The Big Short

[RLLD 4,207]

Saying someone who sold their house for market value was a part of this fraud is just plain dumb, and if deflects from who was actually to blame. The ones to blame are the ones that created the artificial market, and made money on the way up, on the way down and then you and I paid again while they stood amongst the rubble they created.

 

It was a perversion of market, not actual market value. The government and banks were effectively in an unholy alliance and it distorted the market away from its proper place. Most emphatically, as I have noted just dozens of times previously, blame should be focused on the government and banks; I am simply noting that we can not pretend the other players should be blameless....and I celebrate the pain they hopefully felt as a result of being active participants....

[RLLD 4,207]

this is ridiculous

 

So then, profit IS a justification for participating in something that will harm others?

[Hardcore troubadour 15,319]

It doesn't matter with people in this country. The U.S. Taxpayer bailed these banks out and they took the money and gave themselves bonuses. And what did we do? Re-elect the same morons who approved it. Keep argunig that it was the home seller and the home buyers fault, and these crooks will sit back and laugh as you do.

[MDC 7,329]

 

It was a perversion of market, not actual market value. The government and banks were effectively in an unholy alliance and it distorted the market away from its proper place. Most emphatically, as I have noted just dozens of times previously, blame should be focused on the government and banks; I am simply noting that we can not pretend the other players should be blameless....and I celebrate the pain they hopefully felt as a result of being active participants....

 

Strike and the person who bought his house were relying on supposed experts (realtors and appraisers) to tell them what the house was worth. Ergo they are blameless.

[DankNuggs 305]

 

So then, profit IS a justification for participating in something that will harm others?

transactions aren't made in a vacuum. Markets are dynamic and constantly changing. If you sell a stock, the buyer may be part of a rising market, or falling market, that is the risk of entering into these transactions. Putting blame and responsibility on people who in no way can predict the future actions of the market is like the Salem witch trials.

[IGotWorms 4,057]

 

Strike and the person who bought his house were relying on supposed experts (realtors and appraisers) to tell them what the house was worth. Ergo they are blameless.

Those people are fraudsters, as are the bankers and hedge fund managers on Wall Street. But there is basically nothing the individual homeowner can do about that

[BLS 314]

So, admittedly I watched this movie last night based on this thread.

 

Thought it was actually very good. Drama included, many stars, broken down for the idiots in Merica.

 

That being said, I forgot how angry I was 7 years ago when this all went down. How the people of this country can have that done to them, savings wiped out, homes lost, jobs lost, businesses lost; and do absolutely nothing when nobody was held accountable; sans the American Taxpayer, is incomprehensible to me.

 

It's really no wonder that the Elites believe they can cherry pick our 'nominee', even so much as to run ads against a person in their own freakin party (like him or not is not the point), and NOBODY does anything.

 

And then I remembered what I felt when I realized the revolution would not be televised. 'Make alternate plans; nobody cares.'

 

It's all truly unbelievable what we've come to.

 

I truly believe the rich and powerful own DC. DC knows there is a game to be played in order to maintain that power.

They know the masses are becoming unruly. That the internet and social media allow for more information and sharing of ideas.

They know there is growing anger within the ranks. The middle class that struggles to live a 'better life' is being squeezed for more. More wars, more taxes, more hours, more consumption.

 

They have the upper hand; they create the rules of the game. When the rules don't suffice, they will divide to conquer. Black vs White, R vs D, poor vs rich, atheist vs religious. The anger brewing inside many American's is caressed and fed, and then quietly yet manipulatively misdirected towards the immigrants, the whites, the blacks, the 'other' side of the political aisle.

 

All the while they dine in glorious halls with lavish meals and drink; fit for a king or queen. Basking in their arrogance that smells of a printing press, they stand together, hand in hand. Because they know, united they stand.

 

They care for nothing but themselves and their power. Anything else is merely lip service, keenly devised to keep us all in line, fat and satisfied. All for the goal to keep the ship going forward, regardless of what iceberg lies ahead.

 

They aren't busy bucketing out the water that seeps into the numerous cracks of this once great ship.

They are busy drilling new holes.

[Hardcore troubadour 15,319]

Google -Citigroup letter to the rich. The problem with the occupy Wall Street a-holes is they were dirty hippies who don't want to work. Maybe they will just keep calling themselves BLM so we can ignore them. But their message about the mega rich being in charge and catered to was true.

[RLLD 4,207]

transactions aren't made in a vacuum. Markets are dynamic and constantly changing. If you sell a stock, the buyer may be part of a rising market, or falling market, that is the risk of entering into these transactions. Putting blame and responsibility on people who in no way can predict the future actions of the market is like the Salem witch trials.

 

Stocks are different, homes are not fungible, the comparison does not fit. Markets do constantly change, and a simple graph easily shows what sellers and buyers certainly understood, prices were wrong.

 

No one us "putting the blame on people" but I am simply noting that to ignore their role, and culpability, is not logical. All involved bear some portion of responsibility, in varying amounts. We can agree to disagree, I am disinclined to pretend that profit is a good enough reason to participate.

 

It's funny that I while I note almost all of the blame is elsewhere, the notion that sellers should have any ethical conduct is perceived as wrong.

[hoytdwow 202]

This and Spotlight are top of my list from last year.

[DankNuggs 305]

 

Stocks are different, homes are not fungible, the comparison does not fit. Markets do constantly change, and a simple graph easily shows what sellers and buyers certainly understood, prices were wrong.

 

No one us "putting the blame on people" but I am simply noting that to ignore their role, and culpability, is not logical. All involved bear some portion of responsibility, in varying amounts. We can agree to disagree, I am disinclined to pretend that profit is a good enough reason to participate.

 

It's funny that I while I note almost all of the blame is elsewhere, the notion that sellers should have any ethical conduct is perceived as wrong.

Homes are fairly fungible. Not are fungible as stocks, but evaluating the value of different homes is somewhat akin to valuing different stocks. What market are they in, what is the condition of the company/house, how are the competitors doing? what are the future expectations of value?

 

Its very noble that you approach personal transactions with an eye toward how your datapoint impacts the overall macro economic picture of the country. Although i think its inferior to simply playing the hand you are dealt to the best of your ability within the rules of the game.

 

People forget that markets go through expansionary and contractionary cycles even when operating in theoretically perfect efficiency. You can't stop it and you can't control it other than to ease the edges a little bit. liquidity and market perversion aside you are going to get contractions, people are going to lose money in the markets, rinse and repeat

[IGotWorms 4,057]

This and Spotlight are top of my list from last year.

I was a little disappointed by Spotlight. Can't put my finger on it but I feel like the movie left something on the table

[Drizzay 717]

When I said "Don't forget to blame the people who bought the houses"...I was talking about the morons that bought a house or multiple houses under the following conditions:

 

1. They had sub 600 credit score

2. They did not have 20% down...or anything close to it

3. They financed using an 80% LTV Adjustable Rate mortgage, and a 20% Interest Only 5 year ARM / 15 year Balloon Mortgage

4. They bought multiple "rental properties", expecting each of those to finance the mortgage of the other.

5. They filed for a Homestead exemption on all of those properties.

6. If they were refinancing, using the above 80/20 loans, they were paying off SEVERAL (10+) credit cards/loans for: additional vehicles, boats, department store cards, jewelry loans, etc. Undoubtedly running those balances back up again

 

I worked in the sub-prime mortgage industry from 2004 to 2009, and closed over a 1000 refinance/purchases during that time. The unbelievable stupidity on the part of the home owners was astounding.

 

Sure, there was the Gov't who made it easier for people to get a loan, and sure there were PLENTY of greedy brokers and lenders...BUT there were more than a fair share of homeowners who were solely to blame for their misfortunes.

[IGotWorms 4,057]

When I said "Don't forget to blame the people who bought the houses"...I was talking about the morons that bought a house or multiple houses under the following conditions:

 

1. They had sub 600 credit score

2. They did not have 20% down...or anything close to it

3. They financed using an 80% LTV Adjustable Rate mortgage, and a 20% Interest Only 5 year ARM / 15 year Balloon Mortgage

4. They bought multiple "rental properties", expecting each of those to finance the mortgage of the other.

5. They filed for a Homestead exemption on all of those properties.

6. If they were refinancing, using the above 80/20 loans, they were paying off SEVERAL (10+) credit cards/loans for: additional vehicles, boats, department store cards, jewelry loans, etc. Undoubtedly running those balances back up again

 

I worked in the sub-prime mortgage industry from 2004 to 2009, and closed over a 1000 refinance/purchases during that time. The unbelievable stupidity on the part of the home owners was astounding.

 

Sure, there was the Gov't who made it easier for people to get a loan, and sure there were PLENTY of greedy brokers and lenders...BUT there were more than a fair share of homeowners who were solely to blame for their misfortunes.

When we're talking about systemic issues their share of the fault is exceedingly minimal.

 

When discussing the individual homeowner kicked out of his house, you may be right.

[mighty_thor 115]

Clinton and high ranking republicans( Sam Nunn) basically told her to be quiet, and shouted her down on the senate floor.

Sam Nunn was a democrat.

[RLLD 4,207]

Homes are fairly fungible. Not are fungible as stocks, but evaluating the value of different homes is somewhat akin to valuing different stocks. What market are they in, what is the condition of the company/house, how are the competitors doing? what are the future expectations of value?

 

Homes are not fungible, not fairly, not at all. Part of the "justification" for home owners to on-up the other sales is this factor. Even within the same neighborhood prices will vary. The footprint of housing is also unique and when that market is perverted, as the government and banksters did and as I noted in 2006 impact can be rather dangerous. As I further noted in 2006 and into 2007, the makings of a catastrophe because of the fraud was well on the way.

 

Its very noble that you approach personal transactions with an eye toward how your datapoint impacts the overall macro economic picture of the country. Although i think its inferior to simply playing the hand you are dealt to the best of your ability within the rules of the game.

 

Nobility aside, each of us must individually decide for ourselves who we intend to be and what values we embrace. Just because I embrace them does not mean others must. But if we are going to pretend that only the banksters and government have a role in the markets morality then I think we have a bigger problem. I did derive some personal pleasure from people like gutter for instance who mimicked the immoral views of strike, and yet when it came home to roost and his investments tanked suddenly it was all so very unfair.....comical really....

 

People forget that markets go through expansionary and contractionary cycles even when operating in theoretically perfect efficiency. You can't stop it and you can't control it other than to ease the edges a little bit. liquidity and market perversion aside you are going to get contractions, people are going to lose money in the markets, rinse and repeat

 

This is true, markets have a cycle, and bubbles are more common in our domestic economy. But never before had the government and banksters allowed the real estate market to run so wildly out of context, never before had the prices soared away from the constraints of salaries and approval guidelines..... the government should have stepped in, the banksters should have acted.....idiot buyers should have avoided......but it was all so easy, and hey....that sh!thole you bought 6 months ago is supposed to be worth 20%-30% more in a year...right? Of course the people who sold just stand off to the side and say "hey, i had an opportunity to profit, and profit is a suitable excuse to do anything. Jeff Skilling says so...."

[DankNuggs 305]

If you've ever read a housing appraisal you see the system they use for valuation is in effect to look at properties in an apples to apples perspective (fungibility). Debits and credits for condition, s.f., # bedrooms, # bathrooms, size of lot, garage spaces etc..etc... It isn't perfect by any means but it gets it pretty close, and rational markets subconsciously do this anyways.

[RLLD 4,207]

If you've ever read a housing appraisal you see the system they use for valuation is in effect to look at properties in an apples to apples perspective (fungibility). Debits and credits for condition, s.f., # bedrooms, # bathrooms, size of lot, garage spaces etc..etc... It isn't perfect by any means but it gets it pretty close, and rational markets subconsciously do this anyways.

 

The difference being that stocks actually are fungible, but houses are not actually, hence the variation in pricing.

 

The basic rules of law and economics assert that all real estate is unique and thus has no other interchangeable

substitute. Where disputes have arisen in real estate transactions the law follows the specific performance and not substitution.

 

Put simply, real estate is not regarded as a fungible commodity.

[DankNuggs 305]

 

The difference being that stocks actually are fungible, but houses are not actually, hence the variation in pricing.

Think of each house as its own stock with a single share. And a CMBS fund basically slices up each house into lots of shares and creates an index type of fund across a vast amount of 'stocks'

[RLLD 4,207]

Think of each house as its own stock with a single share. And a CMBS fund basically slices up each house into lots of shares and creates an index type of fund across a vast amount of 'stocks'

 

Real estate is not a fungible commodity because it does not posses the important charateristic of being traded on a unit price.

 

It is the factor of interchangeability that makes stocks fungible. Real estate is based on the actual sale price, not the sale price per unit.

 

Unlike actual fungible commodities real estate does not have equal utility or value across its respective individual units.

 

Often the illusion of similarity due to certain valuations gives the misperception of fungiblity, but this also distorts the nature and scale of comparable sales too.

 

 

[DankNuggs 305]

 

Real estate is not a fungible commodity because it does not posses the important charateristic of being traded on a unit price.

 

It is the factor of interchangeability that makes stocks fungible. Real estate is based on the actual sale price, not the sale price per unit.

 

Unlike actual fungible commodities real estate does not have equal utility or value across its respective individual units.

 

Often the illusion of similarity due to certain valuations gives the misperception of fungiblity, but this also distorts the nature and scale of comparable sales too.

 

 

Its not misperception, its how the market establishes itself. Commerical real estate values are driven by sales price/unit, or price/s.f.. I deal with valuation models, pro formas and appraisers quite often. Single family is guided by the same overarching principles but as you've mentioned there is alot more variation in the single family market. Like stocks, the last sales price influences the next sales price.

[TD Ryan2 316]

When having this discussion with people who, for some reason, feel the need to to defend wall Street and the banks, I also ask one simple question: Why did the ratings agency's give AAA ratings on instruments that were junk? Who benefited from that? That's what is at the heart of all this, and no government policy or stupid homebuyers had anything to do with those ratings. The whole thing doesn't crash like it did without those ratings. But selling something that is really junk as if it were AAA can make a whole lot of money for those that know it's really junk. And it did.

 

this is a REALLY good point that can't be lost in this thread.

 

• The Ratings Agencies (Moody's, S&P) were setup by the Federal Govm't decades ago - once mortgages became "tradable" the Banks needed a ratings agency to protect... well, to protect EVERYONE.

• Becoming an "approved" ratings agency is a BIG deal, very selective, not many are out there, it's a bit of a monopoly. And because their job is so critical, the "formula" they use to create the ratings is secret - very little transparency - in order to prevent "gaming" the system.

• And, in the 70's, the ratings agencies' "business model" changed - initially, the investors paid for the ratings and if it was wrongly rated enough, the investor would lose money find a better ratings agency. But in the 70s' the bond issuer paid for the ratings - and a AAA rating was always desireable - think of USDA Beef Graders betting paid for by cattle ranchers ONLY if they graded everything Prime Beef! Not good.

• Eventually, the pressure on the Ratings Agencies to increase their own earnings began to deteriorate the quality of their ratings - just like any company that's profit driven, safety and quality are (unfortunately) subordinate to revenue and profits. And now the Credit Ratings Agencies were falling into the same trap.

• And the final staw is the ability of the Issuers to "game the system" better than ever with complex CDO's - assets that were loaded with junk but delivered under such a complex veil, that the now Profit driven Ratings Agencies were both too greedy and too incompetent to notice.

 

 

BOOM! GOES THE DYNAMITE!

 

and it's the worst of both public and private sector coming together:

- the incompetence and monopoly of government agencies

- the greed and apathy private corporations

The Ratings Agencies were, essentially, BOTH.

[RLLD 4,207]

Its not misperception, its how the market establishes itself. Commerical real estate values are driven by sales price/unit, or price/s.f.. I deal with valuation models, pro formas and appraisers quite often. Single family is guided by the same overarching principles but as you've mentioned there is alot more variation in the single family market. Like stocks, the last sales price influences the next sales price.

The misperception really focuses on real estate agents trying to introduce fungible qualities into a commodity that can not be fungible.

[MDC 7,329]

Somebody looked up "fungible" in his Webster's dictionary / thesaurus.

[RLLD 4,207]

Somebody looked up "fungible" in his Webster's dictionary / thesaurus.

It a common term in the investment arena, and with regard to real estate some 2ven use the archers paradox to attempt to explain it, though would not....

[MDC 7,329]

It a common term in the investment arena, and with regard to real estate some 2ven use the archers paradox to attempt to explain it, though would not....

Indubitably, professor.

[TD Ryan2 316]

Somebody looked up "fungible" in his Webster's dictionary / thesaurus.

 

that's like... PEZ.... right? something that's fun and edible? The Classic, Fungible PEZ candy!

[DankNuggs 305]

 

this is a REALLY good point that can't be lost in this thread.

 

• The Ratings Agencies (Moody's, S&P) were setup by the Federal Govm't decades ago - once mortgages became "tradable" the Banks needed a ratings agency to protect... well, to protect EVERYONE.

• Becoming an "approved" ratings agency is a BIG deal, very selective, not many are out there, it's a bit of a monopoly. And because their job is so critical, the "formula" they use to create the ratings is secret - very little transparency - in order to prevent "gaming" the system.

• And, in the 70's, the ratings agencies' "business model" changed - initially, the investors paid for the ratings and if it was wrongly rated enough, the investor would lose money find a better ratings agency. But in the 70s' the bond issuer paid for the ratings - and a AAA rating was always desireable - think of USDA Beef Graders betting paid for by cattle ranchers ONLY if they graded everything Prime Beef! Not good.

• Eventually, the pressure on the Ratings Agencies to increase their own earnings began to deteriorate the quality of their ratings - just like any company that's profit driven, safety and quality are (unfortunately) subordinate to revenue and profits. And now the Credit Ratings Agencies were falling into the same trap.

• And the final staw is the ability of the Issuers to "game the system" better than ever with complex CDO's - assets that were loaded with junk but delivered under such a complex veil, that the now Profit driven Ratings Agencies were both too greedy and too incompetent to notice.

 

 

BOOM! GOES THE DYNAMITE!

 

and it's the worst of both public and private sector coming together:

- the incompetence and monopoly of government agencies

- the greed and apathy private corporations

The Ratings Agencies were, essentially, BOTH.

I agree but to give some context, those rating agencies ultimately serve as a check to give confidence that what you think you are buying is what it is.

 

On the single family side, appraisers serve a bank function of giving them confidence that if the loan goes under they have a reasonable amount of potential exposure. The idea of money down requirements is to ensure if the loan goes under the bank can unwind the property without loss. The reality is that the foreclosure process is costly and timely, remarketing properties is costly and timely, and banks really don't want to be in the business of holding those assets while they work through dispersal. The banks ultimately care that you can afford the mortgage, so regardless of value changes the consumer can service the loan. As such they really don't care about appraisals, as they do their own due diligence on the transaction and are comfortable before the appraisal is even ordered. So the appraiser will most of the time simply hit the bank target and keep the transaction velocity going. They take your watch and tell you the time.

 

An appraisal is a static value at a moment in time. Its like a balance sheet. Usually exposure to foreclosures happens during recessions that bring job losses and inability to pay. During recessions values go down, so that appraisal done years ago is moot by the time you sign the loan docs. There is more incentive to keep transaction velocity that bungle deals over appraisals that are outdated by the time you read them.

 

Bringing that idea over to the CMBS side on a more macro level, those ratings are forward looking and based on perceived stability. What is being railed against was that the rating agencies didn't see the writing on the wall ahead of time and downgrade these investments. Its not very realistic as you need data, and responding to data is ulitmately a reactionary response. No one wants a good run ended prematurely, and being accurate forecasting a pullback is pretty much impossible. So its a tough position to be in. Once things start sliding downhill it is too late.

[DankNuggs 305]

Indubitably, professor.

[Bert 1,128]

The misperception really focuses on real estate agents trying to introduce fungible qualities into a commodity that can not be fungible.

If people weren't so stupid and greedy with money and only bought what they could afford to live in and not as an "investment" this doesn't happen. It is the foundation of what the banks and government created.

[IGotWorms 4,057]

If people weren't so stupid and greedy with money and only bought what they could afford to live in and not as an "investment" this doesn't happen. It is the foundation of what the banks and government created.

Dumb.

 

There are loan to income ratios that are supposed to set what you can "afford" on a house. Front end (amount spent on mortgage) and back end (amount spent on total debt payments including mortgage).

 

People are led to believe that if they can qualify for a loan under those constraints then they can afford it. No one says otherwise. The realtor doesn't say "gee should you maybe get a less expensive home so i get a lower commission on the sale?" The mortgage lender doesn't say "gee should you maybe not be sending me so much money every month?"

 

You are blaming the wrong people. The lenders, bankers, etc. have far greater knowledge than your average homebuyer and use that knowledge to prey on people.

[IGotWorms 4,057]

The misperception really focuses on real estate agents trying to introduce fungible qualities into a commodity that can not be fungible.

Okay RLLD, why don't you tell us how you would set home values? Every single house in the country has some unique, inherent and subjective value? And who is supposed to make that determination for each and every home in the country?

 

[DankNuggs 305]

Okay RLLD, why don't you tell us how you would set home values? Every single house in the country has some unique, inherent and subjective value? And who is supposed to make that determination for each and every home in the country?

 

Its like Price is Right, that game where the yodeler creeps up the hillside and the contestant tells them to stop at the right price... You let you yodeler go up until your feelings toward the greater good of humanity go away, at that point you yell stop and close the deal

[DankNuggs 305]

[Bert 1,128]

Dumb.

 

There are loan to income ratios that are supposed to set what you can "afford" on a house. Front end (amount spent on mortgage) and back end (amount spent on total debt payments including mortgage).

 

People are led to believe that if they can qualify for a loan under those constraints then they can afford it. No one says otherwise. The realtor doesn't say "gee should you maybe get a less expensive home so i get a lower commission on the sale?" The mortgage lender doesn't say "gee should you maybe not be sending me so much money every month?"

 

You are blaming the wrong people. The lenders, bankers, etc. have far greater knowledge than your average homebuyer and use that knowledge to prey on people.

No it is not. if I make 75,000 I should know I can not afford a 600,000 home no matter what anyone tells me.

 

The same as the diet people on tv telling me if a take a pill I can lose 50 pounds in 2 months.

 

The banks and government were evil and corrupt for taking advantage of the stupid, especially the government who is suppose to regulate and prevent what happened.

[Hardcore troubadour 15,319]

Mortgage houses like countrywide and quicken loans did not fall under the auspices of the community reinvestment act, and they wrote over half of the mortgages that defaulted. Wall

Street bought thise crappy mortgages, bundled them with some good mortgages and created CDO's, got them rated AAA, sold them to buyers like pension funds and municipalities that were only allowed to purchase AAA rated instruments, and then went to places like AIG and purchased credit default swaps for 10 cents on the dollar, knowing they would default. When they did default, AIG didn't have enough to pay off on the CDS that they had insured, so the government bailed them out and Wall Street got paid a dollar on their ten cent bet. Made it in the way up, made it on the way down. Nice.

[RLLD 4,207]

If people weren't so stupid and greedy with money and only bought what they could afford to live in and not as an "investment" this doesn't happen. It is the foundation of what the banks and government created.

 

Yes. Greed was a driving factor for all participants, except perhaps for the government.

[RLLD 4,207]

Okay RLLD, why don't you tell us how you would set home values? Every single house in the country has some unique, inherent and subjective value? And who is supposed to make that determination for each and every home in the country?

 

 

So long as the appraiser conforms to the proper method of valuation they can avoid the dilemma I note. That being said, even their work can be easily perverted where the government zeroes rates or the banks use specialized vehicles.

[RLLD 4,207]

Mortgage houses like countrywide and quicken loans did not fall under the auspices of the community reinvestment act, and they wrote over half of the mortgages that defaulted. Wall

Street bought thise crappy mortgages, bundled them with some good mortgages and created CDO's, got them rated AAA, sold them to buyers like pension funds and municipalities that were only allowed to purchase AAA rated instruments, and then went to places like AIG and purchased credit default swaps for 10 cents on the dollar, knowing they would default. When they did default, AIG didn't have enough to pay off on the CDS that they had insured, so the government bailed them out and Wall Street got paid a dollar on their ten cent bet. Made it in the way up, made it on the way down. Nice.

 

A rather accurate version.....

[Hardcore troubadour 15,319]

 

Yes. Greed was a driving factor for all participants, except perhaps for the government.

You guys are getting mad at the kid who stole a pack of gum instead of the guy who burned the whole store down and cashed in for the big bucks.