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TCO
19-03-2008, 03:17:07
Rate cuts, printing money, bailing out wall street fat cats. This blows.

P.s. I should watch the news or something. Had no idea this was going down.

Oerdin
19-03-2008, 04:53:12
The short answer is yes.

Shining1
19-03-2008, 05:56:56
The long answer is yes, we have no bananas, we have no bananas, today!

Vincent
19-03-2008, 06:07:12
Are you living at all?

Funko
19-03-2008, 09:27:27
Yes, and if you (http://www.bananarepublic.com/) don't move on soon the staff will find you in the store room, in between the boxes of handbags and have you arrested. Get a job you stinking hobo.

KrazyHorse
19-03-2008, 19:31:13
Originally posted by TCO
Rate cuts, printing money, bailing out wall street fat cats. This blows.

P.s. I should watch the news or something. Had no idea this was going down.

Did you realise that BS shares are trading at 7$ with a 2$ offer on the table from JPM?

The thinking is that it's bondholders paying a premium to ensure that the deal goes through and the BS paper gets backed by JPM.

They eat a few hundred mill and save themselves tens of billions.

:lol:

Oerdin
19-03-2008, 23:48:49
It could also be part of a dead cat bounce.

Shining1
20-03-2008, 00:13:52
Is it a live cat before it gets dropped of the building to see if it will bounce?

My economics book never explained that point clearly.

Funko
20-03-2008, 09:24:16
You don't know whether it's dead or not until you look into the box you dropped it in.

TCO
21-03-2008, 00:53:00
I used to think that Fannie and Freddie were not guaranteed. That we ought to and would let them go tits up. Now, I know better. Fucking Goldman.

Lurker the Second
21-03-2008, 01:06:27
damn right.

Huh?

zmama
21-03-2008, 01:57:38
doo di doo Lurkertje

KrazyHorse
21-03-2008, 02:17:07
Originally posted by TCO
I used to think that Fannie and Freddie were not guaranteed. That we ought to and would let them go tits up. Now, I know better. Fucking Goldman.

A friend of mine just graduated and got a job working for Goldman. I might be calling him in 6-8 months to put in a good word for me. :beer:

JM^3
21-03-2008, 03:09:26
Originally posted by KrazyHorse
A friend of mine just graduated and got a job working for Goldman. I might be calling him in 6-8 months to put in a good word for me. :beer:

That's about my timetable also.

JM

Dyl Ulenspiegel
22-03-2008, 17:39:50
I hope that Goldman will be bancrupt in 6-8 months.

Ok, I mean bailed-out.

TCO
23-03-2008, 22:06:34
I can't beleive people are talking about the remote possibility of encouraging future moral hazard. Don't they see that this IS ALREADY the result of moral hazard.

Let the hedge funds take it up the ass already! Cramer was right when he called the Fed the FDIC of hedge funds. And I'm really getting tired of these trading conglomerates (essentially hedge funds inside each "bank" being called banks...as if there were anything similar to a normal savings account type institution.)

What a bunch of neoliberal pussies. There are no Republicans left. They're all Democrats lite. And the Democrats all see business as something to do where you compete for government advantage and get rich on the side while keeping your heart in the right place for poor people. What a fucking train wreck.

Bring back Volker and Oneal.

Oerdin
24-03-2008, 11:17:59
Boy did Cramer look stupid when he urged people to not sell Bear Stearns (practically shouting and jumping up and down while doing it) right before Bear Stearns collapsed.

MDA
24-03-2008, 11:53:57
Hedge funds? Its the hedge wizards we should worry about. Screw Volker and Oneal, whoever they are, we need Voltron!

Econmnemomics makes me hurt.

KrazyHorse
24-03-2008, 13:01:37
Originally posted by TCO
Let the hedge funds take it up the ass already!

I thought they were letting them take it up the ass. Last time I checked Bear equity holders lost 95+% of their money...

Oerdin
24-03-2008, 14:47:43
Supposedly the Fed is stepping in to get Bear Stearns share holders $10 a share instead of $2. Or at least that's what DanS is saying over at poly but I haven't seen an article on it yet.

KrazyHorse
24-03-2008, 16:01:09
So 84%. In one day. 90% since last summer.

Dyl Ulenspiegel
24-03-2008, 17:52:43
Originally posted by TCO
What a bunch of neoliberal pussies. There are no Republicans left. They're all Democrats lite. And the Democrats all see business as something to do where you compete for government advantage and get rich on the side while keeping your heart in the right place for poor people.

Real Republicans would scrap the part beginning with "while". Otherwise, same thing.

Dyl Ulenspiegel
24-03-2008, 17:59:37
Btw, for a serious note:

The US has essentially nationalised and subisidised the mortgage sector beginning with the GSE expansion of the late 90s at the latest. It was clear from then on that the resulting mess would be bailed out by the US taxpayer.

Essentially the same happened with the Greenspan put to all kinds of speculative activities.

What is happening now is trying to inflict the most damage possible from an lready bad situation by pampering the special interest groups that own the US government. Instead of a bailout with cramdown that wipes out equityholders and managements, the Fed and other government agencies are trying to manipulate everything in their reach. The artificial propping of stocks and real estate only makes the crisis more drawn out. If they "succeed", you will get suboptimal equilibria (part of which is usually called liquidity trap) all across the economy.

So, to the yanks: You are all Japan now.

Oerdin
24-03-2008, 21:49:00
Essentially yes. They've screwed the pooch royally this time. Good question: From what we can learn of Japan's situation in the 90's and the US's current situation.... WTF should we do?

Vincent
24-03-2008, 22:15:07
kill yourself

Oerdin
25-03-2008, 00:04:51
If the assholes in charge of Bear Stearns had any balls they would have jumped off a building when the company collapsed. That's the classic Wall Street way to go.

TCO
25-03-2008, 03:17:36
Originally posted by KrazyHorse
I thought they were letting them take it up the ass. Last time I checked Bear equity holders lost 95+% of their money...

dUDE, HAVE YOU ALREADY LOST YOUR BRAIN. mUST BE READY FOR WALL STREET. i'M TALKING ABOUT THE DEBT HOLDERS. kEEP YOUR EYE ON THE MOTHERFUCKING BALL, QUantie, real estate salesman sellie.

TCO
25-03-2008, 03:19:24
aaaargh. Motherfuckers. Just let the shit fail!!!!!

TCO
25-03-2008, 03:20:45
Were I king, Dyl, things would be very very different...

MDA
25-03-2008, 11:21:44
only the strong survive!

Dyl Ulenspiegel
25-03-2008, 11:23:32
nope. only the well-connected survive (darwinism a l'americaine)

Funko
25-03-2008, 11:26:01
Originally posted by Vincent
kill yourself

:lol:

SEPPUKKU FTW!

MDA
25-03-2008, 11:29:16
you think you're cynical, try living in the land of the free

Its taken over 200 years, but I suspect we're finally achieving levels of corruption approaching... many older countries. Go USA.

Edit: sepeliing

KrazyHorse
25-03-2008, 15:52:28
Originally posted by TCO
dUDE, HAVE YOU ALREADY LOST YOUR BRAIN. mUST BE READY FOR WALL STREET. i'M TALKING ABOUT THE DEBT HOLDERS. kEEP YOUR EYE ON THE MOTHERFUCKING BALL, QUantie, real estate salesman sellie.

The hedge funds aren't the ones holding Bear debt.

TCO
26-03-2008, 23:14:27
The shit is all securatized all over the place, Kitty. Goldman and Lehman and all kinds of players like that have similar debt. They are leveraged speculators. The propping up of BS is helping all these motherfuckers. These guys are fucking leaches sucking the US Treasury. Wish they would just die.

Shining1
27-03-2008, 02:59:30
I thought the question was more that if they did die, their well deserved deaththroes would wipe out much more than just their own interests...?

Oerdin
27-03-2008, 04:46:15
Originally posted by Dyl Ulenspiegel
nope. only the well-connected survive (darwinism a l'americaine)

On another website I still arguing with a guy who's claiming Bear Stearns wasn't bailed out. :lol:

Vincent
27-03-2008, 04:50:30
Oh what an exciting site that must be

No longer Trippin
27-03-2008, 04:56:02
Oerdin, ever though of a hyperlink?

Oerdin
27-03-2008, 05:37:03
Private website. Link wouldn't help you.

Vincent
27-03-2008, 05:42:12
thank god

Greg W
27-03-2008, 06:14:53
Originally posted by No longer Trippin
Oerdin, ever though of a hyperlink? A hyperactive link? Who ever heard of such a thing? :clueless:

No longer Trippin
27-03-2008, 06:37:09
I didn't mean for me, I meant for the fool your arguing with. I do believe Bear Sterns being willing to sell out for two bucks did make the news.

The Mad Monk
27-03-2008, 06:54:09
Originally posted by Oerdin
Private website. Link wouldn't help you.

Yes it would. he's a member there too.

Cruddy
27-03-2008, 16:17:04
No, you are not living in a banana republic.

The US does not export bananas - FACT!

You are in fact living in a fighter, tank, munition, ship and weapon republic. Your main clients are of course banana republics.

Dyl Ulenspiegel
27-03-2008, 17:01:04
I thought the main export is toxic financial instruments.

Funko
27-03-2008, 17:01:37
A red pen?

Dyl Ulenspiegel
27-03-2008, 20:15:27
Sean Penn?

KrazyHorse
27-03-2008, 20:20:58
Originally posted by TCO
The shit is all securatized all over the place, Kitty. Goldman and Lehman and all kinds of players like that have similar debt. They are leveraged speculators. The propping up of BS is helping all these motherfuckers. These guys are fucking leaches sucking the US Treasury. Wish they would just die.

I agree that they have some exposure and that propping up Bear's liabilities is helping them, but I think that other investment banks are LESS likely to hold Bear debt than is the market...

KrazyHorse
27-03-2008, 20:22:32
IOW, everybody is holding a piece of the shit sandwich that is Bear. Only market nonparticipants would prefer Bear to fail to meet its obligations.

TCO
27-03-2008, 23:54:46
Only people who think that individuals who buy a security should take the risk/reward rather than have the government bail them out, think that....bla bla bla.

This fucking stinks. Investment banks are risky institutions. They should be allowed to fail. It's natural.

TCO
27-03-2008, 23:55:15
And people who buy stuff from them, should be allowed to swallow losses.

Vincent
28-03-2008, 06:06:46
Originally posted by TCO
bla bla bla

Shining1
28-03-2008, 07:17:40
Originally posted by Dyl Ulenspiegel
I thought the main export is toxic financial instruments.

Electric guitars?

Dyl Ulenspiegel
28-03-2008, 08:43:36
My Guitar is not toxic.

Dyl Ulenspiegel
28-03-2008, 09:16:09
Originally posted by KrazyHorse
IOW, everybody is holding a piece of the shit sandwich that is Bear. Only market nonparticipants would prefer Bear to fail to meet its obligations.

The problem is leverage by investment banks and counter party risk. For example, I suspect that a good junk of Goldyman's level 3 "assets" has BS as a counterparty/bagholder.

I like the term "cascading cross defaults". There would have been a cheaper way to stop this, but for the Fed - why not use that opportunity to stuff the pockets of the people who own you?

The key would have been to never create a system of de facto government underwritten speculation. Now you have to bail it out one way or another. If you look at the swedish fiasco in the early 90s and translate the costs to US by GDP, you get about 1 trillion $. Adding incompetence and corruption surcharge, maybe 2 trillion $. And a recession. And a lost decade a la Japan with 1-1.5 % growth, that should be it.

Tizzy
28-03-2008, 09:16:22
Then you're not playing it correctly

Dyl Ulenspiegel
28-03-2008, 09:17:16
I know. :(

Shining1
28-03-2008, 10:23:26
So can Bush be blamed for this, too? Directly or indirectly, either for organising or failing to prevent it?

Funko
28-03-2008, 10:30:30
He can be blamed for a lot of things, but I'd struggle to find a way to blame him for Dyl playing his guitar wrong.

Funko
28-03-2008, 10:30:53
I guess he did fail to prevent Dyl from playing his guitar.

Dyl Ulenspiegel
28-03-2008, 10:31:59
My weapon of ear destruction.

KrazyHorse
28-03-2008, 12:41:33
Originally posted by TCO
Only people who think that individuals who buy a security should take the risk/reward rather than have the government bail them out, think that....bla bla bla.

This fucking stinks. Investment banks are risky institutions. They should be allowed to fail. It's natural.

Bear did fail. And as I said, those who hold its debt are widely dispersed. This is a bailout of the market as a whole, not of a small group of investment banks or hedge funds.

Other than JP Morgan, of course. They get a sweetheart deal out of this (because the Fed is guaranteeing 30 bill of the debt they're taking on).

KrazyHorse
28-03-2008, 12:42:22
Originally posted by TCO
And people who buy stuff from them, should be allowed to swallow losses.

I actually agree with you, but I don't agree with your characterization of the Fed's actions as a bailout of hedge funds.

TCO
28-03-2008, 22:54:27
Bail outs of the market as the whole suck. I never said this was a bailout of BS shareholders. It is a bailout of people who eat shrimp at Paulson's LI house. Save your pedantry for others. I am a moron. But even drunk, I'm not as much of one as you think I am. Raises 6th aiurport G&T in pride.

TCO
28-03-2008, 23:00:17
Originally posted by Dyl Ulenspiegel
The problem is leverage by investment banks and counter party risk. For example, I suspect that a good junk of Goldyman's level 3 "assets" has BS as a counterparty/bagholder.

I like the term "cascading cross defaults". There would have been a cheaper way to stop this, but for the Fed - why not use that opportunity to stuff the pockets of the people who own you?

The key would have been to never create a system of de facto government underwritten speculation. Now you have to bail it out one way or another. If you look at the swedish fiasco in the early 90s and translate the costs to US by GDP, you get about 1 trillion $. Adding incompetence and corruption surcharge, maybe 2 trillion $. And a recession. And a lost decade a la Japan with 1-1.5 % growth, that should be it.


dude: I'm scared. Dill is having more of a brain than Kitty. Does not compute. waves arms like the robot on Lost in Space or Star Trek. Basic idea is that if US enters a treaty that says we will disobey the Constitution, that it is not valid. We can't use treaties to evade the Constitution. Have to amend it instead. Capisce? Motherfucking morons?

KrazyHorse
29-03-2008, 04:18:09
No, Dyl simply has more respect for the retarded set of precedents your judges have handed down.

Unlike them, apparently, I can read English at a fourth grade level.

KrazyHorse
29-03-2008, 04:19:17
And you are being retarded on the BS issue. You've got this idea that the elite market participants have more to lose proportionally than anybody else. I call bullshit on that...

No longer Trippin
29-03-2008, 06:31:12
Ehhh, this is nothing if Dyl is right. The savings and loan crisis of the 80s cost the US around 3 percent of the US GDP. 1.5 percent of our GDP is nothing in that perspective. We were more effecient with out bombing small countries expenditures then, but still, it's only 1.5%. What harm can that do?

/sarcasm

Shining1
29-03-2008, 10:30:20
Originally posted by Dyl Ulenspiegel
My weapon of ears destruction.


Fixed. =)

Dyl Ulenspiegel
29-03-2008, 11:07:54
Thanx, Bob.

Dyl Ulenspiegel
29-03-2008, 11:08:39
Originally posted by KrazyHorse
No, Dyl simply has more respect for the retarded set of precedents your judges have handed down.


Not really. My point has been more that they have been idiots a while back, rather than just now.

Greg W
29-03-2008, 13:31:36
Originally posted by Dyl Ulenspiegel
My weapon of arse destruction. :brwncard:

TCO
29-03-2008, 15:04:35
Originally posted by KrazyHorse
And you are being retarded on the BS issue. You've got this idea that the elite market participants have more to lose proportionally than anybody else. I call bullshit on that...

I think that the bailing out of speculators hurts us all as a distortion of normal risk/reward. I think that this situation came about in part because of the (correct) anticipation of coverage for downsides. This incentivizes people to gamble. That some of them ending up losing is not the point. It's that they were/are incentivized to do so, because of the bailouts. I also think that this benefits market makers, etc. BS needs to go tits up, lots of people on WS need to lose jobs, etc. This would be good for the country.

TCO
29-03-2008, 15:07:06
Originally posted by KrazyHorse
I actually agree with you, but I don't agree with your characterization of the Fed's actions as a bailout of hedge funds.


Ok. That was probably a gross simplification. Who did they bail out? Who are the counterparties to that 30 bill of debt (which they acquired for less than market value...paying face price).

KrazyHorse
29-03-2008, 17:29:57
Originally posted by TCO
I think that the bailing out of speculators hurts us all as a distortion of normal risk/reward. I think that this situation came about in part because of the (correct) anticipation of coverage for downsides. This incentivizes people to gamble. That some of them ending up losing is not the point. It's that they were/are incentivized to do so, because of the bailouts.

I agree.

I also think that this benefits market makers, etc.

Only insofar as they have human capital invested in the current setup in addition to their money. This does not apply to the really big players. They have more money in the markets than human capital. The bailout helps each of their market dollars about as much as it does every other market dollar. If the big funds were rational it would hurt them less because they would have insured against a downturn in the financial engineering industry by bets on uncorrelated assets, not ANTI-INSURED by buying other hedgies' debts.

BS needs to go tits up, lots of people on WS need to lose jobs, etc. This would be good for the country.

I agree and it is happening. But I think that you need to understand that the increase in complexity in financial markets is GOOD. That was innovation. The increase in risk-taking probably went too far. That was arrogance.

Vincent
29-03-2008, 17:31:19
I'd rather buy a BMW

KrazyHorse
29-03-2008, 17:34:11
Originally posted by TCO
Ok. That was probably a gross simplification. Who did they bail out? Who are the counterparties to that 30 bill of debt (which they acquired for less than market value...paying face price).

The counterparties are participants in the general corporate bondholders markets. If anything they would tend to be less risk-taking than equity investors. Pension funds? Little old ladies? I don't know, and I doubt you do either...

Vincent
29-03-2008, 17:37:54
You mean a Mercedes would be better?

TCO
29-03-2008, 17:52:04
Originally posted by KrazyHorse

I agree and it is happening. But I think that you need to understand that the increase in complexity in financial markets is GOOD. That was innovation. The increase in risk-taking probably went too far. That was arrogance. [/B]

I'm fine with people having complicated instruments. Actually I don't think I expressed an opinion on instruments. My issue was with the bailout. Sometimes, you don't seem to understand me.

To segue into where you thought I was talking: Brealey and Myers has an interesting few paragraphs speculating on why certain new financial instruments succeed and others don't. It's not at all clear why.

My impression (impression!) is that some of this stuff can be a bit faddy, a bit hyped, a bit not "looking at the details in the algebra". Even if the market isn't buying into the fads (and sometimes they seem to do so), they written expression of some of this stuff is an offense to really thinking about finance. Seen it before with the written descriptions of LTCM, Enron "asset lite". Glorifyication of securitization and hyping it as if it were a new idea.

Oh...and again. I have no problem with big boys doing whatever they want to with their money. I just don't want the taxpayer to cover people's bets. Not covering bets will be the best mechanism to get

Vincent
29-03-2008, 17:54:11
So it's Porsches!

TCO
29-03-2008, 17:56:21
Originally posted by KrazyHorse
The counterparties are participants in the general corporate bondholders markets. If anything they would tend to be less risk-taking than equity investors. Pension funds? Little old ladies? I don't know, and I doubt you do either...

No worries. I just thought your correction of me was making the point that the bond holders were not hedge funds, so thought you knew what the holders were. Relax.

Segue: I do think there are people in derivatives of bonds, distressed debt, crap like that. And that is usually pretty sophisticated hedge funds/speculators. (Really a lot of hedges are not well hedged, and a lot of other entities...to include trading desks, investment banks) do hedge fund type of activities.

Oerdin
29-03-2008, 18:55:12
Vinnie has a thing for German cars.

Vincent
29-03-2008, 19:10:43
And dutch bikes

Immortal Wombat
29-03-2008, 19:15:07
Originally posted by Vincent
And butch dykes

Dyl Ulenspiegel
29-03-2008, 22:33:05
"But I think that you need to understand that the increase in complexity in financial markets is GOOD. That was innovation. "

lol

You're really desperate to get a golden arse at Goldman, aren't you.

Just this quote for financial "innovation":

"One of the lessons that investors seem to have to learn over and over again, and will again in the future, is that not only can you not turn a toad into a prince by kissing it, but you cannot turn a toad into a prince by repackaging it. But very imaginative people in the securities market try to do that. If you have bad mortgages they do not come better by repackaging them."

mr_B
29-03-2008, 22:52:40
Originally posted by Vincent
And dutch bikes

TCO
05-04-2008, 19:54:49
Bear Sterns share holders are going to get 10 bucks a share now. And the government has only changed the 30 bil to 29 bil. This blows. The shareholders ARE getting something. And the scum at BS are not getting layed off fast enough. And the company was never put up for auction. What if it's worth more than 10? The whole thing stinks to high heaven.

Paulson and Bernanke should be impeached or fired or whatever.

mr_B
05-04-2008, 20:03:48
Originally posted by mr_B

Oerdin
05-04-2008, 20:09:38
Originally posted by Dyl Ulenspiegel
"But I think that you need to understand that the increase in complexity in financial markets is GOOD. That was innovation. "

lol

You're really desperate to get a golden arse at Goldman, aren't you.

Just this quote for financial "innovation":

"One of the lessons that investors seem to have to learn over and over again, and will again in the future, is that not only can you not turn a toad into a prince by kissing it, but you cannot turn a toad into a prince by repackaging it. But very imaginative people in the securities market try to do that. If you have bad mortgages they do not come better by repackaging them."

I can understand the logic behind the repackaging even if I don't agree with it. The idea was you take a whole bunch of different qualities of loans, thousands or even hundreds of thousands, and then let the law of averages work. Of course when the repackager claims every loan is better quality then it really is then you end up with problems.

Then of course there are the unethical companies which deliberately loaded up the repackaging with all the crap they wanted to get rid of fast.

TCO
05-04-2008, 20:47:40
The issue of toad misrepresentation is a trivial one. And there is no reason to stop loan bundling, securitization in the future. The answer is to let the market work. Either higher rates will be chanrged or better instruments demanded to assess the portfolio or collateral or what have you. This is nothing new. Brealey and Myers has a very good sentence where they say that there's a reason why corporate bond debt has pages of caveats and particulars attached to it...the reason is that there are economic implications.

Vincent
05-04-2008, 21:16:00
they got small penises?

KrazyHorse
06-04-2008, 19:35:01
Originally posted by Dyl Ulenspiegel
"But I think that you need to understand that the increase in complexity in financial markets is GOOD. That was innovation. "

lol

You're really desperate to get a golden arse at Goldman, aren't you.

That too, but I'm always in favour of ideas which can decrease individual risk for basically free. The long-term winners of these complex instruments are borrowers.

Just this quote for financial "innovation":

"One of the lessons that investors seem to have to learn over and over again, and will again in the future, is that not only can you not turn a toad into a prince by kissing it, but you cannot turn a toad into a prince by repackaging it. But very imaginative people in the securities market try to do that. If you have bad mortgages they do not come better by repackaging them."

Ahh, but they do. Yes, the confidence in non-correlation went way too far, but lending 1000$ to 10 people who each has a 1% chance of defaulting is always better than lending 10000$ to 1 person who has a 1% chance of defaulting. It's just not necessarily as much better as a naive uncorrelated analysis would suggest.

Honestly Dyl, I'm not particularly surprised by your schadenfreude here, but it's also not a particularly intelligent critique.

:)

KrazyHorse
06-04-2008, 19:39:33
10$ a share is still not where the bailout is. JP Morgan is the recipient of the major Fed largesse here. Be pissed off at what they're getting, not that BS holders manage to keep 15% of the value of their holdings (from Friday morning to Sunday night)...or 6% from a year ago.

JP got a sweetheart deal. Ben gave away the store without needing to...

mr_B
06-04-2008, 20:43:05
and then it was monday
I love mondays
mondays are fun fun fun

TCO
06-04-2008, 21:25:39
I already cited all these issues. The Fed is bailing out debt holders. PLUS now 10 bucks a share. Plus the BS idiots are keeping their jobs. Plus JP got this thing sold to them and not at an auction (and perhaps the thing was worth more). So the Fed is transferring $$ to JP. And perhaps even the shareholders wouild do better off at an auction without any bail out.

the whole thing stinks. Let the normal procedures work. Let the officers of the company take the appropriate measures if the firm is out of cash and put the damn thing into bankruptcy court and work it out.

TCO
06-04-2008, 21:27:29
Oh and the stock closed at 32 before the weekend. WTF is this Friday morning/sun evening metric. Look at last value.

TCO
06-04-2008, 21:33:06
I hope Paulson and Bernanke go to jail.

mr_B
06-04-2008, 21:51:33
I hope the go to free parking first

and i hope they have an hotel at Coolsingel Blaak and Hofplein

Oerdin
06-04-2008, 22:38:40
Originally posted by TCO
The issue of toad misrepresentation is a trivial one. And there is no reason to stop loan bundling, securitization in the future. The answer is to let the market work. Either higher rates will be chanrged or better instruments demanded to assess the portfolio or collateral or what have you. This is nothing new. Brealey and Myers has a very good sentence where they say that there's a reason why corporate bond debt has pages of caveats and particulars attached to it...the reason is that there are economic implications.

I agree that repackaging will accure in the future but it is clear that regulations need to be revamped and strengthened since the repackaging was often structured so that even experts who did this for a living couldn't tell which securities had what percentage of high risk loans. Indeed it appears that repackagers deliberately made the process as muddy as possible to prevent buyers from catching on until it was to late.

Next comes the issue that the whole purpose of repackaging loans was so that banks could avoid the legal requirement on only making X times as many loans as they had assets on hand. They'd repackage loans as securities thus clearing their books of those loans and officially they'd have new room on their books to make more loans thus loaning much more then they could back up with assets. Much more then the law would allow.

The problem is that even after loans are repackaged as securities the originator is still on the hook for a percentage of those loans if they go bad. Thus the real amount the bank is on the hook for is (X+Y) times assets which clearly violates the original intent of limiting banks to X times assets.

TCO
07-04-2008, 00:23:05
uh...don't buy muddy financial instruments?

TCO
07-04-2008, 00:24:56
The point on evading reserve limits is a decent one (I think). However I don't see how it applies to Bear Stearns which was not a mortgage issuer. The problem is people throwing the word "bank" around too much.

Immortal Wombat
07-04-2008, 01:29:45
banker

Oerdin
07-04-2008, 08:10:16
Originally posted by TCO
uh...don't buy muddy financial instruments?

Buyer beware is nice and all but when the problem becomes so large that it threatens the national economy then the dangers of doing nothing exceed the dangers of improved regulation.

It's been proven time and again that the politicians can't stop the big special interests because the politicians are bought and paid for agents of which ever special interests pay the most. The American political system is just that corrupt. So... If we can't stop the bailouts the only reasonable thing to do is regulate things in order to make bailouts less likely to be needed.

Oerdin
07-04-2008, 08:13:35
Originally posted by TCO
The point on evading reserve limits is a decent one (I think). However I don't see how it applies to Bear Stearns which was not a mortgage issuer. The problem is people throwing the word "bank" around too much.

It applies to BS in so far as they made one of their biggest businesses repackaging these loans and so ends up on the hook for part of the costs when things go tits up.

Dyl Ulenspiegel
07-04-2008, 09:09:29
Originally posted by KrazyHorse
That too, but I'm always in favour of ideas which can decrease individual risk for basically free. The long-term winners of these complex instruments are borrowers.



Ahh, but they do. Yes, the confidence in non-correlation went way too far, but lending 1000$ to 10 people who each has a 1% chance of defaulting is always better than lending 10000$ to 1 person who has a 1% chance of defaulting. It's just not necessarily as much better as a naive uncorrelated analysis would suggest.

Honestly Dyl, I'm not particularly surprised by your schadenfreude here, but it's also not a particularly intelligent critique.

:)

You only argue risk distribution, and that's an old hat. Societas, insurance etc. Even in securities.

The "innovation" was at least perceived (and owing its success to that) as risk reduction, and that doesn't work. Your countercritique misses the crucial distinction.

The quote is from Buffet, btw, and it's more smartje than anything the IB and Fed clowns can muster.

KrazyHorse
07-04-2008, 12:14:02
Risk distribution in that sense is risk reduction.

KrazyHorse
07-04-2008, 12:24:19
You can run the analysis yourself. It's easy enough. For correlation coefficient between defaults of less than one (maximum is one) you get reduced risk. Problem is that perfect uncorrelation was assumed between regions of US and leveraging strategies were based on that. That's just stupid.

In any technical study there are people who trust their models way too much and there are people who understand what "model uncertainty" means.

Dyl Ulenspiegel
07-04-2008, 12:34:16
Originally posted by KrazyHorse
Risk distribution in that sense is risk reduction.

For whom?

KrazyHorse
07-04-2008, 14:04:13
For any individual loan purchaser.

Do you seriously not understand the law of large numbers?

Funko
07-04-2008, 14:32:01
I guess for a lawyer that's something to do with billing

KrazyHorse
07-04-2008, 14:37:53
Nice.

Dyl Ulenspiegel
07-04-2008, 16:22:42
Originally posted by KrazyHorse
For any individual loan purchaser.



And for the aggregate of loan purchases?

KrazyHorse
07-04-2008, 17:21:12
Until securitization you couldn't buy an aggregate of loan purchases without having hundreds of millions of dollars. That is the point.

Please pay attention, Dyl.

KrazyHorse
07-04-2008, 17:23:31
Also, if you wanted an intertemporal aggregate of loan purchases more like tens of billions of dollars and 30 years to set it up.

KrazyHorse
07-04-2008, 17:26:23
In other words, securitization and tranching allows smaller lenders to connect with borrowers with the same risk profile as the big boys. The net result is lower interest rates for borrowers and lower profits for giant capital concentrations.

Dyl Ulenspiegel
07-04-2008, 17:39:49
Originally posted by KrazyHorse
Until securitization you couldn't buy an aggregate of loan purchases without having hundreds of millions of dollars. That is the point.


You are missing the point. I am talking about a simple statistical aggregate, like a million individual lenders.

I'm not sure what you are trying to tell me here. I am not denying the benefits of risk distribution, just stating that it is not an invention.

Likewise, "securitization and tranching allows smaller lenders to connect with borrowers with the same risk profile as the big boys" - just a different form of financial intermediation. Whether this really has cost advantages remains to be seen.

KrazyHorse
07-04-2008, 17:56:07
Risk "distribution" in general is not innovation. Particular forms of it are. This form allows more lenders access to aggregated risk than previously. That is an innovation.

KrazyHorse
07-04-2008, 17:57:30
Was the invention of index funds not a positive innovation, Dyl?

Dyl Ulenspiegel
07-04-2008, 18:20:32
"This form allows more lenders access to aggregated risk than previously. That is an innovation."

You could always (well, from a very long time) buy bonds that were covered by mortgages. In theory these "new" instruments allowed you to finetune your risk, but considering that most people have no clue what they invest in, I am very sceptical about the benefits.

Index funds distort investment decisions, but given my above scepticism, I don't think it does much damage. Monkeys throwing darts, now that would be an improvement.....

KrazyHorse
07-04-2008, 19:52:54
Index funds do a mild distortion on the trailing edges of the index. Not very serious. But reducing the 1% per annum fee that a mutual fund broker was going to charge you reduced enormously the distortion between bonds and equities.

Dyl Ulenspiegel
07-04-2008, 20:04:43
True. It's a good compromise between a useless fund manager and managing your portfolio yourself.

When I'll buy stocks again, I'll use index funds as the core holding, too.

TCO
08-04-2008, 01:29:43
I'm not QUITE sure what you're arguing or QUITE sure what the truth is. But I still suspect that you have a logical flaw in your thinking Kitty. CAPM, CAPM, CAPM, baby. Beta rules. People can assemble efficient portfolios without the need for these internal portfolio optimizations.

KrazyHorse
08-04-2008, 02:23:05
TCO, the CAPM only applies if the amount of risk of an asset is independent of the the amount of the asset you buy. If the asset is "chunky" like mortgages then big mortgage buyers have a lower risk in purchasing mortgages than a small mortgage buyer does, because the big mortgage buyer can buy lots of mortgages while the little mortgage buyer can only buy a few.

Think of it this way: there are two companies in the stock market. A and B. A has variance V_A and B has variance V_B. The covariance is C.

Say the prices of the stocks are the same at some time 0 (price=p). Unfortunately, I only have p to invest (can only buy one share of one company). If I choose to enter the market, then what risk do I have? Now what risk does somebody who can afford to buy both stocks have?

That's right, the guy who can afford to buy both stocks has less overall risk in his position than I would. So rationally he buys stocks and I'm stuck with bonds.

Same thing with mortgages. Financial innovation gets you closer to a place where the conditions of the CAPM hold absolutely true.

TCO
08-04-2008, 04:26:12
You don't think mortgage issuers, issue enough mortgages to have this problem of chunkiness taken care of?

TCO
08-04-2008, 04:28:01
On the other hand, if you're a secondary investor who wants to dabble in mortgages, then having something that repeackages it is useful. Of course, you have to balance with that the risk associated with not having all the actual details of the loans....which seems to have turned out to be a reasonable problem. And which is now making such instruments less valued.

Koshko
08-04-2008, 05:59:48
If it makes you feel any better, pretty much everyone in the Bush Administration dumped most of their US holdings and invested heavily in the Euro a few years ago right before our dollar really collapsed.

KrazyHorse
08-04-2008, 14:21:32
Originally posted by TCO
You don't think mortgage issuers, issue enough mortgages to have this problem of chunkiness taken care of?

Of course I do. See my earlier post about how much that costs though. The point is that there were only a few mortgage issuers. Without repackaging the average investor cannot get at that section of the market except by proxy (by buying companies which buy mortgages).

Large issuers were collecting rents. If you can successfully turn mortgage debt into just another asset then those rents disappear.

The real problem is that people trusted the noncorrelation (especially between geographic regions!) of default rates too much. They weren't factoring in enough of a risk premium. Now, guess what happened: house prices rose because effective interest rates dropped. The chance of correlated defaults (what the pricing of these instruments depended on not having) nationwide was increased because of the existence of these instruments. This (not outright fraud) was the big problem.

Oh, it's so amusing...and anybody could have seen it coming, but they didn't.

Dyl Ulenspiegel
08-04-2008, 16:15:33
There's also been the total breakdown in underwriting standards that should have signalled that correlated risks were created in abundance.

KrazyHorse
08-04-2008, 17:20:03
My sense is that the risk assessors weren't as smart as the people creating the instruments (who may have engaged in a bit of salesmanship). It's the old problem of regulating an industry when the industry pays better than you do...

TCO
08-04-2008, 21:53:51
Non consideration of correlation of risk was exactly the issue with LCTM. I'm still intrigued with your stock example though. Would you have a similar concern with respect to stocks with high valuation (say Hathaway) as to mortgages? And don't you think that there are plenty of people with a couple hundred thousand who can directly by mortgages (or with millions to buy several of them)? So sure the individual investor can't buy them, but so what? There are billions of dollars running around and a market can be created. Certainly hedge funds or pension funds or the like had the ability to pay lots of money.

Another thing that I wonder about is that every mortgage is different. It applies to a specific house and to a specific borrower. And often there were both gross (rates) and subtle (assurances) parts of the contract which affected the value of the asset. This feels a little different than the stock example (even high priced stock).

TCO
10-04-2008, 00:42:05
Bunning is the only senator with balls. The rest of them are craven scum. I literally hope they all die tomorrow.

KrazyHorse
10-04-2008, 20:28:43
Originally posted by TCO
Non consideration of correlation of risk was exactly the issue with LCTM. I'm still intrigued with your stock example though. Would you have a similar concern with respect to stocks with high valuation (say Hathaway) as to mortgages?

Hathaway shares are only 150000$ (IIRC). Plus there are already instruments which let you buy a piece of a share. And you might want to note that B-H is only a small part of the market. Mortgages are pretty big business. A lot of people were effectively locked out of a large part of the financial markets because in order to get at it they would have had to create an entire multi-billion dollar mortgage buying firm. Which introduces all sorts of additional problems (management decisions, for example).

And don't you think that there are plenty of people with a couple hundred thousand who can directly by mortgages (or with millions to buy several of them)? So sure the individual investor can't buy them, but so what? There are billions of dollars running around and a market can be created. Certainly hedge funds or pension funds or the like had the ability to pay lots of money.

It's not a question of buying one mortgage. It's a question of buying enough mortgages with different enough attributes (location, size, credit rating etc) so that you've spread out your risk. And as I've already explained, that probably costs tens of billions (you need a time slice as well!)
If shares in Berkshire Hathaway stock were 10 billion dollars apiece and Berkshire Hathaway was worth 10 trillion dollars (or so) then yeah, it would be a big deal if you hadn't created instruments which let you buy a piece of one....

TCO
11-04-2008, 00:07:16
Oh...bullshit on the tens of billions. that's not the way these types of effects work. the biggest gains in portfolio risk reduction with diversification happen the fastest.

Dyl Ulenspiegel
11-04-2008, 07:31:02
Originally posted by KrazyHorse
My sense is that the risk assessors weren't as smart as the people creating the instruments (who may have engaged in a bit of salesmanship). It's the old problem of regulating an industry when the industry pays better than you do...

Sure, you wouldn't expect the creators of the instruments to disclose the risk. Unless there was a contractual obligation to do so.

Then, the creating firms bought the rating agencies. Classic conflict of interest a la Enron auditor.

And everyone believed the fairytale. As long as real estate prices kept inflating, everything was fine.

Just absolutely amazing that even those holding the bag didn't realize it's a ponzi scheme.

KrazyHorse
11-04-2008, 20:00:17
Originally posted by TCO
Oh...bullshit on the tens of billions. that's not the way these types of effects work. the biggest gains in portfolio risk reduction with diversification happen the fastest.

Statistical ones, yes.

Time series and geographical, no.

TCO
11-04-2008, 23:28:54
I call bullshit. You can diversify accross epochs and geos. And you have the rest of your portfolio. You are skating on some thin ice with this internal portfolio diversification argument, kit.

KrazyHorse
12-04-2008, 05:27:07
:lol:

The day i trust you to criticize my gut instinct on stats is the day I give up my physics card.

For 10 bill, say 200k a pop. that's 50000 mortgages. Divided by 30 years to get a true sample. 150 a year. Divided by at least 5 major geographic markets. 30 a year per region.

:rolleyes:

I'm pretty sure that's reasonable...

TCO
12-04-2008, 21:37:41
Hey...don't make me go back to that spaceship...

And your instincts are completely unreasonable. And there is insurance out there, etc. etc.

TCO
12-04-2008, 21:43:40
50,000 instruments? sheesh. Check out the graph here in wiki:

50,000 isn't even in the table!?

TCO
12-04-2008, 21:44:21
Do you think you need to buy 50,000 stocks to diversify?

self biased
13-04-2008, 00:17:19
summary?

zmama
13-04-2008, 00:55:30
yadda yadda whine whine

Set the Zambonis FREEE!

Oerdin
13-04-2008, 03:02:27
I think you are all peter puffers.

TCO
13-04-2008, 14:34:07
oops. here's the link:

http://en.wikipedia.org/wiki/Diversification_%28finance%29

KrazyHorse
13-04-2008, 14:58:34
Originally posted by TCO
oops. here's the link:

http://en.wikipedia.org/wiki/Diversification_%28finance%29

Congratulations. You just repeated what I said. Statistical deviations can be controlled with relatively few instruments.

Geographic, time and credit slices add complications to your model. There are stronger correlations between default rates on homes bought by people with the same credit score at the same time in the same area than there are between houses bought 15 years apart on different coasts, one of them by a dude with a 780 credit score and 25 years of credit history, the other by a dude with a 520 score and 3 years of credit history.

Pay attention.

KrazyHorse
13-04-2008, 15:00:29
You'd like to have enough instruments in each sector of the market to control statistical fluctuations in that sector. Now multiply by credit history, location, time and even instrument type (duration, fixed/variable)

TCO
13-04-2008, 15:46:43
You don't have to do that mulitplicatively, Kitty (controlling for statistical variation within each subset).

And the differences in geography and such are not so important to control for. It's probably much more relevant to diversify versus truly different assets (equities, etc.) (This is because the gain from diversification comes from how uncorrelated the instruments are to each other. And in a meta view, mortgages share a lot of similar behavior (for instance reaction to interest rate changes).

You have to be crazy to think you need 50,000 instruments. That's not good physical intuition.

And credit score is priced into the expected value. As is time. You have to differentiate between how probablility is used on the top line of the DCF as opposed to what goes into the WACC.

KrazyHorse
13-04-2008, 21:44:12
You don't have to do that mulitplicatively, Kitty (controlling for statistical variation within each subset).

To some extent you do. That is straightforward stats. The more segmented your population is the greater sample size you need.

And the differences in geography and such are not so important to control for.

My sense (based on exactly 0 experience in this) is that they are. A great deal seems to be made of doing precisely this.

mr_G
14-04-2008, 20:54:34
dooooooooooooooooooooooooooooo
di
dooooooooooooooooooooooooooooooooooooooooooooooooo

self biased
14-04-2008, 20:58:37
what's with the economy.fir?

mr_G
14-04-2008, 21:07:32
Originally posted by mr_G
dooooooooooooooooooooooooooooo
di
dooooooooooooooooooooooooooooooooooooooooooooooooo

TCO
16-04-2008, 21:49:29
Originally posted by KrazyHorse
To some extent you do. That is straightforward stats. The more segmented your population is the greater sample size you need.



My sense (based on exactly 0 experience in this) is that they are. A great deal seems to be made of doing precisely this.

I think you have a poor physical intuition here and would Bayesian bet on it. The correlation of East Coast US and West Coast mortgages will be much higher than things like equities to debt, US to China, etc. You are wrapped up with thinking you need to do some grand multiplicative portfolio risk reduction which has little value.

50, 000! (Imagine me saying it with the same intonation of the father in BREAKING AWAY saying "rebate" after his heart attack".)

Oerdin
16-04-2008, 22:04:03
Shut up! No one likes you. :p

TCO
16-04-2008, 22:09:16
fish taco...

TCO
18-04-2008, 19:57:12
So do we need 50,000 US equities in our portfolio? And 50,000 foreign equities? And then 50,000 corporate bonds? And then 50,000 munies?

KrazyHorse
18-04-2008, 20:03:26
Each equity is a fairly diversified investment compared to each mortgage. The big industrials already have their fingers in a lot of pies.

You're attempting to compare two fairly different situations...

TCO
18-04-2008, 20:12:10
I bet different equities are less correlated to each other than mortgages. And so what if some of the equities are conglomerates. You still need the equivelant of 50,000 pure plays.

KrazyHorse
18-04-2008, 20:15:42
I bet different equities are less correlated to each other than mortgages.

This backs up my view...

KrazyHorse
18-04-2008, 20:17:01
And so what if some of the equities are conglomerates. You still need the equivelant of 50,000 pure plays.

No, you don't. That simply doesn't make any sense.

TCO
18-04-2008, 20:55:38
Originally posted by KrazyHorse
No, you don't. That simply doesn't make any sense.

It does according to your insight of multiplicative numbers required. Admit it 50,000 is a butt awful physical insight.