Friday, December 17, 2010
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Wisconsin native. "The true soldier fights not because he hates what is in front of him, but because he loves what is behind him."--GKC "Liberalism is the modern and morbid habit of always sacrificing the normal to the abnormal" --G K Chesterton "The only objective of Liberty is Life" --G K Chesterton "A man can never have too much red wine, too many books, or too much ammunition." -- Rudyard Kipling
I am no genious with credit default swaps and bundling mortgage securities but....
Wasn't a big incentive for all these banks to do the sub-primes because Fan/Fred were guaranteed to take the risky ones and then bundle them with safe mortgages and sell them as securities?
So while they didn't have a lot of initial issue mortgages, Fan/Fred were up to their eyeballs in them?
It was a case of "too little, too late." Fan/Fred weren't permitted to purchase the real garbage ever, and only got into the 'semi-garbage' late in the game.
Most of the real sewage went directly from the originators to a 'warehouse', then to Goldman, Bear, (etc.)
However, Fan/Fred are NOW sitting on piles of crap which they bought from the banks--after the collapse began.
Good to know... It would be nice to see some sort of comprehensive timeline. One also has to wonder what some bank presidents were smoking when deciding that NINJA and 125% LTV's were a good idea.
I put a couple of links to Ritholtz' blog in this entry.
Go there. He has a lot more info.
As to the banks, it was EARNINGS, of course. Big fees, almost no work, plus a piece of the action on the residuals.
You wouldn't want to the only banker at the club with 'flat' earnings, would you?
There were exceptions, of course. M&I (ironically) stayed away from bad deals on the residential side (mostly) but got cleaned on the condo developments.
Thank you for beating the drum on this Dadster. Ritholtz too.
We can't learn how to deal with this crisis without diagnosing the problem. While Fannie/Freddie are problems for sure, they lost considerable marketshare to the banking industry during the bubble because they weren't allowed to do what the other guys were doing.
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