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Subprime Worries

  • #61
  • Edited 8:20pm Aug 12, 2007 11:01am | Edited 8:20pm
The US, and I guess other countries as well, no longer have debtors jail so if there turns out to be a lot of homeowners who can no longer make their mortgage payments something will have to be done regarding bankruptcy eligibility.

Especially politically if there are bailouts of banks and/or mortgage companies. Not saying there will be or whether there should be any bailouts. Just that if the little guy, who maybe shouldn't have been allowed to buy to begin with, is left to continue paying even part of the debt after losing his home - there will be a big backlash.
  • #62
  • Aug 12, 2007 5:07pm Aug 12, 2007 5:07pm
Quoting SunTrader
Especially politically if there are bailouts of banks and/or mortgage companies. Not saying there will be or whether there should be any bailouts. Just that if the little guy, who maybe shouldn't have been allowed to buy to begin with, is left to continue paying even part of the debt after losing his home - there will be a big backlash.
Here in the UK there are still some people with outstanding debts from our housing collapse in '92. They basically still owe something like one or two years income. Everybody seems to have quietly forgotten about them...
Minesweeper target: 284
  • #63
  • Aug 12, 2007 5:26pm Aug 12, 2007 5:26pm
I believe the whole Sub-Prime issue has been stated far too much. The issue is not Sub-Prime mortgages; it is with speculatory mortgages on all fronts.

The problem lies squarely on the banks and lenders who started offering interest only loans and approving people to own houses that far exceeded there income.

Something like 60% of the mortgages in the Bay area (Where I live) are either ARM or Interest Only. Even though they are not technically speculatory hosing (they are single family homes that are being lived in), they are speculatory in the fact that the family knows when the interest only rate ends or there ARM goes up, they will sell.

Now you have a ton of people Sub-Prime and Prime not able to afford there house because they speculated. Now that they can not afford it with the increased rate they have to sell. Unfortunately, no one is buying. This leads to foreclosures.

We are in the situation we are in, not because the banks lent to people with poor credit, but because banks lent to Everyone regardless of credit far more then that person could afford.

Why would the banks do such a thing I am wondering. You are suckering someone into an interest only loan, knowing full well that they will not be able to afford the loan when the interest only term is over. What did they expect was going to happen, prime or not?
Que
  • #64
  • Aug 12, 2007 6:20pm Aug 12, 2007 6:20pm
Quoting Que
I believe the whole Sub-Prime issue has been stated far too much. The issue is not Sub-Prime mortgages; it is with speculatory mortgages on all fronts.

The problem lies squarely on the banks and lenders who started offering interest only loans and approving people to own houses that far exceeded there income.

Something like 60% of the mortgages in the Bay area (Where I live) are either ARM or Interest Only. Even though they are not technically speculatory hosing (they are single family homes that are being lived in), they are speculatory in the fact that the family knows when the interest only rate ends or there ARM goes up, they will sell.

Now you have a ton of people Sub-Prime and Prime not able to afford there house because they speculated. Now that they can not afford it with the increased rate they have to sell. Unfortunately, no one is buying. This leads to foreclosures.

We are in the situation we are in, not because the banks lent to people with poor credit, but because banks lent to Everyone regardless of credit far more then that person could afford.

Why would the banks do such a thing I am wondering. You are suckering someone into an interest only loan, knowing full well that they will not be able to afford the loan when the interest only term is over. What did they expect was going to happen, prime or not?

the flexible interest rate trap by the bankers.........they truly own the world.........creating money and credit out of nothing.........pump up the market then credit crunch........
  • #65
  • Aug 12, 2007 7:34pm Aug 12, 2007 7:34pm
Quoting Que
I believe the whole Sub-Prime issue has been stated far too much. The issue is not Sub-Prime mortgages; it is with speculatory mortgages on all fronts.

The problem lies squarely on the banks and lenders who started offering interest only loans and approving people to own houses that far exceeded there income.

Something like 60% of the mortgages in the Bay area (Where I live) are either ARM or Interest Only. Even though they are not technically speculatory hosing (they are single family homes that are being lived in), they are speculatory in the fact that the family knows when the interest only rate ends or there ARM goes up, they will sell.

Now you have a ton of people Sub-Prime and Prime not able to afford there house because they speculated. Now that they can not afford it with the increased rate they have to sell. Unfortunately, no one is buying. This leads to foreclosures.

We are in the situation we are in, not because the banks lent to people with poor credit, but because banks lent to Everyone regardless of credit far more then that person could afford.

Why would the banks do such a thing I am wondering. You are suckering someone into an interest only loan, knowing full well that they will not be able to afford the loan when the interest only term is over. What did they expect was going to happen, prime or not?
I used to work for a mortgage broker and let me tell you they have been chasing after all kinds for money in the form of mortgages. Because these mortgages are heavily front loaded with interest, fees and commission at all levels in the food chain they would push as much as they could to get approval. They were going by the book, but they would go after anything and everything they could get eve if it did not make long term business sense. They were just thinking about the short term cash flow not the future downside if the usual mortgage default ratio should be higher than expected.

We think of bankers as strictly by the accounting numbers kind of thinkers, but they are subject to the same emotions of seeing more gold at the end of rainbow. The mortgage industry has been pumped millions and millions of dollars into marketing to people take loans against their equity, take loans for houses that were more than they could afford.
  • #66
  • Aug 12, 2007 8:23pm Aug 12, 2007 8:23pm
Point being, this is not a "Sub-Prime" issue. Yea the banks are claiming it that way, and it looks great on paper.

Fact is, the first people to forclose will be the Sub-Prime. This is because generally they do not have the credit to refinance to a new ARM or new Interest Only loan durring this crisis. Where as the "Prime" loans will have an easier time refinancing to hopefully keep that debt under control until the market turns back around.

The banks should not be bailed out of this situation. I'm, 100% sure that all of the "Sub-Prime" mortgage holders did not all get together and decide to default at once. I'm also 100% sure this was forseeable by the lenders and they did it to themselves.

They loaned money not to people with bad credit that cause the problem. They loaned money to anyone and everyone at super low entry rates that they KNEW they would raise. This means they KNEW that the borrowers would not be able to pay the increased rate (Interest only or ARM). It's bad enough when the buyers are getting loans based on speculation, its horrible when the banks are loaning it based on speculation. That is exactly what happened. Loan someone money that they can not possibly afford on year 3 or 4, but speculate on the fact that they will be able to flip that property.

Screw the lenders, and let the house prices come back down to a reasonable level. The average house price last summer in the Bay area was over $600,000. The average income can not afford that. Banks should be responcible for the risk they hold, and they should be responcible for the current situation of the housing boom. Supply and demand has not increased at the rate housing prices have. If you have a house worth $300,000 and 4 people are interested because that is the amount of people who can afford it in your area, it will go for around $300,000. If now there are loans avalible to 50 people the price is going to go for much higher.
Que
  • #67
  • Aug 12, 2007 8:28pm Aug 12, 2007 8:28pm
Banks or mortgage companies that hold their own paper (not that bundle and resell it to some other company) do not want, if they are not short-term orientated, people to default. They lose two ways because of the cost of holding property until it is resold for less money almost every time. And foreclosures drive down property values which further reduces over time the value they can recover.

But there is no doubt loan standards were dropped way way too low.
  • #68
  • Aug 12, 2007 8:34pm Aug 12, 2007 8:34pm
Quoting Que

................

We are in the situation we are in, not because the banks lent to people with poor credit, but because banks lent to Everyone regardless of credit far more then that person could afford.

Why would the banks do such a thing I am wondering. You are suckering someone into an interest only loan, knowing full well that they will not be able to afford the loan when the interest only term is over. What did they expect was going to happen, prime or not?

Hi Que,

The banks did it because they always know that the governments and the central Banks will always bail them out.

They are looked after by their cronies.

.
  • #69
  • Aug 12, 2007 10:14pm Aug 12, 2007 10:14pm
It's easy to generalize but Franklin National and Continental Illinois in the 80's and Barings Bank in the 90's are just three of the many big banks that were allowed to fail.

And then have the pieces left get gobbled up by other larger banks.
  • #70
  • Aug 12, 2007 10:15pm Aug 12, 2007 10:15pm
Quoting SunTrader
Banks or mortgage companies that hold their own paper (not that bundle and resell it to some other company) do not want, if they are not short-term orientated, people to default.
That's exactly where a large part of the problem lies: A lot of them DON'T "hold their own paper". They have repackaged these crappy loans and sold them to investors who were giddy with bullishness so they bought these funky new financial instruments without analyzing them properly, not knowing that they are actually buying finely packaged crap.

Quote
The banks did it because they always know that the governments and the central Banks will always bail them out.

And that's the second part of the problem. Big business has a long-standing tradition of privatizing profit while socializing loss. It's not the CB that's going to bail them out really, it's the American taxpayer - the same one who already got screwed on the smoke and mirrors mortgage he signed that was so convoluted that the average person cannot understand what he is getting himself into.

(Thanks for the link abobtrader)
  • #71
  • Aug 13, 2007 3:53am Aug 13, 2007 3:53am
Quoting fierceman

................

Big business has a long-standing tradition of privatizing profit while socializing loss. It's not the CB that's going to bail them out really, it's the American taxpayer - the same one who already got screwed on the smoke and mirrors mortgage he signed that was so convoluted that the average person cannot understand what he is getting himself into.

(Thanks for the link abobtrader)
The Central Banks cobbled together a mere US$300+ Billion (that over a quarter of a TRILLION US dollars!!!) and.... it was all done in LESS THAN 48 HOURS !!!!!

Thats what I call "Looking after your (hedge funds and banking) friends"

What about going after the bonuses of these boneheads starting with the BNP boys who said that they couldnt even find a price for the securities they were holding (they only had $2 BILLION worth of the stuff....)


An absolute disgrace !!!
.
  • #72
  • Aug 13, 2007 8:42am Aug 13, 2007 8:42am
Quoting jacko
The Central Banks cobbled together a mere US$300+ Billion (that over a quarter of a TRILLION US dollars!!!) and.... it was all done in LESS THAN 48 HOURS !!!!!

Thats what I call "Looking after your (hedge funds and banking) friends"

What about going after the bonuses of these boneheads starting with the BNP boys who said that they couldnt even find a price for the securities they were holding (they only had $2 BILLION worth of the stuff....)


An absolute disgrace !!!
.

News flash;

"Overseas central banks continued to add liquidity into the market. The European Central Bank said Monday that it had provided around 47.5 billion euros ($65 billion) in loans, while the Bank of Japan added over $5 billion"

Another $70 BILLION today. The Fed is currently meeting to see how much they should contribute/donate.

UNBELIEVABLE !!!! Capitalism at its best !!!


What a disgrace !!!!

.
  • #73
  • Aug 13, 2007 9:03am Aug 13, 2007 9:03am
Can you say with any certainty that if the FED/BOJ/ECB did not pump in funds that we wouldn't have another 1929 type event.
  • #74
  • Aug 13, 2007 9:30am Aug 13, 2007 9:30am
Quoting SunTrader
Can you say with any certainty that if the FED/BOJ/ECB did not pump in funds that we wouldn't have another 1929 type event.

SunTrader,

We are looking at the situation where Credit markets are attempting to dictate international Monetary Policies for each country, including the US and Europe. This just came across the wires:
Aug. 13 (Bloomberg) -- Credit markets are telling central banks what to do, and it isn't what Ben S. Bernanke or Jean- Claude Trichet had in mind.

Can you imagine the implications of greedy Wall Street firms dictating international monetary policy....so that they can make even larger rapacious profits for themselves ????

These Wall Street firms and their Credit market operations are the exact same ones that have brought us to this extremely dangerous and precarious situation.

These bail-outs will only encourage far,far, far more dangerous situations in the very near future. These are systemic problems that are getting far bigger, far quicker than people realise.

So, in answer to your question, the sooner these hedge funds etc are brought to heel, the less chance there will be of another 1929 situation.
If they are not brought under control, there WILL be another 1929 situation....but it will be far, far worse than 1929 and far, far worse than you can imagine.

.
  • #75
  • Aug 13, 2007 9:38am Aug 13, 2007 9:38am
Quoting jacko
SunTrader,

We are looking at the situation where Credit markets are attempting to dictate international Monetary Policies for each country, including the US and Europe. This just came across the wires:
Aug. 13 (Bloomberg) -- Credit markets are telling central banks what to do, and it isn't what Ben S. Bernanke or Jean- Claude Trichet had in mind.

Can you imagine the implications of greedy Wall Street firms dictating international monetary policy....so that they can make rapacious profits for themselves ????

These bail-outs will only encourage far,far, far more dangerous situations in the very near future. These are systemic problems that are getting far bigger, far quicker than people realise.

So, in answer to your question, the sooner these hedge funds etc are brought to heel, the less chance there will be of another 1929 situation.
If they are not brought under control, there WILL be another 1929 situation....but it will be far, far worse than 1929 and far, far worse than you can imagine.

.
Bloomberg wire wrote that so it must be true. Right?

Owned by a Billionaire.

Not saying it is not the case. But I can read opinion in that line and am not sure whether it is fact or not.
  • #76
  • Aug 13, 2007 10:14am Aug 13, 2007 10:14am
Quoting SunTrader
Bloomberg wire wrote that so it must be true. Right?

Owned by a Billionaire.

Not saying it is not the case. But I can read opinion in that line and am not sure whether it is fact or not.
That Billionaire would be under ENORMOUS pressure from his Wall Street financiers to use his media interests to put even more pressure on the Fed.

I was amazed when I saw the article come across the wires, I doubt that he would have signed off on it.

Long Term Capital Managementwas the warning ...it nearly caused a SYSTEMIC problem to the whole US financial system.

This one is bigger and has tentacles into more of the world than Long Term Capital Management.

A much wiser man than me once said:
The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear....[They] are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal. -- Warren Buffett, Chairman and Chief Executive, from his Letter to Shareholders, 2002 Berkshire Hathaway annual report.

So, as I said above:
The sooner these hedge funds etc are brought to heel, the less chance there will be of another 1929 situation.

If they are not brought under control, there WILL be another 1929 situation....but it will be far, far worse than 1929 and far, far worse than you can imagine.

.
  • #77
  • Aug 13, 2007 10:38am Aug 13, 2007 10:38am
There is a decided 'agenda' driven perspective from which even large news agencies operate, (I'm not saying right, or wrong, but maybe Right, or Left,). As to who is correct you have to discern your own financial needs. Michael is indeed a Billionaire (with a B), but all have a different M.O. the brought them there. Michael's perspective would likely run 'counter' to Rupert's. I would find out what one of Murdoch's agencies is reporting on the same issue and compare it face to face with your Bloomberg story. If they are the same, and arrive at the same conclusions you are likely onto something...Kenny
  • #78
  • Aug 13, 2007 3:51pm Aug 13, 2007 3:51pm
Some nice stuff in the commentary on http://jeffmatthewsisnotmakingthisup.blogspot.com/ as well =)

Previously posted image was from http://bigpicture.typepad.com/ btw.

I claim no responsibility for the content of those sites nor any links found on tem nor do I endorse their owners, bear any resemblance to bears or a boar.
I also don't smoke weed and I have never had a car accident in my life.

Hope it's okay to mentioned the URLs ;p
Trust price. Know yourself.
  • #79
  • Aug 13, 2007 4:14pm Aug 13, 2007 4:14pm
I didn't read the article. Not much for news, just trade price.

But after the market closed I re-read the line:

"Credit markets are telling central banks what to do, and it isn't what Ben S. Bernanke or Jean- Claude Trichet had in mind".

and I think what it is saying is the actions in the credit markets are dictating what the fed might do. Just like the bonds and fed funds rate trading can dictate what interest rates might do.

At first I thought Bloomberg was trying to say that the players in the credit markets were directly telling the FED/ECB etc what to do. Don't know why I thought that earlier. Thats kind of like crazy Cramer of CNBC having the ear of the Bernanke. Then again there are some who believe that.
  • #80
  • Aug 14, 2007 7:10am Aug 14, 2007 7:10am
looks like the bankers decided we're long overdue for the 2nd Great Depression.
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