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

AdamT said:
My intent is really not to discourage a critical review of regulations. I've been in business long enough to know how ****ed up they can be. But at the end of the day someone really does have to sit down and sift through them in order to straighten the mess out.
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Again, we have people. And they should do this. I think J misses my real objection. it is not that J or anyone has to list every single objectionable regulation. It is the argument that them being costly alone is reason to end regulations. It has to be, as you suggest, a balance between cost and need, and sometimes it may well be even more costly to get rid of a particular regulation. but without someone, not memebers of a political discussion forum, researching whihc specific regulations are or are not needed, we are more than likely to make a few mistakes.
 
While we would agree agree that government has a role, when it came to the Housing bubble, and so much more that ails us, government is the problem, not the solution.
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I agree with you that Fannie and Freddie is a monstronsity and needs to either be private or completely public I do not agree with your view on the extent they caused the bubble.

I would also agree that Fannie and Freddie obviously played a part in the housing bubble but your view that they are the main culprit is only relevant to the far right and those that are out to protect the ideas of deregulation and demonize government. You can go from former Reagan officials to Fed Chairmans recent and in the past and none of them hold that view. You can look at finding from multiple economists (outside of CATO and Heritage) and resounding the consensus is that CRA was not the cause and that Fannie and Freddie are components and not the cause of the housing bubble. I say this only because you apparently think my veiws stem from power hungry politicians.
 
iliveonramen said:
It's not rubbish...if an institution has been around for decades there has to a catalyst or change that caused the housing crises. If by existing they caused the housing crises which is what you're saying then the amount of time they've been around is relevant.

If the moral hazard of fannie and freddie were the cause of the housing bubble...the housing bubble was depending on that implicit government backing. When that implicit government backing is not there then there should be no or less demand for securitized mortgages.
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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.

The value of a CDO is the interest on the mortgage. When you buy a CDO you purchase it expecting those interests payments for the life of the CDO. If they default and housing prices are rising sure you can recoup some loss but you still are out a lot of money.

The CDO was completely based on the idea that foreclosures would not rise to even medium high foreclosure rates. It's no different than bundling junk bonds in the 80's. The whole system was dependent on normal bankruptcy rates among junk rated companies. This is not the first time Wall Street has misvalued risk.


We have seen this beast before...margin trading in the 1920's a tulip bulb worth more than a house.
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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.

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.

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" or "flipper" on TV, only to then be in bankruptcy within 1-2 years.
 
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iliveonramen said:
I agree with you that Fannie and Freddie is a monstronsity and needs to either be private or completely public I do not agree with your view on the extent they caused the bubble.

I would also agree that Fannie and Freddie obviously played a part in the housing bubble but your view that they are the main culprit is only relevant to the far right and those that are out to protect the ideas of deregulation and demonize government. You can go from former Reagan officials to Fed Chairmans recent and in the past and none of them hold that view. You can look at finding from multiple economists (outside of CATO and Heritage) and resounding the consensus is that CRA was not the cause and that Fannie and Freddie are components and not the cause of the housing bubble. I say this only because you apparently think my veiws stem from power hungry politicians.
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I believe that you have mis-stated my view, overstating it so as to then demonize it. I maintain throughout that Fannie and Freddie and gubmit started the bubble. Once it got going, they were somewhat shoved out of it, as I noted, and had to become reckless to get back into it. The key to the speculation that erupted in housing is what got it going. Again, it is why they call it a bubble. It grows until it pops.

I have cited sources from across the spectrum. Most notably, the actual people, actual government reports (not from politicians), etc. We also showed you a bt about "greed". :)

The key is to get a bubble started. It is no different than much of the dot-com bubble when evaluating what speculation is. Or your tulip example. Or beanie babies. The key is to start the feeding frenzy. Then just watch. Profit if you will, but someone is going to get burned when it pops.

The bubble began to inflate in 97-98. Explain that, will you ?
 
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iliveonramen said:
This is not the first time Wall Street has misvalued risk.
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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.
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source
 
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.
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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.
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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.
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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.
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And I agree with that...there's a lot of blame to go around.
 
Goldenboy219 said:
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
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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).
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Government underwriting 40-70% of all mortgages, depending on year. Compare that to the influence of FF in the 80's. :roll:
 
The bubble began to inflate in 97-98. Explain that, will you ?
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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.
 
iliveonramen said:
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?
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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.
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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.
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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.

.
 
Eighty Deuce said:
From your source:



Government underwriting 40-70% of all mortgages, depending on year. Compare that to the influence of FF in the 80's. :roll:
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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).
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iliveonramen said:
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.
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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.
 
Goldenboy219 said:
From the same source:
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Which can be rationalized as the data shows how private companies took over once the bubble got going. Fannie and Freddie could have ceased to exist by about 2003-2004, and that bubble was still gonna go and then blow !!

But I do believe they understate to role of FF. And their own report notes that their views are contrary on this matter to many other well-known economists.

Did we have a moral hazard or not ?
 
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
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Why do you say that? The availability of credit of credit played a very large part.

That credit was fueled by the purchase of CDO's. That purchase was fueled by the fact it was a AAA rated security that paid out much more than any other AAA rated security. Pension funds and other types of large scale institutional investors that are limited too buying a majority of AAA rated securities jumped into the housing market and pumped trillions and trillions of capital into the market.
 
Eighty Deuce said:
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.
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Mispriced CDO's can have a blanketing effect, or add fuel to a fire. Cheap CDO's that result from improper valuation of risk (in this case, high risk derivatives were trading at low risk prices) lower the cost of lending, not to be confused with cost of borrowing. The majority of toxic debt was created outside your typical financing realm.
 
Eighty Deuce said:
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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All's you're doing is trying to equate correlation with causation. When F&F were expanding so rapidly there was no housing bubble and no subprime crisis.

The crisis was caused by insufficient regulation of private lenders who were vastly overleveraged and who had virtually no lending standards. It was caused by a lack of regulation of the derivatives market, which allowed mortgages to be broken up into tranches and sold. It was caused by lack of regulation of credit ratings agencies, who gave junk-level mortgage backed securities AAA ratings. And it was caused by insufficient consumer protection laws, which resulted in unsophisticated buyers signing on to horrific mortgages that they didn't understand.

In short, the crisis was almost entirely the result of INSUFFICIENT government regulation. So yes, it was government's fault, but it was government doing too little and not too much. That is the conclusion of virtually every investigation that I've seen of the financial meltdown.
 
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AdamT said:
All's you're doing is trying to equate correlation with causation. When F&F were expanding so rapidly there was no housing bubble and no subprime crisis.......
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LOL .. the government's own watchdog, in 2006, said that FF grew ninefold from 1991 to 2006, and that there were problematic issues inherent with such rapid growth. Link already provided. So tell us all which housing bubble you are talking about :roll:
 
Eighty Deuce said:
LOL .. the government's own watchdog, in 2006, said that FF grew ninefold from 1991 to 2006, and that there were problematic issues inherent with such rapid growth. Link already provided. So tell us all which housing bubble you are talking about :roll:
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The housing bubble took place between '02 and '06 -- not '91 to '06.

Still noting correlation? Can you describe the mechanism that you think created the problem?
 
AdamT said:
The housing bubble took place between '02 and '06 -- not '91 to '06.
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Let's give it a look, shall we ?

[video]http://www.jparsons.net/housingbubble/united_states.png[/video]

united_states[1].jpg

It begins in 1998, and is over 30% "inflated" by 2002. Try again. :roll:

Still noting correlation? Can you describe the mechanism that you think created the problem?
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Been posted a bunch of times. Is there a button here so that I can type in braille ?
 
Eighty Deuce said:
Let's give it a look, shall we ?

[video]http://www.jparsons.net/housingbubble/united_states.png[/video]

View attachment 67121061

It begins in 1998, and is over 30% "inflated" by 2002. Try again. :roll:
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Okay, I'll play. Your claim is that F&F's expansion since 1991 was 100% responsible for the housing bubble. But from 1991 to 1998, the price of homes was actually FALLING. That's seven years. Then, for the next nine years housing prices started to take off. How does your theory explain the fact that for 44% of the expansion period, home prices fell and did not rise? :popcorn2: :popcorn2:

Been posted a bunch of times. Is there a button here so that I can type in braille ?
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Maybe I need to borrow a pair of wingnut goggles, because I've yet to see you post an explanation that goes beyond mere correlation ... and as noted above, even correlation doesn't line up.
 
Boo Radley said:
Again, we have people. And they should do this. I think J misses my real objection. it is not that J or anyone has to list every single objectionable regulation. It is the argument that them being costly alone is reason to end regulations. It has to be, as you suggest, a balance between cost and need, and sometimes it may well be even more costly to get rid of a particular regulation. but without someone, not memebers of a political discussion forum, researching whihc specific regulations are or are not needed, we are more than likely to make a few mistakes.
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Oh, well I wasn't aware that you were trying to help me not make mistakes...by all means then, I will immediately do the job of congressional staff so that we on a message board don't make any mistakes, fore millions of homeowners depend on this lone truckers opinion....


J-mac

Sent from my PC36100 using Tapatalk
 
Here we go again, weekly jobless claims rise

New Weekly Claims for Unemployment Benefits Jump to 399,000
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This in conjuction with Retail sales increase in December of .1% shows once again the Obama economic results to be a disaster.
 
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