Watched "The Big Short" housing bubble movie

[dblack]

its the kind of movie that angriest up the blood .
It's about some guys who saw the housing bubble burst coming in 2007 , and how they cashed it .

They ain't the bad guys either . The behavior of the banks and sec was rediculous . And of course they all got bailed out , no one went to jail.

Makes you a Bernie Sanders fan .

Let's hear it for Obama and Bush!

 

[Manonthestreet]

Dont the mortgages have to go bad for the derivatives to do the same

Derivatives are built on an underlying pool of loans. The demand for those derivatives was huge, and so the broker-dealers had to create a lot of loans.

There was a $70 trillion demand from investors, and there simply aren't that many low risk borrowers for that amount of money. So the global financial community threw the underwriting laws of the Universe out the window.

The reason the broker-dealers focused their loan creation mostly on mortgages is because that was the only sector which was performing well after the 2001 recession.

I understand the derivs pool was much larger but if the mortgages performed wouldnt the derivs have been safe? And yes I understand they had no chance of performing......I would be surprised if anybody didnt know somebody whose eyes got to big for their wallet

 

[OnePercenter]

The banks could be considered the victims in the government's scheme to make the "American dream" of owning a home available to everyone regardless of their ability to pay. Early in the Clinton administration the democrats decided that they would force banks to make bad loans under threat of civil rights litigation and the bad loans would be laundered through Fannie Mae and sold back to lending institutions as good loans. The scheme was complete with organized crime style political payoffs and no show jobs. When democrats won the majority in both houses midway in Bush's 2nd term, Barney Frank became chairperson of the House Banking Committee which had oversight responsibility for Fannie Mae. Frank told Americans that Fannie was solvent and doing fine when it was on the verge of collapse. The big question is whether Frank was so incompetent that he didn't see the housing bubble about to collapse or whether democrats planned it in order to cause the biggest October surprise in history. True to form the government covered it's ass and the media cooperated by blaming republicans and failing to ask chairperson Frank what the hell he was doing.

The banks are 'victims.' Do you actually think with that mind of yours?

 

[g5000]

You almost gotta laugh at the screwball left wing socialista logic. Even if their theory is correct that the Banks are the villains in the housing bubble you have to realize that the banks work under a room full of federal regulations and federal agencies. The left wing logic indicates that the government a-holes who failed to supervise the banks should be placed in charge of the whole enchalada.

I blame the regulators as much as the broker-dealers. In fact, Bush's SEC authorized a waiver to the top five broker-dealers' capitalization which ultimately led to their destruction.

There's plenty of blame to go around. The Fed, the banks, the regulators, the Democrats, the Republicans, Bush, Clinton, investors, buyers, the ratings agencies, and so on and so on.

 

[g5000]

Dont the mortgages have to go bad for the derivatives to do the same

Derivatives are built on an underlying pool of loans. The demand for those derivatives was huge, and so the broker-dealers had to create a lot of loans.

There was a $70 trillion demand from investors, and there simply aren't that many low risk borrowers for that amount of money. So the global financial community threw the underwriting laws of the Universe out the window.

The reason the broker-dealers focused their loan creation mostly on mortgages is because that was the only sector which was performing well after the 2001 recession.

I understand the derivs pool was much larger but if the mortgages performed wouldnt the derivs have been safe?

You have it backwards. If the banks stopped building derivatives, they would not have needed more loans to make them out of.

The problem with derivatives is that the margins rapidly narrow once your competitors start copying them. And so they kept coming up with more and more exotic products to keep the music playing.

 

[CrusaderFrank]

It wasn't the Mortgages, it was the Derivatives.

Huh? the mortgages were bad paper to start

The mortgages were needed to fuel the derivatives machine. When the broker-dealers ran out of good borrowers, they began hunting for anyone with a pulse to borrow money to keep the derivatives machine going. And they even got good borrowers to borrow more than they should. A person might be a good risk for a $200,000 loan, but the broker-dealers would coach them into half million dollar loans.

FF were the binary black holes sucking all the papers down into their AAA rating machine. Without them distorting the market the whole debacle would have been far, far smaller and made less of an impact

 

[g5000]

The first CDOs were sound. They were also profitable, which led to others copying the CDO model on a massive scale. Then the competition for loans to build them on got very fierce. This caused the financial sector to burn through all the good borrowers very quickly. Then they began bottom feeding, having deluded themselves that their derivatives had eliminated risk. When you get greedy and want to keep making big bucks, you tell yourself that making loans to bad risks is okay.

As I said, the first CDOs were sound, and so the inventors went to the regulators and "proved" they had virtually eliminated risk, and thus they were allowed to exceed the leverage to which regulations had previously constrained them.

But just to be extra special safe, they bought "insurance" against their CDOs. And they bought that insurance in the form of credit default swaps (CDS) from AIG.

Since the risk really was such that the Universe would blow up before these first CDOs would default, AIG looked at those CDS premiums as free money. They were more than happy to take this new revenue stream from the broker-dealers. And because they felt there was no chance the CDOs would ever blow up, they did not set aside any money for that eventuality.

And that was all good, at first.

But once greed set in, and the good borrowers were all used up, and competition became fierce to find borrowers to take investor cash in the form of loans (mortgages), the quality of those loans began plummeting. Thus the CDOs built on them began to be stuffed with toxicity.

AIG was not paying attention. They kept insuring all these CDOs in the mistaken belief they were as sound as the originals. And so they continued to fail to set aside any capital cushions against all these CDS they were selling.

Finally, in late 2005, two subordinates at AIG FP were able to get their boss's eyes open to what was really going on. Once he realized the CDOs they were insuring were chock full of toxic loans, AIG announced they were no longer going to insure any more CDOs going forward. AIG believed they had caught on before it was too late.

They were wrong. Fatally wrong.

So did this finally get Wall Street to stop building these CDOs?

Nope.

By this point, they had drunk their own Kool-Aid and began selling CDS to each other! Those who had caught on began building fraudulent CDS and synthetic CDOs to pass the risk to unwitting investors. These are the assholes who should be hung from lampposts.

Instead, they have been fined lunch money. Their fines have been smaller than the profits they made from their fraud.

 

[Manonthestreet]

I think you are underestimating the mortgages, more than the banks getting rich off these......the Real estate agents and the others could have shut the whole thing down if they had an ounce of integrity...... they closed their eyes though and pocketed big fat checks knowing full well the owner stood no chance of making the payments....you also had the flippers....how many of those went bankrupt overnite when the music stopped?

 

[g5000]

It wasn't the Mortgages, it was the Derivatives.

Huh? the mortgages were bad paper to start

The mortgages were needed to fuel the derivatives machine. When the broker-dealers ran out of good borrowers, they began hunting for anyone with a pulse to borrow money to keep the derivatives machine going. And they even got good borrowers to borrow more than they should. A person might be a good risk for a $200,000 loan, but the broker-dealers would coach them into half million dollar loans.

FF were the binary black holes sucking all the papers down into their AAA rating machine. Without them distorting the market the whole debacle would have been far, far smaller and made less of an impact

The GSEs had a smaller and smaller market share during the bubble. By 2005, their market share was less than 30 percent.

The Bush Administration tried to legislatively limit the size of the GSE market share even more in 2005 so their friends on Wall Street would get more of the business.

 

[CrusaderFrank]

Why were F/F stamping AAA on subprime paper?

GSEs don't rate paper.

Be careful about channeling Krugman They were de facto AAA credits and THEY bought no income no assets paper as if it were AAA

GSEs don't rate paper.

The ratings agencies do.

Not sure what you gain by playing this little game.

What were F/F rated?

 

[The Rabbi]

BTW, this next recession which is coming up has absolutely nothing to do with the Fed or Obama or Republicans or whomever the narrow-minded political partisans want to blame.

Nonsense. Obama's policies of high regulation and cheap money have created the weakest economic recovery on record. It is no surprise that we are falling back into recession. Obviously there are factors beyond his policies. But those definitely play a big part.

The next recession is going to be caused by the collapse of the energy industry and the implosion of China. Neither of those have anything to do with Obama (or Republicans). Obama may have hindered the recovery, but we aren't suddenly going to slip into recession because of increased regulation.

I certainly hope I'm wrong about a recession because it could be ugly and we are running out of bullets. But I got pretty short last month.

A strong vibrant economy would have kept energy prices higher and would have been able to absorb the blow better. As I said, there are factors beyond Obama. But his creation of basic weakness in the economy is key.

 

[g5000]

I think you are underestimating the mortgages, more than the banks getting rich off these......the Real estate agents and the others could have shut the whole thing down if they had an ounce of integrity...... they closed their eyes though and pocketed big fat checks knowing full well the owner stood no chance of making the payments....you also had the flippers....how many of those went bankrupt overnite when the music stopped?

Their attitude instead was, "If we don't do this, our competitors will."

 

[CrusaderFrank]

It wasn't the Mortgages, it was the Derivatives.

Huh? the mortgages were bad paper to start

The mortgages were needed to fuel the derivatives machine. When the broker-dealers ran out of good borrowers, they began hunting for anyone with a pulse to borrow money to keep the derivatives machine going. And they even got good borrowers to borrow more than they should. A person might be a good risk for a $200,000 loan, but the broker-dealers would coach them into half million dollar loans.

FF were the binary black holes sucking all the papers down into their AAA rating machine. Without them distorting the market the whole debacle would have been far, far smaller and made less of an impact

The GSEs had a smaller and smaller market share during the bubble. By 2005, their market share was less than 30 percent.

The Bush Administration tried to legislatively limit the size of the GSE market share even more in 2005 so their friends on Wall Street would get more of the business.

30% is still a fucking huge number and they were the highest rated paper. Everything eles priced down from there

 

[g5000]

A credit default swap allows you to place a bet against a pile of loans. There is no insurable interest. You don't have to have any of your own money at stake in those loans.

This is the same as being able to buy fire insurance against not just your neighbor's house, but against any house on the planet.

For obvious reasons, you are not allowed to buy insurance against someone else's house. The arson rate would be sky high. You have to be at risk to suffer a loss before you can buy insurance against that risk. That's what an insurable interest is.

Not so with CDS. You could bet against a CDO without an insurable interest.

So is it really surprising the arson rate of CDOs went through the roof?

Imagine you were a home builder and were allowed to buy insurance against the houses you built. Some builders would succumb to temptation and build houses with faulty wiring and highly flammable materials and so forth. And then they would bribe home inspectors (ratings agencies) to give their houses a clean bill of health (AAA rating). All that would remain is to find some sucker (investor) to buy the house (CDO).

This is exactly what the scummiest of broker-dealers did.

 

[g5000]

It wasn't the Mortgages, it was the Derivatives.

Huh? the mortgages were bad paper to start

The mortgages were needed to fuel the derivatives machine. When the broker-dealers ran out of good borrowers, they began hunting for anyone with a pulse to borrow money to keep the derivatives machine going. And they even got good borrowers to borrow more than they should. A person might be a good risk for a $200,000 loan, but the broker-dealers would coach them into half million dollar loans.

FF were the binary black holes sucking all the papers down into their AAA rating machine. Without them distorting the market the whole debacle would have been far, far smaller and made less of an impact

The GSEs had a smaller and smaller market share during the bubble. By 2005, their market share was less than 30 percent.

The Bush Administration tried to legislatively limit the size of the GSE market share even more in 2005 so their friends on Wall Street would get more of the business.

30% is still a fucking huge number and they were the highest rated paper. Everything eles priced down from there

No, they were not the highest rated paper. AAA is the highest rating you can get, and every CDO being cranked out by all the broker-dealers was receiving that rating.

 

[g5000]

"How on earth could a bond issue be AAA one day and junk the next unless something spectacularly stupid has taken place? But maybe it was something spectacularly dishonest, like taking that colossal amount of fees in return for doing what Lehman and the rest wanted," McDonald wrote.

How Moody's sold its ratings - and sold out investors

 

[g5000]

Royal Bank of Scotland.

Allied Irish Bank.

Anglo Irish Bank.

Kaupthing.

Bradford & Bingley.

Landsbanki.

Bankia.

UniCredit.

The Spanish cajas.

Wachovia.

IndyMac.

Washington Mutual.

Lehman Brothers.

Merrill Lynch.

Bear Stearns.

Just a very, very short list of some of the many, many banks around the world which collapsed, demonstrating the ludicrousness of trying to focus so much blame on Fannie and Freddie and negroes.

 

[Manonthestreet]

And again not just the bankers but societal.........what does it say when you have more people than not willing to rip people off before the other guy beats them too it, and a public so financially illiterate they allowed themselves to be herded into this....

 

[Rocko]

It wasn't the Mortgages, it was the Derivatives.

Huh? the mortgages were bad paper to start

The mortgages were needed to fuel the derivatives machine. When the broker-dealers ran out of good borrowers, they began hunting for anyone with a pulse to borrow money to keep the derivatives machine going. And they even got good borrowers to borrow more than they should. A person might be a good risk for a $200,000 loan, but the broker-dealers would coach them into half million dollar loans.

Dude I've caught you talking out of your ass. How can you say it wasn't the mortgages? All of those chopped up derivatives were based on the mortgages. The mortgages were the underlining bet. Had so many people not gone delinquent on their mortgages the MBS would not have lost all their value and the CDS wouldn't have ever been a problem for the banks.

 

[g5000]

It wasn't the Mortgages, it was the Derivatives.

Huh? the mortgages were bad paper to start

The mortgages were needed to fuel the derivatives machine. When the broker-dealers ran out of good borrowers, they began hunting for anyone with a pulse to borrow money to keep the derivatives machine going. And they even got good borrowers to borrow more than they should. A person might be a good risk for a $200,000 loan, but the broker-dealers would coach them into half million dollar loans.

Dude I've caught you talking out of your ass. How can you say it wasn't the mortgages? All of those chopped up derivatives were based on the mortgages. The mortgages were the underlining bet. Had so many people not gone delinquent on their mortgages the MBS would not have lost all their value and the CDS wouldn't have ever been a problem for the banks.

The very reason bad mortgages were made was to keep fueling the derivatives machine.

It's very simple. $70 trillion. The broker-dealers get a fee from investors for every dollar they put to work. The more money they put to work, the more fees they get. This is what motivated them to make as many loans as possible. Where do you think all the money for those loans came from?

It came from investors. Acting as middlemen between the investors and borrowers, the broker-dealers made fees.


After they ran out of good borrowers, they kept going. To get fees. The derivatives gave them the illusion they had eliminated the risk of lending to bad borrowers, when in fact they were increasing risk exponentially.