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Charlie Munger (BRK.A) is feelin' feisty, taking dead aim at Wall Street bankers, accountants,...
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Friday, July 1, 2011, 6:15 PM ETCharlie Munger (BRK.A) is feelin' feisty, taking dead aim at Wall Street bankers, accountants, mortgage lenders, computerized trading, Alan Greenspan and Dick Fuld. Munger unplugged: "The bubble in America was caused by some combination of megalomania, insanity and evil in... investment banking, mortgage banking."
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Those low income borrowers committed willful acts of bubble-blowing when they had their teams of lawyers review those loans and knew full well that they couldn't afford the payments after the teaser rates expired, and of course after unemployment rose, which of course their highly paid department of market analysts told them would happen.
And they really did the world a disservice when they used their post-graduate degrees in economics and their proprietary market data to ensure that their loans would be securitized and leveraged 30:1 or higher. How dare they!
The poor, innocent Wall Street bankers were clearly being manipulated into raking in mountains of fees while doing the dirty work of these devious low income borrowers. The poor bankers were left with mere millions in personal bonuses, while those sneaky borrowers are basking in the spoils of their homes that have skyrocketed to more than HALF their previous value! Have they no shame?
The borrowers' only worry is the sheriff showing up to evict them from their only property, while the bankers have to agonize day in and day out over the thought that their six- and seven-figure bonuses might not increase by double-digit percent next year.
Oh the humanity!!
Not that there was not some unscrupulous borrowers.
But,
The majority of defaults, are a result of either unemployment, or ever lax underwriting standards due to Bankers greed, along with a little help of Government policies.
And if there was "Fraudulent Borrowers," prudent risk management by such "Talented" professionals should have thwarted it.
- They want to borrow as much as the bank will let them
- They only have a vague notion of what they can really afford
- They don't study macroeconomic conditions
And for hundreds of years, this worked reasonably well. The banks were (are) guarding all the doors and holding all the keys. And as long as the banks' well-being was inextricably tied to the prudence of their loan-making, all was well.
Then along came Wall Street, thoroughly decoupling the relationship between lender and loan quality.
Policies like CRA may have been the spark that started the fire, and shady borrowers may have been the kindling, but lenders came along and poured gasoline on the fire, and then Wall Street's derivatives basically just napalmed the whole thing.
And now the government is trying to put out the forest fire with a squirt gun.
And Wall Street banks lied and tanked the entire global economy.
Let's keep some perspective!
Yes, some borrowers lied (though certainly a minority), but they're being punished accordingly: Many millions of foreclosures have happened already -- these folks have lost their home, their investment, and their credit. And by the way the same thing is happening to borrowers who didn't lie and just got caught in the tidal wave of bad circumstances.
And this is absolutely fair and just. If you can't pay your debt, you lose your collateral and your credit. That's how it's supposed to be.
Sure, some folks are living payment-free while awaiting foreclosures, but that's an enforcement issue, not a culpability issue. Justice will catch up with them.
But, of all the groups who played a part in this mess, the borrowers are thus far the ONLY ones who have faced any noteworthy consequences:
- Realtors? Unless they drank their own koolaid they got out fine.
- Appraisers? Few went to jail, though many should have.
- Lenders? Took their fees and ran.
- Ratings agencies? No repercussions for them.
- Investment bankers? They got fees and bonuses galore!
- CEOs? More bonuses, or at least golden parachutes.
- Congress? Like they EVER face consequences...
- The Fed? They get the GS retirement package.
- Regulators? One guy got fired, but that for porn.
- Ponzi schemers? A couple got locked up, but only because they stole from other rich people, which is a no-no.
Borrowers? They played one of the smaller parts, monetarily speaking, but so far are facing the most significant consequences.
When it rains it pours I guess....
WRONG,
Most could afford it UNTIL they were unemployed.
Most.
Never woulda happened if they were required to have some skin in the Game.
The real fault lies in the perception that this dream can be realized very quickly without any consequences. Whether you have an MBA or just a regular high-school diploma, it should be instinctively obvious to you that any amount of profit or luxury achieved outside the bounds of your regular day-to-day experience of life comes loaded like a hand grenade, and should be handled very carefully indeed.
A lot of people are up in arms that they might have to come up with a 20% down payment, have an employment history, have income enough, and a good credit history. Its all just too much for them.
Perhaps you are a prisoner of myths. The crisis was not caused by low income borrowers.
Is Nicholas Cage and the other millionaires who defaulted on their Las Vegas mansions included in the low income borrower category.
Fancy that ...
I'm a business man and enterpreneur. I like Capitalism. But let's not get romantic, it's not perfect.
Following that outfits like Countrywide wrote an increasing number of these loans, broadening the market to much higher prices home, knowing Fannie and Freddie would take them and securitize them. This dynamic created an environment under which a snowball effect from a few failed loans could create and did create multiplying number of foreclosures and the market became flooded with available housing at lower and lower prices.
Then the banks wrongfully manipulated these loans to make them sell-able to the investment community.
This was the perfect three legged stool of disaster, bad Government Policy, Stupid Consumers and corruption in the Banking Community-Wall Street.
Lesson is once government lowers the bar it does not take long for the private sector to follow. Especially when the government steps up to buy the loans. This is the wrong type of leadership from WDC. They should be working on making people richer rather than dumbing down credit criteria. However raising the standard of living is much harder than simply giving away money and it is harder to take credit for and get votes as a result.
At the height of this stupidity too many people in every sector thought we had broken through old barriers of credit underwriting and we had found a new credit floor. Add on the idea that home prices never go down so therefore the collateral was safe and all kinds of bad things can happen.
Keep in mind the Wall Street parties that securitized also were drinking Kool-Aid and were holding a ton of these securities on their books in the false belief that risk was low. Bear Stearns and Lehman imploded and Merrill Lynch pulled a Houdini and sold to BofA before the consequnces of their actions came home to roost. They were the luckiest firm on the Street. Corruption does not hold up well when the parties involved pay with their entire firm and all their stock and future earnings. Stupidity was also part of their demise.
Consumers were stupid and everyone knows it. Some were pure speculators. As said elsewhere 20% down would have kept a lot of that stupidity to a dull roar.
It is time to clean this mess up which in my opinion will only happen when people live in homes they truly can afford and thereby they become more mobile and focused on working and making a contribution rather than asking for more support. And let's also turn mortgage lending back over to the traditional banks with 20% down and shut down the government mortgage machine.
Bankers don't like to turn down loans if they can help it. Lawsuits for wrongful denial, government oversight, aggressive lending by competitors, profit pressure and bad community relations are enough heat for any banker to try to make a loan. Add in an environment where government is buying the loans and housing is going up and away and you feel like a fool for not approving the loan.
Many banks and some over 100 years old and that survived the Great Depression went down in this fiasco.
If you believe there are myths then lets have the data to put things in perspective. You have both made qualitative statements so let's get some numbers.
Your commentary is a classic.
mwphnh.......what say you?
Many tea partiers - and quite a few of them infest this site - do not have particularly effective detectors for sarcasm.
PS. I don't pay taxes any more. I live over seas and with the exemptions don't make enough to pay.
You haven't heard about the latest feds proposed "$50,000" free and potentially forgivable "loan" for some eligible borrowers, have you?
Cheers
TK
Cheers
And who wrote the lame excuse for the FINREG bill?
Do as I say, not as do.
Berkshire Hathaway
Prhaps not, But Berkshire lobbied heavily foe expemtoins fot itself regarding derivatives.
They have also contributed much to Berkshires recent poor performance.
People who cannot pay for their home certainly will not be able to maintain it either so they should move out so it can be sold to someone else, recycle it or burn it down. We need less supply which will turn any market around. Even if they can maintain it they should get out anyways and get their life and act together so the rest of us are not carrying their sorry butts. Nothing wrong with having hard times but to sit around and wait for something free is wrong on so many levels.
whether it's main street or wall street, we are all guilty of the crime which led to recession
as long as you can't get rid of greed, eventually the same problem will reappear again in a different form
there'll always be plenty of blame to go around, you know who you are who want alil bit more than ordinary life, temptation's a bitch
They knew this because they then bet against the very securities they were pushing out the door effectively doubling down. They just couldn't do it fast enough and got caught holding too much of the garbage.
They committed an act of treason, a clear and present danger to the US, ultimately the global economy. That is how they should be measured and prosecuted.
:)
So since there are 8,000 banks in the US are you talking about all of them or is your list really IB's that live on Wall Street of which 3 of the top 5 independent firms are gone and they were not banks in first place?
If you want to get torches and pitchforks you need to know where to go first.
@ AIP - exactly! LOL.
So you have set for the case of the prosecuting attorney. And call it treason no less.
Defending against these hyped up charges with no evidence is ridiculously easy and is why the government is hesitating to pull the trigger on charges. Emotion is not evidence.
Merrill Lynch was holding mortgage securities with very little cover. Lehman was arguing valuation until the bitter end. Bear Stearns was so overexposed and so asleep at the wheel nobody but hysterical conspiracy theorists believe they knew what they were doing. And they can all claim stupidity quite easily as does everyone in the mortgage mess up and down the value chain. The only IB that really seemed to have a reasonable grasp of the risk was GS and they did not have the same % of CAR as the rest of these guys.
All you need is for one products manager to state, " yes, I knowingly packaged mortgage loans, (or a component thereof) into a security and committed a fraud when I mixed them in with a few legitimate performing notes (or component thereof) and withheld the facts from the rating agencies, and the pension fund buyers and these were the other people involved..." They were smart enough to make sure everyone was in the same boat with them so that if it did go down everyone would, regulators, pension managers, etc.
But I believe you're right in the end, they'll claim stupid and lie right up until someone puts a gun to their mother's head, and they might even do it then. I'd really recommend a trip to Guantanamo for some of these bastards.
He he ... "value chain" that made me laugh, did you mean devalue chain? :-)
What I have read in various accounts was that the CEO's of Bear and Merrill were absolutely unconcerned that they held anything with the level of risk that could take their firms down until the very last days of their existence. Lehman also seemed more concerned about company valuation than realizing they were worth nothing.
And the message is? How does this information help me? Anyone for that matter?
The real problem is that people who could not afford homes were given loans and now they cannot pay them back and they want the home for free. And many areas of the country have greater supply than demand.
Yes,
The Bankers got record Bonuses & Bailouts in 2009, while others got layoff notices.
Unemployment is the biggest reason for people not paying.
So if you looking for blame, perhaps the cause of the unemployment should be your starting point.
Can you say "Excess leverage motivated by Greed?"