posted
well, i'm not saying that traders can crash the system exactly, they can only take advantage of circumstances, and i openly admit that conspiracy theories amuse me as much as any good book.
however,
trading CDSes upfront (the perceived risk of default is so high that most of the cost of buying protection is covered by a down-payment instead of by annual payments.) did spook alot of traders on the stocks and allowed short-sellers to take over.
this practice is not illegal in general, but it would be illegal to do it in a concerted effort amongst "supposedly" competing traders.....
we know this happened. it's jsut a question of whether they were in communication or not.
you like to blame Bush for everything, and i say he was ignorant and incurious.
there is no such thing as absolute proof in any thing... even our existence is not truly provable, so saying you want absolute proof is really saying i can't convince you at all.
i don't care. it makes no difference other than i am still curious as to who was on the winning side.
it is important because the large majority of these CDS's appear to have been traded amongst non-participating parties (in other words? people took insurance on their neighbors house and set it on fire to collect the payout)...
remember, this situation has been labeled the "perfect storm" by most reasonable economists...
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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posted
You know Glass, I'm not so sure that it was a case of an indvidual group causing the crisis as it was that a monster was created and once let loose there was no controlling it. Yet, it is possible that just as these ultra smart individuals who created them, someone hired other ultra smart individuals to find how to take advantage of them. Here's a pretty good read about CDS's.
"The Monster That Ate Wall Street How 'credit default swaps'—an insurance against bad loans—turned from a smart bet into a killer.
Matthew Philips NEWSWEEK From the magazine issue dated Oct 6, 2008 They're called "Off-Site Weekends"—rituals of the high-finance world in which teams of bankers gather someplace sunny to blow off steam and celebrate their successes as Masters of the Universe. Think yacht parties, bikini models, $1,000 bottles of Cristal. One 1994 trip by a group of JPMorgan bankers to the tony Boca Raton Resort & Club in Florida has become the stuff of Wall Street legend—though not for the raucous partying (although there was plenty of that, too). Holed up for most of the weekend in a conference room at the pink, Spanish-style resort, the JPMorgan bankers were trying to get their heads around a question as old as banking itself: how do you mitigate your risk when you loan money to someone? By the mid-'90s, JPMorgan's books were loaded with tens of billions of dollars in loans to corporations and foreign governments, and by federal law it had to keep huge amounts of capital in reserve in case any of them went bad. But what if JPMorgan could create a device that would protect it if those loans defaulted, and free up that capital?"
quote:Originally posted by glassman: that is a good article, it's noteworthy that JP Morgan was in on creating them, but claims to have very minimal exposure to them,
AIG got crushed by them.
so, we get down to two important things,
one: CDSes created a false sense of security for the ultimate owners of the CDOs, or was it a false sense?
maybe they are the real winners here after all?
in any case? the CDSes allowed investors to take risk they would not nromally take, maybe we can say it encouraged them?
two: the new bankruptcy laws surely had some impact on lenders willingness to lend moeny to less qualified people..
It's not surprising to me that the creators had minimal exposure. When you create something, you are usually ahead of the curve, just as the person that starts a pyramid scheme has minimal exposure.
AIG got crushed because they only played one side of it, therefore increasing their risk and exposure.
IMO, it was false from the beginning. It was engineered in a way that precluded transparency and it also was nothing more than taking an Exacta wager at the track and turning it into a Quinella. You still need to pick the top to spots but you have the added value of them placing in either spot. The odds are still against you but a bit more platable.
I doubt we will ever know who the true winners are because the system seems to have been set up in a way that you only know the losers. Yes it encouraged risk taking, it almost made you feel like a fool if you didn't take the risk, similar once again to a pyramid scheme.
Yes the new BK laws did because you couldn't just wipe out the debt but you have to pay out immediately on a default yet it could and probably would take years upon years to recoupe that initial lay out. There in lies the rub.
Posts: 3255 | From: Los Angeles California | Registered: Jan 2006
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quote:Originally posted by glassman: it almost made you feel like a fool if you didn't take the risk, similar once again to a pyramid scheme.
peer pressure on adults? i thought that ended with high school
it looks like Madoff didn't even tak th risk, he just kept the money
LOL, if only that were the case. Sometimes I think peer pressure gets worse for some. The whole keeping up with the Joneses mentality.
He never thought he'd have to pay it out, just like someone booking a bet they think is bad. Works as long as the bet fails but kills you if you have to pay out.
Posts: 3255 | From: Los Angeles California | Registered: Jan 2006
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posted
Just a little side note here. Glass, I want to thank you for getting me to dig deeper and to think critically. I knew nothing of the CDO's and CDS's prior to you bringing it up. You peaked my interest and got me to do some research. Still a long way to go but I'm getting there.
Posts: 3255 | From: Los Angeles California | Registered: Jan 2006
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quote:Originally posted by wallymac: Just a little side note here. Glass, I want to thank you for getting me to dig deeper and to think critically. I knew nothing of the CDO's and CDS's prior to you bringing it up. You peaked my interest and got me to do some research. Still a long way to go but I'm getting there.
that is the main goal of off-topics.
The Socratic Method (or Method of Elenchus or Socratic Debate), named after the Classical Greek philosopher Socrates, is a form of philosophical inquiry in which the questioner explores the implications of others' positions, to stimulate rational thinking and illuminate ideas.[1] This dialectical method often involves an oppositional discussion in which the defense of one point of view is pitted against another; one participant may lead another to contradict himself in some way, strengthening the inquirer's own point.
some people lose track of the reason for the argument, and argue simply for arguments sake, but i hope most people really do get riled up enough to actually do some diggin' on their own, even if they don't share what they loin.
when i first came to stock bulletin boars? it seemd like most people were just looking for what was hot with no concern over why it was good play or a bad play...
there is something to that method tho as long as you don't get emotioanlly attached to your stock.
the internet is better than having the Library of Congress in your living room... (less dusting )
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posted
I agree. No matter how sure one is of their point of view, you have to remain open to the possibility that you are wrong. Therefore you need to dig deeper to support your position or refute the other position. This is where true knowledge comes from. Otherwise it is nothing than an unsupported theory.
This is IMO, is where our elected officials go wrong. They revert to positions instead of doing further research and being open to what they may find even if it may prove them wrong. Being wrong is human. Learning from it and going forward with that new knowledge is what advances the world as a people.
Posts: 3255 | From: Los Angeles California | Registered: Jan 2006
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posted
"there is something to that method tho as long as you don't get emotioanlly attached to your stock."
If we could learn to get emotion out of not only stocks but other areas such as politics, we would be much better off.
Posts: 3255 | From: Los Angeles California | Registered: Jan 2006
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posted
GE Bozo posts: "two: the new bankruptcy laws surely had some impact on lenders willingness to lend moeny to less qualified people.."
How/what is your interpretation there? The whole point, as I recall, was to stop peeps from simply walking away from credit-card debt...
by the way, I disagree with Beedgie's "conspiracy" angle...more later. As you know, I'm vitally interested in the CDS "conspiracy." You've seen the quote from the book I mentioned, something to the effect that they [are] "the most complicated financial instrument ever devised...if you diagram them, they look like something ready to explode."
Anyway, what's your take on the BK laws...making it easier?
posted
here's an article talking about those changes, enacted in 2005, are forcing more troubled borrowers to walk away from their homes—even those who didn't take on risky mortgages in the first place. And that's bad news for lenders, which suffer financially every time they have to take a troubled property on their books.
Before the new rules kicked in, many consumers could find debt relief—and keep their homes—by filing for bankruptcy protection. Now the process is much more onerous
posted
here's one from the Federal Reserve Bank of New York Staff Reports... Is it just coincidence that the surge in subprime foreclosures that has rocked financial markets came right after the bankruptcy reform in 2005 (Chart 1)? Is that surge just about falling home prices, bad mortgage decisions, and weak economic conditions? No and no. Indeed, we would be surprised if the answers were otherwise. Bankruptcy is about protection, after all, and foreclosure is what mortgagors most want to protect against. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the first overhaul of U.S. personal bankruptcy law in over a quarter century, made filing bankruptcy much less protective and much more expensive. How could that not matter? Our specific argument is that the bankruptcy abuse reform (BAR) contributed to the surge in subprime foreclosures by shifting risk from credit card lenders to mortgage lenders
posted
i remeber when this fisrt started happening, Cramer was telling peopl to pay their credit cards and not their mortgage...
i put up a post about it...
it shocked me to think that people would do that..
getting a house foreclosed on you pretty much garantees you'll be renting for along long time IMO... i could be wrong about that but i would be surprised if you can get a homeloan within 7 or ten years without a HUGE down payemnt if you have a forelcosure on your record.
if it were me? and i had choices? it beleive i'd rather have payed my mortgage and and kept my house
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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quote:Originally posted by glassman: i remeber when this fisrt started happening, Cramer was telling peopl to pay their credit cards and not their mortgage...
i put up a post about it...
it shocked me to think that people would do that..
getting a house foreclosed on you pretty much garantees you'll be renting for along long time IMO... i could be wrong about that but i would be surprised if you can get a homeloan within 7 or ten years without a HUGE down payemnt if you have a forelcosure on your record.
if it were me? and i had choices? it beleive i'd rather have payed my mortgage and and kept my house
sure--secured vs unsecured...that's why the credit-card lobby hit the 2005 bk act so hard: college kids were walking off and judges were telling the cc companies: You took a business risk by marketing to an unstable demographic.
posted
Nothing has changed with the bankruptcy laws for low income people (including students). The bankruptcy reforms primarily affect people with significant money and assets.
The idiots at the credit card companies have not changed their practice of marketing to low income people. I got a call from one of my Section 8 tenants a few days ago. She was very upset because she was served legal papers and didn't understand what they said. She asked me to stop by and look at them for her.
She was being sued for $1,300 dollars by the idiots at Capital One. They sent her a credit card offer about a year ago. Then, they raised her interest rate and started charging her late fees when she couldn't make the payments. Now, they're spending money suing her.
She is on Section 8. She has no house, no car, nothing that could be sold that would be of any value (not even a big screen tv). She hasn't had a job in decades and has no ambition of ever getting a job.
I told her that in my opinion they couldn't possible collect even one penny from her, but that she should call legal aid to get a lawyer's opinion. They told her the same thing.
This is one of the reasons the banks and credit card companies are failing. THEY'RE IDIOTS IN THE EXTREME! This woman is not now nor was she ever credit worthy. Despite that OBVIOUS fact, they gave her a credit card. Once she defaulted (which was a certainty) they decided to spend hundreds of dollars suing her even though it is IMPOSSIBLE that they can collect. MORONS!
On a related note, I have two business lines of credit with Bank of America (another bank that is failing). I received two letters the other day saying that my check cashing privileges for these lines of credit were being suspended because I have other open lines. DUH! I have absolutely perfect credit with NEVER a missed payment and not a single derogatory item. My credit score is nearly 800. They should be BEGGING ME TO BORROW MONEY (even though I won't be borrowing any more money).
So, the credit card company's solution to their financial woes is to give a credit card to those that aren't credit worthy and to insult their best customers. NO WONDER THEY'RE FAILING! Why are YOU (WE, the taxpayers) bailing out these morons?
LET THEM FAIL!
Posts: 1577 | From: Ohio | Registered: Oct 2007
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posted
Why are YOU (WE, the taxpayers) bailing out these morons?
i know people question the "legitimacy" of the concept of too big to fail...
lemme 'splain what it really means.
if it fails? the govt will fail to be able to live up to it's financial obligatons to the depositors.
you may not have deposits there. but small locals like YOUR BANK may have deposits there (it is garanteed all small banks have deposits at some larger banks) and the small banks will then fail on you too..
i thought everybody understood this last fall.
the great depression had no bailouts.
this is why i was so angry back in the 90's when they repealed Glass-Stegal.
the buttheads siad we are too sophisticated todya to allow "that" to happen again
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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