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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%

    Quote Originally Posted by iliveonramen View Post
    This is not the first time Wall Street has misvalued risk.
    This is key. FF were/are in the business of purchasing AAA mortgage bond tranches. There are a plethora of quality reports made at the academic level that provide a quality analysis.

    For example:A Closer Look at Fannie Mae and Freddie Mac: What We Know, What We Think We Know and What We Don’t Know

    We explore the role of housing policy in the collapse of Fannie Mae and Freddie Mac, the role of Fannie and Freddie in subprime markets and the sources of their default losses. We do not find evidence that their crash was due much to government housing policy or that they had an essential role in the development of the subprime mortgage-backed securities market, which occurred outside of the normal mortgage origination channels and which was funded by non agency or “private label” securities (PLS). They did build a large portfolio of AAA-rated PLS, probably in response to affordable housing goals, but such investments were unlikely to have had much of an impact on subprime mortgage origination volume because the AAA pieces of PLS deals were not key to their completion. Nor were PLS a major part of their losses. Rather than brewing for a long time, their downfall was quick, primarily due to mortgage originated in 2006 and 2007. It had little to do with their much-criticized portfolios, and was mostly associated with purchases of risky-but-not-subprime mortgages and insufficient capital to cover the decline in property values.
    source
    It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
    "Wealth of Nations," Book V, Chapter II, Part II, Article I, pg.911

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

    Quote Originally Posted by Goldenboy219 View Post
    This is key. FF were/are in the business of purchasing AAA mortgage bond tranches. There are a plethora of quality reports made at the academic level that provide a quality analysis.

    For example:A Closer Look at Fannie Mae and Freddie Mac: What We Know, What We Think We Know and What We Don’t Know



    source
    Hmmm wonder where you got that...

    http://www.debatepolitics.com/breaki...post1060010426
    "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%

    When an institution goes from being barely of notice, to then growing ninefold in fifteen years, coinciding with the housing bubble, then their ninefold increase is quite relevent, while their existence prior is inconsequential by every measure.
    Sure...but that ignores the fact they've always been the vast bulk of the mortgage market and then lose a lot of that market share in a bubble. The bubble and easy credit was created when players besides Fannie and Freddie joined the securitization and selling of CDO's. If Fannie and Freddie remained 70 to 80% of the market share would there of been a bubble? Would the amount of loans they gave out accounted for the size of the bubble?
    The "C" in CDO stands for Collateralized. Each piece of property was the collateral behind each note. It is simple math. Each individual loan has a risk, one of the facotors of which is the ability of the collateral to cover a default. When housing is rising at 20% per year, vs. the more normal 3-5% per year, then the risk is less.
    And I mentioned that...you can recoupe some of the losses in a market where home values are increasing.

    Further, the actual losses were not realized because a few folks defaulted. The losses snowballed when the bubble popped, and values dropped by as much as 50%. which then caused many additional defaults by folks who chose strategic foreclosures, and shortsales. Not usual deadbeats by any measure.
    Macroeconomics - Roger A. Arnold - Google Books

    Here is a page from an economics book that explains the valuation of CDO's. The value of CDO's were based on their interest payments over time and the fact they were regarded as low risk. The higher risk the less the CDO is worth or at least the higher interest payments required to offset that risk. The fact they paid decent interest and were considered the lowest risk investment possible is the reason they were valued so highly. It's entirely based on foreclosure. Risk is foreclosure and the possibility of losing those interests payment. Nobody buying those CDO's want to go through the foreclosure process because at the end of the day....it's costly.

    I would submit that the reason things became such a mess, with so many willing to take on extra risk at every level, was because of the feeding frenzy created by such a bubble. You can find small examples of all the massive mega-bank nonsense in each of our communities. Folks who sold and made a bundle. Good folks who bought and then lost everything. Others who bought five properties, thinking they were like the "fixer-upper" of "flipper" on TV, only to then be in bankruptcy within 1-2 years.
    And I agree with that...there's a lot of blame to go around.
    “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 Goldenboy219 View Post
    This is key. FF were/are in the business of purchasing AAA mortgage bond tranches. There are a plethora of quality reports made at the academic level that provide a quality analysis.

    For example:A Closer Look at Fannie Mae and Freddie Mac: What We Know, What We Think We Know and What We Don’t Know

    source
    From your source:

    Between 1990 and 2000, total household mortgage debt increased at a 6.8% annualized rate, while the growth in the dollar value of home mortgages financed by the GSEs grew about one-third faster, at 9% per year. By 2003, Fannie Mae and Freddie Mac accounted for 52.3% of all residential mortgage loans outstanding (Federal Reserve and Monthly Funding Summaries). The following year, GSE market share of newly originated mortgages fell precipitously and remained low for the next three years: during 2001-2003, the GSEs funded nearly 70% of all mortgages originated; from 2004-2006, the GSE share of new mortgages was 47%, 41%, and 40%, respectively (see Table 1).
    Government underwriting 40-70% of all mortgages, depending on year. Compare that to the influence of FF in the 80's.

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

    The bubble began to inflate in 97-98. Explain that, will you ?
    File:Case-shiller-index-values.jpg - Wikipedia, the free encyclopedia

    Housing prices were going up but that doesn't necessarily mean it would lead to a bubble to the extent that happened. Granted...government definately is to blame...from Fannie and Freddie to the Fed Reserve and their low interest rate policies that made credit that much easier. If I mis-stated your view I apologize.
    “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%

    “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
    Sure...but that ignores the fact they've always been the vast bulk of the mortgage market and then lose a lot of that market share in a bubble. The bubble and easy credit was created when players besides Fannie and Freddie joined the securitization and selling of CDO's. If Fannie and Freddie remained 70 to 80% of the market share would there of been a bubble? Would the amount of loans they gave out accounted for the size of the bubble?
    What ? You have been provided the government report where they went from less than 8% of the market, to over 70%, in 15 years. That makes your above statement, which I bolded, quite inaccurate.

    And I mentioned that...you can recoupe some of the losses in a market where home values are increasing.


    Macroeconomics - Roger A. Arnold - Google Books

    Here is a page from an economics book that explains the valuation of CDO's. The value of CDO's were based on their interest payments over time and the fact they were regarded as low risk. The higher risk the less the CDO is worth or at least the higher interest payments required to offset that risk. The fact they paid decent interest and were considered the lowest risk investment possible is the reason they were valued so highly. It's entirely based on foreclosure. Risk is foreclosure and the possibility of losing those interests payment. Nobody buying those CDO's want to go through the foreclosure process because at the end of the day....it's costly.
    CDO's did not create, or enlarge, the bubble. The bubble was every home buyer and what they were willing to pay. Whatever motivated them to buy, instead of rent ... well, you will have to think on that

    And I agree with that...there's a lot of blame to go around.
    All of it was predictable, IMMHO, as we have seen such foolishness before (the tulips, as you note). The dynamics of the feeding frenzies that occur when a bubble starts are there to see in historical review. But what starts them is what is unnatural. This bubble never starts without government intrusion. Never.

    .

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

    Quote Originally Posted by Rhapsody1447 View Post
    It is worth noting (once again) given the current trajectory of the discussion
    It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
    "Wealth of Nations," Book V, Chapter II, Part II, Article I, pg.911

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

    Quote Originally Posted by Eighty Deuce View Post
    From your source:



    Government underwriting 40-70% of all mortgages, depending on year. Compare that to the influence of FF in the 80's.

    From the same source:
    We do not find evidence that their crash was due much to government housing policy or that they had an essential role in the development of the subprime mortgage-backed securities market, which occurred outside of the normal mortgage origination channels and which was funded by non agency or “private label” securities (PLS).
    It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
    "Wealth of Nations," Book V, Chapter II, Part II, Article I, pg.911

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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
    File:Case-shiller-index-values.jpg - Wikipedia, the free encyclopedia

    Housing prices were going up but that doesn't necessarily mean it would lead to a bubble to the extent that happened. Granted...government definately is to blame...from Fannie and Freddie to the Fed Reserve and their low interest rate policies that made credit that much easier. If I mis-stated your view I apologize.
    I have to run, but will elaborate. Clearly I believe that government and FF got this one going. I also do not believe that such as Cuomo ever invisioned it as it worked out. Or Bush for that matter.

    But once the horse was out of the barn, they could not put it back in. Too many people making too much money. I certainly blame Bush for not exercising whatever leadership was necessary to stop it.

    The US also went through 15 years of an artificial economy, which masked to real erosion of our economic foundations. We were ripe for bubbles, and nary a poltician out there was going to do much to stop it.

    Now I blame what I feel is a cover-up by the same politicians. Blame Wall Street. Blame "greed". "Just don't blame us". ;roll:

    Government is more the problem than the solution.

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