<p>
</p>
<p>I am worried about the Fed’s balance sheet. It is now over 4 trillion. It has never been that high and when the Fed has to unwind it, it will not be pleasant.</p>
<p>
I find it interesting that people keep repeating this. It’s been so thoroughly debunked by anyone who has actual knowledge about what happened, or has studied what happened, yet you hear it over and over. Sometimes it’s mixed in which CRA and Barney Frank (I never got that connection.) I got a close up look at the pre-crash real estate lending market and “the government pushing banks” had about as little to do with as you can imagine. But I know that meme was being pushed - hard - way back in 2008.</p>
<p>Maybe the financial crisis happened because people with the ability to make money figured they could convince the public it wasn’t really their fault, or that they could walk away with hundreds of millions before the buble burst, and no one would chase them because they were busy blaming “the government” or CRA and Barney Frank. </p>
<p>Understanding what actually caused an economic dislocation is important when it comes to avoiding having it happen again.</p>
<p>The fed is going to do a swap with the treasury… Exchange long term paper for short term paper. Then the fed wont have to sell as much paper…during the unwind. This is my opinion. The debt will just mature.</p>
<p>As far as bank debt goes (private mortgages) banks may also swap some of this… I am sure the banks will be well compensated. Lol After all bankers are geniuses. </p>
<p>It is hard to imagine how Qe got so big. There was so much money that was lost…</p>
<p>Think about it. Where would rates be without Qe? I hate Qe but where would rates be? It is great to talk about just letting the economy go… But it would go south… </p>
<p>As a society would we really want that?
Economy goes south. People get disenchanted. People want a change. Those that are doing well aren’t really going to want a change. In a perverse way, Bernenke is trying to keep the status quo going. </p>
<p>And if we look at the economy he is doing a great job. The wealthy are still wealthy. The poor are still poor. The middle class is still the middle class; although the middle class is sagging.</p>
<p>
</p>
<p>right… Congress didn’t push policies to encourage home ownership at all. Lawmakers wanted more people to have houses to win votes.</p>
<p>of course the private sector loaned money when they could immediately sell the loan to the government (fannie and freddie) for immediate profit and zero risk.</p>
<p>
</p>
<p>It’s not BS… government policies put people in homes that normally wouldn’t have been able to afford them.</p>
<p>The deflationary talk is interesting. If the fed really just sold all the trillions if securities in a few years it is hard to imagine how prices could go up much. Rates would go up putting a lid on the economy.</p>
<p>I think one of the main reasons Qe exists is because who else could buy all the debt? There is too much debt. As the e onomy improves the deficit drops. At a number the private sector And other countries can buy the debt. 500 billion a year deficits… I think qe will not be needed. And deficits are coming down. </p>
<p>When I read that the fed is targeting an unemployment rate of 6.5 percent, I wonder. Is that really the target? Or is a 500 billion dollar deficit the target but talking about unemployment sells better. </p>
<p>The above is opinion…</p>
<p>I’d contribute to this thread but there is no point to rehashing things when people have fixed ideas. I suggest reading some of the interesting papers about what happened. Here are two, both from the BIS*:</p>
<ol>
<li><p>US dollar money market funds and non-US banks by Naohiko Baba, Robert N McCauley & Srichander Ramaswamy. </p></li>
<li><p>The US dollar shortage in global banking by Patrick McGuire & Goetz von Peter</p></li>
</ol>
<p>These two papers show how lack of regulation, particularly of simple reporting, contributed to the freezing of the credit system. In brief, US regulators were unaware of the extent to which Eurozone banks were relying on US money markets - and thus Lehman Bros. - for short-term funding. Blame London for much of that. Lehman’s collapse led to a short term funding crisis and a shortage of dollars that required an overnight loan to the ECB of $630B. This may be the most coherent blow by blow explanation for why credit indicators locked up.</p>
<p>There are many “reasons” for the financial crisis. One can argue, for example, that moral weakness was the cause because short-term “make a buck” thinking dominated the securitization markets. Or one can explain the literal, step-by-step causes. Or one can look for a scapegoat, like blaming the CRA for somehow causing everything (though CRA loans did not default in large numbers and though low income neighborhoods were not the problem across America, let alone Europe). So pick what you need to fit your personal prejudices.</p>
<p>*If you don’t know what BIS stands for, then you should examine the depth of what you think you know.</p>
<p>If the financial institutions sold all their loans to the govt the financial institutions wouldn’t have blown up.</p>
<p>Soccerguy, you need to keep a more open mind. </p>
<p>Maybe google how many loans countrywide credit issued? WaMu? You can go on and on…</p>
<p>There is a pretty good article in Wikipedia about the financial crisis.</p>
<p>An acquaintance was in the mortgage business. In his office, Every single person who applied for a loan in the years leading up to the financial crisis got a loan. Everybody. He didn’t care. He wanted his fees. That is what he told me. He didn’t care. Some of these loans were large. Fnm does not buy small loans. The loans were syndicated and sold to private investors who wanted yield and believed home prices never dropped. This was in the SF Bay Area and for a long time prices didn’t drop. Then they did. </p>
<p>Everybody got a loan. Whatever it took. Whatever income was needed. Presto. </p>
<p>This mortgage guy is broke now. I don’t know how he gets by but he is going to die soon.</p>
<p>I have other stories. I had a friend that owned his own mortgage business. I like him. He is a good guy. He is smart, but he was caught up in the housing frenzy. Smart people can get swept away. Sometimes smart people can lose more. </p>
<p>Anyway, I was having dinner with him and he told me his clients were taking out these loans. The interest rate was really 5 percent but they only had to pay 1 percent a year in interest and no principal. The interest that wasn’t paid would just be added to principal. Oh and very little was put down as a down payment. I can’t remember but I think it was zero. And this was ok because housing prices go up more than 4 percent a year.</p>
<p>So this is what the buyers were doing.
They were buying 3 million dollar houses. The interest was 30,000 a year. Prop tax 36000 a year. Lets say total costs after deduction was 60,000 a year. These places rented for 120000 a year. </p>
<p>The homeowner was saving 60,000 a year in cash flow compared to renting. The true cost was more owning than renting because 120000 in interest was added to the principal. </p>
<p>But the homeowner didn’t care. The house was going to appreciate more than 120000 a year. </p>
<p>Except home prices didn’t.</p>
<p>The fact that no one (significant) has gone to jail over the mortgage crisis proves a lack of a willing to prosecute. This goes far beyond any management style. It feels like collusion to me.</p>
<p>
</p>
<p>It sounds as if you think the BIS is a significant financial institution. I have yet to see anything to show it is anything other than insignificant. (I would have said worthless but I don’t know enough about it to make that claim.) I would love to have a job there so I could spend a lot of time thinking I am important yet doing nothing all day. Of course I could be wrong.</p>
<p>Because I live in NJ I have access to some of the richest and poorest towns in the country. Also a wide range of home prices. Does anyone know if the problem was that people could not pay their mortage or once prices crashed they choose not to pay their mortgage? I get requests everyday for short sales where the mortgage balance could be paid based on the income numbers I am seeing. </p>
<p>I see the paperwork because to allow the house to sell I must approve a release of lien</p>
<br>
<br>
<p>You must be a popular guy.</p>
<p>No tom1944, it was the government’s fault.</p>
<p>I love how people love to talk about being free in this country and that includes the right to be free to borrow too much if somebody will lend them the money.</p>
<p>Then, when everything blows up and People borrowed too much money, now the mantra is "It is
not our fault. The government made us do it. "</p>
<p>That is the stuff 4 year olds say.</p>
<p>So much for personal responsibility. </p>
<p>Some people are still stuck at age 4.</p>
<p>Guess what? The government didn’t make you borrow too much money. There are many people that did not borrow too much money. They were fiscally prudent. Stop being 4 yesrs old. Grow up.</p>
<br>
<br>
<p>Actually most people didn’t borrow too much. 1/3rd rent, 1/3rd own with no mortgage, 1/3rd have a mortgage. So the percentage that got into trouble was a fraction of a third.</p>
<p>Similar to student debt. We hear a lot about those in a lot of trouble with student debt but statistics show that the percentage with huge debt is relatively small. The overall dollar amounts are not small which makes posting the number seem sensational. If you post a huge number, then post that a large percentage have loans and then post a few anecdotes of students with six-figure loans, then the reader gets the idea that huge numbers of people have six-figure student-loan debts.</p>
<p>Of course I am popular BC. I am also charming.</p>
<p>Or it may be I am popular because at that moment they need me.</p>
<p>So you know releasing a lien is easy. As long as the debtor is not getting any funds from the sale we do the release. There is no reason to punish the new purchaser. We also do not let any unsecured creditors get paid.</p>
<p>I’ve never dealt with any liens. All I know about them is what I read in Rich Dad, Poor Dad about how they make a good investment with 15% returns. No, I didn’t give them a try. I guess that forgiving liens is a little like being a priest.</p>
<p>We do not forgive them entirely. We just release that specific property. The lien still stands against the individual.</p>
<p>Dstark, #34, I would agree with you, as I don’t borrow, except that the banks leveraged themselves up to astronomical levels and are whining right now, even as we speak, at the mere idea of capital requirements and they WERE bailed out. </p>
<p>Individuals, however, were not even given reasonable mortgage relief.</p>
<p>I’m with Sosomenza, as you know. Collusion.</p>
<p>Well… something smells. Lol</p>