"Cyrus Afzali"
wrote in message
news:ml1ir35tsn0ikuk4fnq1vhjo57eidf9492@4ax.com...> On Sun, 17 Feb 2008 19:27:33 -0600, "Olin"
comcast.net> wrote:
>>>
>>"Cyrus Afzali"
wrote in message
>>news:gofhr39gdcgdnh7b00s4nl5lf6q5b2kb83@4ax.com...>
>>> But nobody imagined the impact this would have across the entire
>>> financial industry or that it would take down the earnings of a lot of
>>> financial services firms with it. Already, the credit squeeze has been
>>> behind about 3,000 layoffs in the New York area and big shrink in the
>>> bonus pool that provides a lot of income tax revenue.
>>>
>>See, here's where I take some exception, because in practically every
>>economic downturn, you can easily find elements of what you're talking
>>about
>>here... i.e. the ride's gonna run forever and, of course, it never does.
>
> Right, but this has wider ramifications. In the dot-com bust, for
> example, companies lost money, some went belly up and investors lost
> money when companies died. In this case, financially healthy companies
> that need to tap the credit markets for additional capital are finding
> it tougher overnight because so much money has been lost by investment
> banks that made bad bets on mortgage-backed debt. Most every firm on
> Wall Street has taken billions in charges, in some cases more than 10
> billion; that's a whole lot of dot-com collapses.
>>
Granted it's more complicated, but at the essence, no boom ever survives a
bust, and the downturn always comes eventually.
>>As I noted in my own response, I think Eliot downplayed what states did to
>>combat the predatory lending practices, which coming so close behind the
>>market collapses of the Reagan years, SHOULD have been seen coming this
>>time.
>
> Republicans are notoriously favorable to laissez faire approaches;
> when that philosophy fails, it fails badly.
>>
To say the least, and why they continue to hold to a home-run policy that
has a long and storied history of failure remains beyond me. It's hardly the
fiscal responsibility they tout, but then that's a myth that got busted a
long time ago.
>>There's really not a whole lot of difference in flipping houses and
>>flipping
>>mortgages, which is what a ton of these little brokerages were doing...
>>making the loan and immediately selling the paper. That was bound to, at
>>some point, leave somebody holding a very large bag.
>
> It's much more complicated than that. You had firms that have
> absolutely nothing to do with mortgages on a daily basis buying up
> billions in mortgage-backed debt that went bad. Ordinarily, a purchase
> of debt is a solid investment, as long as it's investment grade,
> because you're theoretically guaranteed to get your money back, along
> with interest. But when the assets backed by that paper, in this case
> houses, started declining in value rapidly, things changed for the
> worse and fast. Literally, in many markets in the country, you have
> people abandoning houses they can no longer afford. When that happens,
> those assets that back the paper suddenly plummet in value making the
> debt worth much less.
>
Oddly enough, I have several friends who've made fortunes buying up nothing
but bad debt. Number one, far more people would like to pay off their debt
than most would believe. Number two, you usually buy it at pennies on the
dollar, so collecting anything at all usually winds up as profit and at the
very worst, you get a decent write off for that debt you can't collect.
But, you are entirely correct in noting that the credit markets, coupled
with the downturn in home values is driving disaster, especially when, as
you also note, companies that have never been in the mortgage business are
buying up paper.
> Flipping mortgages has been done for ages and ages and ages because
> the servicing of mortgages is much more lucrative than the actual
> mortgage business. That very business is encouraged by Fannie Mae and
> Freddie Mac, since they buy up many of the conforming loans (i.e.
> those less than $317K).
>
Absolutely, but I've not seen it done at the levels of the past few years in
a very long time.
>>> All that said, Eliot should be focusing on running the state right
>>> now. I like the guy a lot and enthusiastically voted for him, but his
>>> first year was marked more by fighting with everybody than getting
>>> things done. He recognized as much in his state of the state last
>>> month, so I hope he learned something.
>>
>>For y'all's sake, I hope so too, but the cynic in me still says
>>politicians
>>NEVER learn from their mistakes, or anybody else's, for that matter.
>
> Well, NY'ers have long become accustomed to having the most
> dysfunctional state government in the country. That's one in the long
> list of things that never changes much. Thankfully, it doesn't lead to
> harm in any area that really matters except just a bunch of wasted
> legislative time and money.
It used to be that watching a state government was about the cheapest
entertainment one could get. Lot of fussing, cussing and posturing, and
relatively little wasted but time. Taxes and fees stayed about the same and
they didn't really intrude on anybody's life all that much. Then, for some
reason, they got the notion that they could actually do something now and
then, and it's turning out to be incredibly expensive, intrusive and
wasteful.
And, it's already sifted down to local levels.
