the_grip on 7/12/2007 at 22:00

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While i am little more sober now, i do have to disagree to some extent. The whole "economics 101" thing was me referring to price ceilings/floors and how they end up with deadweight loss (in terms of economic theory that is normal in any economics class that discusses supply and demand). While this is not legislative government intervention (which would probably be illegal), it is advocating an artificial economic measure, and such measures generally have negative unforeseen consequences. i'm not a laissez faire guy, but i'm generally not happy when arbitrary measures are taken.

All that said, this "bailout" won't have too much long term effect. It's the principle that pisses me off.



When did i mention the broader subprime mess at large? That whole issue has nothing to do with ARMs resetting as much as it does with financial institutions making risky bets on off balance sheet assets that went bad, and our good 'ol US credit institutions have less transparency than the Chinese markets. To be honest, i think there will be prime mortgages that will seep in to this whole mess and the thing will be quite a bit worse. Financial institutions are poised to write off money that they have declared early next year, and i'm sure they aren't giving out all of the details, either (meaning it will be quite a bit worse). Sure, we'll get through it, but the better methods are folks like Abu Dabi and Citadel coming in and making a steal of a deal.

i'm pissed on four levels here: a.) this does NOT address the broader economic problems at hand regarding liquidity and the seizing of the credit markets, b.) it is government administration posturing to try to look good with flacid plans, c.) it interferes with natural economic movements that would shake things out like they should, and d.) it's recommending a principle to let losers not lose (and thereby not let winners win, either).

In a free market these things should be allowed to correct themselves and roll over. Advocating what amounts to price controls is not the answer. i'm guessing that what will happen ultimately (at least in the shorter term) is that it will only make it harder for money to be lended to valid borrowers (that and the potential housing effects i referred to).

p.s. the "vitriol" is anything but sexy, but i realize that is par for the course around here

the_grip on 7/12/2007 at 22:15

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Misguided?



From:

(http://www.marketwatch.com/news/story/mortgage-resets-may-frozen-unnecessarily/story.aspx?guid=%7B6C3E6B48%2D9D34%2D4BF3%2DBD92%2D92B8F97042E9%7D)

Granted, that's from the collective talking heads along the lines of CNBC, etc.

i haven't even mentioned that this whole plan stems from the former CEO of Goldman Sachs - one of the groups that stands to benefit at least in the short term from this effect.

The answer is not artificial plans (which really amount to populist posturing in my book) that will only prolong pain. The answer is to put money in the economy and make things attractive for investments again.

the_grip on 8/12/2007 at 08:33

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Thanks, teacher. i'm glad you were part of the system that advocated folks taking risky loans when they shouldn't have.

Please explain how advocating a rate freeze is different from advocating price controls. You've been arguing against my point, but i'm waiting to see any substance behind your claims to my "ignorance".

the_grip on 8/12/2007 at 17:04

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You are just arguing semantics. Since when do price controls have to be legislation or involuntary?

Either way, i'm done with the conversation. All you have proven is that it is impossible to have any semblance of discussion with a prick. It is a waste of time becoming involved in discussions with someone who offers 5% meat and 95% ad hominem.

Have a terrific day.

Rug Burn Junky on 8/12/2007 at 20:42

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Ya see, this is the kind of shit that really pisses me off. You bitch that I only "offer 5% meat, hurrrrr" and yet, how the fuck can I have a discussion with you, when you simply don't understand the basics? This ain't semantics, this is how the world works. You want to use loaded terms like "price control" then there are commonly accepted definitions of these terms. What we're talking about here doesn't fit that definition. Until you understand what it is we're talking about, I'm not going to do the heavy lifting getting you up to speed on the simple stuff. Tell you what, let me explain to you what an ad hominem attack is as well, since you don't understand that either.

An ad hominem attack is one that uses as a premise a quality about the other person unrelated to the argument in order to support that argument.

ie. "You're a prick, therefore these are price controls."

I've not done that in the slightest.

Yes, I've insulted you by calling you stupid. Why? Well, because you are. I have not, however, said that "You are stupid, therefore these are not price controls." What I HAVE said are two mutually independent statements.

[INDENT]A = These are not price controls.

B = You are fucking dense for not understanding point A.[/INDENT]

This is not an ad hominem. It takes the form of "A and B," or in symbolic logic:

[INDENT]A ^ B[/INDENT]

An ad hominem would take the form of "B implies A," or

[INDENT]B > A[/INDENT]

Now, please, please, please stop talking about shit you don't understand, whether that be the mortgage "bailout," or simple terms about debating such as ad hominem. I mean, christ, you think you're frustrated dealing with me? Imagine how I feel dealing with someone as ignorant as yourself?

You can whine like a little bitch all you want about how I'm not being nice to you, but the fact is, the 5% meat is all I can offer you, if you can't understand rudimentary concepts related to the discussion at hand. because any more than that, and I'm wasting my own time while you sit in the corner sucking your thumb and crying.

You want to have a sophisticated discussion about the mortgage market? Go right the fuck ahead, but you're in over your head. When all you offer is a poorly thought out, ill-advised, rant All you get back in return is people-who-know-better telling you that your shit stinks.

I can walk you through the whole process, how originators sell pools of loans to investment banks, which then offload them into bankruptcy remote investment vehicles (Real Estate Mortgage Investment Conduit, or "REMIC" trusts) run by a trustee, park the loan files with a custodian, and hire a servicer to collect on them, financing the whole thing by selling bonds backed by the receivables on the loans. The servicer, being a mere hired agent, doesn't have a financial stake in the loan itself. Because of this, they are strictly bound to the terms of the servicing agreement, which tells them when they can, and can't foreclose on a loan, or offer relief. How do I know this? I've drafted these servicing agreements. I've got dozens of them.

In general, these terms work swimmingly. On a small scale, foreclosing may minimize losses. The problem is that larger scale foreclosures may lead to a default on the bonds. Do you have any idea what that entails? Have you ever been involved with restructuring and unwinding a defaulted REMIC? It's not pretty, I've worked on several. You do realize that at that point, there need to be a LOT of lawyers involved. Who pays for the lawyers? Why, the trust does. How does it pay? Out of the only money it has, the cashflow from the mortgages that would have gone to the holders.

Is this good for anyone? That would be a resounding NO.

So, in order to prevent the entire trust from defaulting, the banks that run the deals are giving the servicers that collect some leeway to allow for continued lesser cashflow, instead of tanking the entire fucking deal and costing everyone money. Usually, this means that the subordinated debt tranches are going to have to take a haircut, but it prevents those losses from traveling up the payment waterfall and wiping out the senior classes.

Standard market practice was one thing. They're now changing it to something else. And they are all free to disregard it on a case by case basis. That ain't a "price control" by any stretch of the imagination.

Now, once you've digested all that, and can coherently say something other than "Wah, Somebody might not get fucked over on their loan even though I think it would serve them right, so I'm going to whine about it" such as your initial rant, then we can talk.

Until then, I'm just going to call you stupid and tell you to run the fuck along.