Date post: | 15-May-2015 |
Category: |
Business |
Upload: | alice-mercer |
View: | 3,308 times |
Download: | 4 times |
I hate when my economy
melts down
Alice Mercer cc licensed except iStockphotos where noted
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What the heck happened?
From http://www.istockphoto.com/
Money goes looking for a home
In the aftermath of various bubbles in
the 1990s, there was a lot of money in
the “market” looking for an
investment with high yields and low
risk.
Instead, it ended up being money in
search of a bubble to invest in.
The new home for those $s...
…your home (or your neighbors).
From http://www.istockphoto.com/
The Rule they ignored…
Pile in markets!
http://flickr.com/photos/define23/2610038054/
More money, more money…
Source: NYT (http://www.nytimes.com/2007/03/11/business/11mortgage.html?partner=permalink&exprod=permalink) and S&P Press Release (http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_082653.pdf)
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“Who turns down money?”
said the home buyer/owner
From http://www.istockphoto.com/
“Hey, they can refi in a
few years, and ARMs give me a
better commission, besides I’m
not carrying it.”
said the Mortgage Broker
From http://www.istockphoto.com/
“Hmmm, I think I have an idea!”said the Investment Banker
Hmm, didn’t they try that here?http://en.wikipedia.org/wiki/Long_term_capital_management
We could reduce risk, by spreading it all around. Complexity is good!
From http://www.istockphoto.com
Slice ‘em up
http://flickr.com/photos/cayusa/2173546553/
Re-package ‘em
http://flickr.com/photos/tjflex/1347490869/in/photostream/
and build a giant house of cards… out of housing
Does anyone like the SOB who bets against the shooter in craps?
“Any number of speculators, who do not
own the original security, can place side bets on whether that security
defaults.”WaPo http://tinyurl.com/3kotw9
From http://www.istockphoto.com
This isn’t heading anywhere good
Source: Bureau of Economic Analysis via Sequoia Capital (http://tinyurl.com/3ttyng)
But I can’t pay the mortgage!Delinquencies Q 1 2008
0% 5% 10% 15% 20%
Data from WaPo http://tinyurl.com/3kotw9 and FRB
“Normal” level
Securitization brings multiple creditors with multiple “approaches” to
renegotiating loans
Hey, I’m in an ‘A’ rate tranche, I don’t have to make a deal
I’ll take the risk! I got this cruddy MBS didn’t I?
I have no idea what to do, or why I bought this lousy bond in the first place
Talk to my lawyer!
baaah
We want our money!
From http://www.istockphoto.com/
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The loans become “road kill”
http://flickr.com/photos/jganderson/2387722255/
The Mortgage Backed Securities became cow patties
http://en.wikipedia.org/wiki/Image:Nagasakibomb.jpg
And the derivatives
that were supposed to
insure the whole thing
are radioactive
The Risks of Large Complex Systems
(Benoît) Mandelbrot…looking at how markets trended…discovered …tail risk…the possibility of extreme events is higher than any of the standard models predict…
-- Yves Smith on Bloggingheadshttp://bloggingheads.tv/diavlogs/14850
Photo: http://en.wikipedia.org/wiki/Image:Toppledominos.jpg#filelinks