More Occupation of Wall Street

[Former Lord of Winterfell]

Terra Prime

eh? Except, perhaps, that many of those people end up losing their jobs to an economic downturn, perhaps?

That's true, which is why I said most. I think there is a difference between the folks who didn't take risks, but lost their house due to a subsequent loss of employment, and those who did take risks.

The former, who generally had more equity in their homes, or had more of a financial cushion, were better able to weather the loss of employment in terms of keeping their homes. But it is a real tragedy that many of those folks lost their homes anyway, no question.

[MinDonner]

Where is "here", if I might ask? And was it the collapse of mortgage backed securities in your country that caused your economic downturn?

"Here" is the UK. And we had a similar housing bubble caused by loans that were too cheap, banks that were too irresponsible, and a government who deregulated the financial market and kept the interest rates artificially low in order to ride the housing boom into a third term, then reaped the consequences when it all went tits-up. Northern Rock fell before Lehman Brothers IIRC, and that was directly related to bad lending.

[Inigima]

I still want to know how it can possibly be legal for BoA to transfer whatever they like to their deposits arm to force the FDIC to insure anything they do.

[Tormund Ukrainesbane]

I still want to know how it can possibly be legal for BoA to transfer whatever they like to their deposits arm to force the FDIC to insure anything they do.

http://www.opensecrets.org/orgs/toprecips.php?id=d000000090&cycle=2012

http://www.opensecre...dus.php?ind=f03

http://www.opensecre...p?id=d000000085

[The Progressive]

ThinkerX,

The first link, though, is Bloomberg - or is that now now deemed 'insane'? And the actions taken by BOA there have even tame bureaucrats annoyed.

Yeah nice try but that's some real disingenious bullshit as usual from you. I was commenting solely on the second link to the blog "truthingold", which was actually the one Inigma asked about. What was covered in the Bloomberg article is actually not what the "truthingold" blog was ranting about. I have no comment on the bloomberg article because I don't have sufficient knowledge to know if that's illegal, but I could see why the FDIC would be against it.

Scot,

Because Thinker and his sources were so wrong about the housing bubble in 2008 when everyone else was saying real estate prices couldn't fall.

Actually, a lot of people were quite skeptical about the state of the economy and the housing market and the derivatives based upon home-loans at the time. The bolder ones even make oodles of money betting against it. With regard to tinfoil paranoids, their repeated rant about the imminent collapse of the economy ought to strike once in a while .............. lol, you know what they say about broken clocks.

[Inigima]

I answered that in the last thread.

No you didn't. You clarified what they were doing and why the Fed wanted it to be okay. The objections I raised have not been addressed, by you or by anyone else.

[Former Lord of Winterfell]

"Here" is the UK. And we had a similar housing bubble caused by loans that were too cheap, banks that were too irresponsible, and a government who deregulated the financial market and kept the interest rates artificially low in order to ride the housing boom into a third term, then reaped the consequences when it all went tits-up. Northern Rock fell before Lehman Brothers IIRC, and that was directly related to bad lending.

So you also had a government that deliberately kept housing rates low and available to fuel a housing boom as well. Whether it is the GSE's in the U.S., or your government's policies in the U.K., the commonality of a government deliberately accelerating the housing market apparently existed. Which goes back to the point that it is a bad thing.

[The Progressive]

It's probably not illegal, but then again that's why it's so important to separate investment banks from retail banks.

Once again, deregulation for the win!

[MinDonner]

So you also had a government that deliberately kept housing rates low and available to fuel a housing boom as well. Whether it is the GSE's in the U.S., or your government's policies in the U.K., the commonality of a government deliberately accelerating the housing market apparently existed. Which goes back to the point that it is a bad thing.

Far too vague for my liking. All we have here is a generic statement that "(various) government policies contributed to the problem", which is kind of obvious, seeing as how the problem happened and that the governments of various countries were involved in the markets in some way or other. You might as well say that capitalism caused the problem, because capitalism was involved also.

Government policies worldwide differed greatly in their approaches to this market, but the one common factor was deregulation in particular quarters as well as incentives in others. They were, almost invariably, bowing to the wishes of the financial institutions to help generate these vast profits. Yes, there is culpability on both sides. But calling it merely "government policy" is disingenuous.

[TerraPrime]

Re: Risk

And that's where we enter old territory.

In theory, consumers who take out mortgage loans that they cannot sustain are responsible for those bad decisions because they took on too much risk and the bet failed. In reality, I say that many, if not most people, were not given the right information about those risks when they were given those loans. I think many people who took out 100% loans on a 5-year balloon didn't think they were taking undue risks, because, well, these people with money and expertise are willing to loan me the money so they must believe that I can pay them back. It's sort of like that lawsuit against the law schools: yes, they should have known better, but they were given bad information.

[Tormund Ukrainesbane]

Re: Risk

And that's where we enter old territory.

In theory, consumers who take out mortgage loans that they cannot sustain are responsible for those bad decisions because they took on too much risk and the bet failed. In reality, I say that many, if not most people, were not given the right information about those risks when they were given those loans. I think many people who took out 100% loans on a 5-year balloon didn't think they were taking undue risks, because, well, these people with money and expertise are willing to loan me the money so they must believe that I can pay them back. It's sort of like that lawsuit against the law schools: yes, they should have known better, but they were given bad information.

http://www.lendingtree.com/mortgage-loans/advice/understanding-mortgage-costs/truth-in-lending-statement/

[Former Lord of Winterfell]

Far too vague for my liking. All we have here is a generic statement that "(various) government policies contributed to the problem",

No, that's not true. There could be lots of policies, with lots of different effects. A government could have a policy of requiring 20% down payments, for example. But in this particular case, the commonality is a government deliberately pushing home ownership by making it easier/cheaper to get loans.

Also, from what I've been able to find, mortgage backed securities weren't quite the problem in the U.K. that they were in the U.S., where they were really the prime mover of the collapse. And not coincidentally, it was the issuance of mortgage-backed securities that was the specific method chosen by the U.S. government to accellerate home lending.

Government policies worldwide differed greatly in their approaches to this market, but the one common factor was deregulation in particular quarters as well as incentives in others. They were, almost invariably, bowing to the wishes of the financial institutions to help generate these vast profits. Yes, there is culpability on both sides. But calling it merely "government policy" is disingenuous.

Again, I'm not saying it is just government policy. This whole subject that has now blown up here was based on the assertion that additional regulation was the only way to prevent this type of action. My point was that there may be another way as well, and that is to stop politically-motivated economic tinkering by governments in the first place. Stop that, and you may find out that much less regulation is needed, or that the problems will be small enough that you can afford to ride them out.

Because right now, it looks to me like the future holds only an increasingly byzantine array of more and more regulations, each tinkering with the last, and each likely causing all sorts of unanticipated consequences elsewhere in the economy.

[Verboten]

I think the Industrial Revolution and the living conditions of the average worker are a really good example of what happens if you don't regulate the economy. Just my two cents.

[Former Lord of Winterfell]

In theory, consumers who take out mortgage loans that they cannot sustain are responsible for those bad decisions because they took on too much risk and the bet failed. In reality, I say that many, if not most people, were not given the right information about those risks when they were given those loans.

I'm sure that happened in some situations. It also is true that a lot of people get way behind on credit cards as well despite not really being confused at all about the terms. They're just irresponsible, or, just as often, overly optimistic as to their future income stream. They want it, they want it now, and they convince themselves they can afford it by clinging to some vague hope that they'll be "doing better" when it all comes due.

I'll give you a personal example here. When I was looking for my first house 18 or so years ago, my brother, an incredibly bright finance guy, told me that it was logical for me to buy as much house as I could possibly afford, because it would appreciate, my income stream would go up over time, etc.. It all made sense on paper, but I kept thinking "what if things go wrong"? So I didn't take his advice, and it was coming from someone who was not talked into anything by anyone.

I think many people who took out 100% loans on a 5-year balloon didn't think they were taking undue risks, because, well, these people with money and expertise are willing to loan me the money so they must believe that I can pay them back.

I actually don't believe that to be the case at all, and that assumption really inverts the usual order of how things actually work. Most people decide on a house, figure out the possible payments with their realtor, etc., then submit for approval. They're just crossing their fingers that the bank will say "yes", but their belief they could make the payments exists before the underwriters clear it.

And I don't think I've ever heard anyone say at the time, "well, I don't think I can afford this, but if the bank is telling me I can, I must be wrong." That's just some excuse manufactured after the fact to try to blame someone else for your own decision. I understand that your theory sounds pretty good, but I don't think it really reflects how most people actually address these issues at the time.

[TerraPrime]

http://www.lendingtr...ding-statement/

Ummm... yes?

So we have no obesity problem in the U.S. because all food items come with nutritional information on the back?

[Verboten]

And FLOW please do not use Canada in any more examples until you know what you're talking about. i.e. Why Canada is doing somewhat better than the U.S.

[MinDonner]

I think the Industrial Revolution and the living conditions of the average worker are a really good example of what happens if you don't regulate the economy. Just my two cents.

Yep. It's not like unbridled capitalism hasn't been tried before. There's a reason for all that "tinkering", for all that it's often unsuccessful.

I actually don't believe that to be the case at all, and that assumption really inverts the usual order of how things actually work. Most people decide on a house, figure out the payments, etc., then submit for approval. They're just crossing their fingers that the bank will say "yes", but their belief they could make the payments exists before the underwriters clear it.

That's certainly not how it works here, or at least not five years ago. The provisional loan approval comes quite independent of the actual property, so you go to the bank first for a quote, then work out what price range you are able to even start househunting in, based on the likely repayments you can manage on your salary. Obviously the bank needs the survey report on the house before they will confirm the loan, but that's really just a tickbox rather than a prerequisite.

[Shryke]

No, that's not true. There could be lots of policies, with lots of different effects. A government could have a policy of requiring 20% down payments, for example. But in this particular case, the commonality is a government deliberately pushing home ownership by making it easier/cheaper to get loans.

Also, from what I've been able to find, mortgage backed securities weren't quite the problem in the U.K. that they were in the U.S., where they were really the prime mover of the collapse. And not coincidentally, it was the issuance of mortgage-backed securities that was the specific method chosen by the U.S. government to accellerate home lending.

No, the comminality, from what Min said, is deregulation and the government keeping interest rates low. Both of which helped the bubble along but didn't force any bubble to happen.

In fact, it's the irrationality of the actors involved that leads from point A (deregulation/low interest rates) to point B (housing bubble).

Or, to quote Alan Greenspan:

"I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms," said Greenspan.

The big thing all this has in common is they didn't keep a firm hand on the financial markets. And without that firm hand, those people fucked themselves over. And everyone else along with them. Meanwhile, places where that firm hand was kept (like Canada) skipped along just fine (or as fine as possible given their major trading partners throwing themselves off stupidity cliffs).

Again, the big root of all this is that self-interest (ie - greed) did not work in making sure the financial markets behaved themselves. They are not long-term rational actors.

And thus, like any child, someone needs to keep an eye on them.

[TerraPrime]

I actually don't believe that to be the case at all, and that assumption really inverts the usual order of how things actually work. Most people decide on a house, figure out the payments, etc., then submit for approval. They're just crossing their fingers that the bank will say "yes", but their belief they could make the payments exists before the underwriters clear it.

It wasn't really an assumption, though.

We bought our condo in 2004. In that process, we were guided to get certain types of loans by the banker we were working with. We ended up with a 5year balloon, because we know we're going to sell before 5th year. But in that process, it was not like that at all. We came in with a range of figure we're comfortable with in terms of paying, and the range of houses we expected to get for that amount. The banker offered these different types of loans (yes, one was a 20/80 for 100% mortgage but we didn't take that) that ended up getting us a place more expensive than what we thought we could afford.

I did quite a bit of research on my own on loans, mortgages, etc., before we started the process. Someone less prepared would probably have felt a lot more pressured or shepherded into certain loans.

[Former Lord of Winterfell]

It wasn't really an assumption, though.

We bought our condo in 2004. In that process, we were guided to get certain types of loans by the banker we were working with. We ended up with a 5year balloon, because we know we're going to sell before 5th year. But in that process, it was not like that at all. We came in with a range of figure we're comfortable with in terms of paying, and the range of houses we expected to get for that amount. The banker offered these different types of loans (yes, one was a 20/80 for 100% mortgage but we didn't take that) that ended up getting us a place more expensive than what we thought we could afford.

I'm curious -- did you sit down with the banker and discuss terms before you actually looked at condos?

Also, I'm not quite clear on what you're saying. Are you saying that you ended up paying more per month than you thought you were going to pay, or was it that you found out that the amount you were willing to pay per month permitted you to get a more expensive place? Because if it's the latter, I don't see the problem.