The typical mortgage bond was still structured in much the same way it had been when I worked at Salomon Brothers. The loans went into a trust that was designed to pay off its investors not all at once but according to their rankings. The investors in the top tranche, rated AAA, received the first payment from the trust and, because their investment was the least risky, received the lowest interest rate on their money. The investors who held the trusts’ BBB tranche got the last payments—and bore the brunt of the first defaults. Because they were taking the most risk, they received the highest return. Eisman wanted to bet that some subprime borrowers would default, causing the trust to suffer losses. The way to express this view was to short the BBB tranche. The trouble was that the BBB tranche was only a tiny slice of the deal.
But the scarcity of truly crappy subprime-mortgage bonds no longer mattered. The big Wall Street firms had just made it possible to short even the tiniest and most obscure subprime-mortgage-backed bond by creating, in effect, a market of side bets. Instead of shorting the actual BBB bond, you could now enter into an agreement for a credit-default swap with Deutsche Bank or Goldman Sachs. It cost money to make this side bet, but nothing like what it cost to short the stocks, and the upside was far greater.
The arrangement bore the same relation to actual finance as fantasy football bears to the N.F.L. Eisman was perplexed in particular about why Wall Street firms would be coming to him and asking him to sell short. “What Lippman did, to his credit, was he came around several times to me and said, ‘Short this market,’ ” Eisman says. “In my entire life, I never saw a sell-side guy come in and say, ‘Short my market.’”
“He’d call me and say, ‘Oh my God, this is a calamity here,’ ” recalls Eisman. All that was required for the BBB bonds to go to zero was for the default rate on the underlying loans to reach 14 percent. Eisman thought that, in certain sections of the country, it would go far, far higher.
The funny thing, looking back on it, is how long it took for even someone who predicted the disaster to grasp its root causes. They were learning about this on the fly, shorting the bonds and then trying to figure out what they had done. Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism. For instance, he knew that the big Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA.
As an investor, Eisman was allowed on the quarterly conference calls held by Moody’s but not allowed to ask questions. The people at Moody’s were polite about their brush-off, however. The C.E.O. even invited Eisman and his team to his office for a visit in June 2007. By then, Eisman was so certain that the world had been turned upside down that he just assumed this guy must know it too. “But we’re sitting there,” Daniel recalls, “and he says to us, like he actually means it, ‘I truly believe that our rating will prove accurate.’ And Steve shoots up in his chair and asks, ‘What did you just say?’ as if the guy had just uttered the most preposterous statement in the history of finance. He repeated it. And Eisman just laughed at him.”
“With all due respect, sir,” Daniel told the C.E.O. deferentially as they left the meeting, “you’re delusional.”
This wasn’t Fitch or even S&P. This was Moody’s, the aristocrats of the rating business, 20 percent owned by Warren Buffett. And the company’s C.E.O. was being told he was either a fool or a crook by one Vincent Daniel, from Queens.
Read more: http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom/index3.html#ixzz107MEAbpK
67 percent of SALES, not supply on the market. With also a huge shadow inventory, and the ability to foreclose on many mortgages delinquent but not yet foreclosed upon, things can get weird indeed.
This will take the short sales off the market, thus far fewer homes sold, thus the pressure will be on to lower property prices. You see with all this fake activity going on, it's keeping the numbers up (not very well but it is), and thus people are keeping asking prices up from what they would be otherwise.
Take that away, and down it goes.
But if people think this will diminish the supply of houses available, they're fools. All they need to do is switch the homes they aren't foreclosing on, with the ones they cannot. Now none of this is easy or clean, but it can be done. (not that they should do it, I just EXPECT them to)
Since this is one of the pieces of tape holding humpty together, you can darn sure bet they'll hit their other delinquent borrowers harder and faster to make up for the $$$ shortfall this creates.
But no, it won't be a drop in supply enough to do anything to the market, not when it could cause sales to drop in half nationwide. That is just a rough estimate.
When things hyper inflate, it'll be deflation/hyperinflation at the same time. Houses won't be in the hyperinflation camp, they'll be in the ongoing deflation camp.
So no, this isn't a good time to buy. When brand new (or couple of years od) houses are around 15-30k non-short or foreclosed sale, you MIGHT be at a time to buy. Until then, you're paying far too much. At the same time, once that is the case, your wages will drop in kind, if you aren't one of the 70 percent unemployed. Again rough figures, it could be 95 percent.
ASU is Arizona State University. The most populous main campus in the nation. The Harvard of the Southwest...well for partying that is. Ah yes, the joys of parking at Sun Devil Stadium and walking to W.P. Carey 2+ miles away in 110 degree heat. I do not miss those days. At least they had a real good stats professor whose whole class was teaching the meaning of BULLSHIT STATISTICS. 0 or 1, is or isn't. 95.5, 98.7, 99 percent isn't either. Ahh yes, the fallacy being taught at most schools is that this stuff is real, just ask any ivy league school whose teacher works at a wall street bank. Harvard the epitome of mental sloth.
Anyone remember I think it was Reggie's pictures of the empty waterfront towers ha ha? Don't worry we have dumbass Jan "I haven't been elected as your Governor" Brewer. Sad thing is she won 96 percent of the republicans votes. Which should just show you, republicans in Arizona are stark fucking nuts. I've watched their continued idiocy by whole life.
Don't expect any help from the Arizona gov't, they're out to pasture, and full of the biggest fools as, well, probably everywhere else. Nope, when things crumble, they'll be as clueless as Palin in front of a reporter asking questions. Headless corpses propaganda anyone? She couldn't even answer that question.
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The typical mortgage bond was still structured in much the same way it had been when I worked at Salomon Brothers. The loans went into a trust that was designed to pay off its investors not all at once but according to their rankings. The investors in the top tranche, rated AAA, received the first payment from the trust and, because their investment was the least risky, received the lowest interest rate on their money. The investors who held the trusts’ BBB tranche got the last payments—and bore the brunt of the first defaults. Because they were taking the most risk, they received the highest return. Eisman wanted to bet that some subprime borrowers would default, causing the trust to suffer losses. The way to express this view was to short the BBB tranche. The trouble was that the BBB tranche was only a tiny slice of the deal.
But the scarcity of truly crappy subprime-mortgage bonds no longer mattered. The big Wall Street firms had just made it possible to short even the tiniest and most obscure subprime-mortgage-backed bond by creating, in effect, a market of side bets. Instead of shorting the actual BBB bond, you could now enter into an agreement for a credit-default swap with Deutsche Bank or Goldman Sachs. It cost money to make this side bet, but nothing like what it cost to short the stocks, and the upside was far greater.
The arrangement bore the same relation to actual finance as fantasy football bears to the N.F.L. Eisman was perplexed in particular about why Wall Street firms would be coming to him and asking him to sell short. “What Lippman did, to his credit, was he came around several times to me and said, ‘Short this market,’ ” Eisman says. “In my entire life, I never saw a sell-side guy come in and say, ‘Short my market.’”
“He’d call me and say, ‘Oh my God, this is a calamity here,’ ” recalls Eisman. All that was required for the BBB bonds to go to zero was for the default rate on the underlying loans to reach 14 percent. Eisman thought that, in certain sections of the country, it would go far, far higher.
The funny thing, looking back on it, is how long it took for even someone who predicted the disaster to grasp its root causes. They were learning about this on the fly, shorting the bonds and then trying to figure out what they had done. Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism. For instance, he knew that the big Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA.
As an investor, Eisman was allowed on the quarterly conference calls held by Moody’s but not allowed to ask questions. The people at Moody’s were polite about their brush-off, however. The C.E.O. even invited Eisman and his team to his office for a visit in June 2007. By then, Eisman was so certain that the world had been turned upside down that he just assumed this guy must know it too. “But we’re sitting there,” Daniel recalls, “and he says to us, like he actually means it, ‘I truly believe that our rating will prove accurate.’ And Steve shoots up in his chair and asks, ‘What did you just say?’ as if the guy had just uttered the most preposterous statement in the history of finance. He repeated it. And Eisman just laughed at him.”
“With all due respect, sir,” Daniel told the C.E.O. deferentially as they left the meeting, “you’re delusional.”
This wasn’t Fitch or even S&P. This was Moody’s, the aristocrats of the rating business, 20 percent owned by Warren Buffett. And the company’s C.E.O. was being told he was either a fool or a crook by one Vincent Daniel, from Queens.
Read more: http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom/index3.html#ixzz107MEAbpK
67 percent of SALES, not supply on the market. With also a huge shadow inventory, and the ability to foreclose on many mortgages delinquent but not yet foreclosed upon, things can get weird indeed.
This will take the short sales off the market, thus far fewer homes sold, thus the pressure will be on to lower property prices. You see with all this fake activity going on, it's keeping the numbers up (not very well but it is), and thus people are keeping asking prices up from what they would be otherwise.
Take that away, and down it goes.
But if people think this will diminish the supply of houses available, they're fools. All they need to do is switch the homes they aren't foreclosing on, with the ones they cannot. Now none of this is easy or clean, but it can be done. (not that they should do it, I just EXPECT them to)
Since this is one of the pieces of tape holding humpty together, you can darn sure bet they'll hit their other delinquent borrowers harder and faster to make up for the $$$ shortfall this creates.
But no, it won't be a drop in supply enough to do anything to the market, not when it could cause sales to drop in half nationwide. That is just a rough estimate.
When things hyper inflate, it'll be deflation/hyperinflation at the same time. Houses won't be in the hyperinflation camp, they'll be in the ongoing deflation camp.
So no, this isn't a good time to buy. When brand new (or couple of years od) houses are around 15-30k non-short or foreclosed sale, you MIGHT be at a time to buy. Until then, you're paying far too much. At the same time, once that is the case, your wages will drop in kind, if you aren't one of the 70 percent unemployed. Again rough figures, it could be 95 percent.
ASU is Arizona State University. The most populous main campus in the nation. The Harvard of the Southwest...well for partying that is. Ah yes, the joys of parking at Sun Devil Stadium and walking to W.P. Carey 2+ miles away in 110 degree heat. I do not miss those days. At least they had a real good stats professor whose whole class was teaching the meaning of BULLSHIT STATISTICS. 0 or 1, is or isn't. 95.5, 98.7, 99 percent isn't either. Ahh yes, the fallacy being taught at most schools is that this stuff is real, just ask any ivy league school whose teacher works at a wall street bank. Harvard the epitome of mental sloth.
Anyone remember I think it was Reggie's pictures of the empty waterfront towers ha ha? Don't worry we have dumbass Jan "I haven't been elected as your Governor" Brewer. Sad thing is she won 96 percent of the republicans votes. Which should just show you, republicans in Arizona are stark fucking nuts. I've watched their continued idiocy by whole life.
Don't expect any help from the Arizona gov't, they're out to pasture, and full of the biggest fools as, well, probably everywhere else. Nope, when things crumble, they'll be as clueless as Palin in front of a reporter asking questions. Headless corpses propaganda anyone? She couldn't even answer that question.
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Could AOL Merge With Yahoo? Could <b>News</b> Corp. Make a Play? Takeover <b>...</b>
Today, as news of the departure of Yahoo's US head Hilary Schneider and two other top execs got around Wall Street, investors and dealmakers were actually thinking of things other than executive turmoil. As in: Does the uncertainty, ...
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Still losing sleep pondering the ending of this summer's smash hit 'Inception'? Can't decide whether it's a dream or reality? Have insomnia over t.
College Football <b>News</b> | <b>News</b> Media Generation - GenMedia.Info
College Football Returns; Today's TV Schedule | News One: and#13;and#13;College Football schedule.and#13;and#13;Saturday Games of Note on College Football Schedule (Ranked Teams)and#13;and#13;*San Jose State vs. No. ...
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Could AOL Merge With Yahoo? Could <b>News</b> Corp. Make a Play? Takeover <b>...</b>
Today, as news of the departure of Yahoo's US head Hilary Schneider and two other top execs got around Wall Street, investors and dealmakers were actually thinking of things other than executive turmoil. As in: Does the uncertainty, ...
Movie <b>News</b> Quick Hits: Michael Caine Spins 'Inception's' Ending <b>...</b>
Still losing sleep pondering the ending of this summer's smash hit 'Inception'? Can't decide whether it's a dream or reality? Have insomnia over t.
College Football <b>News</b> | <b>News</b> Media Generation - GenMedia.Info
College Football Returns; Today's TV Schedule | News One: and#13;and#13;College Football schedule.and#13;and#13;Saturday Games of Note on College Football Schedule (Ranked Teams)and#13;and#13;*San Jose State vs. No. ...
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Could AOL Merge With Yahoo? Could <b>News</b> Corp. Make a Play? Takeover <b>...</b>
Today, as news of the departure of Yahoo's US head Hilary Schneider and two other top execs got around Wall Street, investors and dealmakers were actually thinking of things other than executive turmoil. As in: Does the uncertainty, ...
Movie <b>News</b> Quick Hits: Michael Caine Spins 'Inception's' Ending <b>...</b>
Still losing sleep pondering the ending of this summer's smash hit 'Inception'? Can't decide whether it's a dream or reality? Have insomnia over t.
College Football <b>News</b> | <b>News</b> Media Generation - GenMedia.Info
College Football Returns; Today's TV Schedule | News One: and#13;and#13;College Football schedule.and#13;and#13;Saturday Games of Note on College Football Schedule (Ranked Teams)and#13;and#13;*San Jose State vs. No. ...
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