Talk:Subprime mortgage crisis/Archive 1

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Contents

Editorial Suggestions

Below are some thoughts for improving this article structurally. I wanted to get some opinions before making these changes. Let me know what you think:

a) Moving the funds/corporate losses day-by-day sort of information to a "Subprime Crisis Timeline" article. We can summarize the type of impact in text in this article in a couple of paragraphs and refer to that article for those who want to track daily impacts.

b) Removing the Retail, Political, and U.S. dollar turmoil sections. These have minimal value as described and are NPOV problems in some cases. For example, I doubt Hillary Clinton is the only politician with ties to real estate companies.

c) Shortening the housing bubble portion, referring to that main article.

Farcaster 03:15, 2 November 2007 (UTC)

I agree. I think this article has grown too big in areas. Deet 10:51, 2 November 2007 (UTC)
Your proposals look like a solid start for tightening up this article. It's grown fast and skitters all over the place. WaterlessCloud 18:42, 4 November 2007 (UTC)


change that pic maybe- it's applicable, but too non-specific to be the main pic —Preceding unsigned comment added by 74.65.12.26 (talk) 03:41, 24 April 2008 (UTC)

Hyperbole in opening paragraphs?

I didn't get through the whole article but, reading the opening paragraphs (those above the TOC), they seemed to contain a great deal of charged language. I'm not an expert on Wiki guidelines (one reason I didn't just edit boldly :), but the verbiage seems to carry a great deal of political posturing and baggage, which strikes me as non-encyclopedic.

I don't have any concrete suggestions for changes, I'm mostly just floating this idea to see if "it's just me". Oliepedia 16:57, 26 October 2007 (UTC)

Can you be more specific? What part seems "loaded?" futurebird 17:38, 26 October 2007 (UTC)
I don't think the problem is hyperbole as much as it is simply inaccuracy. The 'crisis' we are experiencing now has its roots in lending practices which began changing in the late 90s and accelerated up until probably 2006. The cause of the problems we are seeing now is from poor underwriting practices which were not curbed by Alan Greenspan at the end of the Clinton Administration and the beginning of the Bush Administration. It is a gross oversimplification to assert that this crisis is an issue of what has happened in 2007 and 2008. I will be editing this article heavily to demonstrate my point. DavidMSA (talk) 02:57, 18 March 2008 (UTC)

Don't bother David. Your edits will be reversed if you try that without citing your sources carefully. This article has been carefully crafted by a series of 4 or 5 editors very carefully over the past few months.Farcaster (talk) 03:11, 18 March 2008 (UTC)

I will have better sources than The Econonmist, my friend. It is ridiculous to restrict this article to the endgame results which have manifested themselves over the last two years. I was trading FF options in the pit at the CBOT before this article was started. Its on. DavidMSA (talk) 03:26, 18 March 2008 (UTC)

The opening which you try to assert for the article is completely uncited, unsigned and is an oversimplification of the issue. It amuses me that the majority of these edits come from British sources, and the fact that The Guardian is citing this article as a 'source' says more about the quality of their media content than it does about the quality of this article. Where is the discussion about Northern Rock? DavidMSA (talk) 03:31, 18 March 2008 (UTC)

Coordinating changes about subprime meltdown

There are several related pages about the subprime meltdown, including subprime lending, collateralized debt obligation and Bear Stearns. Is there a way to coordinate changes across these pages so that everything gets updated consistently? Finnancier 06:06, 1 July 2007 (UTC)

It is my opinion that everything related to the subprime mortgage crisis be directed here and that this page be renamed "United States Subprime Mortgage Crisis." The other pages can reference this page.

copyright violations

It appears that the previous text of this article was largely pieced together from other undocumented sources identified by googling, including:

Many of these are ultimately coming from the Associated Press, Reuters, and similar news agencies. This appears to mostly be the work of 65.15.77.18 (talk • contribs • info • WHOIS), who unfortunately contributed > 80% of the text. As a result, I see no option but to decimate the article and start over. I have now done this by reducing the article to little more than its introduction. If people want to quote from the above sources, that might be a good place to start over, but we can't write articles by copying paragraphs of text from unacknowledged newspaper sources. Dragons flight 06:51, 11 August 2007 (UTC)

See also Wikipedia:Administrators'_noticeboard/IncidentArchive283#User:65.15.77.18. Dragons flight 07:12, 11 August 2007 (UTC)
Nice work, Dragons flight. I was pleasantly surprised to find such an extensive article on finance, a subject on which the wiki is weak. That should have been the first warning sign... - BanyanTree 12:27, 11 August 2007 (UTC)
I too found it a good read, and a lot better than I was expecting. Now the article is next to useless. Perhaps, rather than blanking that text, its information should be properly incorporated into the article? I don't know enough about the subject to want to try doing that, but hopefully someone does... Bushytails 16:14, 11 August 2007 (UTC)
We can't just use text copied verbatim from copyrighted media articles, any more than we could just copy stuff from Brittanica verbatim if our article on the subject wasn't good yet. It sucks when an article gets axed, but if people hadn't stolen the content in the first place, this wouldn't have to happen. Nice work DF. --W.marsh 17:07, 11 August 2007 (UTC)

I don't know if other people noticed but the editor is still active as of recently. I've informed the editor of this discussion and also told them why their behaviour is incredibly bad. While my message may have been fairly stern, IMHO in cases like these was have to be stern Nil Einne 22:08, 11 August 2007 (UTC)

List of affected companies

After inserting specific companies which have been affected, and attempting to add more specifics, I believe it may be better to state that dozens of companies have been affected, with their names relegated to footnotes. The two companies I listed could then be stricken from the article as several dozen more could also be cited. It should be possible to begin this list from a diff of the article.

The role of S&P and Moody's might also be mentioned, as their ratings are retrospective; when the ratings were published, the liquidity crisis began. --Ancheta Wis 11:05, 11 August 2007 (UTC)

It might also be more useful to the article if a spectrum of conditions were mentioned. Subprime borrowers constituted 10% of the traditional market. They might have paid 8% or 9% on their loans rather than 6% or 7% on their loans. But 25% of the CDOs are subprime, currently. This percentage will likely fall to 10% of the CDOs.

Historically, the practice of catering to subprime borrowers arose from lending to millionaires, but the practice expanded to those who were not as creditworthy.

These notes come from the New York Times, Wall Street Journal, Investors Business Daily, the weeks preceding August 10, 2007. --Ancheta Wis 11:17, 11 August 2007 (UTC)

Article title

I think this article could do with a better name; someone suggested "United States Subprime Mortgage Crisis" above, but although it started in the US, it has affected share markets globally and prompted the intervention of many central banks in terms of adding cash to banking systems. Can anyone think of a good name? --bainer (talk) 14:07, 11 August 2007 (UTC)

I agree, the issue has expanded beyond just the subprime market. Perhaps "liquidity crisis" -- though that might be too alarmist. "Liquidity scare"? I guess time will tell. Ryanluck 15:42, 11 August 2007 (UTC)

I agree that the title is vague and, like Thebainer said, the scope of this is well beyond the US. Also, I would argue that this isn't really a liquidity scare as there is plenty of liquidity in the market but it's simply not being used due to fears of the value of certain investments invested in the subprime area (the lack of private investors (be it individuals or non-government banks) using liquidity is simply linked to the subprime 'crisis'). I would suggest an article title such as Subprime mortgage crisis of 2006-2007 or a similar title with a date included in the title to separate it from past or future similar events. Utopianheaven 01:37, 13 August 2007 (UTC)
subprime mortgage crisis is the handle of reference in many financial news reports here in Australia. It's the most useful for searching and yes, does affect us in the lending market and the Federal bank (our central bank) is adding cash in response ; I like the the final suggestion by Utopiaheaven for when it becomes a distinct entity for historic financial record. Julia Rossi 10:56, 13 August 2007 (UTC)

I totally agree with Utopianheaven. The title should be 2007 subprime mortgage financial crisis. Oidia 12:22, 16 August 2007 (UTC)

Now extended into 2008! Ryanluck (talk) 03:59, 20 March 2008 (UTC)

European cash injection

The Main Page says "The European Central Bank injects €94.8 billion of liquidity into the European financial system". This article says "The European Central Bank (ECB) injected €61 billion". Which one is correct? The BBC citation in this article supports €61 billion, but maybe this amount has been updated by today? —msikma (user, talk) 17:01, 11 August 2007 (UTC)

Both are correct, they did two injections.--rdnk 20:56, 12 August 2007 (UTC)

Excuse me, two injections? In that case, is the €94.8 billion the more up-to-date (more correct) sum of the two injections, or would the real "total" have to include €61 billion "plus" €94.8 billion? Maybe we are getting to the point that each "injection amount" should be accompanied by a date? (or, perhaps a "running total" amount, accompanied by an "as-of" date?) Mike Schwartz 01:47, 14 August 2007 (UTC)

As I understand it, there have been several emergency "refi" operations by the ECB. One on Thursday, August 9, for one day only, to the amount of EUR 94 bln, which had to be repaid on Friday, August 10. On Friday a three-day refi was issued for some 60+ billion, which ran until Monday, August 13. On Monday a refi for some 7.7 billion was issued, again fotr one day. On Tuesday alle mergency liquidity assistance was ended. (On the onther hand, I understand that the 14-day facility issued on Tuesday was fairly generous.) So one should not add up these amounts. Best regards, MartinD (on the Dutch Wikipedia)
MartinD is right, the so-called injections by the ECB are one-day operations and one cannot add up the amounts. We must find time to correct the article. Ridow 20:16, 22 September 2007 (UTC)

copyvio content

The copyvio content is here if someone wants to get an idea for improving the article. WAS 4.250 17:49, 11 August 2007 (UTC)

Some numbers on ARMs

NY Times reported in 2006 that about $400B of ARMs was reset in 2006 and some $1000B of ARMs are to be reset in 2007[1]. Some googling revealed from $1100B to $1500B of ARMs are to be reset in 2007-2008. I wonder if more exact figures could be determined and incorporated into the article. (Igny 05:54, 12 August 2007 (UTC))

I wonder if Wikipedia can use a chart from [2] (Igny 00:38, 17 August 2007 (UTC))

Great Depression

This sounds a lot like what happened back in the 1930s, with people buying more and more on credit, and then being unable to pay the piper when the time came to do so. Think we're headed for another "Great Depression"? RingtailedFox • Talk • Stalk 16:15, 12 August 2007 (UTC)

This is not a place for forum, but I saw papers which marked similarities between 1920s, 1987, end of 1990s, and 2007. After each crisis new safeguards were put in place to avoid dire situations. (Igny 16:48, 12 August 2007 (UTC))
Yeah this isn't a forum, but this situation is very similar to what occurred in 1998 with the Russian financial crisis or in 1989 when the junk bond market collapsed. Clinevol98 19:33, 12 August 2007 (UTC)
This is not going to be a repeat of the great depression so long as world war or pandemic does not occur. But it is a major world wide financial event that will take a decade to sort out. Avoiding destructive behavior like war between major powers and promoting productive behavior like employment through whatever lie is needed is the essence of modern government. WAS 4.250 02:22, 13 August 2007 (UTC)
You might find it was the case that the Great Depression ended with the coming of the world war, see "Rearmament and recovery" section of that article. Here in Australia the treasurer of the central bank predicts that it may take 20 years for the property market to fully recover. Now, that could be depressing. As for financial crises such as the Asian one of 1997, they appear to be about value of currency doing something fatal, rather than a knock-one bad credit effect. A collapse is a bad fall but the economic machinery can be very different. Julia Rossi 11:08, 13 August 2007 (UTC)
There was no pandemic and no war which led to the Great Depression. The second World War is actually cited as one of the many factors which led to the END of the Depression. Justin Bacon 20:23, 15 August 2007 (UTC)

Liquidity Injection

I would be interested in learning more about the Fed's response to this that seems to be referred to as 'liquidity injection'.

The Federal Reserve "injecting" money into the financial system came in the form of repurchase agreements. On Friday, specifically, the Fed came in and bought some mortgage-backed securities that had basically frozen up due to a lack of liquidity. The injections by the European Central Bank I believe were loans made to banks at a discount rate in order to provide liquidity. Clinevol98 22:54, 12 August 2007 (UTC)

Graphs?

Would it be possible to visualize the financial situation in graphs?

most of our newspapers (Australia) are offering graphs that just go jaggedly downwards – for example see Financial Review Aug 11, 07. I don't know of any free use ones, but maybe somebody does.Julia Rossi 10:52, 13 August 2007 (UTC)

Banks injecting money - Where?

Does anyone know where exactly the government banks are injecting money? I don't understand that part. --Savedthat 18:31, 13 August 2007 (UTC)

They are basically loaning money to primary dealers, banks that the Fed conducts their open market operations with. Clinevol98 22:18, 13 August 2007 (UTC)
Does this amount to the FED printing money or increasing the money supply? Is this money that the Fed actually has gathered from revenues or is it borrowing and thus increasing the money supply? Sandwich Eater 16:06, 14 August 2007 (UTC)
According to Brad DeLong, "the monetary base in the North Atlantic economies is 7% higher" after the August 9 central bank actions. The banks accepted mortgage backed securities as collateral for these loans. The central banks set the period of time in which the loans must be repaid, ranging from 24 hours to one month. See http://delong.typepad.com/sdj/2007/08/central-banking.html. Accepting the MBSs as collateral is curious, considering that they seem to have had zero value at the time. SMaykrantz 04:45, 7 September 2007 (UTC)

The money comes out of their own coffers I'm assuming, and, yes, it does increase the money supply because the money is coming out of a Fed vault and into the public. Clinevol98 16:55, 14 August 2007 (UTC)

It seems likely then that the sub-prime lending crisis has to either result in (a)massive inflation or (b)interest rate increases, one or the other, or both. Is that adequately covered in the results forecast section? Surely there must be coverage and references to site as appropriate for an encyclopedia. Sandwich Eater 22:34, 17 August 2007 (UTC)
I traded FedFund Options at the CBOT and I have also worked for Countrywide FSL (subprime) as an Account Executive. A brief summary of the FOMC method for disbursing cash to the Federal Reserve Banking System member banks:

1) The FOMC sets a 'target rate' for 30-day Fed Funds (hereafter called FedFunds or FF) at its scheduled meetings, or changes the rate between meetings when it deems necessary to prevent undesirable economic issues. The latter method was prevalent before the advent of the meeting calendar in the late 1990s and seems to be more acceptable to the FOMC as evidenced by intermeeting rate cuts in January and March of 2008.

2) Every day the New York Fed (hereafter NY Fed) makes FedFunds available to member banks. The NY Fed usually tries to keep the 'actual rate' close to the target rate, essentially to keep themselves from looking like they don't have control over the money supply. In order to do this, they must either make more cash available or take cash out of the federal reserve system. If there is equal demand on both sides of the target rate then the NY Fed doesn't need to do anything.

3) The spread between the FF 'target rate' and 'actual rate' is referred to as 'slippage' in industry parlance. This slippage can vary quite a lot above and below the target rate, relatively speaking.

4) When the NY Fed allows member banks to borrow FF, the member banks are then allowed to issue notes with their names on it. If you look at US currency it will show which member bank issued the bills.

5) Member banks are allowed to loan out (or use to service their exposure to the Credit Default Swap market) $10 for every $1 they have in reserve. It is easy to see the inherent price inflation and currency devaluation which result from such an arrangement. For comparison's sake, the average individual might be allowed to have 2 to 1 leverage in their Ameritrade account to use for margin trading.

6) This cycle goes on every day and the FOMC adjusts its FF target rate at its scheduled meetings to meet the needs its determines are important for the US economy (ostensibly, anyway).

So in conclusion, the FOMC gives member banks the 'right' to print more currency and since this is the only legal tender in the US, US currency amounts to Fiat Money. It is worth as much or as little as the FOMC decides it will be worth. 'Printing Money' is one way to say it but I think everyone can see the loaded nature of the term. If there is anything unethical about the arrangement, it is the disparity between the privileges accorded to member banks versus the lack of recourse accorded to private citizens who are forced to use the currency in every facet of their lives.

I hope this helps to clarify things a little bit, I will try to find some material from the FOMC itself explaining the process. It isn't very accessible in the manner I described it above, LOL. Seriously though, I would recommend finding an out-of-print copy of 'The Alpha Strategy' by John Pugsley. It is an excellent read and the discussion of how the FOMC perpetuates price inflation through control over the Fiat money supply in this country is the best I have read. DavidMSA (talk) 04:16, 18 March 2008 (UTC)

recuperate vs. recoup

I checked with "http://www.onelook.com/?w=recuperate&ls=a", and sure enough, the use of the word "recuperate" is OK in a context like "without a means to recuperate losses". However, there it seems to be a tertiary meaning of the word "recuperate", whereas, according to "http://www.onelook.com/?w=recoup&ls=a", the meaning intended here is the primary meaning of the word "recoup". Hence, I would like to suggest that we seriously consider changing "without a means to recuperate losses" to instead say "without a means to recoup losses". (to whom am I making this suggestion? I guess, to those who might know more about the original intent here, or might have some other kind of expert knowledge - beyond that available from onelook.com - about which word to use). (actually, anyone who reads - vs. just adding to - discussion or "Talk:..." pages, is welcome to be my audience, and any feedback would be welcome.) Mike Schwartz 18:15, 13 August 2007

Oops! the above has been changed - in the article. Does this mean that this "section" of the "talk" page should now be deleted? (or should it be archived first?) Mike Schwartz 21:44, 20 August 2007 (UTC)

History and issues versus cause and effect

I moved three paragraphs from the body to the lead which allowed the restructuring from a cause and effect division into a structure that is based on chronology/history/time and issues. Dividing the interactions and issues into these are causes and these are effects does not fit the source data. One thing leads to another and they are all interrelated. WAS 4.250 12:45, 16 August 2007 (UTC)

This is a good point and should not be overlooked. While the overinflated housing market in some parts of the US did not help the situation, they certainly did not cause the lax underwriting principles that paved the way for the problems we are seeing today. DavidMSA (talk) 04:32, 18 March 2008 (UTC)

Expectations and forecasts

I retitled this section to emphasize that we are just reporting what notable people say and not ourselves summing up what the possible outcomes will be. WAS 4.250 12:54, 16 August 2007 (UTC)

First Magnus goes down

http://www.forbes.com/feeds/ap/2007/08/16/ap4028546.html

http://www.bizjournals.com/phoenix/stories/2007/08/13/daily51.html

http://firstmagnus.com/

"This is a prime example of the argument that central bank behavior destroys the myth of the free market"

The "Role of world banks..." section, after saying about how much money the various banks are releasing into the markets, contains the text:

This is a prime example of the argument that central bank behavior destroys the myth of the free market

and then has a blockquote from a website which complains that people who say that the free market is a good are the same people who applaud the actions of such banks.

I don't understand this sentence: what is the "this" which is a prime example? Does it mean

1) that the banks' actions show them to believe the argument/point of view that central bank behaviour destroys the myth of the free market? If so, how does it show this, and what's the relevance of the quote? It's not at all clear to me what the banks' opinions of the free market are.

Or 2) that the quote is a prime example of this argument/point of view? If so, why are we including it when we haven't mentioned this POV earlier in the section, how is it relevant, and why are we giving space to one POV and not other ones? Marnanel 18:57, 17 August 2007 (UTC)

It's an opinion piece that is only encyclopedic if the person giving their opinion is notable or expert in regards to the subject matter of the opinion. Perhaps a better quote covering the same territory can be found from someone who is a recognized expert - or a reliable source found that indicates this guy is such an expert. WAS 4.250 21:23, 17 August 2007 (UTC)

__________ The original quote is potentially very useful, but it is a bit confused as it stands. The speaker apparently means to say something along the lines of "this is a prime example of why arguments against central-bank intervention are flawed." His point seems to be, and here the speaker is correct, that many in business or industry often contend that government interference in the market is inherently wrong, and they fall back on slogans about how Smith's "invisible hand" will somehow smooth over bumps better than a clumsy government can.

The latter is a familiar claim during market highs, that government "meddling" will just create more problems than it solves. The speaker is trying to draw attention to the fact that those same free-market advocates are not shy about asking for government intervention during crises like this one. (A bit like the teenager who demands that mom stay out of his life, until he needs tuition money, when he then accuses her of "not caring" if she tells him to get a job.)

Hence, the accusation is relevant to this article, because some do appear to want it both ways: when they stand to get rich by trading in extremely risky debt/loans, they demand that the government mind its own business and not try to regulate them. But once everything hits the fan, those same institutions and investors tend to blame the government for not doing enough to bail out the financial markets, typically by tinkering with interest rates or injecting $$$.

For these reasons, the meaning behind the original quote is very relevant to the gist of the article. Surely many around the world with a stake in this crisis are going to point out that government safeguards, including restrictions on how people could finance a home (even when in some cases the banks hardly bothered to see if the home-owners were employed) might have at least minimized the problem.

How to work that sentiment into the article while retaining the objective tone will be something of a challenge. But to the extent that the article attempts to suggest possible causes of the sub-prime crisis, and not merely document its course, the ambivalent relationship between the wealthy and government regulations would have a natural place in that discussion. C d h 16:17, 18 August 2007 (UTC)

While all that is true, Wikipedia is an encyclopedia and not a blog; so a reliable published source that attributes such opinions (or others) to a noteable person or recognized expert is needed. WAS 4.250 16:30, 18 August 2007 (UTC)

Changes within the subprime mortgage industry

One thing I see missing from this article is the effect that this is having on currently existing operating mortgage lending institutions. I don't think a detailed run-down is needed on what exactly has changed, but the market for certain types of mortgages has disappeared. If this is helpful, I can dig up some information. The-bus 18:46, 21 August 2007 (UTC)

Billions in Put Options purchased betting that the market will crash by 9-21 by 30-50%??!

plz add this http://www.anomalicresearch.com/optioncall.html 4.5 billion aint less.whoever betted knows what he is doing. —Preceding unsigned comment added by 122.163.35.157 (talk) 12:51, August 27, 2007 (UTC) for skeptics who dont trust alternative sites http://www.financialnews-us.com/?page=ushome&contentid=2448565379 —Preceding unsigned comment added by 122.163.35.157 (talk) 12:57, August 27, 2007 (UTC)

That's actually a pretty standard transaction. It's part of an options spread Watson Ladd 01:55, 5 September 2007 (UTC)

H3 report

Should we put something in about the recent H3 report showing banks failed to meet reserve requirements recently? Watson Ladd 01:55, 5 September 2007 (UTC)

The Economist's report (PDF) and the BIS comments on a depression, should be added to "Expectations.."

The Economist has a lengthy PDF report Australian PDF 42-pages on subprime which lays out these three scenarios:

The Economist Intelligence Unit released a 42-page report on the effects of the US sub-prime mortgage sector, and says there is a 30 per cent chance the US will fall into a recession.

Global outlook: The good, the bad and the ugly The main risk to the world economy is a deflationary spiral in asset prices The tremors in financial markets have gone far beyond their beginnings in the US subprime mortgage sector, and indeed far beyond the borders of the US. The full impact on the markets, and the repercussions on the global economy, remains unclear, but we can sketch out three broad scenarios: • Scenario 1. The Economist Intelligence Unitçs central forecast, to which we attach a probability of 60%, sees the impact being contained by timely monetary policy action, with only a modest effect on the global economy. • Scenario 2. Our main risk scenario, with a 30% probability, envisages the US falling into recession, with substantial fallout in the rest of the world. • Scenario 3. Should the US enter recession, another, darker scenario arises: that corrective action fails, and severe economic repercussions cascade from the US into the world economy with devastating effect. We attach only a 10% probability to this outcome, but the potential impact is so severe that it warrants careful consideration. Since scenario 1 informs our regular output and scenario 3 has a low probability, the bulk of this report focuses on scenario 2

Also, the Bank of International Settlements said a depression is possible. http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/25/cncredit125.xml 99.245.173.120 11:35, 6 September 2007 (UTC)

Archive This is an archive of past discussions. Do not edit the contents of this page. If you wish to start a new discussion or revive an old one, please do so on the current talk page.