Sub-Prime explained.

[Dirty]

Kind of a little dated, maybe a few of you have seen it being tossed around. After Monday though, this never made more sense to me. Interesting financial times we're in and I'm glad that I get fiscally compensated on the 1st and 15th of every month regardless of where the metric lies. Good luck, there's a few bucks to be made right now, go get'em!

http://www.scribd.com/doc/2190705/CDO-Powerpoint-SubPrime-Primer

 

[SDNalgene]

Priceless. And by priceless I mean criminal. All the same, great little power point.

 

[DanMa1156]

I was debating posting the same thing.

Something to keep in mind though is that this is just the basis of the problem. Much of the financial markets are going haywire right now because a lot of them insured (AIG) investments that were backed by the same investments (CMO's) that failed, so they lost big time. Others didn't even have revenue from insurance going for them (Lehman).

In reality only ~ 4% of American Mortgages are failing right now, but the way they are bundled and sold as Mortgage back securites is pretty unorganized so know one really knows who will receive returns.

Part of this is fueled by Greenspan's super low interest rate policy which basically was giving banks so much "free" money they ran out of what most would call "Good" investments, so they ended up looking at the subprime lending thinking even if a few fail, property values will rise anyway, plus there are a thousand bunched together as one security, oh, and the interest rate is so low, so we'll manage to pay it off anyway... and as soon as interest rates went up on variable/adjustable mortgages, people defaulted and couldn't make payments, everyone freaked thinking theirs were the securities that were failing, and the investment banks were screwed.

 

[puck_11]

that was entertaining +1

 

[BACONATOR]

The anti-capitalists right now are probably foaming at the mouth yelling about how this situation is "an example of how capitalism fails", but what those morons fail to realize is that we're in this situation because of the SOCIALIST policies that were enacted in this country such as the Community Reinvestment Act (CRA) and then the sub prime mortgages going into Mortgage Backed Securities. If we were a true capitalist society, then stuff like this wouldn't happen.

If a business sucks, then it sucks for a reason and it should go under. Govt oversight and "rescue" is just detrimental to the free market.

 

[DanMa1156]

If a business sucks, then it sucks for a reason and it should go under. Govt oversight and "rescue" is just detrimental to the free market.

While I'm not sure how I feel about the "bailout" yet, I'm not sure you realize how serious the consequences could be if so many financial institutions fail. Do you realize how many foreign countries have bonds from said U.S. institutions? Do you realize how many of them did insure their investments with the type I explained AIG was providing (it was backed by the investments that failed...)? Now, say these countries are just a little pissed and since they have no one to pay for their losses through the insurance (to cover their initial purchase fee) they were rightfully paying for, they have nothing to lose by dumping our currency, thus flooding the world markets with American currency in having skyrocketing inflation a-la-Germany after WWI style.

 

[Bevo16]

Where were these cocksuckers back in the 1980's when the economy in Texas was going tits up because of the oil field bust? All of the sudden the industry could not turn a profit, so people lost jobs. My dad was one of them. He went from being a drilling supervisor to a door-to-door salesman.

Now, because one other industry is in a little trouble, they are going to rob tax payers to put the massive recession off by a few years. Nevermind the banks that were writing loans for more than what the collateral is worth. Nevermind the people who bought houses that they could not afford. Let's rob everyone to pay off the mistakes of a few idiots.

Nevermind the financial mess that we are in. The real turd burger that we are going to have to eat is the fact that we have changed our economic system. We are no longer a free market capitalist society. When this bill passes, and it will, mark the day that we shift to Market Socialsim. We are now china with a free press and more consumer debt.

Our military spent the past 62 years fighting socialism, only to have it adopted by congress. Hope you enjoyed the party folks. Get ready for tax rates above 50%, and hyperinflation.

 

[BACONATOR]

While I'm not sure how I feel about the "bailout" yet, I'm not sure you realize how serious the consequences could be if so many financial institutions fail. Do you realize how many foreign countries have bonds from said U.S. institutions? Do you realize how many of them did insure their investments with the type I explained AIG was providing (it was backed by the investments that failed...)? Now, say these countries are just a little pissed and since they have no one to pay for their losses through the insurance (to cover their initial purchase fee) they were rightfully paying for, they have nothing to lose by dumping our currency, thus flooding the world markets with American currency in having skyrocketing inflation a-la-Germany after WWI style.

I see where you're coming from, and I don't claim to be an economist. My point was that the govt oversight and coddling only made the situation worse and made it come to head in the current situation. If it was a true free market, it never would have gotten this bad.

Bottom line: it should never have gotten this bad in the first place. But now that it is this bad, we're kinda screwed. I still don't think the bailout plan is the answer. Treat the problem, not the symptoms.

 

[scoolbubba]

I thought about posting why I thought the bailout was a terrible idea, and blah blah blah. In reality, I don't give two rats asses about this. All my money is under my mattress in a safe. And its in the form of gold bars and barrels of oil. Protected by guns.


Everyone else can shove off! I still get rich, biotch!

Actually, I just don't care about these companies. They made shitty investments, screw them. My stocks are down hard this past year. I may have made shitty investments, or it could just be the cyclical nature of the free market. Either way, I don't expect a bailout to save my ass.

The only people I'm concerned about are those who weren't wise enough to avoid a loan with a rate that was going to go through the roof later, or who took these loans on the assumption that when the rates adjusted, they could refi. Sucks for them. Getting suckered into something you won't be able to afford by lending practices that are fairly obscure is not ethical, but foresight is something that comes at a price.

Fixing the root of the problem, the adjustable rates that are at ridiculous levels, might avoid the meltdown and complete loss of these assets by keeping people in homes that they could afford. This could end the glut of empty and foreclosed houses, and unfreeze credit as creditors see people can still afford to pay for loans if they have reasonable terms. The investors who own these securities can't have that though, their vaunted rate of return wouldn't be great enough! (granted, it'd be better than the negative return they've got right now, but when the government is offering you almost a trillion dollars that will replace your losses, nows no time to trifle with silly details!)

Our president's chicken little speech didn't do much to help the situation. When all else fails, fall back on scaring the shit out of people to inspire confidence in the market! WOO! The fiscal policies of the past 8 years are catching up to us. Spending more money we don't have is probably not the answer, and turning us into the United States of France along the way is definitely not the answer.

What the state gives, It can always take away, and then some.

 

[snake020]

 

[scoolbubba]

repost. didn't realize it posted the first time.

 

[nvrg1vup]

Best chart I've seen all year.
This gets on CNBC...the bears are going to take over and they'll at least have some sort of formulation to swing trade off of. This is one of those if this goes up, then this must go down chart... I'm worried however that I don't see Sallie Mae, Credit Unions(in general) and other high volume borrowers of mortgages. Don't forget the FDIC and Money market accounts are still in jeopardy and may not be safe.

I'm glad I have an account in the Caymans. Too bad my boat was foreclosed so I can't get there.



Side Topic: Does anyone believe re-pricing will occur in the housing market?
For instance, if houses were being sold for $400k and are now bank owned, will the same house be sold or auctioned for $200-250k and reenter the market at $265-300k where it should have been in the first place.
Additionally how will it affect current homeowners on the same block who bought and still pay on their $400k house who may want to sell.

My thoughts are the re-pricing may occur as a product of banks and individuals trying to re-coup some to most of their original investment of home equity. Ben Bernake said back on Jan 10 of this year, "borrowers could no longer rely on home-price appreciation to build equity". http://www.federalreserve.gov/newsevents/speech/bernanke20080110a.htm

It is quite possible that due to poor lending practices, borrowers taking amounts outside their means and the result of many house flippers the current home-owners will pay a large cost in depreciation and possible loss of home if the economy continues to degrade. On the reverse, if that person keeps the house for ten/twenty years they can regain some to most of the equity. Most people not knowing it have really "overpaid" for their house.

 

[Dirty]

BRILLIANT!!! even better.....

 

[squorch2]

Our military spent the past 62 years fighting socialism

We were fighting Sweden? Holy crap! All this time I thought we were fighting a totalitarian government.