I laughed til I cried...

Sad, but true.

The CMO's are/were a lot like shares in a bag of potatoes that had been carefully filled with rotten spuds at the bottom, half rotten ones in the middle and good ones at the top. The bag was then sealed and shares of the unopened bag bag sold.

Moodys would have honestly rated the bagful as average!!!

The most staggering thing to me about the whole situation is how completely EVERYONE bought into the delusion of endless "far-greater-than-the-rate-of-inflation" appreciation. Backed by nothing, certainly not backed by historical evidence which clearly shows housing appreciation over the last 100-or-so years tracking inflation almost exactly. Everyone from all walks of life - from the unsophisticated/uneducated to highly educated/trained finance guys bought into this delusional crapola. I knew it smelled like B.S. years ago and the whole thing has been like watching a train wreck in slow motion. And we're only at the beginning. This is just round #1. Wait until all the adjustable ARMs start hitting at the end of this year and beginning of '09. You think we're in a recession now? Just wait. And no, I'm not wishing for one - just being a realist.

That video is 100% bang-on.

There's another video I've seen where a couple of British comedians explain the subprime situation.

I haven't been able to find it, anyone know which one I mean?

So the lipstick was bond insurance? for me the entire thing turns on that one piece of info.

this whole mess is one reason why I could never vote Republican: no accountability for Wall Street and Business as a whole.

OMG that was great, sad but great. I'm no financial wiz by ANY stretch of the imagination but isn't this all just another Enron?

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Your logic is almost as sound as the cartoon figures'.

Yup, Republicans caused the whole mess. They made people with bad credit think buying a house was a right. They made those same people sign onto loans they didn't understand and couldn't afford. And of course, Republicans specialize in conspiring to set up Wall St. investors to fail because they want to eventually bail out homeowners and crash the housing bubble. Yup, very sound logic. I think I'm voting for Hildabeast or Obama now. Thanks for setting me straight.:rolleyes:

The same Robber Barons own your beloved Democrats. Those with money and power have bought and paid for politicians on both sides of the aisle. Your statement is naive in the extreme.

you're smarter than this Rick. Oversight and regulation is the issue. Without it, you have Subprime. With it, only qualified people get loans and Wall Street wouldn't be able to sell junk. It's called Accountability Rick. Something the Republican Party used to stand for.

Sure, whatever you say. Republicans are all about accountability :rolleyes: and Democrats hate regulation.:D

Henry Waxman says you are wrong.

There is oversight and regulation. The subprime collapse was not caused by fraud, not in the least. Sure, let's have more federal regulations that ban lower FICO borrowers from getting a loan, or require a 10-20% down payment, or maybe tell certain types of buyers that they're not sophisticated enough for an Option ARM. Yeah, let's do that and then watch the lawsuits and political pandering fly. If nothing else, the subprime collapse reminded us that we need to start taking personal responsibility for our financial decisions.

Slide 18 says fraud to me Rick. This thing was all about packaging.

Slide 18 is egregiously vague and has nothing to do with lenders, but rather secondary market investors.

I think the vid with the two brits is so on pointe.

I have actually forwarded it to my economist friends.....

Rick, if it only had to to with Lenders, this would be a run-of-the-mill S&L bailout a la Neil Bush, paid for by you and me with taxes.

that's only the subplot to the story. It's the secondary market investors that ballooned it up to a worldwide crisis by fraudulently marketing these junk securities.

Do you have a single post that doesn't blame a Bush for something? I think we can adapt the X Number of Degrees from Kevin Bacon game to your blaming Bush for everything in the world.

And I think the only thing fraudulent about those securities is the gov't. getting into the act and helping to freeze rates, which, if they adjusted as agreed upon and were repaid, would give those investors some return. And the S&L bailout is not at all comparable to this. If FDIC hadn't doubled from $40k to $100k in the '70's, the size of problem would have been a lot smaller. The gov't. should not be in the insurance business. But that's Bush's fault too.

Isn't accountability great.

so the brokers are car dealers and the mtg backed securities are Audi's and VW's that just came out of warranty.

Thanks Wayne, that was a great cartoon IMO.

I've shared that with some of my business associates.
Really cuts to the chase of the whole matter.

"Unbelievable!"

Ok, so who here on the board is being foreclosed on because you didn't understand the terms of your ARM and what it meant when it readjusted? Anyone? Actually, this is a useless post, cause I'll bet no one would admit to it.

Now I get it, I understand cartoons.

Amazing how much of this was predicted in the More Bad RE News thread, years ago.

Subprime = ARM = adjustable rate mortgages which start out below the prime.

The whole problem was caused by Greenspan, as the media is beginning to admit. He dropped rates too low when Bush took office in 2000--after raising them too high in the year before elections. Remember "Irrational exuberance" ? When the stock market took off due to the balanced budget--and then collapsed along with business investment when Greenspan raised interest rates. There have been books written about it.

1% CDs meant 2% ARMs. But 2% ARMs became 4-5% ARMs after a few years when interest rates went up again. And some people couldn't afford the doubling of their monthly payments.

The smart people took fixed rate mortgages at 5.-5.5%. Which are now available again, by the way. The same smart people are buying real estate right now. When you hear about it, it will be too late.

That's what "sub-prime" is all about. Never mind the baloney about "unethical" mortgage companies. You always have those.

Inflation, by the way, which is always mentioned as a reason for adjusting interest rates, has been a constant through all this. No correlation whatsoever with interest rates since Clinton.

Low interest rates are necessary for business growth. But not too low.

Subprime=ARM? Are you kidding me? I put 20% down, have a mid-700 FICO and have an ARM. I'm about as A-paper as it gets. Greenspan also did not cause this, as the Fed does not set mortgage interest rates. In fact most ARM's you're talking about are tied to benchmarks that have almost nothing to do with what the Fed does. How many times must it be explained here how mortgage interest rates are determined? Greenspan doesn't decide them. BTW, rumor has it that Greenspan has or had an MTA or Option ARM on his own house.

The best part of Greenspan, to me, was when at the height of a VERY obvious housing bubble (pretty clear it was going to be the biggest in human history), he flatly said "There is no housing bubble."

When he said that, he lost all credibility to me. It demonstrated that he is either a clueless idiot, or just another politician playing a political role.

It is true that the Fed doesn't directly determine mortgage rates, and in fact the Fed rate can go down and mortgage rates go up (and vice versa), depending on conditions and other variables.

But in general, mortgage rates *tend* to move with the Fed interest rate.

My brother, in the jolly old UK is going to be hit by this soon, he has a ARM and in June the rate goes up. He still believes that because his house value has increased that he is better off...... not much I can do.

My own story is I lived in the middle east for 5 years and came back to the UK for a holiday, saw with my now ex-wife a condo we could buy. Mortgage agent asked me my income.... "in the UK nothing"..."no, problem"
An ARM was signed by me that day, we came back and stayed in the place 8 months or so, saw the increasing payments, sold (for a profit) and now with two incomes in the UK got a better rate on the next condo. After that, of course, it went downhill till the eventual divorce.