Obtuse
As our banks are pleading for more help than ever now, even the revered financial seer Alan Greenspan, former chairman of the Federal Reserve, now admits he was confused, if not bamboozled himself, by Wall Street’s inventive greed when they concocted mortgage-backed securities, a scheme basically designed to bundle home loans into investment funds that had little foundation in reality. Subprime loans also disappeared into this black hole, and now the global economy is teetering on the edge.
Obtuse may be a more accurate term to characterize this misadventure, although speculation is what they call it. But think about it; other people have (like homeowners). How can you make a viable investment vehicle by scrambling loans on people’s homes into cheesy omelets? Traditionally, a mortgage has been a partnership between a homeowner and a bank to own a piece of real property, not a factory or service that produces anything. Once the homeowner pays off the loan, the bank turns over full ownership to the mortgagor and walks away with their profit from the interest they charged.
“So everybody in retrospect now knows that that boom was developing under the markets for quite a period of time, but nobody knew it,” Mr. Greenspan told CNBC’s David Faber. “In 2004, there was just no credible information on that. It wasn’t until we got well into 2005 that the first inklings that that was developing was emerging,” he said.
“If we tried to suppress the expansion of the subprime market, do you think that would have gone over very well with the Congress?” Mr. Greenspan continued. “When it looked as though we were dealing with a major increase in home ownership, which is of unquestioned value to this society — would we have been able to do that? I doubt it.” Good point; although, listen to them now.
“We could have basically clamped down on the American economy, generated a 10 percent unemployment rate. And I will guarantee we would not have had a housing boom, a stock market boom or indeed a particularly good economy either," he concluded.
The way these guys talk often sounds obtuse, too. Who says a boom is what we really wanted or should have had in the first place? Boom implies an explosion, after which there is usually a lot of devastation and shrapnel flying around. In finance, they call it a bust. But who was watching, if not for guys like Greenspan?
“What we have created in this world is an aura around the credit rating agencies about certification from them is the Good Housekeeping Seal of Approval,” Mr. Greenspan admitted. “I will tell you the record of a lot of the forecasters of ratings have not been distinguished. They never were.”
Obama and Geithner now have their hands full trying to clean all this up. The lesson is pretty basic, though. Make sure you know who’s minding the store before you drift off into never-never land; and whoever it is, make sure they know what’s for sale and what isn’t, or shouldn't be. Otherwise, you’re likely to come in one morning and find your store is empty with no money in the till.
(Source: New York Times DealBook, February 12, 2009)
Obtuse may be a more accurate term to characterize this misadventure, although speculation is what they call it. But think about it; other people have (like homeowners). How can you make a viable investment vehicle by scrambling loans on people’s homes into cheesy omelets? Traditionally, a mortgage has been a partnership between a homeowner and a bank to own a piece of real property, not a factory or service that produces anything. Once the homeowner pays off the loan, the bank turns over full ownership to the mortgagor and walks away with their profit from the interest they charged.
“So everybody in retrospect now knows that that boom was developing under the markets for quite a period of time, but nobody knew it,” Mr. Greenspan told CNBC’s David Faber. “In 2004, there was just no credible information on that. It wasn’t until we got well into 2005 that the first inklings that that was developing was emerging,” he said.
“If we tried to suppress the expansion of the subprime market, do you think that would have gone over very well with the Congress?” Mr. Greenspan continued. “When it looked as though we were dealing with a major increase in home ownership, which is of unquestioned value to this society — would we have been able to do that? I doubt it.” Good point; although, listen to them now.
“We could have basically clamped down on the American economy, generated a 10 percent unemployment rate. And I will guarantee we would not have had a housing boom, a stock market boom or indeed a particularly good economy either," he concluded.
The way these guys talk often sounds obtuse, too. Who says a boom is what we really wanted or should have had in the first place? Boom implies an explosion, after which there is usually a lot of devastation and shrapnel flying around. In finance, they call it a bust. But who was watching, if not for guys like Greenspan?
“What we have created in this world is an aura around the credit rating agencies about certification from them is the Good Housekeeping Seal of Approval,” Mr. Greenspan admitted. “I will tell you the record of a lot of the forecasters of ratings have not been distinguished. They never were.”
Obama and Geithner now have their hands full trying to clean all this up. The lesson is pretty basic, though. Make sure you know who’s minding the store before you drift off into never-never land; and whoever it is, make sure they know what’s for sale and what isn’t, or shouldn't be. Otherwise, you’re likely to come in one morning and find your store is empty with no money in the till.
(Source: New York Times DealBook, February 12, 2009)
posted by Pneumaticus at 7:54 PM
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