A question for you Liberals.Follow

Hippies.

No-one actually likes you.

Not for those who profit off them.

You just need to blame it all on the "business cycle".

I blame ThiefX. If he were in charge this never would have happened, but he was too lazy to run for office.


Edited, Dec 15th 2009 2:52am by Turin

You Conservatives.

You foreigners.

I love these threads that include the words "you Liberals" in the title. It's like putting up a big giant neon sign advertising all-you-can-eat lulz.

There's always Nancy Pelosi!

Spending more than you earn is always the cause of economic problems.

Edited, Dec 15th 2009 8:22am by paulsol

I blame it on the sunshine, I blame it on moonlight, I blame it on the good times...

Banks and Wall St. Not the Republicans. Not the Democrats. Here's why:

Let me make an analogy. Say you set up a system of lucky dip. Each time you buy a ticket, you have one chance to pull out three things. The things will either be a car worth $10,000, or a microwave worth $100. So for each ticket you buy, you might get three cars, or two cars and a microwave, or one car and two microwaves, or three microwaves.

What do you think each ticket should be worth buying and selling for? It's a bit tricky, isn't it? The buyer would be stupid to pay $30,000. After all s/he might get 3 microwaves. And the seller would be stupid to sell each ticket for $300. After all, they might have to hand over 3 cars for that. In cases like these, people trust the credit ratings agencies to make an independent assessment, and tell people what statistically speaking, something is probably worth.

In this analogy, If you were just going to directly sell a car, the credit ratings agency would slap a AAA [*] on it, and buyers would hand over $10,000, knowing they were getting what they paid for. If you were just going to directly sell a microwave, the credit ratings agency would slap a C [**] on it, and the buyer wouldn't cough up more than $100, because they knew it was low in value.

Now to our lucky dip. In this case, the credit ratings agencies (CRA) ought to have put a medium to low rating on each ticket. Perhaps the tickets were worth about $1,000 each. Because there was a good chance you'd end up with one, two, or three microwaves. But maybe you'd get a car. so $1,000 is fair. But instead, in an incredibly morally dubious decision, the credit ratings agencies put a high rating on each lucky dip ticket. Such a high rating, that people paid $20,000-$30,000 for each ticket. The high rating gave the illusion that people could expect to receive at least two or three cars from each ticket.

In effect our lucky dip is a con job in which banks and investment companies offload microwaves to unsuspecting investors at car prices, with the collusion of CRAs. The buyers buy the microwaves at car prices, because the microwaves are disguised by being put into blind batches with cars and turned into tickets. When the buyers buy the tickets, they make their decision by the rating on the ticket to tell them what the ticket is worth, without knowing actually what the ticket really IS or what it contains.

Now to the real world. Turn the cars into AAA (prime) home loans, which banks and investors often buy from each other at high prices. Turn the microwaves into C rated (subprime) home loans, which banks and investors often buy from each other at very very low prices. The mortgage market in the USA was fairly deregulated, and the banks and investment companies came up with these Mortgage Backed Securities (lucky dip tickets). Investors wouldn't have bought batches of C rated (subprime) mortgages for much money. But because the C rated mortgages were invisibly cut up and mixed in with AAA rated mortgages, and then the RESULTANT MIX was rated at AAA, instead of at some B level, at which they were really worth, hundreds of thousands of investors paid way too much money for something. As time went along, it turned out their asset (thier MBS) wasn't worth the amount of money they paid for it. So their money went *POOF*. Lots of people's money went *POOF*. Banks' monies went *POOF*. Disaster.

Now, the fact that this con job was pulled with subprime mortgages has NOTHING to do with the people who took out these subprime mortgages in the first place. It even has nothing to do with particular unethical sales-people on commission who push-sold these subprime mortgages onto uneducated customers who couldn't read reams of fine print and didn't know that the interest rate of the mortgage was going to jump drastically after the first couple of years. Although I do despise those particular occurrences where they happened. It also has nothing to do with people who knowingly entered into mortgages that they couldn't afford, or people who thought they could afford mortgages who later failed to be responsible with their money.

Subprime mortgages are taken out, and as long as every investor can SEE that what they are buying is a subprime mortgage loan, then they will be bought and sold at the right low price, for the high risk of default on it, and nothing is going to go much wrong.

Mortgage backed securities are a form of Collatorized Debt Obligation - CDO. This con job could have been pulled with any form of CDO. Maybe one involving Black (high grade) coal mixed in with Brown (low grade) coal. Maybe one involving investments existing in a first world country mixed in with investments existing in a third world country going through a coup and a civil war. CDOs and MBSs don't have to be a con job, as long as they are rated correctly, and sold to investors who are sophisticated enough to know what kind of esoteric thing they are investing in.

We had the economic meltdown not because subprime mortgages exist, and were defaulted on, but because banks and Wall Street pulled a fast one, mixing low grade investments with high grade investments and selling them all off at high grade prices.

The fact that the MBS's in America could be unethically manipulated by greedy sellers in the way they were argues that there wasn't enough, or the right, regulation in the American financial sector. Sadly, no-one, not governments, and not private industry, seems to be able to see ahead to what is going to cause the next financial disaster. And whatever regulation goes in, people are going to want as much creative accounting possible to maximise their own returns. As usual, all one can do is diversify, diversify, diversify.


*Aaa Moody judges obligations rated Aaa to be the highest quality,[1] with the "smallest degree of risk".
**C Moody judges obligations rated C as "the lowest rated class of bonds and are typically in default,"[1] and "potential recovery values are low".

You breeders.

Yes, God damn them and their regulated banking industry!