Objectively intelligent.

[Icky Thump]

Originally Posted by Tyrone Slothrop

Interesting news about Bolton, but there's an error in the paragraph below:



The last three express words should be "expressing concern."

But seriously, this.

Members Only. Like your jacket.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

You're mixing two issues. Banks are unique in terms of risk. But in terms of judging how banks are run, you judge them just like any other business. If a bank is well run, it is a success. If it is poorly run and requires a bailout, it has been run to some extent by losers, fools, incompetents. It is a failed business.

If a bank is poorly run and requires a bailout, it has been run poorly and it is a failed business. BUT: If a bank is not poorly run and is caught up in a banking run and requires a bailout, that does not mean it has been run poorly and is a failed business. It means there has been a banking run.

But you are correct that there is a justified "heads I win, tails you lose" element to banking. The Feds (or state if so chartered) will have to run in and save any bank going under. So unlike the guy who owns a business and can't make payroll, a bank will never crash and burn. At worst, it'll be forced to sell itself to some other bank or in an extreme situation it will be run off through a receivership. The same applies to insurers.

Adder was arguing that the banks in 2008 weren't failed businesses. That they were holding assets which actually had value. He's wrong. If the assets had value, the banks could have received loans in exchange for collateral positions, or even received unsecured loans based on balance sheet strength. But we know that wasn't true. We know that the banks in 2008 were loaded up with overvalued securities and collateral. They suffered a cash crunch. Just like a business that has tons of receivables which become delinquent, cash flow to these banks was outstripped by their obligations. And in that moment where a business doesn't have enough cash to keep going, that business has failed.

Some of the banks had good assets but could not get loans because there was a liquidity crisis. Or the shadow banks, if you will, since much of what had happened in the preceding years was that banks figured out how to take exposure in ways that evaded the regulatory regime. Here is how Wikipedia explains a liquidity crisis:

In financial economics, a liquidity crisis refers to an acute shortage (or "drying up") of liquidity. Liquidity may refer to market liquidity (the ease with which an asset can be converted into a liquid medium, e.g. cash), funding liquidity (the ease with which borrowers can obtain external funding), or accounting liquidity (the health of an institution's balance sheet measured in terms of its cash-like assets). Additionally, some economists define a market to be liquid if it can absorb "liquidity trades" (sale of securities by investors to meet sudden needs for cash) without large changes in price. This shortage of liquidity could reflect a fall in asset prices below their long run fundamental price, deterioration in external financing conditions, reduction in the number of market participants, or simply difficulty in trading assets.

The above-mentioned forces mutually reinforce each other during a liquidity crisis. Market participants in need of cash find it hard to locate potential trading partners to sell their assets. This may result either due to limited market participation or because of a decrease in cash held by financial market participants. Thus asset holders may be forced to sell their assets at a price below the long term fundamental price. Borrowers typically face higher loan costs and collateral requirements, compared to periods of ample liquidity, and unsecured debt is nearly impossible to obtain. Typically, during a liquidity crisis, the interbank lending market does not function smoothly either.

Several mechanisms operating through the mutual reinforcement of asset market liquidity and funding liquidity can amplify the effects of a small negative shock to the economy and result in lack of liquidity and eventually a full blown financial crisis....

One of the mechanisms, that can work to amplify the effects of a small negative shock to the economy, is the Balance Sheet Mechanism. Under this mechanism, a negative shock in the financial market lowers asset prices and erodes the financial institution's capital thus worsening its balance sheet. Consequently, two liquidity spirals come into effect, which amplify the impact of the initial negative shock. In an attempt to maintain its leverage ratio, the financial institution must sell its assets, precisely at a time when their price is low. Thus, assuming that asset prices depend on the health of investors' balance sheet, erosion of investors' net worth further reduces asset prices, which feeds back into their balance sheet and so on. This is what Brunnermeier and Pedersen (2008) term as the "loss spiral". At the same time, lending standards and margins tighten, leading to the "margin spiral". Both these effects cause the borrowers to engage in a fire sale, lowering prices and deteriorating external financing conditions.

Apart from the "Balance Sheet Mechanism" described above, the lending channel can also dry up for reasons exogenous to the borrower's credit worthiness. For instance, banks may become concerned about their future access to capital markets in the event of a negative shock and may engage in precautionary hoarding of funds. This would result in reduction of funds available in the economy and a slowdown in economic activity. Additionally, the fact that most financial institutions are simultaneously engaged in lending and borrowing can give rise to a Network effect. In a setting that involves multiple parties, a gridlock can occur when concerns about counterparty credit risk result in failure to cancel out offsetting positions. Each party then has to hold additional funds to protect itself against the risks that are not netted out, reducing liquidity in the market. These mechanisms may explain the 'gridlock' observed in the interbank lending market during the recent subprime crisis, when banks were unwilling to lend to each other and instead hoarded their reserves.

You are right that part of the problem was that some of the bank's assets were overvalued. If that were the only problem, all of this would be much simpler. But banks are not bookstores.

[Tyrone Slothrop]

Pelosi should hold on to the articles of impeachment and let Schiff subpoena Bolton, Mulvaney and the others. Since the Senate isn't going to hear witnesses, the House should give it a shot.

[sebastian_dangerfield]

If a bank is poorly run and requires a bailout, it has been run poorly and it is a failed business. BUT: If a bank is not poorly run and is caught up in a banking run and requires a bailout, that does not mean it has been run poorly and is a failed business. It means there has been a banking run.

None of the banks - particularly the investment banks - were adequately prepared for the risk of a housing bubble bursting. And they all knew it was a bubble. They believed, quite wrongly, that they could flip the loans rather than keep them in portfolio, and blend the garbage loans with good loans in securities, to pass off risk. They knew that even a small uptick in delinquencies would set off a disastrous chain reaction.

And they knew the fundamentals behind the loans were lousy. A majority of the bubble was people replacing jobs they could no longer find or hold with income from flipping. People were sucking equity out of homes to survive. It was a fucking joke even the least astute watcher of r/e and economics could plainly see. Built to collapse.

And yet almost all of the big banks played along with the charade: Housing will never go down.

So yeah, I have sympathy for those who faced a run for no fault of their own. But in 2008, those banks were about 10% of banks. And 0% of investment banks.

Oh, and the shmucks who bought that credit default coverage from Cassano? They deserve to eat it the most. They all knew he was writing that which he couldn't possibly cover. Reporting on the crisis included multiple interviews with people who wondered how he could write so much.

You are right that part of the problem was that some of the bank's assets were overvalued. If that were the only problem, all of this would be much simpler. But banks are not bookstores.

The banks were so leveraged, and skepticism about the stability of the residential r/e market so high below the surface (despite the financial media's attempt to paint a rosy picture), a small loss was a big loss. I think it was a mere 3% increase in defaults on loans one tier above subprime that started the whole mess.

The banks knew they'd created a bubble and it'd burst, badly. Among the things that happens when bubbles burst? Bank runs. They should have planned for that given the size and fragility of the bubble they'd been knowingly creating.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

None of the banks - particularly the investment banks - were adequately prepared for the risk of a housing bubble bursting. And they all knew it was a bubble. They believed, quite wrongly, that they could flip the loans rather than keep them in portfolio, and blend the garbage loans with good loans in securities, to pass off risk. They knew that even a small uptick in delinquencies would set off a disastrous chain reaction.

And they knew the fundamentals behind the loans were lousy. A majority of the bubble was people replacing jobs they could no longer find or hold with income from flipping. People were sucking equity out of homes to survive. It was a fucking joke even the least astute watcher of r/e and economics could plainly see. Built to collapse.

And yet almost all of the big banks played along with the charade: Housing will never go down.

So yeah, I have sympathy for those who faced a run for no fault of their own. But in 2008, those banks were about 10% of banks. And 0% of investment banks.

Oh, and the shmucks who bought that credit default coverage from Cassano? They deserve to eat it the most. They all knew he was writing that which he couldn't possibly cover. Reporting on the crisis included multiple interviews with people who wondered how he could write so much.



The banks were so leveraged, and skepticism about the stability of the residential r/e market so high below the surface (despite the financial media's attempt to paint a rosy picture), a small loss was a big loss. I think it was a mere 3% increase in defaults on loans one tier above subprime that started the whole mess.

The banks knew they'd created a bubble and it'd burst, badly. Among the things that happens when bubbles burst? Bank runs. They should have planned for that given the size and fragility of the bubble they'd been knowingly creating.

Before you were saying, banks aren't different. Now you're saying, if you can't stand the heat, get out of the kitchen. Look, no particular sympathy for bankers here, and I think finance often acts as a parasite on the country's economy instead of an enabler of it, but I would rather live in a country that has a functioning banking sector than one that doesn't.

[Adder]

Originally Posted by sebastian_dangerfield

They knew that even a small uptick in delinquencies would set off a disastrous chain reaction.

And they knew the fundamentals behind the loans were lousy. ...

And yet almost all of the big banks played along with the charade: Housing will never go down.

To which they would (and did) respond: if that's true, why were the lowest tranches most likely to still be on the banks' books?

Sure, agency problems with the people doing the deals getting their's regardless of what happens down the road were a factor. But far from the only factor. "They all knew" is revisionist bullshit. People actually are dumb.

Oh, and the shmucks who bought that credit default coverage from Cassano?

A lot of it was to make synthetic CDOs, no? Oh, yeah, right, the fact that there were lots of buyers for ever more complex crap also belies the "everybody knew" story you're selling.

[LessinSF]

https://daily.shared.com/fake-camel-...box=1578062282

[LessinSF]

Originally Posted by LessinSF

https://daily.shared.com/fake-camel-...box=1578062282

In other news, I am returning to the work force at the firm for which I worked before AIG. If you need coverage counsel, yo.

[sebastian_dangerfield]

Originally Posted by Tyrone Slothrop

Before you were saying, banks aren't different. Now you're saying, if you can't stand the heat, get out of the kitchen. Look, no particular sympathy for bankers here, and I think finance often acts as a parasite on the country's economy instead of an enabler of it, but I would rather live in a country that has a functioning banking sector than one that doesn't.

Banks are a business. The rules of business are that if one finds himself in a position where he is doing something risky, the market turns on him and he finds himself unable to sustain operations as a result, he has failed. That rule applies to every business, including regulated businesses like banking and insurance.

You have made two points in reply:

1. Well run banks that collapse as a result of bank runs are not failures.

I am sympathetic to this. I would not call those banks true "failures," but I am also sympathetic to the argument that he who doesn't reserve adequately to survive a temporary bank run has failed to properly run his business and is a failure. I can see both sides of this argument.

2. Banks are different, and we shore them up rather than allow them to collapse for good reason, and I'm glad of that.

I agree that banks are different creatures, and I am also glad that we avoid their failure as we do. But this doesn't address my point. My simple point is that a bank that requires the Fed to rush in and save it because it has taken risks it knew were questionable and which could place it in jeopardy is a failed business. The people who made the decisions that caused it to fail are failures.

And one may not argue that because the bank was rescued, and sustains operations today, it was/is not a failure. That which must be bailed out is that which has failed to survive on its own.

Again, I have some sympathy for the banks that were well run and got caught up in a liquidity crunch or bank run. It may be argued that is a failure of the market. But again, he who fails to plan for a failure of the market has failed to plan for something, hasn't he? So even these people, while largely victims, are a bit liable.

The one argument I will never listen to, and no sensible person should ever listen to, is the suggestion these banks that needed bailouts were not failures of a sort, but entirely victims of a malfunctioning market. Here's why: They Created That Market. They abused it, they let it become a monstrous bubble, and they had all the warning in the world that it was going to crash. I support bailing them out, but if they want a revisionist history to support the justifications for their obscene and undeserved pay packages since the collapse (while the little banks have had to suffer), fuck them. They get to have it said to them wherever they are, whatever they're doing:

You're a fucking loser, and you only exist in the comfortable state you do because you'd the luck of working in an industry where we couldn't let your dumb ass go down the drain. You are not a capitalist, but a corporate socialist. You're the very worst of everything shitty in this country. And no... I'm not giving you that three foot putt. Play it. You probably fucking cheated the whole way around the course so far.

[sebastian_dangerfield]

Originally Posted by Adder

To which they would (and did) respond: if that's true, why were the lowest tranches most likely to still be on the banks' books?

Sure, agency problems with the people doing the deals getting their's regardless of what happens down the road were a factor. But far from the only factor. "They all knew" is revisionist bullshit. People actually are dumb.

A lot of it was to make synthetic CDOs, no? Oh, yeah, right, the fact that there were lots of buyers for ever more complex crap also belies the "everybody knew" story you're selling.

The shit tranche was always smallest. The risk there could be offset by the fees charged for servicing/packaging.

The lower tiers of the middle, which I believe caused the biggest problem, were actually shit tranches repackaged as middle tranches. So when the banks have cried, "We kept all the really bad risk," it's because they designed the tranches to minimize the shit risk and funnel the best of the shit risk into the middle tranche.

I can't prove this, but I'd guess this was because nobody wanted to buy the shit, and the banks could appear to have some skin in the game if they held onto a thin slice of it while repackaging the majority of it as middle tier risk. '
- - -
"They all knew" is not revisionist horseshit. Everybody knew. Everybody in the country knew the housing market was a bubble. The economy was anemic. The job market sucked, and it was still recovering from the dot com bust fallout. Sure, people could keep making house payments as long as they kept refinancing and prices kept rising insanely. But what happened when the market plateaued? What happened when suddenly all the people who didn't have jobs other than flipping houses had to pay their mortgages from source other than refinancing?

Uh oh.

I bought a house in a fancy suburb in 2004. I recall the frenzy of sales and refis in the neighborhood, and being a fucking skeptic about everything, and representing a subprime lender, I started doing some reading about market fundamentals. It fucking scared me silly, so I bought conservatively and made a few bucks when I sold a few years later.

I am no fucking genius. If this shit was apparent to me, it was apparent to everybody. And it was certainly apparent to the shmucks in underwriting and sales at those banks. Bill Gross spotted it in 2005!

Nobody wanted to listen. They didn't want to hear about How It Will End because that was a sad story. Like Chuck Prince said, "when the music plays, you have to dance."
- - -
Regarding buyers of complex crap, that's just downstream replication of the same shit that took place in the creation and packaging of the mortgages. Think of the run up to 2008 fractally. The homebuyer either took on stupid risk or lied, or was bullshitted, the mortgage broker/originator did the same, the people securitizing the stuff did the same, and then the people selling complex products based on it did the same. The transactions all share the same common features. Everybody knew or should have known they were participants in a giant bubble, based significantly on fraud and bullshit. Those who timed it and got out made fortunes. Those who didn't? Well...

The only people you can call entirely criminal in the whole thing are the rating agencies. How those degenerates got a pass I still cannot understand.

[Adder]

Originally Posted by sebastian_dangerfield

"They all knew" is not revisionist horseshit. Everybody knew. Everybody in the country knew the housing market was a bubble.

If this was true, there would have been no market for all the mortgaged backed products the banks were turning out. There was a huge market for them. You're confusing what you believed, confirmed in hindsight, with what everyone believed.

I bought a house in a fancy suburb in 2004. I recall the frenzy of sales and refis in the neighborhood, and being a fucking skeptic about everything

All your neighbors knew...

[Tyrone Slothrop]

Originally Posted by LessinSF

In other news, I am returning to the work force at the firm for which I worked before AIG. If you need coverage counsel, yo.

I just settled my little Las Vegas matter, alas.

[Tyrone Slothrop]

Originally Posted by sebastian_dangerfield

Banks are a business. The rules of business are that if one finds himself in a position where he is doing something risky, the market turns on him and he finds himself unable to sustain operations as a result, he has failed. That rule applies to every business, including regulated businesses like banking and insurance.

You have made two points in reply:

1. Well run banks that collapse as a result of bank runs are not failures.

I am sympathetic to this. I would not call those banks true "failures," but I am also sympathetic to the argument that he who doesn't reserve adequately to survive a temporary bank run has failed to properly run his business and is a failure. I can see both sides of this argument.

2. Banks are different, and we shore them up rather than allow them to collapse for good reason, and I'm glad of that.

I agree that banks are different creatures, and I am also glad that we avoid their failure as we do. But this doesn't address my point. My simple point is that a bank that requires the Fed to rush in and save it because it has taken risks it knew were questionable and which could place it in jeopardy is a failed business. The people who made the decisions that caused it to fail are failures.

And one may not argue that because the bank was rescued, and sustains operations today, it was/is not a failure. That which must be bailed out is that which has failed to survive on its own.

Again, I have some sympathy for the banks that were well run and got caught up in a liquidity crunch or bank run. It may be argued that is a failure of the market. But again, he who fails to plan for a failure of the market has failed to plan for something, hasn't he? So even these people, while largely victims, are a bit liable.

The one argument I will never listen to, and no sensible person should ever listen to, is the suggestion these banks that needed bailouts were not failures of a sort, but entirely victims of a malfunctioning market. Here's why: They Created That Market. They abused it, they let it become a monstrous bubble, and they had all the warning in the world that it was going to crash. I support bailing them out, but if they want a revisionist history to support the justifications for their obscene and undeserved pay packages since the collapse (while the little banks have had to suffer), fuck them. They get to have it said to them wherever they are, whatever they're doing:

You're a fucking loser, and you only exist in the comfortable state you do because you'd the luck of working in an industry where we couldn't let your dumb ass go down the drain. You are not a capitalist, but a corporate socialist. You're the very worst of everything shitty in this country. And no... I'm not giving you that three foot putt. Play it. You probably fucking cheated the whole way around the course so far.

If the government makes policy by deciding whether it is sympathetic to banks, a lot of ordinary people who didn't do anything wrong are going to get fucked. During a crisis, the better thing to do is keep banks alive somehow, to save their customers. But you also want to take it out of the owners, so that they pay the price. In 2007-08, the government did a pretty good job of protecting the customers, so at least we had that.

[sebastian_dangerfield]

Originally Posted by Adder

If this was true, there would have been no market for all the mortgaged backed products the banks were turning out. There was a huge market for them. You're confusing what you believed, confirmed in hindsight, with what everyone believed.



All your neighbors knew...

It was musical chairs. "This is going to scorch a lot of folks... but not me." Or, "This is going to scorch a lot of folks, but I'll have made so much money in the interim, I'll be alright if it scorches me."

One thing I don't think anyone at a bank in 2007 thought was:

"This is going to scorch a lot of folks, but when it does, the govt will bail people like me out and I'll wind up only losing a year or two of big bonuses, and I'll make multiples of that loss in the stock market from a crazy run-up fueled by liquidity and MBS purchases the Fed uses to cure the problem I was involved in creating. I can't lose!"

But they do now.

[Hank Chinaski]

Originally Posted by LessinSF

In other news, I am returning to the work force at the firm for which I worked before AIG. If you need coverage counsel, yo.

In related news, a 35 year old friend is looking for work. His experience is rather thin- I think he flew a military helicopter for a short while, likely not near combat. Otherwise, he basically travelled the World smiling and waving at people that seem to think his grandmom is somehow above everyone else, since a long time ago her ancestors killed a bunch of people and took over. The friend's wife has worked, so if you give him a chance she might be able to give him advice on how to handle work situations and challenges.