A Mortgage Fable

[crb]

http://online.wsj.com/article/SB122204078161261183.html


Once upon a time, in the land that FDR built, there was the rule of "regulation" and all was right on Wall and Main Streets. Wise 27-year-old bank examiners looked down upon the banks and saw that they were sound. America's Hobbits lived happily in homes financed by 30-year-mortgages that never left their local banker's balance sheet, and nary a crisis did we have.

Then, lo, came the evil Reagan marching from Mordor with his horde of Orcs, short for "market fundamentalists." Reagan's apprentice, Gramm of Texas and later of McCain, unleashed the scourge of "deregulation," and thus were "greed," short-selling, securitization, McMansions, liar loans and other horrors loosed upon the world of men.

Now, however, comes Obama of Illinois, Schumer of New York and others in the fellowship of the Beltway to slay the Orcs and restore the rule of the regulator. So once more will the Hobbits be able to sleep peacefully in the shire.

[Gan]

One man to rule them all, one man to find them, one man to bring them all and in the darkness bind them.

[Daniel]

Thank god. Graham-Leech-Bililey almost fucking destroyed this country.

If you think that was somehow a good thing, then you're just stupid. You wonder why Graham (McCains Economic advisor) was trying to deny the impact of the current "Mental" crisis?

Because he's the one that started it.

[crb]

You didn't read the article did you Dannyboy?

The bit I quoted was just a sarcastic preamble. The rest of the article tears it apart, using those wiley things like facts, and historical record.

[Daniel]

You didn't read the article did you Dannyboy?

The bit I quoted was just a sarcastic preamble. The rest of the article tears it apart, using those wiley things like facts, and historical record.

No. I did. I just figured i'd interject my own belief as the article is retarded.

Yea, let's not look at what allowed Mortgage companies to do what they did.

In turn all of these other factors that I don't agree with politically. So, I can just paint them as the culprit. Nevermind that they existed to some extent before Graham-Leech and that they all had their purposes.

[Keller]

30 years ago banks gave each applicant for a mortgage a financial colonoscopy.

As soon as they were able to get off the hook on notes they originated they just felt each "patient" to make sure they had a pulse.

It's not rocket science folks.

[Keller]

From the article: "We could cite other Washington policies, including the political agitation for "mark-to-market" accounting that has forced firms to record losses after ratings downgrades even if the assets haven't been sold. But these are some of the main lowlights."

You know what one of the few REQUIREMENTS of an efficient market is? Perfect information. Heaven forbid that firms be required to give investors an up-to-date assessment of their assets instead of the historical price.

This author really couldn't have deflected anymore. That article was a hoot.

[crb]

The mark to market accounting is a huge problem, to not understand that means you don't understand much. I'm sorry Keller, but seriously.

Valuing mortgages at next to nothing isn't perfect information, isn't even good information, it just fucks up balance sheets.

Perfect information would be how many mortgages in a security are deliquent, or in foreclosure. How many were prime, how many were subprime, what is the value for each group in total dollar terms. That, would be perfect information.

To just ASSume that they're all bad and worthless isn't.

And investors can still know that mortgages are shakey without banks writing them down forcing them to recapitalize to maintain their credit ratings and leverage rations, which is sorta the whole problem causing all of this.

Which is also why the bailout is now necessary. Only the government has enough cash and patience, and is free of such capital requirements, to take these mortgages on, and then NOT assume they're worthless. We'll pay 70 cents on the dollar for them, and in the end make 10%.

[Tsa`ah]

We'll pay 70 cents on the dollar for them, and in the end make 10%.

This is partially why you continue to fail in just about every thread you start or participate in. Lack of comprehension, or just running with your limited understanding of what you actually do read.

No one has put a price on the mortgages. We have no idea of the worth and we have no idea how much the buyout price will be bartered between the administration/Paulson, the congress, and the recipients of the bail out.

Hell, for all we know there could be people sifting through piles of mortgages right now, cherry picking what makes it into the keep tray and what gets chucked into the bailout bin.

One thing is pretty certain, the likeliness of a profit being made off of toxic assets is pretty slim ... that you think we're going to pay 70% of the total value and profit by 10% is not only laughable, but unsubstantiated.

[Keller]

Mark to market accounting applies to a lot more than mortgage backed securities. To not understand that confirms that you're a pompous ass who tends to ignore the forest for the trees.

I understand that writing down these securities has put banks in a precocious situation w/r/t their capital ratios, but it also puts more useful information in the hands of potential investors. Plus it prevents them from overvaluing their assets and using that "phantom" capital to further leverage purchases and dig an even deeper hole. On top of all of that, if these banks need to recapitalize they could sell their "undervalued" securities.

My firm does mostly hedge fund and private equity work. There is a TON of money there. But for some reason they're not jumping on these "undervalued" securities. I wonder why.

[Methais]

Now, however, comes Obama of Illinois, Schumer of New York and others in the fellowship of the Beltway to slay the Orcs and restore the rule of the regulator. So once more will the Hobbits be able to sleep peacefully in the shire.

Obama wants to commit murder.

[Keller]

Obama wants to commit murder.

He's a black man.

I hear there are some statistics on black men and crime. You might want to ask Daniel or PB. They might know.

[Gan]

Obama wants to commit murder.

And his pastor is racist.