Death To Toxie!

September 24, 2010 3:59 PM

Toxie, the adorable little toxic asset purchased by NPR's Planet Money, has died. Her story is told through adorable animation, a radio segment, a text story, and there's even a song at the bottom of the page.
posted by hippybear (56 comments total)

I heard this today on my way into town and I laughed. And laughed. And then called my mom and laughed more.
posted by jph at 4:01 PM on September 24, 2010

$
posted by dismitree at 4:03 PM on September 24, 2010 [3 favorites]

¢
posted by Civil_Disobedient at 4:08 PM on September 24, 2010 [3 favorites]

0
posted by dismitree at 4:11 PM on September 24, 2010 [1 favorite]

X(
posted by GuyZero at 4:23 PM on September 24, 2010 [2 favorites]

Um, folks, the punctuation thread is one door down.
posted by filthy light thief at 4:29 PM on September 24, 2010 [7 favorites]

I've been listening to the Toxie podcasts on Planet Money, which lead me into their other podcasts on the same subjects, and found I was actually understanding what went on with the whole subprime thingy. Maybe not in depth but enough to feel like I had some kind of handle on the whole thing, which I didn't before (partially because I never really cared). I think it turned out to be a pretty good teaching tool.

Planet Money is one of those things I shouldn't really like. I don't care about America, don't have any money, don't care about politics, have very little interest in economics in general, but they manage to present their information in engaging ways that keep catching my interest so I end up listening more and enjoying it. Which is probably a good thing, because living with my head in the sand isn't really a great idea overall.
posted by shelleycat at 4:31 PM on September 24, 2010 [3 favorites]

Prosperity doctrine Christians - Pray hard enough and you can bring Toxie back to life!
posted by Artw at 4:39 PM on September 24, 2010 [1 favorite]

All these people lost a bunch of money. Some people lost their homes. It seems kind of flip to make a little mascot about how it got so messed up. If I wanted to buy a house where I live there would have to be more economic distress than this, so it didn't even help me.

I heart heart Planet Money, though. I wrote software for Fannie Mae years ago and know how many of the insane machinations that caused this work. They do a pretty decent job of explaining it.
posted by poe at 4:45 PM on September 24, 2010

This question is too technical for this little amusing NPR story, but specifically what mechanism caused Toxie to become valueless? They sort of explain it..: "a financial statement indicating that the principal balance for the B-6 class had gone to zero. B-6 was basically our place in line.".

So is B-6 the name of a tranche in a mortgage backed security? Does whoever administrates the MBS mark the tranches to market every few months? If they zero out tranche B-6, does that mean B-6 could never have value again even if somehow magically all the underlying mortgages were paid in full?
posted by Nelson at 4:50 PM on September 24, 2010

All these people lost a bunch of money.

Except for all the banks holding on to little toxies and pretending they haven't lost money.
posted by ennui.bz at 4:53 PM on September 24, 2010 [3 favorites]

That's an interesting question, Nelson. I think they sort of explain that the underlying assets had expired, e.g. mortgages were refinanced or restructured, so I guess it evaporated.
posted by migurski at 4:55 PM on September 24, 2010

If you ever own something (especially something that is a commodity, like housing) and it triples in value in a short time? You're in a bubble. That's not normal, it's not a "new paradigm" and if you're reliant on the item being worth the new value get out while you can still get something.

What kills me about the RE bubble is that the last previous speculative clusterfuck, the dot com bubble? The body was still warm.
posted by maxwelton at 4:57 PM on September 24, 2010 [6 favorites]

So is B-6 the name of a tranche in a mortgage backed security? Does whoever administrates the MBS mark the tranches to market every few months? If they zero out tranche B-6, does that mean B-6 could never have value again even if somehow magically all the underlying mortgages were paid in full?

Yes, B-6 is the name of the tranche. When mortages foreclose and the houses sell at auction for less than the mortgage value, the loss is deducted from the total balance of the CDO starting from the bottom tranches. Same with the loss from a short sale. Those mortages are gone from the pool. The CDO still owns the debt owed by those borrowers who where foreclosed on in recourse states, but they'll never be able to collect (Especially in recourse states, people tend to run down their assets before they default on the mortgage, then declare bankruptcy after the foreclosure.)
posted by atrazine at 4:58 PM on September 24, 2010 [1 favorite]

"Lisa Liberator-Kinney"?

SRSLY?
posted by mr_crash_davis mark II: Jazz Odyssey at 5:08 PM on September 24, 2010

My biggest problem with all this? "Toxic" is a misnomer. "Noxious" would be much more appropriate.

That's right, they're not toxic assets, they're noxious assets. Like your uncle who eats too many beans. He could also be said to have noxious assets.
posted by wierdo at 5:18 PM on September 24, 2010 [1 favorite]

I think I just learned something about how tranches work.

I thought tranches were made like this:
Take 100 mortgages. The 10 least likely to default make the top tranch; the ten most likely the bottom tranch, and there are 8 tranches in between.

But in fact, the 100 mortgages are not divided, and the tranches just establish an order for who gets paid based on the number of failed mortgages--if any ten of the 100 mortgages fail, the bottom tranch is worthless, but the other 9 split the bucks from the remaining 90 mortgages.

Is this correct?
posted by hexatron at 5:49 PM on September 24, 2010

Previously
posted by l33tpolicywonk at 5:58 PM on September 24, 2010

But in fact, the 100 mortgages are not divided, and the tranches just establish an order for who gets paid based on the number of failed mortgages--if any ten of the 100 mortgages fail, the bottom tranch is worthless, but the other 9 split the bucks from the remaining 90 mortgages.

Pretty much. Only wrinkle is that when you divide up the flow (the pool of money all the mortgages are bringing in every month) the higher risk tranches get a better interest rate -- they get paid more, as it's more likely they'll fail.
posted by Diablevert at 6:14 PM on September 24, 2010

That they called it Toxie gives me a bad case of Internet Infuriation. Now I don't believe in nuthin'.
posted by ROU_Xenophobe at 6:41 PM on September 24, 2010

That they called it Toxie gives me a bad case of Internet Infuriation.

To be fair, the toxic asset was named by their listeners.
posted by hippybear at 7:17 PM on September 24, 2010

Nelson: "So is B-6 the name of a tranche in a mortgage backed security?
Yes. Specifically, HVMLT 2005-10 B6.

Does whoever administrates the MBS mark the tranches to market every few months?

No. As I understand it, the assets in this CDO are loans backed by houses. The tranches aren't "market to market"; in fact there is no such market. From the propectus:
"IT MAY BE DIFFICULT TO
RESELL YOUR CERTIFICATES.............. There is currently no secondary market
for the offered certificates and there
can be no assurance that a secondary
market for the offered certificates will
develop."

If borrowers in B6 suddenly started paying back, I think they'd theoretically be due payments. Hence the show today contained no official communication of Toxie's demise. But recovery's just not gonna happen. So to give the story closure, they held a eulogy, and introduced the new beat.
posted by pwnguin at 7:41 PM on September 24, 2010

Err, if borrowers in HVMLT started paying back; there is no B6 pool of mortgages.
posted by pwnguin at 7:45 PM on September 24, 2010

This American Life has done yeoman work in explaining how we got the meltdown, too. I just listened to Inside Job where they (along with Planet Money and ProPublica) dissect Magnetar Capital's place in the crash. It was behind $40 billion dollars worth of CDO losses, for which it ended up collecting about $200 million in credit default swaps.

TAL has numerous other shows about the meltdown and the financial structures that created it, but I'm too lazy to look those up for you.
posted by Jimmy Havok at 7:48 PM on September 24, 2010

Now, this is a whole different thing from the story of Pylo the Pylon, in case anyone is confused.
posted by washburn at 9:34 PM on September 24, 2010

I know there's been some bad press toward it, but I've been reading thehousingbubbleblog.com since oh, around 2004, and by golly pretty much everything the consensus there predicted would happen did happen and is still happening.

And thank goodness, because listening to them and adjusting my investments (meagre tho they be) accordingly kept me from having my retirement money cut in half or more.

Anyone who said no one could possibly have foreseen this mess is full of it. Lots of people were calling it more than 6 years ago.

Finally, don't forget that not only are lots of banks holding onto lots of leftover Toxies; a lot of them got bought up in the bailout by Fannie and Freddie. Which means you and I are holding them, fellow US taxpayers. We're the bottom of the Ponzi pyramid, and guess how that usually works out?

This ain't over, not by a long shot.
posted by zoogleplex at 9:42 PM on September 24, 2010 [3 favorites]

To be fair, the toxic asset was named by their listeners.

Be that as it may, they should've realized that if they'd named the poor bastard Goldman Sachs, he'd still be alive today.
posted by gompa at 10:27 PM on September 24, 2010 [3 favorites]

boo-hoo
posted by clavdivs at 8:43 AM on September 25, 2010

This news segment should get an award for how beautifully they've made something so confusing and complicated understandable.

That being said, I cannot believe criminal charges have not been brought against the confidence men fuckers who who created this piece of ephemera, this sleight of hand money object that had an expiration date built in and threatened to kill the economy so thoroughly if not for the flood of healthy money injected to dilute the toxins in the system.

The whole thing is even more evil than I originally thought, because someone, the designers, the core people who understood this, made their billions knowing full well what would happen to investors (the "suckers" who accepted the risk), AND had to know what that toxic stuff would do to the whole money supply.
posted by Skygazer at 11:53 AM on September 25, 2010

If you ever own something (especially something that is a commodity, like housing) and it triples in value in a short time? You're in a bubble. That's not normal, it's not a "new paradigm" and if you're reliant on the item being worth the new value get out while you can still get something.

Precisely. The bubbles for the most part are mass hysteria. They ultimately create wealth for very few. Were the values of those homes supposed to go up and up exponentially year by year? Was everyone supposed to become a millionaire? Was all illusory "wealth," based on hysteria supposed to prop up these toxic derivatives forever?


Is that not intuitively retarded logic, to believe the market would provide endless growth: If everybody is becoming rich overnight, no one is becoming rich.

Except the very small percentage behind the curtains who understand the mechanisms, and are most likely feeding the hysteria with one foot out the door ready to bail as soon as the auto destruct mechanism kicks in and scheme begins to tank like the Titanic...
posted by Skygazer at 12:11 PM on September 25, 2010

When I launched the NPR player to listen to her song (just as cute as the cartoon!), it was sponsored by Ally, fka GMAC.
posted by Halloween Jack at 12:19 PM on September 25, 2010

adjusting my investments

My sister shifted all of her retirement fund into income (dividend-paying) stocks around '05-'06 and survived the crash quite handily. I suspect it's a good strategy for dealing with bubbles.
posted by Jimmy Havok at 2:06 PM on September 25, 2010

That being said, I cannot believe criminal charges have not been brought against the confidence men fuckers who who created this piece of ephemera, this sleight of hand money object that had an expiration date built in and threatened to kill the economy so thoroughly if not for the flood of healthy money injected to dilute the toxins in the system.

The whole thing is even more evil than I originally thought, because someone, the designers, the core people who understood this, made their billions knowing full well what would happen to investors (the "suckers" who accepted the risk), AND had to know what that toxic stuff would do to the whole money supply.

This is a common and comforting belief, that there were designers. Comforting because despite these hypothetical men behind the curtain being evil, at least someone is responsible. We like to think of events in terms of human agency rather than systemic processes with widely dispersed responsibility.

I can assure you that there was no-one who knew exactly what would happen. There were certainly people who knew that they were selling mortgage bonds backed by dodgy mortgages, but how would they have predicted that the failure of a huge number of these instruments would ultimately lead to massive global recession? It's no good saying that it was obvious, because it wasn't. The components that ultimately interacted to cause this disaster were obvious to individuals, but I can't think of anyone who really looked at it systemically.

So there were borrowers and mortgage brokers committing fraud by lying on applications. (Though I hesitate to say that the borrowers committed fraud, because in many cases they really didn't fully understand what was going on).

But there were also plenty of ARMs and balloon mortgages that were taken out by people who assumed they would be able to refinance. Are these people responsible? One can hardly say so, because everyone seemed to think it was normal. Real estate agents, property TV programmes, everyone seemed to think this was a great idea.

Are the banks who structured the mortgage bonds responsible? Well, they just shovelled these things into tranches and sold the things on. In many cases the lowest tranches were actually retained by the banks themselves. This is probably the best bet in terms of picking someone who was "responsible" for what happened. Even this is unsatisfactory though because none of these people sat down and thought "I wonder if this could incinerate the global economy", for the same reason that the couple buying a "starter" house that they couldn't really afford doesn't think about that: Everyone was doing it.

There were certainly people in the real estate or financial sectors who knew that there would be an end to the ever-rising prices of American property, some of them may have realised that this would mean losses to the holders of the lowest tranches of mortgage bonds. Did any of those people realise that these losses would hit virtually every bank in the world, wiping out balance sheets, wrecking AIG through the CDS's that it had written, and ultimately causing a lack of confidence that led to a banking crisis which in turn caused an enormous economic downturn in countries around the world? No, nobody realised that because the financial system we have built is so astoundingly non-linear that nobody can predict the consequences of seemingly trivial events.

This is the point that Roubini and Taleb and that crowd made and the reason that Buffett is so opposed to complex derivatives. They can lead to the kind of unstable situations where the whole economy of the world can go to hell and we're not really sure who's responsible. In the absence of a clear narrative of what happened people regress to blaming who they usually do. Republicans are sure that Democrats and poor black people are responsible, the global left blames bankers (probably the best bet, if you've got to pick someone - but which bankers?), Europeans blame Americans. Northern Europeans blame Southern European improvidence while South Europeans blame North European conniving. Arabs think it's a Zionist plot. Investment bankers blame mortgage brokers who blame the bankers. Retail bankers are clueless as usual, and broke (not usual). Economists are sure that they have the answer to all our problems, they just can't agree on what they are.

As I said, it is comforting to believe that there is a shadowy cabal that anticipates this kind of thing. The truth is that it is mostly an emergent phenomenon caused by a thin film of greed spread thinly around an interconnected economy. The guy who made 10 mill selling CDS protection for AIG is a gilded cog, comfortable and wealthy, but he's no more "in charge" of our economy than anyone else. Just because you're standing on the bridge doesn't mean that you're in control.
posted by atrazine at 2:20 PM on September 25, 2010 [9 favorites]

My sister shifted all of her retirement fund into income (dividend-paying) stocks around '05-'06 and survived the crash quite handily. I suspect it's a good strategy for dealing with bubbles.

Except for bubbles in dividend paying stocks. Ask yourself honestly: If someone had told you 10 years ago that you would one day think of stocks as a better hedge against a financial crash than land, would you have believed it.
posted by atrazine at 2:22 PM on September 25, 2010

"Real estate agents, property TV programmes, everyone seemed to think this was a great idea."

Yep, because the first two, and a pretty much everyone else involved except the buyer - lenders, contractors, appraisers, municipalities seeing property tax windfalls, even Harley-Davidson and RV manufacturers - were making a lot of money either skimming off every transaction or reaping the benefits of the "magical" home appreciation being taken out and spent via HELOCs and home equity loans.

When "everyone" who tells you something is a great idea is taking a cut, guess what. It's not a great idea. They are not your friends.
posted by zoogleplex at 3:25 PM on September 25, 2010

atrazine, you forgot the security rating agencies like Moody and Standard & Poor. It was their job to rate the risk of these securities appropriately, and they did not. I don't fault the firms who created the securities, it's their job to maximize profits. The rating agencies are the watchdogs, and this happened right under their noses.
posted by cseibert at 4:00 PM on September 25, 2010 [1 favorite]

atrizine: You really need to listen to the This American Life episode "Inside Job".

There was malfeasance at work in the creation of many CDOs.
posted by jb at 4:20 PM on September 25, 2010

Ooh, look! Toxie's got a new home!

http://www.marketwatch.com/story/securitization-used-to-fix-toxic-credit-unions-2010-09-24

What did I say about taxpayers owning Toxies? Hmmm, mmm.
posted by zoogleplex at 4:44 PM on September 25, 2010

This is a common and comforting belief, that there were designers.

Did you listen to that show about Magnetar? They designed the CDOs they were buying to fail, they bought them so that they would be issued, then they took out CDSs against them so they would profit from the failures they designed.

The bankers who let them do it were guilty of, at a minimum, negligence, but Magnetar's managers, so far as I can see, was guilty of fraud.

Here's a link to ProPublica's article on Magnetar. They are kinder than I would be, in that they say that Magnetar didn't break any laws. Three-Card Monte dealers don't break any laws either...

Except for bubbles in dividend paying stocks.

Keeping a sharp eye on P/E keeps that from happening. Dividend-paying stocks generally have a functioning business model. There may be a few where the dividend is coming from an unsustainable model, but that number contrasts favorably with growth stocks. A bubble is almost always marked by a huge P/E ratio, and people telling you not to worry about P/E.

Her portfolio was hurt by the crash, but not to the same degree that folks with money in growth stocks were.
posted by Jimmy Havok at 7:18 PM on September 25, 2010

zoogleplex wrote: "Ooh, look! Toxie's got a new home!

http://www.marketwatch.com/story/securitization-used-to-fix-toxic-credit-unions-2010-09-24

What did I say about taxpayers owning Toxies? Hmmm, mmm."

While I don't particularly enjoy being on the hook for some $50 billion in losses, at the same time, I don't see the blanket problem with securitization. The problem wasn't the CDOs themselves, the problems were that almost nobody knew the risk that was involved and that we had an enormous bubble in the housing market, further increasing the risk. The lack of transparency is where the real problem lies. That and bubbles, but bubbles will get you no matter how the bubble assets are owned.
posted by wierdo at 7:36 PM on September 25, 2010

Oh I agree, the concept and "best practice" of mortgage securitization wouldn't be an inherently harmful thing. During sane times, most people don't default on their mortgages, which would make packaging a bunch of pretty-certain-to-perform mortgages into a security a decent investment.

Instead they packaged mortgages that were almost certainly going to default and sold them as "good paper" - as you say, lack of transparency. In some cases this happened because they were shuffled through so many hands that the original source became obscured; in other cases it was certainly done with full knowledge.

Goldman Sachs was shorting their own clients, I hear. That says they knew what they were doing, just like Magnetar.
posted by zoogleplex at 10:59 PM on September 25, 2010 [1 favorite]

Yep, because the first two, and a pretty much everyone else involved except the buyer...

In many cases the buyers of these overpriced houses were also the sellers though. Or they took money out through HELOCs. They were making money too, or they thought they were.

I'm familiar with Magnetar and the deliberately "built to fail" CDOs, those guys are probably going to jail and rightly so. The point is this: the vast, vast, majority of CDOs were not created deliberately to fail, these guys were riffling the pockets of the dead on the Titanic. They're bad people and should go to jail but they didn't cause the crisis because the effect they had was relatively minor.

Same thing with GS shorting the CDOs they were selling, first of all, that was one group within Goldman. They tried to convince the rest of the bank to stop making these CDOs, not because they were great guys mind you, but because like most issuers, GS kept the very worst toxic waste for itself. Unfortunately the group doing the CDO work was very profitable and influential and the guys betting against the market were not. In the end it came out that they lost a lot less because they bet against their own CDOs, but if they had known from the beginning what would happen they would have bet against them without owning them and made a lot more money.

Not only that, but this stuff came relatively late. In the last few months before the crash happened, a few people at Deutsche Bank, GS, and a few hedge funds had figured out what was going on and where trying to cash in on the inevitable crash. The amount of money betting against the mortgage bond market was tiny though, even at the very end.

Even then, the crime that the worst of these guys committed is misleading their investors. There is no crime that corresponds to "destabilising the global economy" precisely because it's so unpredictable, that's why we have regulators. The problem is that the regulators are quite fragmented. The German regulators looked at the CDOs their banks held, checked the ratings, and then did nothing because the ratings looked solid.

You're right that I missed out the ratings agencies, they're responsible as well. It is difficult to believe that they really built default probability models that didn't include an option for falling house prices. Take into account though that these ratings are mainly designed to give the probability of defaults in a steady state economy or one that is changing slowly. They never have dealt well with discontinous events (see Taleb again, also some stuff Wilmott has published recently).

Here's a link to ProPublica's article on Magnetar. They are kinder than I would be, in that they say that Magnetar didn't break any laws. Three-Card Monte dealers don't break any laws either...

Well that's the infuriating thing isn't it? The fact is that what they clearly did is wrong, but they didn't break the law. On the other hand, the mortgage broker making 60k a year who filed a fraudulent applications could go to jail. That's the way the law works, but it offends our sense of justice.

The point remains though that as repulsive as this stuff was, it was really more grave-robbing than anything else.
posted by atrazine at 1:08 AM on September 26, 2010

the effect they had was relatively minor.

$40 billion? They were a very big part of what caused both the bubble and the crash, I'd say. They were inflating the bubble by creating a market for the bad loans that both pumped it up and made it burst. They were shooting people so they could rob their graves.
posted by Jimmy Havok at 1:38 AM on September 26, 2010

I'm with atrazine: it's tempting to look for scapegoats, especially rich, arrogant scapegoats, but the truth is, almost everybody's greed fuelled the Bubble. This greed blinded most people to the risk, from investment bankers to first-time homeowners, through politicians and mortgage lenders. Only very few overcame that psychological bias, either to preach in the desert, or to make a killing betting against the market.
However, it's important to note that high-flying investment bankers were as much caught by the euphoria as subprime mortgage holders. The notion that the ridiculous bonusses pocketed in that branch were justified by their superior "market knowledge" has been badly shattered by the revelation that they mostly can't do the work any better than a bunch of trained monkeys. And those bonusses could buy a lot of bananas.
The perceived injustice is compounded by the fact that economic hardship strikes in particular those who already had trouble making ends meet. A billionaire who loses half his wealth still has at least half a billion left. A median-income family who lose half their wealth may easily become homeless.
posted by Skeptic at 2:32 AM on September 26, 2010 [1 favorite]

Jimmy Havok wrote: "$40 billion? They were a very big part of what caused both the bubble and the crash, I'd say. They were inflating the bubble by creating a market for the bad loans that both pumped it up and made it burst. They were shooting people so they could rob their graves."

$40 billion is a pittance compared to the ~$1 trillion size of the overall US mortgage market.
posted by wierdo at 1:31 PM on September 26, 2010

Something to keep in mind about the Rating Agencies (Moody's, S&P): They are independent PRIVATE agencies funded by the very companies whose products they rate.
posted by KingEdRa at 6:29 PM on September 26, 2010

Every time a mortgage gets modified or a foreclosure gets delayed, god kills a few more toxies.

Every time a few more toxies die, a pension fund or bank asset loses some more value, requiring, ultimately, that more capital to be raised elsewhere to make up for the deficit, or for someone else to experience a corresponding loss.

This ain't over, folks. There's still a lot of toxies out there whose already occurred or imminent death hasn't been properly recognized yet...
posted by de void at 9:09 AM on September 27, 2010

...it's tempting to look for scapegoats...

One group of non-scape goats that squarely deserves the blame are the regulators who completely turned a blind eye to the whole ponzi scheme.
posted by de void at 9:11 AM on September 27, 2010

Yeah, like doesn't the SEC have experts and people who're supposed to watch out for this stuff, and you know like build models of possible future repercussions so the whole shitshow doesn't fly like a fucking flaming bus filled with turds right off a fucking cliff????


Sorry I get a tiny bit upset at this type of greed, the type that still feels self righteous and has fought and demonized every attempt to regulate it, or look at it more carefully over the years and paid and lobbied for greater and greater deregulation.

Yeah, look, I don't want a scapegoat, I want the people who even had an inkling of what the hell was going, including those companies (Goldman, Lehmann, Bear Stearns so on and so forth) that have sought greater deregulation on to face repercussions... They said that they should be trusted because they help drive the economy and obviously the either lied or they exaggerated. A lot.

And they shouldn't be able to hide legally when they exaggerate a lot, because by all other measures that is a lie, but of course in America you can pay an massive penalty for lying, without ever having to admit you did anything truly "wrong."
posted by Skygazer at 8:58 AM on September 28, 2010

The perceived injustice is compounded by the fact that economic hardship strikes in particular those who already had trouble making ends meet. A billionaire who loses half his wealth still has at least half a billion left. A median-income family who lose half their wealth may easily become homeless.

Not to mention, that billionaire suddenly has access to many more lucrative investment opportunities because a lot of money leaves the market no longer able to be invested for retirements and other long term investment, but is needed immediately for immediate needs, becoming hand to mouth money so that median family isn't completely screwed....

Nice system, eh??

I'm a billionaire and I act like an irresponsible shitbird and almost cave the economy, but heck, now that so many people are screwed I can put my money in even better investments and buy em up for real real cheap and in a year or two I'm even flying higher....

If there isn't a name for that, there should be. Of course, I may be completely wrong as I'm just assuming, the wealthy are always going to have money to make more money, and get wealthier, while those who don't and have just one line of wealth get pounded into a worse quality of life....
posted by Skygazer at 9:07 AM on September 28, 2010

(Goldman, Lehmann, Bear Stearns so on and so forth) that have sought greater deregulation on to face repercussions...

Lehmann and Bear Stearns are bankrupt.
posted by atrazine at 9:47 AM on September 28, 2010

Lehmann and Bear Stearns are bankrupt.

Yes. They ate it big time. They simply didn't have the political lifelines, Goldman Sachs had access too. Not only that they simply went crazy mainlining that sweet sweet toxie bug powder...

And like all binges to end all binges, it must've been a shitload o fun while it lasted.

Anyhow GS takes the best talent from those firms, consolidates, gives Paulson a big thank you, takes the TARP money, and goes on to have, in 2009, the most profitable year in it's repellently rigged existence. Man, if that doesn't make you want to punch a hole in the wall-Holy Christ on a popsicle stick...
posted by Skygazer at 9:03 AM on September 30, 2010

I can assure you that there was no-one who knew exactly what would happen.

This is completely false. Goldman and others designed these products with the specific intent that they fail and leave the taxpayers ultimately on the hook through thier wholly owed subsidiary, the US Congress.
posted by T.D. Strange at 9:48 AM on October 1, 2010 [1 favorite]

T.D. Strange wrote: "This is completely false."

That is also completely false. Some of the derivatives were created for the sole purpose of failing. Most were not.
posted by wierdo at 10:00 AM on October 1, 2010

That is also completely false.

If by "false" you mean "entirely correct".
posted by T.D. Strange at 7:31 PM on October 20, 2010

Every time a mortgage gets modified or a foreclosure gets delayed, god kills a few more toxies.

No, modifying the mortgage can save Toxie, since it retains the income stream that keeps him alive. When a mortgage goes into foreclosure, Toxie gets another shot of death, it doesn't matter if the foreclosure is delayed or not, since the mortgage that Toxie was living on is now gone.

The benefit of this situation is that it may persuade a few banks to modify mortgages instead of bringing out the hammer.

Here's one explanation for the push to foreclose rather than work out loans:

In other words, with fewer foreclosures the value of mortgage-backed securities increase — a big financial problem if you bet a few billion dollars that the value of mortgage-backed securities would fall.

We are now seeing complaints from hedge fund managers that their bets are being distorted by new foreclosure practices. One claim is that those who manage mortgage backed securities can manipulate outcomes by modifying mortgage agreements to avoid foreclosures and by taking other steps. In effect, hedge fund managers want lenders to return to the tougher and costlier practices of the past because saving the homes of people who have fallen on hard times is now reducing profits for billionaire hedge fund operators.

posted by Jimmy Havok at 8:01 PM on October 20, 2010