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Thread: U.S. Payrolls Gain More-Than-Expected 200,000; Jobless Rate Falls to 8.5%

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    Re: U.S. Payrolls Gain More-Than-Expected 200,000; Jobless Rate Falls to 8.5%

    Government ordering banks to make riskier loans, loans they never would have made, while at the same time agreeing to underwrite every loan via FF. It was the biggest moral hazard in the history of our market.
    They did not order them to make riskier loans. The Community Reinvestment Act only affected 1 out of 25 lenders. Only 6% of subprime loans were handed out by CRA lenders. There was no suing for non compliance. The CRA has been completely blown out of proportion.

    Community Reinvestment Act loans outperformed other "subprime" mortgages, and GSE mortgages performed better than private label securitizations
    Competition and Crisis in Mortgage Securitization by Michael Simkovic :: SSRN

    Fannie and Freddie were private organizations with US government mandate to provide loans. The CEO's were charged for lieing about the extent of their exposure to sub prime loans.

    The Financial Crisis Inquiry Commission reported in 2011 that Fannie & Freddie "contributed to the crisis, but were not a primary cause." GSE mortgage securities essentially maintained their value throughout the crisis and did not contribute to the significant financial firm losses that were central to the financial crisis. The GSEs participated in the expansion of subprime and other risky mortgages, but they followed rather than led Wall Street and other lenders into subprime lending

    NIVA and NINA loans were not created by the government. ARM loans were not pushed or created by the government. Interest only loans were not pushed by the government. The government did not rate CDO's AAA.

    But beyond that...back to the question of whether or not we have structural problems...companies becoming highly leveraged fueld the bubble. It was a supply side bubble which you obviously agree with since you blame the government (which in on the supply side). The funding from the bubble came from the private sector, from overleveraged financial firms.

    Edit: I would like to add though I think Fannie and Freddie...private institutions that have the implicit banking of the federal government is the dumbest idea ever. I remember thinking that when learning about the structure of it in a Banking Insititutions class in college.

    I also thing the implicit guarantee of bank bailouts for too big too fail institituons is the dumbest idea ever as well.
    Last edited by iliveonramen; 01-11-12 at 01:58 PM.
    “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.” John Maynard Keynes

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    Re: U.S. Payrolls Gain More-Than-Expected 200,000; Jobless Rate Falls to 8.5%

    Quote Originally Posted by iliveonramen View Post
    They did not order them to make riskier loans. The Community Reinvestment Act only affected 1 out of 25 lenders. Only 6% of subprime loans were handed out by CRA lenders. There was no suing for non compliance. The CRA has been completely blown out of proportion.

    Community Reinvestment Act loans outperformed other "subprime" mortgages, and GSE mortgages performed better than private label securitizations
    Competition and Crisis in Mortgage Securitization by Michael Simkovic :: SSRN
    I did not cite the CRA. I cited the moral hazard that was Fannie and Freddie. FF ended up underwriting 50% of the entire market by about 2002. That's not one out of 25, or 6%, etc. When government will buy your risk. Buy your exposure to risk, that is a moral hazard to take on risk that you otherwise would not. That is what created the bubble.

    Fannie and Freddie were private organizations with US government mandate to provide loans. The CEO's were charged for lieing about the extent of their exposure to sub prime loans.

    The Financial Crisis Inquiry Commission reported in 2011 that Fannie & Freddie "contributed to the crisis, but were not a primary cause." GSE mortgage securities essentially maintained their value throughout the crisis and did not contribute to the significant financial firm losses that were central to the financial crisis. The GSEs participated in the expansion of subprime and other risky mortgages, but they followed rather than led Wall Street and other lenders into subprime lending

    NIVA and NINA loans were not created by the government. ARM loans were not pushed or created by the government. Interest only loans were not pushed by the government. The government did not rate CDO's AAA.

    But beyond that...back to the question of whether or not we have structural problems...companies becoming highly leveraged fueld the bubble. It was a supply side bubble which you obviously agree with since you blame the government (which in on the supply side). The funding from the bubble came from the private sector, from overleveraged financial firms.

    Edit: I would like to add though I think Fannie and Freddie...private institutions that have the implicit banking of the federal government is the dumbest idea ever. I remember thinking that when learning about the structure of it in a Banking Insititutions class in college.

    I also thing the implicit guarantee of bank bailouts for too big too fail institituons is the dumbest idea ever as well.
    Hey, we have now bailed out FF to the tune of about $300 B ? And they still are sitting on millions of mortgage notes that are underwater.

    As to all the other vehicles which you cite, the ARMS, etc., here is what you have to include in those considerations. Crazy loans were made bacause of the moral hazard, and the bubble. If you could sell a home to anyone, and your risk was mitigated by a) FF underwriting it; and/or b) a property that was going to be worth 20% more in a year, which would cover any default and foreclosure and resale, then maybe everyone can understand why loans went crazy. While it was a bubble, the only one who gets burned is the last one holding the mortgage when it pops. Until it pops, or so long as you are not the last one, it was 100% predictable as to what would happen.

    Note that in about 2002 FF was actually losing market share, as others scrambled to take advantage of the bubble and moral hazard which had created it. Inflation was covering all risk. So FF changed its rules, to enable them to make even crazier loans too. Precisely because the inflation of the bubble made it less risky. A bubble that FF started. What a racket they had going.

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    Re: U.S. Payrolls Gain More-Than-Expected 200,000; Jobless Rate Falls to 8.5%

    Quote Originally Posted by iliveonramen View Post
    They did not order them to make riskier loans............
    OBTW, yes they did. They most certainly did.



    I wish I could find the original full video, just of Cuomo. But if you listen until the Q&A, Cuomo is asked if these lenders are not now being compelled to make riskier loans. Listen from 2;10 to 2:30. At least he is honest in answering "Yes" ! Then at about 3:10 he also acknowledges that there will be higher default rates. Enjoy.

    What Cuomo does not say is that as a part of the settlement, FF will also be underwriting the risk. He instead postures like he has won some major political victory for the little guy. What a racket.

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    Re: U.S. Payrolls Gain More-Than-Expected 200,000; Jobless Rate Falls to 8.5%

    Quote Originally Posted by roguenuke View Post
    I was 15 in '95.

    If I can't afford the house, I'm not going to buy it.

    I also wouldn't turn down a family to buy my home for less than the $250K if I knew I only paid $100K for it. I would probably work something out with the family and what they could afford. Sure making a profit is ok, but expecting to make that much of a profit is wrong.
    I am going to try to compel you to think about your words a little bit more. I did not say that you had a right to "expect" anything. If you used a realtor, your realtor would do the customary analysis to see what it was worth. You may discount it from that, but the question I ask you to rconsider is if you discount so as to make a quicker sale ? Or do you do it to be something other than capitalist ?

    The biggest problem I see with our country and the way we do housing now is the banks own most of the houses. People should own their houses, not the banks.

    Hell, I was just talking about this with my husband the other day. I wish more people were able to work out more "rent to own" housing arrangements, instead of getting money from the bank and hoping nothing happens that decreases a family's income.
    It is a system that has worked fine for centuries. You do not have to go to a bank if you have the money to pay full price. Or a rich relative.

    You list yourself as slightly conservative. OK, tell a realtor friend, or any friend who owns a business, of your plan on how you would sell your house. See what they say.

    And finally, do you see merit in this statement "From each according to their abilities. To each according to their needs". Your housing sale plan brought that to mind.
    Last edited by Eighty Deuce; 01-11-12 at 03:00 PM.

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    Re: U.S. Payrolls Gain More-Than-Expected 200,000; Jobless Rate Falls to 8.5%

    I cited the moral hazard that was Fannie and Freddie. FF ended up underwriting 50% of the entire market by about 2002. That's not one out of 25, or 6%, etc. When government will buy your risk. Buy your exposure to risk, that is a moral hazard to take on risk that you otherwise would not. That is what created the bubble.
    Fannie and Freddie have been around since the late 30's for the former and the 70's for the latter. Once again...as mentioned in the "Financial Crises Inquiry Comission" Fannie and Freddie followed the private market...they did not cause the bubble and the explosion of sub prime. An article in the 90's discussing the loss of market share controlled by fannie and freddie in the subprime market and them deciding to follow the private market into subprime. Going Subprime: Fannie Mae and Freddie Mac consider the subprime loan market, by Allen Fishbein

    In fact the peak of Fannie and Freddie owning the largest % of subprime was in 2002. They lost market share (drastically) to private companies. Fannie/Freddie Market Share Plummeted During Boom | The Big Picture

    Chart showing the huge increase in private companies share of the mortgage market. As you can see...only at the end does Fannie and Freddie start gaining market share.

    As to all the other vehicles which you cite, the ARMS, etc., here is what you have to include in those considerations. Crazy loans were made bacause of the moral hazard, and the bubble. If you could sell a home to anyone, and your risk was mitigated by a) FF underwriting it; and/or b) a property that was going to be worth 20% more in a year, which would cover any default and foreclosure and resale, then maybe everyone can understand why loans went crazy. While it was a bubble, the only one who gets burned is the last one holding the mortgage when it pops. Until it pops, or so long as you are not the last one, it was 100% predictable as to what would happen.
    This is due to impromper rating. The fact is Fannie and Freddie have been in business for decades. They actually bought a very small portion of exotic loan types "Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble."

    Read more here: Private sector loans, not Fannie or Freddie, triggered crisis | McClatchy

    Note that in about 2002 FF was actually losing market share, as others scrambled to take advantage of the bubble and moral hazard which had created it. Inflation was covering all risk. So FF changed its rules, to enable them to make even crazier loans too. Precisely because the inflation of the bubble made it less risky. A bubble that FF started. What a racket they had going.
    This makes no sense 82nd. If the moral hazard was Fannie and Freddie existing and backing sub prime mortgages then that moral hazard did not exists for loans made outside of Fannie and Freddie. Loans made outside of Fannie and Freddie did not have the gaurantee of Fannie and Freddie. When large investment firms were securitizing loans at larger rate it had nothing to do with Fannie and Freddie and everything to do with the belief that a bundled mortgage broken into tranches virtually eliminated any risk.
    “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.” John Maynard Keynes

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    Re: U.S. Payrolls Gain More-Than-Expected 200,000; Jobless Rate Falls to 8.5%

    I wish I could find the original full video, just of Cuomo. But if you listen until the Q&A, Cuomo is asked if these lenders are not now being compelled to make riskier loans. Listen from 2;10 to 2:30. At least he is honest in answering "Yes" ! Then at about 3:10 he also acknowledges that there will be higher default rates. Enjoy.

    What Cuomo does not say is that as a part of the settlement, FF will also be underwriting the risk. He instead postures like he has won some major political victory for the little guy. What a racket.
    You are aware that mortgages sold under Cumo and Clinton had low default rates right?
    “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.” John Maynard Keynes

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    Re: U.S. Payrolls Gain More-Than-Expected 200,000; Jobless Rate Falls to 8.5%

    Quote Originally Posted by iliveonramen View Post
    NIVA and NINA loans were not created by the government. ARM loans were not pushed or created by the government. Interest only loans were not pushed by the government. The government did not rate CDO's AAA.
    What's this?

    Alternative Mortgage Transaction Parity Act - AMTPA

    Alternative Mortgage Transaction Parity Act (AMTPA) Definition | Investopedia

    An act from 1982 that over-rode many state laws that prevented banks from using mortgages other than conventional fixed-rate mortgages. This act allowed for the total costs of loans to become obscured, and led to the availability of various new mortgages such as adjustable rate mortgages (ARMs), interest only mortgages, and ballon payment mortgages.
    "There is an excellent correlation between giving society what it wants and making money, and almost no correlation between the desire to make money and how much money one makes." ~Dalio

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    Re: U.S. Payrolls Gain More-Than-Expected 200,000; Jobless Rate Falls to 8.5%

    What's this?

    Alternative Mortgage Transaction Parity Act - AMTPA
    That's not created by the government. That a Reagan initiative to deregulate the banking system. It didn't create those loan types or give them out, it provided the legal ability to do it.

    Let's remember here....this is a chain of responses where I stated the need to regulate the banking and financial industry. We've gone so far into the weeds and off topic that you're posting something that supports my main point in order to disprove something else I said.
    “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.” John Maynard Keynes

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    Re: U.S. Payrolls Gain More-Than-Expected 200,000; Jobless Rate Falls to 8.5%

    Quote Originally Posted by iliveonramen View Post
    ................... This makes no sense 82nd. If the moral hazard was Fannie and Freddie existing and backing sub prime mortgages then that moral hazard did not exists for loans made outside of Fannie and Freddie. Loans made outside of Fannie and Freddie did not have the gaurantee of Fannie and Freddie. When large investment firms were securitizing loans at larger rate it had nothing to do with Fannie and Freddie and everything to do with the belief that a bundled mortgage broken into tranches virtually eliminated any risk.
    It makes all the sense in the world when one looks at what happened, and the timelines. FF created the moral hazard that then increased demand, which began the bubble. Once the bubble got going, the very inflating of the bubble, ie. hyper-inflation in the housing market, then covered many risks, as I explained. You could make a loan that had higher risk of default, as inflation would cover your losses. So FF got back into the market by creating these same higher risk mechanisms that it had enabled others to make.

    Further, all this rubbish to try to minimize FF, how they had "been around for decades", all avoids the facts that mattered here.

    Here is a government report, by the Office of Federal Housing Enterprise Oversight (OFHEO). from 2006, before the bubble burst:

    Another way to look at this unconstrained growth is that during the last 15 years, the
    nation’s GDP doubled, the mortgage market tripled, Fannie Mae’s and Freddie Mac’s (the
    Enterprises) guarantees quadrupled and their portfolios grew ninefold
    (Chart 1).

    Obviously, risks come with such rapid growth. The risk at Fannie and Freddie is
    compounded because by law they cannot spread their risk through diversification. They
    have all their eggs in one basket. They kept adding eggs rapidly, but they chose not to
    maintain and strengthen their baskets. As a result, the unwatched baskets broke and so did
    many eggs. The baskets represent internal controls, accounting systems, corporate culture
    and governance and risk management. They were so poorly maintained that many systems
    will need replacement or total rebuilding. They have made some progress, but it will take
    several years.

    read more: http://www.fhfa.gov/Default.aspx/web...eform71906.pdf
    From 1991 to 2006, FF's portfolio's grew NINEFOLD !!

    I cannot make it more clear or more obvious. You can believe the facts, or you can believe the politicians who want more power. Fannie and Freddie, and that ninefold increase, and the government interference in subprimes, created the bubble, beginning in 1998, that became as a beast we had never seen before. Agin, if there is no bubble, then nothing bad follows. Nothing. It was the bubble that then enabled all the trouble.

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    Re: U.S. Payrolls Gain More-Than-Expected 200,000; Jobless Rate Falls to 8.5%

    Quote Originally Posted by iliveonramen View Post
    You are aware that mortgages sold under Cumo and Clinton had low default rates right?
    Which matters not a hill of beans. The bubble created all this mess. Bubbles must pop. Even if not a single home-owner defaulted, the bubble was going to pop. Trillions in wealth was going to be lost. 30% of all homeowners were going underwater. And then a bunch of them were going to default, out of common sense.

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