On Mar 10, 6:25*pm, joetaxpayer <joetaxpa...[at]nospam.com> wrote:

- quote -

Clap, clap, clap, clap! The article is prescient for the date it was
written. It softpedals the extent of the leverage and the potential
damage, either because the "brain-children mafia" of leverage do not
want anyone to see what they've done, or by the article's deliberate
intent to promote calm.

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Elle wrote:

- quote -

Try this:
http://myfidelity.members.fidelity.c...s&sourcecd=FEA

or better yet:

http://tinyurl.com/2tmcuo

I glanced at it. It's from August, but looked like good reading.
Joe
www.blog.joetaxpayer.com

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"dapperdobbs" <GeorgeCFL[at]hotmail.com> wrote
- quote -

I sure wish I could get this link to work. I did a keyword
search for {investors weekly} at the Fidelity site (after
logging in, since I have a Fid account) and a link comes up,
but then the link fails.

I would defer to your expertise on this matter in any event.
I do agree with Douglas's implication that those
participating in markets can and often do find ways to
corrupt them. It does seem like it is maybe cyclical.
Bubbles do seem to occur with new generations and then
burst, like the psychology of fads. This is surely merely a
variation on the early 90s crisis and other historical
economic crises, and like you say, dapperdobbs, maybe one
that is farther reaching. Though I would not call it human
nature just yet. At the moment, I am a product of my Jared
Diamond (recent best selling scientist-author) reading. He
writes about the history of collapses of civilizations due
to bad luck (environmental; climate) but also often poor
collective choices.

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dapperdobbs <GeorgeCFL[at]hotmail.com> wrote:

- quote -

While Elle is quite capable of speaking for herself, I'm going to jump in an say
that no one is disputing that this crisis is bigger than previous ones. Just
that every generation seems to find a new way to make the same old mistakes. The
details differ and each new version is bigger and badder than the previous ones.
But the mistakes are the same.

At least in Texas, the 80's S&L crisis had liquidity effects with banks pulling
back loans and businesses closing because of it.

-- Doug

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On Mar 6, 5:06*pm, "Elle" <honda.lion...[at]spamnocox.net> wrote:
- quote -

The lisuidity crisis is rippling out to affect all of us (e.g. lower
lending, lower economy). Link to Fidelity.com and an extract -
http://personal.fidelity.com/myfidel...s&sourcecd=FEA

"Of course, as discussed, banks today no longer keep the bulk of the
mortgages on their books (as they did at the time of the S&L crisis),
so overall the credit markets are very different today than 18 years
ago." (August 24th 2007 - the current crisis was just beginning to
show up at the time.)

And here are some dollar data points - http://www.aicons.ch/files/cdo_e.pdf

" "Collateralized Debt Obligations" (CDOs) have established themselves
as a new asset class during the last
few years. Whereas the worldwide issuance of CDOs amounted to merely
USD 6 Bill. in 1995, the total
volume increased to more than USD 500 Bill. in 2003." (aicons AG,
Zurich, Switzerland.)Note the aicon reference is to 1995, four years
after the period you cited, and that 2003 is four years before today.

A 3/6/08 Bloomberg article "Credit Swaps Thwart Fed's Ease ..." (A.
Moses, H. Risk, N. Unmack) pegs the CDO market at $1.5 trillion today.
Recent estimates of total derivatives contracts, which includes
contracts predicated on CDO's (credit default swaps, notably, but many
other types as well), exceed $450 trillion (not billion). Someone on
CNBC 3/7/08 said the $500 trillion last year has been unwound /
written off and is now $400 trillion.

This is a worldwide liquidity crisis far exceeding the grand total
value of U.S. mortgages, and the direct "ripple" effects are impacting
the average man's ability to execute financial planning - low money
market rates, high mortgage rates, crashing municipal bonds, falling
stock market - despite the Fed's best efforts to "contain" the
disaster. The major portion of banks write-offs (by about 4 to 1) are
not mortgages, but CDOs and related derivatives contracts gone bad.

If you have data and references to the contrary, please post them -
I'd be interested! I'm not refuting that we have a situation in the
real estate market that is in many ways very similar to the real
estate market of the 1989-1991 bust. I just tried to point out that
there is a much bigger crisis, today, apparently due to CDO's and
leveraging (the house of cards), and that is not currently a credit
crisis, but a liquidity crisis.


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"dapperdobbs" <GeorgeCFL[at]hotmail.com> wrote
- quote -

The above is the only part of your post which I question. It
seems to me that today's crisis is very similar to that of
c. 1991. For a few years prior to 1991, lenders were too
generous in credit for financing commercial real estate,
among other things, as I bet you recall. The bubble burst.
Many banks failed. Others cut their dividends, which happens
rarely. IIRC from general reading, some change to regulation
and oversight of lending practices occurred. Searching the
NY Times from about 1989-1991 using keywords like {banks
dividend cut} turns up articles that one would think were
written in the last few months.

I think many people who lived through this foresaw the
current crisis. The lesson for individuals is to beware the
seduction of bubbles in any sector, and stay diversified.

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Tad Borek wrote:

- quote -

Sounds good at first glance, but all this does is stretch out the problem
for a VERY long time. IMHO this would needlessly prolong the credit crunch
as the banks sat on these bad loans for years hoping they might eventually
pay off and result in an extended slowdown like we saw in Japan. Far
better, it seems to me, to endure the pain now and then we can all go back
to making rational economic decisions. Kinda like pulling off a Band-Aid.
Faster is better.

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In article
<8b8f1b48-628c-4b9e-939a-d79146f505bf[at]s19g2000prg.googlegroups.com> ,
Augustine <evandro[at]mailinator.com> wrote:

- quote -

They walk away because there is no pain. They feel that in time the
same guys who send credit cards to debtors will lend them money for
another mortgage.

May be its time to go back in time (1966) when you required 20% down for
a mortgage and the monthly payments could not exceed a weeks earnings.
There would be less upward pressure on home prices because fewer could
afford one.

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On Mar 1, 12:01 pm, BRH <B...[at]giganews.com> wrote:
- quote -

No, you're not. What's worse, many of these people walking out of
mortgages don't mind being "upside-down" on their car loan the moment
the drive it out of the dealer lot. All I can say is that apparently
people are that stupid...

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Am I the only one who finds the relative ease with which some people
make the decision to walk away from their homes disturbing?

I agree that many mortgage loans have been made to buyers that really
never were able to afford them. In those cases, the lenders must share
the blame for making loans which should never have been made.

However, I have seen a number of recent stories in the media where
people walk away from their mortgages/homes simply because they are
"upside-down" due to falling home values. Even people with fixed
mortgages. They ask the question - "Why should I keep making payments
on something that's worth less than what I owe on it?"

I'll tell you Why! How about the fact that you signed a contract with a
lender to make all of the monthly payments? (There was never any
guarantee that home values would always rise.) How about taking some
responsibility for your decisions? How about the fact that, if you
continue making payments on the home, you'll eventually pay it off no
matter what the value of the home ends up being?

It seems to me that this type of scenario is part of a disturbing trend
of "blaming the other guy" when things don't work out the way they had
hoped.


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On Feb 29, 11:19*am, "Elle" <honda.lion...[at]spamnocox.net> wrote:
- quote -

With apologies in advance for length and lack of references, I've put
in a lot of time recently reading, talking, and trying to think
through this mess, and I may have a couple of simple clarifying
statements. There are really two parts: the value of homes, and the
value of the mortgages.

As to the first: the census bureau has a very interesting document
that is remarkable for its clarity and ease of use. The title is
Demographic Trends in the 20th Century" a .pdf file the link to which
is found in a blue box to the left of the page to which the link is
supplied below.

http://factfinder.census.gov/servlet...ople_1&_sse=on

Much in that document explains the remarkable rise in housing prices
this past century. I believe per capita GDP numbers have to be
factored in to complete the picture (e.g. if that number is five times
in 2000 what it was in 1900, then that may be a better indicator than
CPI which does not include housing).

Nevertheless, the price of housing got overbid in 2005, and like any
other market, is "correcting." Some prescient poster on this site
years ago put up a link to an article on the FNMA site talking about
housing booms and busts - in 2005! We have had similar housing
corrections in the past, people upside down, walking away, desperate
"Price Reduced!!" notices, and so on.

The second part, the value of the mortgages, is the BIG problem.
Apparently CDO's are simply renamed instruments of the type first seen
back to 1984. These are highly leveraged. So , take the housing
decline and multiply it by the leverage in CDO's, and you see this is
a bigger problem today than it was in times when CDO's were not so
widespread.

This little problem is what banks are writing off - I believe the
running count estimate is between $175 and $200 billion. The writeoffs
are not over yet. The sheer volume of doubt about the worthiness of
debt can be seen in the low T-Bill rates, but that still isn't the
real problem. The real problem is that unwillingness or inability to
borrow and lend ANYTHING has the banks and broker/ dealers who were
involved in the leveraged CDO's (and other so-called 'derivatives')
scrambling for cash. The past few weeks' lack of liquidity in
municipal bond markets reflects this lack of cash, and led up to the
near melt-down in the municipal bond markets Friday. Tax free A+
municipal paper (short-term!) is paying almost twice what taxable T-
Bills are. This is not a lack of faith in municipal issues, it is not
a credit issue, it is a liquidity issue.

Students of finance will be writing theses about this for years,
probably, but this liquidity crisis does have ripples, and this is the
problem the Fed is trying to ease. The US housing market is, if I
recall estimates correctly, about $27 trillion dollars. The estimates
for derivatives of all kinds is in the order of $450 trillion. (Fun,
huh, being greedy?) The total municipal bond market is about $2.6
trillion. When a number as "small" as $2.6 trillion goes un-funded,
things must be pretty bad on the liquidity front. This is not funny
stuff at all. This illiquidity comes back around to haunt all - if
municipalities such as in CA cannot fund projects, workers don't work,
can't pay their mortgages, and so on in a vicious downward spiral.

Some sharp guy (Kudlow, I believe) suggested the Fed step in and buy
what the banks are writing down. Two years from now, those CDO's will
have recovered their MARKET value. This is what a consortium of banks
finally agreed to do to prevent a disaster centered around LTCM (Long
Ter Capital Management, a hedge fund that collapsed). For Fed is
apparently very reluctanct to get involved directly. But his time, the
banks did not learn from LTCM, and there are no bank consortiums able
to bail themselves out.

So yes, the homeowners or speculators overbought, some greedily, some
out of fear. But that is the smaller part of the problem. The bigger
part is the leveraged mortgages the financial community has been
passing around like popcorn in a movie theatre. I blame the hedge
funds. A 20% drop in the stock market doesn't bother someone who is
not leveraged. But to some guy who is leveraged 20 to 1 in the stock
market, a 2% drop has him sweating bullets and having nightmares.
That's what's going on with the CDO's and other debt. There's a
liquidity crisis and a panic - a crash in that market - there simply
isn't an index like the SP500 that we can see and point to and gasp at
and easily understand. The insurers are in crisis - they don't have
the capital to cover. The entire house of cards was built on
probability theory of risk, and now the unthinkable has happened,
contrary to all "probability" the "black swan" has appeared, and that
house of cards is collapsing.

That's my analysis, and if it turns out to be wrong, I'm sorry, but
many of the pieces are there.

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"Tad Borek" <borekfm[at]pacbell.net> wrote
snip; comments noted
- quote -

Ha, that made me laugh. My personal dream is for Warren
Buffet to be put in charge of the Federal Reserve, Medicare,
and Social Security.

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"Douglas Johnson" <post[at]classtech.com> wrote
- quote -

That's a worthwhile article, IMO. One thing it suggests to
me is that things should not get worse. Indeed, some folks
are starting to pick up bargains.

I was hunting around on realtor.com this morning in some of
the places in the U.S. (nice places) I have considered from
time to time and see prices are way down. It's a good sign
that some sanity has returned.

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Tad Borek wrote:
- quote -

Oh - the other thing I've seen mentioned is "negative equity"
certificates that would run with the borrower, as part of refinancing
for underwater homes. The mortgage is refinanced at affordable payment
levels, and a lower mortgage value, and the unrealized loss becomes a
lien against that home/borrower that matures only when the home is
eventually sold. That would give the lender a lien against future
appreciation, but only if happens, in effect delaying any realized
losses (and leaving open the possibility they won't happen). The
borrower doesn't lose the home and gets lower payments, but doesn't get
the windfall. It's such an economically rational approach that I'm sure
it won't be implemented.

-Tad

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Elle wrote:
- quote -

Lending standards could change, so an individual who walked away from an
underwater loan faces higher interest rates on future borrowing (or
couldn't even borrow). If this turns into a significant problem that
creates big losses for lenders, it would be rational for them to react
to that.

That would happen in my imaginary world where every dot-com stock
analyst found it impossible to get another job requiring grade-school
math, every CEO of a company that went bankrupt ended up as a
dishwasher, "performance bonuses" weren't given out to executives
running companies with losses, etc...dare to dream!

-Tad

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"Elle" <honda.lioness[at]spamnocox.net> wrote:


- quote -

Banks don't want to own houses, they want to make loans. It seems to make sense
to work out a mortgage if possible. Too often, the borrowers couldn't make
payments on even a simple 30 year fixed at 6%. They may have been paying
interest only at 2% teaser rate. Or worse, the borrower doesn't contact the
bank or respond to the bank contacting them until the constable shows up at the
door.

There is also the moral hazard argument. If banks relax loan terms every time
someone is in trouble, no one is going to take loan terms seriously.

- quote -

I think my attitude to date has been similar to yours. The people who are
getting burned are the ones who played with fire.

I haven't backed off that, but The Dallas Morning News had a big feature today
on foreclosures in the Dallas Area.
http://www.dallasnews.com/sharedcont...e.1cbcd65.html

Some highlights include that there are 19,000 foreclosed houses in the area last
year -- and Dallas has not suffered big price declines. Overall the market is
about flat.

Each foreclosed house in a neighborhood lowers the value of other houses by 1%
and increases the crime rate by 2.3% according to the article. A map
accompanying the article shows the foreclosures are heavily concentrated in the
poorer areas of town (south and east).

The TV news last night had a story about renters getting evicted because the
bank foreclosed on the landlord.

Please, I am just commenting. I *don't* think a bailout is a good idea.

-- Doug

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On Feb 29, 9:16*am, beliav...[at]aol.com wrote:
- quote -

I've always been a caveat emptor kind of guy and I've never had much
pity for ignorance. Furthermore, I firmly believe if there are no
consequences to one's actions there is no incentive to learn
otherwise. But all of that is personal belief and widely disagreed
upon.

That said, is it accurate to say that the value of this article hinges
on the readers opinion of "who is responsible"? My feeling after
reading it was thus: If you believe the lenders are responsible this
is one way to screw 'em. If you believe the borrowers are responsible,
this is essentially stealing.

Unfortunately, the article neglects going any deeper that the primary
affects of borrowers walking away. We don't honestly believe the banks
will quietly stomach the losses alone do we? Government bail-outs,
declining stock prices, increased regulation, and myriad other
repercussions that I oppose will likely be borne out the actions
discussed in the article.

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<beliavsky[at]aol.com> wrote
- quote -

Don't you also feel there is a moral obligation not to take
financial advantage of someone either (1) incapable of
understanding the terms of
a mortgage; or (2) who has a high probability of not being
able to make payments? Alternatively let us assume there is
no such moral obligation, and both sides are responsible
for understanding the fine print. Fact is many lenders
failed to consider the fine print regarding defaulting on
mortgages. Folks in poverty are a reality. Lenders know that
defaulting is a possibility. Else why would things like PMI
exist?

I am not confirming or denying your "most states" claim
without a citation. On the other hand, from the article:

Though many states give banks recourse to sue borrowers for
their losses, [Wellesley Econ Professor Karl E. Case] said,
in practice it's not often done. "It's tough to do
recourse," he said. "It's costly, and the amount of people's
nonhousing wealth tends to be pretty slim."

I think what's happening here is reasonable market action.
Let the lenders reap what they sowed. Of course, one of the
burning issues of 2008 may quickly become (or already is)
the hit that the private mortgage insurance industry takes,
since in theory the insurers are supposed to make up for
much or all of the loss the lender suffers.

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On Feb 29, 8:40*am, "Elle" <honda.lion...[at]spamnocox.net> wrote:

<snip
- quote -

In most states, California excepted, mortgages are not "non-recourse"
loans. The borrower is legally and morally obligated to repay the loan
regardless of changes in the market value of the house. You may be
correct in calling voluntary defaults on mortgages "savvy" if ethical
considerations can be ignored, but so is stealing, by those standards.
I'd call it slimy.

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The NY Times has an article today that I think is
fascinating. It points out that, for people with no
downpayment on a home who can no longer afford their
mortgage, foreclosure pays.

Maybe this was obvious to some people, but not until I read
this article did I see some light at the end of this housing
bust. See
http://www.nytimes.com/2008/02/29/us/29walks.html?hp . See
also the company referenced there, www.youwalkaway.com .
Youwalkaway.com makes me proud of America's legal tradition.

For many months I have been feeling sorry for the "little
guy/gal" who was unsophisticated and bought during the
housing bubble, using an ARM with no downpayment or an
interest only mortgage. Shame on those lenders, I thought,
for extracting money from people that, statistically
speaking, they knew could likely not afford a house on these
terms.

Turns out, as the article suggests, that this was actually a
pretty savvy decision on the part of borrowers. (Whether
they knew it or not!) One expert noted: "Now it's like they
can do their renting from the bank, and if house values go
up, they become the owner. If they go down, you have the
choice to give the house back to the bank. You aren't any
worse off than renting, and you got a chance to do extremely
well. If it's heads I win, tails the bank loses, it's worth
the gamble."

As a shareholder in a few banks, I want these lenders to
start cooperating. Better to re-negotiate the terms of the
mortgage than be stuck with a house worth much less than
what the bank paid (on behalf of the borrower). They really
have no other choice anyway, right? (That's not rhetorical.
I welcome commentary on what alternatives lenders have.)

My only regret is that those who run lending businesses did
not have the intelligence to anticipate this and, to date,
have not generally conceded that their backs are against the
wall. It is tempting to urge the firing of whole Boards of
Directors (like WaMu's), or other such severe punishment as
shareholders are able to mete out. Though maybe it takes a
morass like this burst bubble for people to learn anything,
even ostensibly well educated pillars of the banking
community. As perhaps Sgt. Sausage would suggest.

In today's Times is also an article on how talks between
Republicans and Dems have stalled. Dems want a bailout of
homeowners. Republicans do not. At this point I see no
reason for a bailout. Let the lenders eat cake.

Now at last I can also explain the justification for
requiring downpayments on the order of 20% and/or penalizing
those who put down less.

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