Mortgage Meltdown

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Until recently I was an underwriter for a sub-prime mortgage company that is about to close. It seems that most media outlets and government officials fain ignorance about the real underlying cause of the problem. There is either a tendency to blame the borrower or act as though no one in the industry {or outside of it} saw this coming. They fail to mention that those who gained the most financially got off scot free while leaving the mess behind for everyone else to clean up. In my former company, the sales managers and loan officers "held the keys to the safe" while deciding which guidelines to ignore sometimes going so far as to bribe fellow underwriters to "look the other way". Sales managers often overrode an underwriter's decision they did not agree with. Other times fellow underwriters would be threatened with their job for "impeding company growth and progress" just because they refused to go along with the flagrant disregard of guidelines . I complained to the sales managers about the bribing but all I got was a formal write-up for making "inappropriate comments".

There was absolutely no support from the owner of the company all the way to the human resource representative. This company is as corrupt as they come. I can't tell you the number of sexual affairs that occurred between married and unmarried people; primarily among the management staff {at the workplace itself}. Promotions were strictly political thus moving people "up the ladder" who never proved themselves worthy or were on a final written warning to be terminated {for poor performance}. As a result of the corrupt management of this company, I and several hundred others were laid off. I believe the federal government needs to investigate this company and bring to trial those corrupt individuals who broke the law. This would set an example for the rest of the mortgage industry that absolute corruption corrupts absolutely.

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Darth War-dodger is as corrupt as they come so I can see no help coming. Also this mess was created as a result of the military expenditures in Iraq. To hide the huge deficit the Federal Reserve has maintained low interest rate that created an artificial bubble in the real estate market.

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JOE:

I thought I was the only soul who felt that way. I spent but few short years in the Banking Business, at two different banks (just to test if my judgement on the first bank was an exception).

Banks are competitive, they compete for the money, they compete for the loans, they compete for the customers. The more competition there is, the more pressure there is to "give the loan".

As a lender I could make all the loans I wanted, but loans I rejected, had to be reviewed by a "senior" before final rejection. I was overridden many a time, despite my objections. Many of these loans become "problems", said problems are passed off to the "Collections" Dept.

A lender was not thought of badly if his "portfolio of loans" started going bad, but God help the collector who did not keep his "outstandings" to less than one percent! Passing the buck on responsibility......the American Way!

I had to leave the Business, in disgust.

It's everyone's fault, really. Americans borrow to afford all the goodies that life can offer them. American's debt to earnings ratios would scare the bejesus out of a banker from but 30 years ago. Now...... let 'er fly, make the loan, consolidate your overextended credit card debt on a second mortgage. Do it again, take out a third.......

Part and parcel of childrens' upbringing at home and at school should be a strong dose of financial responsibility. Good idea! But where would these children find an example to follow in today's society?

Halfback

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But where would these children find an example to follow in today's society?
Wait for the response.
I presume before my death

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Oh no Rama. After it.

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RAMA:

It was a rhetorical question. There is no example, not from our spendthrift Government all the way down to mom and dad we're-going-to-give-our-kids-everything.

As for those happy souls who declare bankruptcy? They get off the hook, OK, but WE end up paying for it. (You didn't really think the lenders were going to bite the loss? It is passed on to the next borrower, factored into the cost of doing business, i.e. interest rates on loans.)

Halfback

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talk72000 wrote:

Darth War-dodger is as corrupt as they come so I can see no help coming. Also this mess was created as a result of the military expenditures in Iraq. To hide the huge deficit the Federal Reserve has maintained low interest rate that created an artificial bubble in the real estate market.

Please do explain how the military spending in Iraq caused people to become qualified for loans that their income didn't support years prior to the war ever starting...

In case you hadn't been paying attention the real estate bubble has been on-going for the better part of 15 years now.

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The real estate during Clinton era were genuine real estate booms as the economy was great and people were making a lot of money. With Darth War_dodger it was the reverse as the deficit grew from tax breaks to the rich and the expensive war. Darth War-dodger used the real estate to soften the impact of the deficit and impending recession if interest rates were raised to bring funds to the treasury. With the huge expenditure on the war and no government income as taxes from the rich were slashed there can only be inflation if the interest rates are kept low. The value of the dollar goes down. simple economics.

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talk72000 wrote:

The real estate during Clinton era were genuine real estate booms as the economy was great and people were making a lot of money. With Darth War_dodger it was the reverse as the deficit grew from tax breaks to the rich and the expensive war. Darth War-dodger used the real estate to soften the impact of the deficit and impending recession if interest rates were raised to bring funds to the treasury. With the huge expenditure on the war and no government income as taxes from the rich were slashed there can only be inflation if the interest rates are kept low. The value of the dollar goes down. simple economics.

Sentence by sentence:

1) I assume that means they were getting "rich"? (That reviled class of people?)

2) Deficits normally grow as wars go on. My feelings on the war is noted elsewhere negatively. It was my impression that everyone got a tax break. I got one, I'm hardly "rich".

3) DW dodger (Bush?) used the real estate to soften the deficit.... HUH? I point out that interest rates (as managed by the FED) have been going up for a number of years now...... recent drop of 1/2% exception. Interest rate raises do not bring funds into the Treasury, in fact it raises the cost of selling US Treasuries (IOUs).

4) There's that "rich" cut again. (I have always found it interesting that most Americans desire to be rich, yet revile those who actually "make it".)

5) Aside from the usual "simple economics" that cause inflation, one of the severest causes at this particular moment in time is the severe trade imbalance we have, particularly with China. Oh, and the OPECs.

6) Simple international economics.

Halfback

P.S. Sad fact of life (varies a couple of percentage points plus or minus), the top 20% of earners pay 80% of Income taxes. (IRS Reports)

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George Bush I introduced Free Trade so the international trade deficits comes to both Bushes.

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talk72000 wrote:

The real estate during Clinton era were genuine real estate booms as the economy was great and people were making a lot of money.

And the people buying many of those over-priced houses were getting adjustable rate mortgages that they never should have been qualified for - the original point of this thread. Your claims of a "geniuine boom" are contrived. The Real Etstate and investnment managers here in Boston had been warning of a real estate bubble collapse since 1997. Everyone in the game knew that houses were selling at artificcailly high prices.

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With Darth War_dodger it was the reverse as the deficit grew from tax breaks to the rich and the expensive war. Darth War-dodger used the real estate to soften the impact of the deficit and impending recession if interest rates were raised to bring funds to the treasury.
With the huge expenditure on the war and no government income as taxes from the rich were slashed there can only be inflation if the interest rates are kept low. The value of the dollar goes down. simple economics.

You negelect to mention that a lot of those people that were buying houses during the Clinton years were doing so based on numbers from their stock portolio which many of them lost in 2000 as well as the thousands of job layoffs that started happening in 2000/2001.

Your tiottured view isn't "simple economics". It's simple minded. If there can only be inflation if interest rates are kept low then where is the inflation? Thiufsar inflation has averaged 2.76% annually during Bush's tenure with the highest year in 2000 (at 3.32% - before any tax cuts or war spending). That seems to fly directly in the face of your "simple economics". Don't let things like those pesky little facts get in the way of your ignorant rants though!

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Free Trade is good (in a general sense) but deficit free trade has the following effects, particularly if a country with a high standard of living has a severe trade imbalance with a country that has a lower standard of living:

1) The richer country's currency weakens against the poorer country's.

2) The exchange rate change causes inflation in the richer country overall, but specifically in the imports from the poorer country.

3) The richer country has it's currency overseas. This currency can be used to purchase from the country of origin, used to buy from another country (leaving it still overseas) or can be held in IOUs (Typically in "Treasury Bills" i.e. National Debt). Meanwhile, the interest on those IOUs MUST be serviced, wherever they are, as part of the National Budget.

4) Eventually, things hit a Supply/Demand equalibrium. Higher prices for the imports lessens demand. The standard of living of the poorer country rises to meet the deterioration of the richer country's standard of living. The currencies of the two countries eventually reaches equalibrium, as does the trade levels and everyone lives happily ever after.

That is how it is supposed to work, all other things being equal. This, of course, begs a couple of questions:

1) How far down does the US standard of living for a population of 300 million have to go to significantly effect a decent rise in a country of 1.2 billion?

2) What if that rise in the living standard is controlled by a centralized economic policy to the extent that the "theorized equalibrium" point is never reached? As in China.

3) What if the exporters fix their countrys' currency in relation to the importer's currency? (Saudi Arabia, for one)

4) What if a group of exporters attempt to "fix prices" of their product through production quotas? (OPEC)

5) What if a poorer trading partner cannot or will not import from the richer country, thereby perpetuating the trade imbalance? (China)

6) What if a country holding US IOUs prefers to use those IOUs to purchase US assets (Companies, Ports, Real Estate) rather than manufactors, food and the like? Remember assets produce cash flow which goes to the owning country.

7) What if a country holding a vast amount of our IOUs decides to dump their holdings on the open market all at once? Remember these "IOUs" are traded world wide like a commodoty on the world markets.

Lots of what ifs. The theory was based on a free market and a level playing field. We try to play be the rules, others do not. It is our loss in the long run.

Halfback

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Quote:

7) What if a country holding a vast amount of our IOUs decides to dump their holdings on the open market all at once? Remember these "IOUs" are traded world wide like a commodoty on the world markets.

That country would take rather large losses in trying to dump their holdings. I would guess there would be lots of investors and other countries stepping up to pick up US treasuries at bargain prices. Treasuries are traded every day. Like a stock or other commodity when someone dumps a large quantity it drives the price down temporarily as supply overruns demand but a floor is quickly reached where investors see it for a good deal.

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Effects of a weak dollar:

1) It is inflationary, as the price of commodities will rise. Thereby reducing demand for said commodities in the general population. This is particularly felt in regards to prices of imports.

2) It will encourage the growth of "home grown" industry (in the long run) when it begins to become less expensive (in dollars) to produce something in the US rather than overseas and import it.

3) It will encourage other countries to purchase US goods, commodities at relatively bargain prices vis-a-vis the exchange rate on the weak dollar.

4) These are wonderful things for the country on the surface. Once must remember, however, that the 54,000 median income in the US (IRS stat for family unit) will not go nearly as far as it did in the days of a stronger dollar.

5) Our standard of living will have, de facto, been reduced..... in accordance with international trade theory in my last post.

Halfback

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Parados: You are correct, overall. Yet further sales of Treasuries in a weak market necessitates a higher interest rate to "make it a good buy", this, in turn, feeds "service on the National Debt".

Treasury Bills mature. Typically they are replaced with the sale of new Treasury Bills. If the market pressure is such that we have to increase the interest rate to make them attractive as a buy....... we loose.

Halfback

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Quote:

That is how it is supposed to work, all other things being equal. This, of course, begs a couple of questions:

1) How far down does the US standard of living for a population of 300 million have to go to significantly effect a decent rise in a country of 1.2 billion?

A meaningless question. It assumes the trade is between only the two countries and assumes that NOTHING but trade affects the standard of living. That is complete nonsense.

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2) What if that rise in the living standard is controlled by a centralized economic policy to the extent that the "theorized equalibrium" point is never reached? As in China.

The "theorized equalibrium" is nonsense since there is not valid theory stating such. But we do have the luxury of history to look at what happens when a centralized economic policy tries to control the standard of living, the strikes in Poland, glasnost, etc. Eventually the system will have to use force to continue to control economic policy to that extent or it will collapse. I would say it is much easier to control an agrarian economy that way than it is a manufacturing one. As Chinese abandon their farms and move to the cities in large numbers the Chinese economy is already moving more toward free market.

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3) What if the exporters fix their countrys' currency in relation to the importer's currency? (Saudi Arabia, for one)

China did that until 2005. There are some problems in pegging a currency to a single other currency. One being that it makes trading more difficult with any other countries. You have to remember that the EU is almost as large a trading partner as the US in most parts of the world.

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4) What if a group of exporters attempt to "fix prices" of their product through production quotas? (OPEC)

Sometimes it works and sometimes it doesn't. OPEC is about 40% of the world's oil production. If they reduce their production they lose market share. It's not like the other countries are restricted from increasing production.

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5) What if a poorer trading partner cannot or will not import from the richer country, thereby perpetuating the trade imbalance? (China)

Again, we have an historical example. Japan.
Eventually Japan maxed out its exports and it's economy began to stagnate.

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6) What if a country holding US IOUs prefers to use those IOUs to purchase US assets (Companies, Ports, Real Estate) rather than manufactors, food and the like? Remember assets produce cash flow which goes to the owning country.

Japan did that in the 80s. They bought a lot of US real estate. They drove up US commercial real estate prices because they were the ones buying it. Once the Japanese drove up the prices to buy it they were stuck with overpriced real estate. Markets are funny that way. If you pay more to purchase something then you can get out of it over time, you lose money.

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Halfback wrote:

Parados: You are correct, overall. Yet further sales of Treasuries in a weak market necessitates a higher interest rate to "make it a good buy", this, in turn, feeds "service on the National Debt".

Treasury Bills mature. Typically they are replaced with the sale of new Treasury Bills. If the market pressure is such that we have to increase the interest rate to make them attractive as a buy....... we loose.

Halfback

Yes if weak market is sustained. But if ONE country dumps its treasuries that is NOT a sustained down market. It is a one time event. The one time event is easily mitigated by the FED buying the treasuries needed for borrowing during that period. There are other mechanisms as well that could come into play that would affect the markets, adjustment of the fed fund rates, tax rate changes etc.

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fishin:

You expect me to believe anything put out by the War_dodger Administration? Remember 'The Iraqis will greet us with flowers!' 'Saddam has WMDs!' 'Mission Accomplished!' 'Bring it on (but not to me personally)!' But the invasion of Iraq had not yet started to affect the economy for the early years of War_dodger's Administration.

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There was the 'dot com' bubble that affected the real estate market but it was it was either Alan Greenspan's fault or financial investors looking for the next
big thing and gambling on the 'dot coms'. A whole lot of 'dot com' millionaires and billionaires bought expensive houses in Silicon Valley as well as in Boston area as there is high tech area in the Boston area with MIT, Harvard, Raytheon, Digital Computer Company and so on.

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talk72000 wrote:

fishin:

You expect me to believe anything put out by the War_dodger Administration? Remember 'The Iraqis will greet us with flowers!' 'Saddam has WMDs!' 'Mission Accomplished!' 'Bring it on (but not to me personally)!' But the invasion of Iraq had not yet started to affect the economy for the early years of War_dodger's Administration.

lmao At this point what you do or don't believe is irrelevant. You've shown just how out of touch you are with any sort of reality at all. Go take your meds and get to bed before the nurses come by for thei next set of rounds. You might want to wipe that froth off your mouth too!

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