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banquo's_bumble_puppy
2008-Sep-15, 10:38 AM
There are a lot of jittery folks today. Anyone else extremely concerned?

Whirlpool
2008-Sep-15, 11:29 AM
I don't know.

It's not Black here ... it's a Bright day .. because it's PAYDAY !


:D

geonuc
2008-Sep-15, 11:30 AM
I expect the markets here to take a dive, but they'll recover.

mfumbesi
2008-Sep-15, 02:03 PM
Globalisation is a grand idea, some financial institution in the USA declares bankruptcy and half way around the world in a lowly third world country the markets go crazy.

Yes we are also feeling the effects down here...

mfumbesi
2008-Sep-15, 02:08 PM
Re-post/double post.

Argos
2008-Sep-15, 02:23 PM
We are feeling some effects down here in the form of a slight devaluation of stocks. However, in general the economy is growing as usual. We´ve had 6% growth for the forth month in a row, and there is no sign of a slowdown. Our economy relies heavily on the internal market, in which power of purchase is steadily rising, along with foreign investment. Economists here are unanimous in that we´ll not feel a big impact of a possible US/Europe recession.

banquo's_bumble_puppy
2008-Sep-15, 02:41 PM
http://www.theoildrum.com/node/4526#more

and there's this

samkent
2008-Sep-15, 03:09 PM
No it’s not “Black Monday” it should be called “Lights On Monday”.

It’s about time some of these companies and their CEOs feel the effects of their actions. The heads of Fannie and Freddie and Lehman are pounding the pavement for new positions as they should be. Lets hope some of this mud sticks to their resumes instead of running off as it did in the past. It seems the new generation of financial big wigs are learning the lessons of the older generation.

In the long run things will be better for all of us.

jfribrg
2008-Sep-15, 03:18 PM
Yes, I am also extremely concerned. I don't know all the details about how the real estate markets work, but it does seem like there is absolutely no reason to buy a property right now, since it is very likely that the same property will be worth far less next month or next year. For the last 18 months, more and more became worth less than the mortgages, and as a result, some people simply walked away from the mortgage. I don't see this changing in the near future. As this puts a sever damper on the economy, we will soon see a period of extended deflation. Once we get to a situation where people expect lower prices to continue, then economic investment (purchases of new equipment, buildings, etc) will cease because it is cheaper to wait than to invest. Thus starts the viscious cycle known as an economic depression. I think we are close to one already. Whether it is as bad as the one in the 1930's remains to be seen.

Drunk Vegan
2008-Sep-15, 03:22 PM
Anyone with any sense has given up on the U.S. as a global concern and has now concentrated their wealth in Euros or Yen.

Trebuchet
2008-Sep-15, 07:03 PM
No it’s not “Black Monday” it should be called “Lights On Monday”.

It’s about time some of these companies and their CEOs feel the effects of their actions. The heads of Fannie and Freddie and Lehman are pounding the pavement for new positions as they should be. Lets hope some of this mud sticks to their resumes instead of running off as it did in the past. It seems the new generation of financial big wigs are learning the lessons of the older generation.

In the long run things will be better for all of us.

Some of those CEO's and CFO's should be "pounding the pavement" of the prison exercise yard, during their one hour a day out of the cell.

Drunk Vegan
2008-Sep-15, 07:11 PM
Some of those CEO's and CFO's should be "pounding the pavement" of the prison exercise yard, during their one hour a day out of the cell.

Clearly you don't understand the point of the judicial system.

It's there to put the poor in prison, and only fine the rich - if it is absolutely unavoidable that it has to do so.

Someone can get put away for 20 years for stealing $500.

But someone who steals $500 million will rarely see a single day inside a cell.

V_Zhd
2008-Sep-15, 07:34 PM
My high school history teacher used to say that a depression the scale of the 1930s would be impossible today because of all the regulation that has developed since. It seems like new rules are in place due to energy problems and globalization, among other things, so I'm not so certain. It does seem like some signs of a depression have been building up for the last couple years.

mike alexander
2008-Sep-15, 07:39 PM
In the long run things will be better for all of us.

Depends on your horizon. In the long run we'll all be dead.

Celestial Mechanic
2008-Sep-15, 07:39 PM
"I'm melting, I'm melting! O-o-oh, my 401(k)'s, my real estate! What a world, what a world! O!"

Edited to add: Fair is fair. Because of this thread I can't get Steely Dan's "Black Friday" out of my mind. ;)

danscope
2008-Sep-15, 08:10 PM
My high school history teacher used to say that a depression the scale of the 1930s would be impossible today because of all the regulation that has developed since. It seems like new rules are in place due to energy problems and globalization, among other things, so I'm not so certain. It does seem like some signs of a depression have been building up for the last couple years.
**************
That was true......untill some people started to drive their philosophy with slogans like " Government is the problem. And like stupid sheep, too many believed what the jelly bean guy told them. This is what you get.
It really is too bad. Next time, eat your vegetables.
Voltaire

Trebuchet
2008-Sep-15, 11:21 PM
Clearly you don't understand the point of the judicial system.

It's there to put the poor in prison, and only fine the rich - if it is absolutely unavoidable that it has to do so.

Someone can get put away for 20 years for stealing $500.

But someone who steals $500 million will rarely see a single day inside a cell.

Oh I understand it. That's why I said "should". When the CFO of the company I work for conspired with a government official to defraud the nation of hundreds of millions of dollars, they got only a few months each. Of course they also got fired, which to them was probably worse.

KaiYeves
2008-Sep-16, 01:27 AM
I had four hours of very hard homework, so it seemed pretty black, but that's just me.

mike alexander
2008-Sep-16, 04:48 AM
In fairness, banquo, we'll know more on Tuesday. Then we can watch professional coin flippers in action once again.

At 10PM PST, the Nikkei and Hang Seng markets are down 5 and 6%.

Paracelsus
2008-Sep-16, 05:56 AM
When I saw the headline, all I could think was, "There goes our retirement." I'm glad my husband and I aren't thinking about retiring anytime soon.

sarongsong
2008-Sep-16, 07:12 AM
Event horizon---what event horizon? http://www.bautforum.com/images/icons/icon10.gif

banquo's_bumble_puppy
2008-Sep-16, 01:29 PM
markets open in a few minutes

NEOWatcher
2008-Sep-16, 01:36 PM
Our paper today headlined it as "Bleak Monday". A bit milder than black.

mike alexander
2008-Sep-16, 02:05 PM
And if we're bad we'll all go to Heck when we kick off.

peteshimmon
2008-Sep-16, 05:46 PM
NINJA...No income,no job or assets!

And they got mortgages!

Well I suppose if the World goes mad around
you it seems normal.

Strange but I thought buisness people normally
try bamboosling Joe Public into giving up their
cash. I did not know big institutions did it
to each other.

Collaterised debt obligation!

Asset backed security!

etc ect..my aunt Fanny...

Trebuchet
2008-Sep-16, 08:19 PM
When I saw the headline, all I could think was, "There goes our retirement." I'm glad my husband and I aren't thinking about retiring anytime soon.

I am. :cry:

publius
2008-Sep-17, 03:12 AM
NINJA...No income,no job or assets!

And they got mortgages!


Here's an article from way back in 1999 about this very thing:

http://findarticles.com/p/articles/mi_m1571/is_41_15/ai_57748148

There was strong political pressure behind this easy credit, as existing standards were seen to be discriminatory against minorities. You'll see various loudmouths in political office pointing fingers and screaming "predatory lending", when they themselves were encouraging what they now call predatory lending.

Anyone with any sense knew this day would come, but back then everyone was flying high and didn't worry about anything beyond the next quarterly report. Here's one from 2003:

http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B 63&sec=&spon=&pagewanted=print

There was proposal to tighten up regulation of Fannie and Freddie. Note the quotes from some of the loudmouths that it would hurt affordable housing. Those reforms were killed with the help of both parties (key members heavily lobbied by Fannie and Freddie).

Again, they all knew this was coming years ago, but did nothing.

-Richard

sarongsong
2008-Sep-17, 04:21 AM
We know who all lost their money, but who (beyond the execs) all gained, and by what mechanism(s)?

publius
2008-Sep-17, 04:52 AM
A lot of people thought they were making money..... on paper. Then the balloon deflated. And many time the books were cooked to make it look even better on paper, especially for the CEO and other big shot executives whose pay was tied to earnings.

There will be investigations. IIRC, the Lehman chief got about a $100M golden parachute for his trouble of running his company in the ground. Much of that was in stock, and the question to investigate is if he dumped it before it went belly up. If so that could land him jail.

-Richard

sarongsong
2008-Sep-17, 05:49 AM
Yes, the media is quite good at spotlighting the main players' individual excesses, but are there also un-named individuals, or whole companies or organizations that profited from this?

TheHalcyonYear
2008-Sep-17, 06:13 AM
There are a lot of jittery folks today. Anyone else extremely concerned?
Actually today is Tuesday

publius
2008-Sep-17, 06:28 AM
Here's a good WP article on how Washington and Fannie and Freddie went hand in hand down this primose path.

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/13/AR2008091302638.html

Fannie and Freddie served as a nice revolving door where up-and-comers parked waiting for a nice government appointment, and exiting government officials went to get rich after doing their time in "public service".

Note how much power Fannie and Freddie had. They were sort of a private corporation, but yet had special goverment "sponsered" status. They got special rules, which they bought from the politicians with their profits. Heck they threatened to *sue* a congressman if he released some unflattering information and had enough clout to back it up and silence the congressman.

This should be a Teapot Dome moment in our history, but I'm afraid they're going to get away with it. A few big shots will go down, offered up as scape goats, but most of them will get away.

As much as I hate it, the feds have to bail them out, lest they take the whole economy down with them. Make no mistake, this would indeed be 1929 all over again if they don't bail the big ones out. I can only hope some real reform can come out of it, but I ain't gonna hold my breath.

Honestly, I think it will take another Depression to knock some sense in their heads.

-Richard

sarongsong
2008-Sep-17, 07:39 AM
Thanks for the links.
Wow, publius, you've really got the scenario down:

House Speaker orders wide Wall Street probe (http://www.politico.com/news/stories/0908/13514.html)

AIG Gets $85 Billion Fed Loan (http://www.bloomberg.com/apps/news?pid=20601087&sid=aw.hphkcbZ_o&refer=worldwide)

Stuart van Onselen
2008-Sep-17, 07:58 AM
I can only hope some real reform can come out of it, It seems to me that every time Washington comes up with regulation to save banks from themselves, they find loopholes in it, and find a new way to hurt themselves!

HenrikOlsen
2008-Sep-17, 01:54 PM
AIG Gets $85 Billion Fed Loan (http://www.bloomberg.com/apps/news?pid=20601087&sid=aw.hphkcbZ_o&refer=worldwide)
One of those cases where time travel would have been so nice, buy them at the bottom, sell them at the end of the same day, triple your money.

publius
2008-Sep-17, 05:09 PM
And now the FDIC itself may be in trouble:

http://news.yahoo.com/s/ap/20080916/ap_on_bi_ge/bank_deposits_safety




-Richard

Celestial Mechanic
2008-Sep-17, 07:43 PM
One of those cases where time travel would have been so nice, buy them at the bottom, sell them at the end of the same day, triple your money.
The fact that there are no quintillionaires around is one of the best arguments against time travel ... :)

publius
2008-Sep-17, 08:16 PM
J.H.C......... The Dow went in free fall there at the last. I had my little window up showing it was at -350. I hit refresh, -375. Then refresh again, -400. Then -420, Then -450 right before the close. That was indeed free fall.

I'm going to have to quit watching this stuff -- that nearly killed me.

Heh. My broker, my "financial advisor" as he calls himself, generally calls around when he fears his customers may be getting antsy and offers soothing words. I haven't heard a word from him all week. Heck, I think he's headed for the tall grass himself. I just called his number to see. Busy. Every one of his numbers is busy. :lol: Busy indeed.

-Richard

HenrikOlsen
2008-Sep-17, 09:07 PM
Is it me who doesn' t understand the marked or was today a way to triple your money if you had the timing right?

peteshimmon
2008-Sep-17, 10:19 PM
I think it was switching on the LHC that
did it.

Last Hedge Collector

Lost Herd Conscience

or something like that...

publius
2008-Sep-17, 10:39 PM
I am not making this up. Just got through to my broker's secretary and she said he's going on vacation and will be gone for a week. I laughed. She laughed. Poor gal sounded a bit frazzled. And he left her to take the heat.

-Richard

mike alexander
2008-Sep-17, 11:01 PM
Such pessimists. Can't you understand extremely strong negative growth when you see it?

Besides, my underlying fundament is strong. Been sitting on it all day, no bad effects.

Can't make an omelet without breaking eggs.

Creative destruction.

Necessary shake-out of poorly performing institutions.

Any other cliches'?

sarongsong
2008-Sep-17, 11:35 PM
"Just go shopping..."

Hmmh---are we under attack, again?
November 3, 2005
...I was surprised to learn recently that Economics is the most popular major here...
- Marshall N. Carter
Chairman, New York Stock Exchange
For Cadets at the U.S. Military Academy, West Point, New York:
“21st Century Warfighting Tools for the Modern Cadet---
Beans, Bullets, Brains and Economics!….Economics???”

westpointaog.com (http://usma1962.westpointaog.com/Economics%20-%20MNC%20-%20Nov%203%202005.htm)

publius
2008-Sep-17, 11:43 PM
Gold went up about $90 today, the largest single day increase in history. Yep, if I had that crystal ball and put everything I had in gold yesterday and sold it today, I would've made a killing.

But that's assuming I want those green pieces of paper, heck digital ciphers in memory somewhere mostly. Maybe I should want the gold.

Let's see, latest FT story says all the world-wide financial "distress indicators" are at their highest since the earth cooled. Again this would be 1929 all over again, save for the US govt. essentially nationalizing *trillions* worth of private companies. They won't use that term, but that's essentially what it is.

So, it's full faith, credit, and trust in the government of these here United States that is propping everything up. But wait, what's backing the government up? Well, as it says on those green pieces of paper, "In God We Trust".

And folks, that ain't no joke. The US government is about $10 trillion in debt itself.

-Richard

Cornwall
2008-Sep-17, 11:48 PM
Is it me who doen' t understand the marked

Probably.


or was today a way to triple your money if you had the timing right?

Yes it was, just like every other day. That whole bit about predicting the future is the tricky part.

publius
2008-Sep-17, 11:51 PM
Here's a figure I was looking for: $280 billion. That's how much money central banks have pumped into the economy world wide just this week. I though I saw the Fed open market thingy pumped $50 billion in just one day last week.

That's the "In God We Trust" part at work. When the Fed and other central banks pump money in this way, it comes out of thin air. It's the equivalent of "printing money" as they used to say.

I ain't knocking it -- that's what they have to do to keep things from collapsing. But it, along with the other "stress indicators" gives you an idea of just how serious this thing is.

And not to be pessimistic or anything, but do you know how your friendly neighborhood Fed Bank of NY pumps $50 billion worth of cash in the market at the drop of a hat? By buying US treasury bonds. That is, buying up parts of the US government debt. That how much money Uncle Sam owes, folks. :lol: The biggest way to to get money back in the market is to take US debt out of it.


-Richard

Celestial Mechanic
2008-Sep-18, 04:38 AM
So the feds decide to prop up AIG with $85 billion, and the Dow drops 450 points? It's true, no good deed ever goes unpunished. ;)

publius
2008-Sep-18, 07:04 AM
This thing is spreading. The historic Bank of Scotland, founded in 1695, just went belly up.

http://thescotsman.scotsman.com/latestnews/-Darkest-day-for-Scottish.4503252.jp

-Richard

Argos
2008-Sep-18, 02:12 PM
Gold has reached the highest value in the 21st century down here. When people turn to gold [no pun intended]... well, there´s a whole lot of shaken confidences.

Drunk Vegan
2008-Sep-18, 06:40 PM
So the feds decide to prop up AIG with $85 billion, and the Dow drops 450 points? It's true, no good deed ever goes unpunished. ;)

Why the hell are we bailing them out anyway?

Since when is it the job of my tax money to be bailing out * private companies* ?

They should be taking that money and giving it to all the people who have lost their homes or are about to. Not getting into bed with their campaign contributors, with exorbitant bailouts - the same way they did with the airlines after 9/11.

It's unacceptable to open the national treasury and shower tax money on private companies when they're in trouble. And we all know the reason they do it is because the politicians don't give a damn about the American people, only the gold meal tickets who paid for their campaign.

Van Rijn
2008-Sep-18, 08:42 PM
Why the hell are we bailing them out anyway?


In the case of AIG, it's more of a purchase. I don't particularly like government getting that far into business, but at this particular time, I'm not sure what would be a better option. A collapsing AIG would not go quietly, and would drag other companies down with it. The idea is to not let things go too far.

No doubt there will be plenty of argument about what we should do to prevent this sort of thing in the first place, but that argument is for tommorow.



Since when is it the job of my tax money to be bailing out * private companies* ?

They should be taking that money and giving it to all the people who have lost their homes or are about to.


Are you talking about people who took out bigger loans than they could afford? Wouldn't these be bailouts too?

publius
2008-Sep-18, 10:27 PM
I can't stand the idea of the federal government owning trillions of dollars worth of private companies either. But this is the only thing they can do. As I said above, make no mistake about it, had the feds not acted, this would be 1929 all over again. (And I see Congress is doing just what my broker did -- going on vacation :) ).

They let Lehman go and were going to let Merrill go as well, but they couldn't let AIG go. It was too big, and would've dragged us all down. Not too many alive today remember the Depression. We'd all be advised to bone up a bit on that history. Never let that happen again.

Main street, mom and pop, etc, have much of their savings and retirements invested in Wall Street. If it goes down, Main Street goes down. They can't let that happen. AIG going belly up would've done that. All of this is cascade from the housing bubble and NINJA loan mess bursting. AIG was insuring a lot of that mess.

What they don't need to let happen is the big shots get away with their golden parachutes (from what I'm reading, there are legal means to take the money back if the feds decide to exercise it).

-Richard

publius
2008-Sep-18, 10:32 PM
They should be taking that money and giving it to all the people who have lost their homes or are about to.

Indeed, that's what they are doing in effect. If they didn't act, the whole darn credit system would come down, and you'd have more people loosing their homes than you could shake a stick at.

Right now the big central banks world wide are "flooding the streets with money" as they like to say to keep it going. Credit would dry up, loans would get called, and the whole thing would collapse.

-Richard

peteshimmon
2008-Sep-18, 11:02 PM
If in a years time things are still holding
together then it is worth it. Money may have
lost a quarter of its value but that is better
than starting over again. And if people could
only get a roof over themselves by buying then
perhaps a rethink is needed. Ordinary decent
folk bringing the next generation along want
stable housing and communities. State
renting is an honourable option.

BTW, is it the People's United States now?


sorry...

sarongsong
2008-Sep-19, 01:14 AM
...the big shots...the feds...Any genuine white hats among them?

Drunk Vegan
2008-Sep-19, 01:38 AM
Indeed, that's what they are doing in effect. If they didn't act, the whole darn credit system would come down, and you'd have more people loosing their homes than you could shake a stick at.

Right now the big central banks world wide are "flooding the streets with money" as they like to say to keep it going. Credit would dry up, loans would get called, and the whole thing would collapse.

-Richard

I'm not sure I'd agree that buying AIG qualifies as giving tax money to the people. It's not direct. It's putting faith in an institution that has already *failed* to succeed in helping those people this time.

Much better to hand the money directly to the people who need it so they can buy new homes if they've lost them, and keep from losing them if they haven't yet.

publius
2008-Sep-19, 01:41 AM
More "flooding the streets with money":

http://www.breitbart.com/article.php?id=080918083207.wh5hl7iv&show_article=1

Note this $180G is addition to the direct injections I mentioned above.

This is just flat out extraordinary. I don't how much it all adds up to date, tens of billions here, hundreds there, in chunks of various forms but this indeed a deluge of money. Think opening Hoover Dam wide open and letting it fly. :)

This is what central banks are supposed to do in a crisis according to the theory and plans. We'll see if it works like it's supposed to. This is a biggy crisis indeed, one they'll be talking about in the textbooks for years. Hope it has a happy ending.

-Richard

Tinaa
2008-Sep-19, 01:58 AM
I'm not happy with this decision. The stock market bounces back BECAUSE of more gov't interference?

What time is it really?

More gov't power is what time it is.

Van Rijn
2008-Sep-19, 03:13 AM
My opinion will depend on how much and what is still government owned five years from now. I don't see that there was much choice at the moment, but there are different ways to handle it in the long run.

Van Rijn
2008-Sep-19, 03:29 AM
I'm not sure I'd agree that buying AIG qualifies as giving tax money to the people. It's not direct. It's putting faith in an institution that has already *failed* to succeed in helping those people this time.


The point of buying AIG is to keep a lot more people from losing their homes, after they lose their jobs or investments that supported them.



Much better to hand the money directly to the people who need it so they can buy new homes if they've lost them, and keep from losing them if they haven't yet.

In your opinion, who should be given money, how much should they be given, and where should it come from?

nauthiz
2008-Sep-19, 03:47 AM
Much better to hand the money directly to the people who need it so they can buy new homes if they've lost them, and keep from losing them if they haven't yet.
If they were to do that, then for every private citizen they bailed out many more could lose their shirts in the economic catastrophe that would stand a good chance of following. AIG isn't just some really big company; it's one of the cornerstones of this entire house of cards that's passing for a financial industry in this country.

Not to mention that the the whole thing about the gov't just giving this money away is a terrible piece of spin. It was a loan - and at a pretty hefty interest rate, too. Assuming the plan works, the citizens of the USA will get to keep their jobs and have their government make a little bit of profit (which is precisely the opposite of costing the taxpayers money) at the same time. Even if AIG does default on the loan, they have enough assets that the government will be able to get its money back should the company be liquidated. But the Fed has done a lot to try and cover its tail - that's presumably why they arranged the warrant* for 80% of the company as well as the right to suspend dividend payments to AIG shareholders.

*BTW - warrant merely means an option to buy. The Fed has not exercised this option, and I suspect that they don't want to exercise this option unless they absolutely have to.

Drunk Vegan
2008-Sep-19, 08:05 AM
In your opinion, who should be given money

Those who have lost or are about to lose their homes as a direct result of the greed of AIG, Fannie Mae, et al.


how much should they be given

Enough to keep their homes or begin paying mortgages on new homes. Essentially a subsidy to match the difference between how much they can * afford * to pay to have a roof over their heads and how much they are actually paying.


and where should it come from?

Whatever hidey hole in the treasury they ninja'd the $78 billion that they are using to buy AIG.

In fact, just cancel the purchase of AIG and do this with those funds instead.

sarongsong
2008-Sep-19, 08:25 AM
A closer look:
September 17, 2008
...the Bank for International Settlements, the bank for the world’s central banks, estimated that the face value of derivatives floating around the world is $1.14 quadrillion...Lehman Brothers went into bankruptcy, Merrill Lynch had to be bought by Bank of America, while insurance giant AIG tottered — all this following close on the heels of the government’s seizure of mortgage monsters Fannie Mae and Freddie Mac. At the center of these storms are derivatives...
- Don Bauder
San Diego Reader (http://www.sandiegoreader.com/news/2008/sep/17/city-light-1/)

Extravoice
2008-Sep-19, 12:38 PM
Those who have lost or are about to lose their homes as a direct result of the greed of AIG, Fannie Mae, et al.

There was plenty of greed all the way from the top to the bottom. At the bottom, we had people buying more home than they could realistically afford. (Interest-only loans, flex pay loans where the principle goes up. WTF?) Up the chain, we had greedy idiots willing to lend them money and bigger, greedy idiots willing to buy the loans. It was a giant pyramid scheme imho.

A lot of us of us who have lived within our means are seriously peeved by the whole thing. I'm now stuck in a situation where either I have to bail out those greedy idiots or have the economy implode and take me with it. <spits on ground, turns, and shuffles away>

nauthiz
2008-Sep-19, 12:56 PM
While we're at it, I'd like to see a little heat for the folks who, in the name of things like equal opportunity and affordable housing, scuttled the effort to do something about sub-prime loan situation a few years back.

nauthiz
2008-Sep-19, 01:08 PM
Enough to keep their homes or begin paying mortgages on new homes. Essentially a subsidy to match the difference between how much they can * afford * to pay to have a roof over their heads and how much they are actually paying.
With half a trillion dollars worth of foreclosures to cover and probably quite a bit more just over the horizon, that'd most likely end up being a rather large bill.

And an even more obscenely large bailout for the banks and whatnot, too, since the money would ultimately be going straight to them. With no strings attached, at that. At least under the current plan the Fed is getting something in return.

Click Ticker
2008-Sep-19, 01:41 PM
Say it with me everyone:

Owning your own home is not a right.

It may be an ideal, it may be "The American Dream" (or the dream of those in any other country on this earth), but it is not a right.

It is not a right for an individual to by a 3,000 sq ft McMansion on an interest only, ballooning, adjustable rate, magic mortgage and then decide that when they can't afford it - I need to step in and make up their payment shortfall on a house they never should have been in in the first place. It is not a right of a person earning $8.00 and hour to buy a home with no down payment if they can barely afford the payment, but once the water heater breaks, their entire budget falls apart. It is their right to work to improve their financial position and employability to where they have enough income to buy a home. But if they never get there – I don’t owe them a home of their own.

I know we don't operate strictly under "let the buyer be ware" - but at some point people have to look out for themselves. The mortgage broker may have even made a sound recommendation at first. Then the person that bought the home decided they needed a new car and new furniture for the place, which are all new payments the lender didn't have to consider when they first approved the loan. And, well, my payment is only $1,000 a month – it’s supposed to go up some day, but I’m sure I’ll have the car and furniture paid off by then, and I’ll get a nice promotion too!

At some point the borrower has to push the plate away, get up from the table, and say, "I'm full". Lending is an all you can eat buffet from different restaurants. Many of the lenders underwriting requirements for a $10,000 - $50,000 loan just review payment history and stated income. If you have a long history of making timely payments and you say you make $100,000 a year - they believe you. They'll make that loan. What they don't have the resources for is to review tax returns and a cash flow analysis on every small request that comes in. If they did that, the public would be crying about unfair lending practices and higher rates due to the cost of doing business.

The unfortunate result of this is we end up bailing out the big boys, who no doubt made some huge mistakes along the way, and they should have devoted resources to getting tax returns and completing and actual cash flow analysis for large mortgages. The applicants also should have had to sign and initial that they understand the nature of the adjustable rate mortgage and that their payment can and will likely go up in the future. It stinks to do the bail out, but the failure of AIG and the like would end up costing taxpayers far more in the long run than the bail out will.

NEOWatcher
2008-Sep-19, 01:53 PM
...Essentially a subsidy to match the difference between how much they can * afford * to pay to have a roof over their heads and how much they are actually paying....
I have an issue with that.
I have always worked with a buffer in what I can afford to pay, and what I stretch myself out to. I see plenty of people at that margin, but this has pushed them over the edge.
So; I'm careful with my money, they are too, but they are getting bailed out, and my taxes go to them, and I get squeezed. In the meantime, my 401K is getting hammered.

I don't know what a good formula would be, but this seems to be happening more and more (at least with my experiences, I don't know if there's numbers). And; this is not just economic, we bail out people that didn't have the insurance that they may be required by law to have.

Individually; I can see plenty of situations where this has to be done, but it's just getting overwhelming to me.

So; keeping the underlying flow in-tact makes sense to me. I'm not a fan of the government taking anything over, but if it's an actual taking over the share of the company, then at least its not a blatent handout to the stockholders.

Elenwen
2008-Sep-19, 01:57 PM
This is exactly why Ron Paul should be nominated as president.

Lots of people are investing in silver as well as gold. Interesting to see where all this will end up. Light at the end of the tunnel or not things should be changed. Will they? Doubtful.

Extravoice
2008-Sep-19, 02:02 PM
Let's not drift into politics here.

Click Ticker
2008-Sep-19, 02:12 PM
This is exactly why Ron Paul should be nominated as president.

Lots of people are investing in silver as well as gold. Interesting to see where all this will end up. Light at the end of the tunnel or not things should be changed. Will they? Doubtful.

It will end up with a lot of people losing their shirts in silver and gold when stability returns to the market place, sensible lending practices return to the mortgage industry, and home values stabilize. I'll give you a hint - when the last person in the world you would ever expect asks you how to set up an account to invest in gold, it's time to sell.

mike alexander
2008-Sep-19, 02:33 PM
It's always nice to see perception outrank ideology. Was it Salvor Hardin or Hober Mallow who said, "Never let your sense of morals prevent you from doing what is right."

Elenwen
2008-Sep-19, 02:35 PM
It will end up with a lot of people losing their shirts in silver and gold when stability returns to the market place, sensible lending practices return to the mortgage industry, and home values stabilize.

Agreed. Worst thing to do in a crisis is to panic but how long until stability resumes? It's not a matter of days or weeks.

Drunk Vegan
2008-Sep-19, 02:49 PM
Agreed. Worst thing to do in a crisis is to panic but how long until stability resumes? It's not a matter of days or weeks.

Or likely, years.

It could take at least 8 years for America to recover from the previous 8 years.

Drunk Vegan
2008-Sep-19, 02:54 PM
So; keeping the underlying flow in-tact makes sense to me. I'm not a fan of the government taking anything over, but if it's an actual taking over the share of the company, then at least its not a blatent handout to the stockholders.

Why does buying a company, essentially attempting to artificially prop up the market and try to keep their campaign contributors rich, make you less uncomfortable than the idea of using the same money to try to prevent people with homes from becoming people who are homeless?

It seems like common sense. Someone uses all their money trying to keep their house, and fails. It ruins their credit, so they can't find another home.

Their only option then is an apartment, but no one wants to lease to them because their credit is bad.

The only way to even have a place to live, assuming you haven't already lost your job from all the days off you were taking trying to keep your house, is to move your family to a tiny box in an apartment complex in the ghetto where one of you is probably going to get shot before you learn how to survive there.

Yes, these people were living outside their means. But plenty of people who were living within their means are now way outside of them because of increased gas and grocery costs and the freefall the market is in. To suggest that everyone affected just had this coming and bailing them out is some kind of dangerous socialist ploy, as I've seen plenty of people suggest lately, is to me too heartless.

nauthiz
2008-Sep-19, 03:25 PM
It could take at least 8 years for America to recover from the previous 8 years.
The Dow passed its Jan 14, 2000 high (immediately before the dot compost) a month shy of two years ago, and has been more-or-less steadily climbing since. The S&P did the same a year and a half ago. The same indices are both currently well above where they were before this week's big fall.

That isn't to say that we've totally recovered, and we're certainly not in the clear, but it still only took 5 years to recover from the dot com bust and things haven't gotten anywhere near that bad yet.

nauthiz
2008-Sep-19, 03:34 PM
Why does buying a company
Who's bought any companies? The government has assumed temporary control of Fannie and Freddie, and it has issued a loan with an (unexercised) option to buy to AIG, but I haven't heard of any purchases just yet.

publius
2008-Sep-19, 04:03 PM
$1 trillion. Paulson just announced the framework of a rescue plan, and that's how much is going to be involved. The treasury is essentially going to pull something to get a lot of the bad debt off the books of the major finanical instutitions.

According to what some of the congresscritters are saying, they were told last night we were just days away from a complete collapse of the whole *world* system.

Reading between the lines of what Chris Dodd, chairman of the Senate Banking Committee, said (and just look at how much money he's been getting from Fannie and Freddie over the past few years, BTW), they are indeed putting ideology on the back burner in the face of reality. They were pooping their little underoos last night in those meetings and the D's and R's got scared enough to work together. Well, I think it's best to say they are going to get out of the way and let those who have a clue about how to fix this mess do without interference from them. :)

I hear you Extravoice. What this is essentially is like some idiot maxing out all his credit cards with no means to pay even the minimum payment. Uncle Sugar Daddy just came in and wiped off that debt. He'll get to keep all the crap he bought that he couldn't afford.

If Sugar Daddy hadn't done that, well, bone up on what the Depression was like. Now, will the idiots that maxed out their plastic learn any lessons from this without having to feel the full pain of the consquences of their actions?

-Richard

Drunk Vegan
2008-Sep-19, 04:29 PM
The Dow passed its Jan 14, 2000 high (immediately before the dot compost) a month shy of two years ago, and has been more-or-less steadily climbing since. The S&P did the same a year and a half ago. The same indices are both currently well above where they were before this week's big fall.

That isn't to say that we've totally recovered, and we're certainly not in the clear, but it still only took 5 years to recover from the dot com bust and things haven't gotten anywhere near that bad yet.

Does the index take inflation into account?

Because "at the same level as 2000" may be meaningless if not.

nauthiz
2008-Sep-19, 04:31 PM
Does the index take inflation into effect?

Because "at the same level as 2000" may be meaningless if not.
No, but you can adjust for inflation roughly enough by ticking back the time it took for each index to catch up to its early 2000 levels by a month or two.

HenrikOlsen
2008-Sep-19, 05:44 PM
I wonder if there's been any frantic calls to Alan Greenspan for advise?

Anyway, to sum up to see if I understand all this:
AIG is basically the insurance company for the financial institutions, ensuring that even if a bank goes belly-up peoples money are still safe.
Financial institutions didn't notice in time when the bubble would bust so made a lot of bad loans and as a result are circling the drain.
Since it's happening to all of the financial institutions the same time, AIG don't have enough money to cover for all of them, since that's not how insurance works (have all car owner crash at the same time and your car insurance would be worthless too).
The government is stepping in with a loan to AIG so then can prevent the banks from collapsing, so the people who actually saved money rather than borrowing more than they can afford won't lose their savings.

What I don't get is how this become taxpayers paying for bad loans?

It won't stop foreclosures on the bad loans, since that's basic damage control by the banks and they have to do that whether AIG gets money or not, what it will do is to make it just a little bit easier for the bank directors to keep the banks running than to take the big step to the pavement where they don't have to worry about how to pay their lenders.

Remember, in the depression you needed more than an umbrella to be safe when walking Wall Street:)

NEOWatcher
2008-Sep-19, 05:45 PM
Why does buying a company [...] make you less uncomfortable than the idea of using the same money to try to prevent people with homes from
becoming people who are homeless?
That part I explained. *

...essentially attempting to artificially prop up the market...
That's part of what this is accomplishing, the other part is saving those people that would be wiped out if the institutions fail. Part of the AIG bailout involves pensions that are tied up in the mess.

... and try to keep their campaign contributors rich...
How does that happen?** There's no profit going to them, they are essentially getting thier shares taken away from them.

*ETA... I really don't want to get into this. This is not the place for it. If I were able to sit in a room and discuss it, I would be happy to. But here...Let's agree to disagree.
**ETA... I'm refering to rich. Yes, they get some benefit, but rich is out of the question in my mind.

Drunk Vegan
2008-Sep-19, 11:18 PM
**ETA... I'm refering to rich. Yes, they get some benefit, but rich is out of the question in my mind.

Well, I'd argue that any politician who isn't making his campaign contributors rich is not doing his job. That's his sole purpose while in office. The "public servant" bit is extremely overplayed and impossible to believe.

publius
2008-Sep-19, 11:20 PM
I wonder if there's been any frantic calls to Alan Greenspan for advise?

You know, there's some now saying he should've tried to cool down the lunacy during his tenure, and he was happpy with if not encouraging the drunken sailor spree as much anybody else. They'll be arguing over this and who deserves what share of the blame for years and years to come.





What I don't get is how this become taxpayers paying for bad loans?


Well, that is isn't AIG so much as the huge plan Paulson and Co. came up with today, the "Mother of all Bailouts" as some are calling it. The US govt. is essentially going to buy up much of the bad debt due to those bad mortages.

While the accounting will be some complicated mess, essentially the govt. is taking the debt off the books of the banks and other outfits in trouble and putting it on the govt's books. Again, it's like someone running up his credit cards with no means to pay and the govt just says, don't worry you don't owe that any more, I'll take care of it for you.

About $1 trillion total when it's all said and done.

What they've done is truly unprecedented. It's mind boggling. And they had to do it. The world financial system would've imploded in just a few days if they hadn't done this (and other things like banning shorting of financial institution stocks).

THe enormity of what the US govt has done just hasn't sunk in yet. It's no stretch to say there is no free market anymore. The govt just stepped in with the biggest exercise of govt control ever. And it was a Republican administration that did it. Because it *had* to or there wouldn't be any market left, free or otherwise.

-Richard

Neverfly
2008-Sep-19, 11:28 PM
What a mess...
My understanding of economics is very poor.

I cannot contribute any knowledge in this thread.

But what I can do- is ask some questions because...

I have no clue what this stuff means or what the repercussions are.

sarongsong
2008-Sep-20, 12:30 AM
What a mess...
My understanding of economics is very poor...Apparently we are being taught by rote:
July 9, 2002
...Today by executive order, I create a new corporate fraud task force headed by the deputy attorney general which will target major accounting fraud and other criminal activity in corporate finance. The task force will function as a financial crimes SWAT team overseeing the investigation of corporate abusers and bringing them to account...
CNN (http://archives.cnn.com/2002/ALLPOLITICS/07/09/bush.transcript/index.html)

September 19, 2008
...Anyone engaging in illegal financial transactions will be caught and persecuted...
Newsday/L.A.Times (http://www.newsday.com/business/la-fi-bushtext20-2008sep20,0,6375386.story?page=2)

ASEI
2008-Sep-20, 01:29 AM
As to housing prices - that's partially due to lending stupidity and partially due to supply and demand. Nothing says a particular commodity must always appreciate, especially one as overproduced as housing. On the bright side - in a year or two it'll be much easier for people to buy houses, rather than hold them as an investment.

As to the lending stupidity - if I hear "predatory lending" one more time, I'm going nuts. It should be "predatory borrowing". What are we to say about these people taking the loans? "Help! They can't do this to me! They're giving me $100,000 even though I'm a crappy risk because of the fair housing act. They contractually expect me to be willing and able to pay it back! This isn't fair! I'm signing on the dotted line! It's predatory I tell you!"

The banks didn't commit fraud at all. They were legally compelled to make stupid loans. The borrowers are the ones defaulting. There's a problem, but it's not with corporations or mortgage banks. The whole class warfare narrative really doesn't fit this scenario at all.


Well, that is isn't AIG so much as the huge plan Paulson and Co. came up with today, the "Mother of all Bailouts" as some are calling it. The US govt. is essentially going to buy up much of the bad debt due to those bad mortages. Bailing out the banks is problematic too. It saves everyones 401k who had invested in them, but it also produces a moral hazard in the banking industry. Now, irresponsible behavior by the banks is rewarded, and responsible behavior is no longer competitive.


PS - In a sane, capitalist banking system, people who didn't have stable and abundant enough income to be a good risk to repay a loan would be told "no". Then they couldn't go on to buy houses they couldn't afford at radically inflated prices because money grew on trees. It would be harsh, to those who can't stand the idea of a budget ceiling, but it would be solid.

Also, banks that like to live dangerously might be able to get higher interest rates, but they would also crash and burn with no one to help them. Investors would have incentive to invest in more conservative instututions (unless they also like to live dangerously).

publius
2008-Sep-20, 03:27 AM
Re moral hazard. I just got through reading a bunch of stuff in the WSJ and some other online sources (the London papers go into much more detail than most of our own -- what does that tell us about their estimation of the public reading them? And they're probably right. :( )

The moral hazard is a key element to the Mother of All Bailouts. Paulson and Co. are going to take a very "command economy" move and set the price of something big by govt. fiat, rather than letting the market decide. The thing they will set the price on is the value of that bad debt. (The market, in free fall, has essentially said it's worthless. It's not really worthless, but as the balloon was deflating it was effectively in the short run). If they set it too high, we're in moral hazard territory big time. If they set it too low, then the balloon deflates too much and Main Street is in trouble.

They're going to have to set it at value that hurts enough to teach the moral lesson, or at least not have that lesson lost, but no more or less. :) As some wag I was reading put it, they'll consume wads, or say they're doing so, of computer cycles cranking some ridiculously complex algorithm trying to estimate a value. While that's cranking, they'll wet a finger from the one hand and stick it up in the wind (and grease a finger from the other hand and stick it somewhere else) and pull a number out and say it was the complex algorithm that did it so it's a good number. :lol:

Who is the "they" that is going to do all this, you wonder? Well, I was reading about this. I hate to sound like a broken record, but I want to stress this is the biggest "makeover" of our financial system since the 1930s -- even bigger. That's not a stretch. The ones who are doing are a small handful of men most people outside of financial wonk circles have never heard of.

Paulson and Bernacke are two of the most familiar. There's some honcho dude in London in on it. The rest of the handful are just insiders.

And that bunch is going to rewrite the books, restructure the entire world financial system over the next few days and weeks. And they're doing it under extreme pressure with no second chances, no second opinions. Decisions that involve trillions of dollars and will affect the system for years to come are being made on the fly by this small group of characters. Nobody in Congress understands much of it all, they'll just vote on whatever they come up with.

How do you like them apples? For instance, one of this group, some big titan of Wall Street was running around from meeting to meeting with all the others trying to save the system and then got a call that his own company was soon going to go down the tubes. So he had to multitask saving the world with he saving his own rear end.

From reading all that, I get the feeling it was like a little stunt a friend and I pulled when I was a teenager. We were playing with fire, literally. Our little play fire took a turn for the worst and was going to get out of hand in about 10 seconds if we didn't get it out. We did, but boy I could've burned down the whole shebang there.

That taught me a lesson (don't play with fire). And then we had to cover up what we'd done. :lol: Was only mildly successful there.

Anyway, from reading some of these accounts, I imagine Paulson and this bunch of insiders were feeling just like I was back then.

-Richard

Extravoice
2008-Sep-20, 12:18 PM
What a mess...
My understanding of economics is very poor.

I cannot contribute any knowledge in this thread.

Someone once said that war is nature's way of forcing us to learn geography.

Apparently, this type of situation is nature's way of teaching us economics.

I'd rather read about both from books.

Delvo
2008-Sep-20, 01:37 PM
Bailing out the stupid from the consequences of their stupidity doesn't do any good. It just encourages more of the same kind of stupidity by taking away the risk, thus asking for more of the same consequences later.

tdvance
2008-Sep-20, 05:04 PM
A statistic I came across, suggesting things aren't as bad as they seem:

"Dow up 40 points in past month, up 18% past 5 years, up 44% past 10 years"

That's partly because of the promised bailout--a short term gain that has long-term consequences (rearranging the ups and downs to make them less steep short term, but not improving long-term growth) of course. That's not 100% bad as, in theory, companies could learn from mistakes and use the money for growth (but in practice, they might not, if the perception is bailouts will be common in the future, a perception that may well be correct, unfortunately). So, a bailout is the right thing to do for the short term, but long term we'd most likely be better off without it.

tdvance
2008-Sep-20, 05:07 PM
It also underscores what stock market experts say all the time: "let it ride". The stock market goes up in the long run, and if it ever is the case it doesn't go up in the long run, having the money in your mattress, say, won't be all that beneficial in that kind of economy. As someone said a decade ago, in the 20th century stocks have gone up every 25 year period (1900-1925, 1901-1926, and so on), and that includes 25-year periods bracketing the great depression. So, let it ride. Timing the markets sometimes works, but only if you really know what you're doing, and even then has a high probability of failing. If you have significant inside information, however, timing really does work...til the SEC finds out and you go to jail!

Drunk Vegan
2008-Sep-20, 09:21 PM
I think the words "market adjustment" or "bubble bursting" are somewhere along the lines of what Lionel Hutz would say about a house that's on fire that he's trying to sell:

"That's a fixer-upper."

What really amuses me is that * anyone * is surprised that this is happening. The system has been set up to collapse for at least 5 years, if not 10.

It was just a matter of how high they built the House of Cards. (http://www.youtube.com/watch?v=8nTFjVm9sTQ)

sarongsong
2008-Sep-21, 12:19 AM
What about these players; what are their possible courses of action, if any, in this situation?
MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES (http://www.ustreas.gov/tic/mfh.txt)

banquo's_bumble_puppy
2008-Sep-22, 11:02 AM
on CTV news yesterday they were saying that the US was just days away from econonomic collapse....think about that....

Extravoice
2008-Sep-22, 12:51 PM
Here is a reality check. The entire Apollo program cost $135B in inflation-adjusted dollars*. That means we could get 5 Apollo programs and have some change to spare with the $700B the bailout is expected to cost. :(

*EE Times, Sept 15, 2008

tdvance
2008-Sep-22, 05:19 PM
on CTV news yesterday they were saying that the US was just days away from econonomic collapse....think about that....

I'll be generous and take "days" to mean 7 or less, though most people would mean closer to, say, 3. We shall know this weekend if CTV can be trusted or not.

Celestial Mechanic
2008-Sep-22, 05:34 PM
Margaret Hamilton mode again:

I'm melting again! I'm melting! All my loans and subsidies, oh what a world! What a world! O-o-o-oh!
I just looked a moment ago and the Dow is down by more than 230 points. Here we go again!

Celestial Mechanic
2008-Sep-22, 05:38 PM
[Former banker trying to make ends meet at a local nightclub ...]

"So I says, 'Take my bad mortgage loans. Please!' "

[Sound of a rim-shot]

"Thank you, thank you. I'm here at the Trocadero Room Tuesdays through Thursdays. Please try the roast veal. Thank you, thank you, and God bless."

banquo's_bumble_puppy
2008-Sep-22, 05:54 PM
oil is going through the roof again....that ain't good

tdvance
2008-Sep-22, 05:56 PM
wait--it's not even near the summer high--how can it be "going through the roof"?

Here's what I think of the economy. I am still putting several hundred a week into the stock market. I wouldn't do that if I thought it would all go away.

banquo's_bumble_puppy
2008-Sep-22, 06:32 PM
127.00 barrel.....unbelievable...largest 1 day gain ever

nauthiz
2008-Sep-22, 07:02 PM
Bailing out the stupid from the consequences of their stupidity doesn't do any good. It just encourages more of the same kind of stupidity by taking away the risk, thus asking for more of the same consequences later.

That kind of thinking might make sense if you live in an ivory tower, but assume for the moment that there's a very real chance that one of the banks that might fail is holding your savings account (FDIC is already under some stress, so it's not safe to assume that the government would have your back if your savings goes poof), or one of the businesses that might fail happens to be your employer, or that these things might be happening to customers of the company you work for?

Are you really so hot to see Wall Street go down in flames that you're willing to risk going down with it?

It may be worth pointing out that the government's refusal to prop up failing financial institutions - justified by exactly this line of reasoning - is precisely what allowed the deflationary spiral now known as the Great Depression to happen.

mike alexander
2008-Sep-22, 09:07 PM
After watching the news today, I feel fairly safe saying that nobody has any idea what's going on. Except that we all seem to be being goosed by the Invisible Hand.

tofu
2008-Sep-22, 09:50 PM
Those who have lost or are about to lose their homes as a direct result of the greed of AIG, Fannie Mae, et al.

So, just to be clear, your theory is that AIG, Fannie Mae, et al. intentionally gave loans to people who would default, and this is somehow a sign of greed. As in, "muhahaha! I'm an evil rich person, so I'm going to loan a McDonald's fry cook $400,000 to buy a house, knowing full well that he wont pay me back, because I'm so greedy! muhahaha!!"

That's your theory? That makes sense to you??

How's this for an alternate theory: AIG, Fannie Mae, et al. would prefer to give loans only to "sure things" - that is, people who can bring a very large down payment to the table (because those people are incredibly unlikely to default). And if AIG, Fannie Mae, et al. had continued to operate that way, then our financial system would be rock-solid. Unfortunately, certain people value "fairness" above all else, but these people aren't very smart; they define fair not as equal opportunity (as in, everyone is judged to the same standard) but as equal outcomes (as in, everybody should have all the same stuff) and these people were angry. They stomped their feet and said, "it's just not fair that a person who saves money for ten years so that they can make a downpayment on a house gets to have a house, but a person who can't balance a checkbook and spends all their money on crap, and therefore never saves anything, doesn't get a house. Golly! That's not fair!" but anyway, these people care - they really really care, a lot, I mean like, a whole heck of a lot. So they lobbied the government to *force* banks to loan money to people who couldn't pay (http://en.wikipedia.org/wiki/Community_Reinvestment_Act) and this made those people, with that particular political ideology feel warm and gooey inside, even though it was a tremendously bad idea, it meant that now everyone could have the same stuff.

So, under penalty of law, AIG, Fannie Mae, et al. began handing out $400,000 mortgages to people who can't even balance a checkbook. This caused a housing shortage, so builders went into overdrive, building a lot more houses than anybody actually needed. The shortage also caused prices to go up, which attracted speculators. A whole industry evolved around the idea of "flipping" a house.

And when interest rates went up, those irresponsible people simply defaulted on their loans. Why not? They had no equity. They lost virtually nothing when they walked away from the loan. It hurt their credit of course, but I'm sure the big-hearted people will be along with legislation to make all of that go away. The house flipping people walked away too. So AIG, Fannie Mae, et al. were left holding a lot of houses that they can't sell, and AIG, Fannie Mae, et al. are out billions of dollars. All because some people thought it would be a good idea to force a bank to loan money without regard to risk.

In my opinion, this crisis is caused less by greed than it is by people with good intentions, but absolutely no clue about human nature.

Drunk Vegan
2008-Sep-22, 10:21 PM
In my opinion, this crisis is caused less by greed than it is by people with good intentions, but absolutely no clue about human nature.

It is still good business to give loans to *everyone * that you legally can give them to. Because your business is backed up by guarantee agencies who guarantee to cover all or most of the value of defaulted loans.

The federal government picks up the check most of the time if a borrower is unable to pay back the bank. That's the whole purpose of insurance.

So yes, it is * entirely * in AIG, Fannie, and Freddie, et al's, interest to have pushed the bills through Congress that allowed them to lend to anyone. Even the McDonald's workers who could not pay back their loans were still valuable to have on the books because when those people defaulted, guarantee agencies and insurance cover the value of the loan and the companies still make money.

That a person is now in heavy debt is irrelevant. The companies still profit.

The * only * instance in which such is bad policy profitwise is when it is so exceptionally overused that it leads to a collapse of the entire system, as we are seeing now.

Of course those companies never expected it to happen, they just stayed happy as long as their stocks were going up. Way of America - we can't see past the ends of our noses. If it's fine today, who cares about tomorrow?

publius
2008-Sep-22, 10:30 PM
Tofu,

I agree re the CRA. However Fannie and Freddie were certainly in on it -- their largess to congresscritters in the form of big campaign contributions and revolving door jobs is what kept this housing bubble gravy train going and prevented several legislative efforts to reign it in over they years. Fannie and Freddie had special governement "sponsored" status and could do a lot of things a normal outfit couldn't do.

Congress and Fannie and Freddie walked hand in hand down this path. Members of both parties were in on it, as well as against it. Responsible people in both parties knew this day was coming and tried to stop it (warnings were being given as far back as the late 90s), but the irresponsible ones blocked it. Even when they discovered Fannie and Freddie were cooking their books to make it look they were doing better than they really were (and triggering big executive bonus pay packages) they didn't stop it.

Fannie and Freddie were essentially a government sponsored scam over the past 10 - 20 years. They made themselves rich, and made congresscritters (and regulators through the revolving door) rich.


-Richard

tdvance
2008-Sep-22, 11:25 PM
So, under penalty of law, AIG, Fannie Mae, et al. began handing out $400,000 mortgages to people who can't even balance a checkbook. This caused a housing shortage, so builders went into overdrive, building a lot more houses than anybody actually needed. The shortage also caused prices to go up, which attracted speculators. A whole industry evolved around the idea of "flipping" a house.

I bought my (current) house in 2003--I recall being perplexed that people with less income were buying pricier houses than I was. Then, while working on selling my old and buying the new, trying to time things so I was neither homeless nor paying mortgage payments for two houses, the loan officer asked me why I was worried--my credit was good enough to own both houses simultaneously! Yeah right...no way, I still need money for food! But I remember being given advice (which I'd have thought would be obvious)--the loan company doesn't know what you can afford, you do. Don't accept the loan just because the loan company thinks you're a good risk if you know it's beyond your means.

tdvance
2008-Sep-22, 11:28 PM
Actually, I was homeless for about 30 minutes I guess--that being the time between settling the sale and then settling the buy, which happily I could do at the same titling company.

nauthiz
2008-Sep-22, 11:43 PM
The companies still profit.
If the companies still profit, how come they seem to all be teetering on the verge of bankruptcy?

tofu
2008-Sep-23, 12:01 AM
Spectacular, DrunkVegan! You've got enough complexity here for a 9/11-conspiracy-level conspiracy! I love it. A secret cabal of shadowy illuminati passes legislation, what, like 20 years ago? And here's the best part of your delusion:


pushed the bills through Congress that allowed them to lend to anyone.

Yes, because before this, they weren't allowed to lend to just anyone.

Except that they were. They've always been allowed to make bad decisions. The legislation didn't say "allowed" it said "must."

Somehow, you have to work this into your conspiracy theory. Let me just lay it out in terms we can all understand. Right now, today, I can, if I want to, loan $50 to JayUtah. But I'm not going to, because I know he wont pay me back, being that he's a shiftless, lazy fellow of questionable parentage. Ah, but I have a plan! I'll get the BAUT moderators to make a new rule that says I *have* to lend Jay $50. Muhahahah!! And in 20 years time, when I don't get my $50 back I will rule them all!!!

Seriously. Does this sound even remotely reasonable?? Especially when compared to the simpler explanation that well-meaning (but ignorant of human nature) people passed a law that had unintended consequences.

Drunk Vegan
2008-Sep-23, 12:18 AM
Yes, because before this, they weren't allowed to lend to just anyone.

I should hope if you've been watching ANY news coverage lately you've heard the words "predatory lending."


Somehow, you have to work this into your conspiracy theory. Let me just lay it out in terms we can all understand.

You mean, terms that are acceptable to your limited knowledge? Okay, if you must.


Seriously. Does this sound even remotely reasonable?? Especially when compared to the simpler explanation that well-meaning (but ignorant of human nature) people passed a law that had unintended consequences.

Yes, it's entirely reasonable. If you were a lending company and you could easily expect to get back $75 from your $50 loan should a miracle happen and you get paid back by the borrower, you win.

If the borrower doesn't pay you back a dime, but the federal government in the form of guarantee agencies and insurance companies pays you back $70 instead, you win.

It's a complete win/win situation to lend money to people who can't afford to pay you back. That's how we got into this mess. Greed is absolutely responsible for this - always trust in people to do what is in their own best interest, including stockholders and the board of directors.

No "conspiracy theory" required here.

Try not to equate the voodoo economics we have been operating under with conspiracy theory - you're just revealing your own ignorance. I'm not saying it * should * be that way, I'm just saying it * has * been that way.

I've worked for student loan, mortgage, and insurance companies. I know what the deal is. They will bend over backward to give loans to people who absolutely will not pay them back, because they know that the loans are secured and will be paid back in full, plus interest, or nearly in full plus interest, by the federal government.

That these strategies were shortsighted and ultimately self-defeating for the industry in the long run is irrelevant. Those companies made money in the short term and their stocks soared. CEOs get big promotions and bigger paychecks all around. All were happy.

HenrikOlsen
2008-Sep-23, 12:29 AM
You mean, terms that are acceptable to your limited knowledge? Okay, if you must.
Careful.

Drunk Vegan
2008-Sep-23, 02:28 AM
Careful.

My apologies, but I do not take kindly to someone saying I'm a conspiracy theory nut for pointing out something that is blatently obvious.

The words I chose were *the most cordial* I could possibly have used.

nauthiz
2008-Sep-23, 02:35 AM
DV, your theory still doesn't line up with the empirical evidence on the most basic level. Namely, it's very hard to believe that all of these lenders have been raking it in, because they're all nearly bankrupt thanks to all the defaulting loans.

Where did these alleged massive hoards of filthy lucre disappear to? If you've managed to get into the black on a loan, then you should stay in the black even if they default. It's not as if a debtor ceasing to give you any more money makes the money they've already given you magically disappear.

sarongsong
2008-Sep-23, 04:10 AM
Why is this happening now, as opposed to, say, last or next year?

ASEI
2008-Sep-23, 12:49 PM
I once had a classmate who, upon observing one of Florida's periodic hurricaines wiping out a coastal area, exclaimed "geez, these insurance companies must really be raking in the dough! Making money from other's suffering" I tried to point out that an insurance company generally pays when disaster strikes, but it seems nothing could erase the antagonistic image of aristocrats vs serfs from his mind.

Delvo
2008-Sep-23, 12:54 PM
Why is this happening now, as opposed to, say, last or next year?Not enough of the people with bad loans had begun failing to repay them yet before.

tofu
2008-Sep-23, 01:05 PM
I should hope if you've been watching ANY news coverage lately you've heard the words "predatory lending."

predatory borrowing (http://www.boston.com/news/globe/editorial_opinion/oped/articles/2007/09/20/predatory_borrowers/)

Misrepresentation of loan application data and mortgage fraud are other contributing factors. US Department of the Treasury suspicious activity report of mortgage fraud increased by 1,411 percent between 1997 and 2005. (http://en.wikipedia.org/wiki/Subprime_mortgage_crisis#Role_of_borrowers)

In other words, a lot of people scammed the banks, just like I said in my first post. The banks were made vulnerable to this scam by laws passed by people who thought it would be cute to give everyone the same stuff. That ideology works on Star Trek, where everyone is enlightened and educated, but it doesn't work with modern humans, many of whom are lazy and stupid and immature. As my first link above points out, a lot of people borrowed hundreds of thousands of dollars, lived it up for a while in their nice big house, then just walked away without paying a dime. Those people should be in jail, but I know, you wouldn't support that, right? That would be mean.

Look, every law or policy needs to be evaluated in the light of an understanding of the principle of Tragedy of the Commons. I love people who think that everyone is good and moral on the inside - I really do, because those people tend to be good and moral. But they make bad policies. For example: the school where I work had this free bicycle program. Someone thought it would be just great to leave a bunch of bikes around campus and people could ride them whenever they want. They have this vision of everyone acting for the common good. But the reality is, the bikes are all gone. They were thrown from buildings, left in the woods, or just stolen. It's sort of the same issue with the subprime mortgage crisis. The idea was great. Give everyone a chance to own a home. We'll all live in peace and happiness and the lion will lay down with the lamb and the age of Aquarius will dawn. But in reality, enough people took advantage of it that the whole thing came crashing down.

By the way, I think I shouldn't have suggested that bankers aren't greedy. I know they are, and I'm sure they contributed here. And I've been thinking about your point, and I think I see how you might be right. An individual person working for a bank might enrich himself while destroying the bank he works for, and the country he lives in.


Why is this happening now, as opposed to, say, last or next year?

I think it just took a while for the supply of houses to overtake the artificial demand caused by speculators.

Click Ticker
2008-Sep-23, 01:31 PM
AIG, Fannie May, and Freddie Mac are not in trouble so much because they made loans, but because they invested in them.

The reason so many mortgage broker outfits went up in smoke is not because the loans they made went bad, but because their customer base dried up.

Regarding all this talk of making bad loans vs. making good loans – the reason so many banks and mortgage companies were doing so well is because they didn’t have to consider the risk when making the loans. They sold them. They were interested in the fee income, not the interest income. They passed the interest income (and the risk) on to others.

Fannie May and Freddie Mac didn’t do mortgages, they bought them from banks and mortgage brokers. Other investment firms and insurance companies (AIG, Merrill Lynch, etc.) would buy them to. They’d bundle all the loans into mortgage backed securities and sell them to investors, investment firms, etc.

The mortgages that were bundled and sold by Fannie May and Freddie Mac had the perception of being backed by the full faith and credit of the U.S. government (and I guess with the bail out, the argument could be made that they were) so they were gobbled up by investors as high yielding bonds with little risk. The mortgages bundled and sold by Lehmen Bros., Merrill Lynch, Baird, etc. were called Collateralized Mortgage Obligations (CMO’s). Higher perceived risk, but more interest. Investors liked these too because they paid higher than corporate bonds or treasury bonds. Besides, even if a few of the loans in the portfolio default, it’s not like they all will, right? Little risk here. So the investment firms gobbled them up for their bond funds, insurance companies gobbled them up to invest their premiums received that weren’t being paid out, Fannie and Freddie were holding the actual mortgages, as were Merrill and Lehmen, etc. Well, it turns out that a whole lot more of the loans can default than expected.

When that happens, and the bank was doing loans at 100%financing because the fee income was so great – just try collecting on your collateral in a soft market. You financed a home at 100% in a hot market, you now have to unload the place for 50 – 80% of the outstanding mortgage (which doesn’t include paying a realtor or paying investors their interest coupon when you aren’t receiving any payments for the year it takes to sell the house), and try to make investors happy by paying back their maturing bonds as promised. Not a good situation.

CRA was mentioned before, and there seem to be some misconceptions about it. The original intent wasn’t to force banks to make bad loans in bad areas. The intent was to put an end to the practice of redlining. Banks would basically take a map on a wall and draw a red line around a group of neighborhoods and say, “To save time and money, we aren’t going to do any loans for any applicant that lives or does business in this area.” What CRA required was that banks underwrite all loans on their individual merits and to put branches in these communities. That means that the person who chooses to purchase a modest house within their means in the city that has acceptable income and strong personal credit can now get a loan that they wouldn’t otherwise get. I will agree that the act has overreached in some respects in that banks will say, “This loan will satisfy our CRA quota so we have to do it.” That, to me, is where the act goes wrong.

Click Ticker
2008-Sep-23, 01:36 PM
127.00 barrel.....unbelievable...largest 1 day gain ever

At this rate, it will be at $2,500 a barrel by the end of the year!!!

Argos
2008-Sep-23, 03:44 PM
I think the bailout decision [or, better, the intention] of the American authorities sets a milestone in the history of capitalism. A new phase starts. In this new phase, the economy may become more concerned with the principle of morality, less hard, more resistant to the 'immoralities' that have been committed by the investment banks.

Actually, such principle of morality was already present in the work of Adam Smith, when he created the figure of the "Impartial Spectator", who imposes rules of good behavior to the capitalist: Not to steal, not to practice monopoly, to respect the citizens. From time to time the figure of the impartial Spectator reappears to correct the course of capitalism. History shows that financial earthquakes like this one we are witnessing today are common. And most of the times the State is called on to save the market economy. A classical example is Roosevelt´s New Deal.

There´s simply no alternative. It is a crisis of confidence, not of liquidity. Treatment must be surgical. At the end of the day, the American authorities have choosen to leave the economics aside and use experience.

sarongsong
2008-Sep-23, 04:42 PM
I think the bailout decision [or, better, the intention] of the American authorities...Quite entertaining, watching [CSPAN-TV] the Treasury Secretary "explain" to the Senate Banking Committee how this bailout "will help the American taxpayer". The man is never at a loss for words.

tdvance
2008-Sep-23, 05:39 PM
Why is this happening now, as opposed to, say, last or next year?


The economy is a chaotic system. It's kind of like a sand pile. Keep adding sand a grain at a time, eventually the pile collapses into a wider but shorter pile. It's very hard to predict which grain will cause the collapse, and if you redo the experiment, even very carefully, it would be a different grain that does it because of microscopic differences in the grains or where they land.

tdvance
2008-Sep-23, 05:41 PM
At this rate, it will be at $2,500 a barrel by the end of the year!!!

I think it closed at 107 per barrel yesterday--the 127 was just a short-term spike.

Drunk Vegan
2008-Sep-24, 02:56 AM
As my first link above points out, a lot of people borrowed hundreds of thousands of dollars, lived it up for a while in their nice big house, then just walked away without paying a dime. Those people should be in jail, but I know, you wouldn't support that, right? That would be mean.

I think these people should be forced to * pay * their debts.

Suggesting jail time seems a bit of fascist overkill though.

What, you want to lock people up for wanting to live the American dream? For wanting a better house and better possessions and a better neighborhood for their spouse and their children?

Gee, yeah, you're right, let's lock up all those hippy dreaming aholes who spent too much money pursuing a dream. Dreams only end in heartache. I think I'll go club a baby seal now too because that'll make me feel about the same as locking these homeless bums up.

Delvo
2008-Sep-24, 03:18 AM
What, you want to lock people up for wanting to live the American dream? For wanting a better house and better possessions and a better neighborhood for their spouse and their children?Not for wanting it. For either committing fraud or breaching contracts to get it.

Doodler
2008-Sep-24, 03:56 AM
I think these people should be forced to * pay * their debts.

Suggesting jail time seems a bit of fascist overkill though.

What, you want to lock people up for wanting to live the American dream? For wanting a better house and better possessions and a better neighborhood for their spouse and their children?

Gee, yeah, you're right, let's lock up all those hippy dreaming aholes who spent too much money pursuing a dream. Dreams only end in heartache. I think I'll go club a baby seal now too because that'll make me feel about the same as locking these homeless bums up.


The FBI is investigating some of the bigger names for mortgage fraud, which makes a certain amount of sense.

In practical terms, you're making a good chunk of Wall Street into a prison camp as a result.

Ultimately, economic woes have their origin in our own hell bent desire to get ahead no matter what the cost. This is the price we've paid for the last decade of relative prosperity following the dot.com bust of '00-'01, which was in turn a price we paid following the decade after the meltdown of '92, which I don't recall off the top of my head, but had something to do with the fallout of '87.

We seem to have stumbled away from a Free Market economy into a Pulse Combustion economy.

danscope
2008-Sep-24, 04:58 AM
"
What, you want to lock people up for wanting to live the American dream? For wanting a better house and better possessions and a better neighborhood for their spouse and their children?

Gee, yeah, you're right, let's lock up all those hippy dreaming aholes who spent too much money pursuing a dream. "
Sir, It wasn't the hippies. It was the yuppies. Let's get our facts straight here. The hippies did more with less, lived humble and cheap lives, and spent within their means.

The yuppies never said no when banks offered them $750,000 for a home 3 times bigger than their parents had with a $100,000 kicker home equity loan
to buy their Ferrari and BMW....with nothing down and 3% interest. And when that pipe dream goes south we are supposed to eat the whole thing?
I think we should wait untill after the election before we make any rash
decisions like the ones that went down after 1980.
Just an opinion.
Best regards, Dan

Drunk Vegan
2008-Sep-24, 05:32 AM
The FBI is investigating some of the bigger names for mortgage fraud, which makes a certain amount of sense.

Well, of course it makes sense to investigate the companies, but as far as prosecuting the people who took out mortgages with those companies, I just don't see how that would help.

In fact, I think it would make an already bad situation even worse.

nauthiz
2008-Sep-24, 06:18 AM
Well, of course it makes sense to investigate the companies, but as far as prosecuting the people who took out mortgages with those companies, I just don't see how that would help.
Not any more than throwing a thief in prison after he's already spent all the money so there's no way to get it back, no.

But the purpose of punishing criminals is not to try and undo the damage caused by the crime. It's mostly about deterrence and vengeance, in varying combination.

Neverfly
2008-Sep-24, 06:37 AM
Not any more than throwing a thief in prison after he's already spent all the money so there's no way to get it back, no.

But the purpose of punishing criminals is not to try and undo the damage caused by the crime. It's mostly about deterrence and vengeance, in varying combination.

How are they thieves?
What laws did they break by simply taking out a mortgage?

nauthiz
2008-Sep-24, 06:41 AM
How are they thieves?
What laws did they break by simply taking out a mortgage?

We're talking about the case of people who committed fraud in order to get approved for their mortgages.

Neverfly
2008-Sep-24, 06:52 AM
We're talking about the case of people who committed fraud in order to get approved for their mortgages.
Ahh, I see. The way some of these posts are worded, it sounds like the COMPANY may have committed fraud, but not necessarily those who took out a mortgage.


Sir, It wasn't the hippies. It was the yuppies. Let's get our facts straight here. The hippies did more with less, lived humble and cheap lives, and spent within their means.
Including the cost of illegal drugs of all kinds?
The hippies were nowhere near so noble.
In fact, if you walked around San Francisco in the 60s or 70s, you knew to stay the heck away from them. They were violent oftentimes, quarreling over drug money, runs and suppliers.


The yuppies never said no when banks offered them $750,000 for a home 3 times bigger than their parents had with a $100,000 kicker home equity loan
So what? The banks wouldn't OFFER a loan that wasn't affordable.
Is there something wrong with someone buying a larger house? Are they bad people?
Can you get a loan for 700 grand? I can't.
So let's keep this in perspective. It's not like these guys were given a gift. They earned it however it was they made their income.

to buy their Ferrari and BMW....
Again- so what?
How dare you own a Television set. I bet a starving little boy in China would love to have a T.V.
If they were living within their means and bought a fancy car- that does not cast judgment on their person.


with nothing down and 3% interest.
Where do you get this figure?
If someone gets a good deal because they have Good Credit- and can be trusted- Should we spite them and treat them like they are bad?

And when that pipe dream goes south we are supposed to eat the whole thing?
I don't think we should.
But "yuppies" didn't ruin the Economy. Give me a break!

nauthiz
2008-Sep-24, 07:01 AM
Ahh, I see. The way some of these posts are worded, it sounds like the COMPANY may have committed fraud, but not necessarily those who took out a mortgage.
The companies may have committed fraud, and a number of them are under investigation for it. But mortgage fraud specifically means intentionally misrepresenting your financial status to a lender when applying for a mortgage.

Neverfly
2008-Sep-24, 07:05 AM
The companies may have committed fraud, and a number of them are under investigation for it. But mortgage fraud specifically means intentionally misrepresenting your financial status to a lender when applying for a mortgage.

Yes, in a case like that I can see how borrowers can come under investigation.

Extravoice
2008-Sep-24, 01:20 PM
Ahh, I see. The way some of these posts are worded, it sounds like the COMPANY may have committed fraud, but not necessarily those who took out a mortgage.

Have you ever heard of liar loans (http://www.investopedia.com/terms/l/liar_loan.asp)? Who is at fault here, the liar, or he guy who believed the liar without checking?


So what? The banks wouldn't OFFER a loan that wasn't affordable.
I'm pretty sure that is exactly what happened in many cases. Banks unload the loans by bundling them into securities (http://en.wikipedia.org/wiki/Mortgage_backed_security) and selling them to investors. There was very little downside to the bank in this type of transaction.

Click Ticker
2008-Sep-24, 01:30 PM
So what? The banks wouldn't OFFER a loan that wasn't affordable.

This, I can't agree with. My wife and I pre-qualified for almost double the mortgage we took out. The amount was rediculous and there is no way I would be able to sleep at night had we borrowed that much, nor would we have anything left over to save for retirement or the kids college. Could we have squeezed out the payment and the taxes on the house? Probably - but we couldn't have heated it, furnished it, or maintained it.

The Bank doesn't care because as long as you make the payments, why be concerned over your ability to save for retirement? Besides, as pointed out earlier - we just keep the fees anyway. We already sold the loan.

Click Ticker
2008-Sep-24, 01:39 PM
I think these people should be forced to * pay * their debts.

Suggesting jail time seems a bit of fascist overkill though.

What, you want to lock people up for wanting to live the American dream? For wanting a better house and better possessions and a better neighborhood for their spouse and their children?

Gee, yeah, you're right, let's lock up all those hippy dreaming aholes who spent too much money pursuing a dream. Dreams only end in heartache. I think I'll go club a baby seal now too because that'll make me feel about the same as locking these homeless bums up.

You seem to operate under the impression that all people are basically good and want to do the right thing. That's not always the case. Many people are just looking out for themselves and will do anything they can to get the edge. If their brother lives in a 3,000 sq ft house, then by golly they will too! I see it all the time. Somebody states their personal income on a personal financial statement, then you get their tax returns and it's not even in the ball park. Now through some crazy math - they may have actually become convinced that they make that amount, or that if that promotion comes through they will - so close enough. However, today - it's a misrepresentation and a character issue.

sarongsong
2008-Sep-24, 08:58 PM
...I see it all the time. Somebody states their personal income on a personal financial statement, then you get their tax returns and it's not even in the ball park...But isn't that what a responsible lender is supposed to do before approving a loan---separate fact from fiction?

Extravoice
2008-Sep-25, 12:56 AM
But isn't that what a responsible lender is supposed to do before approving a loan---separate fact from fiction?

Which brings me full circle (http://www.bautforum.com/1326789-post64.html). Greed at the bottom, greed at the top, and greed in between.

Drunk Vegan
2008-Sep-25, 01:26 AM
Anyone just see the address on television?

Welcome to Marx Mutual Funds.

Click Ticker
2008-Sep-25, 01:07 PM
I think it closed at 107 per barrel yesterday--the 127 was just a short-term spike.

From 127 to 107 intraday? Why - at this rate they'll be paying us thousands to take the oil from them by the end of the year!

Click Ticker
2008-Sep-25, 01:17 PM
But isn't that what a responsible lender is supposed to do before approving a loan---separate fact from fiction?

Absolutely. But it some lending circles (home mortgages), it became popular to take people at their word in order to expedite the process and grant the coveted, "same day approval".

For many of the mortgage brokers, they flat out didn't care. There existed a strong secondary market to buy the mortgages off their hands, so once they collected their fees - they were done with the risk and on to the next application. The secondary market for the mortgages operated in good faith that the mortgage broker did their due diligence. However, with a lack of regulation in the industry in many states - there was no way to police this.

To me, this doesn't let the borrower off the hook. Just because someone is willing to operate in good faith and take you at your word, doesn't give you the right to lie to them. If a person did this to secure more financing then they could otherwise afford, I don't feel bad at all if they are facing foreclosure.

publius
2008-Sep-26, 06:01 AM
Well, Washington Mutual just went belly up (there's been a death watch on it for a while).

The bailout deal fell through (if there ever was one and they weren't just blowing smoke) today. If they don't have some news of some agreement tomorrow before the market opens, get ready, you're going to see a nose dive in the Dow. I expect some of the automatic "circuit breaker" trading halts will kick in.

Get ready, it's going to be a heck of a ride. Weeeeeeee.


-Richard

HenrikOlsen
2008-Sep-26, 07:57 AM
And more money to be made for the big players.

publius
2008-Sep-26, 03:05 PM
Well, I've never been happier to be wrong (so far). The Dow is down a little bit, but no big circuit breaker tripping crash.


-Richard

Neverfly
2008-Sep-26, 03:07 PM
Well, I've never been happier to be wrong (so far). The Dow is down a little bit, but no big circuit breaker tripping crash.


-Richard

I'm reminded of Rome...

tdvance
2008-Sep-26, 03:10 PM
you mean where a clearly far-sighted Nero fiddled some time before the violin was invented?

Neverfly
2008-Sep-26, 04:05 PM
you mean where a clearly far-sighted Nero fiddled some time before the violin was invented?

<chuckle>

Rome never "fell"; it petered out.

sarongsong
2008-Sep-26, 04:37 PM
you mean where a clearly far-sighted Nero fiddled......with economic policy:
...Rome fell to the barbarians because of economic problems that were created by excessive taxation, inflation, degradation of its society, and government regulation. Rome could no longer sustain its military empire because, many years before it’s eventual downfall, the state slowly began debasing the realm’s coinage. This policy was first implemented under the Emperor Nero and continued under his successors, which resulted in inflation because debased coins with less value were chasing the same goods and services...more paper receipts circulated than there was gold in storage...
- The Pending Financial Collapse of America
Republic Magazine (http://www.republicmagazine.com/magazines/Republic-Magazine4.pdf) (.pdf)

HenrikOlsen
2008-Sep-26, 04:46 PM
That quote read like it's commenting on today rather than Rome.

It's definitely very skewed compared to the impression I have of the causes for Rome's decline.

Neverfly
2008-Sep-26, 04:50 PM
That quote read like it's commenting on today rather than Rome.
The bit about the more Paper Currency than what was backed by Gold?
Or the bit about Barbarians?


It's definitely very skewed compared to the impression I have of the causes for Rome's decline.
Yes. Lead Pipes.

nauthiz
2008-Sep-26, 05:16 PM
Nero's fiddling with the economy must have been similarly far-sighted. He lived centuries before the partition, let alone the fall of the Western Empire.

mike alexander
2008-Sep-26, 05:38 PM
Very interesting article. After I buy some chelation therapy I may check into it a bit farther. Or Not.

tdvance
2008-Sep-26, 06:17 PM
Well, I've never been happier to be wrong (so far). The Dow is down a little bit, but no big circuit breaker tripping crash.


-Richard

Not only that, it's now up about 12 points.

Launch window
2008-Sep-26, 06:39 PM
Wamu gone :(
WaMu fails; JPMorgan buys assets in $1.9B deal brokered by FDIC (http://milwaukee.bizjournals.com/eastbay/stories/2008/09/22/daily76.html)
WaMu collapse stokes jitters in fast-paced financial crisis (http://afp.google.com/article/ALeqM5iioNFgW_wgznqTOOHHNSQEw4_r3g)
Washington Mutual becomes the biggest U.S. bank to fail (http://www.etaiwannews.com/etn/news_content.php?id=749295)

Neverfly
2008-Sep-26, 06:42 PM
Now.. If Wal-Mart goes under- It's time to Panic.

nauthiz
2008-Sep-26, 06:51 PM
I was just at my bank this afternoon. The banker I spoke to mentioned he'd had a very busy day of opening new accounts. They're right around the corner from a WaMu branch, so I guess now I know why.

publius
2008-Sep-26, 07:56 PM
Not only that, it's now up about 12 points.

Yes, now up 92 points as I type -- graph has been trending up slowly with little ups and downs modulating on top all day.

You know, I'm beginning to wonder if this really is as bad as the big bankers have been making out. Everything I was reading all week (from big banker type sources, of course) was that if the govt. didn't act, credit would dry up, foreign investors would pull out, causing a cascade of "calling in the loans" so to speak leading to a deflationary collapse into a black hole. Ie, money supply and the economy collapses in a Big Crunch. :lol:

Now I'm wondering if that was about as hysterical as the LHC black hole nonsense. :)

The more I learn about this bailout deal, the less I like. Talk about "lipstick on a pig", indeed. Are we all going down, or are just a few big shots going to go down who desperately want to scare us into saving their hides?

I just don't know.

-Richard

HenrikOlsen
2008-Sep-26, 08:05 PM
Remember that in the market every rumor matters so even talking about a bailout deal is an indication that the market won't free fall, which curtails the worst short selling (http://en.wikipedia.org/wiki/Short_selling) against banks, which stops the big plummets, which feeds a little bit of optimism, which makes it rise a bit.

Additionally I see that that short selling has been temporarily banned, which should go quite a way towards stabilizing the market, since there's no longer people dumping bank stock by the hundreds of millions of dollars in the sure knowledge that that will cause the price to drop so they can reaquire it for less.

tdvance
2008-Sep-26, 08:22 PM
Yes, now up 92 points as I type -- graph has been trending up slowly with little ups and downs modulating on top all day.

You know, I'm beginning to wonder if this really is as bad as the big bankers have been making out. Everything I was reading all week (from big banker type sources, of course) was that if the govt. didn't act, credit would dry up, foreign investors would pull out, causing a cascade of "calling in the loans" so to speak leading to a deflationary collapse into a black hole. Ie, money supply and the economy collapses in a Big Crunch. :lol:

Now I'm wondering if that was about as hysterical as the LHC black hole nonsense. :)

The more I learn about this bailout deal, the less I like. Talk about "lipstick on a pig", indeed. Are we all going down, or are just a few big shots going to go down who desperately want to scare us into saving their hides?

I just don't know.

-Richard

hmm--if the big bankers can get a ton of money by saying the economy will collapse if they don't get a ton of money....a bit cynical, but even with honest bankers, that thought could bias their analysis.

HenrikOlsen
2008-Sep-26, 08:29 PM
With short selling they could make even more without the bailouts.

sarongsong
2008-Sep-26, 08:44 PM
But short-selling has been banned.
hmm--if the big bankers can get a ton of money by saying the economy will collapse if they don't get a ton of money...Could this $700B represent how much those-that-profited managed to feather their nests with, over time, before the roof fell in?

Click Ticker
2008-Sep-26, 08:53 PM
Seems the more time that passes without any emergency bailout passing, the more sceptical the public is becoming regarding the necessity of a bailout. I'm wondering how many strong financial institutions are standing at the ready to do what Chase did to WaMu today? Or BofA to Merrill for that matter?

Seems like only last week were were only a couple days away from a certain collapse of the whole system if something wasn't passed yesterday. Yet things appear to be humming right along. Not great, but a far cry from any indication of a coming depression.

HenrikOlsen
2008-Sep-26, 09:15 PM
Last week, short selling hadn't been banned, so there was strong market forces driving prices down.

nauthiz
2008-Sep-26, 09:37 PM
I'm also wondering if the government's bailout of AIG might not have been a key intervention. Beyond that, possibly FDIC is sufficient take care of things by brokering deals like what happened with WaMu.

publius
2008-Sep-26, 10:01 PM
I was reading something about some big group of economists, including two Nobel laureates signed a letter to Congress against the bailout.

James K. Galbraith a prominent liberal economist and son of the legendary John Kenneth Galbraith, is against it himself:

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/24/AR2008092403033_pf.html

He's no free-marketeer by a long shot and even he's against it. His basic idea there is use any half a trillion plus figures to back up the FDIC, tighten up the regulation and let 'em fail if they're going to.

Here's an article quoting him and some other bigshots saying it's more hysteria than real:

http://www.miamiherald.com/news/politics/AP/story/701956.html


-Richard

sarongsong
2008-Sep-28, 03:10 AM
Hmmh, remember that proposal to privatize Social Security (http://www.factcheck.org/social-security/bushs_state_of_the_union_social_security.html) a few years back? It was rejected, of course, but any conjectures on what the current situation might be had that been implemented at that time?

Drunk Vegan
2008-Sep-28, 03:19 AM
Stock market based Social Security in the midst of a stock market crash?

I'd have to say - it would be worse.

nauthiz
2008-Sep-28, 03:44 AM
Not to mention that market based social security largely defeats the purpose of social security.

tdvance
2008-Sep-28, 03:52 AM
Except over the long term, the stock market grows more than social security. It doesn't seem that way since the youngers' payments become the olders' benefits, but that will change as population growth stabilizes. It's a choice between a risky system and an unsustainable one.

publius
2008-Sep-28, 04:35 AM
Stock market based Social Security in the midst of a stock market crash?

I'd have to say - it would be worse.


I didn't say I agreed with everything Galbraith said. :lol: He's a big Keynesian, of course, and much of what he wanted to do follows that program. He was proposing a *tax* on stock "turnovers" to supplement SS.

My point was that many big shot economists, from both the right and left were against this MOAB (Mother of All Bailouts) (of course, economists can be spectacularly wrong, too. :) )

It looks like MOAB is going to be reduced initially (I suspect Paulson & Co just used this $700G as a high starting point for the negotiation, now that I think about it), and will come in chunks as needed.

The lastest thing on the table is start out with $200G, giving the president authority to go another $100G, then require the next Congress to approve any more than that.

Some are opposed to the govt. outright buying up the bad debt securities, as that would make the US govt the largest holder of mortages in the world. So they're talking some kind of govt. backed "insurance" (ala FDIC and so forth) for this stuff.

You know, some wag commented that Congress spent ages investigating baseball players shooting steroids in their fannies, yet they were supposed to pass MOAB and the biggest restructuring of the financial system since the New Deal in day.

-Richard

publius
2008-Sep-28, 05:35 AM
Well, according to Politico at 1:20AM, they reached a deal (said Pelosi and others confiscated Blackberries from staff to keep details from leaking before they put it down to paper).

Apparently they split the $700G in half. Paulson (well, the Treasury -- Paulson will be gone in 4 months -- it will be the next adminstration that really implements this) gets $350G, with the second half coming later, but Congress will not have to approve the second half, but can *stop it* via a vote.


-Richard

mike alexander
2008-Sep-28, 05:37 AM
My thinking was off in a different direction, but MOAB may be da bomb, all right.

publius
2008-Sep-28, 06:05 AM
Well, a big London financier killed himself:

http://www.dailymail.co.uk/news/article-1063356/Credit-crunch-banker-leaps-death-express-train.html


He didn't jump out of of window, but jumped in front of a train. The bigger they are, the harder they fall indeed.

And more scare talk that was apparently pressuring Congress during the negotiations:

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3094318/Bailout-failure-will-cause-US-crash.html

"Bail out and ask questions later" lest it be 1929 all over again, markets crash. Hey, some hysterical bankers were even saying the ATMs would be dry next week if MOAB didn't pass.


-Richard

Whirlpool
2008-Sep-28, 07:08 AM
Wow. That IS a SAD news and a scary one.

<sigh>

EricM407
2008-Sep-28, 07:38 AM
Very informative post, Mr. Jenkins.




Fannie May and Freddie Mac didn’t do mortgages, they bought them from banks and mortgage brokers. Other investment firms and insurance companies (AIG, Merrill Lynch, etc.) would buy them to. They’d bundle all the loans into mortgage backed securities and sell them to investors, investment firms, etc.

Can Fanny and Freddie buy just any mortgage out there? Do subprime loans, for example, meet Fanny and Freddie guidelines?


CRA was mentioned before, and there seem to be some misconceptions about it. The original intent wasn’t to force banks to make bad loans in bad areas. The intent was to put an end to the practice of redlining. Banks would basically take a map on a wall and draw a red line around a group of neighborhoods and say, “To save time and money, we aren’t going to do any loans for any applicant that lives or does business in this area.” What CRA required was that banks underwrite all loans on their individual merits and to put branches in these communities. That means that the person who chooses to purchase a modest house within their means in the city that has acceptable income and strong personal credit can now get a loan that they wouldn’t otherwise get. I will agree that the act has overreached in some respects in that banks will say, “This loan will satisfy our CRA quota so we have to do it.” That, to me, is where the act goes wrong.

Are mortgage companies like Countrywide and New Century regulated by the CRA?

sarongsong
2008-Sep-28, 07:31 PM
C-span tv:
speaker of the house announces the financial markets bill will be online 24 hours before members vote on it.

Rescue bill revealed (http://money.cnn.com/2008/09/28/news/economy/Sunday_talks_bailout/index.htm?postversion=2008092815) - CNN

publius
2008-Sep-28, 11:45 PM
Bad Omen Dept: The House posted the text of MOAB on one of their servers. The server promptly crashed due to the high traffic. :shifty:

So if the House IT system can't even handle MOAB.......???


-Richard

Click Ticker
2008-Sep-29, 01:36 PM
Can Fanny and Freddie buy just any mortgage out there? Do subprime loans, for example, meet Fanny and Freddie guidelines?

They were set up to buy mortgages to encourge Banks to provide liquidity to the mortgage lending industry. This would lead me to believe they'll buy some with more risk then the banks would have done on their own in the "old days". They had a lot more problems than just bad loans in their portfolio. They were fudging the numbers to meet bonus requirements for executives. There are some guidelines in terms of size of the loans they can acquire and in 1995 they began purchasing subprime loans.

http://en.wikipedia.org/wiki/Fannie_Mae


Are mortgage companies like Countrywide and New Century regulated by the CRA?

Interesting history on Countrywide right here:

http://en.wikipedia.org/wiki/Countrywide

Not sure if CRA was applicable to them, but I don't think it's relevent. They were dumping their mortgages in the secondary market as fast as they were issuing them. They thought they were unloading all their risk so they didn't say no too often. Too much money to be made saying yes.

tdvance
2008-Sep-29, 03:26 PM
"Bail out and ask questions later" lest it be 1929 all over again, markets crash. Hey, some hysterical bankers were even saying the ATMs would be dry next week if MOAB didn't pass.


-Richard

That reminds me of an earlier statement (in this, or a related, thread) that some news channel claimed the US economy (or stock market? I think it was economy) was days from collapse. It's been more than a week. Hmm...I guess that proves: hype is hype.

But of course, I've learned that from experience--like the time people in the Balt-Wash area were all running scared and cleaning out the supermarkets because the biggest snowstorm in the century was on the way, according to local news stations, and fatalities were expected etc. etc., and we didn't get a single flake. Of course they came under criticism for hyping things and their reply was something like, well if we said it was less dangerous than it was, people would ask why we didn't warn them. But I think crying wolf has a similar effect.

So, the question is, are the doom-casters crying wolf? Experience makes one think, probably. It's not a sure thing, which makes people nervous, which encourages self-fulfilling prophecy (i.e. crying wolf attracts the wolf) which makes crying wolf even worse.

sarongsong
2008-Sep-29, 05:46 PM
They were set up to buy mortgages to encourge Banks to provide liquidity to the mortgage lending industry...Interesting word; mortgage:
ETYMOLOGY: Middle English morgage, from Old French : mort, dead (from Vulgar Latin *mortus, from Latin mortuus, past participle of mor, to die; see mer- in Appendix I) + gage, pledge (of Germanic origin).
WORD HISTORY: The great jurist Sir Edward Coke, who lived from 1552 to 1634, has explained why the term mortgage comes from the Old French words mort, “dead,” and gage, “pledge.” It seemed to him that it had to do with the doubtfulness of whether or not the mortgagor will pay the debt. If the mortgagor does not, then the land pledged to the mortgagee as security for the debt “is taken from him for ever, and so dead to him upon condition, &c. And if he doth pay the money, then the pledge is dead as to the [mortgagee].” This etymology, as understood by 17th-century attorneys, of the Old French term morgage, which we adopted, may well be correct. The term has been in English much longer than the 17th century, being first recorded in Middle English with the form morgage and the figurative sense “pledge” in a work written before 1393.
- The American Heritage® Dictionary
Bartleby (http://www.bartleby.com/61/2/M0430200.html)

publius
2008-Sep-29, 05:55 PM
Holy Crap. MOAB is down in the House (they say they are rapidly scrambling to get members to change votes, using carrots and sticks galore). The Dow nose dived when it was apparent the vote failed.

Current vote is 207Y, 226N. Dow was down nearly 700 points, but it recovered and is now down "only" less than 400.


What a ride indeed.

-Richard

peteshimmon
2008-Sep-29, 06:03 PM
Well the financial World seems to be under
drastic restructuring at the moment. I suppose
we must be grateful people are working to keep
the numbers in our bank accounts meaning
something. But while I have growled at a few
things I must admit a lot is beyond my
understanding. These securities that have
tuened nasty must have been responcibly
traded at one time. Perhaps no real villains
just a problem that growed and growed while
inertia kept moving things on.

I was informed about short selling at college
many years ago. The Stock Market used to be
paper based with trading periods of two or
three weeks. As long as a Jobber (t think,
otherwise broker) had matching sales and buys
in that period it did not upset anyone the
order they were in. And I tend to think this
staid slow working allowed the real world of
manufacturing and services to get the work
done and value created. But computers and
electronic blips made things silly.

What we need is some clearly spoken Systems
Analyst to explain to everyone just what has
happened in recent years and what went wrong.
And what must happen to keep things stable
from now.

It is the property market that that created
the mess. And it will always have big demand
periods as young people want to get their
nests. But as Politicians have now had a big
fright, they will try to keep supply always
in excess.

I suppose it is working for a living for a lot
of people from now on. Not buying up houses
for excessive rent income!

publius
2008-Sep-29, 06:14 PM
It's dead, Jim. MOAB that is. Somebody just changed his vote.... from *for to against*. It's dead. Dow is down 530 points.

One of the standard tacts leadership does is give members in trouble the opportunity to vote against something if they don't need the votes. That is, once they get enough votes, they let anyone who be in trouble vote against it.

And that can go the other way as well. If a vote fails and it's clear that it won't pass, some will change their vote so they can be on the winning side. It looks like that's happenning here.

MOAB has gone down in flames.

The political dynamics are fascinating. It was purely "the people" that defeated this thing. Calls and letter were over 1000:1 against MOAB, and it's an election year. Members in safe districts were seeing the polls tighten against them due to their assumed support for MOAB.

The elite and Wall Street big shots were all for it, pulling out all the stops of fear and hysteria. But Main Street was agin' it, and Main Street won. Now, question is, who was right? :shifty:

Will there be a depression as the hysteria was suggesting? Well, we're gonna soon find out.


-Richard

EricM407
2008-Sep-29, 06:25 PM
Not sure if CRA was applicable to them, but I don't think it's relevent. They were dumping their mortgages in the secondary market as fast as they were issuing them. They thought they were unloading all their risk so they didn't say no too often. Too much money to be made saying yes.

I think it's relevant because there seems to be this widespread attitude that the CRA forced lenders to lend to deadbeats and this is what caused the problem. It would be very odd if a law somehow influenced the behavior of institutions not governed by it. It's more likely that the risk of not being paid back wasn't really their concern, as you point out.

mike alexander
2008-Sep-29, 07:17 PM
You've also had bank takeovers all weekend. Both in the US and Europe.

Saw a couple of good quotes from congresspersons that I can't post here, unfortunately.

tdvance
2008-Sep-29, 07:23 PM
Stocks currently down 600 points. That's expected, as the bailout was "free money" (paid for later, of course). I believe that was Keyne's philosophy--put extra money in when times are bad, to be paid for when times are good. The question is, of course, will the improvement when times are bad be more, less, or the same as the damage done to the good times. Adam Smith, I would guess, would think more damage is done that way, in part because potential receivers of bailouts will act on the assumption that they are potential receivers of bailouts.

The biggest problem with the Keynes philosophy is that we never do it in practice, or more precisely, only do half of it-- less painful to do the "spend nonexistant money when it's down" than to "cut back when it's up". If the choices are do half of it or do none of it, none is definitely better.

mike alexander
2008-Sep-29, 07:27 PM
On the other hand, it can be hard to ponder the philosophical implications of draining the swamp when you're up to your butt in alligators.

mike alexander
2008-Sep-29, 07:29 PM
Where's the market cutout switch? DJI now down over 700.

tdvance
2008-Sep-29, 07:34 PM
I don't know where the cutoff is (it used to be around 500 points, but I'd guess it's really a percentage of the DOW so would be more than that now), but when I see "down more than 700" (currently down about 712), I think "buying opportunity". Nervousness might trump that, but the smart money will buy.

Celestial Mechanic
2008-Sep-29, 07:37 PM
Where's the market cutout switch? DJI now down over 700.
My understanding is that if the market drops 10 percent trading is suspended for an hour, if it drops 20 percent it is suspended for two hours, and if it drops 30 percent trading will be suspended for that day. So it will have to drop 1100+ points before the "circuit breaker" trips.

Click Ticker
2008-Sep-29, 07:37 PM
I think it's relevant because there seems to be this widespread attitude that the CRA forced lenders to lend to deadbeats and this is what caused the problem. It would be very odd if a law somehow influenced the behavior of institutions not governed by it. It's more likely that the risk of not being paid back wasn't really their concern, as you point out.

I've seen a few people bring it up in here, but I haven't heard many blaming CRA in other circles. Subprime is not another word for CRA. CRA wasn't built around credit scores and downpayments. It was built around communities (Community Reinvestment Act). CRA qualifying loans (by qualifying I mean the bank gets to put a tick mark on their "I'm a good citizen" chart) are driven by where they're made more than by who they are made to.

Subprime loans are driven by measures taken to increase homeownership. These initiatives offered liquidity in the secondary market for those mortgages banks othewise wouldn't do. Whether it be Fannie May, Freddie Mac, Ginnie May (this one is owned by the US government), Sallie May (Student loans) or CMO's (Package the junk that Fannie and Freddie won't touch - jumbo junk - and sell it off) - the increased liquidity gave increased confidence to the lenders.

publius
2008-Sep-29, 07:38 PM
The "circuit breakers" are complicated. Trigger levels are 10, 20 and 30%, and all based on what time of day such a drop occurs.

The Time is based around 2PM, IIRC. The thing can drop up to 20% after 2PM without triggering any stops.

So, the 10% level is 1000 points on 10,000 Dow. 20% is 2000 points. So we're not yet even at the 10% trip point yet, which wouldn't kick in anyway as it's after 2PM. If I remember right.


-Richard

publius
2008-Sep-29, 07:45 PM
It's coming back up slowly -- seemed to hit bottom at 10,400 and is now slowly coming back up a bit. It's about -6%.

Gloom and doom says it will loose 20% - 30% by the end of the week if MOAB wasn't passed. We'll see.

Honestly, I'm not going to worry about it. I've got a little chunk in there, but there's nothing I can do. Ride it out, like they say in the hurricanes. Weee.

-Richard

tdvance
2008-Sep-29, 07:46 PM
to be convoluted, it is now up to "down 550". Someone must have listened to me :)

publius
2008-Sep-29, 07:55 PM
Crap. Turned back down to -630.


-Richard

mike alexander
2008-Sep-29, 08:00 PM
And it finishes at -600.

mike alexander
2008-Sep-29, 08:05 PM
Spoke too soon, I guess. Ticker must've been running late. Looks more like a loss of ca. 690.

publius
2008-Sep-29, 08:06 PM
Try -688 at 4:04. That was some last minute selling. They figured it bottomed at -700ish, bought, then sold it at the last.


-Richard

mike alexander
2008-Sep-29, 08:09 PM
Or maybe 740.

publius
2008-Sep-29, 08:11 PM
Final was -738, -6.6%. In terms of a percentage, this isn't as bad as '87 by a long shot. However gloom and doom says it will be by the end of the week of course.

-Richard

mike alexander
2008-Sep-29, 08:13 PM
Or even 770.

mike alexander
2008-Sep-29, 08:16 PM
Nasdaq and the S+P 500 were hit even worse, ca. 9%.

Paracelsus
2008-Sep-29, 08:26 PM
When will people start using the D-word instead of the R-word to describe this financial crisis?? If we aren't in a depression, then we are darn close to it. We passed the 'recession' mark awhile back. This is 1929 all over again.

publius
2008-Sep-29, 08:30 PM
Hold off on the gloom and doom -- that's part of the problem. :)

The Fed and the other central banks are pumping a whopping $650 billion in the banking system (biggest flood of money in the streets in history). Hmmmph. Congress voted down $700G, but the central banking system just put in nearly that much. :)


-Richard

publius
2008-Sep-29, 08:52 PM
This is interesting. Both the R and D leadership in the House thought they had it, thought MOAB was going to pass by a squeaker. But something happened and they lost ~20 votes (~12 Rs and 8 Ds). And they couldn't budge it.

-Richard

tdvance
2008-Sep-29, 09:06 PM
-777.77

well, it would be except for 0.09 points.

Celestial Mechanic
2008-Sep-29, 09:13 PM
It ain't over 'til the Green Lady moans!


I'm melting,
I'm melting,
O, what a world, o...

Larry Jacks
2008-Sep-29, 09:32 PM
In both real dollar (inflation adjusted) terms and market percentage terms, this wasn't nearly as bad as the losses in 1987. You'll hear a lot of news stories about how this is the worst one day drop in market history. However, the only accurate way to compare dollar losses across time is to adjust for inflation.

Back then, the Dow lost over 22% (http://en.wikipedia.org/wiki/Black_Monday_(1987)) in a very short time:

In financial markets, Black Monday is the name given to Monday, October 19, 1987, when stock markets around the world crashed, shedding a huge value in a very short period. The crash began in Hong Kong, spread west through international time zones to Europe, hitting the United States after other markets had already declined by a significant margin. The Dow Jones Industrial Average (DJIA) dropped by 508 points to 1739 (22.6%).[1] By the end of October, stock markets in Hong Kong had fallen 45.8%, Australia 41.8%, Spain 31%, the United Kingdom 26.4%, the United States 22.68%, and Canada 22.5%. New Zealand's market was hit especially hard, falling about 60% from its 1987 peak, and taking several years to recover.[2] (The terms Black Monday and Black Tuesday are also applied to October 28 and 29, 1929, which occurred after Black Thursday on October 24, which started the Stock Market Crash of 1929. Confusingly, in Australia and New Zealand the 1987 crash is also referred to as Black Tuesday because of the timezone difference.)

The Black Monday decline was the largest one-day percentage decline in stock market history. Other large declines have occurred after periods of market closure, such as Saturday, December 12, 1914, when the DJIA fell 24.39%, ending the four month closure due to the outbreak of the First World War,[3] Monday, September 17, 2001, the first day that the market was open following the September 11, 2001 attacks, and Monday, September 29, 2008 when the market fell a record setting 777.68 points after the proposed $700 billion bail out plan failed to pass by 23 votes.

Interestingly, the DJIA was positive for the 1987 calendar year. It opened on January 2, 1987, at 1,897 points and would close on December 31st, 1987, at 1,939 points. The DJIA would not regain its August 25, 1987 closing high of 2,722 points until almost two years later.

Using the inflation calculator available here (http://www.bls.gov/data/inflation_calculator.htm), 504 points in 1987 equals 972 today. Likewise, the Dow started trading today at 11,143. If the Dow suffered the same percentage loss as in 1987, it would've dropped almost 2718 points.

Of course, there's always tomorrow. This doesn't look like it's going to end anytime soon. Rome wasn't built in a day and it wasn't burned in one, either. This problem has been a long time coming.

HenrikOlsen
2008-Sep-29, 09:48 PM
That reminds me of an earlier statement (in this, or a related, thread) that some news channel claimed the US economy (or stock market? I think it was economy) was days from collapse. It's been more than a week. Hmm...I guess that proves: hype is hype.
The problem with many such statements is that they are actually saying days from collapse if nothing is done, rather than days from collapse no matter what is done.
When something is subsequently done (650B$ pumped in the market and a temp ban on short selling the worst affected banks) they are blamed for crying wolf when they might actually have helped push the changes that prevented the prediction from happening.

It's quite possible that what has already been done was enough.

Metricyard
2008-Sep-29, 10:03 PM
In both real dollar (inflation adjusted) terms and market percentage terms, this wasn't nearly as bad as the losses in 1987. You'll hear a lot of news stories about how this is the worst one day drop in market history. However, the only accurate way to compare dollar losses across time is to adjust for inflation.


I've heard quite a few people mention this. Today's loss wasn't that bad. It could have been a lot worse. I think wall street is going to take it slow and see what happens in the next few days. Heck, the market just might shrug this off as a much needed correction.

On the bright side, oil dropped over $10.00 a barrel. Let's hope we see it at the pump!

Larry Jacks
2008-Sep-29, 10:06 PM
Please note, I didn't say that today wasn't bad. It just wasn't as bad (compared to the 1987 crash) as the news keeps shouting. They keep talking about the "worst one day point drop in Dow history". However, without accounting for inflation, dollar comparisons separated by 21 years are meaningless.

Jim
2008-Sep-29, 10:13 PM
On the bright side, oil dropped over $10.00 a barrel. Let's hope we see it at the pump!

I am reminded of Will Rogers' line, under similar circumstances, "The United States may be the only country in history to drive itself to the poor house."

Oh, well. I wasn't planning on retiring in this lifetime anyway.

tdvance
2008-Sep-29, 10:21 PM
I've heard quite a few people mention this. Today's loss wasn't that bad. It could have been a lot worse. I think wall street is going to take it slow and see what happens in the next few days. Heck, the market just might shrug this off as a much needed correction.

On the bright side, oil dropped over $10.00 a barrel. Let's hope we see it at the pump!


I did--I gassed up for 3.59/gal today, cheapest in quite some time (cheaper than the last time gas was below 100 a couple weeks ago). For comparison, just a couple days ago, the same station had 3.7x/gal gas, x being 7 or 8 or something like that.

Extravoice
2008-Sep-30, 12:01 AM
-777.77

well, it would be except for 0.09 points.

That's a decline of 7%.

publius
2008-Sep-30, 12:16 AM
Asian markets will open soon. We'll see what happens there.


-Richard

publius
2008-Sep-30, 01:00 AM
Well (and this ain't real time by a long shot), the Nikkei is down ~550. It's around 11,000, so percentage-wise it's about the same as the Dow. ASX (Aussie) is down 5.2%....................


-Richard

publius
2008-Sep-30, 02:37 AM
This thing is stinking more and more to high heaven with me:

http://www.nytimes.com/2008/09/28/business/28melt.html?_r=2&hp&oref=slogin&oref=slogin


This is about the AIG bailout. Paulson is a former Goldman Sachs head. At a big meeting at the Fed in NY about what to do, Goldman Sachs was the only private sector representation at that meeting.......They had let Lehman fail, said they might let AIG fail, but then turned around and bailed them out to the tune of $85 billion.

Well, turns out that Goldman Sachs had $20 billion dollars "exposure" in AIG. Goldman has been strangely immune to the woes befalling its sister institutions.

And MOAB was going to give Paulson nearly 10 times that to play with it, and with carte blanche, no review by anybody authority.

-Richard

Metricyard
2008-Sep-30, 04:22 AM
This thing is stinking more and more to high heaven with me:

http://www.nytimes.com/2008/09/28/business/28melt.html?_r=2&hp&oref=slogin&oref=slogin
snip...
-Richard

I think that all parties involved started to realize that there was going to be a major can(s) of worms opened sooner or later.

And from what I've read from many articles, looks like the calls and e-mails from the normal folk helped defeat this vote. It's not going to be pretty. Of course, we the people will enjoy seeing someone roasted over the coals, eventually. :whistle:

sarongsong
2008-Sep-30, 04:40 AM
...Paulson is a former Goldman Sachs head......and quite the millionaire:
...Paulson's total wealth is estimated at about $700 million...
newsmax.com (http://archive.newsmax.com/archives/ic/2006/7/3/100656.shtml)

publius
2008-Sep-30, 05:09 AM
It's not going to be pretty. Of course, we the people will enjoy seeing someone roasted over the coals, eventually. :whistle:

Well, I'll tell you. I can't say what I'd like to say because it would name names and get too political, but much of my ire is bipartisan, and I'll let that rip in general terms.

We have what has to be the most incompetent bunch running Washington I've ever seen in my life. They botched this whole thing from start to a spectacular finish today like the 3 stooges. They must've OD'd on stupid pills or somebody slipped something in the DC water supply.

The political bumbling has been staggering. I've been shouting "Idiot!" I don't know how many times at the TV watching supposed political hotshots make some of the stupidest moves I've ever seen.

This is not merely the JVs, but the 9th grade team instead of the pros.

I'm mean, really. It's pitiful. How did such an incompetent bunch of bombthrowers rise to the leadership?

-Richard

publius
2008-Sep-30, 05:21 AM
THis made me laugh out loud, and it just shows how nuts Washington can be. This was the official title of the MOAB bill:

"An Act to amend the Internal Revenue Code of 1986 to provide earnings assistance and tax relief to members of the uniformed services, volunteer firefighters, and Peace Corps volunteers, and for other purposes."

To be fair, the reason it bears this name is because MOAB was attached as an amendment to some older bill of this name to get through the parliamentary shuffle faster. But you've just got to laugh at that. "For other purposes" indeed.

-Richard

Paracelsus
2008-Sep-30, 06:11 AM
I did--I gassed up for 3.59/gal today, cheapest in quite some time (cheaper than the last time gas was below 100 a couple weeks ago). For comparison, just a couple days ago, the same station had 3.7x/gal gas, x being 7 or 8 or something like that.

Let's hope things stay that way. Another spike in oil prices would be disastrous at this point.

Well, the news says that Congress is still talking about the bailout behind the scenes. A tardy passage of a modified bill may salvage some of this.

Metricyard
2008-Sep-30, 06:14 AM
The country has put up with a lot of crap for the last few years. Being asked to give $700 billion dollars, under the control of a select few, with no over site allowed is not going to go over well with, well just about everyone.

Sorry for all the commas.


Doesn't anyone sleep on this board?

Neverfly
2008-Sep-30, 06:22 AM
Doesn't anyone sleep on this board?

3 hours a night:D

Jens
2008-Sep-30, 08:00 AM
Doesn't anyone sleep on this board?

You have to remember that we don't all live in the same time zone, though. For me I'm writing this at 5 in the afternoon, but I think that our friends in Europe are mostly just getting up.

sarongsong
2008-Sep-30, 08:17 AM
Financial Chess?
Sept. 29, 2008
The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash...The Fed's expansion of liquidity...came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry...
Bloomberg (http://www.bloomberg.com/apps/news?pid=20601087&sid=ahwz_k5JvuB8&refer=worldwide)

Whirlpool
2008-Sep-30, 10:14 AM
You have to remember that we don't all live in the same time zone, though. For me I'm writing this at 5 in the afternoon, but I think that our friends in Europe are mostly just getting up.

And actually , we Do Sleeps at day and Awake at night.

;)

peteshimmon
2008-Sep-30, 10:32 AM
I posted last night thinking there was a done
deal.

Silly me!

Think I'll join Banquo under the bed.

banquo's_bumble_puppy
2008-Sep-30, 10:47 AM
yesterday was Son of Black Monday....

HenrikOlsen
2008-Sep-30, 10:59 AM
Goldman has been strangely immune to the woes befalling its sister institutions.
Hmmm just checked the charts for GS to see if the numbers corroborates your story.
Nope, doesn't look (http://www.nasdaq.com/aspx/ChartingBasics.aspx?intraday=off&timeframe=3m&charttype=ohlc&splits=off&earnings=off&movingaverage=None&lowerstudy=volume&comparison=off&index=&drilldown=off&symbol=GS&selected=GS) that way. In the days up to the 19th it was in steady fast drop before recovering with the ban on short selling, which doesn't sound immune to me, just lucky not to have been the target for predatory short selling for more than a few days.

It looks to me like that ban may have been the single most efficient measure taken to prevent the crash.

Celestial Mechanic
2008-Sep-30, 12:45 PM
[Snip!] We have what has to be the most incompetent bunch running Washington I've ever seen in my life. They botched this whole thing from start to a spectacular finish today like the 3 Stooges. [Snip!]
I think you're being too hard on the Three Stooges. ;)

Celestial Mechanic
2008-Sep-30, 12:50 PM
These were in the Google Ads at the top of the page just now (I'm not going to dignify these with their URLs):


Is Your Bank In Trouble? Free list Of Banks Doomed To Fail. The Banks and Brokers X List. Free!

'08 Stock Market Crash is only the beginning of troubles for America, leading to it's [sic] demise.

3 Stocks to Steal Now
Stock Guru Dennis Slothower Gives You 3 Absolute Steals to Buy Now!
The headline for today's paper should have been: "Main Street to Wall Street: Drop Dead".

banquo's_bumble_puppy
2008-Sep-30, 12:54 PM
is hyper-inflation a real possibility?

Click Ticker
2008-Sep-30, 01:27 PM
I don't think of this in terms of a recession or depression. I consider it more of a right sizing of the economy. Unemployment levels have been at unsustainable lows well below historical norms for years now. Housing prices were rediculous in some markets. Home ownership was at an all time high because people that couldn't afford homes under normal circumstances were given ways to purchase them without putting any of their own capital at risk. Between record setting deficit spending, national debt levels for many nations at all time highs, and consumer debt levels at all time highs; we've been borrowing our way into prosperity for years now.

Some people that made the right choices all along are going to get hurt via job losses, but most people who have lived within their means, only borrowed money to purchase a primary residence, but not until they put 20% down, and have established an emergency fund as well as saved for the long term should weather this without too much strain. If you're fortunate enough to be in an industry that is somewhat recession proof, all the better (healthcare for example).

It's not fun to see the nest egg shrink - but it's better than wondering where the next meal will come from.

Larry Jacks
2008-Sep-30, 02:34 PM
We have what has to be the most incompetent bunch running Washington I've ever seen in my life. They botched this whole thing from start to a spectacular finish today like the 3 stooges. They must've OD'd on stupid pills or somebody slipped something in the DC water supply.

The political bumbling has been staggering. I've been shouting "Idiot!" I don't know how many times at the TV watching supposed political hotshots make some of the stupidest moves I've ever seen.

This is a bipartisan screw up of monumental proportions. The roots of the problem go back at least as far as 1977. There is ample blame on all sides. Even when someone tried to do something about it, the effort was shut down. Money talks and ** walks. Fannie Mae and Freddie Mac were quite proficient at spreading around money to members of Congress (both parties) and that was enough to stall any efforts that might've reduced the problem.

The essential question is do we offer this gigantic bailout (to politically connected parties, naturally) in the uncertain hope that it'll solve the problem or do we let economic nature take its course? The situation reminds me of efforts to fight wildfires - too aggressive firefighting efforts and all you do is prolong the problem until a really big fire breaks out. On the other hand, it can take a long time to recover from a really big fire. If we (the voters) say no to the bailout, will the economy take such a severe hit that it'll take years to recover? Or will the bailout just push the problem down the road a bit until the next bubble bursts and a whole new set of players demand their bailout, too?

Click Ticker
2008-Sep-30, 02:51 PM
Interesting take:

http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview


The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

The basic point is why prop up the failures that led to this mess in the first place? All it does is lend credence to their belief that they can take undue risk and be confident that the government will bail them out if it doesn't work.

NEOWatcher
2008-Sep-30, 03:05 PM
All it does is lend credence to their belief that they can take undue risk and be confident that the government will bail them out if it doesn't work.
As long as controls are put in place to prevent the undue risk, then it wouldn't be the same.

Kind of like telling your kid with the new driver's license after he runs the car into a pole... I'll pay for the damage, but from now on, you can only drive when I'm in the car.

tdvance
2008-Sep-30, 03:38 PM
except the kid in the car case is a lot less complicated. Limited rules and regulations are necessary, but each one has a cost, primarily because of various facts like: by nature, they are one-size-fits-all in a diverse economy, a dumb rule can't outwit a smart person (this means, loopholes, unintended consequences, and overly limiting some things even in situations where it makes no sense, because that's what the letter of the regulation says), and the rule makers just by nature often think they understand a situation better than they actually do when they write the rules.

So--doesn't mean no regulation, just means limited and careful. The Aesop Fable of the sun and the wind that ends with "persuasion is better than force" should be the philosophy in this case. Outlaw outright crimes, but for this, focus on not rewarding self-defeating behavior with a huge bailout.

nauthiz
2008-Sep-30, 03:53 PM
All it does is lend credence to their belief that they can take undue risk and be confident that the government will bail them out if it doesn't work.
I doubt anyone was really trusting the government to bail them out if things went south in the first place. More likely, plan B usually consisted of covering one's own butt by securing a golden parachute.

Besides, government or no government, the shareholders of most these firms are probably more than happy to make sure the executives responsible are being taught a lesson.

NEOWatcher
2008-Sep-30, 04:46 PM
except the kid in the car case is a lot less complicated.
No kidding... Maybe the words "Kind of like" didn't stand out to loud.


Limited rules and regulations are necessary, but each one has a cost, primarily because...
Did I say "willy nilly" controls? Of course you are right, and it has to be done carefully, but like you said, there are trade-offs and it's a matter of where that line feels comfortable.


...Outlaw outright crimes, but for this, focus on not rewarding self-defeating behavior with a huge bailout.
I think we may be split as to who this may be rewarded and exactly who the victim is and exactly what can be done.
I'm not convinced that this is a reward since it's being treated more as a government take over.
In other words, if a particular institution fails, what's the result? the people involved get bought out. I see no difference other than nobody has the clout to do the buying other than the government at this point.

tdvance
2008-Sep-30, 05:41 PM
No kidding... Maybe the words "Kind of like" didn't stand out to loud.

Not so much that as, you seemed to use the analogy to justify a not-very-good solution.

NEOWatcher
2008-Sep-30, 05:49 PM
Not so much that as, you seemed to use the analogy to justify a not-very-good solution.
Well; not exactly justify. After all, your idea and my idea for solutions seem to be based on opinion to a degree. So; it was more of a "my line of thinking" rather than justification.
Sounds like a subtle difference, but there's aspects of it that I don't think are good to expand on here anyway.

Doodler
2008-Sep-30, 11:11 PM
One heck of a dead cat bounce this morning. There are alternatives to the bailout, some may be worth investigating.

publius
2008-Oct-01, 06:34 PM
Note it is now being called a "rescue" rather than a "bailout". It's just like a switch was flipped, and all the reporters are using this new language as well as the politicians.

They decided "bailout" had negative connotations, but "rescue" may fly a little better with the public.


-Richard

SeanF
2008-Oct-01, 07:56 PM
No, no, Publius - it has always been a rescue.

And we have always been at war with Eastasia.

Gigabyte
2008-Oct-01, 08:52 PM
No, no, Publius - it has always been a rescue.

And we have always been at war with Eastasia.

Now that made me laugh.

publius
2008-Oct-01, 11:42 PM
More on this "rescue" vs. "bailout" sematics war. They had some focus group/polling data that showed the public was more favorable to a "rescue" than "bailout" (still not a majority either way :) ), and that was the genesis of this.

But will it stick? I think the opponents are fighting back, emphasizing "bailout" now. This morning, I head the reporters on the radio using "rescue", but tonight on TV, I see "bailout" again. I wonder if they got ashamed of themselves for bending to such an obvious propaganda tool?

-Richard