Growing Evidence That The Upturn Is Upon Us

[Grass strip basher]

"blame the financially illiterate poor"... ah yes the poor helpless victims.... believing these people were innocent victims is exactly the sort of bollocks that has become socially acceptable to spout and that laid the foundations for this crisis.... what about taking responsibility for you own actions??! The people who borrowed beyond their means (driven by greed??) where not just the poor/illiterate.

I agree there were a lot of muppets involved in the MBS industry but people who borrowed too much are also at the heart of this problem.... saying they are victims rather than the majority who were just driven by greed and an "I want it now" culture is nonsense.

[Sciolistes]

P.S. the crisis is not just about bankers.... it is about certain parts of the global community that have borrowed to much and now can't repay what it owes

But isn't that the whole fundamental basis for all Western economies, without a boosted money supply, where there is more credit than money available to repay, there would be no economic expansion.

I'm not really sure what living in a near static economy would be like, I imagine it would involve lots and lots of poor people and very few relatively exceedingly rich people, with near zero socioeconomic mobility.

Recessions are an inseparable part of the process, the population doesn't understand this, governments are in denial and banks make hay whilst the sun shines...and when it doesn't.

[BoeingMEL]

I'm with you Penguin!

Yep, do your PPL and enjoy flying as a satisfying recreation..just like your sailing. There will probably be plenty of guys out there with frozen ATPs willing to fill your Piper and clean your boat. So pleased I left the party when I was still enjoying it! And yes, this coming winter is going to be an unprecedented nightmare... and the following one will most likely be worse. Nonetheless, good luck to all. bm

[JB007]

Unemployment risen again today...now 2.47 Million out of work!

[Thick Blue Line]

Surely there is a two tier level of responsibility and accountability here.
The greed of the lenders and the greed and apathy of the consumer must be equally at fault. Credit has been all too easy to sell and all too easy to accept, and lets face it there is a large proportion of our society that simply doesn’t have the common sense, judgment or even basic understanding of personal finances and numeracy to understand the value of their money at all.

I don’t have a great understanding of economics but if, as I regularly read in news articles, there were people who ‘saw all this coming’ then why was there never a whistle blower? An independent watchdog of some sort to regulate the lending and the advertising of loans and credit agreements dangled to daytime TV viewers?

Vicious circle - lenders don’t care, consumers don’t care, government don’t care.

In my opinion, the issues in this country run deeper. A growing lack of social values, disproportionate welfare state, poor education amongst young adults, third or fourth generation of kids growing up with role models who have never worked and a ruthless and cash-hungry media and economy.

Its going to get much worse before it gets better and I think there will be larger scale social unrest in the UK before long, although I really hope I am wrong.

On the plus side my student loan will be fully repaid by the end of the year - kerching!

[Bruce Wayne]

Penguin, have to agree with you too.. and appreciate the fact that not only were borrowers irresponsible, but also lenders were as well.

In many respects the lenders were also borrowers. However the 'Lenders' that were also 'borrowers' have risk analysts who determine the risks over what they are lending and what they are borrowing to lend.

In many cases the risk analysts were flatly ignored as the downside did not fit into continued bubble projections.

[Penguin68]

In many cases the risk analysts were flatly ignored

Don't I know it. The risk group warned our casino that the models were grossly understating our ABS book's VaR in 2006 because the timeseries we were using were becoming inappropriate - we wanted to change to the hyper-volatile ABX which would have put them way above limit and forced them to cut the position at the top of the market or hedge with ABX CDS. The muppet in charge of the desk argued that the illiquidity of the cash ABS market proved they couldn't lose any money and they were very happy with all the interest they were being paid on those 'risk free' mezz (BBB) ABS and CDOs. He said that the volatility of the ABX said precisely nothing about the cash market, and he took home a huge bonus in February 2007, while mine was cut presumably for rocking the boat. I was told several times by the MD that I was undermining my credibility by putting out stress test numbers every month that showed we could lose $30m in one month on a $400m ABS portfolio. In July 2007 it lost $30m. It did the same again in August. Within 6 months that casino was out of the prop trading business with a $1bn loss (90% at HQ in the ME ... and nearly all of that was lost on AAA a ABS/MBS/CDO portfolio so the Chairman blamed the rating agencies not the muppet traders or the greedy 'look the other way and take the bonus' bosses) and I was the only survivor of all the senior risk people in the London office. I asked to be let go on the same payoff terms as the rest and another six months later that happened.

One last word to the 'personal responsibility' brigade - and I do mean my last word because I'm not into internet flame wars: with all due respect, I think you are missing the point. The mortgage brokers knowingly encouraged and facilitated fraud. Sure, there were plenty of middle class flipmycondo.com type speculators who weren't stupid, rode the train and knew in advance they were going to walk away from the debts if the bets didn't pay off - certainly in the US & UK anyway, in many other countries (e.g. the Netherlands) that's not so easy to do. But there were also a lot of people at the bottom of the heap, particularly in the US with virtually no education (finanicial or otherwise) who were suckered in by more knowledgeable and greedy 'pushers' for their personal gain, not their dumb clients' gain. What does caveat emptor mean to someone who was a dunce at school? Surely the far greater responsibility is on those who facilitated the fraudulent applications and the casinos who securitised them, not least because they were also knowingly defrauding their shareholders for personal financial gain. Oh, and BTW they unwittingly destabilised the entire world economy, not least the airline industry. Given that you're on this board, aren't you negatively affected in any way? Doesn't law enforcement typically target the pusher more than the junkie? - is that wrong also?

[Wee Weasley Welshman]

Penguin68 - you were really in the eye of the strom then. Interesting place to be at an interesting time in history. Write a book - future generations will be interested..


I agree with your view on the morality, causation and blame. I would add that the senior Politicans are also to blame. Ultimately we pay them to make sure the systems and regulators protect the little guy just a little bit.


WWW

[Penguin68]

there is a large proportion of our society that simply doesn’t have the common sense, judgment or even basic understanding of personal finances and numeracy to understand the value of their money at all.

Which is why the responsibility lies with the pushers and the champions of financial deregulation who facilitated the pushers. You might as well blame your cat/dog/hamster instead of the moronic credit junkies - they're equally witless.

[Bruce Wayne]

www

I really don't know if future generations would be interested.. Come a few years from now we will enter another bubble based on overinflated values in XYZ market and new financial models that show a crash and risk is unlikely.

Go figure !

the predictions you yourself have mad are not down to channelling, or some divine message from above but consideration of historical basis (yes, I do read your posts!) likewise the involvement of people like penguin who as risk analysts analyse the risk !

Go figure !

Having been involved in debt recovery from aviation based assets I have seen the most heinous debts that investors have confronted in certain assets, based on biased information.

Take for example in 2005 a 747SP with an exec interior (yes that one). that an investor was in for a considerable sum, based on a financial projection and model, which was to all an intents false.

Looking at recovering some 2.5 million for an SP airframe with no engines a garbage interior and out of date avionics was never going to happen, it was worth not even a 10th of that figure.

The investor was burned in a big way on that having bought the aircraft complete and the engines sold off; I know who made big time on that, it wasn't the party that carried the financial liability.

That was based on false information and the risk being buried; The resultant factor is that someone ended up with an asset that was worth no where near the value it was projected at.

To intents and purposes this was appropriating funds against an asset with incorrect, moreover even fraudulent data.

The result of many transactions like this that went on leaves a lot of debt on books with no hope of ever reclaiming a significant portion of the debt back, which now results in finance against aviation based assets very lairy across the board and a lot of debt that can only be written off, not even down.

Right now, you have new aircraft out of the factory and finance companies wanting to see up to 30% in the aircraft before they will even consider finance.

[Penguin68]

Write a book - future generations will be interested

If I was at a big casino (failed or otherwise) I probably would but the story of the downfall of a cruddy little camel-shop isn't going to sell.

I totally agree that ultimately it is top level pols who are to blame. They create the framework in which everyone does their thing, and they let the dogs loose. Hard won lessons from the past were forgotten. Both sides of the aisle on both sides of the atlantic are implicated because it was going on over a period of 30 years in which everyone had a turn in power and a chance to make a difference.

[Grass strip basher]

Penguin68 not doubt what you witnessed in a segment of the US mortgage market was true but it is just a piece in the puzzle. Banking is like engineering, there are many many different aspects to it. And you would persecute all for the faults of what in the big picture were a minority of bankers? (of which you were one... lets not forget that whilst you are preaching... have you given all your I'll gotten gains to help the homeless charities yet?).

It sticks in the throat that someone from a risk management team working in the MBS/ABS market should be busy spounting off about what was wrong with the system.... shame you didn't stand up and take responsility 3/4 years ago.... no wander you are not an advocat of personal responsibility given your own small role in the affair.

The UK mortgage market model is very very different to the US.... and yet we ended up in the same mess. In many European markets (e.g. Spain & Ireland) the securitisation markets were in their infancy and yet they are in a worse state than the US and UK.... how does that work if the sole blame for this crisis lies with a small number of ABS/MBS traders?? What about the mess the CMBS market is in.... was commercial real estate pushed on to poor unsuspecting finacially illiterate no hopers as well??

A the heart of this crisis is greed plain and simple.... not just bankers but society as a whole. To blame the entire crisis on a bunch of traders is political brain washing.

Rant over (again)

[Penguin68]

You are making a few assumptions that are false. My casino traded virtually everything, not specifically US RMBS, and we didn't securitise mortgages. Thanks to the fear of being left behind and the mass pimping of property on UK TV , UKRMBS aren't significantly less crappy, they just talk about non conforming loans instead of Alt-A and subprime, and BTW we didnt have ANY of that - EVERYTHING tanked - IMO the entire asset class is garbage predicated on naive assumptions of low default correlation, but that is an entirely different subject - there was a panic induced stampede for the exit. CMBS were not considered a different class, I just didnt mention then specifically - we had plenty in the book and they tanked as well - it has not just recently happened, whatever you heard elsewhere, and yes their investors can still be victims of asymetric information, or they can be muppet traders in which case the shareholders are the victim and FFS dont tell me they should know because they don't - stuff gets hidden OBS. We did package some GBP and EUR ABS/MBS into CDOs, but mostly we bought other people's crap, and as I said about using different risk factors and about the stress tests, I did warn them and I was not alone in doing so. I did not cover that desk specifically, we were too small a shop for that - I covered everything they did. As far as I am concerned I did what I could in that environment to protect the bank and I won't be handing back any 'ill gotten gains' to the al-Saud family.

The blame does not lie with a small number of traders and I didn't say it does. It wasn't a minority of banks involved in the ABS mania - it was virtually all of them - if not as originators, then as investors. Practically the entire financial industry viewed securitisation to be a risk free gold rush - after all, you could ultimately reposess the asset, right? ... if it is worth anything. It was the madness of a crowd slavering at the prospect of big personal payoffs, which blinded them to the systemic risk.

Unless you have worked in that environment where traders & their bosses fixate entirely and solely on this year's bonus I dont think you can really appreciate that the perverse incentive structure undermined the entire financial industry by encouraging short term gambling instead of well thought out investment. Nobody cared if what they bought this year and made a mint on blew up on January 1st. The core point is that the without the deregulation that allowed real banks (i.e. ones in retail and commercial deposit taking/lending) to act like the casinos, it would not have mattered one bit if it all blew up. Mine was purely a casino and the world will barely notice if it completely folds (it was recapitalised). The same cannot be said of HBOS, Citi. Deregulation is 'wot dun it'.

FYI we also traded coporate and sovereign debt (cash and CDS) including emerging markets, vanilla IR derivatives, commodities, equity and FX. Just to set the record straight.

[Penguin68]

if it looks too good to be true, it definately is

the first time I had CDOs explained to me (04?) I had exactly that thought.

[Penguin68]

Just one more thing ... for the most part the mid-noughties vintage mortgages left on the books of most UK banks are the ones that they couldn't securitise, i.e. the worst of the lot. The government only worked that out after they nationalised Northern Crock.

In a very indirect way the lovely Kirstie Allsopp helped to do to the taxpayer what I always wanted to do to her

[Grass strip basher]

The mortgage and securitisation markets in the UK and US are very different.... for one the UK banks were made to hold on to a significant amount of the first loss tranch of their securitised mortgage books.... typically 1-2% of the loan balances... indeed most of the actually economic risk (NRK's Whinestone transaction was created to sell some of this down risk.... the only vehicle in the UK to do this I believe).. in the US this was not the case... this is a big difference in terms of the business you were prepared to write.

You are not the only one that had a front row seat to this s**tshow and as for.. "traders & their bosses fixate entirely and solely on this year's bonus I dont think you can really appreciate that the perverse incentive structure undermined the entire financial industry by encouraging short term gambling instead of well thought out investment"... that says more about your organisation than anything else... the vast majority of MBS/ABS are not owned by trading desks believe it or not but by investment funds with a longer term objective and different incentive structures.

Anyway enough willy waving and throwing around abbreviations. The net result is the same... people have borrowed too much... how it is packaged/carved up on bank balance sheets as loans, ABS/MBS, CDOs etc etc it is all debt at the end of the day and if someone (i.e. Mr consumer) does not repay it it results in a loss.... all roads lead to a greedy consumer who wanted it all and couldn't pay the bill for the party.

[BitMoreRightRudder]

I think there will be larger scale social unrest in the UK before long, although I really hope I am wrong.

I hope you are wrong too, but I think you will be proved correct.

Unemployment cruising past the 4 million mark just as the inevitable swathing cuts in public spending are taking place under our forthcoming Etonian Old Boys Government?

Could be interesting..............

[Penguin68]

for one the UK banks were made to hold on to a significant amount of the first loss tranch

made? they wanted to do it. we wanted to do it on our CDOs and did. if the structure doesn't tank the equity tranche is a goldmine - you own the pool at the bottom of the waterfall. the early ones we did paid for themselves in no time. they were EUR denominated and pan-eurozone in terms of what went into them. it doesn't matter what currency or what underlying market you are talking about.

[ba038]

This thread should be called "growing evidence that the downturn is still with us". (and at this rate should stay with us till the foreseeable future).

[Grass strip basher]

If they wanted to hang on to it then why Whinestone?? The reason they went down the securitisation route was for capital relief to introduce more leverage into the balance sheet + tap another funding market, nothing to do with evil MBS/ABS trading desks and multi-million pound bonuses you alude to.... how much do you think someone on the treasury team at NRK based in Newcastle got paid??! The fact is they held on to the first loss tranch... so still had a vested interest in the performance of the underlying mortgages.... the US mortgage brokers didn't.

Anyway this is getting very boring and 99% of the folks on this board won't give a s**t or understand all the abbreviations etc you have been spouting.... at the end it is still about too much debt... not who hangs on to what... it is the over levered consumer on the street where the trail to who is responsible stops.... but you can't blame him/her... he is just stupid... (or is that being patronising??)... and of course votes.