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(Forbes)   The Subprime Meltdown 101. ABS, MBS, CDO, RMBS, and more all explained in one page   ( investopedia.com) divider line
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21921 clicks; posted to Main » on 26 Sep 2008 at 9:38 AM (8 years ago)   |   Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2008-09-26 08:36:42 AM  
 
2008-09-26 09:43:15 AM  

PurplePimpSaber: The Subprime Crisis explained with stick figures. (new window)


God, it's longer than the article
 
2008-09-26 09:43:48 AM  
T.O.O. M.A.N.Y A.C.R.O.N.Y.M.S!
 
2008-09-26 09:44:18 AM  
Somebody Cheese Weaseled the math.
 
2008-09-26 09:45:34 AM  
This bailout is all about the investment portfolios of politicians and has nothing to do with the economic health of the country.

NO BAILOUT!
 
2008-09-26 09:46:09 AM  
Where are.... WTF LOL ROTFLMAO DIAF LULZ ZOMG STFU??????
 
2008-09-26 09:47:50 AM  
Great article.
 
2008-09-26 09:48:06 AM  

PurplePimpSaber: The Subprime Crisis explained with stick figures. (new window)


Now I understand!
 
2008-09-26 09:49:58 AM  

PurplePimpSaber: The Subprime Crisis explained with stick figures. (new window)


Thanks, now i think I understand...so who exectly is it the 700 gazebotrillions go to?
 
2008-09-26 09:50:39 AM  

lilacjive: Great article.


Indeed... a must-read for all financial tin-foilers, sooth-sayers, and just regular Joes alike. I may have to forward this to others.
 
2008-09-26 09:51:06 AM  

TheNewJesus: This bailout is all about the investment portfolios of politicians and has nothing to do with the economic health of the country.

NO BAILOUT!


Do you have a 401k?
 
2008-09-26 09:51:45 AM  
I think this cartoon explains it better:

www.cagle.com
 
2008-09-26 09:52:53 AM  
Maybe this will help John McCain understand what's going on.
 
2008-09-26 09:53:10 AM  

Lt. Cheese Weasel: Somebody Cheese Weaseled the math.


For the last time: $425 PER PERSON!!!!
 
2008-09-26 09:53:35 AM  
It's so obvious... how could we have been so blind?
 
2008-09-26 09:54:37 AM  
I just read about WaMu going under. The FDIC kicked in and sold the banking assets to JP Morgan.

So what happens to the WaMu credit and debit cards? Most people use cards these days to pay for things, not cash. But their bank has gone under.

It normally takes 2 weeks to get issued another credit/debit card. But during a transition of bank assets, that can take somewhere around 6 months.

So are these people stuck going to WaMu and pulling out cash, or if their assets are magically at JP Morgan now, go there and pull out cash... and they have to pay in cash until new cards are issued?

Anyone have any links to where this issue is explained?
 
2008-09-26 09:54:50 AM  
I blame V.A.L.I.S.
 
2008-09-26 09:55:22 AM  

QuantumPhaseShift: I just read about WaMu going under. The FDIC kicked in and sold the banking assets to JP Morgan.

So what happens to the WaMu credit and debit cards? Most people use cards these days to pay for things, not cash. But their bank has gone under.

It normally takes 2 weeks to get issued another credit/debit card. But during a transition of bank assets, that can take somewhere around 6 months.

So are these people stuck going to WaMu and pulling out cash, or if their assets are magically at JP Morgan now, go there and pull out cash... and they have to pay in cash until new cards are issued?

Anyone have any links to where this issue is explained?


Link
 
2008-09-26 09:56:13 AM  

Reggie Dunlap: Lt. Cheese Weasel: Somebody Cheese Weaseled the math.

For the last time: $425 PER PERSON!!!!


You got that email too?
 
2008-09-26 09:56:46 AM  

DeRosso: PurplePimpSaber: The Subprime Crisis explained with stick figures. (new window)

Thanks, now i think I understand...so who exectly is it the 700 gazebotrillions go to?


The banks and institutional investors who are holding the CDOs. They trade the CDOs for government cash and the government holds the CDOs until the panic is over, then the Treasury will try to sell them back into the market - if we're lucky, possibly at a higher price than Treasury paid for them.
 
2008-09-26 09:56:59 AM  
It's a big mess, and the only thing that can fix it is 700 billion dollars and no oversight. How's that?
 
2008-09-26 09:57:50 AM  
For those inclined to geek out a bit:

I had a strong feeling that there was more than just excitement and fast money going on in the past few years. I knew far too many people that had no business (read: income or savings) in home ownership, and others that seemed to all-of-a-sudden be able to afford a $50K kitchen. The vast majority of Subprime loans, I've read, were for 2nd mortgages... thus the kitchens, skyrocketing tuition payments, you name it.

The re-packaging of mezzanine securities as CDOs, and the associated upgrade from mediocre risk to A+, is just the unethical, double-crossing maneuver that the already inflated market needed to get really exciting. By really exciting, I mean burst.

I kept saying to myself, watching all these houses go up... how can this be sustained? There aren't enough jobs in this area to pay people 6-fig salaries to buy them! Sometimes I hate being right. Thank God I'm in a normal, budgeted 30-year fixed mortgage in a house I planned on keeping. A lot of my neighbors bought ill-advised houses (no garage, 2 br, nothing unique, saturated RE market) thinking that they'd flip. Whoops.
 
2008-09-26 09:58:21 AM  
I THINK I understood the stick figure version...
 
2008-09-26 09:58:54 AM  
So I have a shotgun, physical possession of a small amount of gold, a fuel-efficient compact car, basic toiletries, and a first aid kit. However, I have no food or water stockpiled.
 
2008-09-26 09:59:35 AM  

spickus: Reggie Dunlap: Lt. Cheese Weasel: Somebody Cheese Weaseled the math.

For the last time: $425 PER PERSON!!!!

You got that email too?


Not the e-mail, but I read about 425,000 farker posts raking cheese doodle over the coals. It got annoying.
 
2008-09-26 10:00:39 AM  

Death to America: It's a big mess, and the only thing that can fix it is 700 billion dollars and no oversight. How's that?


The infidels have amended that proposal in negotiations to arrange what pdieten described. Of course, now there are competing plans floating around the infidel congress that have shaken the falafel out of them like a 4-y/o with a bomb vest. Praise Allah.
 
2008-09-26 10:02:52 AM  

NASAM: TheNewJesus: This bailout is all about the investment portfolios of politicians and has nothing to do with the economic health of the country.

NO BAILOUT!

Do you have a 401k?


You should but why does that matter? So you want to let these crooks make millions so your 401k doesn't drop a bit? Sad.
 
2008-09-26 10:03:02 AM  

PurplePimpSaber: The Subprime Crisis explained with stick figures. (new window)


Your Boobies is great. You should all try the Boobies.
 
2008-09-26 10:03:19 AM  
PurplePimpSaber

That is farking awesome!

*golf clap* for whoever came up with that!

Cockpunch for the farking dickheads represented in it!
 
2008-09-26 10:03:20 AM  

factoryconnection: Death to America: It's a big mess, and the only thing that can fix it is 700 billion dollars and no oversight. How's that?

The infidels have amended that proposal in negotiations to arrange what pdieten described. Of course, now there are competing plans floating around the infidel congress that have shaken the falafel out of them like a 4-y/o with a bomb vest. Praise Allah.


nice

/+1 (one) internet
 
2008-09-26 10:03:59 AM  

HotWingConspiracy: I blame V.A.L.I.S.


I blame C.H.O.M.P.S.
 
2008-09-26 10:04:19 AM  

KangTheMad: T.O.O. M.A.N.Y A.C.R.O.N.Y.M.S!


Those aren't acronyms, they're abbreviations.
 
2008-09-26 10:04:23 AM  

I was told this was a good explanation in another thread:

Person working for Company A lends to someone, makes a % commission, the higher the loan the higher the commission. Company A then takes that loan, smashes it in with a bunch of other loans and sells it to Bank A. Company A makes a good chunk of change. Bank A takes a bunch of mortgages bought in this way and sells them to Wall Street Firm A. Bank A makes a good chunk of change. Wall Street Firm A Takes millions of mortgages bought in this way, slices them up based on risk, takes the "toxic waste" loans, mixes them up, cuts it into sections, does some voodoo, bribes credit raters to get them rated AAA paper, good as cash, sure thing, then sells them to Foreign Investor A for a good chunk of change. Foreign Investor A has no idea the AAA paper, good as cash, sure thing, is really going to go down the shiatter in a few years.

These were extremely profitable for everyone involved except the poor schmuk who bought the house and the poor schmuk who invested in the mortgage backed security. Well, until the end when everything went to shiat but by then most of the responsible parties got the hell out.

The real kicker? since the mortgage has been squished, sectioned, cut and sliced so many times along the way, nobody farking knows who owns the loan so nobody can figure out who to negotiate new loan terms with.

YAY GREED!
 
2008-09-26 10:05:16 AM  

zippythechimp: NASAM: TheNewJesus: This bailout is all about the investment portfolios of politicians and has nothing to do with the economic health of the country.

NO BAILOUT!

Do you have a 401k?

You should but why does that matter? So you want to let these crooks make millions so your 401k doesn't drop a bit? Sad.


In what companies is your 401k invested? It matters.
 
2008-09-26 10:05:25 AM  
Hmmmm... yes, shallow and pedantic.
 
2008-09-26 10:07:06 AM  

NASAM: TheNewJesus: This bailout is all about the investment portfolios of politicians and has nothing to do with the economic health of the country.

NO BAILOUT!

Do you have a 401k?


No, and I'm not exactly excited about paying for yours.
 
2008-09-26 10:08:21 AM  

zippythechimp: NASAM: TheNewJesus: This bailout is all about the investment portfolios of politicians and has nothing to do with the economic health of the country.

NO BAILOUT!

Do you have a 401k?

You should but why does that matter? So you want to let these crooks make millions so your 401k doesn't drop a bit? Sad.


3 questions for you. Please answer in detail because everybody says something similar to you but nobody can answer:

1. Who are the crooks? (Note: "Investment bankers" or "Wall street fat cats" is not a valid answer)
2. What law(s) did they break?
3. How will they make millions?
 
2008-09-26 10:08:52 AM  
Oh, I have so many questions:

Where exactly is this 700,000,000,000 coming from? I don't mean in a "the taxpayers" way. I mean, our debt is (insert insanely high figure here) so we don't actually have 700,000,000,000 stuffed under the mattress, right? So we are just, basically, tossing it on the ole nation's credit card, right? Who is loaning us that money? Or are we still playing with invisible fantasy money?

Okay. So say the gubment buys all the stinky mortgages. With my invisible fantasy tax money. They say, "Don't worry, the taxpayers will make money on this deal." But won't they only make any of the money back if someone actually starts paying on these stinky mortgages? And aren't many of these stinky mortgages way upside down? Weren't they based on inflated home values? And in thid craphole of an economy, who is going to be paying on these mortgages?

My head hurts.

Please help.
 
2008-09-26 10:08:53 AM  

pdieten: DeRosso: PurplePimpSaber: The Subprime Crisis explained with stick figures. (new window)

Thanks, now i think I understand...so who exectly is it the 700 gazebotrillions go to?

The banks and institutional investors who are holding the CDOs. They trade the CDOs for government cash and the government holds the CDOs until the panic is over, then the Treasury will try to sell them back into the market - if we're lucky, possibly at a higher price than Treasury paid for them.


I love it. We're going to spend more money on these worthless investments than we have on the Iraq war and hope we make money off of them later. What a bunch of farkin' 'tards we have running the government.
 
2008-09-26 10:09:20 AM  
The Bush Legacy:

THE GREAT DEPRESSION #2

 
2008-09-26 10:09:53 AM  
Here is a good email i got that should help to explain this mess. Please feel free to critique and hammer away! Discuss, Discuss!!

What in the world is going on here?

You've seen the headlines, and you heard of the failures and buyouts. Lehman Brothers, Bear Stearns, Merrill Lynch, AIG; all big names and all in big trouble. Then those mysterious quasi-government agencies with names like Freddie and Fannie become wards of the state and you learn that you and your fellow taxpayers are potentially on the hook for tens of billions of dollars. At the end of the week Washington Mutual is looking for a buyer, and you start to wonder about the security of your own bank and your own savings account. Let's change that ad copy to WaMu -- boo hoo.

Somewhere in the back of your mind you understand that this is all tied somehow to bad mortgages. If you start reading a bit further to enhance your understanding you run into terms like Mortgage Backed Securities (MBS) and credit-default swaps, whatever in the world those are. Read further and you find out that a combination of falling home prices and mortgage defaults have put many investment banks and other financial institutions in deep puddin'. All this reading, all this watching the talking heads on TV, and you still don't really know what in the world is going on here.

The fact is that when the stage was being set for the problems we're seeing today I was making most of my money as a real estate lawyer .. closing loans for some of the very institutions that are the tank today.

OK .. so we all know that a lot of really bad real estate loans were made. The political class would sure love for us to believe that the blame here rests squarely on "greedy" (try to define that word) mortgage brokers and lenders. The truth is that most of the blame rests on political meddling in the credit decisions of these mortgage lenders.

Twenty years ago the buzz-word in the media was "redlining." Newspapers across the country were filled with hard-hitting investigative reports about evil and racist mortgage lenders refusing to make real estate loans to various minorities and to applicants who lived in lower-income neighborhoods. There I was closing these loans20in the afternoons, and in the mornings offering a counter-argument on the radio to these absurd "redlining" claims. Frankly, the claims that evil mortgage lenders were systematically denying loans to blacks and other minorities were a lot sexier on the radio than my claims that when credit histories, job stability, loan-to-value ratios and income levels were considered there was no evident racial discrimination.

Political correctness won the day. Washington made it clear to banks and other lending institutions that if they did not do something .. and fast .. to bring more minorities and low-income Americans into the world of home ownership there would be a heavy price to pay. Congress set up processes (Research the Community Redevelopment Act) whereby community activist groups and organizers could effectively stop a bank's efforts to grow if that bank didn't make loans to unqualified borrowers. Enter, stage left, the "subprime" mortgage. These lenders knew that a very high percentage of these loans would turn to garbage - but it was a price that had to be paid if the bank was to expand and grow. We should note that among the community groups browbeating banks into making these bad loans was an outfit called ACORN. There is one certain presidential candidate that did a lot of community organizing for ACORN. I won't mention his name so as to avoid politicizing this column.

These garbage loans to unqualified borrowers were then bundled up and sold. The expectation was that the loans would be eventually paid off when rising home values led some borrowers to access their equity through re-financing and others to sell and move on up the ladder. Oops.

Right now this crisis is being sold to the American public by the left as evidence the failure of the free market and capitalism. Not so. What we're seeing is the inevitable result of political interference in free market economics. Acme bank didn't want to loan money to Joe Homebuyer because Joe had a spotty job history, owed too much money on his credit cards, and wasn't all that good at making payments on time. The politicians told Acme Bank to figure out a way to make that loan, because, after all, Joe is a bona-fide minority-American, or forget about opening that new branch office on the Southside. The loan was made under politicial pressure; the loan, with millions like it, failed - and now we are left to enjoy today's headlines.

So ... why aren't you reading the whole story in the mainstream media? Come on, are you kidding me? Do you really expect the media to blame this mess on deadbeat borrowers and political interference in the free market when it is so easy to put the blame on greedy lenders and evil capitalists?
 
2008-09-26 10:11:17 AM  

namegoeshere: Oh, I have so many questions:

Where exactly is this 700,000,000,000 coming from? I don't mean in a "the taxpayers" way. I mean, our debt is (insert insanely high figure here) so we don't actually have 700,000,000,000 stuffed under the mattress, right? So we are just, basically, tossing it on the ole nation's credit card, right? Who is loaning us that money? Or are we still playing with invisible fantasy money?

Okay. So say the gubment buys all the stinky mortgages. With my invisible fantasy tax money. They say, "Don't worry, the taxpayers will make money on this deal." But won't they only make any of the money back if someone actually starts paying on these stinky mortgages? And aren't many of these stinky mortgages way upside down? Weren't they based on inflated home values? And in thid craphole of an economy, who is going to be paying on these mortgages?

My head hurts.

Please help.


No. It's worse than that. Most of that money is going to end up being printed by the treasury. What this unfortunately means is that the value of the dollar will go down drastically, and given how dependent we are on imports lately, it will likely cause double, and possibly triple-digit inflation. By the time the dust settles, we'll be lucky if the dollar is even on par with the yen.
 
2008-09-26 10:12:08 AM  
$17,064 PER HOUSEHOLD

Look it up.
The bailout plus all the other fixins spent so far are over 1 trillion dollars.

SEVENTEEN FRICKEN DOLLARS!

That's how much bush and his thieves are going to cost you. On top of the Iraq bill, energy failure, etc.
 
2008-09-26 10:12:41 AM  

PurplePimpSaber: The Subprime Crisis explained with stick figures. (new window)


I want to shake your hand.
 
2008-09-26 10:12:43 AM  
BigBooper made a great point. One of the guys running for President of the US helped usher in the Savings and Loan crisis of the 1980's, last week said that the economy fundametals are sound. Apparently, Mr. McCain still takes his financial advice from the Savings and Loan mafia.
 
2008-09-26 10:14:28 AM  
Now we know more of the details surrounding this mess who's still comparing the economy to farking Rome?
 
2008-09-26 10:15:06 AM  

lajimi: The Bush Legacy: THE GREAT DEPRESSION #2


Ooh! I can't wait to read "The Blogs of Wrath," about disenfranchised hipsters moving in california-convoys (one person per car) from the coast to the "flyover" states in search of new opportunities. They can lament how crappy their cell reception is, how difficult it is to pay for crap in 2nd Life, and have to get jobs that... ewww... Mexicans used to do.

It'll be a classic... required reading in every High School by 2050.
 
2008-09-26 10:16:35 AM  
SEVENTEEN THOUSAND FRICKEN DOLLARS!

/ftfm
 
2008-09-26 10:17:54 AM  

Rambo2006: BigBooper made a great point. One of the guys running for President of the US helped usher in the Savings and Loan crisis of the 1980's, last week said that the economy fundametals are sound. Apparently, Mr. McCain still takes his financial advice from the Savings and Loan mafia.


Fair enough, and by that I mean scary enough.

How about the other guy that's a "heartbeat away" from the presidency? *HONEST QUESTION* Did he not foment that situation as well, back in the day?
 
2008-09-26 10:18:02 AM  
namegoeshere

Oh, I have so many questions:

Where exactly is this 700,000,000,000 coming from? I don't mean in a "the taxpayers" way. I mean, our debt is (insert insanely high figure here) so we don't actually have 700,000,000,000 stuffed under the mattress, right? So we are just, basically, tossing it on the ole nation's credit card, right? Who is loaning us that money? Or are we still playing with invisible fantasy money?

Okay. So say the gubment buys all the stinky mortgages. With my invisible fantasy tax money. They say, "Don't worry, the taxpayers will make money on this deal." But won't they only make any of the money back if someone actually starts paying on these stinky mortgages? And aren't many of these stinky mortgages way upside down? Weren't they based on inflated home values? And in thid craphole of an economy, who is going to be paying on these mortgages?

My head hurts.

Please help.


Short answer is we crank out the printing press and print that money.

Longer answer: We don't need that 700 billion right away. Think of it as a credit card with a limit - you CAN use it all at once, but you don't need to. We will sell treasuries to whomever wants to buy them. Right now, everybody wants to buy them, so it may not be that expensive. Of course, this may all change in the future.
 
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