Two Things
First, this from the New York Times Mag. Talking about the mortgage market, explaining in simple terms what's going on. Here's something I'd like to highlight:As Robert Rodriguez, a mutual fund manager for First Pacific Advisors (where I own shares), declared in a speech in June, “The distancing of the borrower from the lender has contributed to the development of lax underwriting standards.” Rodriguez’s point was that investors in the securities, being remote from the actual real estate, could hardly be expected to scrutinize the underlying mortgages loan by loan. Most delegated the task to ratings agencies, and in time the agencies, intoxicated by the booming market, also grew lax. Meanwhile, Wall Street, sensing the appetite of investors, devised exotic ways of repackaging mortgages. Investors bought these securities in bulk, just as Goldman bought stocks.
Of course. But broaden your perspective: this is precisely what bothers me about the entire edifice of public trading. The distancing of the investor from the resource contributes to short-sighted exploitation of that resource and the "development of lax standards" of sustainability. In this particular case, the resource is borrowers and at the demands of downstream investors, that resource has been strip-mined bare.
Who's responsible? We are.
As I said before, in the context of globalization:My views on distribution of responsibility, specifically as it pertains to the public trading of stock, are topics for another day, but here again, as with sub-prime lending, we see the long, thin thread straight to our own retirement accounts. Mediated investment and mediated regulation are in direct opposition. It's giving with one hand and taking with the other, meanwhile further absolving ourselves of any responsibility.
Lowenstein goes on to say: "There is no going back to the 3 percent fixed mortgages, single-earner households and tract housing of that era, but housing - like any investment market - could surely use a dose of (re-)regulation." Hmm...
Finally, he says: It was John Maynard Keynes who observed the paradox of securities markets: their very liquidity, which investors perceive as a safeguard, creates the conditions for disaster. “Each individual investor flatters himself that his commitment is ‘liquid,’ ” Keynes wrote, and the belief that he can exit the market at will “calms his nerves and makes him much more willing to run a risk.” The catch is that investors, collectively, can never exit in unison. Whenever they try, panic and losses are the sure result. Once, you had to be a hedge-fund player to experience such a trauma. Now, thanks to the dubious wonders of financial engineering, home buyers are exposed to the very same risks.
In this case, I feel like this might not be the best interpretation of events. It's not that borrowers qua investors have tried to exploit their liquidity to exit the system. It's that borrowers qua resource have been irresponsibly managed and are in danger of collapse.
There was something else, but this is long, so I'll save it for later...
Of course. But broaden your perspective: this is precisely what bothers me about the entire edifice of public trading. The distancing of the investor from the resource contributes to short-sighted exploitation of that resource and the "development of lax standards" of sustainability. In this particular case, the resource is borrowers and at the demands of downstream investors, that resource has been strip-mined bare.
Who's responsible? We are.
As I said before, in the context of globalization:My views on distribution of responsibility, specifically as it pertains to the public trading of stock, are topics for another day, but here again, as with sub-prime lending, we see the long, thin thread straight to our own retirement accounts. Mediated investment and mediated regulation are in direct opposition. It's giving with one hand and taking with the other, meanwhile further absolving ourselves of any responsibility.
Lowenstein goes on to say: "There is no going back to the 3 percent fixed mortgages, single-earner households and tract housing of that era, but housing - like any investment market - could surely use a dose of (re-)regulation." Hmm...
Finally, he says: It was John Maynard Keynes who observed the paradox of securities markets: their very liquidity, which investors perceive as a safeguard, creates the conditions for disaster. “Each individual investor flatters himself that his commitment is ‘liquid,’ ” Keynes wrote, and the belief that he can exit the market at will “calms his nerves and makes him much more willing to run a risk.” The catch is that investors, collectively, can never exit in unison. Whenever they try, panic and losses are the sure result. Once, you had to be a hedge-fund player to experience such a trauma. Now, thanks to the dubious wonders of financial engineering, home buyers are exposed to the very same risks.
In this case, I feel like this might not be the best interpretation of events. It's not that borrowers qua investors have tried to exploit their liquidity to exit the system. It's that borrowers qua resource have been irresponsibly managed and are in danger of collapse.
There was something else, but this is long, so I'll save it for later...