Job growth cools slightly, recovery grinds on [W:225]

Cardinal Fang · Jan 19, 2013

iguanaman said:
Just how many of those no money down loans that Bush sold to Fannie Mae were actually sold to minorities and how many resulted in them actually owning a home today?

Bush didn't sell any loans to anybody. Fannie Mae said, oh sure, over the next few years, we'll buy $440 billion worth of mortgages issued to minority borrowers. Because they were planning on doing that anyway, and it gave the President something to say in a speech. But keep two things in mind in all this -- the vast majority of subprime loans did not fail, and at least through late 2006 when they did begin to get desperate, the GSE's were acquiring the choicest morsels from among them. Critics claim that the lowest slices of the GSE "near-prime" or "A-minus" program purchaes were indistinguishable from subprime, but the truth in that is merely definitional. The worst loan that the GSE's acquired was obviosuly indistinguishable from the best loan that they did not acquire. The rest were more and more plainly superior the higher up the list you went. Compare and contrast to the absolute junk that Wall Street was buying up and securitizing. In any case, Bush was merely posturing and showboating here, and while there aren't any records to examine, it's almost impossible to believe that large numbers of minority borrowers whose loans were acquired by the GSE's in and around 2002 did not in fact weather the storm and are still living happily in the homes they purchased a decade or so ago.

iguanaman said:
The subprime housing bubble caused a huge market in home "flipping" that resulted in many subprime loans being sold to mid and higher income buyers, many of them who were "caught" when the music stopped.

Speculators are a specialized sort of investor, and they are a part of almost every market, and in some, a necessary part. They are typically well-heeled and sophisticated players. Rising home prices allow real estate speculators to do what they do more easily and more quickly, but their numbers remained entirely insignificant everywhere but in the media. Keep in mind the extent to which what you call "the bubble" was fed by mortgage refinancing. That is, an owner flipping his house to himself. Keep in mind as well the portion that was second mortgages (equity loans and lines), not original mortgages at all. If there is a case to be made for "flippers" driving any part of the market, I've never seen it. It's certainly not apparent in any of the numbers.

There is no question on the other hand that mortgage brokers put a great many borrowers who were qualifed for prime terms into high-cost, high-profit subprime paper and that such actions in fact ruined a great many lives. That had nothing to do with market speculators however. These unscrupulous brokers were merely being self-serving crooks. Many enough were making a fat-cat living off of yield-spread premiums that provided incentives to squeeze a borrower for absolutely every penny they could.

iguanaman said:
I doubt very much the Bush would have pushed those loans if the bankers did not push him to do so. Reselling those bad loans immediately was an important part of their scheme. I think you are being too generous, I have seen no evidence that Bush was worried about the level of minorities that owned homes before OR after the program.

There was no big scheme here. This was Bush making PR hoopla out of the GSE's publicly agreeing to do what they had intended to do anyway. And at the time, the relatively new subprime market was making everyone a lot of money while the pretty much saturated prime market sort of sat there like a lump. Selling loans is meanwhile how lenders recapitalize. It is a necessary part of supporting the market. All Bush's touting of the GSE pledge did was send a message to front-line lenders that they would indeed be able to sell loans made to minority borrowers. And of course to other low- and moderate-income borrowers as well.

iguanaman said:
In fact he claimed he wanted to "rein in" Fannie Mae just one year later.

You're surprised at Bush's having been two-faced? Bush's overall design was to kill the GSE's outright and "privatize the mission" by turning the whole ball of wax over to Wall Street. Same vision he had (and his heirs still have) for Social Security. In 2003, he sent Treasury Secretary Snow up to Capitol Hill with a grand plan to create a new GSE czar within Treasury who would report to Bush and who could overrule any action taken by any GSE officer, thus having the power to strangle them. That plan fell on its face, but there would be more where that one came from.

OpportunityCost · Jan 20, 2013

Bluster bluster bluster. Nothing to back up your rhetoric.

http://research.stlouisfed.org/conferences/gse/White.pdf

Fannie Mae and Freddie Mac are where they are because they were run as the largest
hedge fund on the planet. A little calculation illustrates their business model.
Suppose that we offered you the following opportunity: We will invest $1, you lend us
$39. With this $40, we will buy bank-originated pools of mortgages that are not easy to sell and
face significant long-term risks. Although we’ll attempt to limit that risk by using sophisticated
financial hedging instruments, our models have large error and uncertainty. We’ll invest 15% of
the funds in low-quality mortgages that households will be unable to pay in a recession or a
severe housing downturn. And to make it even more interesting, we’ll become the largest
financial institution in terms of assets that are related to mortgages and together buy around
$1.7 trillion worth, making us truly too-big-to-fail.
But it doesn’t stop here. We’re going to offer insurance on a whole lot more mortgages
taken out in America, say $3.5 trillion (together), and guarantee them against default. We don’t
want much for offering this insurance -- maybe around 20 cents per $100 of mortgage -- but
that will provide us with $7 billion in profits per year (assuming absolutely zero foreclosures).
As a lender to us, you might be worried how much capital we’ll hold as a buffer against all future
defaults: for every $100 that we guarantee, we’ll hold only 45 cents. And because we want as big
a market share as possible, we’re going to backstop some dicey mortgages.
For this type of risky investment, we know that you are expecting a big return. However,
we are only going to pay you the yield on government bonds plus a little extra. You would think
our investment pitch was crazy and reject the deal outright. But if we came along and whispered
to you that we have a wealthy uncle – his name is Sam – that will make you whole on the money
that you lent us no matter what happens, do you care about the risk? If you believe that Sam will
be there, you’ll give us your money freely.
This, of course, is a description of the business model of Fannie Mae and Freddie Mac.

Consider the scale and complexity of the problem. The government cannot simply
default on the GSE debt with the intention of passing losses onto creditors. About 50% of this
debt is held by financial institutions and about 20% by foreign investors, who also own the
majority of government debt. Due to their size and interconnectedness, the GSEs cannot simply
be unwound in the ways that have been successful for smaller financial firms. We are dealing
with $3.5 trillion mortgage guarantees, a $1.7 trillion mortgage portfolio, and a $2.2 trillion
position in derivatives. Not only does the unwinding from the GSEs have to be handled well, the
Federal Reserve also has to plan its own exit from the $1.5 trillion position of GSE debt and
GSE-backed securities that it accumulated as part of the rescue package for the economy. It is
clear thus that any resolution to the problem of the GSEs will likely involve several years, if not
decades, of careful crafting and execution.

Fannie and Freddie are the poster children of governmentrelated
institutions, often set up with an initially limited and worthwhile mandate, but grown far
beyond their initial purpose into uncontrollable and systemically risky behemoths.

Cardinal Fang · Jan 20, 2013

As its over-the-top tone should certainly have suggested to serious readers, the above is NOT a product of the FRB of St. Louis at all. It is a paper that was presented at a 2010 conference sponsored by that institution. This and the AEI paper presented after it apear to have constituted the these days mandatory whacko-corner of the event. They were the last two papers to be presented, leaving attendees the option of realizing that the real stuff had all been done already and then getting out of there at 2:00 to beat the traffic.

OpportunityCost · Jan 20, 2013

Cardinal Fang said:
As its over-the-top tone should certainly have suggested to serious readers, the above is NOT a product of the FRB of St. Louis at all. It is a paper that was presented at a 2010 conference sponsored by that institution. This and the AEI paper presented after it apear to have constituted the these days mandatory whacko-corner of the event. They were the last two papers to be presented, leaving attendees the option of realizing that the real stuff had all been done already and then getting out of there at 2:00 to beat the traffic.

How's things in the cheap seats? Where you dont present any sources, any cites and just call everything everyone else presents as whacko and false. Thats why you are full of crap--you just keep presenting the same damn argument with nothing to back it up. Thats not debating, thats arguing. Let me know when you want to debate.

Btw just to keep things in perspective the authors and their credentials:

Viral V. Acharya, Professor of Finance, NYU Stern School of Business, NBER and CEPR
Matthew Richardson, Charles E. Simon Professor of Applied Financial Economics, NYU Stern School of Business and NBER
Stijn Van Nieuwerburgh, Associate Professor Finance, NYU Stern School of Business, NBER and CEPR
Lawrence J. White, Arthur E. Imperatore Professor of Economics, NYU Stern School of Business

Here is another AEI Author for you to denigrate instead of examining his ideas and conclusions, because you know the absolute evidence of being right is attacking the messenger.

Hey, Barney Frank: The Government Did Cause the Housing Crisis - Peter Wallison - The Atlantic

Then we have Cardinal Fang's opinion and obvious bias. So hard to pick which one might be more reliable.

iguanaman · Jan 20, 2013

Cardinal Fang said:
Bush didn't sell any loans to anybody. Fannie Mae said, oh sure, over the next few years, we'll buy $440 billion worth of mortgages issued to minority borrowers. Because they were planning on doing that anyway, and it gave the President something to say in a speech. But keep two things in mind in all this -- the vast majority of subprime loans did not fail, and at least through late 2006 when they did begin to get desperate, the GSE's were acquiring the choicest morsels from among them. Critics claim that the lowest slices of the GSE "near-prime" or "A-minus" program purchaes were indistinguishable from subprime, but the truth in that is merely definitional. The worst loan that the GSE's acquired was obviosuly indistinguishable from the best loan that they did not acquire. The rest were more and more plainly superior the higher up the list you went. Compare and contrast to the absolute junk that Wall Street was buying up and securitizing. In any case, Bush was merely posturing and showboating here, and while there aren't any records to examine, it's almost impossible to believe that large numbers of minority borrowers whose loans were acquired by the GSE's in and around 2002 did not in fact weather the storm and are still living happily in the homes they purchased a decade or so ago.

Speculators are a specialized sort of investor, and they are a part of almost every market, and in some, a necessary part. They are typically well-heeled and sophisticated players. Rising home prices allow real estate speculators to do what they do more easily and more quickly, but their numbers remained entirely insignificant everywhere but in the media. Keep in mind the extent to which what you call "the bubble" was fed by mortgage refinancing. That is, an owner flipping his house to himself. Keep in mind as well the portion that was second mortgages (equity loans and lines), not original mortgages at all. If there is a case to be made for "flippers" driving any part of the market, I've never seen it. It's certainly not apparent in any of the numbers.

There is no question on the other hand that mortgage brokers put a great many borrowers who were qualifed for prime terms into high-cost, high-profit subprime paper and that such actions in fact ruined a great many lives. That had nothing to do with market speculators however. These unscrupulous brokers were merely being self-serving crooks. Many enough were making a fat-cat living off of yield-spread premiums that provided incentives to squeeze a borrower for absolutely every penny they could.

There was no big scheme here. This was Bush making PR hoopla out of the GSE's publicly agreeing to do what they had intended to do anyway. And at the time, the relatively new subprime market was making everyone a lot of money while the pretty much saturated prime market sort of sat there like a lump. Selling loans is meanwhile how lenders recapitalize. It is a necessary part of supporting the market. All Bush's touting of the GSE pledge did was send a message to front-line lenders that they would indeed be able to sell loans made to minority borrowers. And of course to other low- and moderate-income borrowers as well.

You're surprised at Bush's having been two-faced? Bush's overall design was to kill the GSE's outright and "privatize the mission" by turning the whole ball of wax over to Wall Street. Same vision he had (and his heirs still have) for Social Security. In 2003, he sent Treasury Secretary Snow up to Capitol Hill with a grand plan to create a new GSE czar within Treasury who would report to Bush and who could overrule any action taken by any GSE officer, thus having the power to strangle them. That plan fell on its face, but there would be more where that one came from.

i think you are omitting the predatory nature of the "new" subprime loans the banks devised. Your portrayal of the subprime bubble as merely an extension of policies in place before the deregulation of the banks is disingenuous. Not only were these loans sold to unqualified borrowers, their "ballooning" interest made it very unlikely they could be paid off as written anyway. You do understand that they were written that way to provide "investors" with high interest mortgage backed bonds and were misrepresented by the banks as low risk. To characterize the whole thing as a misguided attempt at "fair housing" for minorities misses the entire "purpose" of the invention of the subprime loan. Which was to provide a new and lucrative income stream for the Commercial banks that took advantage of the relaxed bank regulations. Add to that the fact that the banks could also use CDS's to "bet" against the loans they KNEW would fail and you have a windfall of profits that enabled over $80 billion in Banker bonuses during the bubble years.
GW Bush not only kickstarted the bubble for the banks he also used Federal power to stop the States from using their own laws to regulate the predatory mortgages.
Eliot Spitzer - Predatory Lenders' Partner in Crime

Cardinal Fang · Jan 20, 2013

OpportunityCost said:
How's things in the cheap seats? Where you dont present any sources, any cites and just call everything everyone else presents as whacko and false. Thats why you are full of crap--you just keep presenting the same damn argument with nothing to back it up. Thats not debating, thats arguing. Let me know when you want to debate.

The rules of debate preclude lies and propaganda. Those were smashed to bits long ago, but not by me.

OpportunityCost said:
Btw just to keep things in perspective the authors and their credentials:

I didn't dispute their credentials. Just the merits of their papers.

OpportunityCost said:
Here is another AEI Author for you to denigrate instead of examining his ideas and conclusions, because you know the absolute evidence of being right is attacking the messenger.

Well, I know Peter Wallison quite well. He's been lying all over town for years. You do realize that AEI was created as a right-wing propaganda mill, don't you? The difference between AEI and the Heritage Foundation is that AEI will let you work on some of your own stuff, they just won't publish or publicize it unless it supports their agenda. The rest of the time, you have to produce stuff that supports their agenda. Over at the Heritage Foundation, there is none of that "your own stuff" leeway. You produce stuff that conforms to the agenda all the time or you are fired.

Wallison of course lies throughout this piece, often by commission, but also by omission. For instance, he implies that Barney Frank was somehow behind the growing problems, but he doesn't note that Congressman Frank was no more than the Ranking Member of the Financial Services Committee between 1995 and 2007. How did he manage to sneak all his stuff past a Republican committee, past a Republcian chairman, past a Republican Speaker, past a Republican House, and after 2000, past a Republican President? How did he do that? Wallison doesn't explain how that could have happened because he's hoping to be able to tiptoe around the simple absurdity of his suggestions. He knows quite well how phony they are -- he just doesn't want YOU to. That's what makes a person a propagandist.

OpportunityCost said:
Then we have Cardinal Fang's opinion and obvious bias. So hard to pick which one might be more reliable.

All that ego damage still causing some problems, eh? Hang in there. It will heal in time.

Cardinal Fang · Jan 20, 2013

iguanaman said:
i think you are omitting the predatory nature of the "new" subprime loans the banks devised. Your portrayal of the subprime bubble as merely an extension of policies in place before the deregulation of the banks is disingenuous. Not only were these loans sold to unqualified borrowers, their "ballooning" interest made it very unlikely they could be paid off as written anyway. You do understand that they were written that way to provide "investors" with high interest mortgage backed bonds and were misrepresented by the banks as low risk. To characterize the whole thing as a misguided attempt at "fair housing" for minorities misses the entire "purpose" of the invention of the subprime loan. Which was to provide a new and lucrative income stream for the Commercial banks that took advantage of the relaxed bank regulations. Add to that the fact that the banks could also use CDS's to "bet" against the loans they KNEW would fail and you have a windfall of profits that enabled over $80 billion in Banker bonuses during the bubble years.

I'm quite sure I've devoted thousands of words by now to the scurrilous nature of the folks who ran the Big Bypass -- ambitiuous and unscrupulous brokers such as Countrywide, Ameriquest, and New Century Financial, plus the standards-free, buy-anything-sell-anything as long as we make a profit model of the private-label securitization shops set up by Wall Street. These were the people who created the crisis. I've posted this graph before, but it is still the clearest single-source description of what went wrong.

That red line is the bad guys driving out the good guys and creating the crisis that we all still deal with today.

It should be noted however that subprime lending as we know it has been legal since 1980. There is no special quality in subprime markets that should make them off-limits. There is something special about abuse of any credit market that should make that off-limits, but none of the boys and girls running the Big Bypass felt that way about it. They just wanted to make a lot of money.

OpportunityCost said:
GW Bush not only kickstarted the bubble for the banks he also used Federal power to stop the States from using their own laws to regulate the predatory mortgages.

Yes, he did do that.

iguanaman · Jan 20, 2013

Cardinal Fang said:
I'm quite sure I've devoted thousands of words by now to the scurrilous nature of the folks who ran the Big Bypass -- ambitiuous and unscrupulous brokers such as Countrywide, Ameriquest, and New Century Financial, plus the standards-free, buy-anything-sell-anything as long as we make a profit model of the private-label securitization shops set up by Wall Street. These were the people who created the crisis. I've posted this graph before, but it is still the clearest single-source description of what went wrong.

View attachment 67141155

That red line is the bad guys driving out the good guys and creating the crisis that we all still deal with today.

It should be noted however that subprime lending as we know it has been legal since 1980. There is no special quality in subprime markets that should make them off-limits. There is something special about abuse of any credit market that should make that off-limits, but none of the boys and girls running the Big Bypass felt that way about it. They just wanted to make a lot of money.

Yes, he did do that.

There was something "new" about subprimes after 2001. That's when they started bundling them with prime loans in "Asset based Securities" and selling them to "investors" as A1 investments. That made a HUGE difference in the Bankers desire to make subprime loans. They don't appear to have been a problem before that started.

OpportunityCost · Jan 21, 2013

Cardinal Fang said:
I'm quite sure I've devoted thousands of words by now to the scurrilous nature of the folks who ran the Big Bypass -- ambitiuous and unscrupulous brokers such as Countrywide, Ameriquest, and New Century Financial, plus the standards-free, buy-anything-sell-anything as long as we make a profit model of the private-label securitization shops set up by Wall Street. These were the people who created the crisis. I've posted this graph before, but it is still the clearest single-source description of what went wrong.

View attachment 67141155

That red line is the bad guys driving out the good guys and creating the crisis that we all still deal with today.

It should be noted however that subprime lending as we know it has been legal since 1980. There is no special quality in subprime markets that should make them off-limits. There is something special about abuse of any credit market that should make that off-limits, but none of the boys and girls running the Big Bypass felt that way about it. They just wanted to make a lot of money.

Yes, he did do that.

Speaking of dishonest:

Originally Posted by OpportunityCost
GW Bush not only kickstarted the bubble for the banks he also used Federal power to stop the States from using their own laws to regulate the predatory mortgages.

That was not posted by me.

And once again, you are dismissed---post something backing up your assertions. You dont get to dismiss my sources based upon your worthless opinion. Because its biased and worthless.

Cardinal Fang · Jan 21, 2013

iguanaman said:
There was something "new" about subprimes after 2001. That's when they started bundling them with prime loans in "Asset based Securities" and selling them to "investors" as A1 investments. That made a HUGE difference in the Bankers desire to make subprime loans. They don't appear to have been a problem before that started.

There has never been any problem with subprime lending. There has never been any problem with securitizing many small payment streams into a single larger one. The problems that arose after 2001 arose because crooks began operating the system unchecked. For the sake of personal profit, they engaged delberately in predatory lending and in misleading and dishonest appraisals and credit ratings that produced flows of assets known by their originators to be eventually toxic, and none of the people who were supposed to guard against that sort of thing did anything about it. That's what was new.

Cardinal Fang · Jan 21, 2013

OpportunityCost said:
Speaking of dishonest: That was not posted by me.

Reduced to complaining about a technical oversight in constructing a reply. I suppose there was nothing more relevant that you could honestly say.

OpportunityCost · Jan 21, 2013

Cardinal Fang said:
Reduced to complaining about a technical oversight in constructing a reply. I suppose there was nothing more relevant that you could honestly say.

The proper response is "Im sorry" not doubling down on arrogance and DBAJ. Im still awaiting some sources from you. Its easy to say someone is wrong based upon only your biased opinion.

Time to leave the peanut gallery and have a substantial conversation.