[UngaWunga]

Wonder wtf is going on? Why a few people defaulting on bad loans is causing the American economy down the shitter?

Listen to this:
http://www.npr.org/templates/story/story.php?storyId=89338743

39 minutes long, but you'll thank me later. Download it and listen to it instead of watching TV tonight.

I'm torn between being pissed off and wondering how I can get my hand in the cookie jar like the lucky few....

 

[UngaWunga]

Or try here...
http://www.npr.org/rss/podcast/podcast_detail.php?siteId=7060034

 

[rat]

Simple answer...

the current world economy lives and dies on debt.

If the populace is in debt, the lenders are "rich", they can leverage your debt. if that debt vanishes, we're f**ked.

Same reason you having 7 billion dollars under your mattress doesn't "help the economy"...but if you have it in the bank, it does.

 

[UngaWunga]

No, really. Listen to it. Its very enlightening. Its the 4/3/2008 episode. Might be uploaded yet, but should be by this evening.

 

[Geeto67]

I can't listen to those links at work but I work in a related field and I can offer some insight as to why subprime is dragging the economy.

It isn't the default that is bad it is the loans themselves, they are bad news. Lets start at the smallest scale (simplified for arguments sake)....

Joe Q goes into a bank and gets a loan. Once he is approved the bank sells the loan short (while still making a profit) to an investment house which buys and sells these types of securities. Then this investment house bundles the loan with many like it and sells it to something like a hedge fund or a brokerage house like JP morgan or Bear Stearns who sell it to their clients.

Now, say Joe Q gets turned down by the bank so he goes to fly-by-night loans and gets a subprime loan (because he can't afford the standard interest rate). After he gets his loan the subprime company turns around and sells the loan to a bank and the whole cycle above starts again.

Now say an event triggers a default on the subprime loans. Well all of a sudden the bundles that have subprime loans are worth a lot less than they were originally sold for to the hedge funds, brokerage houses, etc....

It wouldn't seem so bad if we were talking about a few rich folks losing money (serves 'em right eh) but we are talking about major companies that invested their pensions, states that have invested their payrolls, etc....into something whose value just tanked.

Plus because subprime loans were harder to spot and there were so many of them they ended up in a lot of investment portfolios that would normally be adverse to this kind of risk.

so that is how the economy takes a collective shit....in a nutshell.

 

[UngaWunga]

Ooohhh its much more that subprime loans. Its the unregulated insurance that was backing up those loans. Listen to it tonight.

 

[UngaWunga]

And it has nothing to do with the public going to cheapo mortgage lenders! Listen!

The problem is all the deregulation that has been happening over the past 10 years.

 

[cseger1]

I just listened to it. That guy explained the problems very well. IThanks for posting it Unga. Those banker fuckers should be strung up. Instead they'll $100 million severances.

 

[Geeto67]

listening to it on a friend's computer at work - you are right I left out a lot because I didn't think this group saavy enough.

Greenburger is actually simplifying a lot too.

Deregulation has been going on for the last 70 years (since the day after the regulations and enforcing agencies have been set up). the last 10 years it has been accelerated.

The cheapo subprime lenders are part of it in so much as it was an accelerating trigger event that has exposed the abuses of unregulated securities.

 

[leo]

"I didn't think this group savvy enough" ? Damn, it's not enough the economy is in the shitter, now I'm being condescended to.

cheers-leo

 

[UngaWunga]

quote:Originally posted by leo

"I didn't think this group savvy enough" ? Damn, it's not enough the economy is in the shitter, now I'm being condescended to.

well, maybe if you stopped letting your mom dress you like that, you'd get a little more respect.

Yes, Greenburger did simplify it a lot. But its the best explanation of wtf is happening that I've found to date.

 

[UngaWunga]

quote:Originally posted by cseger1

I just listened to it. That guy explained the problems very well. IThanks for posting it Unga. Those banker fuckers should be strung up. Instead they'll $100 million severances.

Pass it on to your friends and family. Let them know what's going on.

Any large company has ceo's that act like that. I've been part of two that have gone under or been devalued so much that investment companies swooped in to buy them for chump change. In both cases, the ceo's walked away with a ton of money. You might not like it, but that's how it works. If you want some for yourself, become a ceo.

 

[jbranson]

Rob, a while back a guy sent me pretty much that exact same explanation ....except it was done in a block text, stick figure flash presentation...was hilarious....and sad at the same time. Explained the same complex scenario of passing the buck and the insurance.
JohnnyB

PS. Anyone else heard about the big oil find in ND, MT that broke this week? Estimates are running from a low of 200 BILLION barrles to 900 BILLION. In other words...at least 10x our present total reserves. And upper estimates would be 3x the total reserves of Saudi Arabia. Official government report comes out this month. Drilling has already started. It could completely change the energy/economy dynamic of the whole world. 200,000 acres of mineral leases have already been awarded.
Can't understand why this isn't being report in major media right now.

http://www.nextenergynews.com/news1/next-energy-news2.13s.html

http://www.bismarcktribune.com/articles/2006/06/20/news/state/doc4497e42f6e8e5430204114.txt

http://www.huliq.com/55771/bakken-oil-formation-field-holds-massive-oil-reserves

JohnnyB

 

[kenessex]

Ok, I am going to go on a rant here on a related topic.
Why is it that we are being inundated with advertisements about not being responsible for your own debt. Do you owe more than you can pay on your credit cards? Then use our service and settle for pennies on the dollar. Owe the IRS? Don't worry, settle for less! What kind of philosophy is that? So if I borrow $10 from you then I should decide I don't want to pay it back and it is OK for me to tell them I'll give them $2 and that is a good thing. If you spent the money and put it on credit, then you need to pay it back, period. All of it. If you owe the IRS, then you need to pay it, just like everybody else, period. If you bought a house that you knew you couldn't afford then that is your problem. I am sick and tired of people living well beyond their means and then wanting the rest of us to pick up the slack for their bad behavior. If you can't afford the credit, then do without. How many of us have to limit our racing because we have other things to do with our money. I wish the American public was as fiscally responsible in their personal finances as they would like the government and business to be.

Ken

 

[leo]

Ken- Accountability? That's a quaint idea.

The NPR piece and this thread reminded me of a great Bill Buckley quote, though he and I didn't always eye to eye.

"The problem with socialism is socialism. The problem with capitalism is capitalists"

Greed is more then alive and well and continues to prosper, I suppose.

Unga- BTW, what's wrong with the way my Mother dresses me?

cheers- leo

 

[UngaWunga]

quote:Originally posted by kenessex

Ok, I am going to go on a rant here on a related topic.
Why is it that we are being inundated with advertisements about not being responsible for your own debt. Do you owe more than you can pay on your credit cards? Then use our service and settle for pennies on the dollar. Owe the IRS? Don't worry, settle for less! What kind of philosophy is that? So if I borrow $10 from you then I should decide I don't want to pay it back and it is OK for me to tell them I'll give them $2 and that is a good thing. If you spent the money and put it on credit, then you need to pay it back, period. All of it. If you owe the IRS, then you need to pay it, just like everybody else, period. If you bought a house that you knew you couldn't afford then that is your problem. I am sick and tired of people living well beyond their means and then wanting the rest of us to pick up the slack for their bad behavior. If you can't afford the credit, then do without. How many of us have to limit our racing because we have other things to do with our money. I wish the American public was as fiscally responsible in their personal finances as they would like the government and business to be.

Ken

Because morality and good fiscal sense doesn't make other people money.

Hell, if I could get away without paying any taxes I would. Just call me Enron.

 

[Geeto67]

quote:Originally posted by leo

"I didn't think this group savvy enough" ? Damn, it's not enough the economy is in the shitter, now I'm being condescended to.

cheers-leo

I didn't mean it in a bad way but being a "behind the curtain" guy and all I can make eyes glaze over at a party like nobody's business.

 

[parks61]

ok i'll over simplfy an oversimplification
loan makers were making money with commisions (sales/transaction fees)
therefore they didn't care if the loan failed (defaulted)
they could unload them (in big groups) b4 they went bad and make some more money.
your/our towns and pension funds bought them, (with "insurance" of low risk) assuming they would get a stable set of (mortgage)payments every month.
now many institutions from local governments to banks themselves aren't getting paid because mortgage payments went up and home values went down.
blah blah...many smart people didn't see it coming and a few of us dumber types did.
that being said, when i got my mortgage a few years back, a VERY strong case was made to me to get an adjustable because it was a percentage point lower than an fixed. and i was made to feel like a bit of a dumbey for wanting a fixed rate ("you're throwing away thousands over the next two years"). i don't feel so dumb now.
-parks

 

[Geeto67]

quote:Originally posted by parks61
blah blah...many smart people didn't see it coming and a few of us dumber types did.

Actually the majority of the "smart people" saw it coming and it basically became a race of let's keep it from the uninformed people long enough for us to get our money out before the whole thing makes a giant sucking sound.

When it comes to this there are no "smart people" vs "dumb people" but rather outsiders (large group) vs. insiders (small group). I have met many insiders with the intelligence of a hangnail and there are many many intelligent people amount the outsiders (because it is the majority of the population). The entire game is "how much bad stuff can we do and how long can we keep from the outsiders before they figure out what is going on". Eventually the outsiders put the puzzle pieces together and then you get legislation, reform, etc....and then the game begins again in a completely different area.

All the insiders do is keep looking for an unfair advantage to accumulate wealth and then when the rest of the world figures out it they look for another way. That in and of itself is not unethical - everything from stocks to motorcycle racing is about advantage. What makes it unethical is that they present the deal as if it is straight up when in truth it is not.

It is like greenburger said - in FDR's day it was stocks, now its derivatives, once that gets reformed it will be something else.

 

[rat]

Like I said...

everyone's gambling on someone else's debt.