Subprime Mess - Who Are The Real Victims?

There is tons of news on the Subprime mess, and most of it is about how people are losing their homes as a result of "Sub-Prime" loans. This story is a huge lie. People are not losing their homes as a result of Sub-Prime loans. What happened is that banks made loans to people with no money down, poor credit, and no ability to pay back the loan. When the value of houses started to fall, the banks who made these huge mistakes were left to pay the price. And they are who should pay the price. It was their mistake in the first place.

So let me describe a sub-prime loan. They come in many flavors, but they are all pretty much adjustable mortgages in some form or another. Nearly all of them involve a teaser rate that fully adjusts to the normal rate in about two years. There are interest only, and payment option loans as well, but at their heart they are all about getting people into houses that they can't actually afford. With house prices getting pumped up by the continued easing of credit standards and more subprime loans, quite a bubble in home prices was created. As long as the bubble keeps expanding people can refinance out before the normal rate hits. But bubbles don't last forever.

So lets look at it from the perspective of a home buyer with poor credit and no money to put down. They see house prices flying up, and they want to take part. They find a house that is not affordable, but they find a loan where the interest rate and payment will be affordable for the first two years. They no damn well that they will have big issues making the payment in two years, but they are counting on the house going up in value so they can refi, take cash out, and I guess make payments with the cash they took out. This is not home ownership by any stretch of the imagination. This is making an investment, and when you invest your money, you can lose.

Now if interest rates were rising it would be a different story. If the fully indexed rate is 6% and you can afford to make those payments when you take out the loan, but interest rates rise to 8% by the time the payment adjusts up you can have unplanned issues. The problem is that interest rates are not rising. Is somebody took out a subprime loan exactly 2 years ago the federal funds rate was 4.75%. Today the rate is 2.25%. Two year old sub-prime loans adjusting today are adjusting to a rate that is 2.5% below what was planned. The fully indexed non-teaser payment is much less today than what would have been planned for when the loan was taken out. How this can lead to massive foreclosures is beyond me. Adjustable Rate mortgages get more affordable every time the fed lowers rates, and rates are dropping fast.

So what is the real story? The people losing their houses to foreclosure could not afford the fully indexed rate. They can't even afford a fully indexed rate that is 2.5% lower than expected. They were doomed to lose their house the second the agreed to buy it. Falling home prices have nothing to do with the problem. If you can afford your loan and plan on living in your home for a while, the underlying value of the home makes no difference. Your house losing value, can't cause you to lose it. Only not being able to afford the payments can cause you to lose your home.

Every horror story from a consumer perspective is based on the premise that they did not understand the loan, or did not know it would adjust up. It like they though you could buy a million dollar home on a $1000 a month payment. You simply can't. If you are not capable of understanding a loan for the biggest purchase of your life, you should not be buying a house. The idea of refinancing out of a high interest rate to a lower one is a pipe dream. Fixed rate loans are always higher than an adjustable one. You can't refi out of an adjustable loan into a lower payment fixed loan. You also can't refi into a lower adjustable rate loan from an existing adjustable, as both are based on the same short term interest rates.

So basically, I have no problems with consumers who can't pay for their homes losing them to foreclosure. Lets say you bought a 50" Plasma TV on a no interest/no payment loan for 12 months. The 12 months expire, and since you didn't pay it off, the interest rate jumps to 20% and you are forced to make payments. If you can't afford those payments, you can't really go back to the store, and demand they lower your payments, or greatly reduce the amount of money you owe on the TV because now you can't afford it. What happens in the real world is you have to give the TV back. You have no equity in it, and can't afford it.

So what about a company like Bear Stearns collapsing as a result of all this? This is simply capitalism at its finest. If you bet your company on something and lose, your company fails. The ones who are smarter than you were live on, and gain market share. The fittest and strongest survive. I will comment on why Bear Sterns failed though, as it is a symptom of a huge problem in corporate America. Too much of a companies profits are syphoned off to upper management and/or traders in the case of Bear Stearns. If you take huge risks to make money, you need to hold on to that money for when times are bad. If you pay out 1/2 of that money in bonuses the money is simply not there to cover a bad year. When these same guys screw up, they don't pay a negative bonus at the end of the year. So they are incentivized to take huge risks with the corp's cash, and are rewarded heavily when successful, and not punished at all when they fail. Its like gambling with the house's money! Until the pay and bonuses for top officers, can be reduced to something reasonable, I think this is just the beginning of more big name collapses. We are also losing our ability to compete globally due to upper management raiding the corporate balance sheets for bonus cash year after year.

The Only Constant is Change

“In a time of universal deceit, telling the truth becomes a revolutionary act.”


George Orwell


I will strive here to speak only from the knowledge that I have gained researching this subject from a completely impartial perspective. At heart I am a scientist, so the results are what matter not any preconceived notion that I may have had going in. I will say that I tend to slant towards skepticism whenever wild and controversial claims are made without a substantial evidence supporting them. Big claims require big evidence is a great rule to go by.


So I will interject myself into the Climate Change / Global Warming debate briefly here. Several years ago I became somewhat interested in the subject, and went back and forth a bit between being a true believer in it, to pure skepticism. I rented an Inconvenient Truth and was just mortified by one sided manipulation of the data to try to prove a point. Pretty much all of the graphs used were completely unacceptable from a scientific perspective. Too many problems to mention here, but some of the most glaring were not showing any scales for the graphs, and splicing data from different sources together without properly noting it. After seeing this movie, I really wanted to find out for myself if Global Warming was an issue because the movie did not convince me of anything other than Gore is a tool, and I already knew that.


So I researched the issue from a scientific perspective, and the overwhelming evidence is completely against Anthropic Global Warming. If the debate is over as many would want you to believe, then the Global Warming Alarmists have already lost. The evidence is simply not in their favor no matter how you look at it today.


The argument is that increased CO2 levels from burning fossil fuels by human activity will cause runaway increases in temperature due to the "Greenhouse Effect". The increased temperature of the earth will cause glaciers and ice caps to melt. This will lead to sea level rises and widespread flooding. The high temperatures will lead to widespread droughts, crop failures and loss of life due to disease and famine. Unless something is done now to reduce CO2 emissions all of this is inevitable in the next 100 years or so as runaway warming takes hold.


These are extraordinary claims. Is there extraordinary evidence? Since we have been pumping CO2 in ever increasing amounts into the atmosphere since the beginning in the early 1900s we should have some nice data to look at. So below is my interpretation of the data. I will not use any charts or raw data to prove my point. All of this is readily available on the Internet. Just Google a topic and see for yourself. Both sides of this issue tend to mold the data in their own direction so be aware of the source.


Global Mean Temperature Record


This is often used as the primary evidence supporting Global Warming. There is a history of weather stations going back to around 1880 located around the world. There is pretty good coverage in the US for most of the record, while world wide coverage was weak early, but has improved overtime. The idea is to take the surface temperature of the earth at equal locations around the globe, and using the min and max temps for the day to come up with a mean temperature for the earth on a daily basis. The stations are not set up in a perfect grid, but still produce some useful data. In the global data a warming trend of about .6 to .8C is seen over the 125 year period. There are significant issues with the global data. Because there is a lack of stations in the distant past, a bunch of this chart has been reconstructed. Trends from today are pushed back into the data. Also, many of the sites have large manual "corrections" made to the data. After making corrections as large as -2C the data is still used to show the trend. The US data is the cleanest, and it shows almost no warming trend by itself (.2 to .3C) 1880 to present. If you took at just the raw US data since 1880 (removing all manual corrections to the data), there is no warming trend in the US at all since 1880. It is very interesting how the world has warmed up in the last 125 years, but not the US.

Recent trends in this data set, are also not good for the Global Warming advocates. The earth has been in a steady cooling trend since 1998. In 2007 the cooling trend accelerated with a drop of .6C in global mean temperature in a single year. That drop alone just about eliminates the entire warming anomaly of the last 125 years. Now I will not argue that a single year of data means anything, but it is very interesting that 100 years of pumping CO2 in the atmosphere, with most of it in the very recent past as the world developed has brought us to a temperature very near the long term mean. If CO2 was causing runaway warming, we should see it in the data, but it is simply not there.


Melting Glaciers and Ice Caps


The image most associated with Global Warming is the melting of a glacier. Let me state this fact. Glaciers have always melted, and always will melt. They melt at the bottom and accumulate at the top. If your camera is at the bottom you will see melting, and ice cleaving into the sea. If you put your camera at the top you will see snow falling, accumulating, and slowly turning to ice. The melting makes for a more interesting picture. What is important is called the "Mass Balance" of a glacier or ice shelf. How much is the overall mass of ice changing over time. With the exception of Greenland and Antarctica, the world's glaciers have had a negative mass balance for several hundred years. Interestingly this trend began long before CO2 was added to the atmosphere by man. Since we are coming out of the "Little Ice Age" it makes sense that the smaller worldwide glaciers should be in retreat. Fortunately, nearly all of the Earth's ice is located in Antarctica and Greenland and not in isolate glaciers. They love to show you pictures of these glaciers melting as well. What they don't want to tell you is that the Mass Balance of Greenland and Antarctica has been positive since we began properly measuring it about 20 years ago. While the edges may be shrinking a bit, the middle is getting thicker every year. With most of the ice in the middle and not on the edges, the total amount of ice is increasing. The pressure from the added ice in the center accelerates the flow on the edges where the ice meets the sea. This is all normal stuff. Ice is simply forming faster than it is melting on the earth overall today, and that is a problem for the Global Warming Camp.


Sea Level Rise


The sea level has been rising at a steady pace for over 10,000 years, as we exited the last ice age. When analyzed closely, the sea rise trend is actually decelerating a bit over the last 50 years. There have been wild predictions for sea level rise associated with Greenland or Antarctica melting, but as I said above, that is simply not happening. Antarctica has had a constant ice sheet for the 30 million years since it broke of Africa. As long as it is in the area of the south pole it will accumulate ice. 20 million or so years from now if Antarctica drifts into warmer waters, we can start to worry about rising sea levels. Every time you here someone talk about dramatic sea level rise, ask them where the water is going to come from. Its not currently coming from Greenland or Antarctica, and has not came from Antarctica in 30 million years, and this where nearly all of the ice on earth is. Sea ice itself like that found in the artic has zero effect on sea levels weather present in large quantities or completely melted away. Though melting of sea ice would tend to lower sea levels by lowering the temperature of the surrounding water.

CO2 Science

Some quick facts about CO2. It is highly water soluble. About 100 times more soluble than Oxygen. The ocean readily sinks CO2 even though it is just a minute fraction of the atmosphere. Doubling the CO2 concentration in the atmosphere, doubles the oceans ability to sink it. More than 1/2 of all CO2 produced by man has already been sunk (dissolved) by the ocean, and it can sink 100 times more without blinking an eye. Current CO2 levels today are at historical low levels if you look back on the scale of millions of years. The C02 that we are releasing today is CO2 that was sunk by the earth earlier from the atmosphere in the past. The earth is constantly sourcing and sinking CO2 to the atmosphere, and the annual amounts from natural processes dwarf the amounts added by humans. CO2 is not a pollutant. C02 is good for plant life. Greenhouse warming from CO2 is overstated, and runaway greenhouse warming has no scientific basis. Historical trends show that C02 levels lag temperature levels.

What is really going on?

There is no such thing as an optimum climate on earth. The climate has always changed and always will change due to natural processes and feedback loops. Global Warming overstates our ability to alter the climate. Even if we could budge the climate somehow in one direction, the earth would correct it overtime using a much more powerful lever than CO2 emissions. The record of recent warming is at best highly questionable, and has ended in a ten year recent cooling trend against a backdrop of near-term record high CO2 levels. There is substantial evidence for the accumulation of ice mass on Antarctica and Greenland in the recent past contrary to what the Global Warming Alarmists will say. Natural cycles in the intensity of the sun, and the earth's distance from the sun play a much larger role in median earth temperature than is given credit. The recent earths temperatures follow the sun activity very closely and point to continued short term cooling of the earth. We might need to start getting on the global cooling bandwagon, and see if there are ways we can increase our CO2 production to stop it. Ice age anyone?

I Got Skillz

I played the Skillz Series and Bodonkey on Tuesday. Tuesday night is now the only night that I play poker, and just these two MTTs. My desire to play cash games does not exist anymore. As a result I just don't have a bunch to post about pokerwise anymore. It would help if the Hand Histories were better at bodog, but they are not. So today I thought I would write briefly about the two MTTs on Tuesday, and let you know that I will be switching directions a bit on this blog. I always have tried to keep the content exclusively poker based here, but I will be dropping that requirement. I will try to bring the depths of analysis that I bring to hand histories to the problems of the world today. Not sure what people will think, but we will see what kind of comments that I get. Now on to Tuesdays MTTs.

Skill Series PLO

I am not a big expert on PLO, and I like pushing big edges in poker, so this would not be my strongest event. I did flop quads eights on the first hand (see above), and take an ever so short overall chip lead. From that point I started waiting for good PLO starting hands which were not really there for me at all. I ran into Quad Aces once, and also paid off too many people on the river when I was obviously beat. I was down to about 1800 after the break, and was looking to get back into contention. I figured I would just force the issue with the first good PLO starting hand that I found. When I got AKQT with two of one suit I figured that was it. I potted preflop which basically pot committed me. I flopped top pair, a gutshot, and a runner runner flush draw. Wawfuls opened and I jammed. He had a nut flush draw that got there on the river, and IGHN. I Felt that I played pretty bad thoughout this one. I told peaker later in the bodonkey that I felt I had "underplayed my lack of starting hands to elimination". Now that's a nice spin.

Bodonkey Event 6

The Bodonkey has always been good to me, and Event 6 was no exception. I made to top 30% for valuable points for the 4th time now in 6 tries. This time I picked up QQ very early with the blinds at 10/20. There was an open to 65 and two smooth calls before me. I figured that nobody in there right mind would smooth call preflop with AA or KK this early and with stacks this deep, so I decided to go for the overbet push and hope the initial raiser did not have a monster. Initial raiser thought and folded, but a smoothcaller called with 99 and I doubled up to 6k in chips. As I have said before, this is enough chips to get the points, so I just went into lockdown mode, where I only play hands where I am a huge favorite, and try to play small ball as much as possible. The points bubble breaks like clockwork 2 1/2 hours in, so you know where you need to get to. This can get pretty annoying. I folded AK preflop once after a huge preflop raise. I did not want to risk the chips. Later, I picked up TT and a shorty jammed for about 1800. I was going to call that, but then there was a smooth call by someone with a bunch of chips before me. Again, I have enough chips to get the points, and the points are really worth more than improving your shot at a winning this individual MTT. I did not want to coinflip with the smooth caller at this point so I folded. Smooth caller had AQo, pusher had 99, the flop was low, and I would have beat both of them for a nice pot. This is not the way to play a normal MTT, but seems correct to me for the bodonkey. So I made it past the points bubble, and started looking for a hand to get back into it with. Ducks would be the ticket. Newinnov raised 3x from the button, and I jammed my BB figuring it could be a steal, and I would have some fold equity. Newinnov had AK and called for most of his stack. He would river a K and send me to the rail in 13th/47. I don't mind my play there at all as my M was pretty low. The points were enough for me to maintain 9th place over all in the standings with 1/3 of the Bodonkey series complete.

Schaubs Saturday Shootout on FSL

Schaubs asked me to set up a special contest for him on FantasySportsLive.com and here it is. There is no added money or leaderboard, simply the chance to outplay a Canadein at NHL Fantasy Pucks. These guys take their hockey seriously, so we need to show them how us Yankees roll. The contest will be running Saturday's till the Stanley Cup Finals. Go get him

Hammer Now Mainstream?

I have been watching the reruns of the WSOP ME FT on ESPN lately. I think 2007 was one of the more interesting Final Tables that I have watched. Even more interesting is the Poker Stars commercial they have been running. It features "The Hammer". Have you guys seen this?

The premise is you have a semi-hot female poker player who likes action and bungee jumping. She is in a live poker game of some sort, and the flop is out on the table. She checks her hole cards to find the hammer. The board is no help as it has missed the hammer completely. So she makes the obvious blogger move. She pushes all-in on the flop. It then switches to an image of her bungee jumping, and you never see the results of the hand.

What is great about the commercial is that it is teaching players that decisions not results are what matter in poker. When you make the correct decision to jam an unimproved hammer on the flop, the results do not matter. It is irrelevant that TPTK calls your push, and you lose your stack. I also love how they are teaching a new generation of players how to properly use the hammer. Might need to make my way back over to PokerStars to see how the cash games are playing one of these days.

BBT3 Musings

The BBT3 is off and running with a 105 player "Big Game" in the books. I found a $26 token in my FT account and did the 2 table S&G for the $75 token. Yeah, I know I don't play sats, but I had a token to burn. I got through about 1/2 the field in a night of very poor cards. I flopped a set and turned a boat early against Fuel55 to get to 6k in chips, but basically just bled down from there. Eventually I would jam 66 over an UTG open raise, get called by A5o, and double through back to 6k+ in chips. Still no cards 2+ hours in and the blinds pushing my M below 3, I open Jammed AJo from late and got called by 88. I really did not mind taking that coinflip as I needed to chip up badly, but I lost.

I figured I would take a shot with the Big Game and see what happens. I do not have plans on playing very many of these events. My marriage will not be able to take it. I really feel for you guys out there who can play them all. My best hope is to play in the riverchasers and skills series from time to time and try to get a win.

I will remain focused on the bodonkey as I have a hall pass to run this series. I see the bodonkey series with several big advantages over the BBT3. First off, it is less events / less buy-ins to complete the series. Total cost of the BBT3 is about 6x the Bodonkey. You will end up with a 18 player S&G vs a 50 player ish MTT in the BBT3. So you have better than twice the chances with about 1/2 the total prizes in the Bodonkey Series. Second off, the T600 added each night to the Bodonkey is huge. No added prizes for any of the individual BBT3 events. Third off, the competition in the bodonkey is not as good. The BBT3's first event was won by a fucking poker pro. Not sure why Riggs invited him. It's like one of the ME seats is already off the board. Who knows how many other FT pros will play and win seats to the TOC. I like my chances much better against the bodog blogger crowd (and you must be a blogger for the bodonkey), than the wide open anyone can enter and win BBT3.

It would be great to take advantage of both the Bodonkey and BBT3 series to maximize my chances of a WSOP ME seat. It is great that the value us bloggers bring to the table is finally being recognized, and the sites are taking care of us in a big way. I simply do not have the time (or understanding wife) to play MTTs four nights a week for the next three months. It would be great fun though.