Automotive Bailout

[blatantninja]

At this rate if it doesn't then I think bankruptcy's the only thing for it - put all three into receivership and get some new management and financing in to only recruit non-union workers.

If they go into bankruptcy, it is liquidation. I wouldn't be surprised if in the case of this happening, an investment consortium comes together, buys the intellectual property and trademarks of the companies and then sets up shop in non-union states making the same cars, but with ZERO of the crushing liabilities.

EDIT - It's amazing that largely unskilled non-service orientated workers haven't yet realised that they no longer have any real power. The threat of withholding their labour just isn't effective now that there's a billion chinese who'll work twice as hard for half the money and be grateful for it, and that's only if they can't all be replaced by machines anyway.

That's one thing that really irks me. The strength of the US has always been the adaptability of our economy and labor force to changes. We've gone through three distinct different economies in less than a century (agricultural, industrial, service). Yet these idiots think they have some God given right to do the same thing for 25 years, get paid more than their counter parts elsewhere, then retire and live on the company dime for the next 30. It's a problem that plagues our country in every corner: Entitlement

 

[dteowner]

If they go into bankruptcy, it is liquidation. I wouldn't be surprised if in the case of this happening, an investment consortium comes together, buys the intellectual property and trademarks of the companies and then sets up shop in non-union states making the same cars, but with ZERO of the crushing liabilities.

There's a major problem with that theory-- the time and cost involved in starting from scratch. Honda just put up a new Civic assembly plant up the road a bit. They broke ground in March 07 for a plant that produced the first production vehicle a couple months ago. That doesn't include the time required by the city to "pre-develop" the site (earthworks, utilities, sewers, roads), which started almost 2 years prior to the chrome shovels. The only reason they were able to do it that quick is that they largely copied an existing line, meaning the tooling and machinery was strictly a "build" rather than a "design and build". It's not cost effective to relocate that much equipment, either, so you can't really pick a line up from Mound Road and drop it in Interbreed, Arkansas. Bottom line, your investors don't make car #1 (and therefore dollar #1) for 3-4 years. Even if Warren Buffett stepped up with a bucket full of patience and an open checkbook, by the time he was in production, the product would already be out of date and probably not meet the ever-increasing CAFE standards of the time. Did I mention that the quickest design cycle (at tremendous cost) I've ever heard of was 18 months, and that 3 years is typical?

I think the only way an investor steps in is if they have enough political leverage to force Michigan, Ohio, Indiana, and probably a few others to become right-to-work states. They agree to buy and operate the existing plants (or, at least, their choice of the ones they want) on the contingency of labor law revision.

 

[blatantninja]

There's a major problem with that theory-- the time and cost involved in starting from scratch. Honda just put up a new Civic assembly plant up the road a bit. They broke ground in March 07 for a plant that produced the first production vehicle a couple months ago. That doesn't include the time required by the city to "pre-develop" the site (earthworks, utilities, sewers, roads), which started almost 2 years prior to the chrome shovels. The only reason they were able to do it that quick is that they largely copied an existing line, meaning the tooling and machinery was strictly a "build" rather than a "design and build". It's not cost effective to relocate that much equipment, either, so you can't really pick a line up from Mound Road and drop it in Interbreed, Arkansas. Bottom line, your investors don't make car #1 (and therefore dollar #1) for 3-4 years. Even if Warren Buffett stepped up with a bucket full of patience and an open checkbook, by the time he was in production, the product would already be out of date and probably not meet the ever-increasing CAFE standards of the time. Did I mention that the quickest design cycle (at tremendous cost) I've ever heard of was 18 months, and that 3 years is typical?

I think the only way an investor steps in is if they have enough political leverage to force Michigan, Ohio, Indiana, and probably a few others to become right-to-work states. They agree to buy and operate the existing plants (or, at least, their choice of the ones they want) on the contingency of labor law revision.

Hence why I am saying they will buy the rights to the designs of the profitable models. They'll get to pick and choose. There are already some idle plants in non-unions states. They could buy those as well, and retool them in a much shorter time to build only the models they want.

Not saying it is going to be easy, or overnight, but it can be done.

 

[zahratustra]

Let me state once again: while US car industry are dinosaurs in need of drastic re-stucturing, they weren't the caused of world wide financial crisis. US financial instituions are solely responsible for that. You can bash UAW as much as you like but they are saints compared to the likes of Goldman Sachs, Merrill Lunch and their ilk.

"...Back in New York, Mr. Kim’s team was eagerly bundling risky home mortgages into bonds. One of the last deals they put together that year was called “Costa Bella,” or beautiful coast — a name that recalls Pebble Beach. The $500 million bundle of loans, a type of investment known as a collateralized debt obligation, was managed by Mr. Gross’s Pimco.

Merrill Lynch collected about $5 million in fees for concocting Costa Bella, which included mortgages originated by First Franklin.

But Costa Bella, like so many other C.D.O.’s, was filled with loans that borrowers could not repay. Initially part of it was rated AAA, but Costa Bella is now deeply troubled. The losses on the investment far exceed the money Merrill collected for putting the deal together.

By the time Costa Bella ran into trouble, the Merrill bankers who had devised it had collected their bonuses for 2006..."

http://www.nytimes.com/2008/12/18/business/18pay.html?_r=1&em

 

[Corwin]

You learn something new everyday. Have I got this right, in the US there are union and non-union States?? I thought you got over that with your Civil War!! Oh, that was slaves........

 

[blatantninja]

Each state is sovereign in any power not afforded to the federal government by the Constitution. Most labor law, except discrimination, child labor, etc., is reserved for the states, so labor laws can be very different in different places.

In Michigan, for instance, you can be required to be in a union to have a certain job, and an employer can only fire you under certain circumstances.

In Texas, it is a right-to-work state, which means that on the good side, no one can interfere with your right to obtain a job (IE unions, or a former employer that tells your a potential employer that you shouldn't be hired), but on the flip side, an employer can fire you for anything they want, so long as it does not amount to discrimination.

zahratustra,

The real problem was the non-biased nature of the ratings agencies and the loan brokers (which may or may not be part of the big firms). The big firms are part of that problem, but not the entire problem. There is nothing wrong with bundling up loans to mitigate the risk (mainly geographic and contraction/extension is what you can do with it, default is to a lesser extent, but it's default due to individual circumstance, not mass resets or whatever).

As a risk manager, I've had to deal with a lot of these securities. When brokers lie about the risk characteristics of the borrower, you can't get a real sense of a default risk. The ratings agencies ran lots of scenarios, supposedly, to determine the loss potential in different stress situations, and popped out a AAA rating. The big problem with that is that the scenarios were woefully out of date and didn't fully take into account the reset features of loans. If they had, there is no way they would have been able to issue those CDO's with AAA ratings.

Now they did face incredible pressure for the big firms to give those things AAA ratings. This comes to the issue we've seen before in the dot.com bust of informational walls. Then it was IBanking and research. This time it is underwriting and ratings. Moody's and S&P aren't truly independent. In fact, they make their fees by being paid by the company that issues the debt they are rating. That is a textbook conflict of interest. They don't want to give crappy ratings because then the company might not renew the rating and they lose the fee.

This is a major area of the finance industry that needs overhauling. Add in the fact that neither firm pays enough to keep the truly bright guys there (they all leave for IBanks or hedge funds to make the big bucks) and you've got the issuers seriously outgunning the ratings firms. It's like going into a boxing match missing one leg and having a hand tied behind your back.

If the risk characteristics of these bonds had been accurately measured by Moody's and S&P, and they issued the appropriate ratings, no one would have touched them with a 10 foot poll. Which means firms would not have been able to sell the loans off via CDO's, which means less money for them to issue more of the same mortgages. Which means less run up of real estate. Which means less money for people to spend in the economy. Which means recession several years ago instead of mega recession today (which IMO would have been a good thing). Which the administration didn't want, so they pushed and pushed for more lenient lending standards to keep the economy going with little regard to the long term effect.

And the big bonuses of the past five years? Guess what. Most of those bonuses are paid in stock and stock options that vest over a period of 5 to 7 years. That means, no, in most cases those evil bankers that devised it didn't run to the bank and laugh all the way. They watched as their deferred comp became mostly worthless over the past 6-12 months. No one wants to talk about that because it doesn't make for good headlines when you're trying to pin the problem on one group of people though.

So to put it blunty, the problem and blame goes far beyond "Goldman Sachs, Merrill Lunch and their ilk" and includes the ratings agencies, the loan brokers, the government, the consumer and the voter as well. The banks didn't pull a fast one. At worst, they colluded with all of the above into deluding the entire world population that everything was hunkydory in the US economy for the past 10 years.

 

[dteowner]

What sort of silliness is this? Rational thought backed with fact? Good lord, man, we're in the middle of a class war here! How dare you!

 

[blatantninja]

Yeah, I know! And I think I'm going to end up as cannon fodder for the rich side.

 

[zahratustra]

So to put it blunty, the problem and blame goes far beyond "Goldman Sachs, Merrill Lunch and their ilk" and includes the ratings agencies, the loan brokers, the government, the consumer and the voter as well. The banks didn't pull a fast one. At worst, they colluded with all of the above into deluding the entire world population that everything was hunkydory in the US economy for the past 10 years.

And collusion (or, let's call spade a spade, a conspiracy) is exactly what I posit it was. Sachs could't have done it without Moody's, loand brokers ect.
But you are being economical with the truth when you try to add "consumer and the voter" to the mix. What made subprime bubble possible was that the whole process of securitization and MBS & CDO creation was (purposefuly IMO) made so arcane that, except for those intimatelly involved, very few knew what the fuck was going on.

And the big bonuses of the past five years? Guess what. Most of those bonuses are paid in stock and stock options that vest over a period of 5 to 7 years. That means, no, in most cases those evil bankers that devised it didn't run to the bank and laugh all the way. They watched as their deferred comp became mostly worthless over the past 6-12 months.

That is also only partially true isn't it? While part of the bonuses was indeed paid in stock, very many of the evil bankers were also paid vast sums in hard, cold cash. So yes, even the fallen ones, can indeed laugh all the way to the bank. Specially that "...While the government rescue limits the salaries of five top executives from each of the participating financial firms, Congress did nothing to restrict Wall Street firms from using taxpayer funds to boost the compensation of rank-and-file investment bankers..." http://www.time.com/time/business/article/0,8599,1853846,00.html.
So victims of the crisis (including UAW shmucks) are paying bonuses to the crisis creators!

As I have said before: Bernie Madoff, eat your heart out!

 

[JDR13]

That's one thing that really irks me. The strength of the US has always been the adaptability of our economy and labor force to changes. We've gone through three distinct different economies in less than a century (agricultural, industrial, service). Yet these idiots think they have some God given right to do the same thing for 25 years, get paid more than their counter parts elsewhere, then retire and live on the company dime for the next 30. It's a problem that plagues our country in every corner: Entitlement

Amen brother, you hit the nail on the head with that statement! I work in a union workplace, and I can't believe the way some of my lazy POS co-workers always think they should get something for nothing. They even have the nerve to complain that we don't get paid for the free training we receive, training that is quite expensive in other states. It's that "union mentality" that they've been programmed with.

In Michigan, for instance, you can be required to be in a union to have a certain job, and an employer can only fire you under certain circumstances.

In Texas, it is a right-to-work state, which means that on the good side, no one can interfere with your right to obtain a job (IE unions, or a former employer that tells your a potential employer that you shouldn't be hired), but on the flip side, an employer can fire you for anything they want, so long as it does not amount to discrimination.

Interesting examples. I happen to live in Michigan while my brother lives in Texas.

 

[blatantninja]

And collusion (or, let's call spade a spade, a conspiracy) is exactly what I posit it was. Sachs could't have done it without Moody's, loand brokers ect.

But you didn't say that. You did just what the media and politicians are doing and laid the blame solely on the banks ("Goldman Sachs, Merrill Lunch and their ilk"). I'm glad you realize that is not the case, but that wasn't what you said.

But you are being economical with the truth when you try to add "consumer and the voter" to the mix. What made subprime bubble possible was that the whole process of securitization and MBS & CDO creation was (purposefuly IMO) made so arcane that, except for those intimatelly involved, very few knew what the fuck was going on.

Securitization has been around for 40 years. It's not something new and there are a ton of financial products that the average person will never fully understand. You can't leave the blame of the consumer and voter out of this either. When someone murders another person with a gun, do you blame the gun manufacturer? When someone drives 120 mph down the road and kills someone in a crash, do you blame the auto manufacturer?

Subprime loans have been around for decades. They have a legitimate purpose in the loan industry. Did they get out of hand? Absolutely, but it's the symtom of a larger problem in our society: buying things we can't afford. It's not the cause. Americans have been increasing their average debt in real dollars EVERY year since 1953 when they first started keeping track of this data (except 2008, but that's simply because of the number of bad debt written off). It simply has come to a head at this point. The consumer chose to take these bad bets and the politicians chose to allow the banks to offer them. The banks aren't innocent, but neither are the consumers and voters.

That is also only partially true isn't it? While part of the bonuses was indeed paid in stock, very many of the evil bankers were also paid vast sums in hard, cold cash. So yes, even the fallen ones, can indeed laugh all the way to the bank.

Depends on your definition. I used to work at Bank of America. Companywide policy was that max cash payout was $250k per year. Anything above that was in restricted stock and options. I have several good friends that a year ago were worth well over $1MM but couldn't sell the securities, couldn't diversify and now are worth a fraction of that.

Merrill and Morgan Stanley had a similar program outside of retail brokerage commissions. Goldman, Lehman and Bear were similar as well. I'm not saying that none of them were able to cash anything out at any point, I'm sure a lot were, but a very large portion of the bonuses 'paid' out of the past 5 years are now worthless or at least worth a hell of a lot less.

Specially that "...While the government rescue limits the salaries of five top executives from each of the participating financial firms, Congress did nothing to restrict Wall Street firms from using taxpayer funds to boost the compensation of rank-and-file investment bankers..." http://www.time.com/time/business/article/0,8599,1853846,00.html.
So victims of the crisis (including UAW shmucks) are paying bonuses to the crisis creators!

That article is a bit dated. Most of the major firms that received bailout money have axed bonuses for executives and bonuses for the underlings are down significantly. Going back to BofA, they were never in danger of collapse, but despite that, guys that were getting payouts of 5% of income generated are going to be lucky to get 1%. My wife's firm, State Street, just announced no raises for 2009 and though they haven't said it, it is expected that there will be no bonuses paid either (which would be 2008 bonuses paid in 2009).

Simply put, I don't know a single person in this industry working for any firm that got merged or received TARP money that is getting anything close to what they got last year, regardless of their performance.

 

[shadow_hk]

I read that the average labour costs for one hour of work are about 70 USD in GM and about 48 USD in Toyota. That's more than 1/3 less. In these circumstances it is no wonder that Big3s are not competitive (btw it is interesting to watch a move of center of autoindustry to southern states, to Kentucky, Alabama etc... )

And although the new incoming workers don't have such social benefits like the old ones, the replacement of workers is too slow to have a sufficient effect.

It is no wonder that nearly all other manufacturing moved to China.. those who stayed, like autoindustry, have logical existential problems when it was just a matter of time before these problems manifest.

 

[dteowner]

I read that the average labour costs for one hour of work are about 70 USD in GM and about 48 USD in Toyota. That's more than 1/3 less. In these circumstances it is no wonder that Big3s are not competitive (btw it is interesting to watch a move of center of autoindustry to southern states, to Kentucky, Alabama etc... )

And although the new incoming workers don't have such social benefits like the old ones, the replacement of workers is too slow to have a sufficient effect.

It is no wonder that nearly all other manufacturing moved to China.. those who stayed, like autoindustry, have logical existential problems when it was just a matter of time before these problems manifest.

I'm not really the right person to be defending the union, but those numbers are a bit misleading. The straight hourly wage for the transplants adjusted for geographic cost of living is only slightly less (~10%) than their UAW counterparts. The skilled trades guys (who run the union and take care of themselves first and foremost) have a higher differential, but there's not that many of them relatively speaking. The huge difference you see comes from better benefits to some extent, but mostly from the legacy costs of retirees which are added into the overall labor expense budget. Although the retirement plans of the transplants aren't as generous, they will still begin generating legacy expense once they have employees with enough age and time to retire. Remember that very few transplant facilities have been operating more than a couple decades, not enough time to churn out many "30-n-out's".

The shift to southern states is a combination of getting into right-to-work states to weaken the union (or avoid it entirely, in the case of the transplants), and those states (Tennessee in particular) giving massive tax incentives to the companies to build there. They're having some trouble with that grand plan though--there aren't workers trained for industrial jobs so you go thru a few years of high scrap and low productivity until the former chicken farmers learn which end of the wrench is which. Better yet, the support industries (tool-n-die, machine builders, fab shops, suppliers, etc) simply aren't there, so you're screwed if something breaks.

 

[shadow_hk]

It took me a few seconds before I realised what you mean by "transplants" . Why do you call them in this way anyway? Because they have "transplanted" to America?

It sounds a bit pejorative to me as a "non-American".

The huge difference you see comes from better benefits to some extent, but mostly from the legacy costs of retirees which are added into the overall labor expense budget. Although the retirement plans of the transplants aren't as generous, they will still begin generating legacy expense once they have employees with enough age and time to retire. Remember that very few transplant facilities have been operating more than a couple decades, not enough time to churn out many "30-n-out's".

Is it obligatory even for "transplants" to run these retirement plans? To have these legacy expanses? To pay health and pension insurance even for former employees and their families (I wonder because nothing like this works in Czech Republic). For me, it is remarkable what social programs can exist at the "mecca of capitalism".

The shift to southern states is a combination of getting into right-to-work states to weaken the union (or avoid it entirely, in the case of the transplants), and those states (Tennessee in particular) giving massive tax incentives to the companies to build there. They're having some trouble with that grand plan though--there aren't workers trained for industrial jobs so you go thru a few years of high scrap and low productivity until the former chicken farmers learn which end of the wrench is which. Better yet, the support industries (tool-n-die, machine builders, fab shops, suppliers, etc) simply aren't there, so you're screwed if something breaks.

Unless your labor market is freed for foreign workers who are skillful enough and willing to work for lower wages, lower social benefits and longer hours. For Asiats for example.

edit: I may be wrong with that "freeing the labor market". It is probably better to talk about "work visas and permits" and in relation to each country separately.

 

[Squeek]

The full impact of unions isn't revealed in the numbers. Unions often have a mindset that's bad for business.

During college, my big brother got me a summer job working in a factory at his company, one where I had to join a union. I was a hard worker and was surprised when, after after only a few days, someone took me aside to "talk to me about my work."

He turned out to be a union steward, and he spoke to me very firmly. "Do you like this job? Do you want to keep it? Then slow down. You're doing the work of two men. This is a union shop. That's unacceptable."

I slowed down.

 

[dteowner]

It took me a few seconds before I realised what you mean by "transplants" . Why do you call them in this way anyway? Because they have "transplanted" to America?

It sounds a bit pejorative to me as a "non-American".

Originally, it was a convenient way to seperate the domestic production of Honda Motors of America (for example) from the domestic production of the Big 3. I imagine "transplant" is said with a sneer up in Detroit board rooms and Big 3 factory break rooms, but there's little if any stigma attached to it for most of the country.

Is it obligatory even for "transplants" to run these retirement plans? To have these legacy expanses? To pay health and pension insurance even for former employees and their families (I wonder because nothing like this works in Czech Republic). For me, it is remarkable what social programs can exist at the "mecca of capitalism".

Obligatory, no. Common, yes. About the only major difference for the UAW is that they are one of the last places that still offer defined pensions ("we'll give you 100 times your years of service every month until you croak"), which are very expensive. Most places in the US these days go with contribution pensions ("we'll match every dollar you put into your retirement account while you're here, but once you leave you're on your own"), which are less expensive for the company but not nearly as good for the employee.

Unless your labor market is freed for foreign workers who are skillful enough and willing to work for lower wages, lower social benefits and longer hours. For Asiats for example.

edit: I may be wrong with that "freeing the labor market". It is probably better to talk about "work visas and permits" and in relation to each country separately.

Since management generally sees the average assembly line worker as a plug-n-play component roughly equivalent to a circus monkey, it's not financially advantageous to "truck in" foreign workers. If you want foreign workers, it makes more sense to have foreign factories. That's how you ended up with dozens of plants in Mexico. The problem with that is that the Mexicans have even less industrial experience than the Alabama pig farmers and it's ten times harder to train them since they don't speak english. You end up spending all your labor savings on scrap and productivity loss, plus you take the political hit for "sending all those good paying American jobs overseas".

It's actually a very complicated system. While I (being a genius and a republican to boot ) could certainly do a better job than the schmucks currently on Mahogany Row, there's an awful lot of moving parts to think about.

 

[dteowner]

The full impact of unions isn't revealed in the numbers. Unions often have a mindset that's bad for business.

During college, my big brother got me a summer job working in a factory at his company, one where I had to join a union. I was a hard worker and was surprised when, after after only a few days, someone took me aside to "talk to me about my work."

He turned out to be a union steward, and he spoke to me very firmly. "Do you like this job? Do you want to keep it? Then slow down. You're doing the work of two men. This is a union shop. That's unacceptable."

I slowed down.

To be fair, that's not entirely their fault, either. (gads, when did I become such a union sympathizer?!?) You didn't have nearly as much of that attitude back in the "employment for life" days. When the guys on the floor knew they had a good job for the next 30 years, there was no incentive to sandbag, outside of the lazy bastards that have been around forever and will continue to be so. They'd game the system (piecework rate was a goldmine for the floor), but at the end of the day the work got done and labor costs were only a little "chubby" while being predictable. Once management shifted to "mercenary employer", productivity gains were offset with headcount reductions rather than output increases or product diversification. That quickly led to the "mercenary workforce", which led to the attitude you describe.

In the 80's, the contract language made it far easier for bad apples to stay employed, which had a negative impact on the good apples. You've got to blame the union for pushing those rule changes thru, but at the same time you've got to ask where management was hiding when it came time to say "no".

 

[blatantninja]

In the 80's, the contract language made it far easier for bad apples to stay employed, which had a negative impact on the good apples. You've got to blame the union for pushing those rule changes thru, but at the same time you've got to ask where management was hiding when it came time to say "no".

Sometimes management was just plain dumb (didn't look at the long term effects). Sometimes management was over a barrel (they might go out of business if they had to train a completely new workforce).

Not that you were doing this, but assigning blame is pointless. No one broke the law, or if they did no one is going to jail. The question is how do we fix the current industry.

There's a lot of finger pointing going on in the media and congress, (It's the workers high wages and benefits, it's the management that didn't build more fuel efficient/reliable cars etc.) and it really isn't helping anyone accept the asshat that's writing the piece or mouthing off in Congress.

 

[zahratustra]

But you didn't say that. You did just what the media and politicians are doing and laid the blame solely on the banks ("Goldman Sachs, Merrill Lunch and their ilk"). I'm glad you realize that is not the case, but that wasn't what you said.

Ah but I did say exactly that:

Because matter seems so complicated majority of people still don't realise that the whole subprime fiasco was just one huge con game and that those involved should be send to prison and not bailed out.
Take a shitfull of lead (subprime mortgages), make it into bars (Securitization), paint them gold ( name them Mortgage Backed Security or Collateralized Debt Obligation), get autenticity cetificate (credit enchancement to AAA level) and sell them as pure gold bars. Bernie Madoff - eat your heart out!

Depends on your definition. I used to work at Bank of America. Companywide policy was that max cash payout was $250k per year. Anything above that was in restricted stock and options. I have several good friends that a year ago were worth well over $1MM but couldn't sell the securities, couldn't diversify and now are worth a fraction of that.

Merrill and Morgan Stanley had a similar program outside of retail brokerage commissions. Goldman, Lehman and Bear were similar as well. I'm not saying that none of them were able to cash anything out at any point, I'm sure a lot were, but a very large portion of the bonuses 'paid' out of the past 5 years are now worthless or at least worth a hell of a lot less.

Really? "...Mr. O’Neal himself was paid $46 million, according to Equilar, an executive compensation research firm and data provider in California. Mr. Kim received $35 million. About 57 percent of their pay was in stock, which would lose much of its value over the next two years, but even the cash portions of their bonus were generous: $18.5 million for Mr. O’Neal, and $14.5 million for Mr. Kim, according to Equilar..." http://www.nytimes.com/2008/12/18/business/18pay.html?pagewanted=2&_r=1&em

Securitization has been around for 40 years. It's not something new and there are a ton of financial products that the average person will never fully understand. You can't leave the blame of the consumer and voter out of this either.
Subprime loans have been around for decades. They have a legitimate purpose in the loan industry. Did they get out of hand? Absolutely, but it's the symtom of a larger problem in our society: buying things we can't afford. It's not the cause

Thta's a crock BJ and you know it. The cause was/is that subprimes were disquised by cutting and mixing into varius exotic financial vehiles which were than securized. The problem also was that, once mortgage lenders discovered a way to sell those mortgages to others, they were positively encouraging people to buy houses that they couldn't afford. People should have known better but when your mortgage lender says "look don't worry, I can get you a morgage on this 500.000 condo in Florida. I know it look pricey but house market is booming so you just wait for the value of your house to increase and than re-finance your mortgage" how many will say "I can't afford it, I will buy a mobile home instead"?

 

[blatantninja]

You said:

they weren't the caused of world wide financial crisis. US financial instituions are solely responsible for that.

Then listed nothing but investment banks in that post. You said it elsewhere apparently, but that's a pretty damning statement the way you wrote it in that post.

Regardless, there is plenty of blame to go around.

Looks like I may have been wrong on MER's compensation. It certainly does vary from shop to shop. Some hedge funds require your entire bonus to go back into the fund.

Thta's a crock BJ and you know it. The cause was/is that subprimes were disquised by cutting and mixing into varius exotic financial vehiles which were than securized. The problem also was that, once mortgage lenders discovered a way to sell those mortgages to others, they were positively encouraging people to buy houses that they couldn't afford. People should have known better but when your mortgage lender says "look don't worry, I can get you a morgage on this 500.000 condo in Florida. I know it look pricey but house market is booming so you just wait for the value of your house to increase and than re-finance your mortgage" how many will say "I can't afford it, I will buy a mobile home instead"?

So no responsibility falls on the people taking the loans? THAT is a crock. People took out mortgages based on what they expected to make in future years or that they could sell the house for more before it reset like they'd often done before. I could tell you dozens of stories from loan officers I know about people that didn't care about the terms so long as the current payment was the lowest. It didn't matter how well they tried to explain it to them, they didn't want to hear about what would happen in 3-5-7 years.

The fact is that sales people always try to sell you stuff you don't need and often can't afford. People need to take responsibility for their own affairs. I have genuine sympathy for someone that was bait and switched or outright lied to about the terms of the loans, but the vast majority of people that entered into these risky loans did so without any type of fraud involved. They took a risk and they failed. Now should the government have pushed for more lax lending standards as they began 10 years ago? Probably not, but that was the policy. Should banks have been more diligent about who they were lending to? Absolutely, but let's not delude ourselves that th public is just some innocent by stander.

There's nothing wrong with mixing in different assets in a securitization. Heck, it actually diversifies the risk better. The real problem was that they kept taking the lowest tranches and repackaging them with the lowest tranches from other CDO's, then tranching them again, over and over.