BOYCOTT THE TOO BIG TO FAILS!

[boggsman1]

Capping compensation was a brilliant idea. It incentivized the banks to repay the borrowed GOVT $$ ASAP, which they did. Now sit back and watch the Wall Street bonus machine over the next few weeks, and remember, it couldnt have happened without you, the taxpayer, thank you!
BTW- the overall subprime mkt is about $700B , about 5 or 6 percent of total mortgage mkt. HOWEVER, in 2006 subprime origination was 30% of overall mkt. I didnt need to go to Wikipedia to get this data, it sits on my desktop at work.

[mac]

Incentivized yes, and the true indictment of the "invisible hand" is the structure that would have rewarded massive failure with massive bonuses. But boggsman, what is your opinion of where to go now? While you are right that the subprime business was small in the overall scheme of things, it was huge in the real estate bubble, and went from a tiny business ($35 billion) to a huge business ($700 billion for about 3 years, or $2 trillion, with fraudulent credit ratings in the tranching of what were, in retrospect, very high risk loans.)

Zach Carter, hardly an unbiased source, traces the roots of the repeal of the Glass-Steagall act back to John Dugan and his publication of the Green Book, or "Modernizing the Financial System: Recommendations for Safer, More Competitive Banks." Reform of Glass Steagall was due--what should it have been? And Carter pegs the government commitment at $17 trillion. Is he right? How much of that will come back? And what are the other sectors that brought the Federal risk so high? In response to mrgybe's line of reasoning, was the encouragement of risk taking dramatically increased by the Gramm et all bill, or was it already established by weakening of regulation?

It is clear that if the total exposure of the financial system was anything approaching $17 trillion, it cannot be laid at the doorstep of either imprudent consumers, as Isobars would have it, or at the door of Fannie and Freddie, with their exposure of about $200 billion. What now?

[boggsman1]

We are at a very difficult crossroads. The total GOVT backstop is massive, Im not sure what the figure is, but the US is basically guaranteeing that the system wont collapse, and I dont know how we get out of it. Phil Graham was a MASSIVE influence of where we are today. I watched him and SEC chair Art Levitt debate for an hour the idea of neutral parties, elected by GOVT on corporate boards in 1994. The voracity and power of his not wanting ANY GOVT participation in private sector finance is stunning.
Back to today, I think that the system will change big time. There should only be two or three mortgage choices, just like Germany. 15, 30 yr fixed, and a straight adjustable with 35% down. This little rule would have prevented the collapse of the entire system. It would have kept Wall Street out of the securitization game, and it would have kept bad borrowers out of the market. The Sub Prime market would have never materialized, and HUD loans would have been scarce. The transition back to more normal times is going to be painful, but I dont think Glass Steagal comes back, even though I think it would be a good idea.
Nobody knows how we will return the system to normal, but I guarntee we will pay for it, it was a twenty five year credit party!

[boggsman1]

Mac... let me be clear about the size of Subprime. It is $700B. That is the total of loans outstanding, as rated by the underwriter during orgination, or refi. Total Mortgage mkt is 12TR. If you want to read great analysis of the markets, going forward, read Chris Whalen.
Boggsman

[boggsman1]

Mac... let me be clear about the size of Subprime. It is $700B. That is the total of loans outstanding, as rated by the underwriter during orgination, or refi. Total Mortgage mkt is 12TR. If you want to read great analysis of the markets, going forward, read Chris Whalen.
Boggsman

[mac]

I don't dispute that the size of the subprime debt now is $700 billion. But the data I read when I researched this in some detail about 16 months ago showed that the sub-prime take down amounted to about 600-700 billion a year for the 3 boom years, which is where I got the $2 trillion number. Does that mean that the loans were paid off, or written off? I wouldn't dispute the conclusion that now, after the markets did not collapse completely, they are no longer a grave threat. There's a hell of a lot of debt out there.

[boggsman1]

Mac....go read Greatest Trade Ever by Greg Zuckerman, a WSJ reporter. Your blood will boil. The insanity that was taking place from 2003-2007 will never be repeated in US history. The primary weapon of mass destruction , the Credit Default Swap, is described in great detail, and its use to destroy the financial system , and force a $185B bailout of one company AIG , is detailed. Remember the average Mortgage Backed Security only packed 5-8% of subprime garbagio, thus allowing the genius over at Ambac and MBIA to rate it AAA.

[mac]

Thanks, I will. Usually money bores me, but theft is intriguing.

[theq]

During a Yahoo Techtalk interview, economist Simon Johnson made another good point. He said that the bankers' bonuses make no sense, in part due to the elimination of the mark-to-market rules at the beginning of our present crisis. If the actual impairment to the bottom line was still tied to the value of a company's assets, and various mortgages and mortgage securities adjusted to real-world value, performance bonuses would disappear. At the very least, stockholders' equity is totally inflated. I believe that this is what stockholders should be very concerned with.

It's like me, if I still owned a house that was worth say, $900K at the peak of the market, and today is worth $650K, and I had $100K in the bank, considering myself a millionaire. In the real world, I've got a ways to go.

Here's my take, and one that I posted on Techtalk's comment section yesterday. Remember the T-shirt that said: "I don't have a drinking problem. I drink, I get drunk, I fall down, ...no problem." ?

For American bankers, it's more like: "I drink, I get drunk, YOU fall down,...no problem." The whole thing's absurd. But what else is new?

[jpbassking]