How the Democrats Created the Financial Crisis: Kevin Hassett

#26
#26
lawgator1 said:
1. Fabricated wealth in the form of rapidly increasing home values.

+

2. Irresponsible underwriting desgiend to take advantage of the frenzy.

+

3. Irresponsible small time investors buying 2 to 10 properties solely to flip.


+

4. Investment bankers buying securities backed by the resulting loans to try to get in on the deal-a-second mentality.


+

5. The bubble growing weaker and busting so quickly.


+

6. All of the above occuring at the same time that an already otherwise slowing economy stopped pretty much dead in its tracks while the cost of fuel, a primary component of running all manufacturing a healthy part of the service industry, rose ferociously.


= a) High and quick demands on the cash reserves of enormous corporations, that b) could no longer borrow from each other because what little cash they had on hand they needed themselves, while c) the investment banks had no money to lend because it was tied up in these weakened securities.


The economy is seizing up because it was already in trouble but for awhile it was running on the blood of rising housing values and all of the secondary markets that created and that has dried up at the worst possible time, leaving all these companies standing there with no way to pay their bills and securities they can't sell.
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I’m just glad government has no culpability in this matter… :eek:lol:
 
#27
#27
BigPapaVol said:
Quote:
Originally Posted by lawgator1
1. Fabricated wealth in the form of rapidly increasing home values.

+ which has been central to the overblown economies of areas like Florida and Cali.

2. Irresponsible underwriting desgiend to take advantage of the frenzy.

+ Driven by Fannie and Freddie in their zeal to create universal home ownership

3. Irresponsible small time investors buying 2 to 10 properties solely to flip.


+ This makes no sense to me. How is that different than any other arbitrage on earth. Somebody eventually loses in that game.

4. Investment bankers buying securities backed by the resulting loans to try to get in on the deal-a-second mentality.


+ This is just plain wrong. Investment bankers get paid to place securities, not buy them.

5. The bubble growing weaker and busting so quickly.


+ REally wasn't sudden.

6. All of the above occuring at the same time that an already otherwise slowing economy stopped pretty much dead in its tracks while the cost of fuel, a primary component of running all manufacturing a healthy part of the service industry, rose ferociously.


= a) High and quick demands on the cash reserves of enormous corporations, that b) could no longer borrow from each other because what little cash they had on hand they needed themselves, while c) the investment banks had no money to lend because it was tied up in these weakened securities.

the demands on capital were on paper and generated by regulators. The liquidity did go away from both sides. Companies need it to borrow and lenders need it to lend. Investment banks don't lend money. They raise capital.


The economy is seizing up because it was already in trouble but for awhile it was running on the blood of rising housing values and all of the secondary markets that created and that has dried up at the worst possible time, leaving all these companies standing there with no way to pay their bills and securities they can't sell.
See Bold above.Last statement is a bit over the top, but not altogether lost as a couple of the others were.
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I agree that IB's don't buy securities, but they bought the mortgages and created the securities. Morgan Stanley had their own portfolio of mortgages they agreed to purchase and they were some of the more outrageous loans on the market. IB's would buy mortgages direct from lenders and did not solely depend on Fannie/Freddie securities. The demand from IB's seems to be falling under the radar to some degree with the bulk of the blame put on the CRA and Fannie/Freddie. Let's be clear that both of those have caused enormous issues -- but without the demand from the IB's, there is not a market for these securities.

The most egregious underwriting was not from Fannie/Freddie. Take a look at Countrywide's Full Spectrum, Wells Fargo subprime, New Century, South Star, and a myriad of other subprime lenders. Fannie/Freddie didn't touch these loans -- but this is the source of the stated/stated, no ratio, and no doc loans. These loans were not created just to make loans -- they were created to meet the demands of Wall Streets appetite. The wanted more and more loans at higher premiums to securitize. Throw in complex debt structures and the risk is veiled. The IB's had an enormous hand in this mess.
 
#28
#28
VolByBirth said:
I agree that IB's don't buy securities, but they bought the mortgages and created the securities. Morgan Stanley had their own portfolio of mortgages they agreed to purchase and they were some of the more outrageous loans on the market. IB's would buy mortgages direct from lenders and did not solely depend on Fannie/Freddie securities. The demand from IB's seems to be falling under the radar to some degree with the bulk of the blame put on the CRA and Fannie/Freddie. Let's be clear that both of those have caused enormous issues -- but without the demand from the IB's, there is not a market for these securities.

The most egregious underwriting was not from Fannie/Freddie. Take a look at Countrywide's Full Spectrum, Wells Fargo subprime, New Century, South Star, and a myriad of other subprime lenders. Fannie/Freddie didn't touch these loans -- but this is the source of the stated/stated, no ratio, and no doc loans. These loans were not created just to make loans -- they were created to meet the demands of Wall Streets appetite. The wanted more and more loans at higher premiums to securitize. Throw in complex debt structures and the risk is veiled. The IB's had an enormous hand in this mess.
Click to expand...

bu the Wall St. appetite is just a function of pooling the securities to sell to investors seeking 30 year paper and all the other CMO derivatives. Wall St. held portfolios because they had to prove merit or eat some less attractive tranches, but they were moving paper by following the lead of Fannie and Freddie or dumping the junk tranches that direction.

Countrywide and the like were just arbitraging the cheap money available in the debt capital markets. Had any real underwriting been happening in their issuances, they would have been scaled back massively.

Finally, the real damage has happened in the GSEs pushing hardcore the buyer who couldn't afford it, at the behest of guys like Frank.
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#30
#30
there is no doubt that both parties are culpable for the free house mindset.
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#31
#31
ER Uh..... Wasn't it slithering, slick, Willie of the bluedress fame? Oh, uh, didn't he have as his leading advisor on all things great and small, the seer, and keeper of the crystal ball and custodian of the key to the oval office's condom dispenser; the prominent, preiminent, selfprofessed genius, the one, the only and infamously omniscient one, the Carthagean of unchallenged intellect, Algorific.
 
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