In the Packaging of Loans, a Bust With Precedent

Real estate securitization was one of the great innovations in finance in the last quarter-century. In an unprecedented way, it allowed vast sums of money to go into the real estate market from people who traditionally did not take part in it.

But the people making the loans did not need to worry if they would be repaid, and in the end the entire edifice collapsed.

Part of my IRA is in real estate investment trusts (REIT), and they've taken a big hit over the last couple of quarters. Most of the investments are in commercial properties, with some in housing, but I keep hearing about a bust in commercial properties.

FREEP advice please! Sell after the loss or hang on through inflation?

A major difference between then and now is that most of the real estate securities issued in the 1920s went to build structures, many of which still stand and provide housing or employment. A much greater proportion of real estate securitizations in the last decade went to help people buy existing buildings, an activity that left behind no such legacy...a couple of other major differences which apparently the "Times" doesn't want to mention are that
1) Most of the underlying loans of the '20's securitizations were made according to responsible business standards on legitimate building projects - most of those which led to the present economic disaster were made by banks pressured by the government - read liberal Democrats - to give mortgages to people not likely to repay them
2) The government - read liberal Democrats - colluded in the shaky securitizations when, for instance, the Clinton administration forced Fannie Mae and Freddie Mac to set specific quotas in the number of subprime mortgages they would purchase, thus providing a ready pool of risky loans to be folded into the bad derivatives....
Charlie Gasparino's "The Sellout" details lots of these issues which the "Times" seems to want to avoid......

I suggest you take the loss and hug any remaining money. Second stage of a crash is around the corner, resets, no buyers, oversupply good for at least 10 years. Only government props held the market in limbo this long just wait until higher interest rates kill off any possible recovery. It’s not going to be a very pretty picture.

These investment packages along with credit default swaps attached were sold by a derivatives desk that was right next to a ratings agency desk which was next to the shorts-r-us desk. All under the same roof working in concert.

This is unbridled growth run amok. Greed hates controlled growth measured in low percentage points per year. Without limits on growth you get what we have today in get rich quick schemes with the taxpayer footing the bill for failed scam investments.

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