Debt Ceiling Debacle 2013: It's the End of the World As We Know It and the GOP Feels Fine

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  • SerukoSeruko Ferocious Kitten of The Farthest NorthRegistered User regular
    edited January 2013
    it may be important to note: we've already passed the debt ceiling.
    http://livewire.talkingpointsmemo.com/entry/treasury-borrowing-from-pension-fund-after-passing-debt

    Seruko on
    "How are you going to play Dota if your fingers and bitten off? You can't. That's how" -> Carnarvon
    "You can be yodeling bear without spending a dime if you get lucky." -> reVerse
    "In the grim darkness of the future, we will all be nurses catering to the whims of terrible old people." -> Hacksaw
    "In fact, our whole society will be oriented around caring for one very decrepit, very old man on total life support." -> SKFM
    I mean, the first time I met a non-white person was when this Vietnamese kid tried to break my legs but that was entirely fair because he was a centreback, not because he was a subhuman beast in some zoo ->yotes
  • SerukoSeruko Ferocious Kitten of The Farthest NorthRegistered User regular
    It is kinda hard to not laugh in their faces after that. They're like my incarnated example of market failure.

    You want to know something scary? Those same collateralized debt obligations are hitting the market again in a big way. Some are even getting rated again.

    .......................

    .......................

    What the fuck?

    Welcome to like 2009?

    "How are you going to play Dota if your fingers and bitten off? You can't. That's how" -> Carnarvon
    "You can be yodeling bear without spending a dime if you get lucky." -> reVerse
    "In the grim darkness of the future, we will all be nurses catering to the whims of terrible old people." -> Hacksaw
    "In fact, our whole society will be oriented around caring for one very decrepit, very old man on total life support." -> SKFM
    I mean, the first time I met a non-white person was when this Vietnamese kid tried to break my legs but that was entirely fair because he was a centreback, not because he was a subhuman beast in some zoo ->yotes
  • spacekungfumanspacekungfuman Poor and minority-filled Registered User, __BANNED USERS regular
    It is kinda hard to not laugh in their faces after that. They're like my incarnated example of market failure.

    You want to know something scary? Those same collateralized debt obligations are hitting the market again in a big way. Some are even getting rated again.

    .......................

    .......................

    What the fuck?

    People are really excited about them actually, especially the unrated ones which carry a higher potential upside. There is literally competition among investors to buy in, because they aren't being offered in large enough numbers to meet demand. The operating theory seems to be that all the bad risk is already gone. . .

  • AManFromEarthAManFromEarth Let's get to twerk! The King in the SwampRegistered User regular
    It is kinda hard to not laugh in their faces after that. They're like my incarnated example of market failure.

    You want to know something scary? Those same collateralized debt obligations are hitting the market again in a big way. Some are even getting rated again.

    .......................

    .......................

    What the fuck?

    People are really excited about them actually, especially the unrated ones which carry a higher potential upside. There is literally competition among investors to buy in, because they aren't being offered in large enough numbers to meet demand. The operating theory seems to be that all the bad risk is already gone. . .

    Oh for fuck's sake.

    Lh96QHG.png
    Captain CarrotJihadJesusGennenalyse Ruebenoverride367Mild Confusionemp123jdarksunLovelyzagdrobTheCanManCommunistCowSquigieshrykeMuddypaws
  • ChanusChanus Ribbit! Registered User regular
    It is kinda hard to not laugh in their faces after that. They're like my incarnated example of market failure.

    You want to know something scary? Those same collateralized debt obligations are hitting the market again in a big way. Some are even getting rated again.

    .......................

    .......................

    What the fuck?

    People are really excited about them actually, especially the unrated ones which carry a higher potential upside. There is literally competition among investors to buy in, because they aren't being offered in large enough numbers to meet demand. The operating theory seems to be that all the bad risk is already gone. . .

    So, what you're saying is, there is no intelligence test for finance.

    **Winner Softest and Most Comfy Hugs Award Summer 2018**

    Blueberrywerewlf on the Sony Anime Games Box | BluberryWerewlf on the BroBone
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  • AManFromEarthAManFromEarth Let's get to twerk! The King in the SwampRegistered User regular
    I swear to god, if you people crash the global economy again I'm going to just declare myself emperor and build a castle.

    Lh96QHG.png
  • MillMill Registered User regular
    It is kinda hard to not laugh in their faces after that. They're like my incarnated example of market failure.

    You want to know something scary? Those same collateralized debt obligations are hitting the market again in a big way. Some are even getting rated again.

    .......................

    .......................

    What the fuck?

    People are really excited about them actually, especially the unrated ones which carry a higher potential upside. There is literally competition among investors to buy in, because they aren't being offered in large enough numbers to meet demand. The operating theory seems to be that all the bad risk is already gone. . .

    So further proof that players in the market aren't rational actors, which is also proof of why we need certain regulations because there are assholes willing to fuck people over, as well as, dumbasses.

    ChanusAManFromEarthCaptain CarrotArdolGnizmoHacksawGennenalyse Ruebenoverride367jdarksunLovelyzagdrobfugacityAngelHedgieCommunistCowSquigieshrykeMuddypaws
  • spacekungfumanspacekungfuman Poor and minority-filled Registered User, __BANNED USERS regular
    Mill wrote: »
    It is kinda hard to not laugh in their faces after that. They're like my incarnated example of market failure.

    You want to know something scary? Those same collateralized debt obligations are hitting the market again in a big way. Some are even getting rated again.

    .......................

    .......................

    What the fuck?

    People are really excited about them actually, especially the unrated ones which carry a higher potential upside. There is literally competition among investors to buy in, because they aren't being offered in large enough numbers to meet demand. The operating theory seems to be that all the bad risk is already gone. . .

    So further proof that players in the market aren't rational actors, which is also proof of why we need certain regulations because there are assholes willing to fuck people over, as well as, dumbasses.

    To be fair, the trajectory of the last bubble was due to the securities being introduced in small numbers and doing really well, leading to more demand than could be met with the more stable mortgages, and the securitization of really low grade mortgage pools with the blessing of the ratings agencies. The ratings agencies are being much more cautious about stepping back in here now, and without their blessing the junk mortgages (fewer of which even exist now that mortgages are so much harder to obtain) are not marketable. The unrated securities I am seeing now are much lower risk than the AAA rated CDOs that caused the crisis. Still worries me though. . .

  • chrisnlchrisnl Registered User regular
    This calls to mind the ever popular definition of insanity.

    steam_sig.png
    Hacksaw
  • enlightenedbumenlightenedbum Registered User regular
    Can we just throw all of you in prison yet? Jesus. Release the pot offenders to make room.

    Herbert Hoover got 40% of the vote in 1932. Friendly reminder.
    Warren 2020
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  • Captain CarrotCaptain Carrot Alexandria, VARegistered User regular
    SKFM, let me give you some advice that will help the economy, or at least prevent some damage. Tell you colleagues not to be fucking morons, and leave those bonds alone. And if they do end up losing hundreds of millions on it, they can just go fuck themselves.

    AManFromEarthCorehealerHacksawlonelyahavaGennenalyse RuebenMild ConfusionjdarksunzagdrobCommunistCow
  • enc0reenc0re Registered User regular
    edited January 2013
    Mill wrote: »
    It is kinda hard to not laugh in their faces after that. They're like my incarnated example of market failure.

    You want to know something scary? Those same collateralized debt obligations are hitting the market again in a big way. Some are even getting rated again.

    .......................

    .......................

    What the fuck?

    People are really excited about them actually, especially the unrated ones which carry a higher potential upside. There is literally competition among investors to buy in, because they aren't being offered in large enough numbers to meet demand. The operating theory seems to be that all the bad risk is already gone. . .

    So further proof that players in the market aren't rational actors, which is also proof of why we need certain regulations because there are assholes willing to fuck people over, as well as, dumbasses.

    Seems completely rational. All the big players (winners and losers alike) made big money in the process last time. More than what I'll earn in ten lifetimes teaching econ. And nobody went to jail.

    Of course you'd want another bite at that apple.

    EDIT: Let me plug The Big Short at this point. It's a super fun book that gives a great inside account of the financial crisis.

    enc0re on
    tyrannusLovelyfugacityshryke
  • AManFromEarthAManFromEarth Let's get to twerk! The King in the SwampRegistered User regular
    enc0re wrote: »
    Mill wrote: »
    It is kinda hard to not laugh in their faces after that. They're like my incarnated example of market failure.

    You want to know something scary? Those same collateralized debt obligations are hitting the market again in a big way. Some are even getting rated again.

    .......................

    .......................

    What the fuck?

    People are really excited about them actually, especially the unrated ones which carry a higher potential upside. There is literally competition among investors to buy in, because they aren't being offered in large enough numbers to meet demand. The operating theory seems to be that all the bad risk is already gone. . .

    So further proof that players in the market aren't rational actors, which is also proof of why we need certain regulations because there are assholes willing to fuck people over, as well as, dumbasses.

    Seems completely rational. All the big players (winners and losers alike) made big money in the process last time. More than what I'll earn in ten lifetimes teaching econ. And nobody went to jail.

    Of course you'd want another bite at that apple.

    Eat the rich, burn their phones.

    Got it.

    Lh96QHG.png
    Kid PresentableHacksawIncenjucarjdarksunzagdrob
  • spacekungfumanspacekungfuman Poor and minority-filled Registered User, __BANNED USERS regular
    edited January 2013
    The banks were the biggest loser the last go around. But there isn't any reason that CDOs with mortgages that will continue to be paid are an especially bad thing to securitize. People securitize weird things all the time, like the income stream from apartment washing machines or the maintenance of airplanes. The problem last time arose when a class of assets were massively overvalued because the rating agencies assessed that they were safer than they actually were and then everyone bought them because why wouldn't you buy a AAA security with tremendous upside? That shouldn't happen again, but if it does, I will agree that Anton who falls for it is an idiot, and I will be happy to sell them my securitized income stream from tolls I collect from the Brooklyn bridge.

    spacekungfuman on
  • AManFromEarthAManFromEarth Let's get to twerk! The King in the SwampRegistered User regular
    The banks were the biggest loser the last go around. But there isn't any reason that CDOs with mortgages that will continue to be paid are an especially bad thing to securitize. People securitize weird things all the time, like the income stream from apartment washing machines or the maintenance of airplanes. The problem last time arose when a class of assets were massively overvalued because the rating agencies assessed that they were safer than they actually were and then everyone bought them because why wouldn't you buy a AAA security with tremendous upside? That shouldn't happen again, but if it does, I will agree that Anton who falls for it is an idiot, and I will be happy to sell them my securitized income stream from tolls I collect from the Brooklyn bridge.

    Hahaha.

    No. We both know that this is crap.

    Lh96QHG.png
    Captain CarrotenlightenedbumHacksawGennenalyse RuebenHachfacejdarksunLovelyzagdrob
  • a5ehrena5ehren AtlantaRegistered User regular
    The banks were the biggest loser the last go around. But there isn't any reason that CDOs with mortgages that will continue to be paid are an especially bad thing to securitize. People securitize weird things all the time, like the income stream from apartment washing machines or the maintenance of airplanes. The problem last time arose when a class of assets were massively overvalued because the rating agencies assessed that they were safer than they actually were and then everyone bought them because why wouldn't you buy a AAA security with tremendous upside? That shouldn't happen again, but if it does, I will agree that Anton who falls for it is an idiot, and I will be happy to sell them my securitized income stream from tolls I collect from the Brooklyn bridge.

    The banks were big losers, but the executives and traders still got 5-8 figure bonuses, even after stuff tanked. Not exactly disincentivizing risky behavior there.

  • Harry DresdenHarry Dresden Registered User regular
    I swear to god, if you people crash the global economy again I'm going to just declare myself emperor and build a castle.

    If? You mean when, right?

    HacksawLovely
  • KalTorakKalTorak One way or another, they all end up in the Undercity.Registered User regular
    It is kinda hard to not laugh in their faces after that. They're like my incarnated example of market failure.

    You want to know something scary? Those same collateralized debt obligations are hitting the market again in a big way. Some are even getting rated again.

    .......................

    .......................

    What the fuck?

    People are really excited about them actually, especially the unrated ones which carry a higher potential upside. There is literally competition among investors to buy in, because they aren't being offered in large enough numbers to meet demand. The operating theory seems to be that all the bad risk is already gone. . .

    Wait, you mean like "I flipped this coin 5 times and got all heads, so my next flip is sure to be a tails!"?

    Kid Presentable
  • spacekungfumanspacekungfuman Poor and minority-filled Registered User, __BANNED USERS regular
    KalTorak wrote: »
    It is kinda hard to not laugh in their faces after that. They're like my incarnated example of market failure.

    You want to know something scary? Those same collateralized debt obligations are hitting the market again in a big way. Some are even getting rated again.

    .......................

    .......................

    What the fuck?

    People are really excited about them actually, especially the unrated ones which carry a higher potential upside. There is literally competition among investors to buy in, because they aren't being offered in large enough numbers to meet demand. The operating theory seems to be that all the bad risk is already gone. . .

    Wait, you mean like "I flipped this coin 5 times and got all heads, so my next flip is sure to be a tails!"?

    More like the bad securitized mortgages stopped existing as securities and now the diminishing number of bad mortgages (obtaining one is much tougher now) are not themselves being securitized. Put another way, the government and fed took on the bad mortgages which did not default, so they already absorbed the worst securities.

  • AManFromEarthAManFromEarth Let's get to twerk! The King in the SwampRegistered User regular
    Isn't the Fed still buying up bad mortgages or something as a new wave of QE since Congress is incapable of pulling its head out of its ass for more than five minutes a month?

    Lh96QHG.png
  • schussschuss Registered User regular
    So how long before demand ramps up enough for banks to put pressure on ratings agencies and mortgage brokers to create more mortgages to turn into securities?
    They probably all think they'll be smart enough to foist shit off on the next Bear Stearns.
    For such smart people, I-Bankers are fucking irresponsible morons.

  • Salvation122Salvation122 Registered User regular
    I swear to god, if you people crash the global economy again I'm going to just declare myself emperor and build a castle.

    The... the Emperor Protects?

    No-QuarterHacksaw
  • SavantSavant Registered User regular
    edited January 2013
    About choosing which bills to pay, and "can't we maybe still keep the government kind of functional if we have some tax revenue?" The answer appears to be no. Here's an article that goes into detail: washingtonpost.com/blogs/wonkblog/wp/2013/01/14/if-we-hit-the-debt-ceiling-can-obama-choose-which-bills-to-pay/?wprss=rss_ezra-klein&wpisrc=nl_wonk

    Short version: the Treasury makes 80 MILLION seperate payments a month. Trying to sort through all that and prioritize would almost certainly be unworkable. Bond payments would probably be prioritized, and after that it'd be a clusterfuck.

    And as long as we honor our bonds, noone will care what the rating agencies say.

    From earlier in the thread:

    Damaging our credit is a funny thing. The rating agencies rate US treasuries, but the ratings are not that meaningful, because everyone is so familiar with the US. There was a lot of wailing and rending of clothing back when we were downgraded, because people thought that would result in default under a lot of credit agreements, but those people clearly don't work on them, because ratings never apply to US Treasuries. You might see a provision that requires that money be invested in US Treasuries or AAA rated bonds, but you never see the AAA qualifier applied to US treasury debt, because it is just assumed to be riskless.
    If we continue to pay our debt service but stop providing services to out citizens, there will be a lot of repercussions, and we may even see our treasuries be downgraded in response, but if anything, such dedication to making the payments would help our credibility with lenders, not hurt us in real terms.

    I'm going to have to disagree with you there, chief. I know a lot of big companies like stringing along the folks they owe money to for awhile, but there are serious legal consequences if they push that too far and the other side can lawyer up well enough. For the government, violating contracts left and right to pay off existing bonds because the debt ceiling is hit will cause a gigantic legal clusterfuck, and gigantic legal clusterfucks over whose bills get paid are not the sort of thing that engender any sort of confidence in that government's abilities to meet their responsibilities across the board.

    What backs US Treasuries is the US government's word that they are good for it and will pay them back. If the government breaks its word that it is good for it for the other folks it owes money due to an unforced political blunder, then its word is worth a whole lot less in general, including for the bondholders.

    Edit: To be clearer, I'm on board with the "ratings agencies can go screw themselves" sentiment and what they say won't matter that much. But the underlying dynamic of the government choosing to default on its contractual obligations outside of the bonds will still screw up everything, and the ratings agencies will just be Johnny-come-latelies pointing out that everything is screwed up. The US government wouldn't be the first government using "uh, the check is in the mail" type excuses and getting in trouble paying their bills, and the markets tend to not look that kindly at that sort of behavior.

    Savant on
  • DevoutlyApatheticDevoutlyApathetic Registered User regular
    enc0re wrote: »
    Mill wrote: »
    It is kinda hard to not laugh in their faces after that. They're like my incarnated example of market failure.

    You want to know something scary? Those same collateralized debt obligations are hitting the market again in a big way. Some are even getting rated again.

    .......................

    .......................

    What the fuck?

    People are really excited about them actually, especially the unrated ones which carry a higher potential upside. There is literally competition among investors to buy in, because they aren't being offered in large enough numbers to meet demand. The operating theory seems to be that all the bad risk is already gone. . .

    So further proof that players in the market aren't rational actors, which is also proof of why we need certain regulations because there are assholes willing to fuck people over, as well as, dumbasses.

    Seems completely rational. All the big players (winners and losers alike) made big money in the process last time. More than what I'll earn in ten lifetimes teaching econ. And nobody went to jail.

    Of course you'd want another bite at that apple.

    EDIT: Let me plug The Big Short at this point. It's a super fun book that gives a great inside account of the financial crisis.

    You have a strange definition of fun. Unless you like hating the financial system I would have trouble describing the book as "fun".

    It is a very good read though.

  • SavantSavant Registered User regular
    edited January 2013
    Isn't the Fed still buying up bad mortgages or something as a new wave of QE since Congress is incapable of pulling its head out of its ass for more than five minutes a month?

    They've been buying up agency mortgage backed securities, which are the mortgage mush that is backed up by Fannie Mae, Freddie Mac, and Ginnie Mae. And those guys have been propped up the federal government, so its a bit of a giant circle jerk.

    The supposed purpose of that sort of thing was to lower long term interest rates, since they are stuck at the zero lower bound for short term interest rates now. It's sort of hard to tell how effective this sort of unconventional monetary policy has been, as the Federal Reserve is stuck pushing on a string when it comes to what it would normally do.

    Not the best of things for mortgage REITs, but that is an aside.

    Savant on
  • spacekungfumanspacekungfuman Poor and minority-filled Registered User, __BANNED USERS regular
    schuss wrote: »
    So how long before demand ramps up enough for banks to put pressure on ratings agencies and mortgage brokers to create more mortgages to turn into securities?
    They probably all think they'll be smart enough to foist shit off on the next Bear Stearns.
    For such smart people, I-Bankers are fucking irresponsible morons.

    Two things. First you need to remember that when people were investing in the Securitized mortgages they knew what type of mortgage pools they were buying into. The theory behind buying the higher risk mortgage pools wasn't that each mortgage was as strong as the mortgages in the more expensive asset classes. It was that even accepting a higher risk of default, the size of the pools meant you would still win. This was their mistake, and it is in part on the rating agencies, who made these classes of securities look much safer than they really were.

    Second, the guys making these investments weren't sitting in the corner offices. These were small, low prestige investment units that swelled in prominence at a frightening rate. To be honest, it kind of reminded me of looking at Maddoff's "returns" before the hammer fell.

  • AManFromEarthAManFromEarth Let's get to twerk! The King in the SwampRegistered User regular
    edited January 2013
    To be honest, it kind of reminded me of looking at Maddoff's "returns" before the hammer fell.

    That sounds about right.

    AManFromEarth on
    Lh96QHG.png
  • spacekungfumanspacekungfuman Poor and minority-filled Registered User, __BANNED USERS regular
    edited January 2013
    Savant wrote: »
    About choosing which bills to pay, and "can't we maybe still keep the government kind of functional if we have some tax revenue?" The answer appears to be no. Here's an article that goes into detail: washingtonpost.com/blogs/wonkblog/wp/2013/01/14/if-we-hit-the-debt-ceiling-can-obama-choose-which-bills-to-pay/?wprss=rss_ezra-klein&wpisrc=nl_wonk

    Short version: the Treasury makes 80 MILLION seperate payments a month. Trying to sort through all that and prioritize would almost certainly be unworkable. Bond payments would probably be prioritized, and after that it'd be a clusterfuck.

    And as long as we honor our bonds, noone will care what the rating agencies say.

    From earlier in the thread:

    Damaging our credit is a funny thing. The rating agencies rate US treasuries, but the ratings are not that meaningful, because everyone is so familiar with the US. There was a lot of wailing and rending of clothing back when we were downgraded, because people thought that would result in default under a lot of credit agreements, but those people clearly don't work on them, because ratings never apply to US Treasuries. You might see a provision that requires that money be invested in US Treasuries or AAA rated bonds, but you never see the AAA qualifier applied to US treasury debt, because it is just assumed to be riskless.
    If we continue to pay our debt service but stop providing services to out citizens, there will be a lot of repercussions, and we may even see our treasuries be downgraded in response, but if anything, such dedication to making the payments would help our credibility with lenders, not hurt us in real terms.

    I'm going to have to disagree with you there, chief. I know a lot of big companies like stringing along the folks they owe money to for awhile, but there are serious legal consequences if they push that too far and the other side can lawyer up well enough. For the government, violating contracts left and right to pay off existing bonds because the debt ceiling is hit will cause a gigantic legal clusterfuck, and gigantic legal clusterfucks over whose bills get paid are not the sort of thing that engender any sort of confidence in that government's abilities to meet their responsibilities across the board.

    What backs US Treasuries is the US government's word that they are good for it and will pay them back. If the government breaks its word that it is good for it for the other folks it owes money due to an unforced political blunder, then its word is worth a whole lot less in general, including for the bondholders.

    Edit: To be clearer, I'm on board with the "ratings agencies can go screw themselves" sentiment and what they say won't matter that much. But the underlying dynamic of the government choosing to default on its contractual obligations outside of the bonds will still screw up everything, and the ratings agencies will just be Johnny-come-latelies pointing out that everything is screwed up. The US government wouldn't be the first government using "uh, the check is in the mail" type excuses and getting in trouble paying their bills, and the markets tend to not look that kindly at that sort of behavior.

    I think it's all a matter duration. If the government defaults on its obligations for a long enough time then yes confidence will drop for all constituencies. But if they only default for a short period time and that short default is enough to get us to a deal, which is what I think is much more realistic than expecting a long-term default, then having prioritized our treasury obligations should help mitigate the reputational harm.

    spacekungfuman on
  • HacksawHacksaw J. Duggan Esq. Wrestler at LawRegistered User regular
    I swear to god, if you people crash the global economy again I'm going to just declare myself emperor and build a castle.

    The... the Emperor Protects?

    Dibs on Supreme Commander of the Adeptus Astartes.

  • DivideByZeroDivideByZero Social Justice Blackguard Registered User regular
    Mill wrote: »
    It is kinda hard to not laugh in their faces after that. They're like my incarnated example of market failure.

    You want to know something scary? Those same collateralized debt obligations are hitting the market again in a big way. Some are even getting rated again.

    .......................

    .......................

    What the fuck?

    People are really excited about them actually, especially the unrated ones which carry a higher potential upside. There is literally competition among investors to buy in, because they aren't being offered in large enough numbers to meet demand. The operating theory seems to be that all the bad risk is already gone. . .

    So further proof that players in the market aren't rational actors, which is also proof of why we need certain regulations because there are assholes willing to fuck people over, as well as, dumbasses.

    To be fair, the trajectory of the last bubble was due to the securities being introduced in small numbers and doing really well, leading to more demand than could be met with the more stable mortgages, and the securitization of really low grade mortgage pools with the blessing of the ratings agencies. The ratings agencies are being much more cautious about stepping back in here now, and without their blessing the junk mortgages (fewer of which even exist now that mortgages are so much harder to obtain) are not marketable. The unrated securities I am seeing now are much lower risk than the AAA rated CDOs that caused the crisis. Still worries me though. . .

    I may be betraying my ignorance here, but if they're unrated, how do you know they're lower risk?

    First they came for the Muslims, and we said NOT TODAY, MOTHERFUCKERS
  • SavantSavant Registered User regular
    Mill wrote: »
    It is kinda hard to not laugh in their faces after that. They're like my incarnated example of market failure.

    You want to know something scary? Those same collateralized debt obligations are hitting the market again in a big way. Some are even getting rated again.

    .......................

    .......................

    What the fuck?

    People are really excited about them actually, especially the unrated ones which carry a higher potential upside. There is literally competition among investors to buy in, because they aren't being offered in large enough numbers to meet demand. The operating theory seems to be that all the bad risk is already gone. . .

    So further proof that players in the market aren't rational actors, which is also proof of why we need certain regulations because there are assholes willing to fuck people over, as well as, dumbasses.

    To be fair, the trajectory of the last bubble was due to the securities being introduced in small numbers and doing really well, leading to more demand than could be met with the more stable mortgages, and the securitization of really low grade mortgage pools with the blessing of the ratings agencies. The ratings agencies are being much more cautious about stepping back in here now, and without their blessing the junk mortgages (fewer of which even exist now that mortgages are so much harder to obtain) are not marketable. The unrated securities I am seeing now are much lower risk than the AAA rated CDOs that caused the crisis. Still worries me though. . .

    I may be betraying my ignorance here, but if they're unrated, how do you know they're lower risk?

    I would assume he is saying they are less risky because they are filled with less garbage than the CDOs were leading up to the crash. Given how much the banks have tightened up their standards on lending and mortgages relative to the insanity of the housing boom, that wouldn't be too much of a surprise since there should be a lot less new garbage mortgages floating around now.

    Remember, the ratings don't just come into being from nothing, the ratings agencies are supposed to analyze the bonds or whatnot and come up with a rating based on what they determine their risk to be. They just failed monumentally in that task leading up to the financial crisis by stamping AAA ratings on crap, probably to a large extent due to the fact that it was in the rating agency's financial interest to sign off on whatever the Wall St. big boys were pushing their way.

    spacekungfuman
  • spacekungfumanspacekungfuman Poor and minority-filled Registered User, __BANNED USERS regular
    Mill wrote: »
    It is kinda hard to not laugh in their faces after that. They're like my incarnated example of market failure.

    You want to know something scary? Those same collateralized debt obligations are hitting the market again in a big way. Some are even getting rated again.

    .......................

    .......................

    What the fuck?

    People are really excited about them actually, especially the unrated ones which carry a higher potential upside. There is literally competition among investors to buy in, because they aren't being offered in large enough numbers to meet demand. The operating theory seems to be that all the bad risk is already gone. . .

    So further proof that players in the market aren't rational actors, which is also proof of why we need certain regulations because there are assholes willing to fuck people over, as well as, dumbasses.

    To be fair, the trajectory of the last bubble was due to the securities being introduced in small numbers and doing really well, leading to more demand than could be met with the more stable mortgages, and the securitization of really low grade mortgage pools with the blessing of the ratings agencies. The ratings agencies are being much more cautious about stepping back in here now, and without their blessing the junk mortgages (fewer of which even exist now that mortgages are so much harder to obtain) are not marketable. The unrated securities I am seeing now are much lower risk than the AAA rated CDOs that caused the crisis. Still worries me though. . .

    I may be betraying my ignorance here, but if they're unrated, how do you know they're lower risk?

    Because you get a prospectus describing the characteristics of the investment and are able to assess the risk that way. Rating agencies are black boxes which we now know are not even neccesarily reliable as risk assessors.

  • DivideByZeroDivideByZero Social Justice Blackguard Registered User regular
    Okay, makes sense.

    First they came for the Muslims, and we said NOT TODAY, MOTHERFUCKERS
  • schussschuss Registered User regular
    schuss wrote: »
    So how long before demand ramps up enough for banks to put pressure on ratings agencies and mortgage brokers to create more mortgages to turn into securities?
    They probably all think they'll be smart enough to foist shit off on the next Bear Stearns.
    For such smart people, I-Bankers are fucking irresponsible morons.

    Two things. First you need to remember that when people were investing in the Securitized mortgages they knew what type of mortgage pools they were buying into. The theory behind buying the higher risk mortgage pools wasn't that each mortgage was as strong as the mortgages in the more expensive asset classes. It was that even accepting a higher risk of default, the size of the pools meant you would still win. This was their mistake, and it is in part on the rating agencies, who made these classes of securities look much safer than they really were.

    Second, the guys making these investments weren't sitting in the corner offices. These were small, low prestige investment units that swelled in prominence at a frightening rate. To be honest, it kind of reminded me of looking at Maddoff's "returns" before the hammer fell.

    Errrr, not really. They were buying AAA-rated pools that were actually crap. The AAA rating let people buy them in mass quantity as if they were T-Bills, while getting a better return. No one was checking the mortgage level tapes at the rating agencies or among the buyers to see they were actually filled with garbage.
    Granted, I'm sure plenty of people knew what was really going on, but they were just making way too much money to care about things like "stability" when they could just blame the rating agency and say "THEY WERE AAA!!1"

    You also say it wasn't corner offices buying them, but wasn't it the head of the AIG I-banking unit that SPECIALIZED in this stuff that caused all the trouble and brought them down? Yep. What about Bear Stearns? A few corner offices there; or were.

  • override367override367 ALL minions Registered User regular
    edited January 2013
    the best part of this is the dems will take all the blame since Obama is in office and we'll have a GOP supermajority in 2016 after the fall

    Well probably not, I'm just upset we got such anemic regulation

    If we default though I want at least one pitchfork and torches lynch mob. Well 9mm glocks or ar-15s or something anyway, I'm not sure you can carry sharpened pitchforks and lit torches around legally, they're kind of a safety hazard

    override367 on
  • MillMill Registered User regular
    Thankfully, the GOP did poorly in the last round of elections because most of those fools believe we shouldn't have any regulation to prevent shitty securities from crashing the economy. Now we just need to hope the people running things see that this shit is happening and regulations get tightened a little more so that the chucklefucks investing in this shit only burn down their financial assets without touching the global economy in the process.

    Also in response to encore. Yeah, some of the dumbasses and all the assholes made out like bandits. I'd equate the whole affair to playing Russian Roulette where a few of the participants are wearing bomb vests that will detonate when the wearer's heart ceases beating and each 'survivor' is looking at a big payday. The asshole running the show will do their best to ensure they don't get shot or blown up in the process, while all the idiots will blissfully believe that luck will be on their side.

  • emp123emp123 Registered User regular
    tbloxham wrote: »
    Defaulting on one creditor is enough to shake your confidence in all of them. If you've got 20 credit cards and decide to only pay off 19 of them your overall credit score will still suffer(and those other 19 will probably raise your rates)

    Yes, but in this case it's more like you owe money on 5 credit cards, need to pay the bills on 5 contractors who already did work for you, but you also have 5 contractors who are doing new work, and you promised to pay for your 5 kids to go to school.

    All the expenditure is real and critical, but only 50% represents money already spent, the rest is going concerns which can (disasterously, but not illegally) be stopped.

    Contracted work is legally binding. We might be able to get away with not paying them for a bit but then we'll have 500 million court cases of the government getting sued for a kazillion dollars

    Jokes on them, we shut down the civil courts to save money. Try getting us to pay now suckers!

    camo_sig2.png
  • Void SlayerVoid Slayer Very Suspicious Registered User regular
    edited January 2013
    I swear to god, if you people crash the global economy again I'm going to just declare myself emperor and build a castle.

    Do you need someone who knows just enough biology and chemistry to be called an alchemist for your court?

    So these unrated securities, just a question, how do people know what the realistic risks and benefits they offer are? I mean that is suppose to be the job of the rating agencies, to allow people to negotiate the risk-reward equation with a professional guide. How is this any smarter then dropping a grand on a roulette table and letting it spin?

    I hope to god any pensions that are still left are not allowed to buy these.

    Edit: since the above was answered, who makes the prospectus and is it regulated as to accuracy and what can be omitted.

    Void Slayer on
    He's a shy overambitious dog-catcher on the wrong side of the law. She's an orphaned psychic mercenary with the power to bend men's minds. They fight crime!
  • spacekungfumanspacekungfuman Poor and minority-filled Registered User, __BANNED USERS regular
    schuss wrote: »
    schuss wrote: »
    So how long before demand ramps up enough for banks to put pressure on ratings agencies and mortgage brokers to create more mortgages to turn into securities?
    They probably all think they'll be smart enough to foist shit off on the next Bear Stearns.
    For such smart people, I-Bankers are fucking irresponsible morons.

    Two things. First you need to remember that when people were investing in the Securitized mortgages they knew what type of mortgage pools they were buying into. The theory behind buying the higher risk mortgage pools wasn't that each mortgage was as strong as the mortgages in the more expensive asset classes. It was that even accepting a higher risk of default, the size of the pools meant you would still win. This was their mistake, and it is in part on the rating agencies, who made these classes of securities look much safer than they really were.

    Second, the guys making these investments weren't sitting in the corner offices. These were small, low prestige investment units that swelled in prominence at a frightening rate. To be honest, it kind of reminded me of looking at Maddoff's "returns" before the hammer fell.

    Errrr, not really. They were buying AAA-rated pools that were actually crap. The AAA rating let people buy them in mass quantity as if they were T-Bills, while getting a better return. No one was checking the mortgage level tapes at the rating agencies or among the buyers to see they were actually filled with garbage.
    Granted, I'm sure plenty of people knew what was really going on, but they were just making way too much money to care about things like "stability" when they could just blame the rating agency and say "THEY WERE AAA!!1"

    You also say it wasn't corner offices buying them, but wasn't it the head of the AIG I-banking unit that SPECIALIZED in this stuff that caused all the trouble and brought them down? Yep. What about Bear Stearns? A few corner offices there; or were.

    The mortgage backed CDOs being sold now are all being sold through private placement, to accredited investors who are required by law to be experienced in choosing investments and evaluating risk. For accredited investors, the most important functions of ratings are (1) reassurance and (2) investment allocation mandates (for example, an institutional investor may be limited to a certain percentage of unrated investments).

    It is my understanding that at the start, the people training in the subprime CDOs were very junior, and that CDO investors in general were looked down on relative to other types of investors. This quickly changed as CDOs exploded in the 2000's though, and a whole generation of I-bankers set their sights on getting into those groups. That is how it went from the scrubs in the back to big business that tops guys were interested in.

  • spacekungfumanspacekungfuman Poor and minority-filled Registered User, __BANNED USERS regular
    I swear to god, if you people crash the global economy again I'm going to just declare myself emperor and build a castle.

    Do you need someone who knows just enough biology and chemistry to be called an alchemist for your court?

    So these unrated securities, just a question, how do people know what the realistic risks and benefits they offer are? I mean that is suppose to be the job of the rating agencies, to allow people to negotiate the risk-reward equation with a professional guide. How is this any smarter then dropping a grand on a roulette table and letting it spin?

    I hope to god any pensions that are still left are not allowed to buy these.

    Edit: since the above was answered, who makes the prospectus and is it regulated as to accuracy and what can be omitted.

    The issuer writes the prospectus, and it has to satisfy securities law requirements. Pension plans are investing in CDOs (they actually never stopped) and have moved back into mortgage backed CDOs too. For whatever reason, pension plans seem to especially like mezzanine level debt investments.

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