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Old 10-01-2008, 02:42 AM
 
Location: Cloud Cuckoo Land
558 posts, read 706,849 times
Reputation: 214

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Quote:
Originally Posted by GhostInTheShell View Post
This is true: one of the characteristics of a representative democracy is that our representatives are empowered to act on our behalf, not necessarily on our sentiment. Sometimes our representatives do more harm than good when they try to act on our behalf. The same could be said for sentiment. The problem I see with the current legislation is that they're pushing it through too quickly. They're being pressured to vote on something they probably haven't even read entirely, let alone taken the time to understand. (I wonder how many mortgages wouldn't have defaulted in the past 12 months had the homebuyers taken the time--I mean really taken the time--to read and understand all the fine print?) Nothing frightens me more than our elected officials making hasty, emotional decisions over what could possibly become the most important piece of legislation in recent history (aside from the Patriot Act). Further, I question the foresight and competence of a government who waited until now to take action on an issue that has been predicted by economists and published in the media for over 2-3 years. If our officials were blindsided, it was because they were driving with their eyes closed. Accordingly, I question the rationality of anything they might legislate, since I'm certain they haven't fully (or adequately) considered and weighed the range and scope of the consequences of their legislation beyond the immediate.

And on a side note, our government taxes trade, regulates transactions, sets interest rates, imposes embargoes, etc. Hence, laissez-faire capitalism doesn't exist and hasn't for some time. Therefore, no rational group or individual can conclude that a free market (deregulation) caused the recent bank failures. If anything, our nation more closely subscribes to Keynesian economic theory; so it makes more sense to argue that government intervention is what helped to exacerbate or amplify the problem in the first place. However, I'm sure that you won't hear that from the left since it doesn't help to further their agenda.

Don't get me wrong, I'm not trying to imply that we should deregulate everything over night (let's not forget what happened when the utility industry was deregulated all at once), or even that a deregulated economy wouldn't have ups and downs, but I think people need to try to look at the whole picture--rather than focusing on bits and pieces of it--if they want to find the best solution to the problem. Playing the blame game on the homebuyers and banks isn't productive.
Also, regarding what has been said about deregulation (maybe we should rephrase it as "under-regulation" since noone has said what exactly was deregulated during the past 8 years) perhaps being one of the causes of the current bank failures, here are some well wrought, contrarian viewpoints:

The Housing Bubble in 4 Easy Steps - Mark Thornton - Mises Institute
Can the Rescue Plan Fix the US Economy? - Frank Shostak - Mises Institute

Below are several articles over a year old that predicted or hinted at our crisis:

BIS warns of Great Depression dangers from credit spree - Telegraph
The risk in subprime - Mar. 1, 2007
Fears of US mortgage crisis as homeowners face 12% interest | Business | The Guardian
Merrill Lynch (MER) Sells Assets from Bear Stearns' (BSC) Hedge Funds
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Old 10-01-2008, 08:11 AM
 
19,183 posts, read 27,741,368 times
Reputation: 4000
Quote:
Originally Posted by One Thousand View Post
I don't understand why you're answering my question with a question. I was asking for clarity on your assertion. What conditions were met by borrowers to qualify them as meeting "sensible, market-based terms?" What do you mean by market-based terms?
I answered your question with much more than a question. The response for instance noted the fact that you moved the "market-based terms" qualifier from the back end of the original statement to the front-end. The majority of currently troubled borrowers could indeed afford their loans when they took them out, as very low initial and early default rates would indicate. The majority could still afford their loans if remaining balances were reorganized onto market-based terms instead of the dartboard-based terms that many resets have brought about. Specific terms and data to support that claim and concept were presented in the post. How much more clarity is required?

Quote:
Originally Posted by One Thousand View Post
I'm not an ideologue who disregards circumstances in favor of theory. I'm referring to the current crisis and don't try to assume an understanding of the conditions that lead to those changes. If you have a position on this situation that directly relates to my assertion, I'm more than happy to respond to it.
Your assertion was "No one should be helped." That's it, verbatim. No conditions or qualifications. It's a categorical statement. If you would like now to amend it some, I would be undertstanding of that. The fact is, as I'm sure you are aware, that many impacted ARM holders have succeeded in obtaining refinancing. Some managed it on their own, some with the help of various private sector intermediaries. These people have been helped. Should such practices not have been tolerated? If it is rather the case that they should have been not just tolerated but welcomed, where does a proscription against the use of a public-sector rather than a private-sector intermediary in achieving additional such help come from?

Quote:
Originally Posted by One Thousand View Post
Then you're suggesting that risk of all sorts should be shared.
I'm suggesting what I suggested: that societies exist in any case to accomplish risk-sharing and income-redistribution.

Quote:
Originally Posted by One Thousand View Post
That if you assume the risk of unprotected sex, I should have a little bit of your AIDS? Same thing with wealth-distribution. I'm guessing that isn't what you meant. Would you be more specific please.
Not such a tough guess, since it was you who wrote it and not I. Had I written it, it would surely have been from the more realistic point of view of suggesting that if unprotected sex is leading to the contraction of AIDS, society is perhaps justified and perhaps obligated to accomplish income redistribution by dipping into your pocket and mine in order to publicly discourage unprotected sex, promote research toward an AIDS cure, and assure the provision of proper and adequate care to current sufferers from the disease. Is that specific enough?

Quote:
Originally Posted by One Thousand View Post
Can you give me a quick overview that would explain the morality supporting taking money from my pocket-- when I made the conscious decision not to buy a property because it was foolish-- to pay for someone who didn't make equally practical decisions?... Unless you are suggesting that I should share in the AIDS of other people's unprotected sex?
The only morality that precludes such actions is one based upon self-centered isolationism. Responsible to and for self and no one else. Is that the premise you are advancing here?

If you are human, sometimes you will decide well, and sometimes you will decide poorly. Sometimes fortune will smile upon you, and sometimes it will not. And without regard to who or what you are, you and all the rest of us will have a shared exposure to shocks from outside the system. When we are all down, we all work together to pick ourselves back up. When some of us are down, the rest pitch in to pick up a piece of the burden, knowing that next week, the shoe will be on the other foot. That is the bargain you make by living in a society -- and off its benefits.

Quote:
Originally Posted by One Thousand View Post
How is Reagan's legacy defined?
By me? As that of a glib sycophant who used his powers of mesmerizing the gullible for evil. But I doubt that this was what ideologues on the House floor had in mind Monday morning.

Quote:
Originally Posted by One Thousand View Post
Relevance?
Relevant to your claim rarely to have heard of a politician who didn't put re-election first. Reasonable steps to protect one's self-interest are understandable (and observed) in every profession, but NIMBY-ism can be carried to unhealthy extremes, and regularly is.
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Old 10-01-2008, 09:02 AM
 
19,183 posts, read 27,741,368 times
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Quote:
Originally Posted by Brian.Pearson View Post
Without knowing much about insurance, I was just thinking that it would be a good idea to bracket the risk levels. That is, assign greater risk to one bracket, moderate risks to a lower bracket, and low risks to a low bracket. This way, we wouldn't have high risk people getting money from low risk people, and the cost of insurance can be spread a little more fairly.
As you are quite well aware of, risk-based premiums are a common practice, albeit one that needs to be reined in from time to time, in that the logical end of such reasoning is the undoing of any insurance function at all, leaving each of us to bear his or her own individual risks on an individual basis.

Quote:
Originally Posted by Brian.Pearson View Post
People who want to live twenty feet below sea level, have a house on the banks of the Mississippi, or on top of San Andreas, could share their risks with an appropriately higher premium, while low risk people can enjoy a lower premium.
Such higher premiums are often charged. And when claims are brought against such policies as issued, it is too often the case that claims are denied on the basis of arcane language embedded in subparagraph 206-A-14-b-3-(f)-viii of the policy as amended. We then leave the claimant high and dry, telling him it was his own fault for not having bought a policy that did not include such arcane language, even though there is none regularly offered without it.

Quote:
Originally Posted by Brian.Pearson View Post
Likewise, maybe there could be mortgage insurance at different levels, based upon the above model. If a guy has an ARM or a 100% loan, with x amount of income, then that could be plugged in, with the borrower paying a premium for the more risky venture, whereas the guy with the family, the income, excellent credit, could be on the low end of the mortgage insurance spectrum.
Terms such as rates, points, PMI, or the need to use an escrow account are often used to reflect the perception of either an enhanced or reduced credit risk. It is nevertheless an inescapable fact that defaults will occur, just as claims against insurance policies will occur. When minor variations in the rates of claims and defaults are experienced, these are easily handled by the reserves and mechanisms that the credit and insurance industries have specifically established in anticipation of such variances. When defaults and claims go so far beyond the norms of historical experience as to become systemic, there is no reserve to cover them. At that point, we can attempt to save ourselves by forcing individuals to bear all the burden. We can attempt to save ourselves by forcing individual companies to bear all the burden. Or we can realize that our attempts to save ourselves will end in some degree of futility, as our own situations are tied in various ways to those of other individuals and companies, meaning that the more rational approach is to tackle the problem together, with each of us picking up a small share of whatever it takes to repair extraordinary damage and get whatever train put back on its proper tracks.
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Old 10-01-2008, 10:05 AM
 
19,183 posts, read 27,741,368 times
Reputation: 4000
Quote:
Originally Posted by GhostInTheShell View Post
The problem I see with the current legislation is that they're pushing it through too quickly. They're being pressured to vote on something they probably haven't even read entirely, let alone taken the time to understand.
Though I'm sure all of them have read it, and that all of their staff have read it as well, the issue raised is not one that has escaped anyone's attention. The fact is that we are in some uncharted waters. There is no certainty to be had as to what full range of outcomes we should expect. There is quite a bit of evidence that every day's worth of delay allows the situation to grow worse, while there is no real prospect that rework after time-consuming rework will leave us in any situation of certainty that is materially different from the one we have right now.

Quote:
Originally Posted by GhostInTheShell View Post
I wonder how many mortgages wouldn't have defaulted in the past 12 months had the homebuyers taken the time--I mean really taken the time--to read and understand all the fine print?
I'll take the liberty of assuming that you have a credit card, and therefore have at some point signed the credit crad agreement that made your card effective. Please explain then whether that agreement establishing a 25-day grace period in fact obliges the company to post a payment received on the 25th day on that day, or whether they may in fact hold the payment for posting on the following day, then imposing late fees and an increased rate on any remaining card balances. Having read all the fine print, I'm sure that was an easy one for you, so please explain your card-issuers privacy policy. What information about you disclosed by parties other than yourself may the company collect and maintain, what if any opportunity must they offer you to identify and correct any errors in that information, and whether corrected or not, what limits may apply on the company's ability to sell or otherwise disclose part or all of that information at its discretion to so-called financial partners or to other third parties without your prior knowledge or approval?

Quote:
Originally Posted by GhostInTheShell View Post
I question the foresight and competence of a government who waited until now to take action on an issue that has been predicted by economists and published in the media for over 2-3 years.
Longer than that, actually. While no one could have foreseen the precise form that a crisis might take, there were published sense-of-alarm type warnings appearing by late 2003, increasing in tone and volume into 2004. Chairman Greenspan was asked about these in various of his appearances before Congress, and he left the Fed at the end of 2005. In my personal opinion, certainly not later than the summer of 2007 enough was known about the shape and direction of the problem to have known that removing compromised assets from the books of major credit industry players was the most critical objective to pursue. Leaders chose however to attempt lesser efforts first and hope for their success, perhaps recognizing that there was not then (and by appearances, there still is not now) sufficient popular political will to sell such a program. That may simply be a cost of self-governance, or it may be a flaw in the political acuity and courage of some among our leaders.

Quote:
Originally Posted by GhostInTheShell View Post
Accordingly, I question the rationality of anything they might legislate, since I'm certain they haven't fully (or adequately) considered and weighed the range and scope of the consequences of their legislation beyond the immediate.
Why would you be certain of that? Is this all a dependent process? Does having one pass intercepted increase the chances that the next one a QB throws will be intercepted also?

Quote:
Originally Posted by GhostInTheShell View Post
And on a side note, our government taxes trade, regulates transactions, sets interest rates, imposes embargoes, etc. Hence, laissez-faire capitalism doesn't exist and hasn't for some time. Therefore, no rational group or individual can conclude that a free market (deregulation) caused the recent bank failures.
Because it rained in Seattle doesn't mean that there wasn't still a drought in Atlanta. Lack of sufficiently rigorous regulation and lax oversight and enforcement of such regulation as did exist were primary causes of this problem. There is virtually no one left who will deny the premise.

Quote:
Originally Posted by GhostInTheShell View Post
If anything, our nation more closely subscribes to Keynesian economic theory; so it makes more sense to argue that government intervention is what helped to exacerbate or amplify the problem in the first place. However, I'm sure that you won't hear that from the left since it doesn't help to further their agenda.
No, you won't hear it, but the main reason for that is that it's gobbledy-g00k. There are parallels in this case to the rigged IPO scandals of 1999-2000 that ensued upon the repeal of Glass-Steagall. If you dump a pile of sand in the street and don't leave someone to guard it, a bunch of kids will come and play in it.
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Old 10-01-2008, 02:32 PM
 
19,183 posts, read 27,741,368 times
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Quote:
Originally Posted by f_m View Post
This I do not disagree with.
Well, that's your right.

Quote:
Originally Posted by f_m View Post
Isn't there a saying about that, don't sign unless you understand.
Perhaps so, but there's also this place known as the real world, and over there, it's pretty well understood that all the preaching and lecturing isn't going to make it happen. At that point, do we just decide that it's open season on borrowers, leaving them to learn the hard way whatever free-market lessons they need to learn? Or should we say that having either a law degree (or the money to retain someone who does) shouldn't be a necessary precursor to purchasing a home. There is outrage all around if lead paint is found on imported toys, yet we can't endorse the equivalent of lead-free home purchasing policies? I'm not sure there's such a good balance there.

Quote:
Originally Posted by f_m View Post
Well, a fixed loan percentage for the length of the loan is fixed, no crystal ball is needed. If the loan is variable, then potentially anything can happen, by definition.
Plenty of fixed-rate borrowers are underwater or upside-down or whatever buzzword might be attached to the condition, and that's not a good thing if the need to move comes into play. Variable-rate contracts were meanwhile written to balance two needs...affordability and recoverability. As the result of events not anticipated by anyone, neither of those needs is currently being met with respect to thousands and thousands of contracts. A means to restore both in these cases would be beneficial to all.
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Old 10-01-2008, 03:13 PM
 
Location: At my computador
2,057 posts, read 3,029,533 times
Reputation: 510
Quote:
Originally Posted by saganista View Post
I answered your question with much more than a question. The response for instance noted the fact that you moved the "market-based terms" qualifier from the back end of the original statement to the front-end.
Then straighten and define it please. What is "sensible, market-based terms". With all due respect, I'm not asking for examples; I'm asking how you define it.

Quote:
The majority of currently troubled borrowers could indeed afford their loans when they took them out, as very low initial and early default rates would indicate. The majority could still afford their loans if remaining balances were reorganized onto market-based terms instead of the dartboard-based terms that many resets have brought about. Specific terms and data to support that claim and concept were presented in the post. How much more clarity is required?
The reason I don't understand that as a definition is because the rates were market-based for the risk assumed. There seems to me an implied contradiction: If you take out some of the market's assumed variables, then we can find market terms.

That's why I'm asking above for the definition because you're using differently than any I've heard.

(FWIW: My bank was CRA approved. The question you asked is based on the fallacious assumption that an organization was a store-front or CRA bank. I didn't know what you were talking about because I never heard of a CRA bank... and naturally assumed that if I never heard it around the office, we mustn't be one. I had to email an old manager.)


Quote:
Your assertion was "No one should be helped." That's it, verbatim. No conditions or qualifications. It's a categorical statement. If you would like now to amend it some, I would be undertstanding of that.
What-- and whose-- rule do you use to establish responsibility for context?

Quote:
The fact is, as I'm sure you are aware, that many impacted ARM holders have succeeded in obtaining refinancing. Some managed it on their own, some with the help of various private sector intermediaries. These people have been helped. Should such practices not have been tolerated?
The discussion was government intervention. Therefore, the context excludes private sector assistance. Please rephrase.

Quote:
If... they should have been... welcomed...
It doesn't matter to me if it's done by private sector companies.

Quote:
I'm suggesting... : ... societies exist... to accomplish risk-sharing and income-redistribution.

... Had I written it, it would surely have been from the... point of view... that if unprotected sex is leading to the contraction of AIDS, society is perhaps justified and perhaps obligated to accomplish income redistribution by dipping into your pocket and mine in order to publicly discourage unprotected sex, promote research toward an AIDS cure, and assure the provision of proper and adequate care to current sufferers from the disease. Is that specific enough?
For clarity sake, how do you draw the line between what should and shouldn't be shared? (Risk and financial cost of consequences?)

Quote:
The only morality that precludes such actions is one based upon self-centered isolationism. Responsible to and for self and no one else. Is that the premise you are advancing here?
Define "self-centered isolationism" please.

Quote:
If you are human, sometimes you will decide well, and sometimes you will decide poorly. Sometimes fortune will smile upon you, and sometimes it will not. And without regard to who or what you are, you and all the rest of us will have a shared exposure to shocks from outside the system. When we are all down, we all work together to pick ourselves back up. When some of us are down, the rest pitch in to pick up a piece of the burden, knowing that next week, the shoe will be on the other foot. That is the bargain you make by living in a society -- and off its benefits.
Was this a perspective of a Founder? If so, which one and where was it cited and described by that person? Otherwise, is it accurate to say that you're indifferent to the principles America was founded upon and prefer something else? (If so, please cite.)

Quote:
By me?
I assume you attempted to understand the definition of the term used by the poster and, therefore, responded under the assumption of the intended meaning. What meaning did you assume the poster to mean by "Reagan legacy"?

Quote:
Relevant to your claim rarely to have heard of a politician who didn't put re-election first. Reasonable steps to protect one's self-interest are understandable (and observed) in every profession, but NIMBY-ism can be carried to unhealthy extremes, and regularly is.
And what conclusion were you trying to support with the example? I don't understand what you're trying to say.
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Old 10-01-2008, 04:07 PM
 
19,183 posts, read 27,741,368 times
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Quote:
Originally Posted by One Thousand View Post
Investors write the guidelines. You appear to be using the word standard in the way the mortgage industry uses guidelines.
More in the sense that it would have in the plural form when following the words commonly accepted accounting. While there may not be an established underwriting bible, there are commonly accepted norms and principles that are typically followed within the mainstream industry concerning the need to gather, examine, and document an array of relevant information. These principles do not exclusively reflect a profit-maximization point of view. The practices of some brokers in recent years have appeared to reflect that objective only. It may be the case that state or federally-mandated standards, examinations, licensure, and periodic review will be necessary to standardize the origination of mortgages and other assets as a means of protecting both borrowers and secondary market investors.
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Old 10-01-2008, 04:17 PM
 
878 posts, read 1,846,372 times
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Quote:
Originally Posted by saganista View Post
No, I'm simply pointing out the hollowness of your position as stated. All insurance is a risk-sharing, income-redistributing exercise, and if you're in it, you're part of it.
Insurance may be viewed as redistributionist, but you're ignoring the difference between government redistribution and market-based redistribution.

In market-based redistribution, I purchase a service from the insurance company (reducing financial risk), and they receive compensation. They then take that money and engage in wealth building. The terms of the agreement are negotiable, and if I don't like my insurance policy, I can cancel it.

Government forced redistribution has none of these aspects. No services (looking at the % of taxes going to welfare), no negotiation, no wealth, no chance to go to another service. Most importantly, there's no recourse.
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Old 10-01-2008, 04:55 PM
 
Location: At my computador
2,057 posts, read 3,029,533 times
Reputation: 510
Quote:
Originally Posted by saganista View Post
More in the sense that it would have in the plural form when following the words commonly accepted accounting. While there may not be an established underwriting bible, there are commonly accepted norms and principles that are typically followed within the mainstream industry concerning the need to gather, examine, and document an array of relevant information. These principles do not exclusively reflect a profit-maximization point of view. The practices of some brokers in recent years have appeared to reflect that objective only. It may be the case that state or federally-mandated standards, examinations, licensure, and periodic review will be necessary to standardize the origination of mortgages and other assets as a means of protecting both borrowers and secondary market investors.
You don't understand what happens. Fannie's back end ratio (total debt to income) was in the mid-thirties before things started to go. (That means to buy a house, all things considered, you couldn't have more than about $350 in debt for every $1,000 of gross income.) By the end, the back end ratio was in the sixties when compensating factors were taken into account. (Obviously, that means you could have over $600 in monthly debt for every $1,000 of gross income... That means you were spending $600/month on housing and credit and then you had $300 in taxes and then you had $100 left to live on.)

Fannie uses a program called Desktop Underwriter. This program is what allowed the bad loans. It wasn't shady brokers... Fannie controlled DU; not brokers. It was the government who f'ed up.

To swing this back to CRA's, the government used Fannie's DU for approving CRA loans... which, again, has nothing to do with brokers and the "standard practices" you're suggesting.

You're just totally wrong here... the best I can figure is you're just posting links because you don't understand how it works. The government was in charge of Fannie. Fannie set the "standard practices".
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Old 10-01-2008, 05:11 PM
 
19,183 posts, read 27,741,368 times
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Quote:
Originally Posted by GhostInTheShell View Post
...here are some well wrought, contrarian viewpoints:
The Housing Bubble in 4 Easy Steps - Mark Thornton - Mises Institute
Myself, I'm not such a big fan of the Mises Institute in general, nor of the well-wroughtedness of the Thornton piece (the only one I read) specifically.

Thornton notes correctly that the dollar volume of real estate loans held by commercial banks increased rapidly over the period in question, but then claims that all these new loans had to be extended to people with lower credit ratings. His bubble theory depends on this having been the case, but he offers no evidence in support of the claim, apparently hoping the reader will take it on faith. But is there a reason to do so? Over the period in question, interest rates declined markedly and stayed declined for an extended period. One would expect that this made cash-flow refi's, cash-out refi's, move-up loans, and equity loans and lines more attractive to already existing real estate loan holders whose credit ratings would not have been different merely for having engaged in new transactions. Additionally, changes in the distribution of wealth over these years would have accelerated growth in the number of borrowers having high credit ratings, while at the same time boosting the ratings of those whose ratings were already high. In brief, there would be several reasons to expect that at least a significant part of the growing dollar volume in real estate loans went to borrowers of equal or higher credit rating, but Thornton doesn't address any of them. An actually rigorous analysis would have. Thornton merely makes his claim, and then sticks to it. This is not good form.
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