Bankrupting America

[Spiffor]

Originally posted by Kidicious
Really? You think people don't know what variable rate means? Maybe in some cases ok, but you have to hold people accountable when they make and investment like that. It's the very minimum to know what variable rate means. And nobody new what the rate would be in the future. I think you are assuming that people know a lot more than they actually do. They had some idea, but it hardly a ponzi scheme to sell a house with a variable rate loan.

But Spiffor, the banks don't want to loan people money that they can't pay back. They lose when they do that. The banks haven't made out in this, far from it.

The banks haven't lost money because of defaults (they fully expected there would be defaults), but because those defaults happened en masse pretty much at the same time, AND their miracle recipe to turn subprime mortgage into a no-risk cash cow turned up to be not such a good idea after all.

No, this is just an example of the failings of capitalism, not of how evil bankers can be.

Bankers aren't evil: they strive for maximized profit, as any other capitalist. Conning poor households into accepting a no-future financial plan is part of the job. Just like fine print is part of the job of a health-insurance vendor.

I agree with that mostly. But I disagree that it's so easy to decide who to loan money too. It's very complicated.

It's not easy. But there are some obvious hints, which were the reason why so many households were barred from loans before the subprime craze. But once the "miracle recipe" was found, bankers forgot about their cautionary rules, and thought they could make more money by granting loans to those they'd normally not even contemplate lending to.

[Darius871]

Originally posted by Spiffor
Accepting any debt management with a variable rate is basically asking to be raped in the ass.

QFMFT I seriously want to *****-slap anybody too stupid to bargain for a fixed rate.

[Kidlicious]

Originally posted by Spiffor
The banks haven't lost money because of defaults (they fully expected there would be defaults), but because those defaults happened en masse pretty much at the same time, AND their miracle recipe to turn subprime mortgage into a no-risk cash cow turned up to be not such a good idea after all.

Again. Hindsight is 20/20. They took a risk and they lost. That's how capitalism works. Sometimes you lose.

[Spiffor]

Originally posted by Kidicious
Again. Hindsight is 20/20. They took a risk and they lost. That's how capitalism works. Sometimes you lose.

Risk isn't something inherent only to capitalism. It's inherent to any human venture or innovation, including Socialism, thank you very much.

However, an adviseable thing to do is to assess the risks. To be aware that you're taking a risk. A normal banker, before lending a high-risk loan, is aware, and takes the risk knowing possible consequences. A suprime-crazy banker believes there's no risk (since the risk of default, still very real, is offset by the miracle recipe beyond the scenes). Big difference.

I think it's a very common problem among Americans to confuse caution and timidity (at least, I witnessed it among many American posters here). Caution is not about being paralyzed by risk - it's about assessing the risk and take a reasonable course of action afterwards, be it enterprising or status-quo. Such caution would have been adviseable before the Iraq war, just like it would have been adviseable during the subprime craze. But hey, what could possibly have gone wrong?

[Kidlicious]

Originally posted by Spiffor
A suprime-crazy banker believes there's no risk (since the risk of default, still very real, is offset by the miracle recipe beyond the scenes). Big difference.

I don't believe that. Carefull deliberation was involved I'm sure. Do you think everyone who takes a risk and loses ingored the risk and everyone who took a risk and won considered it?

[Kidlicious]

Subprime Mortgage Crisis

Due to innovations in securitization, it was thought the risks related to the inability of homeowners to meet mortgage payments had been distributed broadly, with a series of consequential impacts.

[snoopy369]

That's Spiffor's point. The bankers thought the risk was adequately diffused such as to be no risk to them; they were very, very wrong.

[Kidlicious]

Originally posted by snoopy369
That's Spiffor's point. The bankers thought the risk was adequately diffused such as to be no risk to them; they were very, very wrong.

No. They thought the risk was tolerable, not that there was no risk. There is always a risk. Of course, people are wrong sometimes as you can't predict the future.

[Spiffor]

Originally posted by Kidicious
I don't believe that. Carefull deliberation was involved I'm sure. Do you think everyone who takes a risk and loses ingored the risk and everyone who took a risk and won considered it?

No, because many people who take risks are cautious about it, be they winners or losers. They assess the risk, and they know they can lose.

OTOH, some other people are just uncoscious. They can win if they're at the right place at the right time (and mortgage companies used to make tons of money while the good times rolled). But when they lose, they're utterly surprised, and go cry to mommy government for a bailout.

I can accept such behaviour from a poor family who has no other hope to cling to but the promises of some conman. I can accept such behaviour from old or overwhelmed people who can be easily abused.
I cannot accept such behaviour from the financial system, which behaved just as stupidly despite sporting thousands of extremely well paid financial analysts, who are supposed to be highly skilled in the topic. It's one thing to believe a hype when you're a customer - it's another one entirely when you're managing billions of dollars and paying throngs of people to provide analysis.

And them banks go crying to mommy government is really making me puke :vomit:

[Aeson]

Spiffor is correct about the risk scheme. These mortgages were "insured" by an agency, so theoretically the banks had no risk (other than the insurance premiums) and so were very liberal with who they would lend money too. Leverage up, and do it again.

Only of course, the insurance was next to worthless. But why worry about a small detail like that when you can get hundreds of millions in bonuses creating "insured" mortgage backed "assets"... and have your golden parachute ready for when the **** hits the fan?

[Kidlicious]

Originally posted by Spiffor

No, because many people who take risks are cautious about it, be they winners or losers. They assess the risk, and they know they can lose.

So you think bankers are not cautious, ok. Is there any reason to think that, beside the fact that they were wrong in their predictions of the economic future. How would you be different?

[Spiffor]

Originally posted by Kidicious
No. They thought the risk was tolerable, not that there was no risk. There is always a risk. Of course, people are wrong sometimes as you can't predict the future.

Subprime backed titles had excellent ratings. They were really considered as a miracle recipe.

Then the rating agencies (and the whole world) woke up and smelled the coffee.

[Kidlicious]

Originally posted by Aeson
Spiffor is correct about the risk scheme. These mortgages were "insured" by an agency, so theoretically the banks had no risk (other than the insurance premiums) and so were very liberal with who they would lend money too. Leverage up, and do it again.

Only of course, the insurance was next to worthless. But why worry about a small detail like that when you can get hundreds of millions in bonuses creating "insured" mortgage backed "assets"... and have your golden parachute ready for when the **** hits the fan?

There's something to be said for that, but all good and bad considered insurance is a good thing.

[Kidlicious]

Originally posted by Spiffor

Subprime backed titles had excellent ratings. They were really considered as a miracle recipe.

Then the rating agencies (and the whole world) woke up and smelled the coffee.

Yes, when people started defaulting on their loans.

[Aeson]

Originally posted by Kidicious
There's something to be said for that, but all good and bad considered insurance is a good thing.

Not when the insurers have less capital to back their guarantees than those who need the insurance.

It's patently obvious that a bank which doesn't have the capital requirements to cover the risk, can't just pass that risk off to another entity which has even less capital, and expect the risk to be covered.