QH – Podcast – The Meltdown
By Dave Hitt on Oct 4, 2008 in Politics, QH Podcasts
The latest Quick Hitts Podcast expalins the real cause of the meltdown, which has been overlooked by most of the mass media.
Use this post to comment on the show.
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By Dave Hitt on Oct 4, 2008 in Politics, QH Podcasts
The latest Quick Hitts Podcast expalins the real cause of the meltdown, which has been overlooked by most of the mass media.
Use this post to comment on the show.
One thing that you missed is how bad regulation helped to cause the meltdown. Because of the mark to market rules excellent mortgage backed securities have been taken down along with the much smaller portion of junk mortgage backed securities. Due to the market for all mortgage backed securities going to hell in a hand basket the wise institutions are feeling the pain just as much as the fast and loose institutions. When holding a long term asset its value should be judged on the income stream it produces not its market value which happens to be irrelevant. If the asset is bad this would be reflected in a lower income stream due to defaults.
As an example on how a good portfolio can bite the dust take a look at Thornburg Mortgage (TMA), this is a REIT that wrote their own high quality mortgages with big down payments and one of the lowest default rates in the industry. Due to the fact that they are not a bank their loans (akin to bank deposits) were backed by their mortgages, due to the mark to market rules (which recently was regulated to apply to them) they were forced in to massive margin calls because there was no longer a market for mortgage backed assets. It is now a junk stock as they basically had to sell out the company.
A concrete example of how regulation always addresses yesterdays problem.
Don Venardos | Oct 8, 2008 | Reply
One thing that you missed is how bad regulation helped to cause the meltdown.
I missed a lot of stuff in that show – I try to keep it to ten minutes. I was just concentrating on the original source of the problem, not all the things that happened afterwards.
You’re right, mark-to-market is yet another government disaster. (Sarbanes Oxley is, overall, another well-intentioned disaster. Thanks Enron.) And there were a lot of other factors as well – no one involved is blameless in this. Everyone is at fault – the government, for starting it, the people who got loans they never should have received, the mortgage brokers, the banks who went nuts with derivatives and called insurance “credit swaps” to get around insurance regulations – but it all started with The Community Reinvestment Act.
Dave Hitt | Oct 10, 2008 | Reply