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

[Michaelangelica]

Lessons

1 Read history

2.

 

3. Now is the time for brave people to buy undervalued stocks.

[questor]

Here is something to make the country feel better as the liberals win the presidency. Who is really to blame for this crisis?

 

YouTube - Shocking Video Unearthed Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis http://www.youtube.com/watch?v=_MGT_cSi7Rs

[Qfwfq]

Election campaign? The relevance escapes me.

Well I meant it just as an extra, and in my usual dumb jocular way... but certainly it was a smart move for your president to invite both candidates to a meeting about it; it sure came at a handy time, didn't it?

 

So are you claiming to be an economic expert, Q?

Me? Heck noooooo! I said "the entire audience" which strikes me a slightly different thing...

I consider people like Warren Buffet to be economic experts.

Well, that sheds a slightly different shade of light on your words! Sorry for the misunderstanding, I had taken it more as if: "We're all dudes that's never read a number of The Financial Times, The Economist, The Wall Street Journal etc." To the contrary:

If I'm wrong in my blanket statement, then I urge any member of these fine forums to step up and provide their credentials.

While I don't know of Mr. Buffet being on these fine forums, I do know of at least one member with an MBA.

 

As for me, I've simply managed to scrounge an understanding of my own, in the past few years I've been following things closely and I'm getting better at guessing. For one year (2006) I even had a bargain subscription to The Economist and I've read a lot of other finace news; I was seeing the word subprime mentioned months before it was in the layman's press. One thing I've understood for sure about economics is, even economists don't understand it! Nobody does! ;)

 

rather than simply dismissing it because of my self-proclaimed in-expertise.

Sorry for the misunderstanding, that wasn't my argument. Certainly an expert can better judge whether an analogy is suitable for drawing conclusions but I was mostly hinting at the difference between import and disport; it ain't quite the same to decide for a pot shot in each of the two cases. Where I don't understand you is about the park benches. :hyper: Do you believe the team's fans could wind up on them? Or do you believe people couldn't, due to what's happening in economy?

 

Can you please give specific examples (and dates) of indicators that the economies were heading toward another great depression before the subprime news?

Wasn't talking about indicators, nothing I can quote or link to, only signs and omens and my own humble resort to reason. So far it doesn't look like I've been empirically disproven.

 

What signs and omens come through my foggy memories? Most especially over bloated bubbles, ready to burst, two in particular: commodities along with the reasons for it; real estate along with the drive of big shots including politicians (and armies of financial pushers) for people to re-negotiate their mortgages to keep propping up an overbloated consumer driven economy. Were you noticing things like these, and what were you making of them? How long could it go on, especially when the real estate bubble was saturated? The subprime matter is also an example of the decreased transparency of today's finance, which I was suspecting to be hiding lack of solidity as far back as when I posted:

As these proportions change and finance is more and more a matter of smoke and paper schemes, you might find yourself walking in the penthouse of a skyscraper but with the sensation that all the building's floors are made of little more than air.

 

They are experts at getting shuttles into space. I am not. I can have opinions about it and try to educate myself to all the facets of shuttle flight, but in the end, I must trust that the experts at NASA know how to get a shuttle to space.

I fully agree with this! :) Trouble is that, here, you're not pushing for having impartial experts decide the matter; trouble is, which ones are impartial, who're you gonna trust?

 

Indeed what you said is even quite substantial over here; our constitution provides a great instrument of democracy: abrogative popular referendum, which unfortunately ended up vilified by this very reason. Justly enough, it isn't excessively difficult for an org with resources to meet the requirements for one to be held but, at the same time, this kind of vote is not formally a citizen's duty i. e. it's up to the people to decide if they should vote at all and the result is valid only if more than half of electors cast a valid ballot. This goes for each question when more than one is up for vote. It's up to each voter to have an opinon about the matter or not, to believe it should be decided by experts and not by the mob, or even not to care about it at all. Good scheme in principal, but unfortunately many politicians and most people's increasing lack of sense ended up making it eventually fail.

 

I agree. As I pointed out early in this thread, the parallels between now and the events leading up to the GD are astonishing.

Astonishing? I might call them striking, I might call them scary, maybe many other ajectives but not that one, nor ones like surprising or like amazing. What was that thing Santayana said?

 

How do you propose we help the average joe while punishing the fatcats?

:hihi:

 

Sadly funny! You can bet the fat cats have made sure the chances of legally punishing them are slim indeed. All the more for those who've gained legally, including the most aggressive short sellers who were also contributing to the matter especially before recent changes in market regulations. Alternatives? Santayana might tell you to ponder over the history and causes of Nazi-Fascism and the antisemitic propaganda. Aside from the problem of proving the blame actually being on the Jews (propaganda wasn't emphasizing the cost of WW1), it factually stands that they convinced the mob and look what happened. Most of those who weren't active in the holocaust sure closed more than both eyes on it. Do we want anything similar to happen again?

 

Well, for now I can't afford more time here.

[Michaelangelica]

The Center for Responsible Lending (CRL) has exhaustively catalogued Countrywide’s pillaging of its customers and shareholders. CRL reports the following abuses:

 

Predatory lending. Borrowers and regulators have accused the company of bait-and-switch sales tactics, fraud, racial discrimination, fee-gouging and elder abuse.

 

Dangerous products. Countrywide has been a leader in pushing unsound products, such as “exploding” subprime adjustable rate mortgages and “stated income” loans, as well as poorly underwritten “payment option” adjustable rate mortgages.

 

Conflicts of interest. Countrywide has created a corporate structure designed to allow its subsidiaries to work hand-in-hand in squeezing borrowers with excessive fees and penalties.

 

Broken promises on loan modifications. The company has a history of failing to fully live up to its promises to help borrowers keep their homes by modifying onerous loans.

 

Abusive loan servicing. Borrowers claim that Countrywide has engaged in sloppy and fraudulent loan servicing that has produced unwarranted fees and foreclosures.

Weak Corporate Governance. Countrywide’s high-wire growth strategy has backfired, divesting shareholders of billions of dollars in market value and leaving the company teetering on the brink of failure. Meanwhile, even as the company has stumbled, its board members have allowed Mozillo to reap unreasonable personal gains and have claimed excessive compensation for themselves.

 

Countrywide’s CEO made a cool $13 million in a single month at the peak of the corporation’s financial woes last summer.

 

Questionable borrowings. Countrywide’s growing reliance on capital from the Federal Home Loan Bank system puts the system in the position of bankrolling abusive loans and at risk of significant losses as more loans go bad.[4]

 

The Justice Department has other problems with Countrywide.

Corporate Hall of Shame 2008 - Countrywide - Corporate Accountability International - Challenging Abuse, Protecting People - Think Outside the Bottle - challenging the bottled water industry

[Michaelangelica]

Every time I think this SP thing has run its course something else- worse- happens.

 

Its like dominoes falling everywhere

 

Here is a good, very brief report on what is happening in Europe

The Banking Crisis - The Irish Times - Tue, Oct 07, 2008

 

Has anyone any info on SE Asia, The Arab World, Japan, China, S America, N./ S./ Central Africa, Canada?

I would be especially interested in how the Bin Ladens' of the world are weathering the storm

 

This was an especially vitriolic comment on the mess

As the all-too-often selectively quoted Adam Smith actually said: "All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind."

 

No one can say that current events are a one-off. The get-government-out-of-business brigade, the masters of the universe, have in their three decades of unbridled power produced the savings and loan bail-out, the Mexican bond bail-out, the Asian currency crisis, the Enron and other related scandals, the tech bubble, the Long-Term Capital Management collapse and rescue, a wage freeze for working Americans and now this.

 

And the irony is that these vile people who are now graciously agreeing to pocket a trillion dollars of taxpayers' cash have been arguing for three decades that government has no business in business, least of all in pension provision.

In their famous phrase, it would pose a "moral hazard" for ordinary Americans to think that their government would look after them if in old age their income or their health failed them.

 

Those who have engineered these serial disasters, which have inflicted more damage on the US and world economy than Osama bin Laden and al-Qaida, have not been pursued into the hills of Bora Bora. Governments have reduced their taxes as they reward themselves with more and more salary, bonuses and stock options.

If the shares of the company they manage take a dive, they backdate their options. If the company fails, they take a golden parachute. And when all else fails, they come to the taxpayers, top hat in hand.

http://www.guardian.co.uk/commentisfree/cifamerica/2008/sep/26/us.economy.wall.street

[Qfwfq]

Every time I think this SP thing has run its course something else- worse- happens.

And some folks are thinking even worse...

 

What comes after the Great Unwinding? | Special Coverage | Reuters

 

...reminds me of the things I began musing about toward end of 2006 or so. How many people are beginning to see the light?

[LaurieAG]

...reminds me of the things I began musing about toward end of 2006 or so. How many people are beginning to see the light?

 

Hi Qfwfq,

 

I started thinking about these things around 10 years ago, just after the US Fed got the major investment banks (RIP) to bail out LTCM for 10 billion US.

 

It wouldn't surprise me if we don't have a global financial system in another 10 years because everybody is doing the same thing again.

 

Apart from the temporary suspension of short trading and throwing heaps of money at banks, there has been little else to deter toxic investments in the future as the politicians (and CEO's) continue to try to put a hard coating on quite a lot of crud so they can once again crow about their 'beautiful figures'.

 

The only way to solve this problem is an injection of common sense by removing anything from the system that is just like an uncovered bet, like those multiple unfunded insurance bets facilitated by CDO's.

 

With any luck they won't use the last definition again!

 

reg·u·la·tion

1. a law, rule, or other order prescribed by authority, esp. to regulate conduct.

2. the act of regulating or the state of being regulated.

3. Machinery. the percentage difference in some quantity related to the operation of an apparatus or machine, as the voltage output of a transformer or the speed of a motor, between the value of the quantity at no-load operation and its value at full-load operation.

4. Electronics. the difference between maximum and minimum voltage drops between the anode and the cathode of a gas tube for a specified range of values of the anode current.

5. Sports. the normal, prescribed duration of a game according to the sport's regulations, exclusive of any extra innings, overtime period, etc.: The Knicks tied the score in the final seconds of regulation, sending the game into overtime.

–adjective 6. prescribed by or conforming to regulation: regulation army equipment.

7. usual; normal; customary: the regulation decorations for a Halloween party.

[Essay]

Every time I think this SP thing has run its course something else- worse- happens.

What does Sarah Palin have to do with the corporate excess thing?

:iamsmiling:

 

~sorry ...couldn't resist....

:)

[Michaelangelica]

On both SP s? ;)

[Donk]

Picture the situation: a close friend or family member is a drug addict. His addiction has been growing slowly and steadily for years. You can see some very bad things happening in the near future. But he won't admit it. He's holding down a good job, loves his wife and kids, popular with everyone – how can there be a problem, he asks.

 

So you watch, wait, worry. When the collapse happens and he has to face up to what he is and what he's done, it's a relief. There's a lot of pain, sure, but it's never as bad as your worst fears.

 

That's why I'm a little bit glad about the financial meltdown. I've watched people falling for the consistent message pumped out by TV and magazines: this is the lifestyle you should be having. It's yours by right... Being drugged by easy money, borrowing far more than they can hope to pay back, then borrowing more... Now – at last – everyone agrees that things have gone wrong. Everyone agrees that something has to be done about it. Lots of disagreement about exactly what should be done, of course, but that's the human race for you! :(

 

I've been appalled at some of the things I've seen. For instance: a workmate, mid-twenties, who borrowed £40,000 for a "perfect" wedding and honeymoon, ignoring the fact that repayments would take 80% of her (low) income. Her fiancé's income is fully committed – rent, bills, car. They have enough spare money to eat, but that's it. If they need clothes, it goes on their nearly-maxed-out credit cards, adding to the debt mountain. Multiply that story by quite a few million: it's clear that common sense hasn't been very common lately.

 

Now maybe we can start to put things right. Starting with the idea that we should live within our means. No matter how many times we're urged to buy something "because you're worth it". :)

[Essay]

hehe.... Thanks Mangelica, for getting that off-topic reference.

 

Yes, similar....

Smoke and mirrors ...and lipstick.

===

Starting with the idea that we should live within our means.

Good point.

 

Let's see.... Where did that wisdom first come from?

Could it be ...the Bible? (said as ChurchLady) :(

 

...And the same wisdom comes to us from the environmental/sustainability consciousness;

...varoius fundamentalist religions, and many regular religions;

...as well as the right-wing, conservative, survivalist-type ethic.

 

It is only the capitalistic profligacy of Western-style, immoral, unethical consumerism that has led us....

 

Whoops, I'm starting to rant....

~ :)

[Turtle]

I'm late and ill-prepared. :) Nonetheless, while I try and catch up reading all the posts, has anyone mentioned the idea that the computer programs used to construct these buying/insuring schemes are responsible for this mess? Not sure where I heard this so I have no links. Anyone? :(

 

PS Looks like in post #119 Essay touches on the method of the schemes, but not the means, i.e. computer programs making the decisions.

[Essay]

I think it was "60 Minutes" that told us (twice) how a few physicists were hired to create the details of the instruments.

I assume that means the computer programs that bundle and distribute the mortgages; but may also include the leveraging too, I don't know.

 

Those dang'd Physicists!

...always screwing around with the natural order of things....

 

~ :)

[Donk]

I'm late and ill-prepared. :) Nonetheless, while I try and catch up reading all the posts, has anyone mentioned the idea that the computer programs used to construct these buying/insuring schemes are responsible for this mess? Not sure where I heard this so I have no links. Anyone?

 

PS Looks like in post #119 Essay touches on the method of the schemes, but not the means, i.e. computer programs making the decisions.

I've seen what high-level language programming does at the machine code level. A horrible mess of loops, jumps, interrupts and Lord knows what. If any modern computer developed intelligence, I think it would have (a) an unbelievable headache, and ( a hatred of the species that created it.

 

Maybe you're right. Maybe the machines are fighting back :(

[Turtle]

I think it was "60 Minutes" that told us (twice) how a few physicists were hired to create the details of the instruments.

I assume that means the computer programs that bundle and distribute the mortgages; but may also include the leveraging too, I don't know.

 

Those dang'd Physicists!

...always screwing around with the natural order of things....

 

~ :)

 

Could be 60 minutes; I do watch it some. Could have been Charlie Rose, or Jim Lehrer, or Bill Moyers, or just about any non-cable news source.

 

If the natural order of things is 'screwing around', then no harm no foul. Evil & greed to be excepted for prosecution where appropriate. :hihi:

 

I've seen what high-level language programming does at the machine code level. A horrible mess of loops, jumps, interrupts and Lord knows what. If any modern computer developed intelligence, I think it would have (a) an unbelievable headache, and (B) a hatred of the species that created it.

 

Maybe you're right. Maybe the machines are fighting back. :)

 

:eek: :D Now there's a thought I didn't have or mean to imply. My thoughts go more to:

a) the code is so complex no one understands it anymore

B) the code is so complex that no one can understand it that didn't have a hand in creating it

c) if b, then either

b1) the creators have lost control too but won't tell

b2) the creators have criminal intent in promoting complexity no one else can understand

d) the code's behavior is unpredictable

e) this computer trading ought to be regulated and/or banned

 

Anyway, that's all I got. :(

[Cedars]

I am beginning to wonder if this isnt another created crisis similar to the run on banks from the early 1900s which ushered in the great depression a few years later.

 

The numbers just dont add up to this 'crisis' without something added in.

 

Example:

 

American debt nightmare ends easy credit era - Personal finance - MSNBC.com

 

This graph from today. 24% have no debt. Another 18% have less than 10K in debt. Thats 42% with what I consider easily managed debt. Then they have to lump in >10k all the way to 50k to achieve another 19% which may be misleading in that the numbers between >10k and 20K may be 50% of that 19. We just dont know.

 

And this has to be total debt. I just dont see how 18% can have 100K or more without adding in the house mortgage.

 

and the bailout passes with 70-80% of the people being against it and phoning, writting, and sending letters in massive numbers, during an election year, weeks before the elections and its like there is a gun to the elected heads. Yet the stock market plunges the next day. They got the bail out money which made it safe for them (the big guys) to cash out the rest. So what happens then? More money given to the banks. Wow. Talk about a massive redistribution of the wealth right before our very eyes.

 

It doesnt help that I was watching some conspiracy movies today related to the rockefellers, bushs, world wars, the fed reserve, world government, and terrorism....

[freeztar]

Robert Dye, senior economist at PNC Financial Services Group, said the government's actions likely will help revive the credit markets, but now that the plan is place, investors are shifting back to concerns about the economy.

 

"These steps are not going to turn the real economy on a dime," he said of the government intervention. "The two keys to the fundamental economy right now are the job market and the housing market and both of those remain distressed."

 

"There isn't one bottom here. We're talking about multiple events. There will be a bottom in financial market and another in the labor market and one in the housing market. And they're not going to all line up," Dye said.

Stocks pull back as profit-taking sets in: Financial News - Yahoo! Finance

 

It's still playing out, but hopefully the "bailout" instilled enough trust in the marketplace to buoy things forward.

 

For the record: I'm officially unemployed now. :(