alan greenspan doesnt understand CDO.
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i just watch a documentary made by CNBC title" House of cards".
it teaches you, what causes the current financial crisis we are facing.
the interesting parts is , during one of the many interview show in the show, the host ask alan greenspan whether he could have prevent it, it answer he give is no, because he say he doesnt understand it. If alan greenspan doesnt understand the fine prints shown in the prospectus, how does an average investor like us ever understand how it works.
the CDOs are actually the work of many PHDs, using complex mathematics formulas to create the collateral. it would take, many maths wizards not lawyer, doctors, engineer that could ever understand them.
Banks that sell the CDOs, the various govt across the world bail you out by failing to put the blame solely on the banks.
by the way, many of the americans banks would not be in existing beyond this crisis.
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To put in simple terms, what is it, is simpy passing of loans to other people.
Home buyers HBs need loans to buy houses. Lending agencies LAs lend them the money.
LAs sell the loan to Loan Buyers LBs. LBs1 sell it to another Loan Buyer LBs2.
LBs6 could be, say, those that bought Lehman's Brothers Mini bonds.
So why did it collapse?
LAs when they lend the money to HBs have no risk because they sell the loans to LBs
Therefore, they can lend to anyone... to sub prime people. The reason they lend to sub prime people is that the banks will not lend them the money and therefore the LAs can charge much higher interests rates. (There is another story, they package the loan in such a way for people the sub prime to take up the loan even when the know these people eventually cannot pay! There is also another story, Carry Trades.... tied to the sub prime crisis)
Let's say the LAs charge 10% and then sell the loan at 9.99% and earns 0.01%
LBs1 sells it to LBs2 and charges 9.98% and LBs1 also earns 0.01%
The problem starts when the HBs stops paying. It is not a problem If the price of houses continues to go up for they will just take the house and sell it.
If the price of houses come down, then they cannot sell it or sell it at a loss, and the problem starts.
CDOs encourage sub prime lending because the LAs have no risk. Sub prime lending is risky to say the least and that is why banks do not lend them.
Just because it is packaged into CDOs, the banks are indirectly lending to people that they will normally not lend the money to. They are willing to indirectly lend because the CDOs are securities like stocks and shares and can be sold away (unlike a home mortgage, where they cannot sell, and so they are careful who they lend the money to, but not CDOs.)
Not only can they sell it, they can buy insurance for the CDOs. (That's another story tied to it.)
So how is it that the CDOs can be valued at zero when the houses continue to have value? Like in the stock market, the CDOs are "marked to market".... hahaha... if I explain further you will only be thoroughly confused....
So what you need to know is simply that CDOs are simply pieces of papers that people buy and sell, and the papers represent the sub prime loans given to people the banks will not lend, to buy houses. It collapsed with the collapse of the price of property in the USA.
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...and that started, with CDOs magnifying the problem, the domino effect, spreading around the world...
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Originally posted by reyes:
the interesting parts is , during one of the many interview show in the show, the host ask alan greenspan whether he could have prevent it, it answer he give is no, because he say he doesnt understand it. If alan greenspan doesnt understand the fine prints shown in the prospectus, how does an average investor like us ever understand how it works.
the CDOs are actually the work of many PHDs, using complex mathematics formulas to create the collateral. it would take, many maths wizards not lawyer, doctors, engineer that could ever understand them.
Of course la Greenspan will say he don't understand, it gives him political cover. You think if he say he understand they won't crucify him meh? Why is it that every fucker likes to call himself a genius. FUCK LA, it was all a scam. PhD in bullshit theory also no use what. FUCK LA all these useless people just get a job and stop sliming their "genius" around can or not.
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Originally posted by reyes:
i just watch a documentary made by CNBC title" House of cards".
it teaches you, what causes the current financial crisis we are facing.
the interesting parts is , during one of the many interview show in the show, the host ask alan greenspan whether he could have prevent it, it answer he give is no, because he say he doesnt understand it. If alan greenspan doesnt understand the fine prints shown in the prospectus, how does an average investor like us ever understand how it works.
the CDOs are actually the work of many PHDs, using complex mathematics formulas to create the collateral. it would take, many maths wizards not lawyer, doctors, engineer that could ever understand them.
Banks that sell the CDOs, the various govt across the world bail you out by failing to put the blame solely on the banks.
by the way, many of the americans banks would not be in existing beyond this crisis.
CDO has many factors that is hard to predict... If anyone try to give you an explanation of CDO, it is something greenspan already understood, a asimple surface summary...
Anyway, greenspan stepped down in 2006, so he has no obligation to find out about CDO...
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CDO has many factors that is hard to predict... If anyone try to give you an explanation of CDO, it is something greenspan already understood, a asimple surface summary...
Anyway, greenspan stepped down in 2006, so he has no obligation to find out about CDO...
Did you watch the show? you should. It also interview a former rating agency employee that expose how the a BBB rating can become AAA rating by adjusting some mathematical formulas to calculate risk base on the possibility of housing defaults.
We cant say alan greenspan as no obligation. All the world know he is part of it. He has no obligation when in step down in 2006 and die in early 2007. The reason he give why he dint stop it is because he doesnt want to spoil the party. the congress wouldnt give a shit of subprime loans as long as the american economy remain strong and it pay taxes to support the local community works, spoiling the party would possibly means unemployment and hinder american from growing.
it also show interview with former investment bankers, CDO creators, home owners, rating agency employee. the one that possibly missing as usual is govt agencies such as SEC.
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To try to guess what Alan Greenspan understands or do not understand is pointless. It is better that you understand.
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Originally posted by reyes:
Did you watch the show? you should. It also interview a former rating agency employee that expose how the a BBB rating can become AAA rating by adjusting some mathematical formulas to calculate risk base on the possibility of housing defaults.
We cant say alan greenspan as no obligation. All the world know he is part of it. He has no obligation when in step down in 2006 and die in early 2007. The reason he give why he dint stop it is because he doesnt want to spoil the party. the congress wouldnt give a shit of subprime loans as long as the american economy remain strong and it pay taxes to support the local community works, spoiling the party would possibly means unemployment and hinder american from growing.
it also show interview with former investment bankers, CDO creators, home owners, rating agency employee. the one that possibly missing as usual is govt agencies such as SEC.
Yes, he has no obligation as "the head of federal reserves".
He has obligation as "ex-head of federal reserves".
He didn't do anything when he is in power, and nothing goes wrong for 2 years... than fine, his foresight that nothing will go wrong yet holds true. The obligation lies with the "current head of federal reserves" who assume nothing will go wrong down the line, and didn't do anything about it.
If want to go back, why not blame the guy who appointed greenspan, since he also has the obligation of picking the right guy, or the guy who appointed the guy who appointed greenspan, and so on.
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http://www.cnbc.com/id/15840232?video=1029053619&play=1
skythewood, i dont understand what is your pt.
If u have watch the program, or the short clip i pasted above, you would have understood, he could have prevented it but he miscalculated the risk. during the freq meeting with congress, he was repeatedly ask, about the derivative trading but he keep mentioning keeping liquidity in the market was key to keep american economy growing. the derivative or CDO was out of control under the term of alan greenspan not benarke. that is not to say benarke was not to blame. but i guess he was too late to stop it.
i think you have lost track the line of responsiblity.
i draw a line of responsible eg citibank CEO Vikram Pandit whether he was to blame for Citi plight? probably most would agree no, becoz he create the problem at Citi nor could be able to stop it becoz he wasnt there. Now since he is there, he try to save it.
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To try to guess what Alan Greenspan understands or do not understand is pointless. It is better that you understand.
if ppl like alan greenspan dont undertsand it, i dont think ppl like you and me do. by the way, u din buy it, doesnt mean you understand it, coz probably we dont buy things we dont understand.
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Originally posted by reyes:
http://www.cnbc.com/id/15840232?video=1029053619&play=1
skythewood, i dont understand what is your pt.
If u have watch the program, or the short clip i pasted above, you would have understood, he could have prevented it but he miscalculated the risk. during the freq meeting with congress, he was repeatedly ask, about the derivative trading but he keep mentioning keeping liquidity in the market was key to keep american economy growing. the derivative or CDO was out of control under the term of alan greenspan not benarke. that is not to say benarke was not to blame. but i guess he was too late to stop it.
i think you have lost track the line of responsiblity.
i draw a line of responsible eg citibank CEO Vikram Pandit whether he was to blame for Citi plight? probably most would agree no, becoz he create the problem at Citi nor could be able to stop it becoz he wasnt there. Now since he is there, he try to save it.
The new head need to take responsibility.The reason he is appointed to make sure things runs smoothly. Greenspan is just defending his legacy. The new head will ultimately be the one to take the action to rectify, not Greenspan.Right now Obama is not responsible the shit US is in, Bush is. But if next year the problem that bush create is still not solve, will you continue blaming bush or hold Obama for not solving the problem.
Need to draw the line.
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Originally posted by reyes:
if ppl like alan greenspan dont undertsand it, i dont think ppl like you and me do. by the way, u din buy it, doesnt mean you understand it, coz probably we dont buy things we dont understand.
Just ignore him. -
Originally posted by reyes:
if ppl like alan greenspan dont undertsand it, i dont think ppl like you and me do. by the way, u din buy it, doesnt mean you understand it, coz probably we dont buy things we dont understand.
You think you know what exactly Alan Greenspan don't understand. That is laughable. He could be referring to the computer modelling that goes into the pricing of the CDOs and the arbitraging strategies, not the basics of CDOs which I have laid out.
So please don't talk from ignorance and then talk like you know!
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Originally posted by AndrewPKYap:
You think you know what exactly Alan Greenspan don't understand. That is laughable. He could be referring to the computer modelling that goes into the pricing of the CDOs and the arbitraging strategies, not the basics of CDOs which I have laid out.
So please don't talk from ignorance and then talk like you know!
Aiyo, Uncle why u like to insult others, let them hv some freedom of speech mah. Now, slowly open yr mouth and let me pop some pills into it, drink more water ya. -
You think you know what exactly Alan Greenspan don't understand. That is laughable. He could be referring to the computer modelling that goes into the pricing of the CDOs and the arbitraging strategies, not the basics of CDOs which I have laid out.
So please don't talk from ignorance and then talk like you know!
The basic of CDO? what u mean? return of 5% annually or triple AAA rating? BY the way, i dont think u understand CDO, ur understanding is after the Lehman crash, by then, everyone knows. alan greenspan would have know by now huh, isnt it?
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Originally posted by reyes:
The basic of CDO? what u mean? return of 5% annually or triple AAA rating? BY the way, i dont think u understand CDO, ur understanding is after the Lehman crash, by then, everyone knows. alan greenspan would have know by now huh, isnt it?
Are you sure Alan Greenspan "know by now"? You know the math, the algorithms and the concepts that goes into the computer modelling for pricing the CDOs?
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The new head need to take responsibility.The reason he is appointed to make sure things runs smoothly. Greenspan is just defending his legacy. The new head will ultimately be the one to take the action to rectify, not Greenspan.
Right now Obama is not responsible the shit US is in, Bush is. But if next year the problem that bush create is still not solve, will you continue blaming bush or hold Obama for not solving the problem.
Need to draw the line.
obviously your line and my line of responsibility is different.
I tends to put the blame who causes the crisis while u like to blame who handle the crisis.
the crisis is created during the term of alan greenspan. when bernake took over in 2006, the CDOs are already out of control and probably spread to rest of the world. At least now, i wont blame benarke yet, coz we shld be judge for how he handle the crisis.
about your bush question, i hold bush for the blame as of now, if obama cant revive the US economy after spending trillions
within his term. the rest of the world can judge him then.
no point screwing vikram pandit or jamie dim, for the trouble they dint create, oh well, we can screw them for taking huge bonus in 2008 though.
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Are you sure Alan Greenspan "know by now"? You know the math, the algorithms and the concepts that goes into the computer modelling for pricing the CDOs?
to know the answer, u had to call alan greenspan.
personally, i think he know by knows, coz information could be easily accessible to him by know.
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Originally posted by AndrewPKYap:
To put in simple terms, what is it, is simpy passing of loans to other people.
Home buyers HBs need loans to buy houses. Lending agencies LAs lend them the money.
LAs sell the loan to Loan Buyers LBs. LBs1 sell it to another Loan Buyer LBs2.
LBs6 could be, say, those that bought Lehman's Brothers Mini bonds.
So why did it collapse?
LAs when they lend the money to HBs have no risk because they sell the loans to LBs
Therefore, they can lend to anyone... to sub prime people. The reason they lend to sub prime people is that the banks will not lend them the money and therefore the LAs can charge much higher interests rates. (There is another story, they package the loan in such a way for people the sub prime to take up the loan even when the know these people eventually cannot pay! There is also another story, Carry Trades.... tied to the sub prime crisis)
Let's say the LAs charge 10% and then sell the loan at 9.99% and earns 0.01%
LBs1 sells it to LBs2 and charges 9.98% and LBs1 also earns 0.01%
The problem starts when the HBs stops paying. It is not a problem If the price of houses continues to go up for they will just take the house and sell it.
If the price of houses come down, then they cannot sell it or sell it at a loss, and the problem starts.
CDOs encourage sub prime lending because the LAs have no risk. Sub prime lending is risky to say the least and that is why banks do not lend them.
Just because it is packaged into CDOs, the banks are indirectly lending to people that they will normally not lend the money to. They are willing to indirectly lend because the CDOs are securities like stocks and shares and can be sold away (unlike a home mortgage, where they cannot sell, and so they are careful who they lend the money to, but not CDOs.)
Not only can they sell it, they can buy insurance for the CDOs. (That's another story tied to it.)
So how is it that the CDOs can be valued at zero when the houses continue to have value? Like in the stock market, the CDOs are "marked to market".... hahaha... if I explain further you will only be thoroughly confused....
So what you need to know is simply that CDOs are simply pieces of papers that people buy and sell, and the papers represent the sub prime loans given to people the banks will not lend, to buy houses. It collapsed with the collapse of the price of property in the USA.
/clap clapNicely set out. That has got to be one of your most coherent PAP-free post.
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Originally posted by reyes:
to know the answer, u had to call alan greenspan.
personally, i think he know by knows, coz information could be easily accessible to him by know.
I think the problem is though he have access to the information, he didn't draw the same conclusion. I don't know much about CDOs but i'm betting trying to figure out the sort of problems it will lead to involves an immense amount of data, spanning across disciplines outside of just economics.At that stage, drawing a conclusion is going to be more based on past experiences and idealogy than any actual objective analysis.
It's like the 3 blind men with the elephant.
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I think Alan Greenspan is really being honest when he said that he didn't understand CDOs. Like what some of the rest has mentioned, CDOs are highly complex with too many variables because its lumped so many "things" in one bundle. Things that are supposed to achieve some form of equity.... I'm not sure on the terms, but thats what I understood after reading up abit on this debacle.
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There is only one word to describe the present financial debacle - FRAUD. The greed of men has resulted in fraud. Some commentors have written that there were warning signs, about 10 years ago but people incharge of financial regulations like Alan Greenspan just ignored them. Make more money until the bubble burst. Even now some financial institutions in the west after obtaining govt bailout money, still pay millions to their top executives. The so-called values and freedom that they often cried out loud and wanting to export to other countries. What values are they exporting to other countries? I will say, FRAUD & GREED.
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Originally posted by JLennon:
/clap clapNicely set out. That has got to be one of your most coherent PAP-free post.
One of it ... I thought this is the only one ...
Would have subconsciously skipped his post until you point it out ....
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heee....why blame the old man. We acknowledge and created Godzilla
the 2 individual that created this market probably didn't know this would happen And won the Nobel Price in 2001 and 2003 respectively. Joseph Stiglitz and Robert Engle.
anyway look at a similar of past godzilla...another Nobel Prize winner.
Economics - Michael Milken, titan of Wall Street and father of the junk bond, to whom the world is indebted
See the similarity between Junk Bond vs Sub Prime morgate....they are both Junk Loans application forms put in a single Folder.....and Sell.
Allan Greenspan is good at preventing moral hazzard of govt intervention he was discreet in his public speech. Unlike the current Fed Ben who ignore the market reaction and confirm to Wall Street on Bear Stearn fiasco and subsequently led to a moral hazard for Lehman.