Should the Fed Have a Moral Compass?

NEW -> Contingent Buyer Assistance Program
<p>So they had sub-6% interest rates, massive warehouse lines of credit, a hyperactive RMBS market, opaque off-balance-sheet investment vehicles, and thousands of mortgage brokerages back in the 80's?</p>

<p>This bubble was not the same as the one preceeding the S&L crisis. While the fundamental mechanics of greed operated in the same manner, the instruments used to facilitate the cash flows into home loans and then slice and dice the debt make this a whole new kind of problem. The Fed policy in the 80's was to wring out the excess money supply (oh Volker, where are you when we need you?), it was Congress that deregulated the S&L industry and allowed the sudden flow of mortgage capital, and rampant fraud in the institutions themselves brought the whole thing down. Contrast that with a Fed which is more than happy to inject billions into the system, SIVs, CDOs, serial refinancing which meant short-term (flip that house!) payoffs to RMBS investors, and the total disconnect between the mortgage originator and the actual source of the money.</p>

<p>I stick by my original comment.... apples and oranges.</p>
 
<p>i agree that the slicing and dicing hadn't happened yet, I was focussing on the loans themselves; they were the same to nearly the same. And the effect on the purchasers--foreclosure and unhappiness was the same.</p>

<p>The S & L I represented wasn't fraudulent, but boy, were the managers stupid. All that regulation makes for massive stupidity. Unfortunately when you deregulate the stupids--who are usually wealthy and protected themselves from adversity--are not immediately fired. Few realize just how stupid and sheltered they have become until the institution is zapped, to the dismay of the workers.</p>

<p>One of the real vice presidents said to me that he didn't understand adjustible mtges at all. I would have happily explained, except it was clear that he didn't want an explanation.</p>

<p>In short the 80s disasters was more or less contained, as the saying goes now; this one isn't gonna be.</p>

<p>To that extent, I certainly stand corrected.</p>

<p>By the way, there was another loan offered, which might have represented a way out.</p>

<p>I think they called it a GEM. (Gain every month?) Anyway, it bore a lower than normal fixed rate and every year the loan went up by a fixed percentage. These loans paid off in about 12-13 years, and very few to none went into foreclosure. They went up, oh, about 3% a year in payments. So, even if you couldn't afford say, the 4th increase, you had a nice juicy increase in equity of about 9---12%, not including any increase in house prices. The lower rate would have allowed a slight increase in prices, not the massive increase we all saw. The mtg holders saw much less risk, because they got paid off so quickly. Since a loan is almost all interest the first 10 years, even an increase of half a percent a year would quickly get you a reasonable amount of equity. So far as I know, everybody has forgotten about this type of loan. Basically, it enforces forced savings.</p>

<p>Hey Lending Maestro, any chance of this type loan being pulled out of mothballs?</p>
 
Nude:



IMO Liz is correct. This current market is exactly the same as the one in the 1980's.



The only difference is nobody learned from thier mistakes in the 1998 sub primeesque blow up. Thus, this one is bigger because there was more fuel.



Same problem (loose lending) more heat (fuel).



Liz:



Somebody taking out a 15 year fixed mortgage? Are you nuts? Blasphmey!
 
<p>I'm an ex-Catholic, so I do blasphemy very well.</p>

<p>Anyway, take another look, it was a fixed rate mtg, at first amortized over 30 years, with increasing payments. Hence the 12-13 year ultimate term. I rather think that, if you needed to, you could start with negative am and still do ok at the end, so long as the rate was fixed and the payment increase not to large. </p>

<p>Many years ago, my children, there was a mtg designed for newby doctors and lawyers. It started negative am, and then increased so that in the 6th year it started paying down. I think it was FHA and I think 3% down was required. The interest rate was fixed and you knew ahead of time what the payments were going to be each year. So the the negative am mtg was, to the best of my knowledge, invented by the gov-mint. The idea was to get the newbies into a house, and since their income was reasonably anticipated to go up, the payments would be afforded.</p>
 
That's a goal, not a moral compass. A moral compass tells you what's acceptable practice in getting to your goal. If your goal is, saying killing a bunch of people, I suppose you don't need a moral compass, do you?
 
<p>For no particular reason, think NAZIs or psychopathics.</p>

<p>Sometimes the ends justify the means, sometimes they don't.</p>

<p>Is there anybody who wouldn't go back in time and strangle Hiter or Stalin in their cradles, if given the chance? I would.</p>

<p>I know a Catholic type who wouldn't on the grounds that even worse stuff would happen if they were killed, God benevolently being in charge 'n all.</p>
 
<p>moral compas? No, I would say they are going to do whatever is best for their buddies and mostly "ok" for the general population. I think these loans should have never been made or they should have had a hedge against them (high % down) to acquire them.</p>

<p>Moral Compass, please, this is the Govt.</p>

<p>-bix</p>

<p> </p>

<p>p.s. ethics... good, bad, indifferent, I was the guy who was a missilear (guy who's job it was to give the go for missle launch - "peacekeepers").</p>

<p>-bix</p>
 
<a href="http://en.wikipedia.org/wiki/Godwin's_law">http://en.wikipedia.org/wiki/Godwin's_law</a> This thread just moved into Godwin World.
 
<p>Lawyerliz shamefully beats breast. I should have stuck with psychopaths!</p>

<p>But I bet you could pick out some other word or concept which does the some thing.</p>
 
<p>"Moral compass", "moral obligation", "moral responsibility" are all just stand ins for a appeal to authority fallacy in discussion. It's a way of attempting to justify a position when the stater has nothing better than "I want this way" or "I think this" but cannot back up their position with logical cause and effect, examples or data.</p>
 
<em>If ________ (fill in the blank: Bernake, Bush, Hillary, or what have you) had Jack Sparrow's compass, what would it point to?</em>





Themselves
 
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