Timeline for What did John Templeton mean when he said that the four most dangerous words in investing are: ‘this time it’s different'?
Current License: CC BY-SA 3.0
15 events
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| Nov 5, 2016 at 22:16 | comment | added | Daniel Anderson | The problem with the CDS and CDO instruments underlying most of the bets is that they were fraudulent to begin with, since the issuing banks were very much aware of the poor quality of the loans and that they'd manipulated the rating agencies into bogus ratings on bonds that were almost designed to fail. Many (not all, to be sure) of the buyers were unaware of this until after the fact, so I'd find it tough to obligate them to make good on instruments which were the product of a crime. | |
| Nov 5, 2016 at 22:11 | comment | added | supercat | I wish more people would realize that welshing on bets (CDSs) wasn't accidental. Someone who writes 1,000 insurance policies against independent events which each have an independent 1% chance of occurring and require a 2% premium will expect to collect premiums on 1,000 policies and have to pay out 10. Someone who writes the policies on the same 1% event will have a 99% chance of collecting all the premiums and not having to pay out anything, and a 1% chance of having to pay the insured a fraction of their policies' value. | |
| Nov 4, 2016 at 14:39 | comment | added | Daniel Anderson | I liked his explanation of the "negative-amortizing adjustable-rate interest-only mortgage". Priceless! | |
| Nov 4, 2016 at 14:18 | comment | added | JimmyJames | Yes I've read it and seen the movie. His first book "Liar's Poker" explains how mortgage securitization was invented and is helpful in understanding the whole story. A lot of that was added to the Big Short movie. What's bothersome to me is that so many people are still completely ignorant of what happened and think it was the fault of greedy borrowers and 'the guvment'. What they don't understand is that the mortgage brokers specifically sought out NINJAs because they had no credit history. It was all meant to game the system. | |
| Nov 4, 2016 at 13:57 | comment | added | Daniel Anderson | I would strongly recommend reading "The Big Short" (not watching the movie!) by Michael Lewis, because he explained the whole thing in such amazing detail. It's a very entertaining read, as well, but you get a real understanding of how the sausage was made in the mortgage finance industry from it. | |
| Nov 4, 2016 at 13:55 | comment | added | Daniel Anderson | You're correct. The ratings agencies went along because they were being paid by the banks to rate bonds they didn't understand. In many cases, the banks provided the models the ratings agencies ended up using to rate those bonds. Any agency that was unwilling to provide good ratings on bond was likely to lose that bank's business, so there was a fundamental conflict of interest for the agencies. The banks needed AAA ratings in order for institutional investors to be able to buy their bonds, so it was all a real scheme from the start. | |
| Nov 4, 2016 at 13:34 | comment | added | JimmyJames | The real irony with this was that it was the market sophistication that allowed this to happen on such a large scale. That and rating agencies willing to rate instruments composed almost entirely of junk as AAA. | |
| Nov 4, 2016 at 5:32 | comment | added | Criticizing Israel not allowed | @Victor I have 20000 houses but they're all in Detroit. /s | |
| Nov 3, 2016 at 21:56 | comment | added | Daniel Anderson | Could be worse, @Joshua. You could've only had 200 instead of 20,000! | |
| Nov 3, 2016 at 21:55 | comment | added | Joshua | @Victor: It sucks to know exactly what the market's going to do but only have 20,000 to leverage. | |
| Nov 3, 2016 at 21:50 | comment | added | Victor | @joshua - just one house? | |
| Nov 3, 2016 at 18:22 | comment | added | Daniel Anderson | You're not alone in that! (grin) The point, though, is that even when it's obvious that something's wrong, people have a tendency to ignore past history in the mistaken belief that it can't repeat itself. | |
| Nov 3, 2016 at 18:13 | comment | added | Joshua | I profited from it. I waited for the crash then bought a house. | |
| Nov 2, 2016 at 21:48 | history | edited | Daniel Anderson | CC BY-SA 3.0 |
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| Nov 2, 2016 at 21:42 | history | answered | Daniel Anderson | CC BY-SA 3.0 |