Who's to blame for the financial crisis? Why ...

Ilion

Ed Gadziemski wrote:

I've known Mike Gaskey longer than you have been alive.

Doubtful. And quite irrelevant, in any case.

Ed Gadziemski wrote:

Mike can defend himself if need be. Your "assistance" is not required.

I'm not defending him; I'm mocking your intellectual dishonesty. It's a hobby.

Ilion

Vikram A Punathambekar wrote:

That is exactly what I don't understand either, Josh, and nobody can give me a satisfactory answer.

Because of the implicit (and sometimes explicit) promise that the taxpayers of the US would pick up the tab when the inevitable happened. Government is *rarely* the answer and is almost always the problem.

Lost User

Ilíon wrote:

promise that the taxpayers of the US would pick up the tab

And those of us outside the US that make a crust from the derivatives markets thank you kindly ;P

Ilion

Josh Gray wrote:

And those of us outside the US that make a crust from the derivatives markets thank you kindly

You're welcome, I'm sure.

soap brain

Ilíon wrote:

I'm not defending him; I'm mocking your intellectual dishonesty. It's a hobby.

Your arrogance is awe-inspiring.

soap brain

Weird...[^]

Lost User

Good for John McCain - and yes, I do know he's a republican!

Visit http://www.notreadytogiveup.com/[^] and do something special today.

73Zeppelin

Josh Gray wrote:

When did risk become a commodity to be profited from?

:laugh: You're joking, right? What do you think the futures markets are for?

Josh Gray wrote:

There are many people in many positions that have contributed to this situation. What I would like to know is how these debts, when repackaged as various derivative products were able to be classified as investment grade rather than speculative securities. To my mind that is where the regulators have let the market down.

That's where the bulk of the problem lies. The other problem is that the culture of "living on credit" and "keep up with the Joneses" in the U.S. desperately needs to change. Yet another phenomenon that needs change in the U.S. financial industry is the idea that when the market convulses the government is there to effect a bail-out at the expense of the taxpayers.

...that mortally intolerable truth; that all deep, earnest thinking is but the intrepid effort of the soul to keep the open independence of her sea; while the wildest winds of heaven and earth conspire to cast her on the treacherous, slavish shore.

73Zeppelin

Ed, it's nice to talk about over-valuation and speculation, but then I'm going to ask you what's the fair market price of all these assets? How do you propose to value them? Furthermore, studies on speculation (and I mean, really, what is excessive speculation while we're at it?) usually are inconclusive which leaves you with one of several choices: 1. Speculation isn't excessive 2. Speculation has marginal effects at best 3. Our definition of excessive speculation is wrong The thing you are forgetting is that speculators are needed in order to maintain proper operation of the futures and stock markets. Indeed, the futures market requires them in order to function.

...that mortally intolerable truth; that all deep, earnest thinking is but the intrepid effort of the soul to keep the open independence of her sea; while the wildest winds of heaven and earth conspire to cast her on the treacherous, slavish shore.

73Zeppelin

BoneSoft wrote:

True. But America in general has developed this mentality that debt is not only OK, but the normal thing to do. That coupled with a strong desire for instant gratification and a complete lack of not only restraint but any concept or thought to restraint, and you have lots of problems we're now seeing. 400 lbs inconsiderate people trading in their SUV every two years for a brand new one, with a cell phone in one hand and a large fries and a jumbo milkshake in the other. The lifestyle we've fashioned for ourselves really is destructive, and now that that's finally evident, it's way too late.

This is a large component of the problem - this idea that unrestrained consumption at any cost is an acceptable and normal thing to do.

...that mortally intolerable truth; that all deep, earnest thinking is but the intrepid effort of the soul to keep the open independence of her sea; while the wildest winds of heaven and earth conspire to cast her on the treacherous, slavish shore.

Brady Kelly

Anarchy in the USA. ;P

A human being is part of the whole called by us universe, a part limited in time and space. We experience ourselves, our thoughts and feelings as something separate from the rest. A kind of optical delusion of consciousness. This delusion is a kind of prison for us, restricting us to our personal desires and to affection for a few persons nearest to us. Our task must be to free ourselves from the prison by widening our circle of compassion to embrace all living creatures and the whole of nature in its beauty… The true value of a human being is determined primarily by the measure and the sense in which they have obtained liberation from the self. … We shall require a substantially new manner of thinking if humanity is to survive. (Albert Einstein, 1954)

Mike Gaskey

Ed Gadziemski wrote:

So you're saying the credit problem is because ....

Not at all. What I tried to communicate is that the concept of credit worthiness went by the way side. In my somewhat sheltered life I have bought 4 homes, completely paid the mortgage for 2 and sold the other 2. On each occasion I had to pony up a 10% to 20% down payment and my credit was heavily scrutinized. Each of the homes I reference in the preceding was purchased before the loosening of credit requirements and at no time did I purchase any that would consume more than 20% of my income. I have watched advertisements for loans that were 125% of the assessed value and have seen people take out loans with low entry rates with 5 year balloon payments and I've scratched my head saying, "you're nuts". And sure enough, they were. Very few of those with mortgage problems understood the old adage, "if it sounds too good to be true ...". Our current crisis is I believe a function of the above, multiplied by the fact that these goofy mortgages were subsequently bundled into derivative securities and it would have been (I think) impossible to know the weakness that existed in the underlying product - the mortgage. So ... we have willful ignorance on the part of the mortgagees and stupidity on the part of the investor. I don't think either you or I have any way of understanding the depth of the problem and I'm not sure what I think of any bail out. On the one hand if credit markets don't work our economy goes agrarian. I fairly well agree with the Democratic position that the guys at the top shouldn't get any compensation (ie., pay checks and bonuses), but at the same time I think anyone in default or foreclosure proceedings should not get relief either. I would have replied last night, but there's a charity thing I do on Monday evenings.

Mike - typical white guy. The USA does have universal healthcare, but you have to pay for it. D'oh. Thomas Mann - "Tolerance becomes a crime when applied to evil." The NYT - my leftist brochure. Calling an illegal alien an “undocumented immigrant” is like calling a drug dealer an “unlicensed pharmacist”. God doesn't believe in atheists, therefore they don't exist.

Brady Kelly

Josh Gray wrote:

there is no way they can know my finantial position.

That implicitly reduces the risk of your loan. If they had any knowledge of your position, it would probably be negative.

A human being is part of the whole called by us universe, a part limited in time and space. We experience ourselves, our thoughts and feelings as something separate from the rest. A kind of optical delusion of consciousness. This delusion is a kind of prison for us, restricting us to our personal desires and to affection for a few persons nearest to us. Our task must be to free ourselves from the prison by widening our circle of compassion to embrace all living creatures and the whole of nature in its beauty… The true value of a human being is determined primarily by the measure and the sense in which they have obtained liberation from the self. … We shall require a substantially new manner of thinking if humanity is to survive. (Albert Einstein, 1954)

BoneSoft

I think it's the core of most of our problems. And we have several generations raised in that mindset. And to make things worse, our entire economy is built on the concept, consume consume consume. I don't see a way to turn that around either, short of an extraordinary catastrophe. As much as I'd hate to see it, maybe we need another depression.

Visit BoneSoft.com for code generation tools (XML & XSD -> C#, VB, etc...) and some free developer tools as well.

73Zeppelin

BoneSoft wrote:

I think it's the core of most of our problems. And we have several generations raised in that mindset. And to make things worse, our entire economy is built on the concept, consume consume consume. I don't see a way to turn that around either, short of an extraordinary catastrophe. As much as I'd hate to see it, maybe we need another depression.

I am of the belief that prior to catastrophes there are warning signs that can be observed (conditional on knowing what signs to look for). I think we've seen a few recently that suggest the current system doesn't work too well. The correction has come fast, but I'm not sure everything is resolved yet. I wonder if the majority of people today are of the opinion that nothing catastrophic can happen in the 21st century - the West has been pretty stable in the aftermath of WWII, but Spanish flu, depressions, etc... aren't all that improbable. I wonder if it's partly due to a mindset of "that was then, this is now" so we don't have to worry. I think when a society becomes excessively complacent, it's time to worry.

...that mortally intolerable truth; that all deep, earnest thinking is but the intrepid effort of the soul to keep the open independence of her sea; while the wildest winds of heaven and earth conspire to cast her on the treacherous, slavish shore.

Vikram A Punathambekar

Ilíon wrote:

Government is *rarely* the answer and is almost always the problem.

For once, I agree with you. :)

Cheers, Vıkram.

"You idiot British surprise me that your generators which grew up after Mid 50s had no brain at all." - Adnan Siddiqi.

Ed Gadziemski

I agree that the concept of credit worthiness went by the wayside. However, laying it off on poor people and minorities as some are trying to do is incorrect. The first wave of defaults has already crested and is receding. That is the wave of poor people and minorities that purchased since 2003 or 2004 and have already been foreclosed out of the market. What most people don't realize is that the second wave consisting of white people and people of middle and upper-middle incomes is just starting, and it will make the subprime defaults look like a day at the beach. Also, as you note, the derivative securities are actually the root of the Wall Street problem. Subprime mortgage defaults only comprise about $120 billion and a bailout of that amount or less could have cleared every penny of every mortgage in foreclosure. But Wall Street took a relatively minor problem and created a $49 trillion (yes, $49 trillion) of derivatives, which is 7 times the amount of every single mortgage, the good bad and ugly, in the United States (!!!!) by buying and selling worthless paper amongst themselves and in world markets. Personally, I've never paid a large downpayment. I've always used VA loans with $0 down and have always paid off my houses. I've had to jump through hoops to qualify, especially being self-employed, but I've always bought houses that I could afford to live in. As far as the Democratic position, I agree with the compensation limits, but given what I said above, that real, live actual mortgagees are only responsible for $120 billion of exposure while Wall Street created $49 trillion of funny money, I wouldn't have any heartburn if every bad mortgage was paid off and Wall Street was told to piss up a rope.

Ed Gadziemski

73Zeppelin wrote:

what's the fair market price of all these assets

A good place to start with real estate would be the current tax assessor value. Have a national re-evaluation of properties and use the modified assessed value. Studies on speculation are typically done by those who benefit directly or indirectly from speculation so I discount their value. What I do know is that when Congress closed the Enron Loophole recently, the price of oil dropped 33% within a matter of days. Now that stocks are looking iffy, capital has flooded back toward oil and other commodities. We've gone from one speculative bubble to another in the past 30 years, whether it be real estate, gold, silver, tech stocks, real estate (again), oil, corn, you name it. While some speculation is required for futures markets, it is possible to have too much of a good thing and we have certainly done so.

Ed Gadziemski

Good for John McCain IF he had meant it. The bill everybody is so ecstatic about as proof of McCain's clarity on this matter was actually written by another senator. McCain was one of three others that jumped on the bandwagon primarily because the other political party was benefitting from the current system. It was a strictly parochial and political move on McCain's part, and the bill died without ever gaining any support beyond the original author and the three co-sponsors.

Ed Gadziemski

Josh Gray wrote:

how these debts, when repackaged as various derivative products were able to be classified as investment grade rather than speculative securities

Two primary reasons: First, they were sold as insurance products rather than asset backed securities. While housing prices were rising there was little risk, so companies would underwrite a billion dollars of loans with a setaside of one or two million and generate an income stream from the premiums. This income stream became the basis of the value of the securities, and they were traded back and forth in classic Ponzi-scheme style. Second, traders rightfully believed that the government would bail them out if there was a serious problem. After all, government had bailed out the players in the 1980s real estate bubble and almost nobody suffered serious repercussions except the taxpaying saps who re-elect 98% of the same politicians each election cycle.