views this will get if you catch it eating someone?

Its Ethics 101. It's why you fire people in your company for even minor ethical violations. It's why you volunteer to run oversight on a local public utilities commission or school board. It's why you go back into the store and return the extra $10 they gave you in change, or pay for product you absently stuck in your pocket and wasn't charged for. It's why you stop interacting with people who aren't ethical.

Re: Blowing the Whistle on the Mortgage Bubble

#127

Post by wcgortel »

dllthomas wrote: post #123
wcgortel wrote: post #106

Earlier quoted context omitted.

I mean, you're justified in a way. I don't think it's fraud though. Consumers are equally complicit. What I mean by that is that as the buyer of a product, you usually would go out and read the reviews, kick the tires, etcetera. At this time, many buyers of investments didn't do that at all. Our sales guys didn't understand the product for sure, but if they had a customer who asked the right question they would have…

It doesn't have to be fraud against the consumers, does it? If consumers were equally complicit, that just means it wasn't the consumers who were being defrauded. It's conspiracy to commit fraud against whoever they were making misrepresentations to. I'm not sure it's really fair to say that consumers were equally complicit, though - the people being paid to understand this stuff probably had more intent.

Point one is really good. I like your way of thinking.

I've got to say that the problem for me comes down to one of competence versus theivery. I don't think that the guys I worked with were outright thieves. I do think they were not especially competent in recommending investments.

These guys are salesmen. They could be selling you printers, but they're selling investments instead. They really are not paid to understand the stuff...they are paid to move product.

When I say that the consumers are equally complicit, what I really mean is that in many cases they just listened to a sales pitch and accepted it as truth.

Not to say that there weren't defrauded consumers or evil salesmen. I'm sure there are individual cases of fraud. I just think it's a really complex system with overlapping spheres of incompetence that defies easy characterization as "fraud" or "not fraud."

We can strenuously agree it's broken though.

Re: Blowing the Whistle on the Mortgage Bubble

#128

Post by mpyne »

JackFr wrote: post #119
Nursie wrote: post #107

Earlier quoted context omitted.

Gold is shiny, the paper is bendy and has a picture of some dude on it. In the absence of other people and their ideas of value, given enough cotton paper I could make clothing or a fire. Given enough gold I could probably make a bludgeoning weapon... Both have fairly minor value in the absence of shared delusion. And even beyond that, what the hell is 'intrinsic' value? Has the universe decreed that there is a prope…

The simple difference is the level of scarcity. If there is a high demand for fiat money -- observable through a rise in interest rates, a measure of the inter-temporal preference for money now versus later -- the Federal Reserve can print more. If there is a high demand for gold money, at the margins we can produce more, but basically the supply is fixed. This limits the rate at which the real economy can grow. Many…

> This limits the rate at which the real economy can grow

I don't believe this is true if you allow speculation and credit in the economy. AFAIK even on the gold standard banks were not required to be able to satisfy every gold-backed bill they distributed out.

Of course, it helps more than having no scarce item would, but if the problem continued then people would eventually shift to trade in something else while conserving their gold-backed currencies to pay government taxes.

Re: Blowing the Whistle on the Mortgage Bubble

#129

Post by vec »

wcgortel wrote: post #106
nicholasjarnold wrote: post #93

Earlier quoted context omitted.

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?

I mean, you're justified in a way. I don't think it's fraud though. Consumers are equally complicit. What I mean by that is that as the buyer of a product, you usually would go out and read the reviews, kick the tires, etcetera. At this time, many buyers of investments didn't do that at all. Our sales guys didn't understand the product for sure, but if they had a customer who asked the right question they would have…

As a client, it is perfectly reasonable for me to say to a sales rep "I want X% average return, I'm willing to accept Y amount of risk to get it, and I don't care particularly much about how you give it to me", so long as X and Y are reasonable. My understanding is that the financial institutions were accurately describing the average rate of return but drastically under-representing the risk of these instruments to their clients.

Calling consumers 'complicit' for failing to understand a company's offerings significantly better than their own salespeople is at the very least insulting.

Re: Blowing the Whistle on the Mortgage Bubble

#130

Post by vec »

wcgortel wrote: post #127
dllthomas wrote: post #123

Earlier quoted context omitted.

It doesn't have to be fraud against the consumers, does it? If consumers were equally complicit, that just means it wasn't the consumers who were being defrauded. It's conspiracy to commit fraud against whoever they were making misrepresentations to. I'm not sure it's really fair to say that consumers were equally complicit, though - the people being paid to understand this stuff probably had more intent.

Point one is really good. I like your way of thinking. I've got to say that the problem for me comes down to one of competence versus theivery. I don't think that the guys I worked with were outright thieves. I do think they were not especially competent in recommending investments. These guys are salesmen. They could be selling you printers, but they're selling investments instead. They really are not paid to unders…

> When I say that the consumers are equally complicit, what I really mean is that in many cases they just listened to a sales pitch and accepted it as truth.

If you tell me something that you know or should know to be false, I act on what you told me, and you benefit from my action, then by definition I have been defrauded.

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