Bloomberg: 'Ghost of 1994' looms over Asia

[natnavi]

Hi Temperament,

I believe it was more than just that. The mortgages were packaged so complicatedly that people thought there were "AAA" rated products. It was most likely that the people/funds that bought them, did not know they bought junk. All they cared was that these "AAA" rated products were giving them good ROI.

Unlike in Singapore, in the USA, the companies that issue out mortgages were not banks. These companies will then sell these mortgages to investment banks, who in packaged it nicely as "CDOs" and sell it to retail investors (such as your dbs high note 5). The borrowers of these money were essentially paying their loan back to the retail investors and funds. Because lenders no longer hold any risks for giving out loans, lenders started giving out riskier loans. Banks did not hold any risks as well, as the only think they cared about was selling these CDOs. The true suckers were the people that bought the CDOs. Of cause it was more than that. Banks, in greed, took huge leverages to buy more CDOs to sell. As we all know, when the sh*t hit the fan, it went really really bad.

A good documentary narrated by Matt Dameon can be found in the youtube link below.
http://www.youtube.com/watch?v=jaQsULpKNQc

I do not think that Singapore will be that bad as the USA. Banks in Singapore have more than sufficient cash to sustain them. They are very conservative. If the interest rates went up, and consumers are not able to pay their monthly mortgages, banks are not in a hurry to get the houses from them. This is because they have no incentive for doing that. It will take more than interest rates going up to really hurt the property price in Singapore.

(not vested but I am hoping that prices do go down)

BY courtesy of Wikipedia:-

[finnfinn]

I call it mother because 1. Households first to get hit.(household debt is 74 percent of Singapore GDP) 2. Major component of debt for household. 3. Prolong impact( just look at 2008). 4 highly leverage.

I did an interest rates scenario test on my mortgage loan when I bought my place. Incremental mortgage repayment increases significantly for every 1 percent increase of rates for a 25 years loan. Looking around me, my peers have larger debt and I cannot imagine how much they have to sacrifice on their usual consumption to allocate to the increase in mortgage repayments. Lower household consumption slows the economy, banks cut back in lending in anticipation of slowdown, corporate restructure can be expected and people lose jobs and cycle feeds itself. .

I hope I am too pessimistic but when I look at the willingness of people to pick up mortgage loan, I can't help but worry. .

Just curious. Are your peers who are taking on the mortgage loan buying an investment property or property to live in? If it is to live in, I think people should have factored in the possibility of paying down the loan fully when calculating their finances. If it is for investment purposes, they may have assumed that they could flip the property for a quick gain or that the rental income can cover the interest payments and forgotten to factor in the possibility of holding on to the property and paying down the loan. If enough Singaporeans chose the latter, all of us should worry.

Actually my peers belong to both categories. On the first, it doesn't sound like they have sufficient resources to pay down significantly. The common assumption is that their salary will increase as time goes by.

My thoughts are I am not even sure if I still have a job in 10 years, not to mention increase in salary. Notice that their property prices average 1mil for not so Central area.

Will the impact in Singapore be as severe as in US? I do not think so. As others have said that Singapore is not consumer driven, strong banking sector etc. Which I don't disagree. But will there be people who will struggle as a result of rising rates? I think there will be and have a feeling that there will be quite a few.

Can external demand support our property prices? If other economies are immune from rising rates, then answer is yes. Fair assumption?

On the behaviour of current foreign borrowers to buy Singapore properties, reminds me of what happened to Dubai in recent years.

In short, I do not think current low rates environment is normal and is a matter of time that it will normalise.The normalisation process will impact regional economies.

People who entered into a property loan during recent years will have to deal with increase in monthly financing. Depending on quantum and tenure, it can be quite material. Some will struggle to repay and choose to exit and downsize.

The increase in supply will pressure prices and we all know where the story will go.

I hope I am wrong on this but when Fed pulls back the easy money. .am afraid that the party will end. .

Well, maybe is a good idea that we start planning for that scenario as there will be opportunities then. .

[freedom]

Hi Temperament,

I believe it was more than just that. The mortgages were packaged so complicatedly that people thought there were "AAA" rated products. It was most likely that the people/funds that bought them, did not know they bought junk. All they cared was that these "AAA" rated products were giving them good ROI.

Unlike in Singapore, in the USA, the companies that issue out mortgages were not banks. These companies will then sell these mortgages to investment banks, who in packaged it nicely as "CDOs" and sell it to retail investors (such as your dbs high note 5). The borrowers of these money were essentially paying their loan back to the retail investors and funds. Because lenders no longer hold any risks for giving out loans, lenders started giving out riskier loans. Banks did not hold any risks as well, as the only think they cared about was selling these CDOs. The true suckers were the people that bought the CDOs. Of cause it was more than that. Banks, in greed, took huge leverages to buy more CDOs to sell. As we all know, when the sh*t hit the fan, it went really really bad.

A good documentary narrated by Matt Dameon can be found in the youtube link below.
http://www.youtube.com/watch?v=jaQsULpKNQc

I do not think that Singapore will be that bad as the USA. Banks in Singapore have more than sufficient cash to sustain them. They are very conservative. If the interest rates went up, and consumers are not able to pay their monthly mortgages, banks are not in a hurry to get the houses from them. This is because they have no incentive for doing that. It will take more than interest rates going up to really hurt the property price in Singapore.

(not vested but I am hoping that prices do go down)

Securitization itself or CDOs are not evil. They have been in existence for very long, long before subprime crisis.

It is not that investors believe they are AAA-rated. It's Moody's, S&P and Fitch that rate them AAA. Worse comes to worse, even synthetic CDOs can be rated as AAA. CDS only accelerates the fall of the price of CDOs, so itself is not evil, either.

The 3 rating agencies have a significant role in the subprime crisis.

[Temperament]

Hi Temperament,

I believe it was more than just that. The mortgages were packaged so complicatedly that people thought there were "AAA" rated products. It was most likely that the people/funds that bought them, did not know they bought junk. All they cared was that these "AAA" rated products were giving them good ROI.

Unlike in Singapore, in the USA, the companies that issue out mortgages were not banks. These companies will then sell these mortgages to investment banks, who in packaged it nicely as "CDOs" and sell it to retail investors (such as your dbs high note 5). The borrowers of these money were essentially paying their loan back to the retail investors and funds. Because lenders no longer hold any risks for giving out loans, lenders started giving out riskier loans. Banks did not hold any risks as well, as the only think they cared about was selling these CDOs. The true suckers were the people that bought the CDOs. Of cause it was more than that. Banks, in greed, took huge leverages to buy more CDOs to sell. As we all know, when the sh*t hit the fan, it went really really bad.

A good documentary narrated by Matt Dameon can be found in the youtube link below.
http://www.youtube.com/watch?v=jaQsULpKNQc

I do not think that Singapore will be that bad as the USA. Banks in Singapore have more than sufficient cash to sustain them. They are very conservative. If the interest rates went up, and consumers are not able to pay their monthly mortgages, banks are not in a hurry to get the houses from them. This is because they have no incentive for doing that. It will take more than interest rates going up to really hurt the property price in Singapore.

(not vested but I am hoping that prices do go down)

Securitization itself or CDOs are not evil. They have been in existence for very long, long before subprime crisis.

It is not that investors believe they are AAA-rated. It's Moody's, S&P and Fitch that rate them AAA. Worse comes to worse, even synthetic CDOs can be rated as AAA. CDS only accelerates the fall of the price of CDOs, so itself is not evil, either.

The 3 rating agencies have a significant role in the subprime crisis.

From what i understand is like this:

Since day one, US Banks will have housing mortgage loans repackage as CDO bonds to sell to anyone interested. i think till today it is the same. If not banks will soon run out of liquidity. We can consider this just one of the bread & butter business of banks. So far so good.

The problem started from 2005 (i think) when Banks started to extend housing loans to people without any down payment or collateral. Just imagine finally, even a cleaner could own 3 properties at one go without any collateral or cash down payment. Why? So banks can have more housing loans to repackage into CDO bonds to sell it to anyone who is interested. By now big brokerage houses and financial institutions like Morgan Stanley all get involved. And all of them somehow managed to persuade Credit Agencies to give a AAA rating to this CDO bonds. From here, the rest is history now.
So i wonder how US Banking Regulations work on housing loans to the people. Us really is a "FREE" country in this sense. Is housing loan still the same? Anyone can just go to the bank and borrow without cash down payment or collateral? i want but first i make sure i have nothing to my name. Ha! Ha!

[Dividend Warrior]

The CDOs became "sub-prime"....

and sub-prime is not good.....

[freedom]

From what i understand is like this:

Since day one, US Banks will have housing mortgage loans repackage as CDO bonds to sell to anyone interested. i think till today it is the same. If not banks will soon run out of liquidity. We can consider this just one of the bread & butter business of banks. So far so good.

The problem started from 2005 (i think) when Banks started to extend housing loans to people without any down payment or collateral. Just imagine finally, even a cleaner could own 3 properties at one go without any collateral or cash down payment. Why? So banks can have more housing loans to repackage into CDO bonds to sell it to anyone who is interested. By now big brokerage houses and financial institutions like Morgan Stanley all get involved. And all of them somehow managed to persuade Credit Agencies to give a AAA rating to this CDO bonds. From here, the rest is history now.
So i wonder how US Banking Regulations work on housing loans to the people. Us really is a "FREE" country in this sense. Is housing loan still the same? Anyone can just go to the bank and borrow without cash down payment or collateral? i want but first i make sure i have nothing to my name. Ha! Ha!

if investors of CDOs are sane, they will reject CDOs with lower grade mortgage packaged in. If enough investors reject such CDOs, soon subprime CDO market will be gone. So will the subprime mortgage market. In essence, market will correct itself.

But what really happened is that rating agencies rate such junk CDOs with AAA, or other investment grade. So more investors lost their sanity.

[Temperament]

From what i understand is like this:

Since day one, US Banks will have housing mortgage loans repackage as CDO bonds to sell to anyone interested. i think till today it is the same. If not banks will soon run out of liquidity. We can consider this just one of the bread & butter business of banks. So far so good.

The problem started from 2005 (i think) when Banks started to extend housing loans to people without any down payment or collateral. Just imagine finally, even a cleaner could own 3 properties at one go without any collateral or cash down payment. Why? So banks can have more housing loans to repackage into CDO bonds to sell it to anyone who is interested. By now big brokerage houses and financial institutions like Morgan Stanley all get involved. And all of them somehow managed to persuade Credit Agencies to give a AAA rating to this CDO bonds. From here, the rest is history now.
So i wonder how US Banking Regulations work on housing loans to the people. Us really is a "FREE" country in this sense. Is housing loan still the same? Anyone can just go to the bank and borrow without cash down payment or collateral? i want but first i make sure i have nothing to my name. Ha! Ha!

if investors of CDOs are sane, they will reject CDOs with lower grade mortgage packaged in. If enough investors reject such CDOs, soon subprime CDO market will be gone. So will the subprime mortgage market. In essence, market will correct itself.

But what really happened is that rating agencies rate such junk CDOs with AAA, or other investment grade. So more investors lost their sanity.

If you read my earlier post, Morgan Stanley team of CDO Bonds traders led by H. H. also believed in the AAA rating. What about M.S. CEO? What about other instiuitions CEOs? Why? As long as their Bond traders were making tons of money, why bother? According to what i read, this CDO sub prime Bonds were cross securitised and cross securitised until nobody really knew what was happenning. And when the housing bubble burst, no CEO could give a reasonable answer. Another words no CEO cared or understood what thier Bond traders were doing.

[finnfinn]

CDO is a sexy tool where sub prime loans were package into something attractive to investors to mask the biggest con job by the greedy bankers in an environment where risk was mis-price, lax regulator, blur/irresponsible rating agencies. This resulted in a balance sheet recession that span from 2008- xxxx ...

Pls feel free to amend. . Hopefully we have a good summary.

[freedom]

bankers did not lie or con if they stated that CDOs contains subprime or other low grade mortgage. rating agencies rated them with their eyes open(or they choose to close their eyes).

bankers just provided what investors were asking for.

to blame everything on investment banks instead of rating agencies, are unfair at least. not saying that bankers did not have a role.

[Temperament]

CDO is a sexy tool where sub prime loans were package into something attractive to investors to mask the biggest con job by the greedy bankers in an environment where risk was mis-price, lax regulator, blur/irresponsible rating agencies. This resulted in a balance sheet recession that span from 2008- xxxx ...

Pls feel free to amend. . Hopefully we have a good summary.

Ha! Ha!
No amendment to anybody posting is needed unless trying to pull a fast one here. The only thing, i think we must always remember is: "This is not going to be the Last of the Mohicans; as far as "Financial Engineering" is concerned."
What do you think is the next change from "The Land Of Liberty"? i think it is something going to be related to "QE"

---

bankers did not lie or con if they stated that CDOs contains subprime or other low grade mortgage. rating agencies rated them with their eyes open(or they choose to close their eyes).

bankers just provided what investors were asking for.

to blame everything on investment banks instead of rating agencies, are unfair at least. not saying that bankers did not have a role.

You are right.
Every one of them had play a part. But without the final participation of the credit agencies, persuaded by all Institutions like Morgan Stanley to rate CDO sub prime loans mixed with some prime loans and violas became "AAA" CDO bonds, 2008/2009 GFC would not have happen.
Specuvestor had said something like (not exactly);
"Whoever is the Paymaster calls the Tune". So what can the credit agencies do.
Same like the Enron case but only "Arthur Andersen" was found guilty and not the credit agencies then. Why? Where is A. A. now?
Anyway Chinese says,
"The snake and the mouse in one nest". Pardon my poor literary translation.