User1

The World's Largest Guilt Trip

First, "usury" not "usary".

Second, why 18%? Why not 10%? Why not 30%?


On Nov 30 01:09 AM chris coonan wrote:

> Another enhancement to the Banking System would be to exclude credit
> card companies from reporting to Credit Rating Agencies if they are
> engaged in Usary. I would define Usary, as any Credit Card that exceeds
> an 18% APR. At that punitive rate, disadvantaged consumers have no
> chance of reducing balances. So defaults on that credit, should be
> punitive to the Credit Card company issuing the credit, as it undermines
> the American economy. Only sustainable borrowing and lending should
> be allowed in the land of the free.

The World's Largest Guilt Trip

A depositor would be exposed to the credit risk of a bad bank, not a borrower. The borrower's behavior will be influenced by the bank's poor underwriting only to the extent that the bank is forced to raise interest rates to compensate for loan losses.


On Nov 30 12:48 AM chris coonan wrote:

> I think the US should establish a rating agency for banks, to record
> the number of mortgage foreclosures. It will have the same point
> system as a personal credit record. Banks will lose points everytime
> a foreclosure occurs, or a bad loan is written off. This rating system
> will then be posted on every entry door to the bank (similar to a
> Health Department Grade). Then borrowers can be reminded, on every
> visit to the bank, what risk they will take, by borrowing money from
> that institution.

Thoughts on Life Settlements

David,

I don't feel sorry for a life insurance company that now may be in trouble because they priced their policies with invalid lapse assumptions. They shouldn't have made lapse assumptions in the first place. Sounds kind of like a scam to me: "We'll charge you less, because we don't think we'll ever have to pay you back."

Why China and India Want the IMF to Sell Its Gold

Brian,

Are you serious?

You point out that the IMF's gold holdings are equal to 5 days of trading in London, and then conclude that the IMF could dump its position in 5 days. That conclusion is ludicrous, as it would imply that only the IMF would be selling gold for those 5 days.

Please think these things through a little more carefully before you write.

Bank Insiders Made Out Like Bandits

This analysis demonstrates nothing.

Why would an insider want to buy shares, except at a discount through and employee purchase plan, when he is being awarded shares/options every year as part of his compensation? A reasonable rule of them for portfolio diversification is to limit holding of a single stock to less than 5% of the total portfolio. Insider portfolios typically far exceed this limit in company stock due to the use of the stock as compensation, so further purchases are imprudent.

On the flip side, why wouldn't an insider sell as much stock as possible to reduce his company specific risk?

This is basic portolio management 101. I would have thought that a financial blogger would exhibit greater understanding of finance.

The After Hours Oil Scam

First, it is not clear that futures trading directly impacts the price of gasoline at the pump.

Second, if the vast majority of trading is occurring at a different price than the AH trading, wouldn't the weighted average price be the important one?

Risk Management in the Financial Industry

This a poorly written article which illustrates limited understanding of finance. Unfortunately, this is the same level of understanding that most mainstream media articles on this subject exhibit.

The first chart above equates mortgage securitization with lending to sub-prime borrowers. This is incorrect. Securitization of mortgages has nothing to do with the credit quality of the borrower. Both prime and sub-prime mortgage pools have been securitized. One could argue that securitization created moral hazard in the origination of mortgage loans. That moral hazard impacted both prime and sub-prime loan pools. The severity of the loss on sub-prime pools will be greater due to the characteristics of the sub-prime borrower, but that does not justify the author's equating securitization with sub-prime borrowing.

The author also equates a specific loan structure (adjustable rate) with sub-prime borrowers. This is another fallacy. Both prime and sub-prime borrowers took out adjustable rate mortgages during the run-up to the current credit crisis. The motivations of prime versus sub-prime borrowers in selecting an adjustable rate loan structure may be quite different, and on average, the sub-prime borrower may experience higher default levels than the prime borrower, but that is again due to the characteristics of the borrower, not the loan.

In summary, a financial blogger should be savvy enough to keep in mind that sub-prime refers to the characteristics of the borrower, not the structure of the loan or the subsequent securitization of the loan. Leave the confusion to WSJ.