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Thread: Wall Street Financial Crisis

  1. #46
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    Quote Originally Posted by gunnut View Post
    Let a few of these fail. Let some airlines fail. Let GM and Ford deal with their pension problems. Stop telling the private sector on who should be able to get a loan for a house and who shouldn't. We'll see the market correct itself.
    Curiosity. What city in California do you live in?

    They had to let Lehman fail after they nationalized Fannie Mae and Freddie Mac (which dwarf Lehman). I've been following the American financial channel CNBC on this and the general opinion of what the banks that were thinking of buying Lehman wanted "was the deal J.P. Morgan got to buy Bear Stearns, but they were not going to get it." The two major companies that considered buying, Barclays of Britain and Bank of America, called the Fed's and the Treasury's bluff, but it turned out to not be a bluff.

    The general consensus today on CNBC was insurer "AIG is too large to fail" with a trillion-dollar balance sheet all over the world. The New York state government is arranging for them to borrow $20 billion from themselves, and they have to get $20 billion from somewhere else to avoid a downgrade which will force other companies to do some hand-wringing.

    A lot of people don't know what's going to happen. You have to realize that the Wall Street investment banks we're pretty much the top rung of the economy for a significant period of time. We started this year with 5. Bear Stearns ceased to exist in March, and Lehman Brothers went bankrupt and Merrill Lynch got bought for $50 billion all in the same weekend. So what was 5 has become 2 and it's looking likely it could become 0 as the remaining two, Goldman Sachs (the elite of the elite) and Morgan Stanley, may have to find buyers like Merrill Lynch did.

    The gravity of the situation should not be understated: What's going on now is the largest transfer of wealth you will see for at least a generation. That of course means insecurity, uncertainness, but also chances to buy for those with the balls to try. The practical effects so far is higher unemployment (up to 6.1% last month, and that's with hedonics designed to lower it) and it's going to be a lot harder for the typical citizen to get a large loan.

    For those that shrug this off, this is exactly how Britain lost their sole position of power in the 1920s and 1930s, which eventually allowed the U.S. to take it, when the British lost their financial authority over the world, and in capitalist democracies the fate of a military follows the fate of its finances. So we would be wise to tread carefully.
    Last edited by rj1; 16 Sep 08, at 00:02.

  2. #47
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    Largest transfer of wealth from whom to whom? ... could you please elaborate.

    From poor to the rich, I presume. But that always been the case. That is why rich are rich.
    Last edited by xerxes; 16 Sep 08, at 00:01.

  3. #48
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    Quote Originally Posted by rj1 View Post
    Curiosity. What city in California do you live in?



    What's going on now is the largest transfer of wealth for a generation. For those that shrug this off, this is exactly how Britain lost their sole position of power in the 1920s and 1930s that allowed the U.S. to take it, when they lost their financial authority over the world. So we would be wise to tread carefully.
    That term is bandied about a lot, but what does it mean really? And why is it bad? Britain lost its position in the world for a variety of reasons; WWI, then WWII, the rise of the US, imperial overstretch, etc. And I wouldn't say Britain had a "sole" position in the early 20th century-what was WWI fought about again? What about the arms race between Germany and Britain in the early 1900s? Germany was of comparable economic size by 1914.

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    Official Thread Jacker Senior Contributor gunnut's Avatar
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    Quote Originally Posted by rj1 View Post
    Curiosity. What city in California do you live in?
    I live in Orange County, the conservative capital of California.

    Quote Originally Posted by rj1 View Post
    What's going on now is the largest transfer of wealth for a generation. For those that shrug this off, this is exactly how Britain lost their sole position of power in the 1920s and 1930s that allowed the U.S. to take it, when they lost their financial authority over the world. So we would be wise to tread carefully.
    What do you mean by that? I would argue the current welfare state is the largest wealth transfer right now. Social Security, Medicare, (combined 8% payroll tax, 16% if you count employer match), Department of Health and Human Services (almost 20% of federal budget every year), Housing and Urban Development (WTF?), Department of Education (state matter), and last but not least, DHS
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Quote Originally Posted by rj1 View Post
    A lot of people don't know what's going to happen. You have to realize that the Wall Street investment banks we're pretty much the top rung of the economy for a significant period of time. We started this year with 5. Bear Stearns ceased to exist in March, and Lehman Brothers went bankrupt and Merrill Lynch got bought for $50 billion all in the same weekend. So what was 5 has become 2 and it's looking likely it could become 0 as the remaining two, Goldman Sachs (the elite of the elite) and Morgan Stanley, may have to find buyers like Merrill Lynch did.
    Goldman Sachs has the allegedly the largest number of Ph.D. in economics (good brand on paper), and has avoided/hedged some if not all the wrong bets (from what I understand).

    They will not fall. ........ IMHO

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    Quote Originally Posted by Herodotus View Post
    That term is bandied about a lot, but what does it mean really? And why is it bad?
    What it means is that a lot of people that either had or thought they had a lot of money...no longer do. Also, it works on a country basis. Countries that think they have a lot of money find out they actually do not. So what do they do? They either spend less or pass on the costs to taxpayers. In the case of Fannie Mae and Freddie Mac, to prop up the enterprises which we have to do if we wish to keep foreign governments buying our debt, the costs get passed onto taxpayers like me and you and we pay for any failures. Also, failing companies in an effort to stay in business will have to sell assets. On a sovereignty level, some of these assets are being sold to sovereign wealth funds. Lehman is being forced into liquidation and will be forced to sell off its assets to the highest bidder to try and get creditors some of their money back. (Saw on CNBC today that there's a ton of golf balls and shirts and various other "Lehman Brothers"-branded items that were put on eBay.)

    It's not bad, it just brings unrest, and that's bad if you think stability should be in force (which the U.S. most definitely does, because we're on top). People, even rich ones, get irrational when they're losing lots of money. See the Weimar Republic. In the U.S., our unrest is most usually shown at the ballot box.

    Britain lost its position in the world for a variety of reasons; WWI, then WWII, the rise of the US, imperial overstretch, etc. And I wouldn't say Britain had a "sole" position in the early 20th century-what was WWI fought about again? What about the arms race between Germany and Britain in the early 1900s? Germany was of comparable economic size by 1914.
    The world in the early 1900s very much operated on a British-brokered finance system just as the global financial system today is very much American-brokered. Today, the U.S. does not have complete control of the global system (see note below*), but it's very much the main one and the other central banks around the world definitely listen to the Fed and Treasury. The British then were the center of power near the same way.

    Montagu Norman was the Chair of the Bank of England in the post-World War I period. After World War I, another "war" took place between the U.S. and Britain for who would be the top power in the global financial system. Norman orchestrated a series of manuevers with exchange rates that partially instigated the Stock Market Crash of 1929 to make pound sterling back to #1 in comparison to the U.S. dollar. Norman won, sort of, but it was pretty expensive for the British economy by and large.


    *The world financial markets tend to go in groups: in the American-dominated group are the U.S. obviously, Britain, Japan, Canada, Australia, and New Zealand. Europe in recent years via their Chair Jean-Claude Trichet (and Switzerland, who in this context is an entirely different entity from Europe) have tended to start doing their own thing although they still listen to us some and we still have influence. After the meeting in Jackson Hole, Wyoming, a few weeks ago with central bank chairs from around the world, there was a "strategy" as far as currencies went that revolved around the value of the U.S. dollar and managing its value. Last week, New Zealand broke ranks with this strategy when their Central Bank chair cut down the interest rates for the Kiwi dollar by 50 basis points, driving down the value of the Kiwi dollar more than expected because the economy was in recession and he couldn't risk New Zealand at the expense of the other countries listed above.
    Last edited by rj1; 16 Sep 08, at 00:38.

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    Quote Originally Posted by gunnut View Post
    Let a few of these fail. Let some airlines fail. Let GM and Ford deal with their pension problems. Stop telling the private sector on who should be able to get a loan for a house and who shouldn't. We'll see the market correct itself.
    I don't agree with the underlined part. I would expect as a taxpayer and depositor that the Financial Regulatory Authorities would set up prudent lending norms and hold the lenders to those norms. I would say that this time around, some regulators were sleeping on their job

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    Quote Originally Posted by xerxes View Post
    Goldman Sachs has the allegedly the largest number of Ph.D. in economics (good brand on paper), and has avoided/hedged some if not all the wrong bets (from what I understand).

    They will not fall. ........ IMHO
    They'll not fail. But I think they're going to merge with someone. One guy last night put it this way: "the days of the independent Wall Street firm are over". The entire business model of the investment bank has been put into question by the credit crisis.

    Quote Originally Posted by gunnut View Post
    I live in Orange County, the conservative capital of California.
    Ah, one of the frothiest of the frothy.
    Last edited by rj1; 16 Sep 08, at 00:50.

  9. #54
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    Quote Originally Posted by antimony View Post
    I don't agree with the underlined part. I would expect as a taxpayer and depositor that the Financial Regulatory Authorities would set up prudent lending norms and hold the lenders to those norms. I would say that this time around, some regulators were sleeping on their job
    Do you know what "sub-prime" means? It means people with not so stellar credit. Back in the late 1990s and Bush's first term, people kept screaming about how "minorities" were being discriminated because they couldn't get a loan to buy a house. They were not discriminated. They had bad credit. Banks don't like to do business with high risk people unless they charge high interest.

    To make a long story short, the government ordered the banks to loosen borrowing standards so "minorities" can get "fair" loans. These were known as "sub-prime" because the risk is high.

    Of course the all wise and powerful government did not anticipate the possibility of some people using this loosened standards to make some money by "flipping" real estate. Instead of qualifying for 1 or 2 loans, I can simultaneously qualify for 5 using revolving credit. That's what drove up the real estate in the early 2000's.

    This is the problem with government getting involved in the market place for the sake of "fairness." Businesses and people react faster than the government could ever do. People also do everything possible to take advantage of the system. Interfere with businesses' built-in deterance against scrupulous people and we get this kind of financial melt down.
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Quote Originally Posted by rj1 View Post
    Ah, one of the frothiest of the frothy.
    You act as if I were rich. I am solidly middle class, filing in the 15% to 25% income tax range, depending on my write-offs.

    I want to be rich though, that's why I want tax cuts on the rich and businesses. Give me more incentives to work harder, not disincentives to work.
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Quote Originally Posted by gunnut View Post
    You act as if I were rich. I am solidly middle class, filing in the 15% to 25% income tax range, depending on my write-offs.

    I want to be rich though, that's why I want tax cuts on the rich and businesses. Give me more incentives to work harder, not disincentives to work.
    I don't act as if you're rich. Just stating that a lot of people where you live thought that a 2-bed, 2-bath was worth $1.2 million and they would buy a $1.2 million house with a negative-amortization loan making something like $70 thousand per year. It just boggles my mind that all these hard workers in the conservative capital of California were so f*cking stupid that they were incapable of grasping simple math. And their stupidity is going to take them from being middle-class to poor. And your neighbors' stupidity is also going to give you less incentive to work hard, because they drove Fannie Mae and Freddie Mac to be nationalized and you and I are going to be on the hook for $200-300 billion in mortgage defaults that we have to pay for. Video- CNBC.com

    I was taught to treat debt as evil, and something you take on very rarely and then pay off early. And here the majority of people in your county thought they never had to pay a payment for their house and could just HELOC their bills til the end of time. Orange County is one of the hardest hit and your area overall is going to become poorer. Although be thankful you're not living in the Inland Empire.
    Last edited by rj1; 16 Sep 08, at 01:32.

  12. #57
    Official Thread Jacker Senior Contributor gunnut's Avatar
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    Quote Originally Posted by rj1 View Post
    I don't act as if you're rich. Just stating that a lot of people where you live thought that a 2-bed, 2-bath was worth $1.2 million and they would buy a $1.2 million house with a negative-amortization loan making something like $70thousand per year. It just boggles my mind that all these hard workers in the conservative capital of California were so f*cking stupid. I was taught to treat debt as evil, and something you take on very rarely and then pay off early. And here the majority of people in your county thought they never had to pay a payment for their house and could just HELOC their bills til the end of time. Orange County is one of the hardest hit and your area overall is going to become poorer. Although be thankful you're not living in the Inland Empire.
    I agree with you. The problem is not only in Orange County, the rest of California is also like this. Look at the property value in very liberal LA County and the ultra liberal Marin County near San Francisco. One is middle class (balancing the rich and the ghetto) and the other is super rich.

    Debt is evil. It used to be kept in check by high interest rate. The "sub-prime" removed that constraint, or at least loosened it so you can buy a house with 0% down, interest only for the first 10 years, all on mediocre credit. It was created to help those with bad money managing habits. The end result is to trick people with good habits into bad habits.
    "Only Nixon can go to China." -- Old Vulcan proverb.

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    Quote Originally Posted by gunnut View Post
    Do you know what "sub-prime" means? It means people with not so stellar credit. Back in the late 1990s and Bush's first term, people kept screaming about how "minorities" were being discriminated because they couldn't get a loan to buy a house. They were not discriminated. They had bad credit. Banks don't like to do business with high risk people unless they charge high interest.

    To make a long story short, the government ordered the banks to loosen borrowing standards so "minorities" can get "fair" loans. These were known as "sub-prime" because the risk is high.

    Of course the all wise and powerful government did not anticipate the possibility of some people using this loosened standards to make some money by "flipping" real estate. Instead of qualifying for 1 or 2 loans, I can simultaneously qualify for 5 using revolving credit. That's what drove up the real estate in the early 2000's.

    This is the problem with government getting involved in the market place for the sake of "fairness." Businesses and people react faster than the government could ever do. People also do everything possible to take advantage of the system. Interfere with businesses' built-in deterance against scrupulous people and we get this kind of financial melt down.
    Yes, I do know what sub-prime means. I also know that your explanation is, at best, incomplete. Legislation such as Fair Lending Act and HMDA had been introduced to ensure that this discriminnation does not hapen in mortgage lending.

    I am an ex-banker and I have taken on my share of less than stellar credit; I can certify that the accepted wisdom of going after bad credit if you are gettingf high rates is pure folly. You will more often than not push the borrower into bankruptcy.

    By the way, I have heard that a high percentage of sub-prime borrowers would have qualified for regular lending.

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    Quote Originally Posted by antimony View Post
    By the way, I have heard that a high percentage of sub-prime borrowers would have qualified for regular lending.
    Antimony,I found this in the Wall Street Jounal Real Estate Archives.

    Subprime Debacle Traps
    Even Very Credit-Worthy
    by Rick Brooks and Ruth Simon
    From The Wall Street Journal Online
    December 04, 2007

    One common assumption about the subprime mortgage crisis is that it revolves around borrowers with sketchy credit who couldn't have bought a home without paying punitively high interest rates. But it turns out that plenty of people with seemingly good credit are also caught in the subprime trap.

    An analysis for The Wall Street Journal of more than $2.5 trillion in subprime loans made since 2000 shows that as the number of subprime loans mushroomed, an increasing proportion of them went to people with credit scores high enough to often qualify for conventional loans with far better terms.

    In 2005, the peak year of the subprime boom, the study says that borrowers with such credit scores got more than half -- 55% -- of all subprime mortgages that were ultimately packaged into securities for sale to investors, as most subprime loans are. The study by First American LoanPerformance, a San Francisco research firm, says the proportion rose even higher by the end of 2006, to 61%. The figure was just 41% in 2000, according to the study. Even a significant number of borrowers with top-notch credit signed up for expensive subprime loans, the firm's analysis found.

    "Every government degenerates when trusted to the rulers of the people alone. The people themselves, therefore, are its only safe depositories." Thomas Jefferson

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    Shouldn't this be in Current Events though?

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