On Fri, 10 Oct 2008 14:09:55 -0500, "jlrogers±³©"
wrote:


wrote in message
...
...something you'd rather sweep under the rug in the rush to blame
those evil libby-rull Democrats!

Dave wrote:
Nope. I blame the failures of the investment banks on their own stupidity
in
over-leveraging their capital and their undue concentration of assets.
The
guvmint should have let all of them run to the bankruptcy courts if they
couldn't continue to meet their obligations, instead of bailing them out.

OK, good so far.

The only problem I have is that if we simply let the banks fail in an
economy that has grown increasingly dependent on credit.... addicted
to it, you might say.... then failure will spread quickly thru every
level of the economy. Bank failure was one of the tripwires of the
Great Depression.

But apparently Thunder doesn't know the difference between a bank and an
investment bank. No one who did would mention CRA in the same sentence
with
investment bank. That's why I suggested he take a nap while those who
know
something about the subject discuss it.

I think I got it.

We have a financial crisis caused by the CRA and commercial banks
giving mortgages to unsuitable lenders. But the investment banks have
nothing at all to do with the CRA and they're the biggest part of this
crisis.

Maybe you can explain just a little further Dave. You may be making a
leap of faith here that I can't follow....

DSK

Many investment banks bought huge amounts of the mortgages and packaged them
into "Collateralized Mortgage Obligations" ("CMO"), slicing and dicing the
packages into multiple tranches and then selling the various tranches to
investors, including banks, private investors, and hedge funds. The MBA's
on Wall Street kept getting wilder and wilder until no one knew what they
were buying anymore, or what the CMOs were worth. When rates went up and
mortgage holders with adjustable rate mortgages started defaulting some of
the higher yielding tranches (riskier tranches) cash flow became impaired
and investors started asking hard questions. The answers scared them and
they quit buying. Market values fell, mark to market rules required write
downs, and now we are in free fall.

And it didn't help that the lowest yielding, most secure tranches
were often rated AAA by the rating agencies, so investors thought they
were getting a sound investment. It turns out that many of those so
called triple A's became riddled with defaults.

But Doug, when problem solving you always need to look for root cause.
The red X in statistical DOE terms. There are many contributing
factors, however the root cause, the red X is simply setting up a
system to give people who could not afford these properties and loans
in the first place a way to get them with no skin in the game. That's
why I blame the dems. Just another social engineering experiment gone
bad.

If the systems were not set up, they wouldn't get the loans, they
wouldn't get the properties, they wouldn't default the loans, the
loan originators, incentified by commission and no skin in the game
wouldn't have sprouted on every street corner, the stinky CMO's would
never have been created, the CEO's of Fannie and Freddie would not
have become multimillionaires based on an incentive system that
resulted from quantitiy of loans made, demand for housing wouldn't
have accelerated artificially driving prices higher, and the list goes
on.........

On the other side of the once heated market is the pre-construction
flipper. Another entity with no skin in the game, but at least in
that game someone other than the taxpayer had to take the hit.

Frank