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New Century Financial Corp. filed for Chapter 11

New Century Financial Corp. (Other OTC:NEWC.PK - News) on Monday filed for Chapter 11 bankruptcy protection in the biggest collapse of a mortgage lender in the U.S. housing downturn.


....watching to see if this spreads from subprime to the rest of the economy.
Permalink economista 
April 2nd, 2007 11:22am
Isn't curious how safe guard after safe guard was peeled off the loan industry until we got inflation, bubble, collapse. The same thing we saw in the stock market with irrational belligerence.

The movie I linked to earlier said these cycles are purposeful. It allows a pump and then a cheap asset buy on the fall. I was skeptical, but these cycles seem irrational unless their is a broader objective.
Permalink son of parnas 
April 2nd, 2007 12:41pm
It will interesting to see if this cycle ends in government bail-out like the S&L debacle. 

Can individually rational actors with imperfect information create irrational cycles?
Permalink z-z-zed 
April 2nd, 2007 1:01pm
What was rational about agreeing to a sub-prime loan, especially an adjustable rate loan, with future rates that were more and more draconian?

Rationality had very little to do with it, IMHO.
Permalink SaveTheHubble 
April 2nd, 2007 1:05pm
Fair point.
Permalink z-z-zed 
April 2nd, 2007 1:07pm
> Rationality had very little to do with it,

That's the point. The progressive relaxation of loan requirements is irrational if your goal is stability.
Permalink son of parnas 
April 2nd, 2007 1:11pm
>> What was rational about ...

Because land is limited!! So real estate prices must always go up, up and up!!

I can't believe how many times I had to argue against that line of thought in the last couple years.
Permalink Send private email strawberry snowflake 
April 2nd, 2007 1:11pm
Ah!  Good point.  But it's consistent with the "academic idea" that the free-market needs no regulation because competition will make it regulate itself.

Sadly, reality seems to show that the "free-market" instead almost inevitably leads to monopoly, at which point "regulation by competition" breaks down.

Sadly, many Republicans seems to prefer the academic idea over the reality, and ignore the resulting debacles like the Saving And Loan crisis, or Enron, or California's energy de-regulation, or now New Century Financial.
Permalink SaveTheHubble 
April 2nd, 2007 1:18pm
> Sadly, many Republicans seems to prefer the academic idea

It has nothing to do with academia. It has everything to do with maximizing their profits.
Permalink son of parnas 
April 2nd, 2007 1:20pm
I agree with son.  The goal was maximizing profit and power to a particular group of elites and the economics was made up to fit that purpose.  Economics, for the most part, isn't an empirical science.  The theories of economics don't predict anything.  They provide stories to explain why the rich should continue to steal from the poor.
Permalink z-z-zed 
April 2nd, 2007 1:37pm
Because it tastes great and it's less filling?
Permalink JoC 
April 2nd, 2007 2:34pm
Because it's "efficient" and the result of a "free market"
Permalink z-z-zed 
April 2nd, 2007 4:15pm
And because the chances of getting caught & your picture plastered on the front page are very very low.
Permalink xampl 
April 2nd, 2007 4:32pm
"Sadly, reality seems to show that the "free-market" instead almost inevitably leads to monopoly, at which point "regulation by competition" breaks down.

Sadly, many Republicans seems to prefer the academic idea over the reality, and ignore the resulting debacles like the Saving And Loan crisis, or Enron, or California's energy de-regulation, or now New Century Financial."

Huh?

Your first paragraph is a very viable thesis, but nothing in your second paragraph supports it.

Enron was basically a fraudulent energy Ponzi scheme, California's energy "deregulation" was in fact market manipulation by the government, and AFAIK the sub-prime lending market was in no way, shape, or form a monopoly.

(Proper examples of your first paragraph would be the telco's, cable companies, oil cartels, etc)
Permalink Philo 
April 2nd, 2007 4:39pm
> was in fact market manipulation by the government

Sponsored by Enron.
Permalink son of parnas 
April 2nd, 2007 4:42pm
> And because the chances of getting caught & your picture plastered on the front page are very very low

Indeed you are just as likely to be paraded around like some sort of national hero.

http://www.businessweek.com/mediacenter/podcasts/welchway/welchway_03_05_07.htm
Permalink z-z-zed 
April 2nd, 2007 5:04pm
>California's energy "deregulation" was in fact market manipulation by the government...
Enron cronies wrote the legislation and handed it to CA to pass. It was complicated enough that the legislators didn't understand it, which was the intention of Enron. It also did the job of swindling about $20B out of CA.
Permalink Peter 
April 2nd, 2007 5:38pm
I was enjoying the debate until Jack was dragged in. From a distance I'd guess it's the taxpayers who are going to pick up and nurse the wounded around the latest crater - and tax avoision is one of the super-richs' favorite sports.
Permalink trollop 
April 2nd, 2007 7:45pm
Thanks Philo. 

The inference I was trying to draw (badly, I'll admit) was that the fiasco's mentioned were a result of Republicans removing oversight and regulation.  They did this with the idea that removing regulation freed up the "Free Market" to regulate itself.

Ignoring the lessons learned that the "Free Market" only regulates itself if certain very specific criteria are met.  And the "Free Market" itself tends to destroy those criteria.

The result was that truly illegal behavior was enabled, and was allowed to continue for quite some time.  Eventually it was detected -- but much damage was done in the meantime.
Permalink SaveTheHubble 
April 2nd, 2007 9:05pm
By definition, the free market can never regulate ethics. Once we decide something is free and sellable it is no longer under legal bounds.
Permalink blahty heartsheep 
April 2nd, 2007 11:03pm
I hope this is sufficiently pertinent:

http://www.prudentbear.com/articles/show/1951

Rent vs profit (clue - rent is much easier).
Permalink trollop 
April 2nd, 2007 11:37pm
+1 government bailout

Step 1: Government bail out to tune of $500 billion.
Step 2: Mortgage companies donate $50 billion to reelection campaigns.
Permalink Practical Economist 
April 3rd, 2007 4:18am
> I was enjoying the debate until Jack was dragged in.

Oh. sorry. but, why?
Permalink z-z-zed 
April 3rd, 2007 9:43am

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