On Thursday, March 18, 2021 at 3:15:49 PM UTC-4, wrote:
On Thu, 18 Mar 2021 15:11:16 GMT, (Scott Lurndal)
wrote:
trader_4 writes:
On Thursday, March 18, 2021 at 9:35:25 AM UTC-4, wrote:
On Thu, 18 Mar 2021 04:30:54 -0700 (PDT), trader_4
wrote:
On Wednesday, March 17, 2021 at 10:04:25 AM UTC-4, wrote:
Clueless again.
The housing failure alone would have simply meant a lot of people got
evicted. The thing that made it a global crisis was that the banks and
mortgage companies leveraged these mortgages with derivatives that
were worth many times more than the underlying mortgages.
That's wrong too. AFAIK, there was no leveraging that caused the problems.
The "derivatives" were simply pooling mortgages together into securities and
selling shares in them to investors. It was fundamentally sound, not leveraged
and it increased funding for mortgages. The only problem was in the lending
practices where banks and institutions made progressively riskier loans to
people with marginal ability to be able to keep up with the payments on real
estate that had already appreciated sharply and was over valued. And then
when the problems started, it was further complicated by the fact that investors
only knew they had an investment in mortgages, without any way of knowing
how many of those mortgages were in trouble, what the properties were really
worth at the moment, etc.
And absent the MBSs, it most certainly would not have simply meant a lot of
people got evicted. There were huge losses there, because the values of the
properties declined, the real estate market turned poor, millions of properties
were under water, not worth the mortgage value. THAT is what lead to the huge
losses, those were real and would have been widespread whether the mortgages
were part of MBSs, held by Fannie or Freddie (which went bankrupt), held by banks,
or held by the seller.
You really need to read more about what derivatives are. One mortgage
ended up being many times as much in "bets" for and against that
mortgage.
I know exactly what derivatives are. You show us proof for your claim that MBSs
resulted in one mortgage being turned into may times as much in "bets". It
was not a leverage problem with MBSs, it was a leverage problem with the
mortgages themselves. It was not the MBSs that created the problem.
The problem was lenders making increasingly risky loans to people with marginal
ability to pay. ARM loans with low introductory rates, 5% down mortgages,
mortgages where with two incomes they could barely afford it. Appraisers
over valuing properties. Those mortgages were then pooled together into MBS
and sold to investors.
Here's a reference for Fretwell to chew on.
https://www.investopedia.com/terms/c/cdo.asp
No problem there. The value is NOT the underlying asset, it is value
derived from that. Basically they take a $50M mortgage package that is
still worth $50M and create another value from that.
That's another lie. An MBS, CDO is taking a bunch of mortgages and pooling
them together. You know, 1+1+1 =3 not your twelve.
"A CDO is a particular type of derivative because, as its name
implies, its value is derived from another underlying asset. These
assets become the collateral if the loan defaults".
To put this in simple terms this is not a mortgage anymore where the
only value is what you can get for the house when the borrower
defaults. Now they have established an dollar value.
That;s wrong too. The value of an MBS or CDO is whatever investors are willing
to pay for it based on the underlying assets it represents.
That is based on
the redemption value of the mortgage at full term.
No **** Sherlock, sure the value of a mortgage is partly based on that. The other
factors are the interest rate of the mortgage, the current interest rate, the
probability of default and the value of the underlying asset. MBSs didn't change
that.
Not many people
stay with a mortgage, full term and that is particularly true of the
"flippers". They plan on being out before the ARM adjusts.
That is your first inflation of the value.
Cuckoo for cocoa puffs.
Then the owner of the CDO
understands that this may be a shaky investment so he buys insurance
(Credit Default Swap). That is where AIG came in. Then these default
swaps get traded like commodities (Why the 2000 CFMA is important).
By the time they are done that $500K mortgage may be trading at well
over a million or more when you add up all of the paper "Derived" from
it.
Cuckoo for cocoa puffs. Again, this is like saying that soybean prices plummeted
because there were futures and option on soybeans, not because of Trump's
tariffs that had the soybeans piling up, with no buyers.
When the original mortgage fails, the bank of Iceland or RBS is not
going to foreclose on some LLC in the US and they have no interest in
trying to auction the house, they going after AIG or some other
similar operation that insured that original CDO. That pile of paper
suddenly becomes worthless unless someone bails them out.
Nothing stopped them from foreclosing to recover what they can from
their investment and I would expect that in almost all cases, that is indeed
exactly what happened. The property was foreclosed on, the proceeds were
sent to the investors. You act like because someone pools 1000 mortgages
together, suddenly no one can foreclose. So,by your theory, all the original
owners are still owning and living in those 2009 properties or later sold
them correct?
You really need to just stop. You're about to come out somewhere in China
from the hole you've dug.