Economics business.The Sub-prime Crisis. How bad is it?

[Qfwfq]

Tonight Asian markets plunged even worse. This morning European markets opened a bang lower and staggered back up to around yesterday evening. New York opened down and is still down, despite the FED's hefty 0.75% cut, Dow rose back to touch 12000 and is now staggering back under it (last minute's quote DOW-1.11% NSDQ100-2.43%). All talk is about recession, with mentions of the Great Depression. It has been obvious for a long while now.

[Qfwfq]

Dow creeping back above 12000 but still under Friday evening and I wonder how long the bargain hunting will last...

[Michaelangelica]

Panic easing on Aust share market

 

Posted 7 hours 35 minutes ago

Updated 5 hours 28 minutes ago

After 12 straight days of declines, local stocks have reversed some of the losses. (File photo)

 

After 12 straight days of declines, local stocks have reversed some of the losses. (File photo) (AFP: Greg Wood)

 

Panic on the Australian share market is easing after a move to ward off recession in the United States.

 

After 12 straight days of declines, local stocks have reversed some of the losses made in yesterday's freefall.

Panic easing on Aust share market - ABC News (Australian Broadcasting Corporation)

America sneezes and the world catches a cold.

 

I wish I had money enough to play this chess game.

[freeztar]

All talk is about recession, with mentions of the Great Depression. It has been obvious for a long while now.

 

Yes, the "R"-word comes up a lot in conversations these days.

Your mention of the Great Depression got me thinking. I went to wiki and pulled up the article. In it, there's a great explanation of what FDR's chairman of the Federal Reserve believed caused the GD. It's an interesting, and scary, read if one tries to draw comparisons to our current situation.

 

As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation s economic machinery. [Emphasis in original.] Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped [Emphasis mine].

 

Great Depression - Wikipedia, the free encyclopedia

[Michaelangelica]

Sometimes Ii think the whole economic system is one big poker game.

With just as much testosterone.

 

One problem with recession is that it can be a self-fulfilling prophesy as people stop spending as they feel they may need their money if a recession comes. This, if enough people stop spending, is a good way to start a recession.

 

This NYT article is a brief summary of what is in the USA Government's 'stimulus package'.

http://www.nytimes.com/aponline/us/AP-Economy-Stimulus-Glance.html?_r=1&scp=1&sq=stimulus+package&st=nyt&oref=slogin

(I guess this answers the question of this thread A-"very bad")

I found The NYT article more interesting for its list of what was not in the 'stimulus package'.

 

 

WHAT'S OUT

 

• --Permanent tax cuts: Republicans conceded that their top priority would have to be left out.
   
  
• --Unemployment insurance: Democrats wanted to extend benefits past 26 weeks.
   
  
• --Food stamps: A boost for benefits.
   
  
• --Medicaid: Democrats gave up on including Medicaid payments to states.
   
  
• --Low-income heating subsidies: Democrats are surrendering the fight to include them.
   
  
• --Infrastructure spending: Spending on transportation or repair projects already under way is off the table.
   
  
• --Republicans dropped their proposal to let businesses suffering losses now reclaim taxes previously paid.
  

 

You would think doubling food stamps would be the quickest way of stimulating the economy , rather than waiting for the bureaucrats to mail out a few million cheques. Money that people may, or may not, spend.

Food stamps would also go to the most needy in the society.

[freeztar]

One problem with recession is that it can be a self-fulfilling prophesy as people stop spending as they feel they may need their money if a recession comes. This, if enough people stop spending, is a good way to start a recession.

 

Indeed.

 

You would think doubling food stamps would be the quickest way of stimulating the economy , rather than waiting for the bureaucrats to mail out a few million cheques. Money that people may, or may not, spend.

Food stamps would also go to the most needy in the society.

 

The worry there is multifold. How many people receiving food stamps are legal citizens? What happens to the money once it gets spent? etc...

 

You should join in on the economic stimulus thread I started in the social science forum. :shrug:

[Michaelangelica]

Indeed.

 

The worry there is multifold. How many people receiving food stamps are legal citizens? What happens to the money once it gets spent? etc...

It doesn't matter, as long as the money is spent, and quickly.

You should join in on the economic stimulus thread I started in the social science forum. :shrug:

OK we seem to have answered this question

There are still some big companies due to report to the market over the next three months. I would like to see what happens with them.

[Michaelangelica]

The USA economy in pictures.

Half a dozen interesting graphs.

 

Mostly reassuring?

BBC NEWS | Business | US economy at a glance

[Michaelangelica]

Credit Suisse writes down further $2.85 billion

 

February 19, 2008 - 8:23PM

 

 

Credit Suisse said on Tuesday it was writing down a further 2.85 billion US dollars (1.9 billion euros) worth of assets linked to the US housing market due to adverse conditions in the first quarter.

 

Credit Suisse shares plunged in opening trade on the Zurich stock exchange, down 6.7 percent at 52.90 Swiss francs.

 

The new writedown comes less than a week after Credit Suisse said it had broadly contained subprime losses in 2007, in contrast to its rival UBS which lost 18 billion US dollars through its exposure to the crisis.

Credit Suisse writes down further $2.85 billion - Breaking News - World - Breaking News

FBI continues sub-prime crackdown

February 15, 2008 - 6:10AM

 

The FBI recently opened two more investigations, bringing to 16 the number of corporations now being probed as part of its crackdown on sub-prime mortgage industry fraud, a bureau spokesman says.

FBI continues sub-prime crackdown - Breaking News - Business - Breaking News

[Michaelangelica]

Japan Economy Quakes Anew

As Yen Soars Against Dollar

Political Gridlock

Hits Tokyo Stocks;

An Upside for U.S.?

By YUKA HAYASHI and JOANNA SLATER

March 14, 2008; Page A1

 

The dollar's dive deepened, as it touched a low against the euro and, for the first time since late 1995, briefly bought fewer than 100 yen.

Japan Economy Quakes Anew As Yen Soars Against Dollar - WSJ.com

Lots of ripples this week.

Bush bailing out a massive bank. It seems to be just getting worse all the time.

Fed moves to bail out major US bank

 

Posted Sat Mar 15, 2008 4:06pm AEDT

Updated Sat Mar 15, 2008 8:38pm AEDT

 

The bail-out was the first of a major bank since the depression. (File photo) (Reuters: Lucas Jackson)

Shot of the Bear Stearns logo on the side of a building

* Video: Fed to bail out major US bank (ABC News)

 

The fifth-largest investment bank in the United States, Bear Stearns, has been given emergency funding to save it from collapse.

 

The amount has not been disclosed, but the rescue was carried out by another leading bank, JP Morgan, using short-term funds guaranteed by the US Federal Reserve.

 

Bear Stearns is in the category of investment bank regarded by regulators as too big to fail.

Fed moves to bail out major US bank - ABC News (Australian Broadcasting Corporation)

Banks seem to be immune to the pain and suffering they are causing people (peasants?) who merely want to put a roof over their heads

 

How long before they are more effectively regulated or even taken over by Government?

Bush could have bought Bear Stearns for what he is lending it (?)

How long can they continue to wreak such international havoc?

Home prices plunge across California

 

By ALEX VEIGA, AP Business Writer Thu Mar 13, 3:11 PM ET

 

LOS ANGELES - Median home prices plunged in many of California's most populous counties in February, with Southern California leading the slide with an overall drop of 17.9 percent compared to a year earlier, according to new housing data released Thursday.

Home prices plunge across California - Yahoo! News

 

When bankers say "this is unprecedented", what they mean is: "We've screwed up and we are trying to blame the markets for our own greed and stupidity."

The worst case scenario

Alternatively, the crisis might be a true collapse of the dollar, with co-ordinated action by the world's central banks to rescue it.

 

To make that effective, there would have to be co-operation from the Bank of China and I would like to see the central banks of India and Russia involved too.

That would be humiliating for the US and things have to get a lot worse for such a deal to be done.

The trick under these circumstances is to get the central banks to act in concert to steady the currency just at the moment when the markets are ready to turn.

Meanwhile, a botched attempt at a rescue would be more damaging than no rescue at all.

 

There are two big points here.

• One is that a US recession will have some knock-on effects for the rest of us.
  
• The other is that it is likely to be some months before calm returns.
  

Economic View: Budget? What Budget? America is reeling - Hamish McRae, Business Comment - Independent.co.uk

The EU has overtaken the USA as the world's biggest economy.

[DougF]

Moscow's Sinking Ship

In Russia' date=' it is still business as usual. Even top executives remain sanguine. Even as the dollar fell below the Swiss franc for the first time ever and Bear Stearns disappeared, oil hit $111 per barrel and gold surpassed $1,000 per ounce. On top of continued inflows of petrodollars, Russia has hard currency reserves of more than $486 billion and a stabilization fund of roughly $156 billion. Why should anybody in Russia be concerned with an esoteric corner of the U.S. mortgage market?

 

People tend to think of the economy as a collection of isolated segments. There is the housing market and there is Wall Street -- and they have their place of employment, which has no link to the other two. Why, many Russians wonder, should the U.S. financial crisis affect their jobs, especially if it happens to be on the other side of the globe? It is as though a fire in the Konkovo district of Moscow forced an evacuation at the Metropolitan Opera in New York.

 

 

In reality, the modern economy is a single, seamless entity linked across national borders and nourished by the global financial system. We are probably witnessing the early stages of the crisis of the financial system, which will be felt everywhere around the world, from Astrakhan to Zurich and points in between.

 

<-->

 

The dollar is the world reserve currency, and when the Federal Reserve prints too many dollars, there is little foreign central banks can do to limit money supply at home. Americans paid dollars for imported goods and natural resources, which meant that the rest of the world also became oversaturated with liquidity. Much like the rest of the world, Russia experienced an explosion of lending. Russia's consumer loans rocketed over the past five years, from around $5 billion in 2003 to more than $100 billion last year.

 

<-->

 

A mortgage to a single mother in Wichita, Kansas, and a car loan to a hard-drinking plumber in Perm both stemmed from decisions made by U.S. central bankers in the first half of the 2000s. They were both weak links of the financial system. The only difference is that the U.S. subprime mortgage market was big enough to start a chain reaction that is dragging down world financial markets.

 

Price is the language in which markets communicate with market participants. By distorting the value of money, the Federal Reserve caused markets to send wrong messages. The bubble in the housing market boosted the U.S. economy by creating a construction boom. The ability to borrow against appreciating homes -- and the willingness by banks to lend -- stimulated consumer demand. To produce goods and services to meet inflated U.S. demand, China, India and other producers around the world began to invest, especially since investment funds were so cheap.

 

<-->

 

Investment is a good thing, but only if the goods and services it provides can recoup the value of investment. When there is overproduction, as seems to be the case now, additional investment is not only bad -- it is potentially catastrophic. When producers can't repay the money they have borrowed, they create additional problems for the financial system by slashing their prices and thus bringing down their competitors.

 

As for the trillions of dollars accumulated at central banks and sovereign funds around the world, including in Russia, there is something that should be kept in mind: Since mid-2007, world central banks have pumped hundreds of billions of dollars into their financial systems. In a financial crisis, money tends to flow like water in the desert sand.

 

The United States is not only the world's largest consumer, absorbing one-third of its resources, it is the linchpin of the world economy. The dollar is central to the global financial system. To hope that the rest of the world can survive a U.S. downturn unscathed is like saying that a high-stakes poker game can go on uninterrupted on the top deck of the Titanic while its hull is taking in water.

[/quote']

 

Moscow's Sinking Ship

[nutronjon]

Please, excuse me for intruding with my informed thoughts, but does this make sense?

 

The US dollar is no longer backed by gold, so its value is almost completely imaginary. It has been backed by the Gross National Product, which is dependent on oil, so the US is locked into importanting oil, which exports the dollars. As long as oil was traded in dollars, and oil cost much less than it is today, this was not a big problem for the US. All countries were holding dollars, because they had to have them to buy oil, and the increased price of oil, effectively increased the value of the dollar, as long as everyone had to have them to buy oil. However, the Euro is now more attactive than the dollar, and if the world trades oil in Euro's, these countries will dump their dollars, causing the value of the dollar to fall. The US had to take our Saddam in a desparate effort to stop this from happening, because he was the first to trade oil in Euro's.

 

Now if the world is glutted with dollars that have lost their value, because it is not the worlds strongest currency, what is another way to find homes for all these useless dollars and keep the value up? How about, saying a $57,000 home is worth $200,000 and charging a lot of interest? Might that absorb the useless dollars and give them the appearance of being worth a dollar plus interest! Sounds good doesn't it? That is by deregulating banks, the fiat dollar can maintain the appearence of value doesn't have?

[Boerseun]

There's actually a whole thread about that particular issue...

[Qfwfq]

Fed moves to bail out major US bank - ABC News (Australian Broadcasting Corporation)

Yeah?

Staff at Bear Stearns' Manhattan headquarters were welcomed to work by a two-dollar bill stuck to the revolving doors...

Bear fire sale sparks rout | Reuters

[LaurieAG]

How bad is it?

 

Today the Australian newspaper had an article by Ruth Ostrow, who normally appears in their weekend magazine talking about humanist new wave stuff, smack bang in the middle of the business section, telling investors to 'chill out'.

 

On the Easter long weekend no less.

 

And half the front page half was devoted to a story on how Saddam Hussein plotted to kill Australians.

 

Paranoid propaganda at its best (or worst depending on your perspective).

[Michaelangelica]

"B" is for Bailout

Let’s talk about why a bailout is inevitable.

 

Between 2002 and 2007, false beliefs in the private sector — the belief that home prices only go up, that financial innovation had made risk go away, that a triple-A rating really meant that an investment was safe — led to an epidemic of bad lending. Meanwhile, false beliefs in the political arena — the belief of Alan Greenspan and his friends in the Bush administration that the market is always right and regulation always a bad thing — led Washington to ignore the warning signs.

. . .

The U.S. savings and loan crisis of the 1980s ended up costing taxpayers 3.2 percent of G.D.P., the equivalent of $450 billion today. Some estimates put the fiscal cost of Japan’s post-bubble cleanup at more than 20 percent of G.D.P. — the equivalent of $3 trillion for the United States.

As I said, the important thing is to bail out the system, not the people who got us into this mess. That means cleaning out the shareholders in failed institutions, making bondholders take a haircut, and canceling the stock options of executives who got rich playing heads I win, tails you lose.

The B Word - New York Times

 

With wonderful hypocracy this too is happening in the USA

Corporate America Trying to Make Union Activities Illegal

 

By Jane Slaughter, Labor Notes. Posted March 26, 2008.

Corporate America Trying to Make Union Activities Illegal | Rights and Liberties | AlterNet

[nutronjon]

The USA economy in pictures.

Half a dozen interesting graphs.

 

Mostly reassuring?

BBC NEWS | Business | US economy at a glance

 

As I thought, there is no mention of oil or any other finite resource. It is sad that economist are so detached from reality, and the society so puts so much importance on what they to say.