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Jim Cramer loses it on TV


Spaceman Spiff

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To go back to the original post, Jim Cramer does not care about the working class individuals who are defaulting on their sub prime mortgages.

Jim Cramer is concerned about the 20 mil a year guys at Bear Sterns who hold huge investment portfolios made up of derivatives based on these lousy mortgages. He wants to save his buddies from taking the hit that they set themselves up for by creating a market for this junk. If those guys hadn't been willing to buy and chop EVERY lousy loan that was made, the lenders would have been more careful about who they made the loans to, and this crisis never would have happened.

The lenders messed up too, and they are now paying the price in loss revenues, bankrupcy, and unemployment.

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The lenders messed up too, and they are now paying the price in loss revenues, bankrupcy, and unemployment.

That is true. But go back to the clip and listen. Jim Cramer is not worried about them either. He is worried about the big money guys holding the derivatives, the guys that created this subprime market in the first place.

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That is true. But go back to the clip and listen. Jim Cramer is not worried about them either. He is worried about the big money guys holding the derivatives, the guys that created this subprime market in the first place.

I'm sorry if I wasn't clear. There were problems up and down the line. The big money guys, the lenders, and the borrowers, and now people are paying up and down the line, including the big money guys who bought the loans. That's who Cramer seems to be worried about, but the other parties messed up too, and they are paying their price. I guess the guys at the top will be hurt the least practically because they can afford to lose the most, but that's the way it works. If you can't afford to lose, then you probably shouldn't place the bet.

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Subprime problems on the market cause a drop of 387 points on Wall St.; hmmmm maybe there is something to the subprime worries on the economy.

Short-term drops and rallies are the result of short-term traders (like Cramer) manipulating the market, not an indication of long-term fundamentals.

Yesterday, the rally was supposedly because worries over the subprime loans had eased after the Fed statement.

You might be right, but one day of market results doesn't even rise to the level of anecdote, in my view.

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BS, the lenders have a fiduciary responsibility to the client.

Yes and no.

I think they have a responsibility in letting them know what the payment will be and how it could go up.

It's irresponsible and scummy if they prey on newbie's and hide information from them.

But a lot of people went into it knowing the risks and bet wrong. That's not the lenders fault unless they misled the buyer.

Before we got our house I talked to one lender who did all he could to steer us into an ARM.

I was a first time home buyer and new to the process. He didn't give me the information neccessary for me to understand the risks.

Fortunately I dug into it deeper, didn't trust the guy and ended up with a real low 30 year fixed.

But the buyer shouldn't have to account for a lender being weasily and hiding information.

Luckily I did look into it more but I thought the way that first lender acted was horrible and probably illegal.

I'm sure a lot of people thought this dude was being entirely truthful and not holding information back and went with an ARM when they easily could have got a killer 30 year fixed.

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WALL STREET IS panicking. Hedge funds are crumbling. Roughly 13 percent of subprime home loans are in foreclosure or at the brink of it. All consumers and businesses are finding it harder and harder to get credit to pay their bills and make acquisitions. Meanwhile, the Federal Reserve sits calmly amidst the chaos.

Thank goodness for that. We'd be in much bigger trouble if the Fed cut interest rates, as so many loudmouth investors have been pushing it to do. What began as a meltdown in the housing sector has mushroomed into a global credit correction, and America can't cut its way out of the mess. Nor - as tempting as it may seem - can we depend on the Democratic-led Congress to save us through programs for struggling home owners and credit-strapped consumers. This storm has been brewing since the dawn of the century, and while we may be able to contain some of the damage, we'll have to sit tight through the worst of it, or ensure bigger economic problems to come.

It has become increasingly clear that when the Federal Reserve acted in 2003 to shore up a sliding economy by cutting interest rates to 1 percent - for a full year - it left them too low for too long. Combining those low interest rates with an influx of global capital, especially from Asia - and suddenly there wasn't a home any American couldn't buy or a company that couldn't be acquired. Not to mention a federal government debt that wouldn't be bought on the world market.

Unfortunately, our shopping spree has left us with a weak dollar (the result of too many imports and too much debt) and still-lingering threats of inflation, both of which limit the amount of rate-cutting the Federal Reserve can do. Another cut could spur inflation and a dollar so low that it's no longer appealing to investors. The last thing we need is high prices at home and no one abroad who's willing to buy our debts.

But, while the housing market - and all the complex investments that sprang up to help yield-hungry investors make the most of it - continues to implode, the private sector, and, to a lesser extend, the government, must look for ways to mitigate the mess. Badly burned conservative institutional investors (such as pensions) must pull back from opaque vehicles such as home-loan securities and hedge funds (which must become more transparent - especially if they want to avoid heavy regulation). Rogue brokers who swindled home buyers must be prosecuted for fraud. Loan companies must be encouraged to re-evaluate the loans of struggling home buyers, and when the more overreaching companies simply can't stay afloat, they must be allowed to fail. Yes, this means that it'll be harder for new home buyers to get loans, but after the excesses of the last five years, that's not such a bad thing.

If Congress wants to get involved, it needs to do so in a way that doesn't mean trying to force a particular outcome from the housing market. Its best bet may be to support local governments as they try to navigate the impact that foreclosure can have on neighborhoods and communities. Its second best bet would be to push for a responsible deficit-reduction and spending strategy from the Bush White House. America's long, sweet period of low interest rates and easy global credit is over, and the only people who can save us economically now will be ourselves.

http://sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/08/09/ED2VREQE1.DTL

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It didn't take a genius to figure out that the time/place to use an ARM to finance your primary residence wasn't when interest rates were at historic LOWS....after all, the only place rates had to go from there was up. There's a reason products like this aren't more popular with lenders when interest rates are high. They're not going to be dumb enough to offer you a variable product when interest rates are likely to decline.

Therefore, when everybody gets greedy and the refi Ponzi scheme crumbles, don't come crying to the taxpayers for a bailout. The borrowers should have made it their business to understand things just a little bit and the lenders, who stood to lose a lot more than the borrowers, should have been disciplined enough not to play this game.

Dumb all around.

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I'll tell you why. 4 years ago I couldn't get a conventional loan. I took a 2 year ARM, subprime loan. 2 Years in, when the payment inflated, I refinanced to a 30 year conventional with a good interest rate. I used it as a tool to get where I wanted to be. I knew the pitfalls and had to make my own decision as to whether or not I could afford the inflated payment if I wasn't able to refinance for some reason. I bet there are as many positive outcomes like mine, as there are negative ones. It wasn't the sub-prime loan availability that was the problem. It was unscrupulous lenders that caused the problem.

Don't be too smug about your decision. Had you done the same thing a year ago you'd have been toast. You took a calculated risk and came out smelling good. Others took the same risk a year or two later right before the market cooled and got taken to the cleaners. You were lucky. Nothing more. With that said, I'm glad for you :cheers:

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It didn't take a genius to figure out that the time/place to use an ARM to finance your primary residence wasn't when interest rates were at historic LOWS....after all, the only place rates had to go from there was up. There's a reason products like this aren't more popular with lenders when interest rates are high. They're not going to be dumb enough to offer you a variable product when interest rates are likely to decline.

Therefore, when everybody gets greedy and the refi Ponzi scheme crumbles, don't come crying to the taxpayers for a bailout. The borrowers should have made it their business to understand things just a little bit and the lenders, who stood to lose a lot more than the borrowers, should have been disciplined enough not to play this game.

Dumb all around.

Now that's not really true.

Of course the best time to aggressively borrow money is when the interest rates are low.

When you take a loan that you know will balloon in a few years, you're not really betting on interest rates staying low forever; you're betting on yourself being able to make more money in those next few years so that you can refinance into a better loan.

stevenaa didn't necessarily just get lucky, he bet on himself, and he knew himself well, so it shouldn't be a big surprise that he came out ahead. There was some luck involved, of course, and bad luck certainly could have hurt him, but it sounds like he was smart about it, and he predicted things correctly. A little smugness in that situation is okay in my book. :)

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Passing blame around is the easiest thing to do. We need to look back at some of the real problems. Greenspan lowered the rate to a ridiculous level then raised them 17 consecutive times.

Whos to blame -

The Lenders who offered no income verification

the Brokers who sold these products for Yield from the bank

The Realtors and Builders overpricing the Market

Or the Customer for jumping in without reading the documents

The blame can go all around it can go all the way to wall street where the investors and private equity groups were paying 4 Bps to buy these mortgage securities. So in return these lenders needed to sell more loans. In return they opened up the guidelines to let anyone and everyone get a mortgage without checking income and employment. they offered mortgage brokers 3 bps in yield to sell all these exotic mortgages like interest only, neg am, 1 year arms.What does this mean brokers get paid 3k for every 100k loan size without charging the customer any points on their loan. Customer seeing the ability to buy a 400k house for 1200/mo didnt want to hear about the details of the loan all they saw is get into the house and sell before it goes variable.

Now where things get complicated, who's responsibility is it to explain to the customer about what the market might do in the coming years. The broker discloses fee;s and loan terms through out the process the closing agent discloses again the loan terms and condtions at closing.On a refinance the customer has 3 days to back out of the loan after closing.

There are a lot of bad brokers and loan officers and realtors and attorney's appraiser and lenders who didnt disclose or take the customer future into account.

However, think about it in these terms. If you went to a car dealership and the dealer said you cna have this porsche for $100 a month for 2 years then you can sell it or refinance or let the payment adjust. 5 out of 10 people would take the porsche not looking forward to when they cannot afford it they just see the porcshe and 100/mo.

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I see your point Djtj. However, I was simply pointing out that the risk/reward ratio is a bit different when you're financing your personal residence vs. an investment property. Of course you're going to be a bit more aggressive with the later and more conservative with the former.

I wasn't trying to say that someone using one of the sub-prime products was banking on interest rates staying low. Rather, I was simply pointing out that given the historical low rates at the time, any reasonable person would conclude that the chances were very good that rates would go up. If the person in question had the further good sense to take a cursory glance at what the economy was doing, they'd have expected rates to rise as surely as the sun will rise in the morning.

I do agree that the person who uses such a product is essentially gambling that the value of the house will rise because otherwise they won't have any equity. That would in turn mean that a few years down the road when it comes time to refi or sell they're going to have to come up with cash out of pocket to make up the difference. If it's the borrower's primary residence, then obviously they're stuck with dramatically higher payments for the life of the loan or until they're able to refi.

If you're savvy enough to get a good deal at the right time then this strategy can work for you and it makes sense. OTOH, if you misjudge the market and/or when and how high rates will rise you can really get burned. However, for the great majority of people who used it, it was simply a way to qualify for more house than they were able to afford...never a good idea. :(

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Dude, I hear what you're saying. But those cases don't speak for EVERYONE that's been screwed by these loans.

Take it from me, a real estate agent, someone who's seen a lot of people that have been burned by these and is currently helping a family get OUT of a foreclosure...the blame doesn't always rest on the shoulders of the big bad evil lenders.

There are a LOT of people out there that knew full well what they were getting into, thought they were invincible and they'd never get screwed and went ahead and did it anyway.

The lenders took advantage of the stupid, people who wanted to believe it would all work out for them regardless. It is amazing how this crap happens a few years ago it was the S&L'S and there BS, then we had the junk bond BS. The government does not seem to have any oversight into shady, questionasble business dealings that eventually ripple through the economy with adverse effect. :doh: :doh:

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The lenders took advantage of the stupid, people who wanted to believe it would all work out for them regardless. It is amazing how this crap happens a few years ago it was the S&L'S and there BS, then we had the junk bond BS. The government does not seem to have any oversight into shady, questionasble business dealings that eventually ripple through the economy with adverse effect. :doh: :doh:

The goverment should use fannie mae as it was intended to lend to people in low income brackets and in low houseing areas with bad credit. However, Fannie Mae saw the money out there and started to lend to everyone causing them to tighten up ther guidelines. If Fannie Mae had towed the line like they were supposed to or if they would step up to the plate now and help out those in Foreclosure this problem could be controlled.

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It seems to me that the people who take out these loans have to bear a lot of the blame. Remember when these crazy loans first started coming out? Interest-Only loans? The thing is, it's not really a loan. The term "Interest Only Loan" is an oxymoron phrase, because you can't pay it off by paying only interest. I think the word "bet" is a better word than loan. By accepting an Interest Only Bet, you're placing a bet that, not only will you be able to make the payments, but also that your particular property will raise in value. And if it doesn't, you are totally ****ed with no out.

I always thought a loan like that was crazy, and so did anybody I talked to. And yet, there were a huge percentage of mortgage loans that were interest only.

So how can anybody be surprised when the sub-prime loan market drops into the basement?

I think it all comes down to greed, ignorance and stupidity.

I was surprised to find out that this type of loan was common in the 1920s, even prevalent. It disappeared during the Great Depression.

http://www.illuminati-news.com/great-depression.htm

Does history repeat?

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I see your point Djtj. However, I was simply pointing out that the risk/reward ratio is a bit different when you're financing your personal residence vs. an investment property. Of course you're going to be a bit more aggressive with the later and more conservative with the former.
Well, I was trying to say something a little different, actually, and since stevenaa hasn't come back to this thread, I don't really know for sure, but I can see an interest-only loan making sense in two scenarios:

(1) The investment property, as you mentioned, where someone is gambling that the property value will go up. Investors don't care about building equity (and aren't going to wait 30 years to do it anyways), and they just want to hold the property long enough for the price to rise so they can flip it for a profit.

(2) The temporary tough financial situation, which is what stevenaa's story implies to me. He was in a position where he couldn't get a traditional loan (it could be for bad credit, not enough down payment, or not enough income), but he believed that in a few years, his financial situation would improve.

Now he could have waited those few years to be sure that he would be in a financial state good enough to take on a traditional mortgage, but with prices rising and interest rates as low as they were, it would have cost him money to wait. Now there is a gamble in there on house prices (because if the price wasn't going to rise, he would have been just fine waiting), but mostly it is a gamble that while his finances weren't great at the time, he believed that he could turn things around before the teaser rate on his loan ran out. It sounds like he did, and because of the risky loan and the low interest rates, he was able to get a house that he might not have been able to get otherwise.

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Whos to blame -

The Lenders who offered no income verification

the Brokers who sold these products for Yield from the bank

The Realtors and Builders overpricing the Market

Or the Customer for jumping in without reading the documents

Sounds like a 3 to 1 majority in favor of blaming the customers.:mad:

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As the old saying goes "caveat emptor"

Etymology: New Latin, let the buyer beware

:

Ah yes because we let the people off the hook who created, sold, targeted, and marketed their product and blame those who buy their snake oil. Sorry, but that don't work, the snake oil salesman is the weasel; always has been, always will be.

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I agree, but man why would lenders go this route? It seems hard to imagine a lending strategy that puts people at more risk than these subprime loans, why even make them available? Bottom line $$$.

The same reason you see all these payday loan(shark) places popping up all over. I do not wish anyone to loose their house, but the could care less if a bunch of these subprime lenders go bankrupt for lending (too) money to people they know are going to be in over their head after the teaser rates go away. I will be mad as hell if the government bails out any of these morally corrupt lending institutions!

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