Posts Tagged ‘housing bubble


great article on early-adopter hedge fund guy who made millions off real estate bubble


It surprised him that Deutsche Bank didn’t seem to care which bonds he picked to bet against. From their point of view, so far as he could tell, all subprime-mortgage bonds were the same. The price of insurance was driven not by any independent analysis but by the ratings placed on the bond by Moody’s and Standard & Poor’s. If he wanted to buy insurance on the supposedly riskless triple-A-rated tranche, he might pay 20 basis points (0.20 percent); on the riskier, A-rated tranches, he might pay 50 basis points (0.50 percent); and on the even less safe, triple-B-rated tranches, 200 basis points—that is, 2 percent. (A basis point is one-hundredth of one percentage point.) The triple-B-rated tranches—the ones that would be worth zero if the underlying mortgage pool experienced a loss of just 7 percent—were what he was after. He felt this to be a very conservative bet, which he was able, through analysis, to turn into even more of a sure thing. Anyone who even glanced at the prospectuses could see that there were many critical differences between one triple-B bond and the next—the percentage of interest-only loans contained in their underlying pool of mortgages, for example. He set out to cherry-pick the absolute worst ones and was a bit worried that the investment banks would catch on to just how much he knew about specific mortgage bonds, and adjust their prices.

Once again they shocked and delighted him: Goldman Sachs e-mailed him a great long list of crappy mortgage bonds to choose from. “This was shocking to me, actually,” he says. “They were all priced according to the lowest rating from one of the big-three ratings agencies.” He could pick from the list without alerting them to the depth of his knowledge. It was as if you could buy flood insurance on the house in the valley for the same price as flood insurance on the house on the mountaintop.

The market made no sense, but that didn’t stop other Wall Street firms from jumping into it, in part because Mike Burry was pestering them. For weeks he hounded Bank of America until they agreed to sell him $5 million in credit-default swaps. Twenty minutes after they sent their e-mail confirming the trade, they received another back from Burry: “So can we do another?” In a few weeks Mike Burry bought several hundred million dollars in credit-default swaps from half a dozen banks, in chunks of $5 million. None of the sellers appeared to care very much which bonds they were insuring. He found one mortgage pool that was 100 percent floating-rate negative-amortizing mortgages—where the borrowers could choose the option of not paying any interest at all and simply accumulate a bigger and bigger debt until, presumably, they defaulted on it. Goldman Sachs not only sold him insurance on the pool but sent him a little note congratulating him on being the first person, on Wall Street or off, ever to buy insurance on that particular item. “I’m educating the experts here,” Burry crowed in an e-mail.


blog fail

check out the comments section exchange here…this is why real estate blogs should stick to talking real estate….

so sad, too young to go

  • The destruction that child molestation causes in peoples lives effects generations and numerous family members. I look so very forward to the truth that WILL now come out.

    As usual the media, and even you, make no mention of the death of Farrah Fawcett on the same day. That is a true tragedy. Jackson’s death came quick. Farrah’s was a far more painful struggle and much more worthy of sympathy.

  • fillmore

    ray is unfortunately correct.

  • Ray, please don’t piss on my grief. What I feel is real…respect that here please.

  • Sorry you felt I “pissed on your grief”. Not sure why you got that impression. It appears we have very different opinions of Michael Jackson. I also enjoyed his music.

    I grieve over the 4 more U.S. soldiers that died today in Iraq. Try and watch this rebroadcast tomorrow night of the struggle and legacy Farrah Fawcett left us. I hope it will ease your grief from the passing of Michael.

  • I have many memories attached to when the Jackson Five songs were playing on the radio. I can remember watching their cartoon TV show on Saturday morning. I remember playing ‘Charlie’s Angels’ after school. I am so shocked and sad. They were both so young.

  • Ray,

    Just say you are sorry and stop it. This is a blog…you want the news, go to CNN. This is my personal feeling today. Your personal feelings on OTHER topics belong on your own blog.

    I wouldn’t have posted this because it was “news”…I posted it because I was very moved. You seem to be moved by other things today…do that by commenting around the internet on posts on those topics.

    Will you ever learn to be on topic? I know you are a nice guy, I just wish you would get a little wiser on what “a blog” is and how to conduct yourself on them.

    I only said FOUR WORDS which are indisbutable and posted it because it is of concern to ME. How can you argue with that?

    If I just told you my Mother died, would you tell me to be more concerned about other things?

    Seriously…this is important to me. That point is not up for argument or discussion. If you can’t say something nice on topic, then just read and leave this post alone!

    I am moved to tears and am profoundly affected and so I blogged it…

  • Ardell, I’m very sorry about your loss.

    “Your personal feelings on OTHER topics belong on your own blog.”

    I’m not allowed to express MY personal feelings on a blog? Why not?

    Not sure why you see everything I write is a “rip” against you. Its a shame we cannot read “tone”. Bringing up the death of your mother as a comparison is way out of line.

    When I saw your title “Michael is gone”. I wrote what popped in my head. Again, sorry for attempting to convey my opinion.

  • Ray,

    My Father died many years ago in pretty much the same manner as Michael. They worked on him for almost the same amount of time with similar results. So the reference to my Mom is NOT out of line, for me. When I posted this, Michael’s death had not even been reported yet by CNN…it was fresh and painful.

    Also, being Italian, the day a man dies is a profound day for me. A day to respect and remember all the good things of his life, from the time he was a small boy. It is a time to pray for his weaknesses and herald his strengths. Death is a whole life passing…

    I can clearly see your perspective, being a nurse, regarding the long suffering. Please try to see mine. There are few deaths that impact me like family, and Michael is one of them. Frank Sinatra’s death was simlar for me. Even Mario Lanza’s death, though I was quite young, still saddens me.

    Reactions to death are involuntary, especially extreme ones. The connections we make internally often defy explanation.

    The World mourns today, and will for days to come. Those who can’t join the sentiment should at least bow their heads and repect the grief of others.

    I see the small boy he once was, I see a talent that only God can bestow, I see the pain of a man who had huge conflicts when he looked at “the man in the mirror” and I feel it all with a heaviness of heart that goes from my head to my toe. I don’t know why. I just do.

    While your reaction I’m sure is also an honest one, it is also like spitting on and stamping on a man’s obituary, and the grief of those who mourn him.

    It is not about his death…it is about his life. I will not be surprised if those who feel most strongly today, are ones who may have lied about him for monetary gain. Maybe not…but I leave that door open as I am not his judge. I remain in awe of his enormous talent and how much it impacted the lives of many, many people.

  • I’m always glad to see Ardell’s admirable writing talents get away (once in a while) from the mechanics of the business of Real Estate buying and selling. JG

  • Oh man. I’ve never seen that vid/performance before. Wow. That’s amazing talent. He worked that stage. Poor man. Tortured. Too bad he really couldn’t enjoy his talent and celebrity and success.

  • To the guys up at the top: MJ and Farrah’s deaths are two diffent events. ARDELL was writing on MJ. She didn’t confuse the two, why should you?

  • 02

    black swan on too much debt in us system

    Vodpod videos no longer available.

    more about "untitled", posted with vodpod


    largest US bankruptcys in history




    pbs’ ascent of money documentary

    niall ferguson narrarates. history of money + financial crisis explanations.


    bailout for home construction industry???

    perfect – let’s inflate yet another hollow housing bubble by building fannie/freddie on steriods.


    Everyone is coming to Washington with their hands out these days, and the home builders are no exception. The builders are pitching Congress on a two-hundred-and-fifty-billion-dollar stimulus package designed to lower mortgage rates (via federal subsidy) and encourage home buying (via a tax credit). Until home prices stabilize, they argue, there’s no way for the financial markets really to settle down.


    great explanation of housing bubble

    this video is of peter schiff at a mortgage convention 2 years ago. he does a great job of explaining how the bubble came about.

    i can attest to the fact that the only way i could have bought a house was 2 years ago was by putting very little down –  but i also acknowledge that if there was no zero down I would have paid a LOT less for my house…because ALL houses in my city would be worth less if everyone had to put 20% down…as you instantly SHRINK your market; you’re lower the # of buyers.

    here’s an example: house selling for $300K in easy credit real estate market where 100% of buyers can do zero down. This same house would be worth a lot less if all buyers had to do 20% down –> which is $60K on a $300 house. its more likely that the average entry level buyer can only afford $20K down, which if you use the 20% down ratio, would mean they could afford a $100K house, which is $200K less than the current ‘entry level’ house in that market. what does this mean? probably that the $300K house is really worth more like $150K.

    key takeaway here is that the value of your house is really a factor of what people can pay in the short run. in the long run i feel safe about my house value, but am glad i’m not selling within the next 5 years.

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