US bail out for banks

George

I hope you are keeping well.

I am also convinced after watching the debacle of the American governing system that some of their legislators also need to pass an IQ test. The standard of debate was unworthy of a bunch of 12 year olds. No wonder they failed to agree.

Regards

Mick

Dear Mick,

Keeping very well, and hope you are as well.

I think we are living in a strange world where news and entertainement media, politics, and the general standard of behaviour are declining at at such a rate as to beggar belief.

Unfortunately the UK and the USA are right at the front of this decline. We had better watch out as the Chinese are going to strole all over us in the next twenty years, economically and culturally as there is no strength or determination left in the general population as a whole.

Individuals yes, but as a whole...? Live today and let the Devil take the hindmost with prudence in the face of a wish for personal pleasure now. Apathy rules to an alarming degree in reality in more important issues. A sort of don't care, won't get involved attitude that pervades all classes and is poisoning the prospects we might potentially have had in fast changing times. There is no sign of any will to adapt and take the chances that come apart from a tiny minority ghastly money speculators on the financial markets, or so it seems!

ATB from George

Well, i think the fat cats have had it off rotten the last ten years and have f..... up. They now expect people who have just about survived in the process to their means to bail them out,(because it was obvious)they failed the SO CALLED IQ TEST in the first place.
Lets see what they do (preferably on one knee), when yet again they get their own way.

Steve

Steve

The American bankers were not stupid, in fact they acted very cleverly. They persuaded lots of dumb Americans to take out sub prime mortgages that no one with a grain of common sense would even consider. They borrowed more than the house was worth, there were built in percentage increases over time and severe penalty clauses included. It was impossible for them to repay the mortgage. Why did these stupid people not read the contract, to describe them as dumb is an insult to the dumb.

The American bankers, sold the mortgages and made their profit and then sold the debts onto the rest of the world. That was the clever part. Those are the sort of people I would like to have working for me.

No one was forced to borrow, but the dumbos did and they are the ones we should be stringing up.

Regards

Mick

Possibly a mistake was to think that because communism had "lost" then capitalism had won and the best thing to do was dose it with steroids and let it roam the streets.

Good to have you back and spouting guff, Mick. Some of the clever clogs seem to failed to pass the package on and now have the pleasure of finding out what a "no recourse" loan leaves you holding when the bubble bursts.

I do agree with one thing - anyone taking out a loan they cannot afford to repay (AND at reasonably predictable future rates) will and should live with the consequences of their folly.

quote:

Originally posted by Mick Parry:
No one was forced to borrow, but the dumbos did and they are the ones we should be stringing up.
Mick

So you don't think that people who have a low IQ should be protected? I bet the marketing to these people did not mention the bad things and the people who took out these mortgages trusted the people when they said "you can afford them".

Not everyone is as intelligent as you also when people are desperate they will grab at a bundle of straw not seeing the knife within.

quote:

The American bankers, sold the mortgages and made their profit and then sold the debts onto the rest of the world. That was the clever part. Those are the sort of people I would like to have working for me.

So you approve of taking advantage of the intellectually disadvantaged and the desperate, how far do you go? How about a person with Alzheimer's - well they forgot that loan they signed so get them to take out another, and another etc. Just because someone is stupid does not mean you should take advantage of them.

You forget the underlying human cost of "the clever part" also not that clever as many of these companies are going to the wall. HBOS, B&B etc. And that's just the UK.

If the type of person that you would like to work for you are the type that take advantage of the disadvantaged I would not wish to do business with your company and would avoid like the plague.

The greed was equal on both sides. One side saw "fair" profits, the other side saw fulfillment of their entitlement. Anyone with mutual funds is complicit - we all enjoyed the "upside".

Spouting guff is a nice way of saying b.s. It doesn't conceal the self-avowed character of the spouter. Have a seat next to the piano player.

Jeff A

quote:

Originally posted by Mick Parry:
The American bankers, sold the mortgages and made their profit and then sold the debts onto the rest of the world. That was the clever part. Those are the sort of people I would like to have working for me.
Mick

Mick,

I wonder if you would like to have all the failed American banks and investement houses (and those who are on the verge of failure) working for you. How about the Lehman Brothers? They were leveraged only by a factor of 30 (in other words, they had 1$ in assets for every 30$ of exposure).

The simple fact is that greed and huge profits blinded the brightest minds on Wall Street who completely disregarded the risks of offering such loans which were surely due to fail in the case of the housing market reversing course.
On top of that, it seems that even today those MBAs & PHDs bankers are still having severe difficulties in understanding how their complicated investment products work an in measuring their current value.

It looks to me like both sides, lenders and loaners acted in complete foolishness by assuming financial obligations and risks way beyong their means.

Loathing one side and admiring the other just does not make any sense.

Haim

A return to the days of strict rules about deposits and income-to-loan ratios perhaps were not such a bad thing?

At least these helped to limit market madness and soaring house prices. It also protected the people Mick describes from the sharks.

I also find it funny that Northern Rock is having to turn away the very people that could of saved it!

Also with oil at $95 a barrel why are we being stitched up for £1.10+ per litre? A drop in fuel costs, along with a full 1% off the base rate would help everybody.

Jono

I work in financial services, on a much smaller scale to that being discussed here of course.

Absolutely agree 'fault' is spread around a number of parties and sectors.

Tricky with non financially aware types though.

I'd say that that maybe 10% of my customers over the last 21 years are financially aware (otherwise, why come to me?). Many, many are simply not bright. Can I/should I send them away because I don't think they fully understand what they're doing and the consequences if it goes wrong? I can (and do), but I have to tread carefully and be very, very sure of my ground as otherwise it opens a whole new can of worms. And frankly, I will give them a different reason for not doing business with them if I can avoid telling them the real reason. However, I can't simply say that "I don't think you should take a mortgage/other financial product because you're not very bright and therefore I'm not doing it for you" (I sometimes wish I could) 'cos then I'd get done for some kind of discrimination/not treating customers fairly offence...Equally, including right now, many people are doing a number of things they shouldn't, solely on the back of hysterical panic. Despite my advice to the contrary.

That said I'm not sure we should legislate to protect the dumb, there's perhaps too much of that already. We should of course educate people to be more financially aware but plain and simply, most can't be bothered and prefer to continue to lack any rudimentary levels of common sense. And that extends accross many levels, even some of the bond traders I saw in a series of Vox Pops the other day struck me as suffering an accute lack of perception...

quote:

Originally posted by JamieWednesday:
... non financially aware types though.

I'm one of those sad hicks.

Back way back I could never get ma head around them endowment mortgages. I could see what was happening with a repayment mortgage but the endowment thing - all seemed a little too darned clever for my poor ole brain.

Same with "leveraging" - seemed like you had to be mighty clever to understand why this wasn't just making something out of nothing.

Guess I'm just the dumb one now.

quote:

Originally posted by JamieWednesday:

quote:

Also with oil at $95 a barrel why are we being stitched up for £1.10+ per litre?

Because the media is covering a different story...


A drop in fuel costs, along with a full 1% off the base rate would help everybody.


Wait a bit...

I think we (?) could be onto something with the return of "Mandy" to the cabinet.

Jono

Jamie

The problem appears to be that America has hundreds of thousands of dumbos who are unfit to take charge of their own finances. Whether they are thick or unintelligent is immaterial, the point is that these people are free to roam the streets and create worldwide havock.

This mess was created by America and should be cleared up by America and we need to see some action to ensure that this sort of thing is never repeated again.

The $700bn arrangement is a quick fix which hopefully will solve this particular problem, what I find worrying is that it could all happen again because these idiots will be free to sign up again in a few years time.

Regards

Mick

it is not the people who are defaulting that are to blame but the people who aggregated and transformed these loan cashflows into alternative financial instruments that are to blame. They incorrectly assessed the credit risk, miscalculated the earnings and drove the demand for more product. This was the global capital Market and not just some poor, dumb American. You issue a mortgage, assess the default risk and hold appropriate capital. If you miscalculate the credit risk or lose sight of it when repackaging the risk then you are not holding appropriate capital for the risk you bear. In this instance the "smart" global community both ignored and miscalculated the credit risk.

Yes, people over extended but they were encouraged by cheap rates that should not have been offered as they were really only a means for the global community to have sufficient new volume of repackaged cashflows.

Surely, the bigger question is whether any of the global banking community repay bonuses paid on the basis of fictitious earnings? The dumbos are losing their houses.

quote:

Originally Surely, the bigger question is whether any of the global banking community repay bonuses paid on the basis of fictitious earnings? The dumbos are losing their houses.

Excellent point, Huw.

I was going to say that the bankers with all their sophisticated training and tools (such as computer models, risk analysis, statistics and charts) were the real dummies, not realizing the risky bubble which they were creating, but then you reminded me of the tens and hundreds of millions that those crooks walked away with...

quote:

Originally posted by Huwge:

Surely, the bigger question is whether any of the global banking community repay bonuses paid on the basis of fictitious earnings? The dumbos are losing their houses.

Was it not the case that the rescue of BearSterns (sp?) was designed such that the just-paid bonuses didnt have to be repaid?

I don't agree that the purchaser should shoulder all the responsibility for the current crisis. In my own industry (airlines) I think it reasonable for the provider (the airline) to ensure a safe and reliable operation. It is not for the passenger to understand whether the plane has been adequately maintained, the crews properly trained etc etc. I firmly believe that the responsibility for ensuring loans were sensible and realistic is the responsibility of the banks and their regulatory framework.

It is this function that the bankers failed to perform, motivated by their bonuses and a totally inadequate legislative framework.

Before I commit one penny of my taxes to bailing out the banks I want to see the billions of pounds of bonuses paid to financial whizzkids over the past ten years used to shore up the system first. An acquaintance of mine at Goldman Sachs was moaning about his 'paltry; £600 000 bonus just the other week, such earnings are ludicrous in the extreme and it's about time the whole gravy train stopped - it's insane and morally indefensible.

Jonathan

Jonathan,
I think it is fairer to say that the execution of the legislative guidelines was incompetent, rather than the legislation inadequate. The financial instruments that were created and that drove this crisis lacked any transparency and both the rating agency and regulatory communities were remiss in discharging their duties. The rating agencies are paid by the company that they rate for their rating, so did not want to bite the hand that fed them. The regulators were complacent and perhaps did not want to reveal that they did not understand the business they were supposed to be supervising -the "smart" guys work for the banks because they pay significantly higher salaries and then there are those bonuses.
Huw

quote:

Originally posted by Mick Parry:
No one was forced to borrow, but the dumbos did and they are the ones we should be stringing up.

Regards

Mick

Yes but the Clinton Administration pretty much forced the banks to lend.


FANNIE MAE EASES CREDIT TO AID MORTGAGE LENDING

By STEVEN A. HOLMES

Published in the New York Times on September 30, 1999.

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.