Bah, lost post. Oh well.
Oh, I feel your pain. I’ve lost a ton of long posts to whatever dreaded error hits me on a given day. If I know I’m going to be banging out a long post I try to get it on Word… but even now I still forget from time to time.
I was, of course, referring to lending practices within the United States. ARMs were relatively new, and adapted for a market that didn't really apply to much of the country. They were frequently combined with negative amortization and obfuscated language.
The first time I checked to see that you're not in the US, you've probably never seen some of these agreements that loan pushers would try to shove on people, especially new home buyers. Often, they were advertised with just the 'introductory rate', which was sometimes not the accrual rate, just the rate you would have to pay for the first few years.
For example, when I got my house I received notices for interest rates anywhere from the 1.9% to 3.9% rates - below prime. What these some were, were negatively amortized ARMs where the real interest rate was 8% or so, and the balance would accrue even if you didn't cover it all.
Yes, it was frequently fraud, on a massive scale, but the FBI's hands were tied with the war on terror and Bush and his staff prevented diverting more resources towards this issue.
I’ve seen terrible home loans before… sub-prime wasn’t just restricted to the US… considering house prices in the UK we had just as many outrageous offers being made.
However, I think we should still be careful between lenders who deliberately misled clients and those whose clients simply didn’t read (or get someone to read) the paper work. One is fraud (and should be prosecuted as such), one is simply a bad bargin.
Variable Rates are not the issue. With commercially sensible caps and checks they offer a flexibility that few other mortgage types do with a certain security for both parties. The issue here was that they didn’t have sensible caps (or any at all)… partly due to predatory lending (that eventually should/would be punished by the market) and partly due to government pressure. When the risk of default is high (as it was in these cases) the interest rates are always going to be higher. In the “correct” series of events these mortgages would never bee offered. Unfortunately they were… and they made enough short term profit to fill people’s eyes with £/$/*insert currency symbol here* signs.
Regardless, your claim:
Calling government interference the direct cause is false. There were plenty of greedy scumbags who thought nothing of destroying people's lives - and knew they were going to ahead of time - factoring into it.
The crises was caused because of toxic debt. Toxic debt was caused by CDS’s and CDO’s containing sub-prime debts being sold on. CDS’s/CDO’s contained sub-prime debts because the market was flush with them. The market was flush with them because F&F was supporting any they could get their hands on. F&F were supporting any sub-prime loans they could because the government told them too.
As I said before, the financial system set up the dominoes (and certainly left them rocking), but it was the government that knocked them down. Perhaps without government interference something akin to this would have happened eventually. But the government did interfere and directly caused this crises.
In the US, banks are required by law to maintain a certain amount of leverage. However, investment banks, exempt from these rules, sometimes had leverage on the order of one dollar for every hundred they had in debts.
Which is woeful commercial sense. Bear Stearns had always been somewhat of a rogue institution and bet very, very, very badly on sub-prime and paid the price.
The issue with that, is that the FBI saw this coming in 2002 - two years before F&F became seriously involved. Many Americans, myself included, saw this coming in 2003. F&F began serious subprime pushing in 2004, and, ultimately, during this period, it was the republicans - not the democrats - who championed the deregulation that permitted this. And in the case of Bush's office, actively and willfully prevented proper investigations from occurring when they could have put a stop to this.
I’m not partisan with my criticism here. Both of the major US parties screwed up and other governments around the world also didn’t mitigate the harm. Both Republicans and Democrats championed HUD efforts… and prior to that the CRA in the early 1990’s. The seeds of the triffid that sub-prime became were planted long ago… and many were with an understandable attempt to play politics with the market.
Be careful with the term 'the market'. 'The market' did not make these stupid decisions, various bank (or things that pretended to be kinda sorta banks) executives did, which is an altogether different problem - executives should be held responsible for the messes they create.
The market should have prevented it in the short term, but didn’t. Now to stop present suffering it’s being prevented from correcting itself (which we’ll have to wait and see if that was the right thing to do). But the market did as badly as anything else here. Partly due to the way the government manipulated it, partly due to individual investors. Between them they blinded the market.
And as for executives being held responsible hopefully they are… in that they never receive any high paying job again. Considering the amounts they made, that’s probably not the most severe of punishments. But if we’re saying that directors should be held liable for the loses of a company then it’s simply not a sensible suggestion. No-one would ever become a director. Why would they with the risk? They’d have to be offered a mind destroying salary.
If Well's Fargo's losses total only 3.2 billion over 12 billion dollars in writedowns in two years, with a supposed majority of it being due to home equity loans, that's still a minimum of 3 billion in profit.
And as I said before, all power to them. Doesn’t escape the fact that they still couldn’t escape sub-prime completely. Virtually no-one could.
Not sure where you get that. On one hand you have lower end small business loans where this isn't an issue, and on the other there are investors. To say nothing of people who don't need significant funds. The value I provide Elliquiy in terms of labor is around a thousand a month or so, coding quotes for the new CMS I'm building for the place run from the high six figures to low seven.
Is it going to cost me that? Hell no.
Perhaps we’re using different terminology.
DTI: Debt to Income.
So setting a mandatory DTI rate for loans means that anyone with a low income trying to set up a company etc would be in immense difficulty. They’d be forced into the arms of venture capital at best or simply prevented from doing anything at worst.
Now if you just meant for mortgages then I’m not necessarily against that. I’d prefer it to be done without government interference through commercial principles, but I can accept it.
Or Goldman Sachs seeding every level of the US financial system with cronies.
Oh, I agree. Goldman have lead the corporatism of the financial system. The FSA in the UK consists of ex-bankers and lawyers taking a few years off before returning to their “real” jobs and civil servants who don’t understand the system… so can’t keep a check on the “insiders” who don’t want to cause any problems for getting another good job.
Because the regulated American markets are either a source for just about every good imaginable, or a potential source. Play games in other markets and people just won't buy.
Why not? Virtually every commodity can be found on the markets I listed, and if the US regulated markets became too restrictive, commodity traders would simply move… and would be welcomed by those other markets. They’re mercenaries… and the few who stayed loyal (see AIG) saw themselves sold out by the US government… which isn’t the best way to prevent them moving.
Often the former, some frequently even cite the Chrysler decision. Fallacious or not, people are often looking to next quarter rather than ten years from now.
The shareholders own the company. If a director is acting in their best interests (which he should) and they are happy for short term gains at the risk of longer term future losses then it seems strange to say “no… you can’t.” Shareholder’s aren’t happy now, but were perfectly happy with their dividends during the good years. Unless we change the basic law saying directors have to act in the best interests of the company (which would be horrific) then if shareholders start demanding short term gains, a director would be hard pressed to ignore them.
It mentions intelligence going back to 2002.
But makes no mention of when Bush was briefed…
Intelligence dating from 2002 points to the Gramm-Leach-Bliley Act in 1999 far more than a twelve year long rise for the subprime crisis.
That's not just my opinion, either. Warren Buffet and Paul Krugman both are not fond of Mr. Gramm.
I’m not sure how the GLB can be argued to have caused the sub-prime crises. It possibly made it worse through allowing the risky investment banking practices to overwhelm traditionally more risk averse commercial banking and with some of its deregulation, but it factored far more into the greater financial crises then just the sub-prime issue.
On the other hand there’s good arguments to be made that the act actually helped mitigate the damage by allowing the larger banks to diversify… and to allow private takeovers of certain failing banks. Beyond that GLB didn’t set leverage ratios and didn’t create securitization, CDOs or the culture of greed that you yourself blame for much of the crises.
Oh, and if we’re using Krugman as a financial expert he’s one of the strongest voices saying speculation wasn’t the cause for the hike in oil prices, on much the same basis as I do.
That's the premise of everyone who's ever argued politics on every forum that ever was so much as the glimmer in an administrator's eye. That's like saying "I'm breathing now."
\Let’s be fair now… at least some of them would be arguing it was one parties administration that was incompetent , but certainly not the other. Then someone will put forward a traditional anarchist theory… then someone else a communist one… then an Anarcho capitalist one. The someone will blame the Illuminati, someone will probably say it was “the Jews” fault, then someone else brings up the Lizard men, then someone shouts about how much Palin spent on clothes… then Obama’s half brother… then that global warming is a myth etc etc.
But, my point is more specific then overall government inadequacies. That the government has for a long time been trying to force the market to offer houses to those who traditionally couldn’t afford it. The market did… along with all the consequences we face now.
The highest rates of gun crime correlate far better to a mix of corruption and (of course) availability. IE Washington D.C., Russia, and so on.
Which ties to my point rather nicely. The idea behind correlation not equaling causation is you may be overlooking coincidence or other causes.
Other causes such as emerging markets?
Nickel is not smelted or forged with fossil fuels like iron and steel are.
So speculation (pretty much alone) drives up the price of oil and through that also drives up iron/steel in a virtually identical curve… but speculation does the opposite to Nickel because it’s not dependant on oil?
Nickel had almost as much speculative activity and its price fell. Speculation alone isn’t enough to force the price of something up.
Beyond that, though, the Enron loophole only exempted energy trades.
And yet virtually all trades (on all markets) which followed the oil curve (and all… coincidentally of course… were required for emerging markets) also fell in the exact same way.
...Nelson Hunt never ring a bell?
First he actually was stockpiling silver and all the evidence points to a fall in inventories in this case.
Secondly, the facts are the facts. In the rise of the price of oil to the peak it finally reached speculation followed the market… not led it.
And, as we’re using Krugman as a guru on the going-ons-financial:http://www.nytimes.com/2008/06/27/opinion/27krugman.htmlhttp://krugman.blogs.nytimes.com/2008/06/23/speculative-nonsense-once-again/http://krugman.blogs.nytimes.com/2008/05/13/more-on-oil-and-speculation/http://krugman.blogs.nytimes.com/2008/07/19/oil-outlook/http://krugman.blogs.nytimes.com/2008/06/25/confusions-about-speculation/http://krugman.blogs.nytimes.com/2008/06/24/various-notes-on-speculation/http://krugman.blogs.nytimes.com/2008/06/24/speculation-and-signatures/