Should the US Government subsidize homeownership even more?

[Naked Gents Rut]

I've already proved these things to Oerdin in the past. He's just too stupid to remember.

Well, to be fair, I never proved that the rating agencies weren't owned by institutions issuing MBS. I might have, but I never thought anyone would know so little about rating agencies that they would actually believe that.

edit: As a side note, I find it funny that a person who responds to my economic graphs and links to economic articles (some written by very prominent economists) with substance-less posts that deride me for being an "armchair economist" would have the gall to instruct me on proper debating practice.

[Velociryx]

I've already proved these things to Oerdin in the past. He's just too stupid to remember.

Well, to be fair, I never proved that the rating agencies weren't owned by institutions issuing MBS. I might have, but I never thought anyone would know so little about rating agencies that they would actually believe that.

edit: As a side note, I find it funny that a person who responds to my economic graphs and links to economic articles (some written by very prominent economists) with substance-less posts that deride me for being an "armchair economist" would have the gall to instruct me on proper debating practice.

Quite alright. I find it equally amusing that someone who vomits up graphs and pretends he knows what he's talking about would be upset by the (accurate, unless you are a professional economist--highly doubtful) title. And if you are, then you have my sincere apologies.

But by all means, carry on. I'm enjoying the discussion. It's just not very valuable to the crisis at hand.

-=Vel=-

[chequita guevara]

I should note that something Oerdin mentioned is key to this crisis. The amount of money available for investment is at the center of what caused the crisis. Globally, there was $35,000,000,000,000 available for investment. In 2001, we were just entering the dot com bust, and so you had this global pool of money (which was the largest ever in history) looking for a place to invest. Government securities are generally safe, but you don't get a lot of return. Enter the idea to start investing in American real estate. Well, by 2003, everyone in the U.S. who could qualify for a mortgage had one. But the demand from investors was still there, so they pushed mortgage origination companies to lower standards.

I want you to think on this for a moment.

The reason that there isn't enough money for available for investment today is because there was too much money available previously for investment. That is the inherent insanity of capitalism, when it produces too much, the system fumbles (or worse). That is why I'm a communist.

[Victor Galis]

So the real reason there was so little consumer inflation during the dot-com bubble was actually that all the money was going into investments? (That's what I'm getting from these posts.)

[Alinestra Covelia]

If the US government subsidizes yet more homos, I can totally see the religious right freaking out even more.

Needless to say, I approve.

[Dinner]

Oerdin, what would have been the objectives and the methods of MBS regulation? In brief.

1) Increase transparency. To make it fast and easy for buyers to know EXACTLY what is in the bundle (I.E. so much of above prime, so much prime, so much subpirme). There are some 40 different trenchons of mortgages "qualities" but the mix could very extremely widely and almost all of them would get rated investment quality AAA no matter what mix was actual used. Huge numbers of these MBS deliberately used obtuse language in order to hide the fact that large amounts of subprime loans were some how being declared AAA rated MBSs. Investors need more information so in the future they can identify the trash and avoid it.

2) The simply must be a fire wall between credit rating agencies and companies selling financial products; The repeal of the Glass-Steagal Act was one of the worst moves for the financial industry since 1929. We can't tolerate the conflict of interests which is inherent when the same corporation selling complex financial instruments is also rating them because the pressure to inflate credit ratings and thus make the corporation more money is to powerful. Keep them separate.

I'm sure there is more but those are the two major ones on the top of my head.

[Dinner]

I should note that something Oerdin mentioned is key to this crisis. The amount of money available for investment is at the center of what caused the crisis. Globally, there was $35,000,000,000,000 available for investment. In 2001, we were just entering the dot com bust, and so you had this global pool of money (which was the largest ever in history) looking for a place to invest. Government securities are generally safe, but you don't get a lot of return. Enter the idea to start investing in American real estate. Well, by 2003, everyone in the U.S. who could qualify for a mortgage had one. But the demand from investors was still there, so they pushed mortgage origination companies to lower standards.

I want you to think on this for a moment.

The reason that there isn't enough money for available for investment today is because there was too much money available previously for investment. That is the inherent insanity of capitalism, when it produces too much, the system fumbles (or worse). That is why I'm a communist.

In 2001 there was actually $35 trillion world wide in the really low risk investment capital rating (the stuff central bankers are looking for). The problem is after 9/11 countries around the world, especially the US, dramatically upped the rate they were printing money in order to increase liquidity and try to encourage growth. That meant that by the end of 2006 beginning of 2007 that $35 trillion amount of money had increased to $70 trillion. It took 200 some years to grow this pool up to $35 trillion but due to loose monetary policies it got to $70 trillion in just 5 years. That's a problem just like all over printing is a problem.

[Naked Gents Rut]

To make it fast and easy for buyers to know EXACTLY what is in the bundle (I.E. so much of above prime, so much prime, so much subpirme).

This information was already included in MBS prospectuses.

We can't tolerate the conflict of interests which is inherent when the same corporation selling complex financial instruments is also rating them

I agree that we can't tolerate this. That's why I'm relieved that it never happened.

[Dinner]

Still waiting for the link you have been unable to come up with for days now.

[Naked Gents Rut]

I'm not going to put any effort into disproving something as stupid as the idea that S&P, Moody's, and Fitch are owned by MBS originating firms. If you want to keep believing obviously false things, be my guest.

[Saras]

1) Increase transparency. To make it fast and easy for buyers to know EXACTLY what is in the bundle (I.E. so much of above prime, so much prime, so much subpirme). There are some 40 different trenchons of mortgages "qualities" but the mix could very extremely widely and almost all of them would get rated investment quality AAA no matter what mix was actual used. Huge numbers of these MBS deliberately used obtuse language in order to hide the fact that large amounts of subprime loans were some how being declared AAA rated MBSs. Investors need more information so in the future they can identify the trash and avoid it.

I believe that detailed disclosure was pretty much the case. The problem was using standard distribution derived from (later appeared) inadequate data. Basically they used bad math in estimating default probabilities, and badly underestimated them..

2) The simply must be a fire wall between credit rating agencies and companies selling financial products;

In what shape? Segregated bars in Manhattan?

The repeal of the Glass-Steagal Act was one of the worst moves for the financial industry since 1929. We can't tolerate the conflict of interests which is inherent when the same corporation selling complex financial instruments is also rating them because the pressure to inflate credit ratings and thus make the corporation more money is to powerful. Keep them separate.

Please read http://en.wikipedia.org/wiki/Glass-Steagall_Act.

FYI, Fitch is owned by Fimalac, in turned majority owned by a French guy and listed in Paris. S&P is owned by McGraw Hill, a listed publishing business. Moodys is listed and widely owned.

I'm sure there is more but those are the two major ones on the top of my head.

So your two major ones on the top of your head are misunderstandings. Next three please?

[chequita guevara]

nm

[Saras]

huh?

[Naked Gents Rut]

"nm" stands for "never mind."

[Saras]

yea but never mind what? Is that a form of bump?