Sub-prime debt - banks not to blame?
Discussion
This article makes for rather interesting reading!
Until I read this, I'd been working on the assumption that the banks had been completely incompetent in doing their due diligence on buying up lumps of sub-prime debts. Surely, you'd think, they would've done their research and checked on the potential level of risk involved in their investment?
What I hadn't realised was that if they'd gone to one of the big 3 credit rating agencies - Moody's, S&P or Fitch - then the chances are they would've been told that the investment in question was rock solid! According to the article, at the start of 2008, the agencies had granted AAA ratings to approximately a dozen countries, around the same number of companies, and over 64,000 financial instruments, including the CDOs that were so much a cause of the problem!
Given the staggering level of incompetence which it would seem must've been prevalent in these agencies for them to arrive at the conclusion that a bunch of over-extended rednecks in Buttf
k, Arkansas represented a better credit risk than the Sovereign debt of nations such as Japan, why the hell do they still wield the power to potentially wreck national economies, purely on the strength of their clearly exceptionally flawed judgement?
Until I read this, I'd been working on the assumption that the banks had been completely incompetent in doing their due diligence on buying up lumps of sub-prime debts. Surely, you'd think, they would've done their research and checked on the potential level of risk involved in their investment?
What I hadn't realised was that if they'd gone to one of the big 3 credit rating agencies - Moody's, S&P or Fitch - then the chances are they would've been told that the investment in question was rock solid! According to the article, at the start of 2008, the agencies had granted AAA ratings to approximately a dozen countries, around the same number of companies, and over 64,000 financial instruments, including the CDOs that were so much a cause of the problem!
Given the staggering level of incompetence which it would seem must've been prevalent in these agencies for them to arrive at the conclusion that a bunch of over-extended rednecks in Buttf
k, Arkansas represented a better credit risk than the Sovereign debt of nations such as Japan, why the hell do they still wield the power to potentially wreck national economies, purely on the strength of their clearly exceptionally flawed judgement?Kermit power said:
This article makes for rather interesting reading!
Until I read this, I'd been working on the assumption that the banks had been completely incompetent in doing their due diligence on buying up lumps of sub-prime debts. Surely, you'd think, they would've done their research and checked on the potential level of risk involved in their investment?
What I hadn't realised was that if they'd gone to one of the big 3 credit rating agencies - Moody's, S&P or Fitch - then the chances are they would've been told that the investment in question was rock solid! According to the article, at the start of 2008, the agencies had granted AAA ratings to approximately a dozen countries, around the same number of companies, and over 64,000 financial instruments, including the CDOs that were so much a cause of the problem!
Given the staggering level of incompetence which it would seem must've been prevalent in these agencies for them to arrive at the conclusion that a bunch of over-extended rednecks in Buttfk, Arkansas represented a better credit risk than the Sovereign debt of nations such as Japan, why the hell do they still wield the power to potentially wreck national economies, purely on the strength of their clearly exceptionally flawed judgement?
The banks here were basically forced to loan subprime by the Clinton Administration. BTW, if I say it was "Bruthas from da' hood" that were the largest benefactors of such loans, would that be racist, while the term "Rednecks from ButtfUntil I read this, I'd been working on the assumption that the banks had been completely incompetent in doing their due diligence on buying up lumps of sub-prime debts. Surely, you'd think, they would've done their research and checked on the potential level of risk involved in their investment?
What I hadn't realised was that if they'd gone to one of the big 3 credit rating agencies - Moody's, S&P or Fitch - then the chances are they would've been told that the investment in question was rock solid! According to the article, at the start of 2008, the agencies had granted AAA ratings to approximately a dozen countries, around the same number of companies, and over 64,000 financial instruments, including the CDOs that were so much a cause of the problem!
Given the staggering level of incompetence which it would seem must've been prevalent in these agencies for them to arrive at the conclusion that a bunch of over-extended rednecks in Buttf
k, Arkansas represented a better credit risk than the Sovereign debt of nations such as Japan, why the hell do they still wield the power to potentially wreck national economies, purely on the strength of their clearly exceptionally flawed judgement?k Arkansas" would be just fine? Otherwise, I am with you on yout assessment. 
Edited by Jimbeaux on Friday 11th December 12:25
Jimbeaux said:
Kermit power said:
This article makes for rather interesting reading!
Until I read this, I'd been working on the assumption that the banks had been completely incompetent in doing their due diligence on buying up lumps of sub-prime debts. Surely, you'd think, they would've done their research and checked on the potential level of risk involved in their investment?
What I hadn't realised was that if they'd gone to one of the big 3 credit rating agencies - Moody's, S&P or Fitch - then the chances are they would've been told that the investment in question was rock solid! According to the article, at the start of 2008, the agencies had granted AAA ratings to approximately a dozen countries, around the same number of companies, and over 64,000 financial instruments, including the CDOs that were so much a cause of the problem!
Given the staggering level of incompetence which it would seem must've been prevalent in these agencies for them to arrive at the conclusion that a bunch of over-extended rednecks in Buttfk, Arkansas represented a better credit risk than the Sovereign debt of nations such as Japan, why the hell do they still wield the power to potentially wreck national economies, purely on the strength of their clearly exceptionally flawed judgement?
The banks here were basically forced to loan subprime by the Clinton Administration.Until I read this, I'd been working on the assumption that the banks had been completely incompetent in doing their due diligence on buying up lumps of sub-prime debts. Surely, you'd think, they would've done their research and checked on the potential level of risk involved in their investment?
What I hadn't realised was that if they'd gone to one of the big 3 credit rating agencies - Moody's, S&P or Fitch - then the chances are they would've been told that the investment in question was rock solid! According to the article, at the start of 2008, the agencies had granted AAA ratings to approximately a dozen countries, around the same number of companies, and over 64,000 financial instruments, including the CDOs that were so much a cause of the problem!
Given the staggering level of incompetence which it would seem must've been prevalent in these agencies for them to arrive at the conclusion that a bunch of over-extended rednecks in Buttf
k, Arkansas represented a better credit risk than the Sovereign debt of nations such as Japan, why the hell do they still wield the power to potentially wreck national economies, purely on the strength of their clearly exceptionally flawed judgement?With Aaa-rated securities, the risk of default is meant to be negligible, maybe 0.1 per cent, but every now and again even a triple A will go belly-up. The problem occurs when there is financial innovation, and there is no track record for them to base their advice on.
The idea that banks are the innocent parties in this seems a little far of the mark to me.
Fittster said:
Jimbeaux said:
Kermit power said:
This article makes for rather interesting reading!
Until I read this, I'd been working on the assumption that the banks had been completely incompetent in doing their due diligence on buying up lumps of sub-prime debts. Surely, you'd think, they would've done their research and checked on the potential level of risk involved in their investment?
What I hadn't realised was that if they'd gone to one of the big 3 credit rating agencies - Moody's, S&P or Fitch - then the chances are they would've been told that the investment in question was rock solid! According to the article, at the start of 2008, the agencies had granted AAA ratings to approximately a dozen countries, around the same number of companies, and over 64,000 financial instruments, including the CDOs that were so much a cause of the problem!
Given the staggering level of incompetence which it would seem must've been prevalent in these agencies for them to arrive at the conclusion that a bunch of over-extended rednecks in Buttfk, Arkansas represented a better credit risk than the Sovereign debt of nations such as Japan, why the hell do they still wield the power to potentially wreck national economies, purely on the strength of their clearly exceptionally flawed judgement?
The banks here were basically forced to loan subprime by the Clinton Administration.Until I read this, I'd been working on the assumption that the banks had been completely incompetent in doing their due diligence on buying up lumps of sub-prime debts. Surely, you'd think, they would've done their research and checked on the potential level of risk involved in their investment?
What I hadn't realised was that if they'd gone to one of the big 3 credit rating agencies - Moody's, S&P or Fitch - then the chances are they would've been told that the investment in question was rock solid! According to the article, at the start of 2008, the agencies had granted AAA ratings to approximately a dozen countries, around the same number of companies, and over 64,000 financial instruments, including the CDOs that were so much a cause of the problem!
Given the staggering level of incompetence which it would seem must've been prevalent in these agencies for them to arrive at the conclusion that a bunch of over-extended rednecks in Buttf
k, Arkansas represented a better credit risk than the Sovereign debt of nations such as Japan, why the hell do they still wield the power to potentially wreck national economies, purely on the strength of their clearly exceptionally flawed judgement?With Aaa-rated securities, the risk of default is meant to be negligible, maybe 0.1 per cent, but every now and again even a triple A will go belly-up. The problem occurs when there is financial innovation, and there is no track record for them to base their advice on.
The idea that banks are the innocent parties in this seems a little far of the mark to me.
Jimbeaux said:
Rating agency? The properties were valued correctly in many cases, it was the loan applicants that had low ratings. The Clinton rules forced banks to loan anyway and now everyone wonders why those people decided to let their house payments slip in favor of 22" shiney rims and gold teeth veneers. Fannt Mae and Freddy Mac began this practice that others had to follow to compete. Both of those agencies are government-backed.
And when were Fanny and Freddy set-up?anonymous said:
[redacted]
But it wasn't the sub-prime loans that caused the problem. The issue was the way in which these had been wrapped up into financial vehicles and then sold and resold.Realise that the trigger was too many people defaulting on sub-prime loans, but if the risks of these loans hadn't been lost in the system then it wouldn't have (or shouldn't have been) such an issue.
Does anyone know how much has defaulted yet - particularly the AAA top-slice? I suspect there's a decent chance that a lot of the write downs that the banks made will be written back in due course.
I also noticed in the PBR that the Tresury is estimating the loss from the banking bailout to be about £10 bn (down for £50 bn in March). This equates to less than a years corporation tax from the banks in better times. Still, we shouldn't have to worry about it too much when they all leg-it to Singapore, Hong Kong, Switzerland etc
I also noticed in the PBR that the Tresury is estimating the loss from the banking bailout to be about £10 bn (down for £50 bn in March). This equates to less than a years corporation tax from the banks in better times. Still, we shouldn't have to worry about it too much when they all leg-it to Singapore, Hong Kong, Switzerland etc
The rating agencies and the regulators were just as to blame as the banks of course.
But this issue has long moved from the area of rational analysis. We now have competition among politicians as to who can dream up the most draconian taxes on bank bonuses. Sarkozy seems very keen to follow Winky's example.
But this issue has long moved from the area of rational analysis. We now have competition among politicians as to who can dream up the most draconian taxes on bank bonuses. Sarkozy seems very keen to follow Winky's example.
Fittster said:
Jimbeaux said:
Rating agency? The properties were valued correctly in many cases, it was the loan applicants that had low ratings. The Clinton rules forced banks to loan anyway and now everyone wonders why those people decided to let their house payments slip in favor of 22" shiney rims and gold teeth veneers. Fannt Mae and Freddy Mac began this practice that others had to follow to compete. Both of those agencies are government-backed.
And when were Fanny and Freddy set-up?rypt said:
Jimbeaux said:
The banks here were basically forced to loan subprime by the Clinton Administration
No they were not, there were always ways round the sub-prime lending ... it was simply more beneficial to be part of the market.Edited by Jimbeaux on Friday 11th December 15:21
Jimbeaux said:
Fittster said:
Jimbeaux said:
Rating agency? The properties were valued correctly in many cases, it was the loan applicants that had low ratings. The Clinton rules forced banks to loan anyway and now everyone wonders why those people decided to let their house payments slip in favor of 22" shiney rims and gold teeth veneers. Fannt Mae and Freddy Mac began this practice that others had to follow to compete. Both of those agencies are government-backed.
And when were Fanny and Freddy set-up?The lesson I would try and take from the current situation is that it's a very bad idea for the government to get involved in the market. The may have the best intentions but there actions tend to have unexpected consequences years down the line. For that reason I don't support any bail outs of commercial companies or economic stimulus packages.
Leave capitalism alone and it will deliver the results everyone deserves.
Fittster said:
Jimbeaux said:
Fittster said:
Jimbeaux said:
Rating agency? The properties were valued correctly in many cases, it was the loan applicants that had low ratings. The Clinton rules forced banks to loan anyway and now everyone wonders why those people decided to let their house payments slip in favor of 22" shiney rims and gold teeth veneers. Fannt Mae and Freddy Mac began this practice that others had to follow to compete. Both of those agencies are government-backed.
And when were Fanny and Freddy set-up?The lesson I would try and take from the current situation is that it's a very bad idea for the government to get involved in the market. The may have the best intentions but there actions tend to have unexpected consequences years down the line. For that reason I don't support any bail outs of commercial companies or economic stimulus packages.
Leave capitalism alone and it will deliver the results everyone deserves.
rocksteadyeddie said:
NoelWatson said:
rocksteadyeddie said:
Does anyone know how much has defaulted yet - particularly the AAA top-slice?
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