You mean the ones that thought their risk-tolerance was WAY higher than it actually was?
The Economy (2020/21)
- Thread starter rideit
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Everyone has a high risk tolerance until they start losing money.You mean the ones that thought their risk-tolerance was WAY higher than it actually was?
adulting is hard
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Yeah I mean it's not like there's anything interesting about that last gap that stands out from the rest 
Whatever. You can't do shit about it, so what does it matter? If you make a point of being at the right risk level for where you're at in life, zero fucks given.I know better, and went and checked my 401k anyway.
Remind me not to do that.
MIL1 has lost 6 figures in the last month. Zero fucks given because her portfolio is built to spit out income, up market or down. What's it doing? Spitting out income.
Plan right and it doesn't matter. This concludes my TED talk.
I know all that, but morbid curiosity always gets the best of me. To be clear, I'm not actually doing anything, except basking in the glorious, on paper losses. 
maybe I'm an idiot, but I don't follow you.Yeah I mean it's not like there's anything interesting about that last gap that stands out from the rest
what did i miss?
There's a pattern forming across those dates. 2020 is almost irrelevant because that was pandemic related, not shitbag investment products eating the system alive like the previous.maybe I'm an idiot, but I don't follow you.
2008 ended the largest gap in time/biggest buildup, largest collapse, resulting in nothing more than further concentrating financial power from like 12 to about 4 too big to fail banks.
IE: next significant one gon be real bad. For every failure in my lifetime from savings and loan scandals to 2008, the result has always been more and more convoluted financial/trading "products" deliberately designed to be obscured from common understanding and oversight. Capitalism keeps getting craftier with new technologies and people still think it will solve the worlds problems, always failing to realize it creates most of them.
A lot of those crashes were triggered by external factors and not just internal financial fuckery. Oil shortages/gluts, disturbances from advancements in technology and industry like computer based trading and the creation/collapse of whole industries. Shit like that happens all the time about the only pattern one can derive from that is how people will react to it. The stock market isn't actually based on anything in the real world, It is a system of gambling.
I remember going through my product training in 2005/6-ish at Bloomberg and we were talking about CDO's and CDS's. The big thing that stood out to me was the tiered structure for the debt (CDO), that you only had to lose so many of the bad loans for the "good" loans to cause the whole underlying bond to fail (explained below)
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-- in a CDO you can buy 1000 sub-prime mortgages. You have a cash flow of say, $2k/m from each one ($2mm/m total). You then create a synthetic tiered bond using theses cash flows. ---Bond #1 has a yield at $1mm/m, costs $X, and has a AAA-rating. 50% of cashflow
---Bond #2 has a yield of $600k/m, but costs .5*$X, and has a BB-rating (just above junk). 30% of cashflow
---Bond #3 has a yield of $300k/m, costs .25$X, and is rated B (Junk). 15% of cashflow
--- Then you have Bond #4. Yield of $100k/m, costs .02*X, and is rated C-. This thing is a dumpster fire. 5% of cashflow.
If just 5% of those mortgages default, bond 4 is worth $0. 15% of mortgages and bond 3 worth $0. As this goes, risk downstream increases.
A normal bond issues at $1000/bond. The dumpster fire tiers were being issued the same, but we're impossible to sell, so they were more likely to go for $100-200/bond. But the full value was still $1000. This is an important detail.
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So back to CDOs and CDSs. CDOs seemed sketchy as shit, because they were built around shifting cashflows, not actual underlying property. And because the underlying property was all shit, super low rated individually - it just looked good when doctored on paper.
CDS is when shit got wild. You could take out options on the CDOs - all of them, even the dumpster fire tier. So people were buying a "bond" for pennies on the dollar, then taking out an insurance policy "just in case they failed". But they were buying bonds that had a near 100% likelihood of failure if rates went up by 1%.
Mind, I'm just a 25/26 yo kid, just starting out in the deep end of the financial industry pool, but that seemed off to me. I remember running scenario after scenario where I was pulling in a random CDO (these were live, I was pulling CUSIPs) and defaulting it, them looking at the corresponding CDS. And EVERY SINGLE TIME they triggered the CDS to payout on full value of the CDO. I even brought it up to our instructor and was like "hey uh, what your showing us defaults everytime. Is this right?" And he just laughed it off and said he'd send a rsch request to the team that handled the page.
So these guys are buying CDOs for 10-20% of face value. While they're waiting for rates to rise, they're getting paid 20%+ yield. They are then using that yield to buy CDS, also for stupid cheap, because why would the bonds default? And just waiting patiently for the Fed to raise rates and the house of cards to come crumbling down.
Best part? These guys were screaming from the roofs what was going to happen, openly showing their positions, and they were written off as but buckets...
I know that I'm capable of understanding what you just wrote, but I can't possibly bring myself to put in the effort.
Remind me again, why do we, in theory, need all of this shit? Something something market liquidity something? My assumption is essentially:
Remind me again, why do we, in theory, need all of this shit? Something something market liquidity something? My assumption is essentially:
But is there an actual argument to be made for the existence of said convoluted financial/trading "products"?
Generally to make finance bros and gals rich. Until the whole scheme goes Tango Uniform, then the rich finance bros and gals get bailed out.
That's a very simple explanation, obviously.
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Sure but there's always something that kicks it off. The entire structure of oil trading speculation made it vunerable to exactly what happened. Oil didn't magically disappear, OPEC through a tantrum and the glass house fell. But the fact that the system IS a glass house is the problem. Not sudden holding back of oil supply. It's not like the middle east was the only place capable of producing oil supplies. Everyone just focused there because it was cheap and we could kill people for it.
I'm not even really sure what I'd consider the 'kickoff' of what happened in 2008. It was literally the financial products themselves that caved in (credit default swapping/mortage bundle derivatives etc...)
Yeah, that was an actual failure of the financial system. Thank goodness they put protections in place to prevent that from happening again.
Then undid it...
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I can explain that, but I need a bunch of time and a lot of space. So I'm not.
Easiest answer - after tech bubble, rates were dropped to buoy the economy, but were never raised (as they should have been) as it healed. Instead, low rates led to people who otherwise could not have afforded mortgages, being able to buy property. Lenders made all sorts of questionable mortgage types, which were normally limited to high net worth individuals, available to general population, which never ends well.
Those mortgages were bundled up into MBS and sold off as bonds. At a certain threshold, all of the good mtges had been bundled and sold off to Fannie/Freddie/etc. The remaining were bundled up into the CDOs I was talking about above. At a certain point, they could not be sold off anymore, so firms that were writing the loans, we're holding them (Wachovia, Countrywide, etc.) - this includes the sub-prime and junk that they couldn't bundle.
On the flip side, you have those who bot those MBS as AAA MBS. They were rated by Moody's/AMBest/etc, all of whom were paid to rate - so just a touch of conflict there... Who bot those? Banks, mutual fund companies, insurance companies, etc. They were buying AAA rated bonds. They were safe.
Then we have the CDS I mentioned above. Who took the other side of those trades? Investment banks and insurance companies - Bear Stearns, Lehman, and AIG, most notably.
That sets the stage for the "mortgage crisis".
While this comes back to those who were buying more that they could afford with loans they couldn't pay for, they were also being driven that way by sales people. When interest rates ticked up and those 1- 2- 5-year ARMs all came due, people couldn't pay their mortgages. That lead to defaults. Which lead to those CDOs not making their coupon payments leading to their defaults and the CDSs triggering. Once those started then the counterparties had to start paying out - this is where Lehman got nuked. They were counterparty to a LOT of CDSs.
When they faltered, people started pulling funds - a run on the bank. That was when shit went really sideways. Because Bear had refused to bail out LTCM 4 years prior, nobody was going to step up and bail them out. They actually had good trades and JPM made a fuck ton of money off them - they had a liquidity issue they couldn't recover from.
So the default ball is rolling. But it's not just mortgages. ABS (asset-backed securities) are tanking too - you'll pay your mtge before you pay for your dirt bike.
Want to know the best part? The reason those loans were all being given out to subprime? Congress required certain number of loans be made available to population if you're going to sell your mtges to be bundled. The banks had already tapped out all the qualified buyers and were scraping the bucket because they had to.
As the the stock market side? This was before fiduciary was a thing. So people didn't have to necessarily do what was in the best interest of the client. Only get fees when they make money in their accts? 100% stock portfolio. Doesn't matter if they are 80y/o, you don't get paid elsewise. People were in super high risk portfolios, so when it started to slide, the jump outs only caused it to accelerate.
There were fundamentally so many things that in aggregate that caused 2008 to occur. Lots of that stuff was written into law to go away, but some has been pulled back during the Trump era. We shall see.
I don't believe I ever had white sunglasses. Thank you very much.
explains the white sunglasses...............
Defaults on the mtges. The credit markets saw it coming and you can see rates were adjusting 3m in advance. The MBS/ABS we're already defaulting and pricing accordingly. That was the beginning of the liquidity issues and broker calls for principle. Which led to funds selling equity to cover those margin calls. Extended down days, beginning of panic from individual investors, and away we go.
let me tell you about Student Loan Backed Securities .....
does the name "silver" ring a bell?
which a fucking headless squirrel would have known was an eventuality with the predatory lending structures supporting the mortgages
that wasn't a kickoff, that was the slack of the design. A feature, not an event I'd argue
Still pretty sure all black. Wait... One pair of silver Oakley's used for riding. But never Frogskin's.
You posted a pic of some frog lookin white oakleys on your face and silver gave you ENDLESS shit about it
because budding finance bros and white shades go together like pb n j
Generally to make finance bros and gals rich. Until the whole scheme goes Tango Uniform, then the rich finance bros and gals get bailed out.
That's a very simply explanation, obviously.
Financial services is a vampiric industry, sucking capital out of the system they purport to serve. Does their presence have any significant value add? IMO, no. In fact, I'd argue that they negatively impact the system more than any of their "positive" contributions.
And let's be real, they've done a hell of a job ensuring that even more capital gets funneled through their greedy little hands. Retirement accounts, savings accounts, 529s, HSAs. You name it. If you aren't investing you are losing money. You better believe that's just the way they want it too.
Their black tentacles delve further and further into every aspect of our daily lives and ensure that when SHTF, they'll escape unscathed using somebody else's money while the poor schlubs with broken dreams pay the price.
Jesus Christ...I can't believe this came back up. I'll fall on the sword, I was 23 ish...
in retrospect i think the diet mt dew is arguably worse
Don't worry, man... it will continue to come up, when appropriate, until I'm dead.
someone is gonna show him that picture on his deathbedDon't worry, man... it will continue to come up, when appropriate, until I'm dead.
"We sure did have some good times back in the aughts, Sonny."someone is gonna show him that picture on his deathbed
To be fair I didn't consume that. We did however make a giant batch of mojitos that evening which isn't advisable.