quote:

Originally posted by Krypton They do, it's called a real estate license. And real estate agents simply sell houses. They did not cause this housing crisis.

True--they did not control the purse strings or the lending standards, but they were certainly cheerleaders. I'd say anybody who was incentivized by the selling of houses was in some way an active participant in perpetuating a euphoric mania. Didn't directly cause it but are not innocent.

Mainly, I think we shouldn't loan money to irresponsible people. I also don't think we should give free things away to irresponsible people. I definitely think we should let the the American auto industry fail, they're ridiculously pathetic. Boo on bailouts.

quote:

Originally posted by Shakka True--they did not control the purse strings or the lending standards, but they were certainly cheerleaders. I'd say anybody who was incentivized by the selling of houses was in some way an active participant in perpetuating a euphoric mania. Didn't directly cause it but are not innocent.

real estate agents were more than cheerleaders. They were the faux specialist in real estate finance that told even dumber purchasers that they could afford to purchase a house at an inflated value because they had a low monthly payment.

quote:

Originally posted by Krypton It's not supposed to be a long term solution.

that's fair enough. My point was that giving banks loans for short term liquidity doesn't do much to support banks for the long term because the loans from the fed will have to be repaid and the banks will need to write off the bad mortgages. That is, the banks need to replace the bad mortgages with assets, not liabilities.

quote:

Originally posted by Krypton The banks took huge real estate risk and now they are paying for it. The government should be doing only what is needed to prevent a systemic collapse of the economy. You asked, 'what level of would real estate be a systemic risk?' Well, I believe there is no level at which real estate is a systemic risk.

how could mass foreclosures NOT be a systematic risk to the economy that relies so heavily on consumer spending and financial services?

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Originally posted by jerZ07002 that's fair enough. My point was that giving banks loans for short term liquidity doesn't do much to support banks for the long term because the loans from the fed will have to be repaid and the banks will need to write off the bad mortgages. That is, the banks need to replace the bad mortgages with assets, not liabilities.

It was more about reassuring the markets that the banks were not insolvent and preventing bank runs and other stuff like that.

quote:

how could mass foreclosures NOT be a systematic risk to the economy that relies so heavily on consumer spending and financial services?

Because one foreclosure does not pose a systemic risk. The failing of an AIG or Citigroup could very well pose a systemic risk. Now what about mass foreclosures? I think it is a different thing than a "too big to fail" bank. Besides, foreclosed houses are relatively easy to sell, whereas, mortgage-backed securities were basically impossible to sell. It's a difference in liquidity that makes them different. A house can be sold. A mortgage-backed security can't.

quote:

Originally posted by Krypton Because one foreclosure does not pose a systemic risk. The failing of an AIG or Citigroup could very well pose a systemic risk. Now what about mass foreclosures? I think it is a different thing than a "too big to fail" bank. Besides, foreclosed houses are relatively easy to sell, whereas, mortgage-backed securities were basically impossible to sell. It's a difference in liquidity that makes them different. A house can be sold. A mortgage-backed security can't.

that a gross over-simplification.

If a single bank has too many foreclosures that bank will have a run on liquidity not much different than if depsitors withdrew a similar amount.

I understand what you are trying to say (even though i think it's wrong), however, you actually have the liquidity of the assets in reverse order. Houses and other real property are not a liquid assets (in certain cases it can take years to monitize real property - hence the creation of REITs to invest in real estate), whereas, in normal times a MBS is a very liquid asset (normally takes less than a day to monetize a MBS). The problem is the assets backing the securities to which you are referring are worth nothing (promises to pay from deadbeats), not that there is anything fundamentally wrong with MBSs. The other issue is that banks are not in the business of selling real estate, so if the real estate if foreclosed upon, the bank is likely to lose a significant amount of money.

FYI - many of the MBS held by banks are still producing revenue streams. The banks had to write down their value because the lower tranches of the securities (the speculative securities) were realizing losses, which increased the chances that the higher priority securities would take losses. Write down does not mean the revenue stream was eliminated (certainly in some cases the revenue from these securities took a hit). On the other hand, once a home goes into foreclosure, the revenue stream from the note stops. To add to that, there are laws that protect homeowners from foreclosure that could drag out the process for up to a year or more, the whole time the bank is collecting nothing. Then, after the bank finally gets the 'tenants' out of the property, the bank, in many situations, is not willing to sell the property for much less than the amount of the mortgage, which could be as much as 30-50% above the current market value. So, in reality, while you think it's easy to sell a foreclosed home, banks actually hang onto the home and collect nothing because if they sell they are guaranteed a loss, plus expenses associated with all the service fees.

quote:

Originally posted by jerZ07002 that a gross over-simplification. If a single bank has too many foreclosures that bank will have a run on liquidity not much different than if depsitors withdrew a similar amount. I understand what you are trying to say (even though i think it's wrong), however, you actually have the liquidity of the assets in reverse order. Houses and other real property are not a liquid assets (in certain cases it can take years to monitize real property - hence the creation of REITs to invest in real estate), whereas, in normal times a MBS is a very liquid asset (normally takes less than a day to monetize a MBS). The problem is the assets backing the securities to which you are referring are worth nothing (promises to pay from deadbeats), not that there is anything fundamentally wrong with MBSs. The other issue is that banks are not in the business of selling real estate, so if the real estate if foreclosed upon, the bank is likely to lose a significant amount of money. FYI - many of the MBS held by banks are still producing revenue streams. The banks had to write down their value because the lower tranches of the securities (the speculative securities) were realizing losses, which increased the chances that the higher priority securities would take losses. Write down does not mean the revenue stream was eliminated (certainly in some cases the revenue from these securities took a hit). On the other hand, once a home goes into foreclosure, the revenue stream from the note stops. To add to that, there are laws that protect homeowners from foreclosure that could drag out the process for up to a year or more, the whole time the bank is collecting nothing. Then, after the bank finally gets the 'tenants' out of the property, the bank, in many situations, is not willing to sell the property for much less than the amount of the mortgage, which could be as much as 30-50% above the current market value. So, in reality, while you think it's easy to sell a foreclosed home, banks actually hang onto the home and collect nothing because if they sell they are guaranteed a loss, plus expenses associated with all the service fees.

I never said there was anything fundamentally wrong with an MBS. I was referring to the fact, as you mentioned, the assets are bad. And because of that, few if any want to buy MBS's.

quote:

Originally posted by Krypton I never said there was anything fundamentally wrong with an MBS. I was referring to the fact, as you mentioned, the assets are bad. And because of that, few if any want to buy MBS's.

The fed bought $94.5 billion last week alone. That's only a few thousand for every non-government worker in America...no biggie.

Isn't this a case of the chickens coming home to roost though?
I thought the gov down there gave the mortgage companies incentives for creating mortgages in the first place?

It's just too bad it's the taxpayer that gets screwed in the end...

___________________
"...End? No, the journey doesn't end here. Death is just another path...one that we all must take.
The grey rain-curtain of this world rolls back, and all change to silver glass...and then you see it...
...white shores...and beyond...the far green country under a swift sunrise."

quote:

Originally posted by Capitalizt The fed bought $94.5 billion last week alone. That's only a few thousand for every non-government worker in America...no biggie.

Who cares? They aren't planning on keeping them forever. They are going to sell them again. And probably for more than they were bought for since they are currently selling at fire sale prices. The Fed in buying these securities seems to be creating demand which could encourage private institutions to take note and step back into the deep end.