The American Jobs Act

What regulations did you have in mind?

 

I want you to put your thinking cap on for a second. Where did all the money go? Ask yourself that.

If someone overpaid for a house, where did that go? People bought homes at $750K that are now worth $500k. Where did that $250k go? Do you know?

Your assessment is a gross oversimplification. The vast vast majority of the housing boom was legitimate - driven by people who could afford the price of their home. There was a percentage of those who bent the rules and gave loans to peopel they should not have. But you know what - that was a result of a LACK OF REGULATION BY THE GOV"t - not because of it.

What lead to all of this? Deregulation of banks allowed for these types of loans to be given. Before no one would because they were toxic and you could not sell them. But by allowing derivatives to be unregulated - banks sold them off to pension funds.

You had a genuine housing boom, that lifted prices, and then you had people borrowing against their new found "wealth" to spend, create stimulus, and thus drive more housing sales.

Blaming Fannie Mae and people buying homes is really kinda weird - since it was just one part of many things. It just shows some sort of desire to blame everything on the gov't and poor people which is ridiculous.

But still, where did all that wealth go? The middle class has a lot less wealth now than 5 years ago, and don't you wonder where it all went? Take a guess?


I bet everyone else here knows.

 

It use to be that a commercial bank and a investment bank couldn't be part of the same company. You want to know why? It's called the Great Depression.

In the 90's AIG could not have existed. Banks could not create toxic assets. Pension funds could not buy derivatives. The whole scam was created by deregulation.

And you ask what regulations he has in mind? Are you crazy?

 

Yes, and those are only the start of the deregulations that hurt us.

 

It went to the bank who paid the home seller, what's your point? To say someone "overpaid" implies they could have gotten it for a lower price, but they couldn't based on the level of demand at that time.

But Fannie and Freddie were backing those loans specifically because the government felt they SHOULD be given loans. It was proactive measures like the Community Reinvestment Act that encouraged bad lending. The rules weren't bent. Following the regulations encouraged risky lending.

A bank giving out those types of loans would soon find itself out of business. Unless of course, the loans are backed and encouraged by the government, and the banks that get in trouble are bailed out.

Risky behavior should not be outlawed, allowing for failure is what makes capitalism so dynamic and successful. But risky behavior should not be rewarded or mitigated by other people's money. It's ok to let banks and car companies fail, so capital flows to more productive areas.

I don't accept the premise that the housing boom was genuine.

one part?

http://www.bloomberg.com/news/2010-...system-juggles-limitless-bailout-economy.html

It went to the banks, who got it from the federal government borrowing and printing and bailing them out.

All of this originates with government policy. Banks can't steal your wealth unless the government facilitates the transaction.

 

If I respond and deconstruct this post, do you promise to never post again?
y/n?

 

n


.

 

Dear god man, what conservative misinformation have you been digesting?

The gov't doesn't run Freddie Mac or Fannie Mae. They took them over after the misran themselves. They are independent entities.

More importantly, they don't issue loans, they don't back loans, and they don't encourage lending directly. They are a middle man in the gain. They play in the secondary markets.

And the money doesn't go to the issuing bank - a very slim amount does yes. But that's not where the majority of the money is made. That's not where the money disappears to. It's cut between attorney's issuers, lenders and all the people who make money on home sales, but the vast vast majority of it goes to uber rich financial players. Many of them foreign. It's the money managers and foreign owners of the banks. All that money is in overseas booming markets now. They just invest to make money, not to grow business. It isn't spent. You know where it is, it's being used to fund businesses in China to kick our butts. That's right.

I can't explain CMO's and derivatives to you, but really, it would behoove you to educate yourself on ABS/CMO's and how the financial crisis developed and who really made the money. Where did trillions of dollars go?

If you say it's a closed system, then why is that money no longer in our economy? Because if it was, we'd be experience growth. But it's our of our economy.

You need to really think about where that money is, do your homework, and then come back here and make an intelligent post. You give conservatives a bad name because you are posting ignorant stuff over and over. I am more than very happy to criticize "liberals" here, but if you want to have a rational discussion you gotta first go and figure out a bit more about what you are talking about.

Please understand the role overcollateralization and Credit Default Swaps played - the CDS market was 5 times the rest of the market. And your article only speaks to post-2008 after the gov't bailed out Freddie Mac and Fannie Mae. And of course they make up the remaining market - everyone else went out of business!! If the gov't had not bailed those agencies out, there would be no housing market.

The economy would have fell into depression.

It's so important that you educate yourself and learn the truth. Because if you don't than we will continue to be a country whose officials are elected by people who have no clue and continue to get used and abused.

 

Minus legal fees and closing costs, that money went to the previous owners, who successfully sold a $500K house with a real value of $500K for $250K more than it was actually worth.

 

Who in many cases were still paying a mortgage so that money went towards paying off the mortgage except that mortgage had been sold off to someone outside the US by the issuing bank.

Hence the money left the US.

 

That would be a simple way of looking at the perfect transaction.

However, I don't think of middle class as buying $500K to $700K homes. The middle class got 'robbed' because their pensions and 401Ks got drained because their mutuals were heavily invested in bundles that were toxic. Middle class homeowners also lost considerable equity but in reality the equity was really just a bubble. If you got lucky, refinanced and pulled equity out then you actually came out even or ahead. It just sucks to see your house valued more closely to where it should be when your nest egg (house equity) used to look twice as big.

The question remains though: where did the the money go? Bailouts and bonuses....some but not the bulk. It's more or less been conglomerated by the larger corporations and institutions.

 

If the house was a resale and not a new home than yes. But most of the boom was new constructions.

Closing costs are a huge expense. But let's take out closing costs and the profit that goes to the new owner.

When you buy a home, you take out a mortgage unless you are uber rich. Even then you usually do. The interest payments on a 30 year mortgage at the interest rates in the mid-2000's would have matched the value of a home in many cases. So When you spend $300k for a home, you really are committing yourself to $600k over 30 years assuming nothing down (and closing costs).

What happens if that $300k home drops in value. People didn't over pay, it's a freakin market - you want a home you have to pay the going rate. They got screwed when the price dropped to $200k and now are underwater.

They can't sell, since they would get back $200k to pay off a $300k mortgage , and again get hit with closing costs (on the seller side) so they could take a loss of $150k easily. That's a lot of wealth lost. So they can stay in that home but are losing wealth each month because they are paying a hefty mortgage and interest on a place that has lost 1/3 of its value.

That isn't just happening to people who didn't have proper credit - it happens to everyone. It includes my parents who have impeccable credit.

Now, what happens is that some people say, screw this, and they just walk away from their mortgage since it's cheaper to default then to sell. If you only have put $25k down and made payments of another $25k - you are still out close to $100k if you sell. But if you walk away, you get to keep $100k. Your credit is ruined, but that's a lot of cash. And if you lose a job, you have no choice anyway.

So the default rate rises from 4% to 9%. Well, now, all these people with pension funds didn't know the managers were being wined and dined and buying up derivatives of these MBS securities with misleading credit ratings. When the default rate rose past 9 or 10%, the securities lost most of their value since a lot of them were just the interest portion stripped out and sold to other companies. Banks would hedge themselves through creating "Credit Default Swaps" meaning they were entirely based on payment if the seller had defaulted. So they sold and sold beyond that because no one truly understood them, they were completely non-regulated, and they just turned $13 trillion in mortgages into $60 trillion in CDS. In other words, the CDS got to a point where they were not even tied to an actual loan of any type. Pure speculation.

So what happened is the banks and AIG, and pension funds would make a chain of these securities, and they got so heavily invested that when one failed as the default rate rose, they all failed. People lost the money in the pension fund, and that accelerated the loss in wealth.

You can blame speculative loans to people who didn't deserve them, but that was not Freddie Mac and Fannie Mae. They don't approve loans or grant them. They just repackage and issue securities against them. It was the banks who then took those securities and created higher risk instruments and yet got an even higher rating thus deceiving people about their risk.

It was the commercial banks, issuing bad loans because they knew they could hide the credit quality and pass them off as something better through overcollaterization...a practice I witnessed back in the mid-90's.

The people who took the loss were those with pension funds, those who believed their homes held more value than they did and borrowed against that value on bad advice - not from the gov't, but from private business, and those who owned or were owed by the companies that failed - which was a lot of people.

When companies fail, it's not the guys who made millions as owners or executives that get screwed...they cashed out early in the party. It's the small time investors who used their stock in their retirement plans, and the people who bought insurance policies from AIG that would be made useless if the gov't didn't step in. It's people. Middle class - not the poor, and not the rich.

It's disgusting, and the media and politicians try to find a scapegoat, and it is absolutely crazy to blame the lower middle class who only did what they were advised to do. Not by gov't but by private business.

Think about it. $60 trillion dollars, plus the $13 trillion in the value of the mortgage backed securities. People paid all that money, it came from the value in people's homes, in their retirement accounts, in their investments. All that money went to other people. It was transferred.

One massive fleecing of the middle class.

And we think a 500 billion stimulus can reverse that kind of staggering loss in wealth?

It's absolutely amazing we aren't in a global depression. You have to credit Geitner and Bernacke and yes, even Obama for the stimulus for that. We might have ridiculous amounts of debt, but to be where we are after the massive loss in wealth that happened to the American people is just amazing.

TARP was perhaps the biggest thing that saved the world from a repeat of 1929.

 

My favorite right wing delusion is the "let's just give more money to rich people and corporations -- they will invest it and jobs will automatically appear" delusion. Even after years of borrowing money to pay the rich with tax cuts resulting in burgeoning profits, obscene executive pay and bonuses and no job growth, they'll keep repeating the same mantra.

It's like the laws of demand and supply don't even exist.

Having lived in a country with a huge disparity between the upper class and everyone else for a long time, I actually used to think I could look up to the US as a model of equal opportunity. Funny thing is that there is no difference between here and there now: in both countries the wealthiest, given free government money and unrestricted choice, will ALWAYS choose to line their own pockets and construct fortified mansions with high fences and armed guards, and couldn't care less about anyone else or the public good. The roads to their houses may be so broken down you need a Hummer to navigate them, and there may be no basic amenities like stable electric power and water, but they're rich enough to supply their own utility needs so who cares? And the statistics show it: the US has one of the worst income disparities in the world -- worse than Ghana, for instance. The only difference now is that here the middle and lower class poverty is masked by extreme debt.

 

sweet lou just made a whole world of sense about a subject I knew very little about. (never owned a home or big into investing yet)

 

The impression I got from reading 'Too Big To Fail' was that AIG hardly created any of these idiotic CDOs, rather, as banks wanted to protect themselves from these, they bought insurance from, well, an insurance company called AIG, to ensure themselves against their failure. AIG also bought a lot of these debts themselves, but as far as I can remember I don't think they actually made them.

Also, it wasn't really deregulation that sprung this, but rather a lack of more regulation. The repeal of Glass-Steagall didn't help, but it was the SEC's inability to keep up with creation on lunatic proportions of different financial products, all in the name of Profit.

 

Huh? Fannie and Freddie do play in the primary market, they work with all the primary dealers to issue agency papers, which pretty much is the only game in town these days. They also guarantees the those agency papers, i.e. they back the loans. All this makes the timing of lawsuits against the dealers a little puzzling.

Not sure what you mean by the money going overseas, bond investors both foreign and US seeks good returns plus security. When they buy the bonds, they provide a market for mortgage backed securities. When the bubble popped a lot of overseas investors got burned badly.

 

Yeah, you just described the secondary market. Primary market means actually making loans to people to buy a house. They don't play there.

Money goes overseas because the money managers who make out on all the securities and so on, the ones selling the crap to people, don't reinvest their money in the U.S. - they stick it into places where it is either safe or where they can make more - and that's overseas, gold, and treasuries. There are a lot of people / companies sitting on a ton of cash and assets that really used to be in the hands of the middle class.

 

No, in primary market are the dealers which markets and issues the securities (fannie and freddie work with all the primary dealers to issue agency papers). Secondary market is after the securities been issued, they are traded between buyers and sellers. That's where the fed bought a lot of the mortgage papers.

And you are making no sense on the overseas thing, my guess is you have little idea how the structured finance world works.

 

You are confusing the mortgage market with capital markets. Primary mortgage market is the consumer market and involves the commercial banks and SnLs

I haven't worked in finance in 15 years, but I have a pretty good understanding of the fundamentals. It can't change that much. The question you have to ask answer is - where did all the money go? Where is it today? Trillions upon trillions of dollars in value that homeowners and retirement accounts / pensions have lost.