Matrix Forums - LOL

> The lions share of the blame, however, goes to the buyers on either end.
> The prospective homeowner should not be excused for suspending common
> sense, and buying into a loan that they cannot pay. And the investors
> have no cause for complaint when they bought a high-risk/high-return
> asset only to see the risk part come back and bite them. I don't see
> this as a regulatory failure. I've been reading articles about the
> "housing bubble" for about 8 years now - how can anyone claim this was a
> surprise?
>
> Banks and brokers, although they can be accused of pushing a bit too
> hard, were really doing their "job" in this market. What would the
> politicians have said about a major bank that started refusing loans to
> "subprime" prospects during the time when everyone was making out.
> Surely that would have been unfair! Nevertheless, everyone is learning
> the error of their ways. Or at least they will, if they don't get
> bailed out.

While I *partly* agree, let's not forget how the banks "protected"
themselves by rolling up the subprime loans in packets and then by selling
them abroad with the help of "AAA ratings" given by (IMHO) criminal "rating
agencies". This made the problem both a global one, and something whose
extent is not really estimable just now (and, I fear, will not be estimable
for months to come). So, just now the economic landscape is sort of a
minefield, where no one is able to predict where the next "subprime
surprise" will explode. And this, I fear, risks to be the start of a
dangerous confidence crisis.

How the above was both legal and permitted is something beyond me. As I
said, in my naiveness I thought that "overseeing institutions" were just
that: "overseeing institutions". My ignorance :^/
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> The "oversight" here was a big part of what worked against them. The
> "rules" say that a public pension, perhaps, can only invest in AAA
> securities, and in doing so will be safe. Well, of course its not safe
> - its only "safer." And this creates an incentive to defy common sense
> by mathematically creating the riskiest investments possible that can
> still get a AAA rating - and all those regulated institutions are going
> to gobble them up. And as long as you follow the "rules," there's no
> one to blame when it all goes sour.

Yup, but what does seem crazy (to me, I mean; my understanding of economics
= 0.000001%) is how an investment involving something defined "subprime" - a
word that speaks for itself - can get an AAA rating with not a soul blinking
about it. I mean, after I looked into the matter (because this summer my
very own portfolio took an hit from an out of the blue direction), it took
to me maybe 5 mins to grasp the fundaments of what had happened (an
affiliate of the company I invested in had taken a direct hit from a
subprime-based IED).

That out there there are people who studied economics for 10 years-plus and
are paid 300 times what I get - only to let something like this happen like
if it was an Act of God is still beyond my grasp. And I'm not talking about
people who maybe believed to benefit from the scheme - after all rating
agencies and big moneyholders are often bedfellows - but about, for example,
all those "experts" that pipe up from the newspapers or from the tube to
"explain to you how things are". In the Navy a destroyer captain only needs
to scrape some paint from his ship by hitting a buoy to find himself on a
beach with a pail and a shovel.

And (to Eddy), notice how even in our little community of wargamers we
actually are MUCH MORE STRICT than in the big world of big money and big
schemes. Sure, editors give 89% left and right. So what? Just try to give an
AAA rating to a company that uses nazi-DRM schemes and is basically famous
for having just published a bug-ridden game ("Buy this Frontofbattle stock,
you can't do wrong: Beretta & Sterckx rated it higher than Enron, honest!!!)
and you will see on the daily "5 mins with Giftzy" the whole "expert advice"
trounced into little pieces in... well, less than 5 mins.

> I suspect that ever more rules will just create ever more loopholes.

This is how my father sees matters too - and *I* was supposed to be the
family cynic )

>> You sound like a gamer who discovers the 89% editor's choice wargame
>> was actually pretty average and sometimes crashed. Something tells
>> me you're not that innocent and naieve
>
> How did we ever get onto the topic of wargames, of all things?

Dunno, debates over here have the habit of going into the strangest of
places...
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Vincenzo Beretta wrote:

> Yup, but what does seem crazy (to me, I mean; my understanding of
> economics = 0.000001%) is how an investment involving something
> defined "subprime" - a word that speaks for itself - can get an AAA
> rating with not a soul blinking about it.

Our favorite expert source explains - http://en.wikipedia.org/wiki/Tranche

> That out there there are people who studied economics for 10
> years-plus and are paid 300 times what I get - only to let something
> like this happen like if it was an Act of God is still beyond my
> grasp.

Because the experts aren't as "expert" as the claim they are. Whether
it is laziness, or a lack of knowledge, what you hear/read is probably
just what someone else told them to say. Or maybe they just read the
Wikipedia article, and figured that made them an expert.

Was there really anyone who actually *knew* what the odds of the safest
tranche going belly up. They just cranked it through the math-models
until the magical AAA popped out. Those math models get so complex, who
knows what's going on under the hood. Certainly not the financial
expert on CNN.

The fact is, the way the AAA part of the transaction is defined, it
certainly sounds safe to me! So it looks equally inconceivable that a
AAA financial product went so wrong... the statistical basis of that
seems to make it almost impossible to happen.
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"Big Salad" <big.salad.DeleteThis@hotmail.com> wrote in message
news:476C3B6E.5020305@hotmail.com...
> The fact is, the way the AAA part of the transaction is defined, it
> certainly sounds safe to me! So it looks equally inconceivable that a
> AAA financial product went so wrong... the statistical basis of that
> seems to make it almost impossible to happen.

It appears that one of the problems is that markets don't follow normal
distributions, so we don't have well developed mathematics to handle their
real behavior. In the time honored fashion, we ignore the fact and keep
using the math we have, even though it is wrong. Real life has much bigger
tails than the math expects. So we get multiple events within a 10 year
period when the math says that we should see one in a 1000. The experts in
the banks and rating companies build fancy models based on spurious math and
then are enormously surprised when the real world hits them up along side
the head with a crisis that they wouldn't expect to see in a 100 years or
more.

Jerry Steiger
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In article <476C3B6E.5020305.RemoveThis@hotmail.com>, big.salad.RemoveThis@hotmail.com says...

> The fact is, the way the AAA part of the transaction is defined, it
> certainly sounds safe to me! So it looks equally inconceivable that a
> AAA financial product went so wrong... the statistical basis of that
> seems to make it almost impossible to happen.

The right way to think about this is to look at life insurance:

*Everybody* dies. So how can selling life insurance be profitable?

<wink>

--
Giftzwerg
***
"I still find it hard to believe that the invention of the catapult
preceded the invention of the computer and all its peripherals; nothing
in human history exceeds the ability of the computer to make its user
want to construct a device that hurls heavy objects as far away as
possible."
- James Lileks
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On 21 dec, 22:06, "Vincenzo Beretta" <reck....DeleteThis@hotmail.com> wrote:
>
> And (to Eddy), notice how even in our little community of wargamers we
> actually are MUCH MORE STRICT than in the big world of big money and big
> schemes. Sure, editors give 89% left and right. So what? Just try to give an
> AAA rating to a company that uses nazi-DRM schemes and is basically famous
> for having just published a bug-ridden game ("Buy this Frontofbattle stock,
> you can't do wrong: Beretta & Sterckx rated it higher than Enron, honest!!!)
> and you will see on the daily "5 mins with Giftzy" the whole "expert advice"
> trounced into little pieces in... well, less than 5 mins.

That's because we take wargames more seriously than money

Seriously : the key difference - which you typed above - is "little
community". There are no secrets in small villages and everyone knows
about the rotten beam in the roof of farmer John's stable. I believe
your anger is both directed at the rating agencies giving triple-A
ratings to risky loans *and* the guys selling you a portfolio based on
those ratings while everyone in the business *knows* they were risky
and all of them playing a game of "pass the hot potatoe around".

That's why they have consumer mags dealing with these things, but most
people don't want to get too much involved in this stuff so they trust
their banker's advice. A banker who has a quarterly sales review
coming up and still needs to sell a load of high risk - high payoff
stuff ...

Comparing it with game reviews was probably wrong of me, because when
you make the analogy it's more that the only people who got fooled are
the ones who only read the game company's website and never bothered
to read the real reviews. Both my father-in-law and my brother-in-law
are big into this stock exchange / investing thing and neither of them
took a hit - because they read the real reviews, not the pretty
brochures the banks make.

Greetz,

Eddy Sterckx
 >> Stay informed about: Matrix Forums - LOL 

On 22 dec, 01:27, "Jerry Steiger" <gwstei....DeleteThis@comcast.net> wrote:

> It appears that one of the problems is that markets don't follow normal
> distributions, so we don't have well developed mathematics to handle their
> real behavior. In the time honored fashion, we ignore the fact and keep
> using the math we have, even though it is wrong. Real life has much bigger
> tails than the math expects. So we get multiple events within a 10 year
> period when the math says that we should see one in a 1000. The experts in
> the banks and rating companies build fancy models based on spurious math and
> then are enormously surprised when the real world hits them up along side
> the head with a crisis that they wouldn't expect to see in a 100 years or
> more.

Got a good story here.

Many years ago I worked for a bank and got involved in a project which
tried to calculate *exactly* the costs and benefits involved with
particular kinds of transactions, taking into account all the
variables. The project leads were mathematicians who came-up with
formulas that were literally a page long - no kidding.

The object of the project was to pinpoint "bad customers" - the ones
who costed the bank money. It was incredibly complex and in the end it
succeeded in pointing the finger at people with little money on their
account and lots of tiny payments / withdrawals per month (duh). These
people were to be send a letter that their accounts would be closed.

I screamed bloody murder and officially objected to participating in
that last part of the project - not because I'm such a socially minded
person, but because what that fabulous program failed to take into
account was that grandpa-on-a-pension might not be a profitable
customer, but that his kids and grandkids probably are and guess what
will happen if they learn the bank kicked their grandpa's account and
I was not going to take the flak for that. The financial and
mathematical experts at head office totally failed to see this problem
until the branch managers out in the field started to scream bloody
murder over it too. The finished project got buried, deep.

Greetz,

Eddy Sterckx
 >> Stay informed about: Matrix Forums - LOL 

In article <176986db-a283-4024-ad91-
afaa0bdd93ef DeleteThis @w56g2000hsf.googlegroups.com>, eddysterckx DeleteThis @hotmail.com
says...

> Got a good story here.
>
> Many years ago I worked for a bank and got involved in a project which
> tried to calculate *exactly* the costs and benefits involved with
> particular kinds of transactions, taking into account all the
> variables. The project leads were mathematicians who came-up with
> formulas that were literally a page long - no kidding.

.... and you, realizing the brilliance of their calculations, stole and
internalized their brilliant work, subsequently wagering your entire
family's lives savings in risky (but certain!!!) parlays into industrial
might and castles in the Italian Alps?

No?

> The object of the project was to pinpoint "bad customers" - the ones
> who costed the bank money. It was incredibly complex and in the end it
> succeeded in pointing the finger at people with little money on their
> account and lots of tiny payments / withdrawals per month (duh). These
> people were to be send a letter that their accounts would be closed.

But look at things from the <thing> broker's perspective. The very
*last* customer they want to work with is a fiscal conservative like me;
I have a credit rating of 817, I've paid off everything, I own property,
and my total credit card balance is exactly *zero* at the end of the
month ... they can't make a *dime* of financial reserve off me.

Ask one of the Mazda dealers under your corporate thumb; they *hate*
guys like you and me. They *want* to deal with credit criminals!!!
They can hammer them hard for several thousand Euros on every deal.

Viva Japon!!!

> I screamed bloody murder and officially objected to participating in
> that last part of the project - not because I'm such a socially minded
> person, but because what that fabulous program failed to take into
> account was that grandpa-on-a-pension might not be a profitable
> customer, but that his kids and grandkids probably are and guess what
> will happen if they learn the bank kicked their grandpa's account and
> I was not going to take the flak for that. The financial and
> mathematical experts at head office totally failed to see this problem
> until the branch managers out in the field started to scream bloody
> murder over it too. The finished project got buried, deep.

You fool, you; you've got waaaaaaaaaaay too much common sense to give
them the answers they had in mind.

--
Giftzwerg
***
"I still find it hard to believe that the invention of the catapult
preceded the invention of the computer and all its peripherals; nothing
in human history exceeds the ability of the computer to make its user
want to construct a device that hurls heavy objects as far away as
possible."
- James Lileks
 >> Stay informed about: Matrix Forums - LOL 

On 27 dec, 00:28, Giftzwerg <giftzwerg....RemoveThis@NOSPAMZ.hotmail.com> wrote:
> In article <176986db-a283-4024-ad91-
> afaa0bdd9....RemoveThis@w56g2000hsf.googlegroups.com>, eddyster....RemoveThis@hotmail.com
> says...
>
> > Got a good story here.
>
> > Many years ago I worked for a bank and got involved in a project which
> > tried to calculate *exactly* the costs and benefits involved with
> > particular kinds of transactions, taking into account all the
> > variables. The project leads were mathematicians who came-up with
> > formulas that were literally a page long - no kidding.
>
> ... and you, realizing the brilliance of their calculations, stole and
> internalized their brilliant work, subsequently wagering your entire
> family's lives savings in risky (but certain!!!) parlays into industrial
> might and castles in the Italian Alps?
>
> No?

It might surprise you (ahum) but I didn't

It's just another example of why there's no formula that can
accurately predict stock market fluctuations over a long period of
time : the human factor messes-up the nice math. Same goes for
"ratings".

Greetz,

Eddy Sterckx
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On 27 dec, 04:42, "Vincenzo Beretta"

> I don't know if there are other
> methods

There's automatic deduction/invoicing systems. At the end of the month
the credit card company sends you the bill and directly deducts the
amount of money from your bank account.

This automatic invoicing system is widely used over here by all sorts
of utility companies, but I think people who allow outside companies
to have a direct invoice right on their own bank account for
convenience sake are just nuts.

Now, in the case of Visa and MasterCard it's not that you've got
options : you either go through a bank - in which case it's automatic
deduction or you won't get the card - or deal with BCC (the issuer of
Visa / MC) directly, which sends you the invoice to pay. But all their
private customers (including me) got a letter recently saying their
service would end on January 1st and that I needed to look to a bank
to get a new CC. In fact I'm phoning the bank today to get this sorted
out.

Greetz,

Eddy Sterckx
 >> Stay informed about: Matrix Forums - LOL 

> and my total credit card balance is exactly *zero* at the end of the
> month ... they can't make a *dime* of financial reserve off me.

What do you mean with this? That at the end of the month you totally repay
the credit card company (you spend $1000 and the same amount is subtracted
from your bank account), so you never went into red and had to spread the
payment over several months - or that you can actually can repay the credit
card company *during* the month so that at the end you owe them nothing?

I ask this because I have always fully paid my CC debt - but only when the
bill comes at the end of every month. I don't know if there are other
methods (and, no, I will NEVER get one of those credit cards that *make* you
spread the payments over several months: "Go to see Australia now, pay in 15
years!, with three digits interest rates!!!)
 >> Stay informed about: Matrix Forums - LOL 

In article <paFcj.28831$8j3.22743@tornado.fastwebnet.it>,
reckall.DeleteThis@hotmail.com says...

> > and my total credit card balance is exactly *zero* at the end of the
> > month ... they can't make a *dime* of financial reserve off me.
>
> What do you mean with this? That at the end of the month you totally repay
> the credit card company (you spend $1000 and the same amount is subtracted
> from your bank account), so you never went into red and had to spread the
> payment over several months - or that you can actually can repay the credit
> card company *during* the month so that at the end you owe them nothing?
>
> I ask this because I have always fully paid my CC debt - but only when the
> bill comes at the end of every month. I don't know if there are other
> methods (and, no, I will NEVER get one of those credit cards that *make* you
> spread the payments over several months: "Go to see Australia now, pay in 15
> years!, with three digits interest rates!!!)

<shrug>

I dunno how your bank figures it, but my bank only charges me interest
on the amount carried over from one payment period to the next. If I
charge $100.00 in December, my credit card balance on my December
statement will be $100.00. If I only pay $50 of this, then they'll
touch me up for a month's interest on the outstanding $50.

My point is that when your credit rating is high, you qualify for lower
interest rates, and lenders get a skinny deal when you buy something on
credit. When I bought my Toyota, I qualified for an APR rate that was
essentially (if not *actually* ... I forget) zero percent. That made
for some long faces at the dealer's F&I office, since their cut of my
cost of financing was ... nothing. Car dealers and real estate brokers
are much happier to see some credit criminal in their office, since they
can beanball him with 17% interest.

--
Giftzwerg
***
"I still find it hard to believe that the invention of the catapult
preceded the invention of the computer and all its peripherals; nothing
in human history exceeds the ability of the computer to make its user
want to construct a device that hurls heavy objects as far away as
possible."
- James Lileks
 >> Stay informed about: Matrix Forums - LOL 

eddysterckx.RemoveThis@hotmail.com wrote:
> On 27 dec, 04:42, "Vincenzo Beretta"
>
>> I don't know if there are other
>> methods
>
> There's automatic deduction/invoicing systems. At the end of the month
> the credit card company sends you the bill and directly deducts the
> amount of money from your bank account.
>
> This automatic invoicing system is widely used over here by all sorts
> of utility companies, but I think people who allow outside companies
> to have a direct invoice right on their own bank account for
> convenience sake are just nuts.
>
> Now, in the case of Visa and MasterCard it's not that you've got
> options : you either go through a bank - in which case it's automatic
> deduction or you won't get the card - or deal with BCC (the issuer of
> Visa / MC) directly, which sends you the invoice to pay. But all their
> private customers (including me) got a letter recently saying their
> service would end on January 1st and that I needed to look to a bank
> to get a new CC. In fact I'm phoning the bank today to get this sorted
> out.
>
I have a Visa Credit Card thru my bank and they do NOT require automatic
deduction. I think you are confusing Credit Cards with Debit or Check
Cards. The latter can use the Visa or Mastercard names and any payments or
purchases you make with them will be automatically deducted from the linked
bank account. I have one of those too but it started out as "just" an ATM
card.

--
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you.
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