CEO of the biggest bank failure in history? Congrats, here's $13.65 million!

[FCYTravis]

http://www.bloggingstocks.com/2008/09/27/wamus-ceo-bagging-13-65-million-in-18-days/print/

In short order, the shareholders of Washington Mutual (NYSE: WM) have lost billions. A tier-1 private equity investor, TPG, has lost $1.3 billion on the company. And, unfortunately, thousands of WaMu employees have lost their jobs.
However, there are some winners. For example, there are the short sellers. JP Morgan (NYSE: JPM) is also likely to do well since the firm bought WaMu's assets for a mere $1.9 billion.
But there appears to be yet another interesting beneficiary: Alan Fishman. He is WaMu's CEO, who took the top job 18 days ago.
As should be no surprise, he signed a juicy contract: a $7.5 million signing bonus and a lump-sum payment for severance that comes to $6.15 million. In other words, if he leaves the company, he'll walk away with $13.65 million.

Work for the bank, you're screwed. Be in charge of the bank for two weeks as it becomes the biggest bank failure in history, make more money in those two weeks than 99.999% of the world will ever know in their lives. Capitalism works!

Why people aren't in the streets, dragging these people out of their offices and stringing them up from lampposts, is beyond me.

[trish]

That's an unbelievable amount of money for less than 3 weeks employment.

I read in another article that he could walk away with $20 million.

[indyfan31]

You're getting your news from a BLOG?
Now don't get me wrong, I don't believe any of the CEO's of these banks should get ANY bonuses at all.
But, do you guys honestly believe Fishman brought down a 118-year-old institution in less than 3 weeks?
After all, he was hired after Killinger was fired, a the bank's officers were working on a plan to rescue the bank when the Feds came in and said pack it up guys, you're done.

[trish]

No, I just think that's a lot of money for three weeks of whatever it was he did.

[SteveH]

I'm not sure those employment agreements will hold up after a bank fails. I'm not sure, I can check around and probably confirm it, but I'll be surprised that they do. Usually in a bank failure all agreements and contracts are with an entity that no longer exists. The FDIC takes the assets and brokers a deal, in this case it didn't put a dent in the Depository Insurance Fund, which is good because this one won't be the last, I'm afraid.

[Methanolandbrats]

No, I just think that's a lot of money for three weeks of whatever it was he did.
Here's what he probably did. Came in late, long lunch, played golf, treated multiple employees like ****, left early.

[nissan gtp]

I would have done it for $10M.

[Napoleon]

I would have done it for $10M.

I'll run your company into the ground for a mere $2M.

[Methanolandbrats]

I bid 125k :D

[Sean Malone]

Richard Fuld, CEO of Lehman Brothers is paid $45 million a year. That breaks down to $21,634 an hour for a 40 hour work week. In 3 hours he makes as much as the average American family makes in a year.

I'm feeling very poor.

[Methanolandbrats]

Richard Fuld, CEO of Lehman Brothers is paid $45 million a year. That breaks down to $21,634 an hour for a 40 hour work week. In 3 hours he makes as much as the average American family makes in a year.

I'm feeling very poor. It's a stressful job, can't have him worrying about his bills while he's doing such a fine job of managing other people's money.

[extramundane]

Circuit City got off easy, then. They only had to pay $1.8 million (+ $50k relocation package, 'cause who can move on less than $2 mil?) to get rid of their latest CEOtard.

[Insomniac]

Shareholders should insist on a vesting period for all bonuses. It's the only way to ensure the long term security of the company is more than an afterthought. I tried to look it up on the SEC's web site, but couldn't figure out what form it was in, but I wonder how much money had been taken from the company and paid out in bonuses and stock options over the last 3 years as this mess built up.

[oddlycalm]

It's a shame there isn't a mechanism to claim the compensation packages for the entire senior management teams of these failed companies for the last 5yrs of there inspired stewardship. Aside from visiting some fitting justice upon them it would provide a couple $ billion in funds to help clean up the mess.

We also have to recognize that these guys were enabled by bipartisan support in government. Many of those in government currently condemning the greedy Wall Street managers are the very ones that gave them the tools to do it. The politicians insulate the management teams from legal consequences and the media moguls insulate the complicit politicians while everyone else gets fleeced. :irked:

Those voting for and signing the repeal of the Glass-Steagall Act of 1933 and passage of the Commodities Modernization Act of 2000 should be listed publicly for all to see, and already would be if our news media still amounted to anything.

Meanwhile, the population is mesmerized by partisan bickering over nothing and the adventures of trailer trash trollops that passes for actual news.... :shakehead People are outraged, but there is no focus for their anger in the vacuum of real information.

oc

[Insomniac]

It's a shame there isn't a mechanism to claim the compensation packages for the entire senior management teams of these failed companies for the last 5yrs of there inspired stewardship. Aside from visiting some fitting justice upon them it would provide a couple $ billion in funds to help clean up the mess.

We also have to recognize that these guys were enabled by bipartisan support in government. Many of those in government currently condemning the greedy Wall Street managers are the very ones that gave them the tools to do it. The politicians insulate the management teams from legal consequences and the media moguls insulate the complicit politicians while everyone else gets fleeced. :irked:

Those voting for and signing the repeal of the Glass-Steagall Act of 1933 and passage of the Commodities Modernization Act of 2000 should be listed publicly for all to see, and already would be if our news media still amounted to anything.

Meanwhile, the population is mesmerized by partisan bickering over nothing and the adventures of trailer trash trollops that passes for actual news.... :shakehead People are outraged, but there is no focus for their anger in the vacuum of real information.

oc

This was a problem years in the making, and I'm sure, if we're lucky it will take just as long to undo the mess government has become. Sadly, I fear that the overwhelming majority of the country has picked a side and that is that. There will be small changes, but no sweeping change that ignores party lines.

I'd like to see bills limited in scope. It's crazy that things can get slipped in with other stuff. A lot of things pass because they get combined with other bills when they had no chance of passing on their own merits.

[Ankf00]

Largest Hedge Fund in the World Announced (http://www.strategerycapital.com)

[Methanolandbrats]

Largest Hedge Fund in the World Announced (http://www.strategerycapital.com):rofl:

[SurfaceUnits]

It's a shame there isn't a mechanism to claim the compensation packages for the entire senior management teams of these failed companies for the last 5yrs of there inspired stewardship. Aside from visiting some fitting justice upon them it would provide a couple $ billion in funds to help clean up the mess.

oc

Paulson pulled in 800 million plus the last year at his previous job. Two of the former CEOs of the absorbed companies each made more than a billion dollars a year. All the others were in the hundreds of millions as well. they could all fork in untold billions before the the Feds had to use the borrowed funds that the country doesn't have and will never be repaid by anybody. just more $$$$ on the books of fantasy.

[cameraman]

the Commodities Modernization Act of 2000
This thing was never debated.

The "Commodity Futures Modernization Act of 2000" [H.R. 5660 was introduced in the House on Dec. 14, 2000 by Rep. Thomas Ewing [R-IL] and cosponsered by Rep. Tom Bliley (R-VA) Rep. Larry Combest (R-TX) Rep. John LaFalce (D-NY) Rep. James Leach (R-IA) and never debated in the House.

The companion bill (S.3283) was introduced in the Senate on Dec. 15th, 2000 by Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Charles Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD)and never debated in the Senate.

It then was attached to the combined appropriations/budget bill for the:
Department of Labor
Department of Health and Human Services
Department of Education

Nobody was going to shutdown a third of the government to stop this thing.

This thing was under the radar and guaranteed to pass from the get go.

[cameraman]

the repeal of the Glass-Steagall Act of 1933

The repeal was actually called the "Gramm-Leach-Bliley Financial Services Modernization Act". It allowed the commercial and investment banks to consolidate.


May 6, 1999: This bill passed in the Senate by roll call vote. The totals were 54 Ayes, 44 Nays, 2 Present/Not Voting.A party line vote.

Jul 20, 1999: This bill passed in the House of Representatives without objection. A record of each representative's position was not kept.

Nov 4, 1999: After passing both the Senate and House, a conference committee is created to work out differences between the Senate and House versions of the bill. A conference report resolving those differences passed in the Senate, paving the way for enactment of the bill, by roll call vote. The totals were 90 Ayes, 8 Nays, 1 Present/Not Voting. Voting against it were Richard Shelby [R], Barbara Boxer [D], Tom Harkin [D], Barbara Mikulski [D], Paul Wellstone [D], Richard Bryan [D], Byron Dorgon [D] and Russell Feingold [D]. The present/Not voting member? John McCain [R]

Nov 4, 1999: After passing both the Senate and House, a conference committee is created to work out differences between the Senate and House versions of the bill. A conference report resolving those differences passed in the House of Representatives, paving the way for enactment of the bill, by roll call vote. The totals were 362 Ayes, 57 Nays, 15 Present/Not Voting.

[Insomniac]

This thing was never debated.


It then was attached to the combined appropriations/budget bill for the:
Department of Labor
Department of Health and Human Services
Department of Education

Nobody was going to shutdown a third of the government to stop this thing.

This thing was under the radar and guaranteed to pass from the get go.

And looking at the votes of the standalone bill, it had no chance except to be included with something like that. No one wants ads running against them saying they voted against one of those, despite the reason. Same way this $25B automaker loan is getting through.

[Insomniac]

And the bailout bill went from 3 pages to 106 pages. I wonder how much other stuff was added to that.

[TKGAngel]

And the bailout bill went from 3 pages to 106 pages. I wonder how much other stuff was added to that.

CNN has a draft of the bil (http://i.cdn.turner.com/cnn/2008/images/09/28/ayo08c04_xml.pdf)l for your reading enjoyment.

[Insomniac]

CNN has a draft of the bil (http://i.cdn.turner.com/cnn/2008/images/09/28/ayo08c04_xml.pdf)l for your reading enjoyment.

I opted for the 1 page summary. But I'm confused. What is different from the "agreement in principle" that they had last Thursday?

[Stu]

house just rejected the bill :thumbup:

[Insomniac]

house just rejected the bill :thumbup:

Yes, I love it when my retirement accounts lose 5% of their value in one day.

[oddlycalm]

Voting against it were... ]
Signing those bills were two different presidents from different parties each with the support of their respective treasury secretaries.

The bailout bill just went down to defeat in the house.

oc

[Methanolandbrats]

Yes, I love it when my retirement accounts lose 5% of their value in one day. Just retire a couple years later, what's the problem :gomer:

[Gnam]

I bid 125k :D
You're not thinking like a CEO. You have to bid the other direction. ;)

[Sean Malone]

So last week Warren Buffet predicted 1000 years of plague and despair if this bail out does not happen. So I'm assuming revisions will just continue to be presented until it passes?

-signed, afraid of the soup line.

[Methanolandbrats]

So last week Warren Buffet predicted 1000 years of plague and despair if this bail out does not happen. So I'm assuming revisions will just continue to be presented until it passes?

-signed, afraid of the soup line.
Buffet took a big position in Golden Sack..........a buzzard trade...........he really needs this passed and he ain't motivated by patriotism. :)

[Insomniac]

Just retire a couple years later, what's the problem :gomer:

I'm a long ways away thankfully, but others are not so lucky. One of my customers is 70.5 this year and he has to pick between retiring or paying really high taxes on forced retirement account distributions. My Dad can retire any time he wants as well. His biggest fear is that he gets laid off before he retires. He can work another 5-10 years and let his retirement account recover (the S&P 500 finally just recovered from the tech bust after 8 years), but if he loses his job (as the economy gets worse), he isn't looking forward to finding a new job after working at the same place in one field for 30 years.

[SurfaceUnits]

obviously not enough payola for your congresspeople in first draft

[Insomniac]

So last week Warren Buffet predicted 1000 years of plague and despair if this bail out does not happen. So I'm assuming revisions will just continue to be presented until it passes?

-signed, afraid of the soup line.

First the fingerpointing, then they'll get back to work on it. So, by the end of this week it'll be crisis time and maybe they'll pass it next week is my guess.

[Stu]

First the fingerpointing, then they'll get back to work on it. So, by the end of this week it'll be crisis time and maybe they'll pass it next week is my guess.

too much faith, congress has been at work for a couple weeks on this. aren't they due for a 2-3 month vacation now?

[Stu]

Yes, I love it when my retirement accounts lose 5% of their value in one day.

better than pissing away 700 billion dollars as well as your retirement account.

per Forbes:


In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

you really trust these *******s to fix your retirement account troubles?

[Stu]

too much faith, congress has been at work for a couple weeks on this. aren't they due for a 2-3 month vacation now?

damn. i was joking about this but its true. these jackpipes are going home for Rosh Hashanah tomorrow.

[Insomniac]

better than pissing away 700 billion dollars as well as your retirement account.

per Forbes:



you really trust these *******s to fix your retirement account troubles?

I don't like the idea, because it's mostly a hope that if they pump cash into the markets and remove the bad securities, then the markets will move better.

I do know the U.S. Government and other European governments have been pumping obscene amounts of cash onto the markets as it is.

I do know there aren't that many companies sitting on piles of cash if the credit market dries. I wish I knew/understood how interlinked this stuff is. If you're going to buy these bad assets, best case is a fire sale, which would arise from bankruptcy. So let them go under and then buy up the stuff. But how quickly will they be replaced by other investment banks? If you let them fail, presumably all the cash from the fire sale goes to shareholders and executives, not the economy.

Besides, who is going to fix it? The "Free Market"? That's as free as those guys allow it to be. And it has gotten us to this point.

[Methanolandbrats]

The big dominos fall first, should'nt be long before numerous regional banks go tits up. And that will be with or without a bailout. It's amazing how the condescending tools on Wall Street are lecturing "main street" and telling "average people" they don't understand. What main street understands very well is that most of the people who caused this will still be in the same positions AFTER the bailout. That's the real sticking point.

[SurfaceUnits]

Bailout: Little help for homeowners


"It's impossible to know whether it will help anybody but the banks stay open another week," said Mark Dotzour, chief economist at the Real Estate Center at Texas A&M University. "Until we see a plan to get people to buy those empty homes, we're just going to go from one band-aid to the next."

[nrc]

"It's impossible to know whether it will help anybody but the banks stay open another week," said Mark Dotzour, chief economist at the Real Estate Center at Texas A&M University. "Until we see a plan to get people to buy those empty homes, we're just going to go from one band-aid to the next."

How would such a plan be a practical solution when there are millions more empty homes than there are buyers?

[SurfaceUnits]

Follow the money. Average Joes and Janes are not the holders of the other side of complicated, over-the-counter derivatives contracts. Rather, hedge funds are the main holders. The bailout will involve a transfer of wealth — from the American people to financial institutions engaging in reckless speculation — that will be the greatest in history.

Great write up here: http://www.time.com/time/business/article/0,8599,1845209,00.html

[oddlycalm]

My sense is that people want the economy to be protected, even if the cost is significant, but they have no faith in anyone in government or the financial sector to act in their best interests.

One thing that might help people trust this process would be to have Warren Buffet involved in the oversight. Buffet has a long successful track record, has integrity, and understands the nature of the problem since he's been warning everyone that would listen. He was successful in sorting things out at Salomon Brothers after the Treasury Bond scandal implosed that firm.

Michael Bloomberg might be another possible appointment. He's not an ideologue and he's too wealthy to be bought off.

oc

[Ankf00]

there's something like $500B lined up in private equity specifically for distressed assets. problem is those firms can't buy this stuff up while the current derivatives holders are counting on inflated govt supported mark to market.

there's available credit apparently as well

http://jengafinance.blogspot.com/2008/09/shadow-banks-shadow-government.html


In the real world, you cannot conduct fully-controlled experiments to validate an economic theory. But to the extent that it can be, we have already tested the thesis that giving banks more money will cause them to lend more and found it to be flawed. The most likely outcome of the bailout appears to be many banks saved at taxpayer expense but we get a credit crash and recession-depression anyway and Main Street has even less money to struggle through it since it will have been given away to Wall Street. Basically, it redistributes the losses for past transgressions from the guilty to the innocent and does little to help the future. We therefore oppose the bailout on both economic and moral grounds.

[SurfaceUnits]

Yes, I love it when my retirement accounts lose 5% of their value in one day.
so your portfolio that benefitted on the upside of this fiasco should be protected from the downside by the rest of us on the board?

[Indy]

so your portfolio that benefitted on the upside of this fiasco should be protected from the downside by the rest of us on the board?

Most excellent point. I sold my stocks in the Spring, anticipating trouble for the market. Why should I pay for a lack of foresight in others? Is it not beneficial in a marketplace for risk and reward to actually exist? Does it not injure the markets for a precedent to be set which limits risk unnecessarily? Would this limitation of risk not further encourage excessive speculation in the future, and therefore even greater potentially devastating crashes?

I have gone back and forth on this bailout, but in the end I think it has all been a blame game. It was, in fact, not the fault of the greedos on Wall Street, whose thieving and chicanery we should take as a given, but a complete abdication of responsibility on the part of Democrats AND Republicans. Both parties are to blame, as they are put into positions specifically to limit our risk from just these sort of financial shenanigans.

Why anyone would vote for a person from either party, ESPECIALLY AN INCUMBENT, is beyond me.

[SurfaceUnits]

I would vote for Nancy Pelosi, who single mouthedly put a kibosh on this stinking piece of crap legislation that does nothing to remedy the problem of the mortgage/housing crisis, it just relieves the rich people on wall street from the burden of having to pay for their bad practices.

www.thenancypelosireelectioncampaigntrustfund.com

[Ankf00]

Most excellent point. I sold my stocks in the Spring, anticipating trouble for the market. Why should I pay for a lack of foresight in others? Is it not beneficial in a marketplace for risk and reward to actually exist? Does it not injure the markets for a precedent to be set which limits risk unnecessarily? Would this limitation of risk not further encourage excessive speculation in the future, and therefore even greater potentially devastating crashes?

I have gone back and forth on this bailout, but in the end I think it has all been a blame game. It was, in fact, not the fault of the greedos on Wall Street, whose thieving and chicanery we should take as a given, but a complete abdication of responsibility on the part of Democrats AND Republicans. Both parties are to blame, as they are put into positions specifically to limit our risk from just these sort of financial shenanigans.

Why anyone would vote for a person from either party, ESPECIALLY AN INCUMBENT, is beyond me.

no it's the fault of greedos on wall st who lobbied for deregulation of their cockamamie financial instruments. i mean, seriously, "financial instruments." what more proof do you need of criminal douchebaggery than that term itself, "financial instruments." it was monopoly money from the start.

[cameraman]

This is what happens when you remove regulatory oversight from the system, people figure out how to work the system to make themselves insane amounts of cash and they ride it until the whole thing implodes.

Free market economy, the freedom to lie, cheat, steal and create disasters like this one:flame:

[datachicane]

This is what happens when you remove regulatory oversight from the system, people figure out how to work the system to make themselves insane amounts of cash and they ride it until the whole thing implodes.

Free market economy, the freedom to lie, cheat, steal and create disasters like this one:flame:

Yep. Those with an interest in such things should check out what the architect of the repeal of Glass-Steagall is doing now.
:flame:

[Napoleon]

How would such a plan be a practical solution when there are millions more empty homes than there are buyers?

Of course the answer is the plan does nothing whatsoever to solve that problem, he is just blowing smoke. If you want to stabilize the housing market add a bankruptcy "cram down" provision to the bill or some real financial releif for homeowners, neither of which are really in the bill.

[Stu]

This is what happens when you remove regulatory oversight from the system, people figure out how to work the system to make themselves insane amounts of cash and they ride it until the whole thing implodes.

Free market economy, the freedom to lie, cheat, steal and create disasters like this one:flame:

true, the soviet empire and chinese forms of government are much better options. :rolleyes:

regulation is necessary to a certain extent, but it was bad regulation and government policy that played a part in this mess.

the people to blame include:

1. people who bought a house that couldn't afford it
2. lenders who gave money to those who knew they couldnt afford it
3. the fed for keeping interest rates artificially low after the tech bust to replace it with the housing bubble
4. the federal government for pushing policy that everyone should own a home

#'s 1 and 2 are all about free market economics. but the free market says these people failed and they need to face the consequences. a bail out is not how free markets work.

#'s 3 and 4 are about socialism.


Government regulation: the ability for government to bend over for special interests and create policy which is focused on getting politicians re-elected rather than making sound economic decisions.

[Insomniac]

so your portfolio that benefitted on the upside of this fiasco should be protected from the downside by the rest of us on the board?

I didn't invest in REITs or anything similar. I'm not invested in anything housing and finance related. It's not just those stocks that are tumbling. Some people don't even have a cash investment option in their retirement accounts. Others don't manage their accounts actively. Many invest in the "Retire in 20XX" funds and believe in the market for long term. Money market funds can't even keep up with inflation.

I said it before that I don't like this, and I'm not 100% on how interlinked this all is, but if it will legitimately lead to no lending, that does not look like it's going to turn out well. I'd like to see all these guys investigated for negligence. Could use Eliot Spitzer now. He enjoyed taking these guys to task.

[Stu]

I said it before that I don't like this, and I'm not 100% on how interlinked this all is, but if it will legitimately lead to no lending, that does not look like it's going to turn out well. I'd like to see all these guys investigated for negligence. Could use Eliot Spitzer now. He enjoyed taking these guys to task.

i hope the result of this IS tighter lending policy. loose credit is a big part of what got us into this mess.

sadly though, this may go too far and inhibit loans to responsible people who could take advantage of them and return profit for themselves as well as banks.

[indyfan31]

Stu's 4 "points" are dead on.

[Stu]

Stu's 4 "points" are dead on.

no one has ever said that before on this board. :p

[Sean Malone]

the people to blame include:

1. people who bought a house that couldn't afford it
2. lenders who gave money to those who knew they couldnt afford it
3. the fed for keeping interest rates artificially low after the tech bust to replace it with the housing bubble
4. the federal government for pushing policy that everyone should own a home

#'s 1 and 2 are all about free market economics. but the free market says these people failed and they need to face the consequences. a bail out is not how free markets work.

#'s 3 and 4 are about socialism.


Government regulation: the ability for government to bend over for special interests and create policy which is focused on getting politicians re-elected rather than making sound economic policy.

#1 wouldn't be on there if #2 never happened.

[Stu]

#1 wouldn't be on there if #2 never happened.

and #2 wouldn't be on there if the people in #1 didn't request the money.

[Methanolandbrats]

Retail customers don't always make good decisions. It is the loan officers job to determine if a loan is a good risk. Loan officers failed to do their job because deregulation allowed them to sell the mortgage to someone else, book a profit and take the risk off their books. The transfer of risk inflated housing values and fueled more lending based on "equity". The pyramid scheme worked fine until the pool of buyers dried up. Simply put, the risk has to remain with the original lender to keep lenders from making bad loans. It was'nt bad regulation that caused this, it was no regulation.

[Sean Malone]

and #2 wouldn't be on there if the people in #1 didn't request the money.

That's just silly.

"I want to buy this house"
"Can you afford a $2500 a month payment for 70 years and your payments only apply to the interest for the first 20 years?"
"Sure! Sounds great! Where do I sign".

[Stu]

Retail customers don't always make good decisions. It is the loan officers job to determine if a loan is a good risk. Loan officers failed to do their job because deregulation allowed them to sell the mortgage to someone else, book a profit and take the risk off their books. The transfer of risk inflated housing values and fueled more lending based on "equity". The pyramid scheme worked fine until the pool of buyers dried up. Simply put, the risk has to remain with the original lender to keep lenders from making bad loans. It was'nt bad regulation that caused this, it was no regulation.

wasnt the transfer of risk going to Fannie and Freddie, which were created by our regulating body (federal government)?

[Stu]

That's just silly.

"I want to buy this house"
"Can you afford a $2500 a month payment for 70 years and your payments only apply to the interest for the first 20 years?"
"Sure! Sounds great! Where do I sign".

your scenario has both sides acting stupid, yet you only want to blame the banks. why can you blame banks for being ignorant to financial reality but give a pass to the home buyer?

why is it unreasonable to assume that a home buyer should know they can't afford a "$2500 a month payment for 70 years with payments that only apply to the interest for the first 20 years?"

[SurfaceUnits]

Stu's 4 "points" are dead on.
Stu forgot (1.5) the criminal mortgage loan agents and companies that falsified loan applications for people they knew wouldn't qualify otherwise, and then sold those bad loans upstream

[Stu]

Stu forgot (1.5) the criminal mortgage loan agents and companies that falsified loan applications for people they knew wouldn't qualify otherwise, and then sold those bad loans upstream

true

other things to include in this credit crisis:

- a government that spends billions more than in brings in in taxes
- people who use credit cards like a checking account
- people like my friend, who got his first job out of college paying 30k a year plus a car allowance who then goes out and buys a brand new SUV with a 6 year loan and monthly payments of over 500 bucks.

[Sean Malone]

your scenario has both sides acting stupid, yet you only want to blame the banks. why can you blame banks for being ignorant to financial reality but give a pass to the home buyer?

why is it unreasonable to assume that a home buyer should know they can't afford a "$2500 a month payment for 70 years with payments that only apply to the interest for the first 20 years?"

Why are drug dealers put in jail longer than the people who buy their drugs?;)


As for the potential home buyer, if the mortgage lender didn't come up with a creative solution the buyer wouldn't have a chance.

[Stu]

As for the potential home buyer, if the mortgage lender didn't come up with a creative solution the buyer wouldn't have a chance.

and if the buyer took a second to evaluate things and realized that a cheaper home would be safer, then the bank wouldn't have an option either.

its everyone's fault. (excluding the intelligent banks with strict lending policies, and intelligent borrowers who have plans to pay off their loans).

[Insomniac]

i hope the result of this IS tighter lending policy. loose credit is a big part of what got us into this mess.

sadly though, this may go too far and inhibit loans to responsible people who could take advantage of them and return profit for themselves as well as banks.

It was that they were being handed off to other people who just believed there was no such thing as a bad loan in a market where housing prices go to infinity. They got packaged and combined into such large instruments that all the risk ended up in one place. If the risk remained at the bank that loaned the money, this never would've happened.

[Methanolandbrats]

wasnt the transfer of risk going to Fannie and Freddie, which were created by our regulating body (federal government)? We don't know where all the risk was transfered, I still think this unwinding is just getting started.

[Stu]

It was that they were being handed off to other people who just believed there was no such thing as a bad loan in a market where housing prices go to infinity. They got packaged and combined into such large instruments that all the risk ended up in one place. If the risk remained at the bank that loaned the money, this never would've happened.

agreed. and if it did happen it would be within the originating bank and not on such a wide level.

[SurfaceUnits]

We don't know where all the risk was transfered, I still think this unwinding is just getting started.This is where it's going

The $55 trillion question
The financial crisis has put a spotlight on the obscure world of credit default swaps - which trade in a vast, unregulated market that most people haven't heard of and even fewer understand. Will this be the next disaster?

http://money.cnn.com/2008/09/29/magazines/fortune/varchaver_derivatives.fortune/index.htm

[Methanolandbrats]

This is where it's going

The $55 trillion question
The financial crisis has put a spotlight on the obscure world of credit default swaps - which trade in a vast, unregulated market that most people haven't heard of and even fewer understand. Will this be the next disaster?

http://money.cnn.com/2008/09/29/magazines/fortune/varchaver_derivatives.fortune/index.htm

Yup, good article.

[Insomniac]

your scenario has both sides acting stupid, yet you only want to blame the banks. why can you blame banks for being ignorant to financial reality but give a pass to the home buyer?

why is it unreasonable to assume that a home buyer should know they can't afford a "$2500 a month payment for 70 years with payments that only apply to the interest for the first 20 years?"

You want to know why people place more blame on the lenders than borrowers? Because in any normal situation, when you lend someone money your primary concern is, will I get paid back? And secondarily, if I don't, do we have proper collateral? Since they were just dumping the loans onto other suckers, they said "screw it". 20 years ago, your bank would've sat down with you and explained how an ARM works. They had an interest in you being able to pay off the loan. They would've made sure you understood it and had confidence you could pay it.

It's nice to think that everyone knows what they're doing, but there are lots of people who aren't financially savvy. When you go to a bank to get a loan and they tell you that you can afford it and that the rates are low and not to worry, what are you going to do? Often, people place their trust in people who are supposed to be experts. And it was more than just people who didn't know they were in trouble long term if the rate jumped, it's also speculators/investors who bought interest only loans on multiple houses planning to flip them quickly. What happens when they're upside down on the loan? They have no principle to lose, so they just return the keys. Borrowers didn't make up these mortgages. And I can assure you not many banks would take 0% down if the loan was on them.

The banks/lenders are supposed to be the more responsible party in these agreements and they simply weren't.

[datachicane]

your scenario has both sides acting stupid, yet you only want to blame the banks. why can you blame banks for being ignorant to financial reality but give a pass to the home buyer?


Because one side consists of highly-paid and trained professionals experienced in these very sort of transactions, supported by an army of actuaries.

The other side consists of schmucks off the street who saw an ad paid for by the first group.

The last group, however, hires no PR firms or lobbyists, so yeah, I guess it is their fault.

:saywhat:

[datachicane]

true, the soviet empire and chinese forms of government are much better options. :rolleyes:

regulation is necessary to a certain extent, but it was bad regulation and government policy that played a part in this mess.


'cuz, y'know, Soviet-style controlled economy and total Wild Wild West are the only two alternatives, right?

Regulation is necessary? There's an understatement. Unfortunately, we've spent the last few decades dismantling the framework we put in place after 1929 designed to prevent this very sort of thing. That dismantling was bad government policy. Curiously (or not), deregulation occurred at the urging of one specific industry- guess which?



the people to blame include:

3. the fed for keeping interest rates artificially low after the tech bust to replace it with the housing bubble
4. the federal government for pushing policy that everyone should own a home

#'s 3 and 4 are about socialism.


Interest rates were dropped in an effort to prevent inflation.
That's socialism?:saywhat: Got any Reds hiding under your bed?

Please explain how Fed housing policy was a significant causal factor in the current situation. Be specific.

[Insomniac]

Interest rates were dropped in an effort to prevent inflation.

And to encourage capital investment. High rates encourage saving. I'd say money going to real estate wasn't because of rate cuts but where the most money could be made. I'm sure it was one of those snowball things, but if there were better places to make money, the money would've been there. (Low interest rates didn't cause lenders to throw out down payments or drop the minimum to very low %s. Who returns the keys to their house when the bank got 10-20% up front?)

[Sean Malone]

and if the buyer took a second to evaluate things and realized that a cheaper home would be safer, then the bank wouldn't have an option either.

its everyone's fault. (excluding the intelligent banks with strict lending policies, and intelligent borrowers who have plans to pay off their loans).

I'm not saying the buyer doesn't share in the blame, they are the ones who did not and are not holding up to their end of the deal i.e. stop buying $50K SUV's with 20 inch rims, 6 bedroom houses that you think you can afford because your husband builds decks on the side and pay your damn mortgage payment!

[Stu]

You want to know why people place more blame on the lenders than borrowers? Because in any normal situation, when you lend someone money your primary concern is, will I get paid back? And secondarily, if I don't, do we have proper collateral? Since they were just dumping the loans onto other suckers, they said "screw it". 20 years ago, your bank would've sat down with you and explained how an ARM works. They had an interest in you being able to pay off the loan. They would've made sure you understood it and had confidence you could pay it.

It's nice to think that everyone knows what they're doing, but there are lots of people who aren't financially savvy. When you go to a bank to get a loan and they tell you that you can afford it and that the rates are low and not to worry, what are you going to do? Often, people place their trust in people who are supposed to be experts. And it was more than just people who didn't know they were in trouble long term if the rate jumped, it's also speculators/investors who bought interest only loans on multiple houses planning to flip them quickly. What happens when they're upside down on the loan? They have no principle to lose, so they just return the keys. Borrowers didn't make up these mortgages. And I can assure you not many banks would take 0% down if the loan was on them.

The banks/lenders are supposed to be the more responsible party in these agreements and they simply weren't.


I agree Banks should have known better and are "more" responsible. But Malone in his examples was putting ALL of the blame on the banks and making the home owners out to be victims. Thats what I was responding too.

[Stu]

Interest rates were dropped in an effort to prevent inflation.
That's socialism?:saywhat: Got any Reds hiding under your bed?

Please explain how Fed housing policy was a significant causal factor in the current situation. Be specific.


rates have been getting cut over the last decade in response to the state of the economy. if it was to prevent inflation, it clearly did a piss poor job.

[SurfaceUnits]

'
Interest rates were dropped in an effort to prevent inflation.

Please explain how Fed housing policy was a significant causal factor in the current situation. Be specific.

the artificially low interest rates caused the largest, fastest increase in housing prices ever.

[Sean Malone]

I agree Banks should have known better and are "more" responsible. But Malone in his examples was putting ALL of the blame on the banks and making the home owners out to be victims. Thats what I was responding too.

I did that because ultimately the decision comes down to the lender, yes or no. The buyer can ask all they want it doesn't mean they should get it.

Kinda like your prom date, you can ask all night long, the decision is ultimately hers. :D

[Stu]

Please explain how Fed housing policy was a significant causal factor in the current situation. Be specific.

fed and federal government:

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F9582 60&sec=&spon=&pagewanted=all

from the 1999 article:


Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.


In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

[Stu]

I'm not saying the buyer doesn't share in the blame, they are the ones who did not and are not holding up to their end of the deal i.e. stop buying $50K SUV's with 20 inch rims, 6 bedroom houses that you think you can afford because your husband builds decks on the side and pay your damn mortgage payment!

actually you were saying that, by saying that #1 was only happening because of #2.

[Sean Malone]

actually you were saying that, by saying that #1 was only happening because of #2.

ACTUALLY I said "#1 wouldn't be on there if #2 never happened.". If you're going to quote me, quote me correctly.

[nrc]

The banks/lenders are supposed to be the more responsible party in these agreements and they simply weren't.

There's a big difference between "more responsible" and solely responsible. We shouldn't be bailing out irresponsible consumers any more than we should be bailing out irresponsible financers or developers. If someone can't understand their financing terms they should to either get a lawyer or stick to renting. But then to afford the lawyer they might have to give up the faux granite counter tops or poly-oak veneer crown molding.

This desire to blame fat cats and "speculators" for all our ills (oil prices, financial crisis, etc) ignores the underlying cultural problem which is the overconsumption and increasing narcissism that is rotting our culture out from the inside.

When did the American dream become a McMansion an hour out in the suburbs and a Korean SUV to for the commute?

[Stu]

I did that because ultimately the decision comes down to the lender, yes or no.

when i bought my house, i decided to do it. i picked the lender. i chose them, they didnt choose me.

if they said no, i could have gone to another lender. i could have waited another 6 months and saved 20k more. i could have picked a different house.

[Sean Malone]

when i bought my house, i decided to do it. i picked the lender. i chose them, they didnt choose me.

if they said no, i could have gone to another lender. i could have waited another 6 months and saved 20k more. i could have picked a different house.

You chose them and their underwriter gave the green light based on your eval. THEY made the ultimate decision.

[Stu]

ACTUALLY I said "#1 wouldn't be on there if #2 never happened.". If you're going to quote me, quote me correctly.

how is that different?

if #1 is there because of #2, and you dont provide any other reasons, then wouldnt it be true that #1 is a result of #2?

i apologize in advance to others for this odd discussion.

[Stu]

You chose them and their underwriter gave the green light based on your eval. THEY made the ultimate decision.

so you are saying once i found out my interest rate, once i found out my monthly payment, once i did the math on my costs, that i couldnt say no?

[Sean Malone]

how is that different?

if #1 is there because of #2, and you dont provide any other reasons, then wouldnt it be true that #1 is a result of #2?



Which is exactly why I made the comment that it was a silly list.

[Sean Malone]

so you are saying once i found out my interest rate, once i found out my monthly payment, once i did the math on my costs, that i couldnt say no?

Now you just keep dragging more criteria into the issue that expands the original question to try and bolster your position. Both sides have been discussed repeatedly now and have circled back to square 1.

[Stu]

Now you just keep dragging more criteria into the issue that expands the original question to try and bolster your position. Both sides have been discussed repeatedly now and have circled back to square 1.

more criteria to prove that both sides have to make a decision.

if you think home buyers are sheep and just do what they are told to, fine. i'd like to think that people have a choice.

[datachicane]

underlying cultural problem which is the overconsumption and increasing narcissism that is rotting our culture out from the inside.

When did the American dream become a McMansion an hour out in the suburbs and a Korean SUV to for the commute?

True enough. There's some sick stuff going down out there, but we seem to have a cultural blind spot for anything that doesn't involve either sex or partisan politics.
Ever see the film Affluenza?

[Sean Malone]

more criteria to prove that both sides have to make a decision.

if you think home buyers are sheep and just do what they are told to, fine. i'd like to think that people have a choice.

You're right. I agree. Didn't mean to drag this out like this. :thumbup:

[nrc]

True enough. There's some sick stuff going down out there, but we seem to have a cultural blind spot for anything that doesn't involve either sex or partisan politics.
Ever see the film Affluenza?

Yes, that's what I was thinking of.

[Methanolandbrats]

The lenders knew it was a pyramid scheme and the more volume they pushed the more money they made because the risk could be passed off....as long as they were'nt the last one in. Some buyers bit off more than they could chew, some did'nt understand what they were doing. The problem I have with the "bailout" is that the people who sold the mortgages and profited are STILL in business after this while many people will be out of their homes. I rather have the feds buy and refinance the mortgages and let GS and the greedy banks go under. Then draft some new regs and start over.

[Insomniac]

There's a big difference between "more responsible" and solely responsible. We shouldn't be bailing out irresponsible consumers any more than we should be bailing out irresponsible financers or developers. If someone can't understand their financing terms they should to either get a lawyer or stick to renting. But then to afford the lawyer they might have to give up the faux granite counter tops or poly-oak veneer crown molding.

This desire to blame fat cats and "speculators" for all our ills (oil prices, financial crisis, etc) ignores the underlying cultural problem which is the overconsumption and increasing narcissism that is rotting our culture out from the inside.

When did the American dream become a McMansion an hour out in the suburbs and a Korean SUV to for the commute?

My main point is why most blame the lenders more. I'm with Sean on this. They made the decision. And the key is that if they couldn't dump the risk on someone else, the decision wouldn't be the same. I certainly don't want to excuse the borrowers. This is a situation where there just doesn't seem to be a simple answer. The borrowers aren't just one group. They comprise of people who knew what they were doing and people who were tricked (or just wanted it so badly they didn't care). And so many things in between. Now there's no solution you can apply broadly to everyone.

I'm not trying to say there should be no personal responsibility here. But at least to me, I find it hard to believe someone got an ARM, the loan officer said OK, here's your monthly payment for the next 3 years. After that, the payments will be indexed off the prime rate. That means at today's rate, your monthly payment is going to be this. And historically, the rate has averaged this, so your monthly payment would be this. The high over the last 10-15 years was this and accordingly your monthly payment would be this. The low over the last 10-15 years was this and accordingly your monthly payment would be this. Going over your application, we expect you can afford this. I just don't see someone hearing, OK your monthly payment now is $700/mo and in 3 years it could be $2000/mo and you gross $1400/mo now, and they say "Where do I sign?". So many people make stupid financial decisions everyday. Before, some of them were prevented because no one was taking on that risk. At some point, people decided that instead of getting a bigger down payment and giving someone a higher rate because they pose a greater risk that it would be better to take less up front and give them a lower rate. Quantity over Prudence. Someone at the table should've used some brains, at the lenders were the smarter ones at the table.

The root of the problem isn't borrowers. If they were never given the loan, they wouldn't be a problem. There have always been borrowers asking for more than they can pay back. That did not change, what did was the lenders to do make insanely risky loans. Unfortunately, most of us found this out after millions of these risky loans were made and we all are are baffled at the idiocy to make these types of loans.

[Insomniac]

I should add, for me, the threshold is when they started lending people money they knew couldn't pay it back. When you lend someone money and tell them not to worry, you can refinance it later, gun or no gun to their head, it changed from prove why we should loan you money to we'll convince you why you should/can take it.

[Ankf00]

I should add, for me, the threshold is when they started lending people money they knew couldn't pay it back. When you lend someone money and tell them not to worry, you can refinance it later, gun or no gun to their head, it changed from prove why we should loan you money to we'll convince you why you should/can take it.

this.

ppl who bit off more than they can chew shouldnt be protected, but those folks aren't the ones w/ the money and control, it's the lenders. Home building was one shady business these past 10-15 yrs w/ lending & appraisals being so intertwined with the builder...

[Stu]

I just don't see someone hearing, OK your monthly payment now is $700/mo and in 3 years it could be $2000/mo and you gross $1400/mo now, and they say "Where do I sign?". So many people make stupid financial decisions everyday.

I had an experience like this actually. Not as dramatic but it happened.

To set it up, we were looking for a home, and considered new construction. We priced out an idea of what we were looking for in a home. There was a mortgage company which worked with the home builder. According to the plaque on the wall, this saleswoman was recognized by the mortgage company for having 100% of her business go through their mortgage partner. It didn't seem like anyone actually dealt direct with the mortgage people though, the majority of the discussion was with the saleswoman for the home builder.

Also to note, we weren't really being serious about buying a house like this, we were just getting a feel for the market.

So thats the setup.

Immediately we said the mortgage payment was too high. Even though it was a standard 20% down, 30 year loan, she started pitching us. "well you both work so you'll be expecting a raise in the next few months" "you're getting your MBA so you'd expect a signficant increase in salary." "you'll have a signficant tax savings on your federal income tax (she ignored the increase in taxes i'd be paying with property taxes though). and so on.

my former boss signed a 7 year ARM and was pitched that he could afford it because of future raises. it happens.


edit: looks like this post goes well with Ank's. although, in none of the scenarios i heard did anyone mention refinancing at a later date.

[Insomniac]

Immediately we said the mortgage payment was too high. Even though it was a standard 20% down, 30 year loan, she started pitching us. "well you both work so you'll be expecting a raise in the next few months" "you're getting your MBA so you'd expect a signficant increase in salary." "you'll have a signficant tax savings on your federal income tax (she ignored the increase in taxes i'd be paying with property taxes though). and so on.

my former boss signed a 7 year ARM and was pitched that he could afford it because of future raises. it happens.


edit: looks like this post goes well with Ank's. although, in none of the scenarios i heard did anyone mention refinancing at a later date.

That doesn't seem the slightest bit wrong to you? I mean, they were giving you a loan where they said, you could afford it if you get a raise and if you get an MBA (and get a new higher paying job to go with it). Neither was guaranteed to happen. She knew you couldn't afford it, but was trying to convince you that you could. She was selling you the loan even though you were the one who was seeking it. If her bank was on the hook, they'd make sure you could afford it right now not potentially in the future. You would be the one trying to get that big of a loan saying things like "I'm working on my MBA" and "We'll get a raise" and they'd tell you to come back in 12 months.

It got to a point where no one left the bank unhappy if they were seeking a loan.

Edit--I don't mean to imply you think they were on the up-and-up, but this is the kind of stuff that led to this mess and why people who had no business getting a loan got one. Everyone isn't financially savvy enough to realize it when traditionally the lenders were the ones who were prudent when handing out there money. (Unfortunately, they started handed out other people's money.)