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27 Comments
- RedsoxRock, on 07/04/2009, -0/+4Correct, there's two ends of this equation. Both of which are never discussed. On the producer side, you have banks generating loans regardless of risk because they don't hold the notes. They simply collect loan processing fees and sell the note. Who cares about risk when you have no risk. In that environment, underwrite everything you can. But that couldn't exist unless there was a consumer of the note. Enter US pension funds who are cronically underfunded (private or public) that desparately need a higher rate of return than Treasuries offered. To close their shortfalls they bought securiturized products en-masse. I find it ironic that Congress could set up theatre and pretended grill Bernarke over the Feds actions when Congress setup laws and institutions to make it easy of public institutions and private companies to avoid fully funding their pension obligations. Without demand there would have been no market for securitized mortgages and the banks would have been forced to hold a good percentage of their underwritten notes, therefore requiring higher lending standards.
- yerdaddy, on 07/04/2009, -2/+6Also known as making money on the flow of fake money. It's so stupid it almost has to be a conspiracy. Very few people publicly admitted that you can't support world finance by having everybody get stinking rich on derivatives and McMansions. The ones that did almost screamed thier heads off only to get laughed at.
It was an implict, idle agreement amongst the profit takers to let it keep going until the inevitable crash that they knew big government would ultimately paty for. - redfan, on 07/04/2009, -1/+5NPR has consistently done the best job of reporting on and explaining the financial crisis, from the early days of the subprime meltdown to the looming restructuring that is about to (hopefully) reshape Wall Street.
The fact that risk was simply passed along like a hot potato by these investment firms is counter to everything our system is based on. - Pinkertinkle, on 07/04/2009, -1/+4how about we just ban securitization.
- bipolarruledout, on 07/04/2009, -0/+3I think it's pretty simple. If someone doesn't want to hold a debt instrument they should have never made the loan in the first place. Seems like a pretty sweet operation to loan some money, make some interest and than sell it free and clear. With such a great win win situation why WOULDN'T you make as many loans as possible and why would you put so much effort into assessing the credit worthiness of your debtor? Seems pretty obvious but then perhaps it's "far more complicated than a person with common since could possibly understand."
- bipolarruledout, on 07/04/2009, -0/+2This opinion may not be popular but that doesn't necessarily make it incorrect.
- bipolarruledout, on 07/04/2009, -0/+2The article clearly states that the money was coming in from investment banks. The problem is that the subjective ability to value these securities becomes more and more difficult each time they change hands and are re bundled. What they thought was a virtually guaranteed asset with a stable rate of return was in fact ***** painted gold and the rating agencies agreeing that it "looks like gold to me".
- philodygmn, on 07/04/2009, -1/+3Gee, you mean what was illegal for the many decades before the bubble started building wherein the financial sector remained stable and proportionate to the greater economy?
- Berkana, on 07/04/2009, -0/+2It is not the "abuse" of securitization that brought about the problem; the practice itself is unjust and cannot be tweaked to perfection. Even under good times, there are mathematically inevitable default rates. The banks lend the borrower money they don't have in the form of "checkbook money" (under the system of fractional reserve banking) and collect interest on the debt, or sell the interest yielding debt to someone else for quick bucks. Since unlike commodities like gold and silver, debt is unlimited, the amount of "checkbook money" that can be created and put into circulation is virtually unlimited; once money became entirely debt based, inflation blew through the roof. The dollar has now lost 96% of its historic value, and in all honesty, it is the fault of the banks, who make money out of debt that is impossible to pay off without destroying the money supply.
- Berkana, on 07/04/2009, -0/+2The monetary policy "Money as Debt II" explains this very clearly: you cannot transfer a title better than what you have (For example, selling stolen goods to a person does not leave the buyer with rights to the thing he bought: his goods may still be confiscated because the seller cannot transfer rights of ownership he does not have), yet the debt market is entirely based on bank debts based on loans made with fractional reserves, often to borrowers who borrow beyond their reach, with neither the bank nor the borrower having proper titles or rights under historic common law. In both cases, people do not yet have full rights to the securities they then sell, yet our courts enforce the terms of these contracts which would be considered bogus under common law. The banks create debt out of nothing, and pass the buck, debtors buy things with these promises to pay without the ability to pay back their debts, and the courts enforce the debt contract even though by common law, the rights were not there to be transfered by sale in the first place. (I know, I'm simplifying it a bit; watch the documentary.)
The causes of all these errors are not being honestly discussed in the media at large. For shame. Without understanding the cause, we cannot effect change that fixes the problem. We need just laws about the transference of debt; rights that do not exist cannot be transfered nor enforced after transfer, yet that is exactly what all of our debt markets are all about: the sale of bonds of debt from one person to another. Debt is the new slavery, and its terms are unjust, yet still enforced with the power of the law. - hamobu, on 07/04/2009, -1/+3Obviously loans should be regulated to make sure that they are given to people that can pay them, rather than creating a bad loan and then selling it upstream.
I would also tax the sale of derivatives, That should allow hedgers to get protections they need while thwarting speculators who would need to pay taxes every time they buy and sell security. - jeffiek, on 07/04/2009, -0/+1"from investment banks"
I repeat. From WHERE???? Or are you saying the investment banks have printing presses?
Your reply suffers from the same short-sightedness as the article. - Barackalypse, on 07/04/2009, -3/+4I've seen all I need to know about Obama's ideas regarding debt when I saw his budget and when I saw how he screwed over the secured debt holders of GM when the company was given to the Government and the Unions (and yes, I know this is a different concept entirely, but its still debt related).
- netant, on 07/05/2009, -0/+1Its not securitization that is bad, its UNREGULATED securitization that is bad. Regulate derivatives trading. Require parties to be able to absorb losses. If banks are too big for the gov't to allow them to fail, they shouldn't exist; require receivership and liquidate them.
Eliminating securitization make capital unavailable for use. Its hard to describe, but there's a lot less credit available in the economy, and economies function like they're in the 1970's. On the other hand, banning mortgage securitization could restore the rationale for S&Ls and segregated commercial/investment banks. More stability may not be such a bad thing. - philodygmn, on 07/04/2009, -0/+1The point being illegalize it again? you numbnuts digging me down!
- bipolarruledout, on 07/04/2009, -0/+1I really want to know who is digging EVERY reasonable comment down.
- bipolarruledout, on 07/04/2009, -0/+1I know where your going with this and it's a different argument entirely. It would be disingenuous to suggest that ALL the capital is created from thin air. Indeed the federal reserve is a mechanism in this system but the full extent of their impact in this crisis is far from clear.
- bipolarruledout, on 07/04/2009, -0/+1The top 0.01% of capital holders would never stand for it.
- bipolarruledout, on 07/04/2009, -1/+1They seem to be out in full force.
- 2h3px, on 07/04/2009, -4/+4NPR, what do you think I am, smart?
- jeffiek, on 07/04/2009, -1/+1"Suddenly, lenders were inundated with cash. "
From WHERE???? Seems to be a big gaping hole in the article. Never mentioned is the "printing press" (otherwise known as the FED)
And pension funds. As in a tax system set up so that people put their savings into it rather than in investments that are funded in reality. State are really good at that one. They get to reduce contributions when the funds have high returns, not exactly a prescription for responsible behavior. Corporations do it to, but the states can make up for their losses by raising taxes ( otherwise known as penalizing the productive).
What about the false feeling of "safety" given by the government through Fannie Mae and Freddie Mac?
This article deals with nothing but symptoms. Treating symptoms is not usually successful.
An article that deals with real causes would be useful. This wasn't one. - ukmobilephones, on 07/20/2009, -0/+0Isn't it "funny" how people were going along ok, until this "re-distribution" of cash and assets occurred... Now its back to square 1..
Getting a mortgage is almost impossible,check out http://www.100-mortgage.com if you are still trying for some hints. - theteej7, on 07/04/2009, -0/+0read it as secularization first.
- Pinkertinkle, on 07/04/2009, -1/+1how about we just ban you!
- scamper22, on 07/04/2009, -1/+1how about we just ban government guarantees of securitization (Fannie/Freddie, FDIC insurance for any bank that engages in it...)
Strange how your mind goes to more government involvement (banning) when the problem was government involvement in the market via guarantees. - Perleeeze, on 07/04/2009, -0/+0Instant Ban u virus spreading F U C K
- inactive, on 07/09/2009, -0/+0Everybody will soon be in the poor house while the washington fat cats sit back and laugh
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