I watched The Big Short last week and have been studying all about Synthetic CDO's and how they shorted the housing market. With the big banks starting "bespoke tranche opportunities" is that going to cause another crisis? I can't find much about them on the computer at work with all the firewalls here, but are the bto's fixed rate or ARM? My biggest question is if they are essentially starting to produce synthetic CDO's under a new name as an ARM loan could this not be taken advantage of again? Or will the banks be smart enough to not sell bonds shorting the housing market again? How much of an effect did Burry and the other few fellas have on the actual crisis that followed? Back to the oil rig thread now...
Starting? CDO's haven't really changed one bit. BTO is just a new name for the same thing. I was on the wholesale side of the mortgage industry back in the last crash, we knew what was happening years in advance but at that point momentum was going so strong there was nothing to stop it. The underlying paper at the moment is significantly stronger than it was previously, but like everything cyclical, a crash is inevitable. I'm not doing anything on the build side that puts me out more than 18 months if that gives you an idea. meanwhile I have colleagues that have developments booked out for the next 3 or 4 years. As far as people not shorting the market? Lol, I CAN'T WAIT to short it. Learned my lesson the last time around when I rode it all the way down. Can't complain too much, lost millions, had to move in with my parents for a bit. But the knowledge gained was priceless. You will never kill greed, which is ultimately what crashes most markets.
ARMs are back and they aren't even trying to call them something else. People forget, stupid people forget fast.
What exactly is the industry you were in? Developing? My brother in law was a developer and is the one who told me to watch it. Said he only got stuck with a couple houses but someone else I know who developed subdivisions was stuck with 43 houses. Maybe I need to understand better what all this means.
Did the banks not suffer as well? From what I have learned at least. Why would they just turn back down the same road? I guess I have more studying to do. Lehman went bankrupt correct?
At the time I was in the wholesale mortgage backed securities trade. Awesome times, Wolf of Wallstreet type stuff. Made way too much money and took on way too many side projects that I shouldn't have. Music stopped and I got stuck with a ton of real estate that was worthless. Rather than take the easy way out, I foolishly paid the majority of it all back. These days I'm a real estate investor. Flipping, in-fill building etc. Friends of mine on the retail loan side are back to making 40-80k per month, which tells me the tide is about to turn. Sure did, guess where I worked? Banks did suffer, but the market has a short memory. Once that kind of money starts flowing again, it's all about answering to the shareholders. It's really hard to watch trillions of dollars flowing by and not try and grab a piece of it, while telling yourself "I got it this time, won't make that mistake again." Eventually you get high on your own supply and the cycle repeats. That's the short, non-technical explanation.
The banks got bailed out. a few lost their jobs but they left with nice packages. Some (a lot?) of the lower level to middle management that were making $$$ spent like they were always going to make it and got rammed but not upper level. Dude, the people that lost in the game were the people who bought a lot more (or any) house then they couldn't afford. This area was ground central in the extreme for all in the boom and complete collapse and guess what? They are doing it again with ARMs. I got pitched an ARM to buy a much "nicer" house in my area by one of the other parents. Really, I go on any more and we'll be flirting with Dungeon material.
There's a 20 minute video on youtube of Micheal Burry giving a commencement speech at UCLA that you may be interested in also. Micheal Lewis also has some good interviews online and on video of both the housing markets and HFT markets that he wrote on
California's real estate market is already another bubble. Inflated values, ill-advised mortgages, it's happening all over again. It won't be as bad as 2008, but there will be another wave of foreclosures when the ARMs mature in 5 years. I just rented a place in PB. It will be my first time cutting a check to a landlord in 14 years, but the ice is way too thin to venture out. No way.
A little on the Treasury secretary at the time who was previously a Goldman Sachs exec Before becoming Treasury Secretary, he was required to liquidate all of his stock holdings in Goldman Sachs, valued at over $600 million in 2006, in order to comply with conflict-of-interest regulations.[14] Because of a tax provision passed under President George H.W. Bush, Paulson was not subject to capital gains tax. This saved him between $36 and 50 million in taxes.[1 https://en.wikipedia.org/wiki/Henry_Paulson
There's a fabulous episode of Frontline that did in depth interviews and analysis of the whole ordeal and all of the big players involved.
You may be thinking of "Breaking The Bank" on Frontline. Featured Simon Johnson who created Baseline Scenario. It's a guide for anyone who wants to know what mortgage-backed securities, collateralized debt obligations, credit default swaps or synthetic bonds are and how they work. It's also a timeline of the crisis and the aftermath. Simon was one of the guys in front of the many Senate hearings and he blogged it all.
Inside the meltdown is the episode from 2009. And that's as close as I'm gonna skate to the edge of the rules this time boys!
I'm just amazed by how crappy $400,000 houses are in Des Moines. Even some of the $600,000 houses are so unremarkable.
My sub in Indy was a classic case. People all around us got houses they had no business having. At one point there people ripping cabinets out of walls and taking AC units and just leaving the houses. There were 8 just on my street. The builder went belly up in 6 mos. They must have had 30 subdivisions they were working on.
Also look for Inside Job. Similar to The Big Short but not flashy Hollywood. Some of the interviews with those who contributed to the collapse are mind boggling. They genuinely feel as though they did nothing wrong.
