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BOYCOTT THE TOO BIG TO FAILS!
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isobars



Joined: 12 Dec 1999
Posts: 13292

PostPosted: Tue Jan 05, 2010 3:19 pm    Post subject: Reply with quote

I think, based on strong opinions from scores of sources, that the main reason banks won't loan money is because what little they know about future legislation, regulation, and interest rates is bad and the great deal they do not know looks worse. They, like all businesses large and small and many of us, know their taxes and legislated expenses and existing loan defaults will increase significantly, and fear they may even soar. Why would they want to loan money out, especially under renewed pressure to make more shaky loans, when their operating costs may go through the roof? Hundreds of banks -- maybe including some of the very largest and possibly the FDIC itself according to the FDIC -- are expected to fail this year. And what was one of the reasons so many already failed? Historically low cash reserves. They, unlike our administration, learned from that.

Mike
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mrgybe



Joined: 01 Jul 2008
Posts: 2447

PostPosted: Thu Jan 07, 2010 12:00 pm    Post subject: Reply with quote

I infer that there has been little traffic on this topic because most informed readers know that isobars is essentially correct. The banks handed out money like drunken sailors for years........they did so partly due to pressure from Congress to make loans to low income customers, partly because they had the security blanket of Fannie Mae/ Freddie Mac and a variety of insurance products they believed would insulate them from risk, and partly due to greed for easy profits that ran roughshod over proper risk management. It would be easy to blame Bush, but this started well before he took office....there is plenty of blame to go around here.

The banks are now acting like reformed smokers..........the pendulum has swung from one extreme to the other. To be fair, part of that reluctance to lend is due to uncertainty about future regulation including solvency margins.....and there is an alarming deja vu about the administration's current pressure to lower underwriting standards in order to get more loans out the door. However, in my view, a not insignificant part of the equation may be that some banks have made repayments of the TARP funding their number one priority in order to get out from under executive compensation constraints. They are strengthening their balance sheets by borrowing money incredibly cheaply and making handsome returns on very low risk loans and high rates on credit card balances.........thus positioning themselves to make TARP repayments. This may not sit well with the theorists but the harsh reality is that personal gain is what motivates most of us. That doesn't make bankers evil......just human, however flawed that may be.
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boggsman1



Joined: 24 Jun 2002
Posts: 3328
Location: at a computer

PostPosted: Thu Jan 07, 2010 12:17 pm    Post subject: Reply with quote

mrgybe wrote:
I infer that there has been little traffic on this topic because most informed readers know that isobars is essentially correct. The banks handed out money like drunken sailors for years........they did so partly due to pressure from Congress to make loans to low income customers, partly because they had the security blanket of Fannie Mae/ Freddie Mac and a variety of insurance products they believed would insulate them from risk, and partly due to greed for easy profits that ran roughshod over proper risk management. It would be easy to blame Bush, but this started well before he took office....there is plenty of blame to go around here.

The banks are now acting like reformed smokers..........the pendulum has swung from one extreme to the other. To be fair, part of that reluctance to lend is due to uncertainty about future regulation including solvency margins.....and there is an alarming deja vu about the administration's current pressure to lower underwriting standards in order to get more loans out the door. However, in my view, a not insignificant part of the equation may be that some banks have made repayments of the TARP funding their number one priority in order to get out from under executive compensation constraints. They are strengthening their balance sheets by borrowing money incredibly cheaply and making handsome returns on very low risk loans and high rates on credit card balances.........thus positioning themselves to make TARP repayments. This may not sit well with the theorists but the harsh reality is that personal gain is what motivates most of us. That doesn't make bankers evil......just human, however flawed that may be.

Spot On. However, ISO 's rant is based on the potential of an upcoming burden from Washington , which is not part of the equation. Ive also noticed that Right Leaning people, of which I assume you are, always point to the pressure from washington to force the banks to make loans to bad borrowers. This pressure has existed since the 1970's, and yet it took unitl 2006-2007 until the Titanic capsized. Regualtion from the FED on the types of loans being peddled could have prevented the whole mess, along with OTC regulation of CDS market, and levergae constraints.
Boggsman
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mac



Joined: 07 Mar 1999
Posts: 4654

PostPosted: Thu Jan 07, 2010 1:30 pm    Post subject: Reply with quote

Bankers and their politicians lobbied hard for a release from restrictions to allow them to make bad loans. Remember, it was Texas Republican Phil Gramm who wrote the legislation repealing most forms of regulation of banks. (He also wrote the energy deregulation legislation that resulted in Enron and immense damage to California on the energy front. Is there a pattern?) Sub-prime loans went up by more than an order of magnitude. Why? As the bankers said then, they don't make money with low risk loans, they make money with risky loans. Sub-prime real estate loans and credit car debt. And why would they do this? First, they tried to shed the loans with the "innovation" (Ponzi scheme) of securitizing them in tranches. Then, they got bailed out. So we've socialized the down side of high risk banking, but not the upside.

Bitch bitch bitch about socialism, but nobody wants to do the research to figure out what actually happened. Who made money, who represented them as lobbyists, and who got screwed.

Then comes Limbaugh and crew to blame it on Democrats and Fannie Mae. True that they joined the party, but after the punch (koolaid?) was almost gone. Another Limbecile story.
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mrgybe



Joined: 01 Jul 2008
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PostPosted: Thu Jan 07, 2010 1:53 pm    Post subject: Reply with quote

boggsman1 wrote:
Spot On. However, ISO 's rant is based on the potential of an upcoming burden from Washington , which is not part of the equation. Ive also noticed that Right Leaning people, of which I assume you are, always point to the pressure from washington to force the banks to make loans to bad borrowers. This pressure has existed since the 1970's, and yet it took unitl 2006-2007 until the Titanic capsized. Regualtion from the FED on the types of loans being peddled could have prevented the whole mess, along with OTC regulation of CDS market, and levergae constraints.
Boggsman


I respectfully disagree the potential burden from Washington is not part of the equation. This is not just a question of more burdensome administration......mere form filling........rather, there is considerable potential for increased capital ratios to enable banks to pass the govt. "stress test". That would require increased reserves acquired through greater retention of profits or through raising capital in the market place. While that uncertainty exists, banks will be cautious.

I agree with you that the govt. pressure to make loans to risky borrowers has existed for decades.........and greater oversight COULD have helped to mitigate the problem (would depend upon the quality of the regulation and the field regulators). However, these loan portfolios didn't suddenly take on Titanic like characteristics in 2006/7..........it was a problem that had been building for years. What really bought it to a head was the 2007/8 FASB requirement that certain assets be marked to market. That resulted in banks taking massive write downs on mortgage backed securities. Undoubtedly there were "toxic" assets in those mortgage portfolios and the sins of many years were revealed in a very short period.......but the thinness of the market exaggerated the problem. It is no coincidence that the recent easing of the FASB requirements preceded the apparent improved financial condition of many banks. I completely agree that more oversight is desirable........the problem is that the regulators can't keep pace with the "leading edge" markets. To be blunt, the whiz kids on Wall street are just smarter than the govt. auditors sent out to check on them. There will have to be a paradigm shift to rein in these whiz kids or their narrow breadth of experience, combined with profit hungry management, will get us into trouble again.
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boggsman1



Joined: 24 Jun 2002
Posts: 3328
Location: at a computer

PostPosted: Thu Jan 07, 2010 2:56 pm    Post subject: Reply with quote

mrgybe wrote:
boggsman1 wrote:
Spot On. However, ISO 's rant is based on the potential of an upcoming burden from Washington , which is not part of the equation. Ive also noticed that Right Leaning people, of which I assume you are, always point to the pressure from washington to force the banks to make loans to bad borrowers. This pressure has existed since the 1970's, and yet it took unitl 2006-2007 until the Titanic capsized. Regualtion from the FED on the types of loans being peddled could have prevented the whole mess, along with OTC regulation of CDS market, and levergae constraints.
Boggsman


I respectfully disagree the potential burden from Washington is not part of the equation. This is not just a question of more burdensome administration......mere form filling........rather, there is considerable potential for increased capital ratios to enable banks to pass the govt. "stress test". That would require increased reserves acquired through greater retention of profits or through raising capital in the market place. While that uncertainty exists, banks will be cautious.

I agree with you that the govt. pressure to make loans to risky borrowers has existed for decades.........and greater oversight COULD have helped to mitigate the problem (would depend upon the quality of the regulation and the field regulators). However, these loan portfolios didn't suddenly take on Titanic like characteristics in 2006/7..........it was a problem that had been building for years. What really bought it to a head was the 2007/8 FASB requirement that certain assets be marked to market. That resulted in banks taking massive write downs on mortgage backed securities. Undoubtedly there were "toxic" assets in those mortgage portfolios and the sins of many years were revealed in a very short period.......but the thinness of the market exaggerated the problem. It is no coincidence that the recent easing of the FASB requirements preceded the apparent improved financial condition of many banks. I completely agree that more oversight is desirable........the problem is that the regulators can't keep pace with the "leading edge" markets. To be blunt, the whiz kids on Wall street are just smarter than the govt. auditors sent out to check on them. There will have to be a paradigm shift to rein in these whiz kids or their narrow breadth of experience, combined with profit hungry management, will get us into trouble again.

I disagree with your assessment of the charactgerisitcs of the 2006-2007 Vintage RMBS . All of the earlier defaulters in the Hedge Fund space were ones overweight 2006 Vintage, which was the lowest quality underwriting year in RMBS histroy. Average FICO, %of ZERO down mortgages, %Neg AM, %IO, all records. The Characterisitcs DID change, I saw it , I lived it. The FASB change is a quick blame but it is something that was going to happen eventually. I also think that increased cap requirements are a good thing, the writedowns have a long long way to go.
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mrgybe



Joined: 01 Jul 2008
Posts: 2447

PostPosted: Thu Jan 07, 2010 4:37 pm    Post subject: Reply with quote

boggsman1 wrote:
I disagree with your assessment of the charactgerisitcs of the 2006-2007 Vintage RMBS . All of the earlier defaulters in the Hedge Fund space were ones overweight 2006 Vintage, which was the lowest quality underwriting year in RMBS histroy. Average FICO, %of ZERO down mortgages, %Neg AM, %IO, all records. The Characterisitcs DID change, I saw it , I lived it. The FASB change is a quick blame but it is something that was going to happen eventually. I also think that increased cap requirements are a good thing, the writedowns have a long long way to go.


We'll have to agree to disagree. The 2006/7 period may indeed have exhibited the worst of lending practices that had degenerated over decades, but it is far from the whole story......and there may well be merit in increased capital requirements.......I'm not close enough to know with any authority........but my point was that the threat of those requirements is causing banks to be ultra conservative.
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isobars



Joined: 12 Dec 1999
Posts: 13292

PostPosted: Thu Jan 07, 2010 5:44 pm    Post subject: Reply with quote

tradewinds wrote:
"existing loan defaults will increase significantly" (isobars)--- whose fault is that!?

they're scared of future legislation? uh- what about the old fasion way of earning an honest dollar by making loans that made sense!?

there's just so many things wrong with big banks I don't have time to cover it all...

what operating costs going through the roof? hogwash! smoke screen!

anyway- my main beef is with the way they conducted themselves over the last 8 yrs. - Micky Mouse could do a better job. It wasn't even about doing a good or bad job anyway- it was about honesty- and there was none.


First and foremost and ultimately, it is the responsibility of the borrower to take out a loan he can pay off regardless of foreseeable circumstances. You and I both see many people why buy asinine homes just because "IWANNIT" and they can get an ARM that doesn't even cover the interest for the first year or three. A local single BARMAID with young kids recently lost her home because she couldn't make the payments. THE HOME COST SEVERAL HUNDRED THOUSAND FREAKING DOLLARS. (For reference, my 2,600 sq.ft. 4 BR/3B vaulted ceiling glass-walled home on 1.3 heavily landscaped acres cost $165,000 at about the same time she bought hers.) A guy on the national news was POd about losing his 7-figure mansion because -- and the NBC or ABC anchor didn't even notice this -- HE WASN'T WILLING TO DIP INTO HIS INVESTMENTS TO MAKE HIS PAYMENTS. MANY, maybe most, of these borrowers, from my buds to across the nation, took out mortgages worth several years of income with payments hitting several thousand a month once the ARM kicks in.

The banks initially balked at making such stupid loans, but caved under three forces (among others):
1. Pressure from Clinton and Bush to Just Do It.
2. They knew derivatives would collect and hide their malfeasance and pass the risk on to the next guy.
3. People like Dodd and Frank sleeping at the switch (plus Dodd sucking off the real estate tit).

"What [increasing] operating costs" in small businesses? I assume that's a joke, given the long list of specified and yet-unspecified new taxes, fines, and levies they face under this administration. Businesses are scared shitless of this administration, according to countless sources from my M&A inside source to numerous global monarchs.

Mike \m/
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mac



Joined: 07 Mar 1999
Posts: 4654

PostPosted: Fri Jan 08, 2010 11:25 am    Post subject: Reply with quote

MrGybe--as they say, you are entitled to your own opinion, but not your own set of facts. The Glass-Steagall Act was repealed during the Clinton Administration, but was dramatically weakened in administrative interpretations by the Federal Reserve Board during Bush I. The three major architects of the repeal were Sandy Weill of Travelers, Treasury Secretary Robert Rubin, who then went to Citigroup, and Senator Phil Gramm. Weill ended up with the signing pen; he was the king of sub prime mortgages. See this history if you want to learn from past mistakes: http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html

A little bit of research--in this case Wikipedia, shows that in response to this loosening of requirements, sub-prime loans went from a $35 billion business in 1994 to a $600 billion business in 2006. While it was not the only bad banking practice, Sandy Weill's intent was to stimulate this business. As long as "creative" (I would say dishonest) bankers can make money on the transaction, and get out from under the risk, this can and probably will happen again.

You are sort of right that the whiz kids on Wall Street are working hard to stay ahead of the regulators. But remember, Bush appointed the head of the SEC, whose world view was to get out of the way and let businesses make money. Warning signs about the looming subprime mortgage crisis, and Madoff's scam, were partly ignored, and partly squelched by political appointees.
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boggsman1



Joined: 24 Jun 2002
Posts: 3328
Location: at a computer

PostPosted: Fri Jan 08, 2010 12:03 pm    Post subject: Reply with quote

The banks initially balked at making such stupid loans, but caved under three forces (among others):
1. Pressure from Clinton and Bush to Just Do It.
2. They knew derivatives would collect and hide their malfeasance and pass the risk on to the next guy.
3. People like Dodd and Frank sleeping at the switch (plus Dodd sucking off the real estate tit).
These ISO quotes are crazy. Dodd and Frank were in the minority in Congress from 1994-2001(jeffords defection), then again form 2003-2007 . I work for the strongest bank in the WORLD, and I can assure you the pressure to do stupid things from GOVT line is total hogwash. Do banks go the extra mile to lend to HUD applicants, and less fortunate people? yes. But the majority of the crappy underwriting was coming from the New Centuries, and Long Beach Financials, Golden West's of the world in regards to the crazy loans being created.
In regards to ISO's 165,000 house, wow, maybe I should move up the Third World Nation, better known as the Tri-Cities.
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