Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Blowing the Whistle on the Mortgage Bubble

pbs.org

Post reply on HN
Print view View original

141–150 of 178 posts

Re: Blowing the Whistle on the Mortgage Bubble

#141

Post by MaysonL »

wcgortel wrote: post #135
vec wrote: post #129

Earlier quoted context omitted.

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…

I would agree with you that it's reasonable to expect that to be a conversation that would result in your desired outcome. There are a few technical things at issue. Again, I agree this is broken. My only point is that saying things are "fraud" is harder than I think you expect. The problem is that saying "I want X% return with Y risk, show me suitable investments" introduces two problems. The first is that risk is n…

It was fraud, executed at the highest level, with an associated Gresham's law corollary: honesty was driven out of the market as CEOs who failed to follow the "liars loans" trend didn't survive. As I said upthread, go read William K. Black's Wikipedia page, follow a few of the links (his appearance on Bill Moyers was good).

Re: Blowing the Whistle on the Mortgage Bubble

#142

Post by snowwrestler »

aliston wrote: post #70
snowwrestler wrote: post #41

Earlier quoted context omitted.

I can't speak to the details of the various and diverse Europe problems, but in the U.S. the debt problem is primarily political. Tax receipts as a percentage of GDP are near historic lows, and GDP itself is inhibited because we are climbing out of a recession. In plain English--the government is taking a smaller piece of a smaller pie. No wonder our debt level has climbed. And yet U.S. Treasury bond rates are still…

The two largest holders of federal debt are the Fed and the Social Security trust. A big part of the reason interest rates are so low is because we're buying our own debt.

Neither participates in the competitive bidding process that sets the interest rates. Social Security gets special bonds not available on the open market, and the Fed buys Treasuries from primary dealers at market rates (since the whole point is to inject money into the private economy).

Re: Blowing the Whistle on the Mortgage Bubble

#143

Post by notahacker »

sageikosa wrote: post #133
deveac wrote: post #39

Earlier quoted context omitted.

>"The problem of socialism is that at one point you run out of other people's money". And that's where we're arriving now. Ugh. I try my best not to be snarky on here, but here is the wiki explaining what socialism is: http://en.wikipedia.org/wiki/Socialism Don't worry, you don't have to read past the first sentence to reveal your complete and utter misunderstanding of the term. The trend, over the years, has been ov…

http://mises.org/daily/6277/Socialism Much better read

Reading tracts on socialism by Mises is similar to learning about capitalism from Marx or mainline Christianity from the Church of Latter Day Saints. I'm not the biggest fan of Wikipedia social science articles, but on the whole I'd still see it as a better starting point than someone beating straw men to death in order to promote their own fringe agenda.

Re: Blowing the Whistle on the Mortgage Bubble

#144

Post by eli_gottlieb »

josefresco wrote: post #31
jstalin wrote: post #12

Our system is strictly based on confidence at this point. Fiat currency, fractional reserve banking, massive leverage, and more systemic debt than the world has ever seen all rely on the fact that big banks are essentially untouchable. We'll never see prosecutions of big banks or their principles. It would break the entire system.

This is an important point, and one that I personally believe explains why we didn't see prosecutions at the highest level. Geithner was instrumental in guiding Obama away from this heavy handed approach, as he recognized (I think quite accurately) that confidence was really the only thing keeping the system from crashing completely. If Obama had given execs the kind of treatment Larry Summers and the other half of h…

Geithner was instrumental in guiding Obama away from this heavy handed approach, as he recognized (I think quite accurately) that confidence was really the only thing keeping the system from crashing completely.

Which means that system deserved to crash, die, burn to ashes, and leave us clean ground on which to rebuild.

Re: Blowing the Whistle on the Mortgage Bubble

#145

Post by logn »

vec wrote: post #130
wcgortel wrote: post #127

Earlier quoted context omitted.

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.

It's hard to speculate in a vacuum and obviously we don't want details in this medium, but here's a sales pitch:

Salesman: "By a MagicSuperAwesomeLotto ticket! There's no chance to win 50 million if you don't buy one. It's definitely a very risky investment. But it's an extremely small loss and the payout could make you generationally rich. We sell them in increments of $1, $5, and $50 if you want 50x chance to win, and we accept wire transfers."

Client: "So do I have to match all the picks in a row to get a payout?"

Salesman: "I'm not sure. It's a new product. We'll have to check."

Client: "Oh don't bother. I'll take $5,000 of them."

Overheard... "What a moron."

Re: Blowing the Whistle on the Mortgage Bubble

#146

Post by aliston »

snowwrestler wrote: post #142
aliston wrote: post #70

Earlier quoted context omitted.

The two largest holders of federal debt are the Fed and the Social Security trust. A big part of the reason interest rates are so low is because we're buying our own debt.

Neither participates in the competitive bidding process that sets the interest rates. Social Security gets special bonds not available on the open market, and the Fed buys Treasuries from primary dealers at market rates (since the whole point is to inject money into the private economy).

It doesn't matter how the bonds are obtained by Social Security or the Fed -- no matter what it affects interest rates.

If Social Security weren't buying government bonds (ok, not technically treasuries), that same debt would be issued as Treasuries or similar. Greater supply of treasuries means higher interest rates.

If the Fed weren't buying treasuries in the open market, demand would decline and the market interest rate would go up. Primary dealer bids are influenced by the market rate for treasuries, so the interest rate on new debt would go up.

Re: Blowing the Whistle on the Mortgage Bubble

#147

Post by SilasX »

arethuza wrote: post #32
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…

Alistair Darling, the UK Chancellor of the Exchequer at the time of the crisis, pretty much did think that the world was going to end - he had the chairman of RBS (one of the worlds biggest banks, possibly the biggest at the time) phone him up and say that he thought they might be able to last 2 or 3 hours . [NB I'm pretty sure I've read they were considering going to what sounded awfully like a wartime "emergency" g…

If their business was that brittle, it should have been in bankruptcy court already, not in 2-3 hours.

Re: Blowing the Whistle on the Mortgage Bubble

#148

Post by snowwrestler »

snowwrestler wrote: post #142
aliston wrote: post #70

Earlier quoted context omitted.

The two largest holders of federal debt are the Fed and the Social Security trust. A big part of the reason interest rates are so low is because we're buying our own debt.

Neither participates in the competitive bidding process that sets the interest rates. Social Security gets special bonds not available on the open market, and the Fed buys Treasuries from primary dealers at market rates (since the whole point is to inject money into the private economy).

Replying to myself since I can't reply directly to you.

Social Security gets special bonds specifically to avoid the bond market distortions you describe. They have been purchasing these bonds in high volume for decades prior to the financial crisis, and marketable Treasury rates were much higher for most of that time.

In addition, in 2011, SS tax receipts dropped below expenditures for the first time since 1983, so SS stopped purchasing these special bonds in any significant net volume. (The trust fund is still cash flow positive due to interest earned on bonds they already hold.)

As for the Fed's purchasing program, Treasury rates were historically low before Fed started buying. In fact the historically low rates were why they started buying Treasuries in the first place--with interest rates bottomed out, QE was one of the only levers left to them. You've got the cause and effect backwards.

Re: Blowing the Whistle on the Mortgage Bubble

#149

Post by mseebach »

ScottBurson wrote: post #132
mseebach wrote: post #34

Earlier quoted context omitted.

So, for your point 1, neither Krugman nor the CBPP report he links to claims that the debt will stabilise at 80%. It will arrive at 80% with a rising slope, not flatten like the "cuts" scenario. Also, good thing you didn't link to anything containing conspiracy theories: To say what should be obvious: Republicans don’t care about the deficit. They care about exploiting the deficit to pursue their goal of dismantling…

If you don't accept this coming from Krugman, Bruce Bartlett is a moderate voice who says essentially the same thing: http://economix.blogs.nytimes.com/2012/11/20/the-new-republi...

You don't have to do deep investigative journalism to uncover the dirty truth that republicans has a smaller state as a policy goal, and has had it for a few decades. They say so publicly at any opportunity given. So, shockingly, when there's a deficit, they'll argue that the state should be smaller to cover the deficit. Sure, GWB massively expanded the state, and republicans were mostly fine with it, so it comes off as hypocritical. Either way, Bruce Bartlett just wastes a lot of words tracing and uncovering something that's trivially true.

Krugman dwells into conspiracy theory when he argues that republicans "enjoy" the deficit and with a nice slight of hand assigns the full responsibility for it to them. From random partisan hacks, sure, that how it goes, but for someone that likes to remind everyone that he has a nobel price, perhaps, just perhaps, we can expect a higher standard?

Re: Blowing the Whistle on the Mortgage Bubble

#150

Post by mseebach »

danielweber wrote: post #91
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…

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.

This is an extremely important point - there was an epic mass delusion: Real estate can only go up. It permeated not only all of finance, but all of politics, regulators and the general public. The very same people who would have laughed the president out of office are somberly acting indignated that bankers get clean out of the mess they made. Everyone is washing their hands, and the one thing everyone can agree on is that we like banks the least.
Post reply on HN