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U.S. Mortgage Crisis Rivals S&L Meltdown
Wall Street Journal ^ | 10 December 2007 | By GREG IP , MARK WHITEHOUSE and AARON LUCCHETTI

Posted on 12/10/2007 7:13:37 AM PST by shrinkermd

The home has long been the bedrock asset of most American families. Now, its value has become the biggest question mark hanging over the global economy

Over the past decade, Wall Street built a market for more than $2 trillion in securities sold globally and backed by loans to U.S. homeowners on two long-accepted beliefs and one newer one. The prevailing logic: The value of the American home would never fall nationwide, and people would almost always make their mortgage payments. The more recent twist: Packaging mortgage loans and turning them into securities would make the global economy more resilient if anything went wrong.

In a matter of months, though, much of the promise of the new financial architecture -- together with its underlying assumptions -- has proven to be a mirage. As house prices fall and homeowners default on mortgages at troubling rates, the pain has spread far and wide.

So far, the potential losses look manageable compared with the savings-and-loan crisis of the 1980s and the tech-stock crash of 2000-02. But the housing debacle could yet take years to work out

To ease the pain, the Federal Reserve has cut short-term interest rates twice and is expected to cut them further tomorrow. The Bush administration has also pressed for private-sector curative measures. First, it urged big banks to create a new entity to buy some mortgage-linked securities that don't have a ready market now. And a plan finalized last week calls for freezing interest payments on perhaps hundreds of thousands of qualifying homeowners whose mortgage notes are set to rise. Both ideas are controversial. They are hailed by some as well-conceived financial first aid and criticized by others as inadequate -- or an impediment to crisis resolution.

(Excerpt) Read more at online.wsj.com ...


TOPICS: Business/Economy; Extended News; Politics/Elections
KEYWORDS: crisis; fed; housing; mortgage; subprime
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To: Toddsterpatriot
Write downs aren’t the same as losses, yet.

Now that is a banker's half-truth for the hall of fame. Of course they're not, when their policy is either to just not declare them losses (yet) or just keep them off the balance sheet (because that will bankrupt them), cf. Citibank's multi-billions of write-downs-that-are-not-losses from last week.

Nope, they're not "losses" (wink wink) until the FDIC comes in and shuts the place down.

21 posted on 12/10/2007 8:03:06 AM PST by jiggyboy (Ten per cent of poll respondents are either lying or insane)
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To: MNJohnnie

“Hopefully we learned to not use the Fed Govt to bail out fat cat Bankers who make stupid load decisions.”

Sorry, it wasn’t the “Fat Cat Bankers” that forced lenders to loan to those that shouldn’t have gotten loans.

read this: http://www.openmarket.org/2007/10/17/deval-patricks-role-in-the-mortgage-crisis/

This was a Clinton appointee that coerced lenders to give the less than credit worthy mortgage loans or face federal wrath - and he got personally rich in the process.


22 posted on 12/10/2007 8:03:09 AM PST by MrB (You can't reason people out of a position that they didn't use reason to get into in the first place)
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To: Philly Nomad
But that’s going to be a cost to the economy.

Sure.

If the banks lose their shirts, they are going to tighten up the credit regardless.

As they should.

23 posted on 12/10/2007 8:05:07 AM PST by Toddsterpatriot (What came first, the bad math or the goldbuggery?)
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To: jiggyboy
Now that is a banker's half-truth for the hall of fame.

What were the original estimates for losses in the S&L crisis? The actual losses were much less.

24 posted on 12/10/2007 8:06:22 AM PST by Toddsterpatriot (What came first, the bad math or the goldbuggery?)
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To: shrinkermd
The more recent twist: Packaging mortgage loans and turning them into securities would make the global economy more resilient if anything went wrong.

Part of the problem is that mortgage loans have been sliced and diced into so many pieces (tranches?), which were sold and resold to the point that it's hard to tell exactly where the rather unsavory pieces are and when they might blow up, if at all. And, the last thing we need is for a fearful and uncertain market to panic.

Something is happening. Perhaps the extent of the problems are hard to fathom, but hopefully the banks will not make the credit crunch worse by going from very loose lending to very tight lending (a shift which affects everyone, even those without mortgages), even in other loan types.

Just remember, though: America survived the Great Depression, but it wasn't pretty.

25 posted on 12/10/2007 8:13:58 AM PST by rabscuttle385 (This tagline intentionally left blank.)
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To: rabscuttle385
...but hopefully the banks will not make the credit crunch worse by going from very loose lending to very tight lending (a shift which affects everyone, even those without mortgages), even in other loan types.

I'm going to add one clarification to my comment: obviously, the banks should tighten lending standards, and rating agencies should be truthful when rating securitized debts. But, what I was thinking of is that bankers might panic and go from one extreme (very loose lending standards) to another (very tight lending standards), where even those with good credit and income get denied for loans.

26 posted on 12/10/2007 8:17:34 AM PST by rabscuttle385 (This tagline intentionally left blank.)
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To: shrinkermd

As a matter of fact, this has the potential of being far worse than the S&L crisis. We should not let the political use to which the MSM tries to put every economic difficulty to blind us to that.

This has nothing to do with Bush or even Bernanke. They managed to make the crisis a little worse by uncontrolled government spending and sitting by while the trade deficit with China worsened, but basically they inherited this mess.

And it has been made several orders of magnitude worse by the large banking and money management outfits.

Also, it is not just an American problem—it extends to Europe, China, Japan, and the rest of the world.

Much of this goes back to the economic crimes of FDR and LBJ, but the worst of it has been caused by the childishness of the baby boomers, whose philosophy has been, “take out a mortgage on your house to buy toys. Tomorrow will never come.” Of course the lenders and educators and gurus have encouraged this way of thinking. And other boomers packaged the mess as derivatives—more than $75 trillion worth of them—so they could pay themselves big year-end bonuses.

A house of cards.


27 posted on 12/10/2007 8:34:44 AM PST by Cicero (Marcus Tullius)
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To: MrB
whoa...Deval stepping onto Jesse’s turf....
28 posted on 12/10/2007 8:35:27 AM PST by stylin19a
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To: shrinkermd
What idiot thought that giving mortgages of several hundred thousands of dollars, to people who could in no way afford it, was a good idea?

It took me 40 days to get my first mortgage and you would have thought we were under investigation to be a FBI agent or something, what with credit checks they did in those days.

Now if your breathing you can get a $400,000 home on $9.50 an hour, and be an illegal alien to boot. This is a good idea for whom?

29 posted on 12/10/2007 9:05:48 AM PST by truemiester (If the U.S. should fail, a veil of darkness will come over the Earth for a thousand years)
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To: Toddsterpatriot
What were the original estimates for losses in the S&L crisis? The actual losses were much less.

Link?

(I'm learning!)

30 posted on 12/10/2007 11:10:05 AM PST by jiggyboy (Ten per cent of poll respondents are either lying or insane)
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To: jiggyboy
Link?

Here.

31 posted on 12/10/2007 11:12:06 AM PST by Toddsterpatriot (What came first, the bad math or the goldbuggery?)
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To: stylin19a; Dog Gone
Well this'll sure cheer 'em up!!!

Sorry! I just couldn't resist!! The Devil and the Demonicrats made me do it!!! (snort!)

32 posted on 12/10/2007 11:50:56 AM PST by SierraWasp (Too many NIE contributors are ruthless, rogue resistance agents in our own CIA & State Dep!!!)
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To: Toddsterpatriot
Like a cheap suit, as usual.

BTW my dim recollection was off by about 50%. Today's WSJ puts losses from the S&L crisis at $189B.

33 posted on 12/10/2007 12:27:43 PM PST by jiggyboy (Ten per cent of poll respondents are either lying or insane)
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To: SierraWasp

I didn’t know we were in Raging Inflation ?


34 posted on 12/10/2007 1:57:29 PM PST by stylin19a
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To: jiggyboy
Like a cheap suit, as usual.

You're not like a cheap suit.

BTW my dim recollection was off by about 50%

No, your dim recollection was pretty close.

Today's WSJ puts losses from the S&L crisis at $189B.

Thanks for the link, but I don't see the $189B figure in there.

35 posted on 12/10/2007 2:09:13 PM PST by Toddsterpatriot (What came first, the bad math or the goldbuggery?)
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To: stylin19a; Grampa Dave; Dog Gone; BOBTHENAILER
"I didn’t know we were in Raging Inflation ?"

We AIN'T!!!

That's why I linked that stupid artickle! That website used to be CBS MarketWatch.com and then it got bought by Dow Jones who just got bought by Rupert the Murdock person.

Just like the Bush administration, neither Dow Jones, nor Murdock have taken time to boot the obnoxious liberal holdovers out the danged door on their miserable malevolent asses yet!!!

They learned their "poison penmanship" in government school all too well!!!

36 posted on 12/10/2007 2:39:25 PM PST by SierraWasp (Too many NIE contributors are ruthless, rogue resistance agents in our own CIA & State Dep!!!)
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To: rabscuttle385

“Something is happening. Perhaps the extent of the problems are hard to fathom, but hopefully the banks will not make the credit crunch worse by going from very loose lending to very tight lending (a shift which affects everyone, even those without mortgages), even in other loan types.”

Yep. My regional bank renigged on the $100k LOC increase for my small business, even though management met the booking benchmark the bank set for the LOC increase. They said no in July leaving me as the CEO with $100k cash shortfall over the summer for a business with 12 people. We came out on top but it was a very painful summer.

Consider that 70% of America is now small business. How many guys/girls business owners have the experience to survive such an experience? I was also fiscally responsible in my personal life so I used my home equity as payroll for the four months management took no pay. If I had used it for that nice new entertainment room or the new wheels like a lot of my upper middle class friends, I would have been sunk. How many other Americans outside of the 5% subprime screwed are not fiscally responsible and will be effected?


37 posted on 12/10/2007 3:38:31 PM PST by quant5
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To: jiggyboy
Page 8, PDF file

As of December 31, 1999, the thrift crisis had cost taxpayers approximately $124 billion and the thrift industry another $29 billion, for an estimated total loss of $153 billion. The losses were higher than those predicted in the late 1980s, when the RTC was established, but below those forecasted during the early to mid-1990s, at the height of the crisis.

38 posted on 12/10/2007 3:52:10 PM PST by Toddsterpatriot (What came first, the bad math or the goldbuggery?)
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To: SierraWasp
out the danged door on their miserable malevolent asses yet!!!

That has a ring to it that sounds great.

39 posted on 12/10/2007 6:05:13 PM PST by BOBTHENAILER (One by one, in small groups or in whole armies, we don't care how we do it, but we're gonna getcha)
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To: PeterPrinciple

Here’s what I learned from the S&L crisis. If you bribe 5 or 6 senators, you can almost get away with stealing tens of millions of dollars. And one of those senators will continue to be re-elected and run several times and be treated as a serious candidate for president.


40 posted on 12/10/2007 6:08:58 PM PST by purpleraine
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