Letting the Banksters run their Wall St. Outfit

[Captain_America]

Here’s a prime example of why Run-Amok Insider Capitalism needs sure regulatory guidance:

nytimes.com/2011/11/09/business/how-a-financial-pro-lost-his-house.html?pagewanted=1&_r=1&hp

 

[JimG]

I’m not sure that the personal story of this writer necessarily supports the idea of run-amok capitalism needing regulatory guidance.

The writer was a financial advisor! Yet he never kept in mind the first rule of financial security: always live below your means. When he moved to a new city, his first idea was to look for a $350,000 house–that wouldn’t be my idea of a sound financial first move when going to a new city. But he ended up buying one for $575,000 on a 100% loan, in an obviously overheated market.

That wasn’t smart. Would he advise a client to chase an IPO stock in a bubbly market and buy it at the highest possible price? And by buying into such a market he only helped feed the bubble, which was bound to burst.

And in the end, he was able to avoid being stuck with an underwater house by obtaining short sale authorization from the loan holder:

“A bank representative came to the house and met with us. He was such a nice guy. Cori had treated it like an open house, and the place was spotless. The guy said he’d never met anyone more qualified for their short sale program.”

It doesn’t sound like a mean heartless banker to me.

PS–but for the record, I do agree with him that seeking the short sale needed to be treated as a business matter, not a moral matter.

 

[promethius]

Here’s a prime example of why Run-Amok Insider Capitalism needs sure regulatory guidance:

nytimes.com/2011/11/09/business/how-a-financial-pro-lost-his-house.html?pagewanted=1&_r=1&hp

Looks more like an example of someone who luckily managed to get away with his personal poor decision making because a bank was compassionate and merciful to his plight.

That bank could have taken him to the cleaners, forced him into bankruptcy, taken his assets, etc. Instead, they let him out of his signed obligations, including not only the payments on the $575,000 but also the additional $100,000 worth of pocket money he’d taken out as loans on his house and spent on other things.

In other words, this is a story of a wonderful bank forgiving a person who should have known better for deliberately doing all the wrong things.

 

[Captain_America]

I’m not so sure about the “should have known better.” My brother’s now stuck trying to sell his house, at a very low price, and he did nothing wrong.

The market’s big, affects everybody. . . that’s why capitalism does not work when Uncle Sam doesn’t let business feel the effects of their poor decisions. Better to have them apprehensive, and a bit more circumspect about risk.

Frankly, I’m surprised the whole “libertarian” thing caught on as big as it did. Though, of course, part of that is general defensiveness against big government. We all need rules for the thing to work in the long-term, and enforcement of the rules.

I’m on a financial institution board, and we felt a bit of burn from the whole Wall Street calamity, since we had an investment in a firm that had itself partly invested in these **** securities. We did everything right and still got bit. (I particularly blame the loss of Glass-Steagall and the ratings agencies).

 

[JimG]

I’m not so sure about the “should have known better.” My brother’s now stuck trying to sell his house, at a very low price, and he did nothing wrong.

The market’s big, affects everybody. . . that’s why capitalism does not work when Uncle Sam doesn’t let business feel the effects of their poor decisions. Better to have them apprehensive, and a bit more circumspect about risk.

Frankly, I’m surprised the whole “libertarian” thing caught on as big as it did. Though, of course, part of that is general defensiveness against big government. We all need rules for the thing to work in the long-term, and enforcement of the rules.

I’m on a financial institution board, and we felt a bit of burn from the whole Wall Street calamity, since we had an investment in a firm that had itself partly invested in these **** securities. We did everything right and still got bit. (I particularly blame the loss of Glass-Steagall and the ratings agencies).

I would put a lot of blame on the ratings agencies–Standard & Poor’s, Moody’s, Fitch. None of them rated the derivative mortgage backed financial instruments at less than triple-A. Not even when a couple of irate hedge fund managers tried to make the case to them that the instruments–especially the second hand derivatives–were nearly worthless. But they didn’t get it. They were accustomed to rating corporate bonds according to their particular models and figured that mortgage backed securities should be amenable to the same models. And no one in the government got it, either.

I don’t think that the rating agencies or the government overseers were corrupt. They were just stupid, failing to understand the risks in these derivatives (and also failing to notice that the housing bubble was unsustainable.) And everybody else accepted those mortgage backed securities because the ratings agencies stamped them “AAA.”

They stamped them triple-A because they didn’t understand the risk. Regulation can’t cure stupidity, particularly when the regulators are no smarter than the rest of the investment bankers.

True, if the MBS’s were given a rating which recognized the risk, they couldn’t have been sold, and that would have meant less money available for mortgages. Had that happened (lower ratings) I’m guessing that the government and the opinion makers would have jumped all over the ratings agencies for depressing the housing market and depriving people of homes. The Fed was (and is) already making money so cheap that borrowing too much seemed like a good thing to do.