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By duxup (Wed Oct 01, 2008 at 09:47:50 AM EST) (all tags)

Banking Stuff
Great Stories From Work: U.S. Government Conf Call
Movie Talk: Into The Wild
Photography: New Camera & Lens Time! 50D

The Whole Banking Crisis Thing (this is going to be big news, get in on the ground floor with me)

1. I find it ironic that Republicans whose rhetoric is often tied to, fiscal responsibility, free markets and private industry solving just about everything, for the most part don't do much to advance those principals.  Not just out of economic necessity, they just talk the talk but don't walk the walk.  So when a few Republicans actually want to let private industry and the free market thrash it all out... Wall Street is POed at them.

2.  One thing I'm not sure I get about this is how this all went so bad.  I get that if you make a bunch of housing loans and people can't pay for it and the houses are not worth what you loaned out for them, you're incurring some massive losses.  Still enough to take down entire banks?  I read about the adjustment allowed by the feds to increase some bank's debt limit they're allowed to hold.  I suppose the debt's outstanding to actual cash and assets is where the balance was tipped, but dang if you've got financial industries too big to fail I'd hope those industries would be under even tighter restrictions... In fact I'm willing to bet being that big they've got the lobbyists to make sure they're even more free to do what they want.

3.  If anything this provides a good example for those hard core unrestricted free market types as to why it is the market requires some regulation to run smoothly.  Well... ok so it is not a good lesson for the hard core unrestricted market types because many are hardcore believers and I'm fairly sure a package will get passed eventually and they'll still get to point to the panacea of the non existent totally free market.   

Still it is a good lesson about markets none the less and hopefully drives home the point that those companies and individuals who flourish in the free market are NOT necessarily the people who should have anything to do with advising how to manage the market.  Instead they seem as much a threat to a free market (demanding government intervention / support / bailouts, the ability to hork it up so bad that the market ceases to function) as some anti free market communist.

4.  Not that I'm sure at all what exactly should be done but I feel like I understand why you don't want credit markets locked up.  Just before the vote I did like some of the changes made to the first plan, but like most heck if I know what the end result of such a plan would be.  I think it is ASTOUNDINGLY clear that just buying up bad mortgage security is stupid, some serious oversight, and rule changes are necessary.   I worry that if not in the main plan that momentum for such changes will die out.

Great Stores From Work: The Government

I was on the phone today with a customer who happened to be a department of the U.S. government.  We sat on a conference call waiting for someone to grant us access to some computer equipment.  We had been waiting 20 or 30 minutes and the following conversation between two of the government workers occurred.

GovPeon 1:  Do we all want to have everyone sit on this call forever?  We're all on a long distance conference call not getting anything done here.  Maybe we should just call everyone back when we can actually do something.

GovPeon 2:  Don't worry about it, I don't think this is going to be the biggest stupid government expenditure today.

-laughter on conference call ensued-

Movie Talk: Into The Wild

I liked Into The Wild.  Dude takes a trip across America on his way to Alaska rebelling against his family and meeting people.  There is some disconnect between the story narrated by his sister and the actual action.  It provides very specific family stories and events.  When the main character's journey sort of intersects people with like stories, nothing happens, no reaction, nothing.  Also the movie seems to try to avoid making the parents out to be evil totally bastards by making their flashback fights almost comical...

If you know anything of the story you know the ending.  I was not fond of how it was handled.  Avoiding it would have been a cop out so I give them credit for handling it directly but I just didn't know what to think about the film's ending.  Maybe the film tried to show both the horrible consequences, and some of the enlightenment this guy found all at once without tossing in much judgment and maybe I'm supposed to feel conflicted, but mostly I feel conflicted about the ending, not the actual story.  Still when he is writing some of his last notes they seemed almost silly (duh) and I just didn't feel ... like the film was over or something.  Can't put my finger on it.  Good film none the less.  Great music too.

Photography: New Camera & Lens Time! 50D

My old original Digital Rebel is old.  Not unusable.  Just old and I can't take the size in my hands after 5 years (too small).  I was considering the 5D MkII, and as awesome as it sounds I had to go with the 50D.  I just couldn't justify the cost of the 5D MkII.  I plunked down my money for a place in line at my local camera store for a 50D when they get them in.  I'm pumped.

Also I've been suffering for years with my favorite film body lens (50mm 1.4) just not doing the job on the digital rebel.  Don't get me wrong, it is still awesome but with the 1.6 crop factor it feels like an 80mm lens and that just doesn't fit every occasion like 50mm did.  Having said that a fixed prime lens is sooo nice at times.  I'm thinking of picking up the inexpensive Canon 35mm 2.0 lens out there.  That should have the feel of my good old 50mm lens, sadly it is not a USM (super quiet focusing system) like the 50mm lens but I think I'll survive.  There are some tempting 28mm lenses out there and while I wouldn't mind it a bit wider the price points are a lot higher and I think the bang for the buck is at the 35 based on what I'm reading out there.

< I saw two people in double-breasted suits | I shouldn't talk politics >
I hit submit when I wanted to hit preview, but it is ok now | 13 comments (13 topical, 0 hidden) | Trackback
It's not easy to explain by georgeha (4.00 / 1) #1 Wed Oct 01, 2008 at 10:29:39 AM EST
the housing bubble was keeping our economy going, so Clinton and Bush helped to fuel it. There were rumbling of trouble at Fannie Mae in 2005, but there was no oversight passed (McCain did support this).

The Fed kept too much money in supply to keep the bubble going.

Credit and mortgages became way too easy to get, for some mortgages you didn't need a job or assets.

Banks took mortgages that were shaky (sub prime or Alt A) and bundled them together and sold them as rock solid investments.

Banks took credit derivative insurance, totally unregulated, to pay for loans that might be bad.

All of a sudden, no one trusts the $65 trillion of credit derivatives, and no one trusts the rock solid mortgage investments that may be based on overinflated housing prices.

Plus the debt to asset ratio by MartiniPhilosopher (2.00 / 0) #2 Wed Oct 01, 2008 at 11:59:28 AM EST
was changed as well. To something like a 10:1 ratio so the banks could loan out even more money than before. A lot of that money seems to have ended up in the bad mortgages which is how the banks don't have enough cash to cover their bets.

Mindbogglingly enough, there's talk of increasing the ratio even more.

Whenever I hear one of those aforementioned douche bags pontificate about how dangerous [...] videogames are I get a little stabby. --Wil Wheaton.

[ Parent ]
like a by garlic (2.00 / 0) #3 Wed Oct 01, 2008 at 12:20:26 PM EST
pyramid scheme version of hot potato.

[ Parent ]
Yes, and we taxpayers get the hot potatoe by georgeha (2.00 / 0) #4 Wed Oct 01, 2008 at 12:21:26 PM EST

[ Parent ]
mmm... potatos by garlic (2.00 / 0) #5 Wed Oct 01, 2008 at 12:24:18 PM EST

[ Parent ]
the worst excesses of bad loans by R343L (4.00 / 1) #9 Wed Oct 01, 2008 at 02:14:02 PM EST
Were ostensibly made by mortgage brokers (or banks) who had no intention of keeping the debt in-house. Instead, the loan was sold off as quick as it was made -- some (well, lots) of this eventually ended up in the hands of Fannie & Freddie.

"There will be time, there will be time / To prepare a face to meet the faces that you meet." -- Eliot
[ Parent ]
And in the case of AIG by Breaker (4.00 / 5) #10 Wed Oct 01, 2008 at 03:24:51 PM EST
Banks took credit derivative insurance,
With another arm of their own business.  Double fail - the bank had to pay the bank through insurance (CDS's - Credit Default Swaps) for losses the bank had made on bundled mortgage agreements (CDO's - Collateralised Debt Obligations).  Unforgivable lack of regulation, IMHO.

And in the case of UKian banks, they often loaned 125% of the current house asking price, and demanded  no deposit.  Which worked fine when house prices were rocketing upwards...

Now, banks are faced with a single mortgage that was based on a house that was worth say 100K USD 5 years ago.  Now the house is worth 75K, and the mortgage owners, after a honeymoon period of say 2 years cheap repayments are now trying to up the mortgage interest rate to more realistic levels.  The house owners can't afford this, and try to refinance the debt, only to find that a yearly income of 20K USD will not get them anywhere with any of the lenders still offering.  So they hand the keys back to the bank that issued the mortgage.

That's the microeconomic view.  Now, bundle a mortgage like this and many more like it into a 200MM USD CDO and sell it on - instant cash for you, long term income stream for the buyer.  The buyer isn't daft, they will purchase a fixed leg CDS against the debt turning bad.  The people selling this insurance (swaps are 2 legged - usually fixed and floating.  I pay you for a premium and take the fixed leg; every so often I give you a small amount of money and in return you take the floating leg - if there's a default on the debt then it's up to you to pay the piper).   But hey, everyone knows that house prices are going up, so we'll just set a minimal amount on my fixed leg - for you it's money for nothing.  Time for champagne and blowjobs.  The problem here is that no real traceability is in place for the CDO and the constituent mortgages that make it up.  So if 1 in 100 mortgages in the bundle blows up, you've no idea if the rest of the bundle is going to do the same.  This was OK when things were goo, but now the rest of the CDO must be treated as explosive in todays climate.  We've geared a 100K mortgage default into 200 million USD.

Again, regulation failed as these CDOs were "washed" through some dodgy accounting practices that gave them "worth a go" ratings for banks to buy.  Trading desks have limits on stuff they can buy, according to the credit rating assigned to it and what they hold already.  Last time I saw it (according to USian regs), you had to have at least 40% of your operating capital in top rated investments before you could have 5% really dodgy stuff (unrated).  So these dodgy but "gold rated" financial vehicles were more and more attractive.  Buy more CDO's you can buy more junk stock - one of those junk stocks might skyrocket and net you a handsome profit. And you can buy more of them, because more and more of your holdings are diamond rated top shelf stuff.

Again, a failure of the regulatory system.  Whilst if you want a rating for your stock (DX.UP), or bond (DXUP5Y) before you start selling it to other people, the governmental regulators state only that if you want a rating, you must obtain one.  For that, you must pay a recognised (and regulated) reference agency such as Standard and Poors (S&P), Moodys, or the like.  They'll look at the books of DUXUP Int'l and give you a rating as to how sound you are for investing in.

Problem being, it's been a long standing dirty secret that some credit rating agencies jiggle their ratings.  HN (name changed to protect the guilty) the car manufacturer is a fucked company, and has been for years, but no credit rating agency will downgrade it.  Because that will mean institutional investors must then sell it, or other top rated stocks, in order to maintain their government regulated balance of books (40% A, 30%B, 20%C, 5%D, 5% unrated).

Can you imagine the political fallout on that if a ratings agency bankrupted one of USia's biggest car manufacturers by calling shenanigans on its financial position?

More inadequate regulation has now meant that ratings companies also tender new issues of instruments (bonds, etc)  and act as counterparties.  Obviously, it'd be bad business if they downgraded what they sell, and also a bit of back scratching here and there for some reciprocal new issue rating mutuality...

In short, both sides (punitive regs vs free market) have got it bloody wrong.  For a free market to flourish, it has to be free - free from the collusion and fakery that the markets now have, that are now bringing it to its knees.  This is not a free market, it is a stacked one and the foundations have now crumbled.  Over regulation is not the answer, better regulation is.  By disconnected 3rd parties.

As far as getting the banks out of this - I say secure depositors savings, then let the banks go to the wall.  Investigate board members for collusion and anti-competitive practices.  Aside from that - fuck'em.

Disclaimer for StackyMcracky: Breaker is a well known UKian who works in the finance industry, but not in USia.  There may be parts that he's inaccurate, and even parts where he's utterly wrong.  Caveat Emptor, seeing as it's gone 1am here and he's been drinking a bit.  The value of your investment can go down as well as up.  Always brush your hair 100 times before going to bed, and double check the wardrobe for clowns before closing your eyes).

[ Parent ]
How many banks were offering 125%? by ambrosen (4.00 / 1) #11 Wed Oct 01, 2008 at 10:18:41 PM EST
I thought it was something fairly unique about Northern Rock. And the lending over 100% was unsecured loans, wasn't it?

I'd still be at least as inclined to blame TLS for running a budget deficit throughout the boom years.

[ Parent ]
I don't know by Breaker (2.00 / 0) #12 Wed Oct 01, 2008 at 11:06:51 PM EST
But Northern Rock definitely weren't the only ones.  When I bought m,y house last year, we were offered at least 2 mortgages for > 100%.of the house value.

And yeah, TLS is very much to blame.  UKia PLC is looking pretty shaky right now and until there's regime change, I would not be surprised if we have trouble borrowing.

[ Parent ]
Bradford and Bingley by hulver (4.00 / 1) #13 Thu Oct 02, 2008 at 01:12:43 AM EST
I'm not sure if they were offering 125%, but they were very big in the Buy to Let market. Look how well that's gone. 
Cheese is not a hat. - clock
[ Parent ]
You should ask by ad hoc (2.00 / 0) #6 Wed Oct 01, 2008 at 01:04:47 PM EST
the Czar of Accounting.

The three things that make a diamond also make a waffle.
In re: financial crisis, by blixco (4.00 / 1) #7 Wed Oct 01, 2008 at 01:23:28 PM EST
this is probably the one thing I'll say about it, via a letter I sent to my congresspeople:

"Sirs and / or Madames,

Pardon me for not addressing you by name, but you know mine as well as I know yours.

You're going to  lose your job in the next election, because people vote with their hearts when it comes to their cash. Incumbents are in a tight spot. Since y'all are Republican, you're blamed both coming and going, and rightfully so.

The important takeaway here is: you're going to lose your job.

No kidding, we're firing you.  There is nothing you can do right now or in the future that will save your job.  You can stop acting like it, and stop voting like it, and stop worrying about it. It is done. Final.  You're fired. 

So, knowing that, will you stop playing politics for a few days and do what needs to be done to save the economy?  It's a bit late now to listen to your constituents when they complain about bailing out an evil greed-based system with no oversight since they did just spent fifty years vigorously and religiously supporting it.  No, now's not the time to give in to their whining.  You're toast no matter what, and they should learn that evil begets evil.  No, now's the time for decisive, responsible action for the sake of the fatheaded greedbots that own your future ass. So do the right thing, vote for a bail out, then go down in flames with the rest of them (you will no matter what) and get a lucrative speaking gig on the retirement circuit until no-one remembers that you and Bush were highschool buddies.


"You bring the weasel, I'll bring the whiskey." - kellnerin
hmmm by dev trash (4.00 / 1) #8 Wed Oct 01, 2008 at 01:59:54 PM EST
I think it goes like this.  Bank A has a lot of these MBS, and wants to borrow money from Bank B.  Bank B says sure, what do you have for collateral?  Bank A offers the MBS which are valued at 2 cents.  Bank B says fuck no, we won't loan.

Somehow, a) raising teh FDIC insurance level AND b) allowing bansk to say 'heeeeey this MBS is really worth 200 dollars not 2 cents"  is going to fix all of this.

To say that I'm a bit doubtful is an understatement.


I hit submit when I wanted to hit preview, but it is ok now | 13 comments (13 topical, 0 hidden) | Trackback