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Re: Wanna be really terrified?
Old 10-21-2006, 02:47 PM   #21
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Re: Wanna be really terrified?

Quote:
Originally Posted by magellan
Thanks, that was very helpful, except now I'm starting to get really terrified...

If I understand this correctly, even though the banks only own a relatively small percentage of the value of the all outstanding mortgage loans (25%), they own more consumer debt as a percentage of total assets than they used to, and the part of it they own is of far lower quality than it was before securitization.

Sounds like a recipe for disaster.

Also, it sounds like my original concern about the non-bank holders isn't an issue because they mostly own higher quality tranches so they should be relatively immune to problems when the defaults start rolling in.

Did I get that right?

Jim
Yes, except that most of the mortgages owned by banks are just loans, not the toxic waste tranches.
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Re: Wanna be really terrified?
Old 10-21-2006, 03:01 PM   #22
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Re: Wanna be really terrified?

So let's assume that this scenario does develop:

1-What would you do if you wanted to just play defense and ride it out with the least impact?

2-What would you do if you wanted to be more aggressive and try to profit from it?

MB
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Re: Wanna be really terrified?
Old 10-21-2006, 03:07 PM   #23
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Re: Wanna be really terrified?

Who Bears the Risk?

... early defaults have forced lenders such as NetBank Inc., Fremont General Corp. and H&R Block Inc. to buy back loans already sold to whole-loan acquirers, particularly Wall Street investment banks that pool and package those loans into asset-backed securities and then sell them to large investors such as insurance companies and hedge funds. The buybacks, in turn, have led lenders to incur losses and set aside more money in their reserve funds for potential loan repurchases in the future.
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Re: Wanna be really terrified?
Old 10-21-2006, 03:26 PM   #24
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Re: Wanna be really terrified?

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Originally Posted by wab
Who Bears the Risk?

... early defaults have forced lenders such as NetBank Inc., Fremont General Corp. and H&R Block Inc. to buy back loans already sold to whole-loan acquirers, particularly Wall Street investment banks that pool and package those loans into asset-backed securities and then sell them to large investors such as insurance companies and hedge funds. The buybacks, in turn, have led lenders to incur losses and set aside more money in their reserve funds for potential loan repurchases in the future.
True but securitizers only have to buy back loans for a short period of time. After 90 days or so, the buyers of the paper backed by the loans are on the hook.
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Re: Wanna be really terrified?
Old 10-21-2006, 03:28 PM   #25
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Re: Wanna be really terrified?

Quote:
Originally Posted by mb
So let's assume that this scenario does develop:

1-What would you do if you wanted to just play defense and ride it out with the least impact?

2-What would you do if you wanted to be more aggressive and try to profit from it?

MB
1. Buy treasuries, puts on equity indexes, and avoid junk bonds.

2. Go short/buy puts on banks and REITs involved in subpprime loans.
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Re: Wanna be really terrified?
Old 10-21-2006, 04:43 PM   #26
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Re: Wanna be really terrified?

Quote:
Originally Posted by magellan
I wish I could say it was my "dry" wit coming to the fore, but unfortunately it was completely accidental.

Maybe the references came from my subconscious as a result of symptoms of this horrible flu I'm fighting. I do feel a bit like I'm drowning at times...

Hang in there. Explore your options. Try to becalm and sail on
in spite of nose leakage. A sea change is dead ahead.

JG
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Re: Wanna be really terrified?
Old 10-21-2006, 10:08 PM   #27
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Re: Wanna be really terrified?

Here is the article that was quoted in the "Who Bears the Risk" blog link above:
http://www.contracostatimes.com/mld/...a/15395980.htm

Pretty interesting.

Audrey
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Re: Wanna be really terrified?
Old 10-22-2006, 12:24 AM   #28
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Re: Wanna be really terrified?

funny, but this crap doesn't scare me one bit.
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Re: Wanna be really terrified?
Old 10-22-2006, 05:04 AM   #29
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Re: Wanna be really terrified?

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Originally Posted by Alex
funny, but this crap doesn't scare me one bit.
Me neither. Bring it on !

JG
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Re: Wanna be really terrified?
Old 10-22-2006, 05:27 AM   #30
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Re: Wanna be really terrified?

Brewer...

A good 101, but a little off from my experience....

Usually they sold the C and kept a Z... this last traunche is usually the 'remainder'.... and most pools are over securitized by some percentage... hench a remainder.... and usually the interest rate on the pool exceeds the amount that has to be paid so the longer it has been in existence the larger this remainder gets if normal defaults occur...

IF defaults occur higher than anticipated... they are protected... it HAS limited their exposure to that pool to a certain dollar figure... this is what they are looking for... if all payments are made, we make a boat load of money because we are borrowing 'cheap' and lending at a high rate... if it is normal default, we still make a boat load of money, not as much... and if everything goes to sh!t.... well, we can only lose X dollars on this large portfolio...

PS.... I was a trustee for many issues... and I dealt with many that had huge defaults... none every lost money on the Z shares...
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Re: Wanna be really terrified?
Old 10-22-2006, 09:34 AM   #31
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Re: Wanna be really terrified?

What do you think of the segmentation of the US population here? Too simplistic in my opinion. Yes there will be many dafaults etc but the segmentation may be quite off.

Of the 64% of the population with homes many may very well be exposed to credit problems as many stretched there wallet with higher cost homes. Specially the ones shopping at Neiman Marcus; which is not all of them! Where are the LBYM in the segmentation?

By the same token many people with substantial wealth are not exposed to the real Estate market and do not own homes (actually the % of millionaires with RE investments dropped significantly as of late). Many like to rent as it is a simpler lifestyle or simply like to move around.

Many examples of these segments on this board. I am not saying that the conclusions of the study and implication on the overall economy will be wrong. Just that the segmentation is too simplistic:
1. Home ownership is not always tied to assets.
2. Credit overextention is not always tied to income.

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Old 05-03-2012, 10:42 PM   #32
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The power of hindsight makes this one of the more interesting old threads.
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Old 05-03-2012, 10:50 PM   #33
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I am becoming increasingly convinced that we will be entering a housing-lead recession late 2007/early 2008.
Wow!
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Old 05-03-2012, 11:14 PM   #34
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A small minority can cause havoc for the majority. Back then I thought only those who were doing foolish things in the housing market were going to get burnt. Very naive, never thought it would have such a negative effect on the rest of society.
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Old 05-03-2012, 11:59 PM   #35
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Wasn't I naive? I just assumed when the housing bubble DID burst - and I too was certain it would - those who bought McMansions and the STOCKHOLDERS of the institutions who made it possible would be the ones to suffer. Silly me. Surely we learned our lesson back during the S&L crisis. Maybe not. YMMV
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Old 05-04-2012, 03:34 AM   #36
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Quote:
Originally Posted by GrayHare View Post
The power of hindsight makes this one of the more interesting old threads.

I started reading this thread thinkingMeredith Whitney was issuing a new report. I was wondering why Brewer was explaining securitization cause I figured most board regulars understand it by now.

It wasn't until I read the second page I figured out it was an old thread.


Quote:
1. Buy treasuries, puts on equity indexes, and avoid junk bonds.

2. Go short/buy puts on banks and REITs involved in subpprime loans.
Just think how rich you'd be if you followed Brewers investment advice back in Oct 2006 and then reversed course sometime in 2009.
I am surprised Brewer is still working.

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Old 05-04-2012, 07:25 AM   #37
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Here's one guy that saw it coming and figured out how to make a bundle of cash. Interestingly, a lot of the investors in his fund didn't believe him and pulled their cash out before the crash, when his investments paid off. The ones who stuck with him, made out very, very well....

Michael Burry - Wikipedia, the free encyclopedia
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Old 05-04-2012, 10:49 AM   #38
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Quote:
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Just think how rich you'd be if you followed Brewers investment advice back in Oct 2006 and then reversed course sometime in 2009.
I am surprised Brewer is still working.

I got whacked along with everyone else, although I regained the investment money I lost pretty quickly. The collapse was broader and less predictable than I would have guessed. The biggest loss was my extremely lucrative job, but since I am now in a far more livable situation job-wise that turned out to be a blessing in disguise. Ah well.
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Old 05-04-2012, 11:25 AM   #39
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Quote:
Originally Posted by packrat44 View Post
A small minority can cause havoc for the majority. Back then I thought only those who were doing foolish things in the housing market were going to get burnt. Very naive, never thought it would have such a negative effect on the rest of society.
+1. I was aware that lots of people were taking on loans they shouldn't have, but I also (naively) thought the damage would be mostly limited to them and the fly-by-night mortgage companies (their ads were telling), I never imagined...

It was fun to read this thread many years later, glad someone revived it. Many of the ER members come out looking very smart...congrats.
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Old 05-04-2012, 02:08 PM   #40
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The recession seems reasonable in my hood (STILL). Every home buyer from 2004-2010 is upsidedown .... and no right-side-up is insight. Rates creep .... forget-about-it.
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