One of my friends instant messaged me a few days ago referring to something utterly stupid that a CNBC Reporter was saying. Although my friend is not a regular CNBC watcher (who would admit to that anyway?), he immediately DVR'd the segment and told to roll over to his house to view it. I was going over to his house anyway because it was time for our weekly Trader Support meeting, so it wasn't really a bother. I saw the short segment.
Here is the link to the article.
http://www.cnbc.com/id/35241544
Now. Again. Suprime didn't cause our economy to collapse. Also, subprime wasn't a small problem either. Look at the subprime origination's that took place during 2004-2007. It was never contained.
"Remember subprime? A significant contingent of traders argued then that subprime was not that big — that it was a small part of the market in terms of dollar and volume. They were right, but they failed to account for the contagion aspects, because it spread into the prime area as well.They won't make that mistake this time. "Think subprime on a world stage," one trader said to me."
There are so many errors here. It is true that many traders argued that subprime wasn't a problem. DUH! Of course! What else would they say? Again, look at the origination's. Another thing: There was never a subprime contagion. Prime mortgages only started to fall apart after the economy had fallen over the cliff and real people were starting to lose their jobs. Why would prime conforming mortgages have higher delinquencies when the economy was still functioning? It is very easy to blame the poor and powerless because they have no representation. The real blame needs to be put squarely on Wall Street. Forget about Fannie/Freddie which seems to be everyone's whipping boy. They curtailed their lending activity in 2003 after both of those companies were misstating earnings for years. The slack had to be made up by who? You guessed it! Wall Street.
Supprime was neither toxic nor was it contagious or even infectious. Sub prime was never a problem until Wall Street got involved in the origination game. Everyone wants to blame the Community Reinvestment Act of 1977. Again. Lets blame the poor and powerless. Subprime defaults were slightly higher then prime defaults, but the gap was no where near what we saw after Wall Street got involved in the subprime arena. The reason many people missed the crisis and failed to properly gauge the speed of the erosion was because they failed to realize that the cause of the subprime drop was poor underwriting of loans originating from Wall Street Banks and Institutions. It was the greed that was toxic. It was the greed that was infectious and contagious. All of this made it possible for banks to pass through loans that were poorly underwritten using other people's money. Banks made an edict to their loan channels that they needed $100MM in mortgage origination's this week so that they can package and securitize those poorly underwritten loans into CDO's and other complex derivative instruments. From this they can peddle it to "sophisticated" investors after they paid off the ratings agencies to slap on AAA on them. Wall Street never saw the nature of this risk because the math models they were using was alerting them that housing never goes down. It got to the point where Wall Street was like a drug cartel. They had end user demand that was already there, from this they had the perfect product to quench the thirst of the greedy "sophisticated" investor. What's truly unforgivable are the massive side bets (CDS) that were made against those same mortgage origination's.
I also find it ludicrous that the same people who missed this and mucked everything up now tell us they wont be making the same mistake with Greece. Greece has been a problem for the past year or so. I spoke to a Greek friend of mine who has alerted to me that his countries finance's have been a problem for years. The Euro was a very strong currency, in fact hitting 16 month highs in Dec 2009. What! Greece wasn't a problem late last year? This is not a new story. Dubai was never a new story. European markets were hitting highs. Asian Markets were ramping up. US Equities were also breaking to the upside. All in the face of a mounting tsunami of debt.
The Sovereign debt crisis is a real crisis that just didn't happen overnight. We all know what happens when central bankers just print money to monetize bad debts. The market conveniently forgot about this up until a few days ago. They have hardly learned their lesson. What is to be learned when profits are banked and losses sent to the taxpayer?
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