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Why do we allow the securitization of these loans? Securitization is just a way to move risk oversight and responsibility from the lender to the customer of the

Why do we allow the securitization of these loans? Securitization is just a way to move risk oversight and responsibility from the lender to the customer of the security.

yuhong 10y ago
Thinking about it, even margin loans would probably be better. This is still not as bad as doing it on housing though.
darawk 10y ago
Why wouldn't we? It's the customer of any financial product's job to do sufficient due diligence. That's like saying "selling stock is just a way to move risk oversight and responsibility from the company to the shareholder", every time the market dips. The only problem with the subprime housing crisis was that its sheer scale caused the government to have to step in, and almost caused the collapse of the banking sector. However, correct me if i'm wrong, but there's no such risk here. And as such, this is just some investors making a bad bet - which is perfectly fine and to be expected in the course of capitalism.
- pstuart 10y ago
  Wasn't there a problem with the ratings agencies failing to do their job properly?
  - claytonjy 10y ago
    This was very much part of it; they were even incentivized to inflate ratings. I really liked the explanation in Nate Silver's Signal and the Noise; another big piece was that risk pools were not as independent as the people/institutions/models assumed.
  - darawk 10y ago
    Yes, there was. But that's a problem that can arise in any market. It's ultimately the buyer's job to do their DD. These car loan securities aren't being sold to retail investors - they're being bought and sold by pension firms and hedge funds. Sophisticated people that can and should do their own DD. Whether or not they do it is on them. There's no need for the government to step in here, because the only consequences are to the investors themselves, not the general public. The global financial crisis was a unique case, due to how widespread and enormous the size of the problem was. If these mortgage backed securities hadn't been so huge, it would have been a non-story about how some investors lost money by making a bad bet (i.e. what happens every single day on wall street).
    - vkou 10y ago
      Part of being able to do DD is expecting integrity from auditors, and ratings agencies. One of the big problems of 2008 was that the rating agencies were, essentially, conducting fraud on a massive scale. Perhaps it is a bit naive of me to expect either from a financial firm... But it really is in their best interests to maintain some semblance of law and order in their dealings. After all, if things get bad enough, there will not be a shortage of hemp and lampposts.
      - darawk 10y ago
        In the financial crisis, maybe. But there is no indication that is going on here.
- drspacemonkey 10y ago
  One of the biggest issues with the housing market collapse was that the size of the fan wasn't known until it met the shit. There was a LOT of "safe" money invested into mortgage-backed securities. Even people who knew the shitstorm was coming could only guess at how far-reaching the problem would ultimately be. And just like last time, if "too big to fail" institutions start going under, they'll get bailed out again because no politician wants the economy to collapse on their watch.
1001101 10y ago
So they can be sold to charities and pension funds, aka "muppets."
- arrty88 10y ago
  How do you fix the brainless buying? Make pensions great again.
- aianus 10y ago
  This is why I'm against company or state pension funds. It's the worst form of the principal agent problem where you can't choose the agent, you're obligated to keep giving him money, and you can't switch to a different agent or get your money out for decades. Horrible incentives.
fredgrott 10y ago
same could be said for corporate debt as well as its the same financial instruments and structures..

Why do we allow the securitization of these loans? Securitization is just a way to move risk oversight and responsibility from the lender to the customer of the security.

yuhong 10y ago

Thinking about it, even margin loans would probably be better. This is still not as bad as doing it on housing though.

darawk 10y ago

Why wouldn't we? It's the customer of any financial product's job to do sufficient due diligence. That's like saying "selling stock is just a way to move risk oversight and responsibility from the company to the shareholder", every time the market dips. The only problem with the subprime housing crisis was that its sheer scale caused the government to have to step in, and almost caused the collapse of the banking sector. However, correct me if i'm wrong, but there's no such risk here. And as such, this is just some investors making a bad bet - which is perfectly fine and to be expected in the course of capitalism.

pstuart 10y ago
Wasn't there a problem with the ratings agencies failing to do their job properly?
- claytonjy 10y ago
  This was very much part of it; they were even incentivized to inflate ratings. I really liked the explanation in Nate Silver's Signal and the Noise; another big piece was that risk pools were not as independent as the people/institutions/models assumed.
- darawk 10y ago
  Yes, there was. But that's a problem that can arise in any market. It's ultimately the buyer's job to do their DD. These car loan securities aren't being sold to retail investors - they're being bought and sold by pension firms and hedge funds. Sophisticated people that can and should do their own DD. Whether or not they do it is on them. There's no need for the government to step in here, because the only consequences are to the investors themselves, not the general public. The global financial crisis was a unique case, due to how widespread and enormous the size of the problem was. If these mortgage backed securities hadn't been so huge, it would have been a non-story about how some investors lost money by making a bad bet (i.e. what happens every single day on wall street).
  - vkou 10y ago
    Part of being able to do DD is expecting integrity from auditors, and ratings agencies. One of the big problems of 2008 was that the rating agencies were, essentially, conducting fraud on a massive scale. Perhaps it is a bit naive of me to expect either from a financial firm... But it really is in their best interests to maintain some semblance of law and order in their dealings. After all, if things get bad enough, there will not be a shortage of hemp and lampposts.
    - darawk 10y ago
      In the financial crisis, maybe. But there is no indication that is going on here.
drspacemonkey 10y ago
One of the biggest issues with the housing market collapse was that the size of the fan wasn't known until it met the shit. There was a LOT of "safe" money invested into mortgage-backed securities. Even people who knew the shitstorm was coming could only guess at how far-reaching the problem would ultimately be. And just like last time, if "too big to fail" institutions start going under, they'll get bailed out again because no politician wants the economy to collapse on their watch.

1001101 10y ago

So they can be sold to charities and pension funds, aka "muppets."

arrty88 10y ago
How do you fix the brainless buying? Make pensions great again.
aianus 10y ago
This is why I'm against company or state pension funds. It's the worst form of the principal agent problem where you can't choose the agent, you're obligated to keep giving him money, and you can't switch to a different agent or get your money out for decades. Horrible incentives.

fredgrott 10y ago

same could be said for corporate debt as well as its the same financial instruments and structures..