The Big Short

[g5000]

SEC.gov | Alternative Net Capital Requirements for Broker-Dealers That Are Part of Consolidated Supervised Entities

www.sec.gov

The Commission is amending Rule 15c3-12 (the “net capital rule”) under the Securities Exchange Act of 1934 (the “Exchange Act”) to establish a voluntary, alternative method of computing net capital for certain broker-dealers.

The top five broker-dealers were allowed by Bush to throw their underwriting rules out the window. Guess which five.

Boom.

 

[Toddsterpatriot]

When Lehman collapsed, the same dipshits in Congress asked him how the CRA had affected Lehman's collapse.

His answer: "De minimus."

The broker-dealers were not subject to the CRA. Goldman, Lehman, Merrill, Bear, JP Morgan, Morgan Stanley.

The vast majority of "crappy mortgages" were happily and willingly created by the mortgage brokers and the broker-dealers. In fact, they worked very hard to get the US government to get out of their way so they could make more and more crappy mortgages.

And the damage caused by those mortgages was exponentially amplified by the derivatives built around them.


Anyone who says otherwise is totally ignorant.

When Lehman collapsed, the same dipshits in Congress asked him how the CRA had affected Lehman's collapse.

His answer: "De minimus."

The broker-dealers were not subject to the CRA. Goldman, Lehman, Merrill, Bear, JP Morgan, Morgan Stanley.

Where did I say anything about the CRA?
The CRA is the Federal government forcing the banks to write and buy crappy mortgages.

I'm talking about them forcing Fannie and Freddie to buy crappy mortgages. $Trillions

These are two separate fuck ups, which both happened to help inflate the RE bubble.

The vast majority of "crappy mortgages" were happily and willingly created by the mortgage brokers and the broker-dealers.

Exactly. They wrote crappy mortgages because they could charge higher fees.
Imagine how much their happiness was multiplied when the morons in DC decided
it would be a good idea to turbocharge home demand by making it easier for
people who were bad risks to get a mortgage.

At first, they gave Fannie and Freddie a 30% quota of LMI (low-to-moderate income) loans. Then it was raised to 40% in 1996, 50% in 2001 and 56% in 2008.

And the damage caused by those mortgages was exponentially amplified by the derivatives built around them.

Meh. Derivatives were the rotten cherry on top of the mountain of mortgage shit.

A few percent at most.

 

[g5000]

When Lehman collapsed, the same dipshits in Congress asked him how the CRA had affected Lehman's collapse.

His answer: "De minimus."

The broker-dealers were not subject to the CRA. Goldman, Lehman, Merrill, Bear, JP Morgan, Morgan Stanley.

Where did I say anything about the CRA?
The CRA is the Federal government forcing the banks to write and buy crappy mortgages.

I'm talking about them forcing Fannie and Freddie to buy crappy mortgages. $Trillions

These are two separate fuck ups, which both happened to help inflate the RE bubble.

The vast majority of "crappy mortgages" were happily and willingly created by the mortgage brokers and the broker-dealers.

Exactly. They wrote crappy mortgages because they could charge higher fees.
Imagine how much their happiness was multiplied when the morons in DC decided
it would be a good idea to turbocharge home demand by making it easier for
people who were bad risks to get a mortgage.

At first, they gave Fannie and Freddie a 30% quota of LMI (low-to-moderate income) loans. Then it was raised to 40% in 1996, 50% in 2001 and 56% in 2008.

And the damage caused by those mortgages was exponentially amplified by the derivatives built around them.

Meh. Derivatives were the rotten cherry on top of the mountain of mortgage shit.

A few percent at most.

You obviously have no clue about the effect derivatives had. None whatsoever.

The market share of the GSEs shrank over time in comparison to the broker-dealers.

And it was the GSEs who demanded the government let them make more crappy mortgages, not the other way around. They asked for their rules to be relaxed.

You know, a large percentage of our politicians sat on the boards of the GSEs. They were paid handsomely. And guess who was one the biggest cheerleaders of the GSEs?

Newt Gingrich.

In fact, Newt was such a huge fan of the GSEs, he wanted the government to make MORE of them!


To hear him now, you'd think he was leading the charge against them all that time. Gingrich is one of the biggest hypocritical liars of all time.


Newt Gingrich earned $1.6 million working for Freddie Mac during the housing bubble.

Here is Newt in 2007, just before it all came crashing down, praising the GSEs to the skies:
Market-Based Models Are Key to Transforming U.S. Government to a 21st Century Organization - Freddie Mac

"Certainly there is a lot of debate today about the housing GSEs, but I think it is telling that there is strong bipartisan support for maintaining the GSE model in housing. There is not much support for the idea of removing the GSE charters from Freddie Mac and Fannie Mae. And I think it's clear why. The housing GSEs have made an important contribution to homeownership and the housing finance system. We have a much more liquid and stable housing finance system than we would have without the GSEs. And making homeownership more accessible and affordable is a policy goal I believe conservatives should embrace. Millions of people have entered the middle class through building wealth in their homes, and there is a lot of evidence that homeownership contributes to stable families and communities. These are results I think conservatives should embrace and want to extend as widely as possible. So while we need to improve the regulation of the GSEs, I would be very cautious about fundamentally changing their role or the model itself."



Newt liked the GSEs so much, he said there should be MORE of them:

"I like the GSE model because it provides a more efficient, market-based alternative to taxpayer-funded government programs. It marries private enterprise to a public purpose. We obviously don't want to use GSEs for everything, but there are times when private enterprise alone is not sufficient to achieve a public purpose. I think private enterprise alone is not going to be able to help the Gulf region recover from the hurricanes, and government will not get the job done in a very effective or efficient manner. We should be looking seriously at creating a GSE to help redevelop this region. We should be looking at whether and how the GSE model could help us address the problem of financing health care. I think a GSE for space exploration ought to be seriously considered - I'm convinced that if NASA were a GSE, we probably would be on Mars today."

 

[Toddsterpatriot]

SEC.gov | Alternative Net Capital Requirements for Broker-Dealers That Are Part of Consolidated Supervised Entities

www.sec.gov

The Commission is amending Rule 15c3-12 (the “net capital rule”) under the Securities Exchange Act of 1934 (the “Exchange Act”) to establish a voluntary, alternative method of computing net capital for certain broker-dealers.

The top five broker-dealers were allowed by Bush to throw their underwriting rules out the window. Guess which five.

Boom.

The top five broker-dealers were allowed by Bush to throw their underwriting rules out the window. Guess which five.

Well after the government allowed Fannie and Freddie to throw their underwriting rules out the window.

Not like the good old days, when they only bought 20% down conforming mortgages.

 

[Toddsterpatriot]

You obviously have no clue about the effect derivatives had. None whatsoever.

The market share of the GSEs shrank over time in comparison to the broker-dealers.

And it was the GSEs who demanded the government let them make more crappy mortgages, not the other way around. They asked for their rules to be relaxed.

You know, a large percentage of our politicians at on the boards of the GSEs. They were paid handsomely. And guess who was one the biggest cheerleaders of the GSEs?

Newt Gingrich.

In fact, Newt was such a huge fan of the GSEs, he wanted the government to make MORE of them!


To hear him now, you'd think he was leading the charge against them all that time. Gingrich is one of the biggest hypocritical liars of all time.


Newt Gingrich earned $1.6 million working for Freddie Mac during the housing bubble.

Here is Newt in 2007, just before it all came crashing down, praising the GSEs to the skies:
Market-Based Models Are Key to Transforming U.S. Government to a 21st Century Organization - Freddie Mac

"Certainly there is a lot of debate today about the housing GSEs, but I think it is telling that there is strong bipartisan support for maintaining the GSE model in housing. There is not much support for the idea of removing the GSE charters from Freddie Mac and Fannie Mae. And I think it's clear why. The housing GSEs have made an important contribution to homeownership and the housing finance system. We have a much more liquid and stable housing finance system than we would have without the GSEs. And making homeownership more accessible and affordable is a policy goal I believe conservatives should embrace. Millions of people have entered the middle class through building wealth in their homes, and there is a lot of evidence that homeownership contributes to stable families and communities. These are results I think conservatives should embrace and want to extend as widely as possible. So while we need to improve the regulation of the GSEs, I would be very cautious about fundamentally changing their role or the model itself."



Newt liked the GSEs so much, he said there should be MORE of them:

"I like the GSE model because it provides a more efficient, market-based alternative to taxpayer-funded government programs. It marries private enterprise to a public purpose. We obviously don't want to use GSEs for everything, but there are times when private enterprise alone is not sufficient to achieve a public purpose. I think private enterprise alone is not going to be able to help the Gulf region recover from the hurricanes, and government will not get the job done in a very effective or efficient manner. We should be looking seriously at creating a GSE to help redevelop this region. We should be looking at whether and how the GSE model could help us address the problem of financing health care. I think a GSE for space exploration ought to be seriously considered - I'm convinced that if NASA were a GSE, we probably would be on Mars today."

You obviously have no clue about the effect derivatives had. None whatsoever.

I understand them much better than you do. Low bar, I know.

The market share of the GSEs shrank over time in comparison to the broker-dealers.

Obviously. Because of the GSE accounting scandals and also, they had to buy much better than average mortgages. Until those mandates.

 

[g5000]

The top five broker-dealers were allowed by Bush to throw their underwriting rules out the window. Guess which five.

Well after the government allowed Fannie and Freddie to throw their underwriting rules out the window.

Not like the good old days, when they only bought 20% down conforming mortgages.

Like I said, the GSEs sought to have their rules relaxed. They were not forced to. They felt they needed to compete against Wall Street which was eating away at their market share. The GSEs used to be 90 percent of the secondary market. With the advent of derivatives, Wall Street ate away at the GSEs until they were less than 50 percent.

No one forced these assholes to write or take on more crappy mortgages. You have it exactly backwards.

https://home.treasury.gov/news/press-releases/tg638

The GSEs relaxed standards for the same reasons other market participants relaxed standards: old-fashioned greed and flawed regulation. Their stockholders saw the GSEs losing market share and profits to the churning mortgage machine on Wall Street. They pushed the GSEs to increase their shares and their returns. GSE management complied, because they were rewarded for short-term profits more than for long-term sustainability.

It was the STOCKHOLDERS who pushed them, not the government.

Stockholders like Newt Gingrich.

 

[g5000]

I understand them much better than you do. Low bar, I know.

No, you quite clearly do not.

For instance, credit default swaps. They had no insurable interest requirement, which is absolutely insane, and that amplified the consequences of mortgage defaults tremendously. That's what brought down AIG and everyone else who peddled CDS.

The dipshits drank their own Kool-Aid.

Even more insane, the lack of an insurable interest requirement incentivizes fraud. And that is exactly what Goldman did.

In The Big Short, that's what the movie is all about. Credit default swaps.

 

[Toddsterpatriot]

Like I said, the GSEs sought to have their rules relaxed. They were not forced to. They felt they needed to compete against Wall Street which was eating away at their market share. The GSEs used to be 90 percent of the secondary market. With the advent of derivatives, Wall Street ate away at the GSEs until they were less than 50 percent.

No one forced these assholes to write or take on more crappy mortgages. You have it exactly backwards.

https://home.treasury.gov/news/press-releases/tg638

The GSEs relaxed standards for the same reasons other market participants relaxed standards: old-fashioned greed and flawed regulation. Their stockholders saw the GSEs losing market share and profits to the churning mortgage machine on Wall Street. They pushed the GSEs to increase their shares and their returns. GSE management complied, because they were rewarded for short-term profits more than for long-term sustainability.

It was the STOCKHOLDERS who pushed them, not the government.

Stockholders like Newt Gingrich.

Like I said, the GSEs sought to have their rules relaxed. They were not forced to. They felt they needed to compete against Wall Street which was eating away at their market share. The GSEs used to be 90 percent of the secondary market. With the advent of derivatives, Wall Street ate away at the GSEs until they were less than 50 percent.

HUD Chief to GSE Chief, "We're going to force you to buy more shitty mortgages. Write a press release saying how you're happy to help shitty risks deserving low and middle income Americans achieve the American Dream of home ownership"

GSE Chief to HUD Chief, "You bet boss, glad to help"

With the advent of derivatives, Wall Street ate away at the GSEs until they were less than 50 percent.

Derivatives had zero to do with it.

 

[Toddsterpatriot]

No, you quite clearly do not.

For instance, credit default swaps. They had no insurable interest requirement, which is absolutely insane, and that amplified the consequences of mortgage defaults tremendously. That's what brought down AIG and everyone else who peddled CDS.

The dipshits drank their own Kool-Aid.

In The Big Short, that's what the movie is all about. Credit default swaps.

For instance, credit default swaps. They had no insurable interest requirement, which is absolutely insane, and that amplified the consequences of mortgage defaults tremendously. That's what brought down AIG and everyone else who peddled CDS.

How much did AIG lose on CDS? Give me a ballpark.

PS, Selena said CDO, not CDS.

 

[g5000]

For instance, credit default swaps. They had no insurable interest requirement, which is absolutely insane, and that amplified the consequences of mortgage defaults tremendously. That's what brought down AIG and everyone else who peddled CDS.

How much did AIG lose on CDS? Give me a ballpark.

PS, Selena said CDO, not CDS.

AIG wrote CDS on $500 billion in assets.

And they put ZERO capital to back up those CDS in case of default. They had no offsetting position. They stupidly believed the universe would end before all those CDOs would implode.

And that was only AIG.

 

[g5000]

I want you to imagine what the world would be like if anyone could buy fire insurance against your house.

That's a world with no insurable interest requirement.

There would be non-stop house fires, right? An arson epidemic. There would be nothing stopping someone from insuring your house and then setting it on fire.

Or worse, a homebuilder would construct homes made of the most flammable materials out there, sell it to some ignorant REIT manager, then take out insurance against those houses.

That is precisely what Goldman Sachs did.

Goldman paired up with hedge fund manager Jon Paulson and together they picked the worst, most crappy mortgages they could find and constructed a CDO out of it. Then they sold that CDO to fireman pensions and the like. Fund managers who were not sophisticated in all the ways Goldman Sachs could fuck their clients over. Then Goldman bought CDS against that CDO.

Just one example. Abacus 2007-AC1. Goldman made a billion dollars out of that deal. They stole a billion dollars from firemen, teachers, the police, etc. Just on that one crooked deal.

When they were caught, guess how much were fined once they got caught?

$500 million. HALF of what they profited.

And not one of the fuckers went to jail. They didn't even feel the pressure of handcuffs.

That's how a simple failure to regulate ONE derivative brought down the house.

 

[g5000]

This man should have been thrown in prison for life. What he did was worse than Bernie Madoff.

 

[Toddsterpatriot]

AIG wrote CDS on $500 billion in assets.

And they put ZERO capital to back up those CDS in case of default. They had no offsetting position. They stupidly believed the universe would end before all those CDOs would implode.

And that was only AIG.

AIG wrote CDS on $500 billion in assets.

But how much on CDOs? And how much did they lose?

 

[g5000]

AIG wrote CDS on $500 billion in assets.

But how much on CDOs? And how much did they lose?

AIG insured CDOs. What are you not getting here?

 

[g5000]

Credit default swaps came into existence in 1994 when they were invented by Blythe Masters from JP Morgan. They became popular in the early 2000s, and by 2007, the outstanding credit default swaps value stood at $62.2 trillion. During the financial crisis of 2008, the value of CDS was hit hard, and it dropped to $26.3 trillion by 2010 and $25.5 trillion in 2012. There was no legal framework to regulate swaps, and the lack of transparency in the market became a concern among regulators.

Credit Default Swap

A credit default swap (CDS) is a type of credit derivative that provides the buyer with protection against default and other risks. The buyer of a CDS makes periodic payments to the seller until the credit maturity date. In the agreement, the seller commits that, if the debt issuer defaults, the...

corporatefinanceinstitute.com

 

[g5000]

Here is how a CDS, which is just unregulated insurance, amplifies a loss.

If you own a house worth $200,000 you can buy insurance to protect that house. If it burns down, the insurance company is out $200,000.


However, without an insurable interest, anyone would be able to buy insurance against your house.

Let's say twenty people bought insurance on your house and it burns down.

Now, instead of losing $200,000 the insurance company is out $4,000,000 on a $200,000 asset.


And that is how derivatives exponentially amplified the GLOBAL consequences of crappy mortgages.

 

[g5000]

Those young boys in the movie made a brilliant move. When they realized that the built-in risk of the CDO market went all the way to the top tranches, they were able to buy CDS against those top tranches at a very, very cheap price.

NO ONE thought it could get that bad.

 

[Toddsterpatriot]

I want you to imagine what the world would be like if anyone could buy fire insurance against your house.

That's a world with no insurable interest requirement.

There would be non-stop house fires, right? An arson epidemic. There would be nothing stopping someone from insuring your house and then setting it on fire.

Or worse, a homebuilder would construct homes made of the most flammable materials out there, sell it to some ignorant REIT manager, then take out insurance against those houses.

That is precisely what Goldman Sachs did.

Goldman paired up with hedge fund manager Jon Paulson and together they picked the worst, most crappy mortgages they could find and constructed a CDO out of it. Then they sold that CDO to fireman pensions and the like. Fund managers who were not sophisticated in all the ways Goldman Sachs could fuck their clients over. Then Goldman bought CDS against that CDO.

Just one example. Abacus 2007-AC1. Goldman made a billion dollars out of that deal. They stole a billion dollars from firemen, teachers, the police, etc. Just on that one crooked deal.

When they were caught, guess how much were fined once they got caught?

$500 million. HALF of what they profited.

And not one of the fuckers went to jail. They didn't even feel the pressure of handcuffs.

That's how a simple failure to regulate ONE derivative brought down the house.

Oh please. Such a silly story. Goldman didn't burn those houses down. Goldman didn't force the shitty risks to buy them or the stupid banks to lend to the shitty risks.

Goldman paired up with hedge fund manager Jon Paulson and together they picked the worst, most crappy mortgages they could find and constructed a CDO out of it.

Not exactly.

They found CDOs built out of crappy mortgages and created a synthetic version.
Instead of buying the shitty $1 million mortgage on your house and waiting for you to default, which would lose them money, they decided to build a synthetic mortgage and sell it to a German bank IKB.

As long as you pay your mortgage, IKB gets paid. But you default and your
house sells for $500,000. IKB paid $1 million and gets $500,000 back.
The counterparty, John Paulson, earns $500,000.

Then Goldman bought CDS against that CDO.

By selling the synthetic CDO, they were already short. No second step needed.

If I sell you an IBM call, I don't have to do anything to bet against you, because
I'm already short an IBM call.

If you lose on your bet, you could whine that I bet against your IBM call, but that's stupid.

When they were caught, guess how much were fined once they got caught?

$500 million. HALF of what they profited.

Goldman made a $15 million commission, Paulson made $1 billion.

That's how a simple failure to regulate ONE derivative brought down the house.

$1 billion had a tiny impact on a mortgage market of over $9 trillion.

 

[Toddsterpatriot]

AIG insured CDOs. What are you not getting here?

They did. How much worth of CDOs did they insure?
How much did they lose on those CDOs?

 

[Toddsterpatriot]

Here is how a CDS, which is just unregulated insurance, amplifies a loss.

If you own a house worth $200,000 you can buy insurance to protect that house. If it burns down, the insurance company is out $200,000.


However, without an insurable interest, anyone would be able to buy insurance against your house.

Let's say twenty people bought insurance on your house and it burns down.

Now, instead of losing $200,000 the insurance company is out $4,000,000 on a $200,000 asset.


And that is how derivatives exponentially amplified the GLOBAL consequences of crappy mortgages.

Let's say twenty people bought insurance on your house and it burns down.

Now, instead of losing $200,000 the insurance company is out $4,000,000 on a $200,000 asset.

You have 20 people with $4 million more and 1 insurance company with $4 million less.

Why does that amplify the GLOBAL consequences of a $9 trillion mortgage market?