High Finance Laid Low

It has a split personality: what is productive most of the time can also lead to destructive spasms of greed and herd behavior.

By Robert J. Samuelson | NEWSWEEK

Apr 14, 2008 Issue

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Posted By: borrowerhotline @ 04/19/2008 10:11:46 AM

Comment: I am an analyst for NLS Securities Advisors and secondary underwriter who sat out the last 5 years. I told the fund managers and the capital markets derivatives traders, then, it cannot last. No chance this deal would sustain itself. You see, there was so much capital committed to the ???beast??? called ABS, MBA when the market commenced to flatten out by 4th quarter 06. The markets breadth and depth measured by originations (receivables) and impairment were unacceptable. But it also was by all means manageable and within the algorithmic for a worst case scenario pursuant to over collateralization and defaults.
Therein, you had a run over the next 18 months consisting of this pain staking and exhausting attempt to resurrect a dead market. Again, the push for stimulating originations was pursuant to commitments totaling billions of dollars for delivery of future mortgage pools needed to fulfill demand for asset back???s (securities) Home sales were flat and rates unable to generate any interest. You have a dead market.
According to web site www. bororwerhotline.com, a consumer advocacy for Predatory lending, Wall Street is the culprit or mastermind. It was mortgage banking and commercial banks who carried out their orders. Wall Street securities and investment houses were releasing bulletin after bulletin and credit program matrix advisements as to new ???LOWER??? credit standards to qualify high risk borrowers and that lead to a sudden downward ratcheting for layered risk. The phenomena were derelict in accordance with ensuring minimum thresholds for integrity and establishing any level of quality earnings from future securities income streams. In translation, what that all means is you now could grant credit acceptance to a immigrant part time maid, a 21 year old Gardner, a shoe salesman and other county employees who fit the $20,000 a month profile using no verification ???Stated Income Stated Assets??? borrower profiles. Each of the professions I just mentioned play a necessary role in our economy but these wage earners are easy to scale along a profession and education earnings spectrum. And now the dream offered to them is no longer there as they cannot afford these $600 to $850K homes they acquired at 100% financing using shadow income. They are not the blame but the victims. But the ability of the street to use the bottom scale of labor and blue collar sector of the economy is insane but did in fact support resurgence in housing activity 18 months longer than expected. These comments are made in reference to home sales activity and maintaining volume originations. But, somehow I just don???t get why the likes of Countrywide???s, Wells and WaMu???s went along with it. By Soliman M. // Mortgage Securities Analyst www.borrowerhotline.com
Posted By: klgottab @ 04/19/2008 9:47:44 AM

Comment: "The best protection against human fallibility and the financial system's self-inflicted wounds is to insist that major financial institutions have ample capital to absorb unexpected losses."

That's exactly right - its what we do in our private finance as well. We don't bet the mortgage money (at least, not the smart ones) because we can't afford to lose it. Of course, we'd have to accept that the Bear Stearns of the world will occasionally collapse so that they can make the bigger money on risky investments. But there should be accountability (to clients) for finance institutions to state the risks of their investments along with the returns.
Posted By: thinkgra @ 04/13/2008 10:17:08 AM

Comment: It appears that your conclusion is to make even more money available to those who have already demonstrated that their greed exceeds their prudence. NIce. The ultimate form of regulation is that those who screw up lose their shirts, yet government under neo-con influence, while refusing to regulate, is all too willing to bail out the perps. (...and people think that the "con" in "Neo-con" comes from the word "conservative." Further research needs to be done to determine whether it from "Con man" or "convict." )
I was around in the Eighties and recall that the Savings and Loan meltdown did not cause deregulation. Deregulation happened first, leading to the S&L crisis. At least get your facts straight.
My question: What happens when you have entities controlling more financial clout that some nation states whose sole raison d'etre is this quarter profit? We're seeing it.
Posted By: timrogers @ 04/08/2008 6:43:35 PM

Comment: The argument that regulation can't stop human nature begs the question what does? If regulation is doomed to failure because of "greed, shortsightedness and herd behavior" is " ample capital" really much of a solution? Regulation certainly has its limitations, but lack of regulation and enforcement seems worse. The financial meltdown happened during a period of lax regulation and nonexistant enforcement. A little law and order would have kept human nature in check and provided some damage control. Yes, the capitalist impulse moves rapidly and sometimes leads to deception, fraud and reckless financial bets. We can now benefit from hindsight and see that more regulation, not less, would help prevent the next episode.
Posted By: tc125231 @ 04/07/2008 10:28:17 PM

Comment: Cripes, where to start? The lengths to which Samuelson will go to avoid admitting any error are simply stunning.

Actually, many S&Ls were looted by criminals unleashed by the first Reagan-Bush wave of deregulation.

Secondly, while no form of regulation will perfect the human species --there will always be the irresponsible, uninformed, or simply criminal in positions of power and influence -- Samuelson hardly demonstrates that there is no benefit to regulation in reducing the allowed swings of behavior. He merely CLAIMS it.

This is similar to his repeated claims --never recanted --that paying for the war in Iraq ($3 trillion in costs and obligations, and still growing) was "no problem."

Per Samuelson, Social Securitywas a debacle. The war in Iraq was no problem.

So, as long as they allow this serial incompetent who is incapable of admitting error to keep writing, one can only say "Caveat Emptor."

When you read this drivel, be aware of this source, and be VERY skeptical.