Money Tawlk
Holy crap! GOOG is going through the roof today, up 12%! (I've been tracking this stock obsessively since splurging on it a few weeks ago.)
So I finished reading (finally) Larry McDonald's A Colossal Failure of Common Sense. I'd put it aside last summer after reading about a third and was then reminded of it in May after watching the movie Too Big to Fail on HBO at Lori's place. (Which--by the way? AMAZING movie. Just fantastic and well worth watching. Really captures the terror of those weeks in the fall of '08.) Anyway watching the movie I was reminded of the McDonald book, especially because 2Big similarly pillories Dick Fuld, who comes off as a criminally self-absorbed, in denial, petulant jerk. Think Nixon in finance, the kind of guy who holds grudges and makes terrible decisions because he can't stand to be seen as "less than" in any way. So I went back to Failure and found it much faster reading this time--apparently I'd absorbed the concepts. It's a great book for a non-insider--there is a certain amount of lingo to master but he does a pretty good job of breaking down exactly how this mess came about. There is a slight implicit political bias to it but I can get past that. When you realize how it happened, you start shaking your head, like WHY did anyone think saddling poor people with unworkable mortgages was a good idea? This isn't just the very commendable goal of trying to help poor people (aka subprime borrowers) by navigating the mortgage process, or reducing the interest rates for them or whatever--this is setting them up to fail by signing ANYONE and everyone, no matter what*. There were all sorts of terrifying loan structures like NINJAs (No Income, No Job or Assets) and ARMs (Adjustable Rate Mortages--people would sign a loan thinking their payments would be, say, $2000/month and then after 6 months--WHOOSH!--they went skyward, to $3500 or more). Honestly, I can't place blame on these borrowers--it's an article of faith that owning your own home is the American dream. Furthermore it's a fundamental tenet of financial solvency that it's better to buy a home and earn equity than to rent (which earns you no equity and of course you don't own anything after finishing a lease). If someone comes to you offering you a loan, when up til now people like you are denied access to loans (either due to racism or just financial common sense), wouldn't you assume they know what they're talking about? Why would they set you up to fail--whom does that help? It just makes no sense.
*These subprime loans were then collectively bundled into bonds (RMBS--Residential Mortgage-Backed Securities), and sold all over the world. So part of the problem of sorting out this mess is that no one knows who actually owns the titles to some of these properties. (Which actually helps some of the defaulting borrowers--can't kick someone out and sell their home from under it if you can't track down the owner because it's actually some bond customer in Norway or Japan. Hence some people have defaulted and just stayed in their homes.) Traditionally the bank that held your title was your local bank, just like traditional vetting methods for getting a mortgage include face to face meetings (no autobot and a careful assessment of your credit history, and assets and income.
One of the great features of the McDonald book is how he makes these concepts manageable and comprehensible. Partly this is because his prose is hardly eloquent! But this is mostly a strength--he writes like he talks. He brings a face to this process--he first introduces the legions of predatory lenders by talking how "trends tend to start in California" and describing a new kind of "banker," mortgage salesman who live in California and are incentivized to sign up as many mortgages as possible and who revel in their success with their Jags and Mercs and hit the gym and the tanning booth a lot. He calls them the bodybuilders.
Here is a fantastic article in New York magazine about predatory lending. Depressing as hell, but it helps you understand how the bulk of the blame lies with these lenders who lied to everyone just to line up loans they knew the borrowers couldn't repay. In this poor woman's case, she was scammed by her churchman (I use the term "bishop" advisedly--I doubt he's ordained with any kind of reputable denomination, he's a "bishop" like Al Sharpton is a "reverend"--he just uses the title without having earned it. And I love that the writer of the article actually tracked down this scammer at his house). I feel so terrible for this poor woman--she is genuinely trying to do the right thing, she's trying to fix this and seems like a hard worker and a self-improver who was treated very badly. She doesn't deserve this.
ETA: McDonald's book makes me want to start shorting stocks (i.e., betting they'll go down instead of up)--I bet I could do okay in distressed debt! Sadly, because of where I work, I'm not allowed by law. I have all sorts of restrictions about how I trade because of my job.
So I finished reading (finally) Larry McDonald's A Colossal Failure of Common Sense. I'd put it aside last summer after reading about a third and was then reminded of it in May after watching the movie Too Big to Fail on HBO at Lori's place. (Which--by the way? AMAZING movie. Just fantastic and well worth watching. Really captures the terror of those weeks in the fall of '08.) Anyway watching the movie I was reminded of the McDonald book, especially because 2Big similarly pillories Dick Fuld, who comes off as a criminally self-absorbed, in denial, petulant jerk. Think Nixon in finance, the kind of guy who holds grudges and makes terrible decisions because he can't stand to be seen as "less than" in any way. So I went back to Failure and found it much faster reading this time--apparently I'd absorbed the concepts. It's a great book for a non-insider--there is a certain amount of lingo to master but he does a pretty good job of breaking down exactly how this mess came about. There is a slight implicit political bias to it but I can get past that. When you realize how it happened, you start shaking your head, like WHY did anyone think saddling poor people with unworkable mortgages was a good idea? This isn't just the very commendable goal of trying to help poor people (aka subprime borrowers) by navigating the mortgage process, or reducing the interest rates for them or whatever--this is setting them up to fail by signing ANYONE and everyone, no matter what*. There were all sorts of terrifying loan structures like NINJAs (No Income, No Job or Assets) and ARMs (Adjustable Rate Mortages--people would sign a loan thinking their payments would be, say, $2000/month and then after 6 months--WHOOSH!--they went skyward, to $3500 or more). Honestly, I can't place blame on these borrowers--it's an article of faith that owning your own home is the American dream. Furthermore it's a fundamental tenet of financial solvency that it's better to buy a home and earn equity than to rent (which earns you no equity and of course you don't own anything after finishing a lease). If someone comes to you offering you a loan, when up til now people like you are denied access to loans (either due to racism or just financial common sense), wouldn't you assume they know what they're talking about? Why would they set you up to fail--whom does that help? It just makes no sense.
*These subprime loans were then collectively bundled into bonds (RMBS--Residential Mortgage-Backed Securities), and sold all over the world. So part of the problem of sorting out this mess is that no one knows who actually owns the titles to some of these properties. (Which actually helps some of the defaulting borrowers--can't kick someone out and sell their home from under it if you can't track down the owner because it's actually some bond customer in Norway or Japan. Hence some people have defaulted and just stayed in their homes.) Traditionally the bank that held your title was your local bank, just like traditional vetting methods for getting a mortgage include face to face meetings (no autobot and a careful assessment of your credit history, and assets and income.
One of the great features of the McDonald book is how he makes these concepts manageable and comprehensible. Partly this is because his prose is hardly eloquent! But this is mostly a strength--he writes like he talks. He brings a face to this process--he first introduces the legions of predatory lenders by talking how "trends tend to start in California" and describing a new kind of "banker," mortgage salesman who live in California and are incentivized to sign up as many mortgages as possible and who revel in their success with their Jags and Mercs and hit the gym and the tanning booth a lot. He calls them the bodybuilders.
Here is a fantastic article in New York magazine about predatory lending. Depressing as hell, but it helps you understand how the bulk of the blame lies with these lenders who lied to everyone just to line up loans they knew the borrowers couldn't repay. In this poor woman's case, she was scammed by her churchman (I use the term "bishop" advisedly--I doubt he's ordained with any kind of reputable denomination, he's a "bishop" like Al Sharpton is a "reverend"--he just uses the title without having earned it. And I love that the writer of the article actually tracked down this scammer at his house). I feel so terrible for this poor woman--she is genuinely trying to do the right thing, she's trying to fix this and seems like a hard worker and a self-improver who was treated very badly. She doesn't deserve this.
ETA: McDonald's book makes me want to start shorting stocks (i.e., betting they'll go down instead of up)--I bet I could do okay in distressed debt! Sadly, because of where I work, I'm not allowed by law. I have all sorts of restrictions about how I trade because of my job.