Comments on: Credit Crisis? Not Really

National Review Online: Sub-Prime Mortgage Market Woes Are Greatly Exaggerated

[lawyertom1]

Part 2. In any case, there is an obvious lack of understanding by some of our commentators re how these jokers play the game and why it sometimes goes south. The NRO unfortunately displays the type of ignorance one would expect from the NRO, and any high school freshman. For those of you new to these issues, go back and follow the economic literature for the last five years and you will see that these types of problems have been a major concern of the truly intelligent. Now, the pigeons are coming home to ... who knows? Little early to tell.

[lawyertom1]

Part 1. One has to be skeptical when the NRO says "what, me worry?". TaxGuyDave makes some good points. But what many of you are missing is the fact that those who package CDOs, who buy CDOs, who insure CDOs, etc. etc. are often highly leveraged [translate: small equity, lots of debt], and who knows about the buy-back requirements in the CDO contracts [the what? wake up and smell the reality]. As such, it does not take much to push them over the edge. Leverage is fab, just fab darling, on the upside [the return on your puny equity investment is very nice, thank you], but a real bummer on the downside [your puny equity is wiped out and you have to sell other assets like mad to cover debt]. So, it is not the percentage issue that matters, as NRO implies, it is how all this dreck is package, sold, and how it is held, and by whom. When a highly leveraged French bank, just to pull an example out of the speculative air, buys a bunch of CDOs and uses them to meet capital requirements, then the guano hits the proverbial fan when the CDOs go south. Thus, the ECB pours billions of euros into their system. The Fed then follows suit to keep everyone happy and secure (there is nothing like billions to create that warm, fuzzy feeling).

[ramos937]

To Jerry Bowyer, National Review Online.

I wonder what planet you have been living on? I very much wish that the Comptroller General (head of the GAO), could spend at least 20 minutes with you. The CG is telling the American public the true financial position of the USA. Whatever the administration is the 2007 deficit, you need to multiply it by 2.5, our true overall debt is not about $8.5 trillion it is about twice that much. Do you not ever watch 60 Minutes.

BE a patriot and go interview the CG before you write more articles like this.

[shanev137]

Basically, rich people who "indirectly" made loans to poor people with bad credit, want to blame the next recession on the fact a few of them can't keep up with their mortgage payments because of the inflation that rich people created.

[roger_inkart]

Oh no! The NRO is saying this is NOT a crisis? Good Lord - head for the hills everyone! We're DOOMED!!!

Seriously, I can only imagine how this article would have been spun the other direction if the GOP and the Bush administration hadn't been running the show lo these many years.

[shanev137]

So Sharn...it's basically just super-rich people who didn't get as rich as they wanted off sub-prime lending, and now they want to be bailed out by the feds.

[taxguydave]

Hey TaxguyDave....where do all the rich insurance companies who backed these mortgages sit in all this, and what about the "real property" that is still owned by all these "bad" sub-prime lenders?
Posted by shanev137 at 02:28 PM : Aug 11, 2007

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SharnCedar did a good job of answering this. I would like to add that most subprime mortgages are uninsured. The CDOs pass most of the risk from the banks to the derivatives investors.

[wogerwabbit]

When is a orange an apple? When NRO writes about it.

[sparks224]

Didn't the the NRO recently have an article titled:
The Invasion of Iraq, a Bad Idea? Not Really

[sparks224]

Oh I see, it's just Social Darwinism (the neo-con religion) working it's magic.

Social Darwinism is very similar to what the Nazis believed, but with the superior and inferior being less defined by race.

[sharncedar]

"what about the "real property" that is still owned by all these "bad" sub-prime lenders? "

Great question. What about all that property, all those nice houses, aren't they worth something. how much is a house "worth"? The trivial bankers answer is what a buyer will will pay, but that doesn't factor out inestment bubbles. a better measure of an investment is the raw productivity it creats - for a house, it is the premium that an employee living at the house will experience in productivity due to an enhanced ligfestyle and sense of ownership. Beause real wages have been held so low, this actual value is extremely low relative to the insane inflated house prices that were create dby currency mainuplation rather than actual productivity gains of the workforce. That is, the kind of person who could live there can't afford it based on their wages. Meaning the "property" is nearly worthless compared to the mortgage amount. No one suffering under stan bush's economic regime could afford to buy these houses, except through speculative loans. Certainly at 20 times their yearly income, its not a viable customer to buy the property.

Who was really buying ll those properties were not the "homeowners" but one bank giving the money to a fool to buy the property from another banks, the banks were using the properties to exchange capital and create loans. the people never owned anything.

[sharncedar]

"USURY IS THE MOST EVIL THING THAT MANKIND HAS INVENTED "

It's not money, rather the love of money that is the root of all evil. These bankers are not evil for collecting and processing money, they are evil for prizing the pursuit of money over their country, their fellow citizen's lives, and their sacred honor.

[shanev137]

Hey TaxguyDave....where do all the rich insurance companies who backed these mortgages sit in all this, and what about the "real property" that is still owned by all these "bad" sub-prime lenders?

[taxguydave]

This article is disingenuous at best.
If sub-prime loans were really a non-factor, the Fed wouldn't need to be pumping over $1 billion PER DAY of "liquidity" into the banking system. Billions of $'s of CDO's have already become worthless. CDO's are derivatives, what Warren Buffet has termed "financial weapons of mass destruction". It only takes a few of the loans in the CDO to default to make the securities worthless.
This has started a chain reaction. This has also depressed the prices of other mortgage-backed debt securities, including REMICs. In turn, the banks are forced banks to raise interest rates to make up for the lost income. This, in turn, has started to dry up the amount of money available for transactions like "leveraged buyouts" (LBOs). The drop in this activity has caused the prices of stocks to fall. And so on...
At least 3 multi-billion dollar hedge funds have become worthless in the past week because of this.
We've seen all of this before. Railroad bonds backed by insufficient collateral became worthless in large numbers late in the 19th century, eventually devaluing all markets and causing a period of "deflationary recession" (also known as a depression) in the 1880's and 1890's.
Over the years in my life as a financial professional, I have taken note for years that the most conservative elements constantly try to paint a rosy picture of the economy in order to defend the reckless financial practices of banks, the Fed, and the Bush administration.

[taxguydave]

This article is disingenuous at best.
If sub-prime loans were really a non-factor, the Fed wouldn't need to be pumping over $1 billion PER DAY of "liquidity" into the banking system. Billions of $'s of CDO's have already become worthless. CDO's are derivatives, what Warren Buffet has termed "financial weapons of mass destruction". It only takes a few of the loans in the CDO to default to make the securities worthless.
This has started a chain reaction. This has also depressed the prices of other mortgage-backed debt securities, including REMICs. In turn, the banks are forced banks to raise interest rates to make up for the lost income. This, in turn, has started to dry up the amount of money available for transactions like "leveraged buyouts" (LBOs). The drop in this activity has caused the prices of stocks to fall. And so on...
At least 3 multi-billion dollar hedge funds have become worthless in the past week because of this.
We've seen all of this before. Railroad bonds backed by insufficient collateral became worthless in large numbers late in the 19th century, eventually devaluing all markets and causing a period of "deflationary recession" (also known as a depression) in the 1880's and 1890's.
Over the years in my life as a financial professional, I have taken note for years that the most conservative elements constantly try to paint a rosy picture of the economy in order to defend the reckless financial practices of banks, the Fed, and the Bush administration.

[cofmanaaron]

You know, there might be some sense in this article, I think our current economic woes are being blamed on the housing market when it is really the disasterous economic policies of our president that has been desroying the consumer class in the last 7 years through cuts in education support, health policy, and tax cuts and handouts being given to the wrong people.

[forthepeopl1]

he loves bush, cant you read this trash

[shanev137]

Plus, sub-prime mortgages had built in cost and insurance to cover their loses. PLUS, they get to keep the freaken house if it forecloses. LOL

Basically, huge profit-taking is going to occur in the stock markets and they will try to blame the plunge on sub-prime lending....and ignoramuses will suck it up.

[rushlimpdrug]

Nice movie review.
Can an article be any more stupid?
Maybe next time he can review "Clueless"

[v_1618]

WE ARE IN THE HANDS AND THE DOMINATION OF A
FEW CORRUPT PEOPLE WHO ARE THE OWNERS OF THE
INTERNATIONAL BANKS OR THE FEDERAL RESERVE
BANK. WHO MADE MONEY BACKING BY NOTHING WE ARE SLAVES
FROM THIS CORRUPT PEOPLE ....BUT TO KEEP
THEIR POWER THEY INVENT US ALL AROUND EUROPE
AND AMERICA THAT WE ARE IN WAR. TO KEEP THEIR
POWER MADE FROM NOTHING THEY ARE THE EVIL IN
THIS WORLD..LIKE HITLER FOR THE FEDERAL
RESERVE BANKS THE MOST LUCRATIVE THING !!!!IS WAR!!!
FORCES THE COUNTRY TO BORROW MORE MONEY AT INTEREST
THEY ARE THE MOST KIND OF THIEFS IN ALL TIMES OF
HUMANKIND. THE MONEY PAPER IS THE MOST ASTOUNDING
PIECE OF SLEIGHT OF HAND THAT WAS EVER INVENTED.
USURY IS THE MOST EVIL THING THAT MANKIND HAS INVENTED
IS THE DESTRUCTION OF ALL CIVILITATIONS.
USURY IS THE MONSTER AGAINST THE KINGDOM
OF GOD. AND THE U.N. IS MADE BY THE INTERNATIONAL
BANKERS. WHO CONTROL EVERYTHING AND CONTROL THE WAR
IN IRAQ AND IRAN SOONER. OUR RULERS ARE A BUNCH OF CRIMINALS
THE TRILATERAL COMMISSION IS THE WAY THAT ALL THE
PEOPLE AROUND THE WORLD WE'LL BE SOONER IN COMPLETE
SLAVERY UNTIL SOME REAL POWERS DEFEAT THIS EVIL ON EARTH.