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Housing was a symptom; the underlying sickness at the core of the current financial crisis was the massive and unregulated trade in credit derivatives and derivatives of derivatives which entangled many of the world's largest financial institutions in webs of bad debt, or debt that cannot even be properly valued.
The credit default swap market, for example, didn't really exist before 1995. By 2007, it had become a multitrillion-dollar market, at least nominally.
No, the OVER regulated trade in credit created by Clinton to give credit to people that should have credit or give more credit to people.
What you are talking about is Fannie mae,
When Fannie may bought most financial loans, then selling them back to financial institutions. But when Fannie mae sold them they had insurances by the federal government.
Is like this, You are X(banks), you lend 100 dollars to Y.
Then Fannie buys your Loan, so now the Y pays Fannie and not you. But then Fannie resell the same loan but this time with insurance, and you X and a lot of people in the walstreet buys the loan BACK but now with protection from Fannie Mae.
Now the government tells Fannie Mae to buy 50% of risky loans, then again resell them to financial institutions. We are talking about billions of dollars then went to risky loans. Until banks had no choice to stop lending because of the risk, when people stop paying their loans and the banks see that they have a great % of bad loans what do you think they will do??
That is why the Fed. Government wants to buy(700 billions dollars) all this risky loans that the Fed. Government created back from the banks. So that they can start lending again.
No; I'm talking about the markets for derivatives, credit default swaps, swaptions, collateralized debt obligations, and other exotic credit products. The entire mortgage market is quite small compared to the nominal value of all these securities. Lehman didn't fold because people weren't paying mortgages - they folded because they were a party or counterparty to exotic security debt obligations that they were unable to cover.
The "unwinding" of all this will be a long and messy process.
The housing bubble was one bubble among several. But housing bubble or not, the credit derivatives bubble was eventually going to explode.
No; I'm talking about the markets for derivatives, credit default swaps, swaptions, collateralized debt obligations, and other exotic credit products. The entire mortgage market is quite small compared to the nominal value of all these securities. Lehman didn't fold because people weren't paying mortgages - they folded because they were a party or counterparty to exotic security debt obligations that they were unable to cover.
The "unwinding" of all this will be a long and messy process.
The housing bubble was one bubble among several. But housing bubble or not, the credit derivatives bubble was eventually going to explode.
No; I'm talking about the markets for derivatives, credit default swaps, swaptions, collateralized debt obligations, and other exotic credit products. The entire mortgage market is quite small compared to the nominal value of all these securities. Lehman didn't fold because people weren't paying mortgages - they folded because they were a party or counterparty to exotic security debt obligations that they were unable to cover.
The "unwinding" of all this will be a long and messy process.
The housing bubble was one bubble among several. But housing bubble or not, the credit derivatives bubble was eventually going to explode.
Funny,
really is funny...
Let me bold the key parts
Quote:
In August 2007, the firm closed its subprime lender, BNC Mortgage, eliminating 1,200 positions in 23 locations, and took an after-tax charge of $25 million and a $27 million reduction in goodwill. Lehman said that poor market conditions in the mortgage space "necessitated a substantial reduction in its resources and capacity in the subprime space". [35]
In 2008, Lehman faced an unprecedented loss to the continuing subprime mortgage crisis. Lehman's loss was apparently a result of having held on to large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages; whether Lehman did this because it was simply unable to sell the lower-rated bonds, or made a conscious decision to hold them, is unclear. In any event, huge losses accrued in lower-rated mortgage-backed securities throughout 2008. In the second fiscal quarter, Lehman reported losses of $2.8 billion and was forced to sell off $6 billion in assets.[36] In the first half of 2008 alone, Lehman stock lost 73% of its value as the credit market continued to tighten. [36] In August 2008, Lehman reported that it intended to release 6% of its work force, 1,500 people, just ahead of its third-quarter-reporting deadline in September.[36]
On August 22, 2008, shares in Lehman closed up 5% (16% for the week) on reports that the state-controlled Korea Development Bank was considering buying the bank. [37] Most of those gains were quickly eroded as news came in that Korea Development Bank was "facing difficulties pleasing regulators and attracting partners for the deal." [38] It culminated on September 9, when Lehman's shares plunged 45% to $7.79, after it was reported that the state-run South Korean firm had put talks on hold. [39]
Investor confidence continued to erode as Lehman's stock lost roughly half its value and pushed the S&P 500 down 3.4% on September 9. The Dow Jones lost 300 points the same day on investors' concerns about the security of the bank. [40] The U. S. government did not announce any plans to assist with any possible financial crisis that emerged at Lehman. [41]
The next day, Lehman announced a loss of $3.9 billion and their intent to sell off a majority stake in their investment-management business, which includes Neuberger Berman. [42][43] The stock slid 7 percent that day. [43][44] Lehman, after earlier rejecting questions on the sale of the company, was reportedly searching for a buyer as its stock price dropped another 40 percent on September 11, 2008. [44]
Just before the collapse of Lehman Brothers, executives at Neuberger Berman sent e-mail memos suggesting, among other things, that the Lehman Brothers' top people forgo multi-million dollar bonuses to "send a strong message to both employees and investors that management is not shirking accountability for recent performance."
Lehman Brothers Investment Management Director George Herbert Walker IV, second cousin to U. S. President George Walker Bush, dismissed the proposal, going so far as to actually apologize to other members of the Lehman Brothers executive committee for the idea of bonus reduction having been suggested. He wrote, "Sorry team. I am not sure what's in the water at Neuberger Berman. I'm embarrassed and I apologize." [3]
Wow, let see,,
I think is pretty clear subprime lending is the reason, but you tell me...
That demonstrates my point. It's not like Lehman or Bear Stearns directly extended mortgages and then took a bath on direct losses from nonpayments. Instead, they built an edifice of fraud using unregistered "insurance contracts" such as credit default swaps. Mortgages were one vehicle through which these securities were backed, though they have been backed by sources as diverse as municipal bonds, futures contracts, and most insiduously of all, baskets of other securities.
The argument you are trying to make is that the CRA or something similar was a "but-for" cause of the financial crisis we now see, and that but for the CRA, all of this would have been avoided.
Nope. Mortgages were merely one of the more proximate targets for the exotic derivatives market. Had all mortgages kept on performing (and note that MOST have), it would have simply driven the bubble higher, and spread it deeper into other sectors, such as commercial RE, student loans, or other forms of securitizable debt.
Anyhow, this Wikipedia article on credit default swaps isn't bad, and explains some of the nature of the risk these things create as they expand throughout the financial system:
That demonstrates my point. It's not like Lehman or Bear Stearns directly extended mortgages and then took a bath on direct losses from nonpayments. Instead, they built an edifice of fraud using unregistered "insurance contracts" such as credit default swaps. Mortgages were one vehicle through which these securities were backed, though they have been backed by sources as diverse as municipal bonds, futures contracts, and most insiduously of all, baskets of other securities.
The argument you are trying to make is that the CRA or something similar was a "but-for" cause of the financial crisis we now see, and that but for the CRA, all of this would have been avoided.
Nope. Mortgages were merely one of the more proximate targets for the exotic derivatives market. Had all mortgages kept on performing (and note that MOST have), it would have simply driven the bubble higher, and spread it deeper into other sectors, such as commercial RE, student loans, or other forms of securitizable debt.
Anyhow, this Wikipedia article on credit default swaps isn't bad, and explains some of the nature of the risk these things create as they expand throughout the financial system:
That demonstrates my point. It's not like Lehman or Bear Stearns directly extended mortgages and then took a bath on direct losses from nonpayments. Instead, they built an edifice of fraud using unregistered "insurance contracts" such as credit default swaps. Mortgages were one vehicle through which these securities were backed, though they have been backed by sources as diverse as municipal bonds, futures contracts, and most insiduously of all, baskets of other securities.
The argument you are trying to make is that the CRA or something similar was a "but-for" cause of the financial crisis we now see, and that but for the CRA, all of this would have been avoided.
Nope. Mortgages were merely one of the more proximate targets for the exotic derivatives market. Had all mortgages kept on performing (and note that MOST have), it would have simply driven the bubble higher, and spread it deeper into other sectors, such as commercial RE, student loans, or other forms of securitizable debt.
Anyhow, this Wikipedia article on credit default swaps isn't bad, and explains some of the nature of the risk these things create as they expand throughout the financial system:
Again, like the quote said, they had to much subprime loans in their portfolio.
Plain and simple...
again
Quote:
Lehman's loss was apparently a result of having held on to large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages
I can see pretty clear the word subprime and lower rated mortgage.
I dont see anything else, do you???
Now if you want to put other words, then is your opinion.
Housing was a symptom; the underlying sickness at the core of the current financial crisis was the massive and unregulated trade in credit derivatives and derivatives of derivatives which entangled many of the world's largest financial institutions in webs of bad debt, or debt that cannot even be properly valued.
The credit default swap market, for example, didn't really exist before 1995. By 2007, it had become a multitrillion-dollar market, at least nominally.
Very good observation. You are partly right on this, but closer to the mark than the tin foil hatters crying about "socialism". This goes back again to our system, how money is created and making debt the determining factor in growing ones economy. these other things are just symptoms.
CJMA
Again its hard to have a conversation with you on this topic because you don't fully understand the issues. As for this "every expert" said this is the fault of the housing crisis statement again, total non sense. Eric Janszen, Mark Faber, Sen. Ron Paul, Peter Schiff, Nourel Roubini among others disagree with you. The only place I can assume you heard this "housing is the issue" thing is from CNN, FOX or MSNBC. This theory is mistaking the trees for the forest. To speak plainly, our system is BUSTED. The only argument serious economist are having now is, will we see long term deflation or inflation. Roubini said deflation in the near term with possible long term inflation. Eric Janzen says no deflation, instead disinflation and thein inflation as a means for us to get out of our debt problem. Eitherway I am getting away from the core issue here. You have mistaken the forest for the trees and used your extremely poor understanding of political systems to mislead you on what is happening.
Here is a quick run down:
1. After abolishing gold standard, money is now created via debt link
2. Individuals start to save less and spend more until the point of negative spending. Then consumer spending starts to make up 70% of Gross Domestic Product link
3. In order to spur on this sort of economy, the government uses low interest rates, consumer and public (government) debt to continue on this path of neo feudalistic debt serfdom. This is where the public is kept in a continual state of debt (economic slavery) along with spurring bubbles to keep our economy ever growing. After 9/11 individuals started to pull their money out of America (stopped investing with us) and foreign entities stepped in (i.e. sovereign wealth funds and FCB or foreign central banks).
4. After 9/11 we needed a way to reinflate anotehr round of asset
deflation. See people spent more and more moneyw ith us expecting thsoe tech and telecommunications firms to pay off well. That didn't pan out and many were left broke. With out this constant influx of money, credit cards loans would go belly up, auto loans would take a beating and well you get the picture. So, our foreign buddies such as China and Japan said they would lend to us so we could continue to buy from them. They assumed debt could continue on this way and some day when our economy produced something of substance we could pay them back. Well we produce nothing of substance and we have NO way of paying these people back. That is why the bail outs. If we default on these loans or even look like we are going to default, that would lead to whats called a sudden stop. You want to know what that looks like? Go look up Argentina on youtube.
5. So here we are now, broke, no way of paying back, a economy that is giving the death kneel and a clueless public. I mean just look, you have all these silly people running around screaming socialism and communism with out even understanding what those terms mean, no less really looking at the REAL issues here. Regardless if Mcain won or Obama won, they both were going to have to print money to get us out of this. Incase you don't know, inflation is a tax on personal income. That is devaluing the currency so that is is worthless and buys less. The difference between the two men (Obama and Mcain) is how would they use the money that is printed. Obama's ideas are bettery from a economic standpoint. Instead of trying to prop up industries and a system that has failed and needs to be revamped as Mcain proposed, Obama will invest this money into industries which could change us from consumers and debtors to actual producers and savors. That is, if he is able to pull off the reindustralization of America. THis is going to take atleast 7 to 10 years to complete but we can get there. Forget about the rhetoric you heard during the campaign. It was disingenuiness and used to confuse the issues. Instead start looking into facts.
I mean no disrespect to you and hope i didnt offend you. But things are very serious right now and people need to understand the FACTS so they can make appropriate decissions.
No, the OVER regulated trade in credit created by Clinton to give credit to people that should have credit or give more credit to people.
What you are talking about is Fannie mae,
When Fannie may bought most financial loans, then selling them back to financial institutions. But when Fannie mae sold them they had insurances by the federal government.
Is like this, You are X(banks), you lend 100 dollars to Y.
Then Fannie buys your Loan, so now the Y pays Fannie and not you. But then Fannie resell the same loan but this time with insurance, and you X and a lot of people in the walstreet buys the loan BACK but now with protection from Fannie Mae.
Now the government tells Fannie Mae to buy 50% of risky loans, then again resell them to financial institutions. We are talking about billions of dollars then went to risky loans. Until banks had no choice to stop lending because of the risk, when people stop paying their loans and the banks see that they have a great % of bad loans what do you think they will do??
That is why the Fed. Government wants to buy(700 billions dollars) all this risky loans that the Fed. Government created back from the banks. So that they can start lending again.
Umm again what are you talking about? Under Clinton deregulation was the rule of the day starting with Glass Steagall Act and then furthered under Bush
Umm again what are you talking about? Under Clinton deregulation was the rule of the day starting with Glass Steagall Act and then furthered under Bush
What about the over regulation when he created the Community Reinvestment Act (CRA), making bank to lend people that they didnt want to lend.
Then making Fannie mae buy 50% of this bad mortgages.
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