Citigroup, Merrill Lynch reveal 15 billion in losses

[MetalAges]

^ Correct, which we were also pitched with pressure the last visit we made a year or so ago.

 

[The Ozzman]

^ Correct, which we were also pitched with pressure the last visit we made a year or so ago.

I remember a story about those on one of the nightly news programs a few years back (probably 2005 or 2006) when no one ever thought this shit would happen. Knowing what I now know about finance, I laughed my ass off when I read up about those again. I mean, people who buy those obviously don't know how they work and the people who sold them were smart to prey on those people, but it's a shame that many people aren't educated about home financing and just finance in general.

 

[Unfaithfully Metalhead]

This situation has created a net loss for the organization, meaning that it is non-zero-sum. You need to read up on game theory, it seems.

On the contrary, you really seem to need to read up on Zero sum and such. Because you only see one side and not two. For every winner there is a loser and vice/versa. The sub-prime mortgage lenders lost in this situation but others won such as Goldman Sachs and a half dozen Hedge Funds that bet against the mortgage industry before the collapse & went short in the Markets. Somebody wins, somebody loses. Instead of taking your professors' own opinions as gospel why not try opening your mind and not be close minded. Below should jog your memory of Zero-Sum:

In game theory and economic theory, zero-sum describes a situation in which a participant's gain or loss is exactly balanced by the losses or gains of the other participant(s). It is so named because when the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero.

 

[The Ozzman]

Depends on the parties you're analyzing

 

[byrne]

This is way better than I could have put it. Do you study finance/economics at all?

I did economics / accounting at uni, and have since finished my professional qualifications. Not really something you learn from study though, its practical application. I've worked for Ernst & Young for the last 4.5 yrs, specifically consulting with banks (mainly) on risk (including credit) and accounting.

 

[The Ozzman]

I did economics / accounting at uni, and have since finished my professional qualifications. Not really something you learn from study though, its practical application. I've worked for Ernst & Young for the last 4.5 yrs, specifically consulting with banks (mainly) on risk (including credit) and accounting.

That would explain why you were more eloquent than I was when explaining that stuff

Having experience in risk management and the accounting associated with it is a plus in a market like this. I have a buddy who is going to start working for E&Y once he finishes his MBA

 

[Bothering]

It's also worth noting that bank's weren't really directly doing the lending (well the majority of it). Whilst they were the source of funds, the decisions to lend were made largely by mortgage brokers (I can explain that later if you'd like).

I would like to hear more about this actaually. I have absolutely no idea of the disconnection/connection between the banks and the mortgage brokers.

 

[The Ozzman]

Good thing my folks transferred all their shit to UBS last year.

Too bad UBS just got downgraded by Moody's

 

[byrne]

The concept of mortgage broker is, that they act as agents of the bank. That is, rather than the bank going through the process of assessing you for credit and lending you the money, mortgage brokers do that, and obtain the funding for you. (Their incentives come from commissions, both trail and upfront paid by the banks , based on business/sales volumes)

Whilst they need to be approved by banks which provide funding to them (i.e. effectively engage appropriate credit risk assessment/management practices), they operate more autonomously than a bank's in-house credit origination department would. Due to the business/sales drive incentive program offered to the brokers, credit origination through brokers is typically of lower quality.

From what I've read, a lot of the sub-prime loans were broker originated (reflecting comments above) and the flow on effect is why you have seen the collapse of many mortgage brokers globally (like Northern Rock in the UK, RAMS in Australia etc.) These entities have either got themselves into trouble through direct exposure to this disaster, or as I mentioned before, nervous markets are much more hesitant to lend through these loose credit conduits.

 

[Unfaithfully Metalhead]

The concept of mortgage broker is, that they act as agents of the bank. That is, rather than the bank going through the process of assessing you for credit and lending you the money, mortgage brokers do that, and obtain the funding for you. (Their incentives come from commissions, both trail and upfront paid by the banks , based on business/sales volumes)

Easier said, they are middlemen. The more mortgages they sell the more commissions for them.