Some clarity on the source of the current financial disaster.

  • Posted by a hidden member.
    Log in to view his profile

    Oct 08, 2008 1:55 PM GMT
    If you're truly interested, this is well written and clear.

    I await the Krauthammer column in which he points out the specific provision of the Community Reinvestment Act that forced Bear Stearns to run with an absurd leverage ratio of 33:1, that instructed Bear Stearns hedge-fund managers to blow up hundreds of millions of their clients money, and that required its septuagenarian CEO to play bridge while his company ran into trouble.
  • Posted by a hidden member.
    Log in to view his profile

    Oct 08, 2008 3:36 PM GMT
    Yes it is true, some people have "blamed" Latinos and Blacks for the housing crisis. It is all really spooky and sounds familiar in history:

    National crisis
    Find minority group to blame and scape goat while the real cause escapes
    Give more power to a central leader to control ..

    Minorities in that sense are the new "Gypsies" ..lame
  • Posted by a hidden member.
    Log in to view his profile

    Oct 08, 2008 3:46 PM GMT
    I read it. Mr. Krauthammer is intelligent and well spoken but sometimes goes over board trying to excuse the mistakes made by people with similar views to his (ie right-wing). Shoddy lending practices were part of the problem, but that was encouraged by easy credit (thank you Allan Greenspan), and let us face it, greed.

    The new financial derivatives that were poorly understood and improperly regulated, as well as the questionable ratings given by Standards & Poors and Moody's were also partially to blame. The reason why it has gotten so much worse is the high leverage that many banks around the world are allowed (e.g. in Europe the maximum ratio is 40:1).

    This is a link to Bloomberg.com which trys to explain how this mess came about.

    http://www.bloomberg.com/apps/news?pid=specialreport&srnum=2

  • Posted by a hidden member.
    Log in to view his profile

    Oct 08, 2008 4:40 PM GMT
    Next week, it's the Jews. Unless the homos get uppity.
  • Posted by a hidden member.
    Log in to view his profile

    Oct 08, 2008 5:02 PM GMT
    McGay saidNext week, it's the Jews. Unless the homos get uppity.


    You forgot Islam, Freemasons, Mormons, Atheists and Druids. icon_eek.gif
  • Posted by a hidden member.
    Log in to view his profile

    Oct 08, 2008 10:12 PM GMT
    All in good time.
  • EricLA

    Posts: 3461

    Oct 08, 2008 10:15 PM GMT
    Gee, I don't know about you, but after the bailout I feel like I need a good spa treatment -- mani, pedi, massage, the works. Talk about a happy ending...
  • SkyMiles

    Posts: 963

    Oct 08, 2008 10:16 PM GMT
    I had no idea poor people could be so POWERFUL -- single-handedly creating a global economic collapse!
    If I didn't know better, I'd say someone was trying to divert the blame from the real culprits.

    Nah icon_wink.gif
  • Posted by a hidden member.
    Log in to view his profile

    Oct 08, 2008 11:18 PM GMT
    Jimmy Cayne was a professional bridge player before he ever joined Bear Stearns. As a matter of fact, that's how he got his job, which is a long and silly story. The network of bridge players grew to the point where by the mid-80s, over 1/3 of all options traders on the AmEx and the CBOE got their jobs by having been involved in the bridge world.

    I know, I was one of them.

    I'm not sure he ever gave the company more attention than he gave his bridge career. And for the interested, he can be found almost every night, even now, playing on a live-time international bridge site called bridgebase.com.

    The nexus between the scruffy world of people who played cards for money and the people who traded options is a book someone one day will surely write. The characters are fascinating.
  • Posted by a hidden member.
    Log in to view his profile

    Oct 09, 2008 1:55 AM GMT

    As I have said before in RealJock forums I have been tremendously blessed in life. I would not venture to come to a definitive answer as to why we are in the current mess. In general, it is due to very poor business practices of all involved.

    I can tell you my experience. I sit on the board of directors of a bank that is now 120 years old. It's a small bank, but not much has changed in many many years. We are still making money. We make and hold mortgages. In other words we don't make a mortgage, package it into a debt obligation, then sell it off to someone who might package it in a derivative like those to be bought in the $700BB fix. Currently around 18,000 or so mortgages are outstanding. Of the value tied up in these, we have 2.8 times that in assets, not including deposits. So yes, we've made a good bit of money in those 120 years

    We are not thought well of by folks who can not place a 20% down payment. I won't get into the particulars of that because that's not my thing. But we are not like the mortgage originators who make 100% loans and then pass it off to a willing partner churning out derivatives.

    I am also in the construction business and span residential, commercial, and industrial. I can tell you the greatest .single threat to the economy has been the habits of those in development and construction who constanlty pushed values into the stratosphere with ever higher gross margins as high as 55%. They and folks who for instance were financing rental properties at 100% have defaulted at an amazing rate. Ergo WCI, with home I've done business.

    I would bet that 3% at most of the mortgages in minority communities have gone into foreclosure due to some illegal or illicit action by the owner. Some were due to the loss of anti-predatory lending laws like in Georgia when Republican Governor Sonny Purdue came in and wiped out such a law.

    We have moved in along with the FDIC and taken over four banks in the last three months. All of these banks were playing this game: Builder Joe comes in with a home plan and wants to borrow 70% (a 70% loan to value ratio) of the appraised value of the home defined by the plan. (Appraised based on location and materials used, etc.) The baker should get the appraisal, see what he'll loan, and then check Joe Builders ability to pay. Joe Builder must have verifiable income not dependent on the businesses core building operation (in other words he should have capital geneating income to service the debt) to service the debt even if the loan goes for years.

    This is not of course what happens. All builders who cut individual construction loans service the debt out of the draws received in the loan. If they can't sell the home, they run out of cash and hand the home back to the bank.