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on a trader who profited from the fannie mae meltdown

From a Greenspan speech selectively/dishonestly quoted by Michael J. Burry.

Greenspan, 8 April 2005
“With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. The widespread adoption of these models has reduced the costs of evaluating the creditworthiness of borrowers, and in competitive markets cost reductions tend to be passed through to borrowers. Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early 1990s.” [Quoted from federalreserve.gov]


Greenspan warned about the looming danger of Fannie Mae:

6 April 2005
“As I concluded last year, the GSEs need a regulator with authority on a par with banking regulators, with a free hand to set appropriate capital standards, and with a clear and credible process sanctioned by the Congress for placing a GSE in receivership, where the conditions under which debt holders take losses are made clear. However, if legislation takes only these actions and does not limit GSE portfolios, we run the risk of solidifying investors' perceptions that the GSEs are instruments of the government and that their debt is equivalent to government debt. The GSEs will have increased facility to continue to grow faster than the overall home-mortgage market; indeed since their portfolios are not constrained, by law, to exclusively home mortgages, GSEs can grow virtually without limit. Without restrictions on the size of GSE balance sheets, we put at risk our ability to preserve safe and sound financial markets in the United States, a key ingredient of support for homeownership.” [Quoted from federalreserve.gov]


Burry in April 2010:

“But that is not how I remember it. Back in 2005 and 2006, I argued as forcefully as I could, in letters to clients of my investment firm, Scion Capital, that the mortgage market would melt down in the second half of 2007, causing substantial damage to the economy. My prediction was based on my research into the residential mortgage market and mortgage-backed securities. After studying the regulatory filings related to those securities, I waited for the lenders to offer the most risky mortgages conceivable to the least qualified buyers. I knew that would mark the beginning of the end of the housing bubble; it would mean that prices had risen — with the expansion of easy mortgage lending — as high as they could go.”

“Observing these trends in April 2005, Mr. Greenspan trumpeted the expansion of the subprime mortgage market. “Where once more-marginal applicants would simply have been denied credit,” he said, “lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately.” ” [Quoted from nytimes.com]

Michael Lewis on Burry, April 2010.
Michael Lewis wrote Liar’s Poker, a description of ‘insider’/corrupt trading in which he was caught up. This is the most readable linked item.

Further background to the Fannie Mae meltdown.



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ecb admits euro introduction caused greek problems

A fascinating article, but what is most fascinating to me is the naivete of the ‘reporter’, Michael Lewis.

“Somewhere between 30 and 40 percent of the activity in the Greek economy that might be subject to the income tax goes officially unrecorded, he says, compared with an average of about 18 percent in the rest of Europe.”

That is, it is around half as bad throughout Europe, according to him.

Most of this can be repeated in the UK.

Brown the Clown’s Enron accounting has increasingly aggravated the mess.

Socialism always drives corruption. It is deep in its nature.

“The structure of the Greek economy is collectivist, but the country, in spirit, is the opposite of a collective. Its real structure is every man for himself. Into this system investors had poured hundreds of billions of dollars. And the credit boom had pushed the country over the edge, into total moral collapse.”

The casual unthinking acceptance of collectivism by the ‘reporter’.

Ah, later on he does see his reflection:

“Thousands upon thousands of government employees take to the streets to protest the bill. Here is Greece’s version of the Tea Party: tax collectors on the take, public-school teachers who don’t really teach, well-paid employees of bankrupt state railroads whose trains never run on time, state hospital workers bribed to buy overpriced supplies. Here they are, and here we are: a nation of people looking for anyone to blame but themselves. The Greek public-sector employees assemble themselves into units that resemble army platoons. In the middle of each unit are two or three rows of young men wielding truncheons disguised as flagpoles. Ski masks and gas masks dangle from their belts so that they can still fight after the inevitable tear gas. “The deputy prime minister has told us that they are looking to have at least one death,” a prominent former Greek minister had told me. “They want some blood.” Two months earlier, on May 5, during the first of these protest marches, the mob offered a glimpse of what it was capable of. Seeing people working at a branch of the Marfin Bank, young men hurled Molotov cocktails inside and tossed gasoline on top of the flames, barring the exit. Most of the Marfin Bank’s employees escaped from the roof, but the fire killed three workers, including a young woman four months pregnant. As they died, Greeks in the streets screamed at them that it served them right, for having the audacity to work. The events took place in full view of the Greek police, and yet the police made no arrests.”

Another interesting article by Michael Lewis.

[Lead for first linked article from DVH.]

related material
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EMU (European Monetary Union) and inflation – a civil liberty issue

Half the Sky: Turning Oppression into Opportunity for Women Worldwide by Kristof and Wudunn

Liar’s Poker
by Michael Lewis

$8.49 [amazon.com]

£5.41 [amazon.co.uk]

W. W. Norton & Company; 2010 reprint, pbk
ISBN-10: 039333869X
ISBN-13: 978-0393338690

Michael Lewis made his reputation writing an exposé of insider trading in which he was caught up.



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basel 2/3 kicks the ball far down the road to 2019

Basel 2 (now some hacks are going on about Basel 3) requires reserves to move from 2% to 7%, or is it 4.5%?

Tier one (shares and retained capital): 4.5% by 2015,
plus 2.5% ‘capital conservation buffer’ by 2019
.

“The Basel Committee on Banking Supervision announced that the total capital that banks need to hold will remain at least 8% of their risk-weighted assets. But it will be strengthened by an additional capital buffer representing 2.5% of risk-weighted assets, taking it to 10.5%.

“Of that, common equity--the most loss-absorbing form of capital--must represent 4.5% of risk-weighted assets. Including a 2.5% conservation buffer, which will be of the same quality, banks will be required to hold a minimum common equity ratio of 7%.

“Banks with ratios below the 7% mark will have to retain their earnings in order to reach that target as soon as possible, the Basel Committee said.

“Tier 1 capital will rise to 6.0% from 4.0% currently." [Quoted from online.wsj.com]

Marker at abelard.org

Article from the Wall Street Journal: too big to fail, believe it if you believe in Eldils.

Bank shares rise, of course.

[Basel 2, or Basel II (251-page .pdf), is the second Basel Accord. These Accords contain the recommendations on banking laws and regulations that have been issued by the Basel Committee on Banking Supervision.]



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guess which major eu economy is still cursed by a socialist government

“The 16-member euro area is likely to recover at a faster pace this year than previously estimated as the second quarter performance, particularly in Germany, progressed markedly. But, the aggregate growth figure masks uneven developments across member states.”

“The commission's interim forecast published in February and September, is based on updated projections for Germany, France, Italy, Spain, the Netherlands, Poland, and the U.K. The commission upwardly revised GDP estimates for all the seven economies.

“More than doubling the growth forecast for Germany, the commission said the initially largely export-driven recovery is increasingly becoming more broad-based. Germany's GDP growth is seen at 3.4%. Similar growth is projected for Poland.

“Among those seven nations, only Spain is expected to contract this year by 0.3%, but slightly better than the earlier forecast for a 0.4% decline. The French and Italian growth outlook were upwardly raised by 0.3 percentage points to 1.6% and 1.1%, respectively.”



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yet another article misunderstands keynes - confusing money and work

“JUNE 26, 2010
The Keynesian Dead End
Spending our way to prosperity is going out of style.

“Today's G-20 meeting has been advertised as a showdown between the U.S. and Europe over more spending "stimulus," and so it is. But the larger story is the end of the neo-Keynesian economic moment, and perhaps the start of a healthier policy turn.”

Many people are writing articles on Keynesianism without understanding economics, or Keynes.

The linked article is interesting, mostly for the lack of understanding of Keynes.

There is, at the heart of the situation, much confusion between money and work. In fact, several confusions.

Keynes was a pragmatist, not a dogmatist.

Before real progress is made, you first have to decide just what you wish to achieve.

The approach of Obama or Brown the Clown is clearly ludicrous. Not even a donkey would be able to stop guffawing at the notion of “spending our way to prosperity”. Certainly Keynes would never have fallen for such nonsense.

managing employment

Do you want more work? Then bury bottles with money in and pay people to dig them up, as Keynes advised in satire.

Do you want the unemployed to have money to spend? Then give it to them for free and stop the pretence.

Do you want some work done that the lazy shirkers will not do? Then try Hitler’s approach - point guns at them.

Alternatively, with more sense, make the handouts dependent on the recipients doing the jobs you want done. Of course, the unions will not like what they will then call cheap labour.

But do not become muddled between these various objectives.

Now what if you have no work you want done? Then, if you want to be Nero or a pharaoh, and believe the unemployed should be kept busy and out of trouble, you bury bottles or build pyramids, or even motorways. But but but .... what you most definitely do not do is use huge modern machinery. You issue the ‘workers’ with pickaxes, or even with tooth picks.

Returning to money. The money printing in the UK was sensibly used to wipe out debt and give the government banking system more tokens to play with. That bit has damn-all to do with work or ‘unemployment’. So don’t be confused!

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the mechanics of inflation: The great government swindle and how it works



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cynical analysis of the eussr debt


2:35 mins

and the European economic madhouse grows...

“The big three credit ratings agencies were threatened yesterday with fines and the creation of a new state-backed competitor, only weeks after European leaders attacked them for exacerbating Greece’s problems with downgrades.

“The agencies will be subject to a new European supervisory body with the power to hand out fines and suspensions under plans unveiled in Brussels.”



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poor old adam - working for the uk socialist state

From the TaxPayers’ Alliance:


1:59 min.

Burning our money’s Wat Tyler calculated that “our typical worker is still working for the government right up to 3.10pm (assumes 30 mins lunch break).”



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