1993: Department of Housing and Urban Development began bringing legal actions against mortgage bankers that declined a higher percentage of minority applicants than white applicants.

1996: HUD required Fannie Mae & Freddi Mac to make 12% of all mortgages be subprime. Fannie Mae and Freddie Mac had to borrow huge sums in wholesale financial markets which saw the organizations as backed by the U.S Government

2000: HUD sets a minimum of 12% subprime loans with a 20% target

2001: <10% subprime mortgages, FHA reduces down payment to 3% (vice 20%)

2003: Predsiental adminstration tried to change oversight of Fannie & Freddi, were rebuffed (with some outrageous name calling) by Congress

2005: HUD changes Fannie Mae & Freddi Mac subprime targets to 22%

2006: 34% subprime for new mortgages, 23% overall

Fannie & Freddi borrowed huge sums of money, made big profits, and other companies followed suit. Short term interest got cheaper than long term (Fed policy) that encouraged new innovative ways to get peopl into mortgages that they couldn't afford, like ARMs. I've seen numbers that range from 30% to 50% of bad mortages were "securitized" by Fannie & Freddi.

This is not a complete timeline and does not inlcude smoe pretty important historical facts, but there was a pretty clear and unambiguous intent of the Fed Gov to encourage people to buy houses when they did not have credit ratings for which the tradiational private lender market would not extend credit. It clearly worked. It also very unambigously generated private industry participation because there was money in it (hence the cries of "greed" and "speculation") and because law required it.

If the markets had not been influenced by Fed Gov policy to make subprime loans, subprime loans would not have caused the collapse of the finanical institutions supporting the housing market.

Do you know the definition of the word default? I don’t think you do. A credit goes into technical default as soon as one payment is missed. Just because some amount of principal is collected after the sale of the collateral doesn’t mean that it didn’t default. Also, if a security defaults, it doesn’t matter if it is insured or not. A default is a default. To say that a security is not in default because a CDS was purchased to insure it, is to say your home actually didn’t burn down after a fire because you had fire insurance.

So, your attempt at insinuating that if AAA rated MBS are not in default, it is only because the Fed Government is bailing them out via CDS is completely incorrect.

There has never been a tax on dying. If you is leave a large estate, and that estate is transfered to your decedents, there is a tax on the transfer.

… when you die.

“It’s not a tax on gasoline. It’s a tax on selling petroleum products for use in vehicles on public roads. That’s not a gas tax.”

“It’s not a tax on income. It’s a tax on certain earnings that accrue as part of an employee employer relationship. That’s not an income tax.”

Seriously, what is the target for your ramblings? Men who suffered closed head injuries as boys?

AIG and others were also selling CDSs to insure some of these AAA MBS. Perhaps those CDS will make good on the principal losses for people who bought the AAA MBS. Of course AIG is basically bankrupt, so it is the US tax payers making good on those CDS.

This Vanity Fair article on AIG is interesting. It is largely sourced to some AIGFP insiders trying to explain what happened, so it should be taken with a grain of salt. One interesting thing in this article is that near the end of 2005 one AIGFP executive looked into the MBS AIG was issuing CDS for. He discovered the mortgages in these pools were 95% subprime mortgages. He asked other AIGFP executives what percentages of the pools they thought were subprime. He got answers in the 10-20% range. AIGFP at the end of 2005 really had no idea how risky the MBS they were insuring with CDSs actually were.

After this discovery, AIGFP went to talk to all of the big Wall Street banks to ask them how a MBS based on 95% subprime mortgages could be a AAA security. The argument was simply that it was unlikely for housing prices to fall at the same time all over the country. The AIGFP executives were shocked at how little thought or analysis the Wall Street banks had given to the safety of these MBS. At the end of 2005 AIG stopped writing CDS on MBS securities because they decided they were simply too dangerous to insure.

In 2006 and 2007 the big Wall Street banks kept right on generating MBS, and they apparently insured them by writing there own CDS. This may be a big part of the reason Merrill Lynch, Lehman Brothers, and Bear Stearns all failed, and the other big banks needed bailouts.

To the extent the AAA MBS are paying off principal because it was insured with CDS, it is largely the Federal Government bailing out those MBS.

Obviously, fear of default can drive a price down, but if the bond pays out at par, there are no losses, and perhaps the fear of default was irrational and not the rating. Over the last few months, the prices of these securities have come roaring back.

I don’t know the default rate off the top of my head, though I don’t believe that any AAA rated MBS that were part of the BC Aggregate Bond Index (which is like the S&P 500 of the bond world) have defaulted. I can probably get to the number, I am just not going to spend the time if you don’t agree that it is valid metric.

and answer the question please.

So, again Mikeca, do you want to try and quantify this? Would you agree that if these securities were truly deserving of junk ratings, then the default rate on these securities should be somewhere in the neighborhood of the default rate of junk bonds?

I’m not sure what your point is.

The fear of future defaults can reduces a bond to junk bond status just as easily as an actual default. If Company A has been losing money and there is speculation they will soon go bankrupt, their bonds may become junk bonds, even though the company has never defaulted on a bond in history.

In late 2008 the market for MBS securities locked up. There were almost no buyers that wanted to buy MBS at a price a holder was willing to sell. The holders of MBS thought they were worth far more than buyers were willing pay for then.

Part of the problem was the complexity of the securities. It was hard to look at a pool of mortgages with a large subprime component and estimate what the eventual default rate on those mortgages would be. There is speculation that almost all the subpime loans of the last few years will eventually default.

Since you seem to know so much, why don’t you tell us what the default rate has been?

Because we all have seen in the past eight years that the Left would never demagogue an issue, resort to supercharged rhetoric or engage in screaming.

No, nothing but calm, rational discourse from the Left. We should all be more like the Left.

Oh wait, that’s what we’re doing!

lol

Wait, the two examples you cite are calling a tax that is triggered by someone dying a “death tax” …

There has never been a tax on dying. If you is leave a large estate, and that estate is transfered to your decedents, there is a tax on the transfer. If you leave your estate to charity, there is no tax on that. The inheritance tax is part of the American belief that wealth should be earned rather than an accident of birth.

…and panels that recommend euthenasia standards as “death panels”?

There were no panels recommending euthanasia standards. Every insurance company has a procedure for deciding what treatments it will pay for. If some drug will on average add one month to the life expectancy of cancer patients, that is a good thing, right? What if the drug cost $100,000? Is one month longer life worth $100,000? What if the drug cost $1,000,000?

Those are difficult questions to wrestle with, but every health insurance company is already making those kinds of decision. Labeling the people making those decisions a “death panel” is super charging the rhetoric. It only brings out the mindless, screaming dittoheads and makes any intelligent discussion of what are very difficult issues impossible.