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Forums - General - Standard & Poor's made a tiny $2 trillion mistake when rating the US economy

Krusnik on 09 August 2011
Killy_Vorkosigan said:
So to sum up
- Bank decided to do shit with your money, produce false report and decided to sell houses to people who could not afford it, awaiting them not to be able to reimburse the loan, and make a profit because of the rising of price the m2.
- It failed totally, so bank have no money, and scare the shit out of everybody.
- States decide to lend money to bank in order to avoid chaos, then increasing their own debts
- Bank speculates on state debts, making more money, and reimbursing the money the states give them
- Notation agencies come into play (while they haven't before), say the state can't reimburse their debts

BANKS PRIVATE DEBTS HAVE BECOME PUBLIC DEBTS

BIGGEST THEFT EVER

its not as cut and dry as u put it but thats  the gist of it. The underlying cause of the melt down was due to dishonesty of financial institution that exploited the loop holes caused by decades of constant deregulation (financial Lib.)

There were tons of instances where derivatives were placed on the market and were exposed to the same "toxic" debt by financial institutions (Fannie May/Freddie Mac?). Come to think of it was these same credit rating agencies that gave these derivatives AAA ratings.....hmm



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Troll_Whisperer on 09 August 2011
irstupid said:
HappySqurriel said:
The United States federal government is like a household that earns $60,000 per year, while spending $90,000 per year, and has a net debt of $300,000 ...

Regardless of the projections of where they will be a decade from now, the United States federal government's bonds are not a AAA investment; and I would argue AA+ is an optimistically high rating.


this, i still don't get how the government thinks that kind of thinking will work

 

and yea today was first i heard of this AAA, AA+ ect ratings.  What the hell are these?  why the soo many A's?  is this where the stupid ass video games got tehir AAA ratings from?  copying this?

Also I like how this company who rates us said flately "If you don't cut 4 trillion dollars you will drop" we cut only 2 trillion, and the democrats are wondering why the hell we dropped.  I mean i'm not econ expert and don't know how all this is figured out, but if someone tells me that something will happen cause an effect, i'm not confused on when that happens. 

Basically, the lower your rating is, the more risky your bonds are considered, and the more interest you have to pay to those who buy your debt.



No troll is too much for me to handle. I rehabilitate trolls, I train people. I am the Troll Whisperer.

enrageorange on 09 August 2011
HappySqurriel said:
The United States federal government is like a household that earns $60,000 per year, while spending $90,000 per year, and has a net debt of $300,000 ...

Regardless of the projections of where they will be a decade from now, the United States federal government's bonds are not a AAA investment; and I would argue AA+ is an optimistically high rating.

useless comparision. We can argue all day about the state of the economy, debt, etc. but the S&P is suppose to rate governments based on their likelyhood of paying off the interest on their debt in the near future, and there is a 100% chance the USA will do so which investors see despite the absurd S&P downgrade as they have been swarming towards buying US bonds despite the downgrade when the stock market sharply fell the past few days.



mrstickball on 09 August 2011
Krusnik said:
Killy_Vorkosigan said:
So to sum up
- Bank decided to do shit with your money, produce false report and decided to sell houses to people who could not afford it, awaiting them not to be able to reimburse the loan, and make a profit because of the rising of price the m2.
- It failed totally, so bank have no money, and scare the shit out of everybody.
- States decide to lend money to bank in order to avoid chaos, then increasing their own debts
- Bank speculates on state debts, making more money, and reimbursing the money the states give them
- Notation agencies come into play (while they haven't before), say the state can't reimburse their debts

BANKS PRIVATE DEBTS HAVE BECOME PUBLIC DEBTS

BIGGEST THEFT EVER

its not as cut and dry as u put it but thats  the gist of it. The underlying cause of the melt down was due to dishonesty of financial institution that exploited the loop holes caused by decades of constant deregulation (financial Lib.)

There were tons of instances where derivatives were placed on the market and were exposed to the same "toxic" debt by financial institutions (Fannie May/Freddie Mac?). Come to think of it was these same credit rating agencies that gave these derivatives AAA ratings.....hmm

For the record, Fannie May/Freddie Mac are a government creation. The government incentiivized the creation of toxic assets by first pushing the banks to loan to minorities/poor people that could ill-afford houses. Certainly, the ratings agencies and banks played a part, but they didn't star the mess, government did.



Back from the dead, I'm afraid.

Final-Fan on 09 August 2011
mrstickball said:
Krusnik said:

its not as cut and dry as u put it but thats  the gist of it. The underlying cause of the melt down was due to dishonesty of financial institution that exploited the loop holes caused by decades of constant deregulation (financial Lib.)

There were tons of instances where derivatives were placed on the market and were exposed to the same "toxic" debt by financial institutions (Fannie May/Freddie Mac?). Come to think of it was these same credit rating agencies that gave these derivatives AAA ratings.....hmm

For the record, Fannie May/Freddie Mac are a government creation. The government incentiivized the creation of toxic assets by first pushing the banks to loan to minorities/poor people that could ill-afford houses. Certainly, the ratings agencies and banks played a part, but they didn't star the mess, government did.

The way I remember it is that the loans I believe you're referring to didn't fail at the rate you're implying and that the actual problem was securitizing all the loans until banks had no idea WTF they were even trading and couldn't effectively renegotiate to avoid defaults.  I guess you could blame government for allowing them to do that. 



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mrstickball on 09 August 2011
Final-Fan said:
mrstickball said:
Krusnik said:

its not as cut and dry as u put it but thats  the gist of it. The underlying cause of the melt down was due to dishonesty of financial institution that exploited the loop holes caused by decades of constant deregulation (financial Lib.)

There were tons of instances where derivatives were placed on the market and were exposed to the same "toxic" debt by financial institutions (Fannie May/Freddie Mac?). Come to think of it was these same credit rating agencies that gave these derivatives AAA ratings.....hmm

For the record, Fannie May/Freddie Mac are a government creation. The government incentiivized the creation of toxic assets by first pushing the banks to loan to minorities/poor people that could ill-afford houses. Certainly, the ratings agencies and banks played a part, but they didn't star the mess, government did.

The way I remember it is that the loans I believe you're referring to didn't fail at the rate you're implying and that the actual problem was securitizing all the loans until banks had no idea WTF they were even trading and couldn't effectively renegotiate to avoid defaults.  I guess you could blame government for allowing them to do that. 


You could also blame the governments for:

  1. Artificially inflating demand since the Community Reinvestment Act started & various acts in 1994 which not only drove up home ownership, but the price of homes as well (more demand = higher prices)
  2. Slashing the prime interest rate from 9% in 2000 to 4% in 2001, creating a culture ripe for all-time low interest rates
  3. Successively increasing rates from 4% to 8% from 2004 to 2005... Therefore when ARMs were re-negotiated (usually around 3 or 5 years), added on significant costs to homebuyers, making costs too high for them to continue the mortgages
  4. Fannie Mae & Freddie Mac which are government sponsored and were responsible for nearly 50% of home loans in 2008.

Government and business went hand in hand through the whole crisis. To ascribe 100% of the blame to lenders or the securitization of loans is crazy. It was a 50/50 proposition of government priming the pumps, businesses diving in and hiding toxic assets due to securitization tricks, and then stupid people buying into ARMs hook, line, and sinker.



Back from the dead, I'm afraid.

HappySqurriel on 09 August 2011
enrageorange said:
HappySqurriel said:
The United States federal government is like a household that earns $60,000 per year, while spending $90,000 per year, and has a net debt of $300,000 ...

Regardless of the projections of where they will be a decade from now, the United States federal government's bonds are not a AAA investment; and I would argue AA+ is an optimistically high rating.

useless comparision. We can argue all day about the state of the economy, debt, etc. but the S&P is suppose to rate governments based on their likelyhood of paying off the interest on their debt in the near future, and there is a 100% chance the USA will do so which investors see despite the absurd S&P downgrade as they have been swarming towards buying US bonds despite the downgrade when the stock market sharply fell the past few days.

What will the dollar they pay off this debt be worth though?

Being that the US dollar has lost substantial value over the past 10 years and is acting in a way that will accelerate the devaluing of the dollar, do you really believe that their bonds should be AAA rated? Would you say that an investment where you're probably going to lose 50% to 75% of its value over its term was a good investment, so why is a 10 year treasury that will be paid off in dollars that have the purchasing power of $0.25 to $0.50 a good investment?



Final-Fan on 09 August 2011
mrstickball said:
Final-Fan said:

The way I remember it is that the loans I believe you're referring to didn't fail at the rate you're implying and that the actual problem was securitizing all the loans until banks had no idea WTF they were even trading and couldn't effectively renegotiate to avoid defaults.  I guess you could blame government for allowing them to do that. 

You could also blame the governments for:

  1. Artificially inflating demand since the Community Reinvestment Act started & various acts in 1994 which not only drove up home ownership, but the price of homes as well (more demand = higher prices)
  2. Slashing the prime interest rate from 9% in 2000 to 4% in 2001, creating a culture ripe for all-time low interest rates
  3. Successively increasing rates from 4% to 8% from 2004 to 2005... Therefore when ARMs were re-negotiated (usually around 3 or 5 years), added on significant costs to homebuyers, making costs too high for them to continue the mortgages
  4. Fannie Mae & Freddie Mac which are government sponsored and were responsible for nearly 50% of home loans in 2008.

Government and business went hand in hand through the whole crisis. To ascribe 100% of the blame to lenders or the securitization of loans is crazy. It was a 50/50 proposition of government priming the pumps, businesses diving in and hiding toxic assets due to securitization tricks, and then stupid people buying into ARMs hook, line, and sinker.

I didn't mean it was 100% due to securitization, just that you are overweighting the impact of the CRA loans.  (Highly, I'd say.)  I agree on the rest of it, although you say 50/50 but name three things ...



Tag (courtesy of fkusumot): "Please feel free -- nay, I encourage you -- to offer rebuttal."
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My advice to fanboys: Brag about stuff that's true, not about stuff that's false. Predict stuff that's likely, not stuff that's unlikely. You will be happier, and we will be happier.

"Everyone is entitled to his own opinion, but not his own facts." - Sen. Pat Moynihan
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The old smileys: ; - ) : - ) : - ( : - P : - D : - # ( c ) ( k ) ( y ) If anyone knows the shortcut for , let me know!
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
I have the most epic death scene ever in VGChartz Mafia.  Thanks WordsofWisdom! 

Krusnik on 09 August 2011
mrstickball said:
Final-Fan said:
mrstickball said:
Krusnik said:

its not as cut and dry as u put it but thats  the gist of it. The underlying cause of the melt down was due to dishonesty of financial institution that exploited the loop holes caused by decades of constant deregulation (financial Lib.)

There were tons of instances where derivatives were placed on the market and were exposed to the same "toxic" debt by financial institutions (Fannie May/Freddie Mac?). Come to think of it was these same credit rating agencies that gave these derivatives AAA ratings.....hmm

For the record, Fannie May/Freddie Mac are a government creation. The government incentiivized the creation of toxic assets by first pushing the banks to loan to minorities/poor people that could ill-afford houses. Certainly, the ratings agencies and banks played a part, but they didn't star the mess, government did.

The way I remember it is that the loans I believe you're referring to didn't fail at the rate you're implying and that the actual problem was securitizing all the loans until banks had no idea WTF they were even trading and couldn't effectively renegotiate to avoid defaults.  I guess you could blame government for allowing them to do that. 


You could also blame the governments for:

  1. Artificially inflating demand since the Community Reinvestment Act started & various acts in 1994 which not only drove up home ownership, but the price of homes as well (more demand = higher prices)
  2. Slashing the prime interest rate from 9% in 2000 to 4% in 2001, creating a culture ripe for all-time low interest rates
  3. Successively increasing rates from 4% to 8% from 2004 to 2005... Therefore when ARMs were re-negotiated (usually around 3 or 5 years), added on significant costs to homebuyers, making costs too high for them to continue the mortgages
  4. Fannie Mae & Freddie Mac which are government sponsored and were responsible for nearly 50% of home loans in 2008.

Government and business went hand in hand through the whole crisis. To ascribe 100% of the blame to lenders or the securitization of loans is crazy. It was a 50/50 proposition of government priming the pumps, businesses diving in and hiding toxic assets due to securitization tricks, and then stupid people buying into ARMs hook, line, and sinker.

Ahhh yes the infamous "teaser rates" or bouncing bettys as i liked to call them. Also stickball im not sure it's fair to isolate one societal group as the main drivers of the subprime mess, if i remember correctly it was anyone who wanted a mortgage for a home was able to get one on seemingly low rates even college grads without a job were sucked in.



mrstickball on 10 August 2011
Krusnik said:
mrstickball said:
Final-Fan said:
mrstickball said:
Krusnik said:

its not as cut and dry as u put it but thats  the gist of it. The underlying cause of the melt down was due to dishonesty of financial institution that exploited the loop holes caused by decades of constant deregulation (financial Lib.)

There were tons of instances where derivatives were placed on the market and were exposed to the same "toxic" debt by financial institutions (Fannie May/Freddie Mac?). Come to think of it was these same credit rating agencies that gave these derivatives AAA ratings.....hmm

For the record, Fannie May/Freddie Mac are a government creation. The government incentiivized the creation of toxic assets by first pushing the banks to loan to minorities/poor people that could ill-afford houses. Certainly, the ratings agencies and banks played a part, but they didn't star the mess, government did.

The way I remember it is that the loans I believe you're referring to didn't fail at the rate you're implying and that the actual problem was securitizing all the loans until banks had no idea WTF they were even trading and couldn't effectively renegotiate to avoid defaults.  I guess you could blame government for allowing them to do that. 


You could also blame the governments for:

  1. Artificially inflating demand since the Community Reinvestment Act started & various acts in 1994 which not only drove up home ownership, but the price of homes as well (more demand = higher prices)
  2. Slashing the prime interest rate from 9% in 2000 to 4% in 2001, creating a culture ripe for all-time low interest rates
  3. Successively increasing rates from 4% to 8% from 2004 to 2005... Therefore when ARMs were re-negotiated (usually around 3 or 5 years), added on significant costs to homebuyers, making costs too high for them to continue the mortgages
  4. Fannie Mae & Freddie Mac which are government sponsored and were responsible for nearly 50% of home loans in 2008.

Government and business went hand in hand through the whole crisis. To ascribe 100% of the blame to lenders or the securitization of loans is crazy. It was a 50/50 proposition of government priming the pumps, businesses diving in and hiding toxic assets due to securitization tricks, and then stupid people buying into ARMs hook, line, and sinker.

Ahhh yes the infamous "teaser rates" or bouncing bettys as i liked to call them. Also stickball im not sure it's fair to isolate one societal group as the main drivers of the subprime mess, if i remember correctly it was anyone who wanted a mortgage for a home was able to get one on seemingly low rates even college grads without a job were sucked in.

That is true that they gave loans to anyone, but the fact is, the majority of said loans were given (as expected) to those that could ill-afford them which are usually poor(er) people that could never meet the margin requirements. Here's a white paper on the subject:

http://www.huduser.org/Publications/pdf/workpapr14.pdf

Its true that everyone was effected, but its rational to believe that sub-prime targeted those outside of the traditional targets of mortgages (e.g. financially stable people which in and of themselves comprise certain demographics). There is a lot of other correlating info with it - that average income standards among sub-prime candidates were much lower than those of traditional mortgages.



Back from the dead, I'm afraid.