Financial History

[fabr]

I'm referring to the "free" world.

[LiveWire]

.
.
.
I think that the combined affects of to low interest, with more buyers made eligible, and mortgage vehicles like the ARM with an Introductory rate, combined to create the bubble.
.
.
.
I really believe that the ARM is the reason for many mortgages failing.  A few years ago I was offered a 1/1 ARM at a 1.9% introductory rate.  That means that it would be 1.9% for one year, (the first 1) then adjust yearly thereafter (the second /1).  The adjusted out rate was prime +2.  Prime was 5% at the time, and it could adjust 2 points per year.  It was clear when I asked these questions that it was the first time they had been asked of this salesman.....  So the introductory payment was about half of what the adjusted out payment would have been.

When I built the house, I did take an ARM that was a 3/3, but it didn't have a ridiculous introductory rate.  I never did sleep well until I refinanced to a fixed rate before the first adjustment.

These days all people ask is what is the payment?  It's no wonder we are in trouble.  I think we have an ignorance bubble building......... hehe

People getting ARMs assume that if federal rates stay the same, so will their ARM. They do not understand that they will go up by the cap. The Truth in Lending form was modified within the last year to highlight when a loan is variable. That is useless, IMO. The borrower knows it is variable, they just don't know what that actually means. I think a better revision of that document is to show a table of payments for the next several years. One column would indicate what their payment would be if rates stay the same. Another would be if rates go up. While there still may be some who are still only concerned about the payment for the next year, I think it would really highlight the situation to many people. You would have less savvy people asking, 'So if nothing changes, my payment next years is going to be half again as much?'.

[trojan]

Besides....  If the rest of the world is making Socialism work, they must be geniuses.  :-\

Here's a tip: they're not geniuses... draw your own conclusion

[trojan]

Can anyone [Artie?] tell me how much money the hedge funds have invested with them? It's hard to find out because they don't have to say (circumvented regulations again). What about the total size of the mortgage market of all prime-nesses?

[artie on edge]

Mate I would hazaard a guess that no one in this industry could tell you.

Certainly any figures that are released are entirely suspect. Just Like the National Australia Bank's statement that they had NO exposure to the US sub-prime market..oops... apart from this 45 million here...and yeah, that 22 million in that fund.. but apart from that.....

[trojan]

Cheers Art.



Hedge funds ARE that raw unregulated Capitalism the idealists think they want.

I'd argue that a few of the larger hedge funds each managed more capital than all the mortgage notes of all prime-nesses from all institutions combined, and it was their general collapse that was the one the US economy (and others like Iceland) couldn't handle.

So to the big 3 again, they lent heaps of money to the sub-prime market or did they have big exposures to hedge funds or something else?

[artie on edge]

A combination of both, but primarily thru the hedge involvement.

This issue is NOT transparent and an option I avoid like the plague with my clients, although, sadly, you often DONT KNOW what the underlying investments are within any given investment option unless you are involved solely with the direct equity market.

I have a duty of care to my clients and as a specialist in this field I ask the 'hard questions' and get few direct secure answers when dealing with this issue.

I think that there is a fair amount of black magic asociated with hedge funds...and in past it was "dont ask, they just work".

Well often (as we have seen), they dont work....

[Engineer]

So to the big 3 again, they lent heaps of money to the sub-prime market or did they have big exposures to hedge funds or something else?

They have big exposure to no one buying their overpriced cars.  They were on the verg of failure before the recession hit.  Sales are now in the tank, but their payout commitments and legacy costs don't go down.

[artie on edge]

They have big exposure to no one buying their overpriced cars.  They were on the verg of failure before the recession hit.  Sales are now in the tank, but their payout commitments and legacy costs don't go down.

Eng hes talking about OUR big three. The banks in Aus. 

[Engineer]

Eng hes talking about OUR big three. The banks in Aus. 

OOps!  Sorry 

[trojan]

Sorry Artie on rereading I can see how you might see I was referring to the banks, I was in fact referring to the US 3 Cars thinggys

I find it rather coincidental cars, banks, insurance and hedge funds all go under simultaneously.... convenient for some as the "popular" stuff gets covered by the media.

Eng is "overpriced" what we call "poorly conceived, poorly engineered and poorly manufactured crap" over here?

[artie on edge]

oops..me dick.... sorry Eng...

[trojan]

Yeah, you should be ashamed of ya self. Not for the mistake, you're at work - we can forgive ya for ya one tracked mind, but for being part of the problem, bloody money maggots! .... Camel is just as bad - he's a 'kn' marketdroid! with a minor in OH&S (occupational health & safety).... My socialist pseudo intellectual utopian delusion is shattered... thanx!!

[artie on edge]

Yeah, you should be ashamed of ya self. Not for the mistake, you're at work - we can forgive ya for ya one tracked mind, but for being part of the problem, bloody money maggots! .... Camel is just as bad - he's a 'kn' marketdroid! with a minor in OH&S (occupational health & safety).... My socialist pseudo intellectual utopian delusion is shattered... thanx!!

Oh!

[artie on edge]

Yeah, you should be ashamed of ya self. Not for the mistake, you're at work - we can forgive ya for ya one tracked mind, but for being part of the problem, bloody money maggots! .... Camel is just as bad - he's a 'kn' marketdroid! with a minor in OH&S (occupational health & safety).... My socialist pseudo intellectual utopian delusion is shattered... thanx!!

sorry......