The Unnanounced Class War

[cybercoma]

If you are stupid enough to buy a house thats 400k and you only make 50k per year, you deserve the bath that you take.

If you'er stupid enough not to have an armed guard protecting your home when you're away, with alarms and bars on the windows, then you deserve to be robbed.

Nah. Maybe it's the robber who's responsible.

[Bonam]

Bonam, you may know how to make an ion drive out of a wrist-watch and an aspirin, but you probably don't know what assets you have money invested in unless the only investments you have are stocks that you selected yourself.

Nobody walks into a bank and says "hi, I'd like to buy a CDO and an MBS, please!" If you're like me (and I suspect I'm pretty typical in this) you got to your bank once or twice a year and talk to your banker about your RRSP contributions, and you do a questionnaire to identify your investment objectives, and then based on that your banker gives you some recommendations that fit into general headings-- "steady growth", "aggressive growth", "diversified investments", and so on. And you're buying into a big pool of assets that will generate returns for you, and these assets are run by capable professionals who do the due diligence and research for you, because it's a full time job that most of us don't have the time or the knowledge to do competently.

I suspect that you are correct that this is typical, but it's also not very smart financially. A bank is there to make profit, that is its goal. It will allocate your funds and invest in things in order to best further its own ends, not yours. Remember how many cases there were of investment banks using client's cash to bail out their own failing investments? Further, it will charge you an absurdly high fee for the service. Studies have shown that simply going to a cheap online brokerage and investing in a broad ETF that tracks the market (such as the SPX and SPY ETFs that track the S&P500, etc) beats "managed investments" by bankers and mutual funds the overwhelming majority of the time.

I would argue that someone that wants to ensure their own financial future would do at least a little bit of research, and realize that investing through overpriced managed investment products that have negative value compared to simply tracking the market is a bad idea, and that they should be avoided like the plague.

And to answer your first sentence, yes, the only investments I have are stocks, ETFs, and options that I selected myself.

Edited January 30, 2013 by Bonam

[Bonam]

But you know who *is* screwed? The investment banks that are holding all of these CDOs and MBS products that, suddenly, nobody wants to buy from them. They've bought billions of dollars of mortgages from companies like Countrywide, and they've been planning to sell them to fund managers like Steve, but Steve no longer wants to buy those products because they're tanking. This is extremely bad for these banks. They have billions of dollars tied up in assets that are rapidly becoming *worthless*.

So what did they do? They got the government to buy these "Troubled Assets" from them.

Oh, I know. And it's a sad sad mistake that the government did that, instead of letting these businesses fail as they most definitely deserved to and should have.

[Canuckistani]

Oh, I know. And it's a sad sad mistake that the government did that, instead of letting these businesses fail as they most definitely deserved to and should have.

Allowing Lehman Bros to fail almost collapsed the economy. Credit dried up instantly and businesses that had nothing to do with Wall St were suddenly in trouble. GE couldn't pay it's workers, etc. What the US should have done is nationalize the banks, re-establish proper flow of credit then re-privatize the banks once they put in new regulations, including keeping any bank from being too big to fail.

[Canuckistani]

Allowing Lehman Bros to fail almost collapsed the economy. Credit dried up instantly and businesses that had nothing to do with Wall St were suddenly in trouble. GE couldn't pay it's workers, etc. What the US should have done is nationalize the banks, re-establish proper flow of credit then re-privatize the banks once they put in new regulations, including keeping any bank from being too big to fail. And keeping retail banks and commercial banks separate.

[cybercoma]

HSBC dodged any sort of punishment for its involvement in money laundering for terrorists and Mexican drug cartels because they're "too big to fail." When will government regulations bust up these "too big to fail" banks, so that market mechanisms can work properly to keep them in check?

[Canuckistani]

HSBC dodged any sort of punishment for its involvement in money laundering for terrorists and Mexican drug cartels because they're "too big to fail." When will government regulations bust up these "too big to fail" banks, so that market mechanisms can work properly to keep them in check?

When the finance industry stops being a major campaign contributor and stops having the ear of politicians. Or when hell freezes over, since that will come first.

[bush_cheney2004]

.... What the US should have done is nationalize the banks, re-establish proper flow of credit then re-privatize the banks once they put in new regulations, including keeping any bank from being too big to fail.

This is what the U.S. did do, if not in name, in practice. Even banks who wanted no part of TARP (e.g. Wells Fargo) were forced to participate, including subsequent "stress testing".

[GostHacked]

If you and argus are stupid enough to put money into investments without actively managing them, you deserve the bath that you take.

We also saw those investment companies repackage and resell it to another entity who then repackaged it and resold it to someone else. How are you to actively manage your investments when your hired investors already sold it to someone else? Do you know exactly what you are investing in when this stuff happens often? You may think you are paying into a specific investment when that investment has changed and you are not told about it.

Can you be sure you are investing in the right thing? I'll say no.

If you are stupid enough to buy a house thats 400k and you only make 50k per year, you deserve the bath that you take.

400k is not that big of a deal, if one can pay it off. Over 20 years a person could pay off that 400k house with only a 50K income. But that does not prevent my bank/investment company from selling my mortgage to someone else. The bank makes the profit on the sale of your mortgage to someone else and who ever bought it will lose if you cannot pay it off. Is that fair to the buyer? Because this is exactly what happened when these mortgages were sold off as a type of derivative.

Had there not been the huge demand for housing, these loans wouldn't be created in the first place, along with the government policy to bail out said banks.

If the banks practices were sound, they would not lend money to those who are high risk, and then they would not need a bailout.

HSBC (I think) was fined a few billion because of their deliberate manipulation of the housing market. It's a slap on the wrist to the bank because all those people who lost their homes are still in the same situation. The bank screwed them and still is up and running. Many of those people are out in the streets on their ass.

It's been well documented that bad gov't policy is part of the problem.

But yet the blame is still put on the homeowner.

The banks are going to create a way to make money no matter what rules are laid in place.

And yet the blame still is put on the homeowner.

The rules in the USA led the banks to do what they did, in Canada we have different rules that are basically an insurance on banks and up until now more responsible bank clients.

Our system can fall apart about as fast as it did in the USA. We might have some better banking regulations, but if we have spineless people in government then we cannot guarantee that this trend will continue.

Once again I blame EVERYBODY, banks, government, and mortgage clients. They were all pigs and got slaughtered.

Keep playing the blame game.

To me you seem to be putting the blame more on the individual investor instead of where the blame needs to be.

[Argus]

If you and argus are stupid enough to put money into investments without actively managing them, you deserve the bath that you take.

Am I a Wall Street financier?! I told my broker to buy me safe assets! He checked the prospectus from the bank and read what Moodies and Standard and Poors and the other ratings agencies had to say. They all said it was safe!

So I'm stupid for not knowing the banks and ratings agencies were lying? Even when the professionals didn't know it?

If you are stupid enough to buy a house thats 400k and you only make 50k per year, you deserve the bath that you take.

Everyone around me had been doing it for years! They bought a house, made minimal payments for a couple of years, then sold the house at a fifty percent profit! How was I supposed to know the industry was going to suffer the worst collapse in history when none of the economists or bankers or financial "experts" seemed to think that was going to happen? All I wanted to do was what everyone else was doing!

Had there not been the huge demand for housing, these loans wouldn't be created in the first place

Wow. Talk about ass backwards. What you should have said was "Had it not been for these incredibly generous, even ludicrously generous "loans" there wouldn't have been such a huge demand for housing."

Oh and if a hobo asks me for $20 I'm going to tell him to fuck off, unless hobo gives me 10$ down and his pants as collateral.

Why would you need collateral? Why would you CARE? The bank doesn't care. The bank will pay you for every one of those loans, no questions asked.

Once again I blame EVERYBODY, banks, government, and mortgage clients. They were all pigs and got slaughtered.

So you blame the poor schmoe who was just trying to buy a house, and you blame the big shot who lied through his teeth and sold these as investment grade instruments even while betting on the side they would fail?

How uh.... even handed of you.

Funny how the poor schmoe loses his house while the big shot without an once of integrity or ethics walks away with millions in pocket, smirking all the way...

[Argus]

Cry me a river. It's not hard to make a real estate decision, I make 50K a year and have 5K in the bank and the house is 400K, golly gee darn, looks like I'm renting.

What about the guy who CAN afford the loan? What about the guy does things carefully, and then finds out the following year that his new 400k house is only worth 200k now because the housing industry collapses?

Ordinary person needs to read a book, newspapers, and news stories on how the markets are doing and look into trends.

So ordinary person needs to know more about the housing industry than, say, the government and industry economists before he can buy a fucking bungalow? Is that what you're seriously suggesting?

[Argus]

If you would note, I was not talking about the purchasers of houses, but rather people investing in CDOs. People buying CDOs should indeed have done their due dilligence.

I'm not a financial expert. But I still need to be invested. So I look at how a stock performs, I look at the more obvious metrics like p/e, peg and earnings, and I check with the guys who ARE the supposed financial experts before buying. Which is what the guys who bought the CDOs did. Unfortunately, they were lied to by the sellers, lied to be the ratings agencies, and lied to be the 'experts'.

As for people buying homes, ordinary people buying a home don't need to conduct an "economic study into the housing industry", but they should make sure that their financial situation will be sustainable given possible swings in the housing market. They should not assume perpetual uninterrupted growth in the value of their home, but should realize that the value may dip at times, and be prepared for that eventuality.

When was the last time in history housing prices fell by 50-60% over the span of a year or two? What would you do if you arranged everything carefully, made a 20% down payment, then took out a loan to pay the bulk of a $400k house, then two years later found out it was now only worth $200k? But you still owed the bank $320k on the loan?

[Shady]

So you blame the poor schmoe who was just trying to buy a house, and you blame the big shot who lied through his teeth and sold these as investment grade instruments even while betting on the side they would fail?

No, he had it right. I blame people who lied about their income in order to receive mortgages they couldn't afford. I blame the mortgager, risking money to loan to somebody they knew was a risk, and I blame the government especially, for lowering lending standards, as a so-called effort to foster home ownership to people that wouldn't otherwise qualifty and meet the regular standards. Blame goes all around.

[bush_cheney2004]

Edited January 31, 2013 by bush_cheney2004

[bush_cheney2004]

No, he had it right. I blame people who lied about their income in order to receive mortgages they couldn't afford.

I agree...ultimately the responsibility for mortgage debt is the borrower's, regardless of sob stories about banksters or the economy. Prudent U.S. homeowners were not hocked up to their eyeballs and didn't use their homes as piggy banks.

[kimmy]

No, he had it right. I blame people who lied about their income in order to receive mortgages they couldn't afford.

How can you lie to the banks? They can access your financial history with a few phone calls. When you apply for a mortgage, you sign a clause giving them permission to run any checks they need to verify the information you've provided.

The reason that so many people were able to "lie to the banks" is that the banks *wanted* to be lied to. The "due diligence" the banks applied was a joke. One of the highlights of "The Untouchables" was interviews with due diligence contractors who were employed by banks to review mortgages they were buying from outfits like Countrywide. The due diligence contractors were flown in to a city, put in a hotel conference room to review box fulls of mortgage applications, and they'd work til late in the evening at it. They described a party atmosphere. And the supervisor would get a phone call the next day that said "we notice that you're rejecting quite a few applications. Please review these new guidelines and have another look at the applications you've rejected." And the next day he'd get another phone call that went "we notice you've still rejected some applications. Are you sure these applications don't meet our new guidelines?" And the next day the phone call would be "look, just approve the damned applications."

So one of the due diligence contractors gave this example where somebody started laughing and said "Hey, I've got one here from a waitress who says she's earning $12,000 a month!" and everybody laughs their asses off and the supervisor says "Sounds legit to me!" and that mortgage got approved. And a few minutes later somebody else would come up with a knee-slapper and they'd all laugh their asses off, and that mortgage got approved too.

They knew people were lying, and they were told to approve the mortgages anyway. Because if you've invented a way to spin straw into gold, you're gonna need a lot of straw.

I blame the mortgager, risking money to loan to somebody they knew was a risk,

What risk? It wasn't their money they were playing with! They invented a way to pass the risk on to other people.

and I blame the government especially, for lowering lending standards, as a so-called effort to foster home ownership to people that wouldn't otherwise qualifty and meet the regular standards.

State specifically where this happened.

Blame goes all around.

A guy lying on his mortgage application doesn't destroy the economy. Tens of thousands of guys lying on mortgage applications doesn't destroy the economy either, if the banks don't approve the mortgages. The banks approving crap mortgages in vast numbers is where the fault lies.

-k

[WIP]

How can you lie to the banks? They can access your financial history with a few phone calls. When you apply for a mortgage, you sign a clause giving them permission to run any checks they need to verify the information you've provided.

Right. They knew who was working and who wasn't, and they really didn't care either way because the money -- and I'm going on the basis that Countrywide was created by the Bank of America as an arm's length mortgager to clients they didn't want to deal with directly -- the money was ultimately created out of thin air like most of the money 'loaned' out by banks:

"When a bank makes a loan, it simply adds to the borrower's deposit account in the bank by the amount of the loan. The money is not taken from anyone else's deposit; it was not previously paid in to the bank by anyone. It's new money, created by the bank for the use of the borrower."

This is from chapter one of Web Of Debt, by Ellen Hodgson Brown, quoting a former U.S. Treasury Secretary - Robert B. Anderson, explaining how the modern banking system works in an interview with a reporter back in 1959.

The conservative simpletons are bamboozled by the propaganda from right wing apologists of the banks because they don't understand this core principle of how the fractional reserve banking system has been functioning for at least the last two centuries. It actually started clandestinely long ago, when everyone was supposed to be backing their coin and paper currencies with gold reserves. The whole system was a fraud, and has grown into a larger and larger fraud as the decades have gone by, because just like Bernie Madoff's celebrated ponzi scheme and so many others (anyone who lived in the Niagara Peninsula may recall Peter Fallon and the Falloncrest scam as our local example), as long as the economy keeps growing and new money is continuously being created, the ponzi banking scheme can keep on making new money and pretend that they are giving the borrower actual money that belongs to the bank or to depositers putting their savings in the bank.

When the economy stops growing, creating new money....like the U.S. is doing right now by having the Federal Reserve debt finance the empire and foreign wars, and having the Federal Reserve create new billions to buy worthless derivatives off of favoured banks to take them off the bank balance sheets, the economy starts to decline, unemployment rises, people start to default on those mortgages -- and properties are seized at bargain basement prices with mortgagers still owing for those liar loans till the end of time. So right from the start, the banks risk nothing and either get payed by re-selling the original mortgages to third parties, or getting payed back manyfold if the buyer spends the next 20 to 30 years making mortgage payments to the original banker. And if they default, the bank can seize real assets or sell the right to seize those assets to another third party. The bank wins every time regardless of what happens in the real world.

[TimG]

A guy lying on his mortgage application doesn't destroy the economy. Tens of thousands of guys lying on mortgage applications doesn't destroy the economy either, if the banks don't approve the mortgages. The banks approving crap mortgages in vast numbers is where the fault lies.

Your down playing the effect of non-recourse loans and mortgage interest deductability on consumer behavior. The former eliminates the consequences for the consumer for lying about their income. The latter encourages the consumer to load up on mortgage debt and delay paying it off.

The banking collapse was a system wide failure. People who think the entire fault rests with the banks and ignore the effect of government policies on consumer behavior are only looking for scapegoats rather than solutions that will prevent it from happening again.

Edited January 31, 2013 by TimG

[Argus]

No, he had it right. I blame people who lied about their income in order to receive mortgages they couldn't afford. I blame the mortgager, risking money to loan to somebody they knew was a risk, and I blame the government especially, for lowering lending standards, as a so-called effort to foster home ownership to people that wouldn't otherwise qualifty and meet the regular standards. Blame goes all around.

What about the people who didn't lie about their income at all? What about the people who didn't take risks with outlandish loans they couldn't afford? These are the majority who got hurt, you know.

Edited January 31, 2013 by Argus

[Argus]

del

[Argus]

The banking collapse was a system wide failure. People who think the entire fault rests with the banks and ignore the effect of government policies on consumer behavior are only looking for scapegoats rather than solutions that will prevent it from happening again.

And people who ignore the fact that the banks contribute large amounts of money to the politicians to get exactly the rules they want are the ones most likely to ensure there will be further such disasters.

[bush_cheney2004]

Right. They knew who was working and who wasn't, and they really didn't care either way because the money -- and I'm going on the basis that Countrywide was created by the Bank of America as an arm's length mortgager to clients they didn't want to deal with directly -- the money was ultimately created out of thin air like most of the money 'loaned' out by banks:

Why do you think Countrywide Financial was "created" by Bank of America ? What evidence do you have of this prior to BoA's purchase in 2008 ?

[Shady]

And people who ignore the fact that the banks contribute large amounts of money to the politicians to get exactly the rules they want are the ones most likely to ensure there will be further such disasters.

Banks didn't want to be forced to lend more money to higher risk people, so your premise is wrong. That's why they sought to get rid if such risk through fancy financial instruments and products. It was politicians that wanted banks to lend more to high risk people, and the distortion of the market was the unintended consequences of their good intentions of helping middle and lower income people. It's the type of policy your buddy Obama was a big supporter of. Luckily Harper isn't.

Edited January 31, 2013 by Shady

[blueblood]

What about the guy who CAN afford the loan? What about the guy does things carefully, and then finds out the following year that his new 400k house is only worth 200k now because the housing industry collapses?

So ordinary person needs to know more about the housing industry than, say, the government and industry economists before he can buy a fucking bungalow? Is that what you're seriously suggesting?

What about him? I look at a house as an expense, not an investment. That's buddy's first mistake. Does a house produce anything? I live in a tiny house built in the 1950s, why would I want to go blow money on a palace when I do t have to?

You cannot have a commodity that rises in perpetuity in a straight line, that's ridiculous and impossible. Every commodity has to correct in order for people to buy in and realize a profit. For every buyer there has to be a seller. At some point the price gets too high and people quit buying in.

Ordinary person should know that investing in a house that doesn't produce anything is a stupid idea. Ordinary person should know that commodities don't rise in perpetuity, an ordinary person should realize that if they make 50k per year that a 400k house is a bad idea. Heck even buying a 400k house at a 400k per year is preposterous.

[blueblood]

If you'er stupid enough not to have an armed guard protecting your home when you're away, with alarms and bars on the windows, then you deserve to be robbed.

Nah. Maybe it's the robber who's responsible.

Fail, going to the bank and asking for a loan you can't afford is like asking the robber to come in and rob your house.