|
DanKarmelSecondPaper 11 - 30 Apr 2010 - Main.DanKarmel
|
| |
| META TOPICPARENT | name="SecondPaper" |
|---|
| |
>
> | Mark, please find below a few comments in response. I'm a bit short on time at the moment (perhaps that was your concern as well?), but I will take another shot at this after the 10th.
-- DanKarmel - 30 Apr 2010 | | |
Altercasting The Homeowner | | |
Introduce Leff and explain the creation of value as being necessary to the deal | |
<
< |
- Borrowers bought into this idea, but we don't care about this
| >
> |
- Borrowers bought into this idea, but we don't care about this Buying into a mistaken, or at least incomplete, understanding of what happened discourages a more accurate understanding.
| | |
- Some smart investors bought into this idea as well, but they're so smart, how can we explain this?
| |
<
< | Oh simply they didn't bear the risks. | >
> | Oh simply they didn't bear the risks. Are you suggesting that this is banal and not worth saying? Or that it's unsubstantiated? | | | | |
<
< | Although Leff isn't useful to describe the deal, he's useful to describe what happened after the deal (seems to contradict what you said in the first paragraph). Also you're describing what happened after the deal from the perspective of the borrower, who beforehand you weren't interested in. | >
> | Although Leff isn't useful to describe the deal, he's useful to describe what happened after the deal (seems to contradict what you said in the first paragraph). Why is it a contradiction to explore an idea and then decide against it? Also you're describing what happened after the deal from the perspective of the borrower, who beforehand you weren't interested in. Why is it that a coherent essay can’t address the viewpoint of more than one party? The investors' perspectives should inform those of the borrowers'. Not to mention that I believe the first paragraph was relevant to the borrower’s perspective. | | |
- Borrowers are altercast as homeowners, increasing their unwillingness to walk away from the deal
| |
<
< |
- Borrowers, while not thinking they were getting a gift, could (or should?) have been aware that it was not really a good deal for them. (is this your conclusion?)
| >
> |
- Borrowers, while not thinking they were getting a gift, could (or should?) have been aware that it was not really a good deal for them. (is this your conclusion?) No, that's not my conclusion. My conclusion is that, although borrowers are aware that they were making an exchange, as opposed to getting a gift, they are mistaken as to the exact nature of that exchange. If they understand that the mortgage crisis is a result of a misalignment of incentives and risk, then perhaps they can look at their own contracts, which are allocations of risk, and more accurately understand what part of that risk they bargained for, if any.
| | |
So my take on what you said is that I don't know really what you're saying. Your essay is scattered and doesn't really finish its thoughts. I don't understand what you are trying to say. My suggestion is that you pick a thread of thought in your essay and develop it more thoroughly. Your essay needs a big-time rewrite though. Rewrite it when you get the time, and I'll do a more substantial edit. I think at this point your thoughts are too incomplete for me to really add anything of value. |
|
|
DanKarmelSecondPaper 10 - 28 Apr 2010 - Main.MarkBierdz
|
| |
| META TOPICPARENT | name="SecondPaper" |
|---|
| | | It's not only the actor that's being cast in a certain light, but the deal itself which is being burdened with all sorts of extraneous notions. Leff notes that we are a society that is skeptical of gifts - "You don't get something for nothing." For borrowers whose homes are underwater, the problem is not that they were mistakenly convinced they were giving something in return, but rather that they are mistaken about exactly what that something was. When you take a mortgage, you borrow money in exchange for a promise to either pay it back or forfeit the security. Banks can lend money to the government for 30 years at a rate of 4.625%. Borrowers need to look at the rates they are paying on their mortgages and ask one simple question - why are they charging me more and what does that mean about the promise that I made? Once they understand what that promise actually was, they will know it was not to help the bank hedge its bets.
| |
>
> |
Hi Dan, I'm just going to read back a bare-bone outline of your essay. I'm not even sure what it's about, so maybe if I give you a simple reiteration of my understanding, you can see if you expressed yourself clearly.
Introduce Leff and explain the creation of value as being necessary to the deal
- Borrowers bought into this idea, but we don't care about this
- Some smart investors bought into this idea as well, but they're so smart, how can we explain this?
Oh simply they didn't bear the risks.
Although Leff isn't useful to describe the deal, he's useful to describe what happened after the deal (seems to contradict what you said in the first paragraph). Also you're describing what happened after the deal from the perspective of the borrower, who beforehand you weren't interested in.
- Borrowers are altercast as homeowners, increasing their unwillingness to walk away from the deal
- Borrowers, while not thinking they were getting a gift, could (or should?) have been aware that it was not really a good deal for them. (is this your conclusion?)
So my take on what you said is that I don't know really what you're saying. Your essay is scattered and doesn't really finish its thoughts. I don't understand what you are trying to say. My suggestion is that you pick a thread of thought in your essay and develop it more thoroughly. Your essay needs a big-time rewrite though. Rewrite it when you get the time, and I'll do a more substantial edit. I think at this point your thoughts are too incomplete for me to really add anything of value.
| | |
You are entitled to restrict access to your paper if you want to. But we all derive immense benefit from reading one another's work, and I hope you won't feel the need unless the subject matter is personal and its disclosure would be harmful or undesirable.
To restrict access to your paper simply delete the "#" on the next line: |
|
|
DanKarmelSecondPaper 9 - 19 Apr 2010 - Main.DanKarmel
|
| |
| META TOPICPARENT | name="SecondPaper" |
|---|
| | | Hot Potato | |
<
< | The critical element uniting all the players, whether they believed that real estate was never going to die, or whether they were prepared to make billions pushing it over, was that no one bore the risks for their bad investments. Mortgage lenders originated the loans and would generally sell them in huge pools to investors within weeks, sometimes days. The loans were then passed along and cut up through various entities, all the way up to the government-sponsored Fannie Mae and Freddie Mac. At both the front and the back, the ones usually left holding the bag were the original borrowers and the government-sponsored corporations. Even the major credit rating agencies, like Moody’s and Standard and Poor’s, the entities most in need a proper perspective on risk, were paid by the banks issuing the securities they were rating, and thus similarly created risks for which they were in no way accountable. It would be as if “Hollywood studios paid movie critics to review their would-be blockbusters." So to answer the question of why the really smart finance guys didn't figure out that they were building a house of cards - they had no incentive to. | >
> | The critical element uniting all the players, whether they believed that real estate was never going to die, or whether they were prepared to make billions pushing it over, was that no one bore the risks for their bad investments. Mortgage lenders originated the loans and would generally sell them in huge pools to investors within weeks, sometimes days. The loans were then passed along and cut up through various entities, all the way up to the government-sponsored Fannie Mae and Freddie Mac. At both the front and the back, the ones usually left holding the bag were the original borrowers and the government-sponsored corporations. Even the major credit rating agencies, like Moody’s and Standard and Poor’s, the entities most in need of a proper perspective on risk, were paid by the banks issuing the securities they were rating, and thus similarly created risks for which they were in no way accountable. It would be as if “Hollywood studios paid movie critics to review their would-be blockbusters." So to answer the question of why the really smart finance guys didn't figure out that they were building a house of cards - they had no incentive to. | | | After The Sale | | | Wall Street was playing the game. They took their risks and they certainly knew how to walk away from a bad deal. Why aren't individual borrowers allowed to play the game too? Instead, they are the ones being called upon to make good on the moral obligations that are somehow being read into the contracts. What are the things that mortgage companies do to altercast their borrowers into a certain role? For one, they call the borrower a “homeowner.” Of course, there’s a difference between that and owning your home free and clear. Yet the mortgage industry wants you to be a homeowner right away, regardless of what sticks you get in that bundle - because why would a homeowner walk away from the home he owns? | |
<
< | It's not only the actor that's being cast in a certain light, but the deal itself which is being burdened with all sorts of extraneous notions. Leff notes that we are a society that is skeptical of gifts - "You don't get something for nothing." For borrowers whose homes are underwater, the problem is not that they were mistakenly convinced they were giving something in return, but rather that they're mistaken about exactly what that something was. When you take a mortgage, you borrow money in exchange for a promise to either pay it back or forfeit the security. Banks can lend money to the government for 30 years at a rate of 4.625%. Borrowers need to look at the rates they are paying on their mortgages and ask one simple question - why are they charging me more and what does that mean about the promise that I made? Once they understand what that promise actually was, they will know it was not to help the bank hedge its bets. | >
> | It's not only the actor that's being cast in a certain light, but the deal itself which is being burdened with all sorts of extraneous notions. Leff notes that we are a society that is skeptical of gifts - "You don't get something for nothing." For borrowers whose homes are underwater, the problem is not that they were mistakenly convinced they were giving something in return, but rather that they are mistaken about exactly what that something was. When you take a mortgage, you borrow money in exchange for a promise to either pay it back or forfeit the security. Banks can lend money to the government for 30 years at a rate of 4.625%. Borrowers need to look at the rates they are paying on their mortgages and ask one simple question - why are they charging me more and what does that mean about the promise that I made? Once they understand what that promise actually was, they will know it was not to help the bank hedge its bets. | | |
You are entitled to restrict access to your paper if you want to. But we all derive immense benefit from reading one another's work, and I hope you won't feel the need unless the subject matter is personal and its disclosure would be harmful or undesirable. |
|
|
DanKarmelSecondPaper 8 - 18 Apr 2010 - Main.DevinMcDougall
|
| |
| META TOPICPARENT | name="SecondPaper" |
|---|
| | |
The Collapse | |
<
< | According to Leff, the pitch for an effective sale or swindel must explain the mutual wealth being created for the parties. For the housing bubble, this was the “mysterious thin air” of real estate appreciation. When we discussed the collapse of the mortgage industry in class, Eben solicited suggestions for what had gone wrong. One person stated that the problem was the widespread societal assumption that home prices would never stop appreciating. This wasn’t the answer Eben was looking for, but at some level it was correct. With few exceptions, home prices had grown steadily for generations. Borrowers were willing to accept adjustable-rate mortgage (ARM) loans because they were confident that by the time the rates on their mortgages were due to adjust, they would have almost certainly generated wealth in their homes simply by living in them, and they could refinance their mortgages before the more onerous rates kicked in. | >
> | According to Leff, the pitch for an effective sale or swindle must explain the mutual wealth being created for the parties. For the housing bubble, this was the “mysterious thin air” of real estate appreciation. When we discussed the collapse of the mortgage industry in class, Eben solicited suggestions for what had gone wrong. One person stated that the problem was the widespread societal assumption that home prices would never stop appreciating. This wasn’t the answer Eben was looking for, but at some level it was correct. With few exceptions, home prices had grown steadily for generations. Borrowers were willing to accept adjustable-rate mortgage (ARM) loans because they were confident that by the time the rates on their mortgages were due to adjust, they would have almost certainly generated wealth in their homes simply by living in them, and they could refinance their mortgages before the more onerous rates kicked in. | | | As Eben pointed out though, this was only part of the story, since lenders and investors made similarly poor decisions. The question isn’t why most laypeople thought housing was never going to die, the question is why didn’t all the really smart Wharton investment bankers know it? First of all, some did. Yet some of the legitimately most qualified minds in finance actually did buy into the hype. Personally, I recall a friend who received a Finance degree from Wharton telling me how her professor used to sing the praises of the subprime securitization invention – it had made the dream of home ownership possible for millions of people, and all the while at very little risk. |
|
|
DanKarmelSecondPaper 7 - 18 Apr 2010 - Main.DanKarmel
|
| |
| META TOPICPARENT | name="SecondPaper" |
|---|
| | | After The Sale | |
<
< | For whatever went wrong in the mortgage collapse, the originations themselves do not appear to be swindles in the vein of those mentioned by Leff. Several critical elements are missing, especially a fabricated back story or the artificial creation of some reason why the con man and the mark must work together but not with others. One could argue that the mortgage companies needed a particular borrower for any given loan, since only that borrower had purchased the home, but that would be a somewhat strained interpretation, especially within the open and competitive market that existed for mortgage lending. That said, which mechanisms identified by Leff help explain the way that borrowers act after the sale, especially when their mortgages are underwater? | >
> | For whatever went wrong in the mortgage collapse, the originations themselves do not appear to be swindles in the vein of those mentioned by Leff. Several critical elements are missing, especially a fabricated back story or the artificial creation of some reason why the con man and the mark must work together but not with others. One could argue that the mortgage companies needed a particular borrower for any given loan, since only that borrower was purchasing that particular home, but that would be a somewhat strained interpretation, especially within the open and competitive market that existed for mortgage lending. That said, which mechanisms identified by Leff help explain the way that borrowers act after the sale, especially when their mortgages are underwater? | | | Wall Street was playing the game. They took their risks and they certainly knew how to walk away from a bad deal. Why aren't individual borrowers allowed to play the game too? Instead, they are the ones being called upon to make good on the moral obligations that are somehow being read into the contracts. What are the things that mortgage companies do to altercast their borrowers into a certain role? For one, they call the borrower a “homeowner.” Of course, there’s a difference between that and owning your home free and clear. Yet the mortgage industry wants you to be a homeowner right away, regardless of what sticks you get in that bundle - because why would a homeowner walk away from the home he owns? |
|
|
|
|
This site is powered by the TWiki collaboration platform.
All material on this collaboration platform is the property of the contributing authors.
All material marked as authored by Eben Moglen is available under the license terms CC-BY-SA version 4.
|
|