Subprime mess, blame, winners, losers?

I saw Bear Stearns blew up to funds that held subprime CDOs, holders will apparently lose ALL of their money.

Losers will be the folks who held that type debt. I think the funds at BS were called "high yield" something or other. Losers will be homeowners who bought more house than they could afford after the ARMs reset higher. I read about a particularly vicious form called an 'option ARM' where you didn't have to pay principle or all the interest owed; the interest you didn't pay was added to the loan balance until it reached 115% of the original loan, then you HAD to pay at least all the interest, then you went into default. Some apparently were banking on the house going up in value and selling the house at a profit and paying off the loan, but its not working as some of the houses have fallen in value, wiping out the down payment and maybe more.

I have some Fannie Mae and Freddie Macs, but I don't think I'm exposed to those things.

Where were Moody's, S&P as far as rating those things. I want to do some reading on this. Where were the banking regulators that let the banks loan money to the mortgage companies? How did Bear Stearns market the now imploded mutual fund to its customers? This looks worse than the S&L crisis in the 80's. I read that the ARM resets won't peak until the winter of 2008, so defaults will rise well into next year.

 

New Century Financial Winners:

http://www.topix.net/content/trb/2007/06/sub-prime-lender-new-century-ousts-ceo
So they averaged about $3 Mil. a year, and in 05 each added $13 Mil. in stock sales, for a neat take of $16 Mil each in 2005, while running the company in the ground.

For these type of business practices:

http://www.washingtonpost.com/wp-dyn/content/article/2007/05/06/AR2007050601402_pf.html

So the big Wall St. firms are going to sell these "mortgage backed securities" to their customers, but they really don't exactly want to know what's in them, they "looked the other way". Nice. Ma and Pa lose again. Now these are the same Wall St. firms that in the 1990's dot com boom, they were collecting huge fees from internet startups to underwrite their stock issues, put out great ratings on the stock, while guys like Henry Blodgett at Merrill Lynch were saying in emails to their buds not to buy the stocks because they were POS. Gotta hate em. That's what Elliot Spencer went after the biggest ones, and they settled rather than go to trial, for $1 Billion.

We gotta look at the Wall St. firms. They had to sell those mortgages to someone, I think they bundled them up and sold them as CDOs. What rating did they tell the buyers that they had? Are the buyers eating the losses now?

 

The winners will be lower income people (a large % of those will be minorities due to politicians wanting their vote) who purchased more than they could afford when the government comes and bails them out. The losers will be the rest of us who do things right and pay taxes.

 

Welcome to the wonderful world of GW Bush economics, where the rich rip off the stupid and the middle class pays the bill. Now all we need is another 20 million illegal aliens to keep labor prices down and to suck off the system and the world will be ok.

 

Probably. See below, Ohio has already tried, but it's not going well.

http://interestrateroundup.blogspot.com/2007/08/ohios-foreclosure-bailout-experiment.html

St. goverments all over are looking at selling bonds, making money available to homeowners in trouble, at like 7.75% fixed, but what if they can't make those payments, and they re-fault, and the house has continued down in value, is the state going to eat that?

Big problelm.

 

I dislike Bush as much as anyone, but I'm not sure we can make the case this is on him. Clinton had the dot com mess, and the tanking of the stock market, but that was on Wall St., crooked stock analysts touting bad stocks, from marquee names in the industry, Merrill Lynch, Smith Barney and others, and Arthur Anderson certifying books that contained frauds. At least they imploded AA.

There is a distinct lack of effective regulation, and when wrongs are perpetrated, the perps get off with a slap on the wrist, after costing Ma and Pa billions collectively. The SEC seems asleep at the wheel, been for a long time. And the big accounting firms, and the bond rating agencies, Moody's and S&P need to be looked at.

 

I agree, but when did "the buck stops here go out of fashion"? This administration and others before it have allowed big business to write their own rules as long as it temporarily provides good economic numbers. Did anyone with half a brain think it was a good idea to give adjustable mortgage loans to high risk borrowers in the first place? The answer is yes, those that looked to make huge profits from it and didn't care about the end results. It's up to the politicians to appoint qualified individuals to the positions that oversee these corrupt institutions instead of appointing friends and political supporters. If you are the one in charge and it happens on your watch it's your fault. I am a conservative, Bush is not, and his policies and actions clearly show that.

 

I gotta agree with you. We have this system where these 3 founders of New Century Financial reaped megabucks, selling mortgages to unqualified buyers, they IPO the company, reap a windfall, and ma and paw buy the stock from Merrill or Smith Barney or whoever, and they take the hit, plus whoever they got to buy the CDOs. We call what we do for the CEO's 'pay for performance' but what if the 'supposed performance' turns out it was a sham, it blows up, should they keep their millions? I don't think so. Now in the case of Enron, Worldcom and a few others, they sent some of those boys up to the big house. Will any of these guys go?

But yeah, Bush shares part of this deal, like Clinton shared part of the dot com debacle. Where is our securities regulation???

 

http://www.bloomberg.com/apps/news?pid=20601087&sid=aNIJ.UO9Pzxw&refer=worldwide

This is beyond US shores. Interesting article. So the frogs have lost half a billion dollars in two weeks on that fund, bet they're not too happy. Sounds like they can't see a subprime mortgage to anyone. No liquidity in the marketplace for subprime. And it says the subprimes were rated AA, now they are worthless? Who put that rating on them? Should they be shot, or blown up like Arthur Anderson was blown up?

Outrage is totally justified here.

 

losers--
1. collective us homeowners who want to sell in near future, or that bought recently (not just talking about subprime mortgages either)

2. second and third tier countries (turkey and e. europe, eg) because it will be harder for them to get $$$.

3. us taxpayers

4. stockholders

blame--
1. greenspan. made $$$ way too easy to get for way too long



here's hoping this doesnt trigger a world-wide depression.