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Fannie Mae, Freddie Mac and some good old government intervention

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    YarYar Registered User regular
    edited September 2008
    The government is only taking over the risk for those who is isn't really fair to consider have taken a risk in the first place, like all the non-executive employees of these companies, and homeowners, and people who want to be homeowners, etc.

    Yar on
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    JebusUDJebusUD Adventure! Candy IslandRegistered User regular
    edited September 2008
    MrMonroe wrote: »
    JebusUD wrote: »
    Rent wrote: »
    If they wanted to do it right they would've given just enough money to Freddie Mae/Fannie Mac to transfer all of their loans to another mortgage house(s). As it stands no this is socialism and is against all tenets of capitalism and I completely and totally disapprove of this.

    Except there really isn't anyone to transfer to. They were really the one and only. This is a product of deregulation. Hell they were full blown government agencys until the sixties. Then they got privitized and the investors pushed for more profits. They lobbied hard and the government looked the other way. If anything this is totally free market capitalism screwing us over.

    If this was socialism the company never would have been privitzed and this never would have happened.

    Now you could argue that having it private spurred more growth and allowed more people to buy houses. But a treasury department study says that is bullcrap. Very little savings were passed on to consumers but instead were passed on to executives and shareholders.

    You can't really say this for sure. There were people in government pushing these loans (heavily due to pressure from lobbyists to be sure) who would have tried to get F&F to securitize these loans.

    Like you said, it was due to lobbyists. If it was socialism it would still be a govenment institution. Who would lobby then?

    Although I guess the people in the government might have legitimately thought these kinds of loans were a good idea. But I really, really doubt that.

    JebusUD on
    and I wonder about my neighbors even though I don't have them
    but they're listening to every word I say
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    OrganichuOrganichu poops peesRegistered User, Moderator mod
    edited September 2008
    mcdermott wrote: »
    Organichu wrote: »
    Rent wrote: »
    Well well well. So capitalism has become no-risk as long as you're a significant market leader.
    What. The. Fuck.

    It's not no risk. These people aren't being 'bailed out'. They lose everything.

    It's not "no risk," but the risk is fairly limited. Executives at these companies still get to keep all their earning from this time period (though obviously shares of the company, which are often part of benefit packages, will be worth less). None of them will be living in vans down by the river, put it that way. Investors will lose no more than they invested, which any halfway intelligent investor is diversified enough that this loss, while significant, won't be catastrophic. It's not like stocks can go negative.

    Obviously this is just the nature of corporations in general, so I guess I'm just bitching for bitching's sake. It's not going to change, and is in many ways necessary. It's just that all too often when things go sideways corporations act as the invisible man everybody can point at and go, "Him! It was his fault! He's liable!"

    That's not what I meant- I meant they'll lose what they put into this investment. It's not as though the government as an instrument of relief 'mitigates the risk' of investing big. That investment still flops for them.

    Organichu on
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    Bionic MonkeyBionic Monkey Registered User, ClubPA regular
    edited September 2008
    TCB wrote: »
    Plus, having the government have to take over the biggest mortgage company in the country, that isn't exactly going to look well to the rest of the world.

    I don't think our PR with the rest of the world could get much lower.

    Bionic Monkey on
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    JebusUDJebusUD Adventure! Candy IslandRegistered User regular
    edited September 2008
    TCB wrote: »
    Plus, having the government have to take over the biggest mortgage company in the country, that isn't exactly going to look well to the rest of the world.

    I don't think our PR with the rest of the world could get much lower.

    The UK nationalized Northern Rock. I doubt many people care, other than to wonder how this is going to affect their country financially. I don't think they are gonna start saying "Yeah well, you're country is poor Kenny!"

    JebusUD on
    and I wonder about my neighbors even though I don't have them
    but they're listening to every word I say
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    GorakGorak Registered User regular
    edited September 2008
    TCB wrote: »
    Plus, having the government have to take over the biggest mortgage company in the country, that isn't exactly going to look well to the rest of the world.

    I don't think our PR with the rest of the world could get much lower.


    As a representative of The Rest of The World, I would just like to say that I don't really care either way - we've got plenty of our own shit to deal with at the moment.

    The only thing that affects my opinion of America is the people running around waving their arms and screaching "Look out! The socialists are coming!". A lot of people seem to be really against it but don't seem to know why other than socialist=evil.

    Gorak on
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    QuidQuid Definitely not a banana Registered User regular
    edited September 2008
    Sheep wrote: »
    They pretty much run the show now.
    Temporarily. Which for right now is a good thing.

    Quid on
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    CauldCauld Registered User regular
    edited September 2008
    TCB wrote: »
    Plus, having the government have to take over the biggest mortgage company in the country, that isn't exactly going to look well to the rest of the world.

    I don't think our PR with the rest of the world could get much lower.

    I would think the rest of the world is pleased with this. The "Credit Crunch" is worldwide. $5 trillion is a lot of money, even for the whole world. I believe one of the reasons the government acted when it did is that they were receiving reports of governments getting restless with holding FNM and FRE debt. That would be a bad thing.

    As far as shareholders losing a lot of money, I'm pretty indifferent. I would have been a little upset if shareholders got cashed out, so I guess there's that. Even before the buyout the shares were down about 90% off their high around a year ago.

    Cauld on
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    SheepSheep Registered User, __BANNED USERS regular
    edited September 2008
    Yar wrote: »
    Well I just meant that they started buying the subprimes because everyone else was and they were losing market share and all the analysts were saying that subprimes were a good investment.

    I wonder if Michael Pachter was their analyst...

    Sheep on
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    YarYar Registered User regular
    edited September 2008
    As for how the world sees us, the sense I get is it is smug satisfaction that even our supposed best economy in the world failed in a major way. Any country that we've ever asked to open their markets or stop manipulating their currency is now doing a neener neener.

    Yar on
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    AegisAegis Fear My Dance Overshot Toronto, Landed in OttawaRegistered User regular
    edited September 2008
    So slightly related, in the ongoing financial mess of late,

    Lehman Brothers filing for bankruptcy, Bank of America to buy out Merrill Lynch
    (CNN) -- The venerable Lehman Brothers investment bank said early Monday that it will file for bankruptcy, while Bank of America unveiled plans to buy Merrill Lynch -- two pieces of news that profoundly alter the American financial landscape.
    The value of Lehman Brothers shares declined 94 percent in the past year.

    The value of Lehman Brothers shares declined 94 percent in the past year.

    The fast-paced changes capped a roller-coaster Wall Street weekend and threatened to stir up U.S. financial markets already reeling from woes at other major financial firms and mortgage financing titans Fannie Mae and Freddie Mac.

    "This crisis is clearly deeper than anybody had imagined only a short time ago," Peter Stein, an associate editor at The Wall Street Journal in Asia, told CNN.

    Lehman Brothers said in a statement early Monday that it plans to file for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. The 158-year-old investment bank had been undermined by bad bets on real estate -- the value of its shares declined 94 percent this year.

    The fall of Lehman followed a wild, three-day scramble by top Wall Street executives and federal regulators, who worked around the clock to come up with a solution to a still-unfolding financial crisis. Video Watch how Asian markets react to Monday's news »

    By the end of the weekend, the Federal Reserve had stepped in to try to calm the markets by announcing plans to loosen its lending restrictions on the banking industry.

    A consortium of 10 leading domestic and foreign banks agreed to create a $70 billion fund for loans to troubled financial firms.
    Don't Miss

    Yet the last-minute efforts provided little comfort to financial markets around the globe. U.S. markets were expected to see a steep sell-off at the start of Monday's session.

    Futures in the Dow Jones Industrial Average, as well as the broader Nasdaq composite and the Standard & Poor's 500, were as much as 3 percent lower, before paring some of their losses. That nervousness also spread to the currency markets as the dollar slipped in value against both the euro and the yen.

    The $50 billion Bank of America-Merrill Lynch deal -- announced in the wee hours Monday by Bank of America -- could help temper a market sell-off, said Dan Alpert, managing director of the New York City-based investment bank Westwood Capital.

    "This sort of offsets the Lehman thing," he said, "but the reality is that it is just a short-term impact."

    Stein agreed.

    "On the one hand, the news about Merrill may be seen as a positive; Lehman, definitely a negative," he said.

    Bank of America plans to buy Merrill Lynch in an all-stock $50 billion deal, pending approval by federal regulators and shareholders of both companies, the bank said in a statement. The transaction is expected to close in the first three months of 2009.

    Bank of America had been considered a possible buyer of Lehman, but those talks had broken off by Sunday afternoon.

    The acquisition of Merrill Lynch makes sense, said Ken Lewis, Bank of America's chairman and chief executive officer.

    "Acquiring one of the premier wealth management, capital markets and advisory companies is a great opportunity for our shareholders," he said in a statement. "Together our companies are more valuable because of the synergies in our businesses."

    Like Lehman, Merrill Lynch has suffered from bad real estate bets. Its stock price lost 27 percent last week, and shares are down 65 percent this year. Merrill has posted net losses of more than $17 billion over the past four quarters.

    "The Merrill deal addresses what the market fears most right now -- a flood of assets hitting the market," Alpert said.

    The deal will create "a company unrivaled in its breadth of financial services and global reach," Bank of America said.

    "By adding Merrill Lynch's more than 16,000 financial advisers, Bank of America would have the largest brokerage in the world, with more than 20,000 advisers and $2.5 trillion in client assets," the bank said.

    Asian financial markets were closed Monday, but European markets took a hit in early trading. The FTSE index in London declined 2.8 percent, while the Paris CAC 40 was down 3.5 percent.

    The dramatic developments come after problems at several financial giants in the last year.

    In March, the U.S. government helped bail out the investment bank Bear Stearns, which J.P. Morgan Chase & Co. then bought.

    This month, the U.S. government took over mortgage finance companies Fannie Mae and Freddie Mac. That was Washington's most dramatic attempt yet to shore up the nation's faltering housing market, which is suffering from record foreclosures and falling prices. That plan calls for the government to run Fannie and Freddie until they are on stronger footing.
    advertisement

    Meanwhile, American International Group, the nation's largest insurer, plans to unveil a restructuring plan as soon as Monday morning, The Wall Street Journal reported Sunday.

    The plan will include selling off part of its business to raise cash and boost investors' confidence, the newspaper reported.

    Aegis on
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    QuidQuid Definitely not a banana Registered User regular
    edited September 2008
    Damn you government meddlers!

    Quid on
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    SkyGheNeSkyGheNe Registered User regular
    edited September 2008
    Yar wrote: »
    Well I just meant that they started buying the subprimes because everyone else was and they were losing market share and all the analysts were saying that subprimes were a good investment.

    The analysts are more often than not morons that pander to what their bosses want to see in their reports. Of course they would do the irresponsible thing just to acquire temporary market share instead of looking at the long term - had they done the responsible thing and played the game safely - they wouldn't need a bail out like merryl lynch or bear stearns.

    Instead, they decided to go with what anyone with a brain could see was stupid - I shouldn't have expected more - especially from the great financial minds they recruited to work for their company. Don't think for a second that someone at that company didn't spot what was going to happen because any honest money manager saw it coming.

    Better to lose market share now and gain a shit load of it in the future than to go belly up. Or is it? The Board still got their pay check after fucking things up. It's like an early retirement for them.

    SkyGheNe on
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    CauldCauld Registered User regular
    edited September 2008
    SkyGheNe wrote: »
    Yar wrote: »
    Well I just meant that they started buying the subprimes because everyone else was and they were losing market share and all the analysts were saying that subprimes were a good investment.

    The analysts are more often than not morons that pander to what their bosses want to see in their reports. Of course they would do the irresponsible thing just to acquire temporary market share instead of looking at the long term - had they done the responsible thing and played the game safely - they wouldn't need a bail out like merryl lynch or bear stearns.

    Instead, they decided to go with what anyone with a brain could see was stupid - I shouldn't have expected more - especially from the great financial minds they recruited to work for their company. Don't think for a second that someone at that company didn't spot what was going to happen because any honest money manager saw it coming.

    Better to lose market share now and gain a shit load of it in the future than to go belly up. Or is it? The Board still got their pay check after fucking things up. It's like an early retirement for them.

    I'm calling shenanigans. 5 years ago housing prices were going up. People were buying homes, values were increasing. Why wouldn't you loan money to someone to buy an asset that was almost guaranteed to go up? If "anybody with a brain" could see that it was stupid, why were people still buying homes? Why were prices increasing? The point the bubble bursts is the point where people in general decide its stupid, almost by definition. So to suggest that it was a widespread belief before that is a little misleading. Hindsight 20/20 and all that.

    Edit: and its not like board members aren't hurting. Do you think they sit on the board and don't own any shares? They won't hurt as much as someone who had 90% of their investments in company stock, but I they'll lose plenty of money themselves. The stockholders elect the board. So, by definition the people who chose the board stand to lose the most.

    Cauld on
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    QuidQuid Definitely not a banana Registered User regular
    edited September 2008
    Well, my credit union in particular did not go with the sub prime trend. So clearly some financial institutions thought it was a bad idea.

    Quid on
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    SkyGheNeSkyGheNe Registered User regular
    edited September 2008
    Cauld wrote: »
    SkyGheNe wrote: »
    Yar wrote: »
    Well I just meant that they started buying the subprimes because everyone else was and they were losing market share and all the analysts were saying that subprimes were a good investment.

    The analysts are more often than not morons that pander to what their bosses want to see in their reports. Of course they would do the irresponsible thing just to acquire temporary market share instead of looking at the long term - had they done the responsible thing and played the game safely - they wouldn't need a bail out like merryl lynch or bear stearns.

    Instead, they decided to go with what anyone with a brain could see was stupid - I shouldn't have expected more - especially from the great financial minds they recruited to work for their company. Don't think for a second that someone at that company didn't spot what was going to happen because any honest money manager saw it coming.

    Better to lose market share now and gain a shit load of it in the future than to go belly up. Or is it? The Board still got their pay check after fucking things up. It's like an early retirement for them.

    I'm calling shenanigans. 5 years ago housing prices were going up. People were buying homes, values were increasing. Why wouldn't you loan money to someone to buy an asset that was almost guaranteed to go up? If "anybody with a brain" could see that it was stupid, why were people still buying homes? Why were prices increasing? The point the bubble bursts is the point where people in general decide its stupid, almost by definition. So to suggest that it was a widespread belief before that is a little misleading. Hindsight 20/20 and all that.

    Edit: and its not like board members aren't hurting. Do you think they sit on the board and don't own any shares? They won't hurt as much as someone who had 90% of their investments in company stock, but I they'll lose plenty of money themselves. The stockholders elect the board. So, by definition the people who chose the board stand to lose the most.

    I remember being back in 2003 and talking to not only my family's money manager, but several professors and they were laughing about how absurdly stupid it was for Merryl Lynch and the likes to get involved in crap like this. This is not hindsight bias. Following analyst reports is dumb as shit because again - Instead of going with long term solutions they are going to go with short term solutions because when you are the only guy in the pack that says "Don't invest in google! It's risky!" you come off as an idiot because of how high their stock is going. When you actually look at their revenues, where the hell they are making money, and how every analyst assumes that they are going to dominate the advertising industry by 900 B when the market cap is much lower than that, you realize that the lemmings are truly retarded for following each other right off the cliff. Hell, most people don't even realize that 17% of the "revenue" coming in from click based advertising is actually click fraud - and you better bet that goddamn number is rising.

    They knowingly took on high risk people and got burned. People were buying homes because they wanted a house and were able to get the money too easily because these companies decided to take up high risk ventures. Those that sat back and knew it was a bad investment are going to flourish during this debacle - and no, when Merryl Lynch's CEO walks away with 160 million dollars after essentially being fired while the employees underneath him are getting laid off and losing their houses because of this shit storm, I don't think he's got it all that bad.

    SkyGheNe on
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    CauldCauld Registered User regular
    edited September 2008
    Quid wrote: »
    Well, my credit union in particular did not go with the sub prime trend. So clearly some financial institutions thought it was a bad idea.

    I agree, which kind of supports another point I decided not to make, which is that analysts always come to the conclusion their bosses tell them to come to. The bank I work at didn't make many sub prime loans, but there is an increase in prime foreclosures as well right now.

    Cauld on
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    CauldCauld Registered User regular
    edited September 2008
    SkyGheNe wrote: »
    Cauld wrote: »
    SkyGheNe wrote: »
    Yar wrote: »
    Well I just meant that they started buying the subprimes because everyone else was and they were losing market share and all the analysts were saying that subprimes were a good investment.

    The analysts are more often than not morons that pander to what their bosses want to see in their reports. Of course they would do the irresponsible thing just to acquire temporary market share instead of looking at the long term - had they done the responsible thing and played the game safely - they wouldn't need a bail out like merryl lynch or bear stearns.

    Instead, they decided to go with what anyone with a brain could see was stupid - I shouldn't have expected more - especially from the great financial minds they recruited to work for their company. Don't think for a second that someone at that company didn't spot what was going to happen because any honest money manager saw it coming.

    Better to lose market share now and gain a shit load of it in the future than to go belly up. Or is it? The Board still got their pay check after fucking things up. It's like an early retirement for them.

    I'm calling shenanigans. 5 years ago housing prices were going up. People were buying homes, values were increasing. Why wouldn't you loan money to someone to buy an asset that was almost guaranteed to go up? If "anybody with a brain" could see that it was stupid, why were people still buying homes? Why were prices increasing? The point the bubble bursts is the point where people in general decide its stupid, almost by definition. So to suggest that it was a widespread belief before that is a little misleading. Hindsight 20/20 and all that.

    Edit: and its not like board members aren't hurting. Do you think they sit on the board and don't own any shares? They won't hurt as much as someone who had 90% of their investments in company stock, but I they'll lose plenty of money themselves. The stockholders elect the board. So, by definition the people who chose the board stand to lose the most.

    I remember being back in 2003 and talking to not only my family's money manager, but several professors and they were laughing about how absurdly stupid it was for Merryl Lynch and the likes to get involved in crap like this. This is not hindsight bias. Following analyst reports is dumb as shit because again - Instead of going with long term solutions they are going to go with short term solutions because when you are the only guy in the pack that says "Don't invest in google! It's risky!" you come off as an idiot because of how high their stock is going. When you actually look at their revenues, where the hell they are making money, and how every analyst assumes that they are going to dominate the advertising industry by 900 B when the market cap is much lower than that, you realize that the lemmings are truly retarded for following each other right off the cliff. Hell, most people don't even realize that 17% of the "revenue" coming in from click based advertising is actually click fraud - and you better bet that goddamn number is rising.

    They knowingly took on high risk people and got burned. People were buying homes because they wanted a house and were able to get the money too easily because these companies decided to take up high risk ventures. Those that sat back and knew it was a bad investment are going to flourish during this debacle - and no, when Merryl Lynch's CEO walks away with 160 million dollars after essentially being fired while the employees underneath him are getting laid off and losing their houses because of this shit storm, I don't think he's got it all that bad.

    Home prices are still above their 2003 level. Yes they made bad investments, yes they're now paying the price of those bad investments. But you seem to be of the opinion that they made these investments knowing that they were as bad as they turned out to be. You think these firms just decided "Hey guys, I got a great idea. Let's make a lot of money for 3 years and then go bankrupt!" and all the analysts, except one said "Yeah! Awesome idea!!". And somehow the millions of investors who actually own the company went along with it because it was such a great idea.

    Cauld on
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    SkyGheNeSkyGheNe Registered User regular
    edited September 2008
    Cauld wrote: »
    SkyGheNe wrote: »
    Cauld wrote: »
    SkyGheNe wrote: »
    Yar wrote: »
    Well I just meant that they started buying the subprimes because everyone else was and they were losing market share and all the analysts were saying that subprimes were a good investment.

    The analysts are more often than not morons that pander to what their bosses want to see in their reports. Of course they would do the irresponsible thing just to acquire temporary market share instead of looking at the long term - had they done the responsible thing and played the game safely - they wouldn't need a bail out like merryl lynch or bear stearns.

    Instead, they decided to go with what anyone with a brain could see was stupid - I shouldn't have expected more - especially from the great financial minds they recruited to work for their company. Don't think for a second that someone at that company didn't spot what was going to happen because any honest money manager saw it coming.

    Better to lose market share now and gain a shit load of it in the future than to go belly up. Or is it? The Board still got their pay check after fucking things up. It's like an early retirement for them.

    I'm calling shenanigans. 5 years ago housing prices were going up. People were buying homes, values were increasing. Why wouldn't you loan money to someone to buy an asset that was almost guaranteed to go up? If "anybody with a brain" could see that it was stupid, why were people still buying homes? Why were prices increasing? The point the bubble bursts is the point where people in general decide its stupid, almost by definition. So to suggest that it was a widespread belief before that is a little misleading. Hindsight 20/20 and all that.

    Edit: and its not like board members aren't hurting. Do you think they sit on the board and don't own any shares? They won't hurt as much as someone who had 90% of their investments in company stock, but I they'll lose plenty of money themselves. The stockholders elect the board. So, by definition the people who chose the board stand to lose the most.

    I remember being back in 2003 and talking to not only my family's money manager, but several professors and they were laughing about how absurdly stupid it was for Merryl Lynch and the likes to get involved in crap like this. This is not hindsight bias. Following analyst reports is dumb as shit because again - Instead of going with long term solutions they are going to go with short term solutions because when you are the only guy in the pack that says "Don't invest in google! It's risky!" you come off as an idiot because of how high their stock is going. When you actually look at their revenues, where the hell they are making money, and how every analyst assumes that they are going to dominate the advertising industry by 900 B when the market cap is much lower than that, you realize that the lemmings are truly retarded for following each other right off the cliff. Hell, most people don't even realize that 17% of the "revenue" coming in from click based advertising is actually click fraud - and you better bet that goddamn number is rising.

    They knowingly took on high risk people and got burned. People were buying homes because they wanted a house and were able to get the money too easily because these companies decided to take up high risk ventures. Those that sat back and knew it was a bad investment are going to flourish during this debacle - and no, when Merryl Lynch's CEO walks away with 160 million dollars after essentially being fired while the employees underneath him are getting laid off and losing their houses because of this shit storm, I don't think he's got it all that bad.

    Home prices are still above their 2003 level. Yes they made bad investments, yes they're now paying the price of those bad investments. But you seem to be of the opinion that they made these investments knowing that they were as bad as they turned out to be. You think these firms just decided "Hey guys, I got a great idea. Let's make a lot of money for 3 years and then go bankrupt!" and all the analysts, except one said "Yeah! Awesome idea!!". And somehow the millions of investors who actually own the company went along with it because it was such a great idea.

    Let me reevaluate what I said.

    I think the problem stems from a bigger issue: corporate policy and the work environment. Say you're an analyst, you've got a job that supports your family - wife, children, grandparents - you're going to do whatever keeps you your job, correct? You may know that something is a poor investment, but if it means your company will be successful in the short term, you'll take it either because you didn't think hard enough about the issue or because you're too concerned about your boss thinking you're a moron for taking the safer route.

    It's like when people talk about their Alphas or Betas, which frankly, means shit, especially since Enron and Krispy Kreme were Alphas/betas before they tanked. Instead of going with long term survivability - companies like Krispy Kreme supported a corporate policy and business model that essentially cannibalized itself.

    I'm sort of rambling because I'm in a rush - I have to tutor at 10:30, but let me end with this kind of general idea. The greater problem was with the mentality the CEOs supported at their corporations - accept high risk ventures, regardless of credit history. Credit cards were easy as HELL to get without any history before - now it's a nightmare to get any sort of loan OR credit card. Notice how the mailings have trickled down? They're not playing the game like idiots anymore.

    Come on - You don't become a ceo by being a moron - and it comes off as really stupid when they investigate the issue and as the CEO of Lynch you say "But I didn't know this was going on!"...So you're the ceo of a company and don't know what's happening right underneath your nose?

    I think they were either very negligent or ignorant. I stand by negligent - they had some inkling of what was going on and instead of stopping it, they felt like taking the risk. Unfortunately, those that are hurt are NOT the ceo or board of directors. It's the employees of the company and the american taxpayers.

    SkyGheNe on
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    xa52xa52 Registered User regular
    edited September 2008
    Cauld wrote: »
    SkyGheNe wrote: »
    Yar wrote: »
    Well I just meant that they started buying the subprimes because everyone else was and they were losing market share and all the analysts were saying that subprimes were a good investment.

    The analysts are more often than not morons that pander to what their bosses want to see in their reports. Of course they would do the irresponsible thing just to acquire temporary market share instead of looking at the long term - had they done the responsible thing and played the game safely - they wouldn't need a bail out like merryl lynch or bear stearns.

    Instead, they decided to go with what anyone with a brain could see was stupid - I shouldn't have expected more - especially from the great financial minds they recruited to work for their company. Don't think for a second that someone at that company didn't spot what was going to happen because any honest money manager saw it coming.

    Better to lose market share now and gain a shit load of it in the future than to go belly up. Or is it? The Board still got their pay check after fucking things up. It's like an early retirement for them.

    I'm calling shenanigans. 5 years ago housing prices were going up. People were buying homes, values were increasing. Why wouldn't you loan money to someone to buy an asset that was almost guaranteed to go up? If "anybody with a brain" could see that it was stupid, why were people still buying homes? Why were prices increasing? The point the bubble bursts is the point where people in general decide its stupid, almost by definition. So to suggest that it was a widespread belief before that is a little misleading. Hindsight 20/20 and all that.

    Edit: and its not like board members aren't hurting. Do you think they sit on the board and don't own any shares? They won't hurt as much as someone who had 90% of their investments in company stock, but I they'll lose plenty of money themselves. The stockholders elect the board. So, by definition the people who chose the board stand to lose the most.

    Home values were only increasing on paper. Salaries weren't increasing. Homes are only worth what potential buyers can afford and no matter how to work the loan, you eventually have to pay for the fucking house. That's why people were calling it a bubble from as far back as 5 years ago. Analysts and investors and gullible home buyers worked themselves into a frenzy thinking, for some reason, that we were all getting free money. Anyone who wasn't blinded by dollar signs thought the whole thing was pretty ridiculous, and you don't have to look very hard to find articles that say so. That hindsight is 20/20 is bullshit. It's ok if you're just some random guy on the internet and just don't look past the cheerleaders in the WSJ for your financial news. It's not ok if you're supposed to know what you're talking about, and I've been seeing this line in articles from analysts and economists all fucking morning.

    xa52 on
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    EinEin CaliforniaRegistered User regular
    edited September 2008
    I don't know what any of this means, but should I be loading up on bullets and gasoline?

    Ein on
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    xa52xa52 Registered User regular
    edited September 2008
    Ein wrote: »
    I don't know what any of this means, but should I be loading up on bullets and gasoline?

    That's what I'm trying to find out, but the only "news" I can find this morning is just people covering their ass.

    Also: http://dailykos.com/storyonly/2008/9/15/7374/81936/791/599241

    It does a fairly decent job of explaining what looks like a "Hey guys, I got a great idea. Let's make a lot of money for 3 years and then go bankrupt!" philosophy.

    edit:
    http://bonddad.blogspot.com/2008/09/from-one-disaster-to-another.html

    xa52 on
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    mcdermottmcdermott Registered User regular
    edited September 2008
    xa52 wrote: »
    Home values were only increasing on paper. Salaries weren't increasing. Homes are only worth what potential buyers can afford and no matter how to work the loan, you eventually have to pay for the fucking house. That's why people were calling it a bubble from as far back as 5 years ago. Analysts and investors and gullible home buyers worked themselves into a frenzy thinking, for some reason, that we were all getting free money. Anyone who wasn't blinded by dollar signs thought the whole thing was pretty ridiculous, and you don't have to look very hard to find articles that say so. That hindsight is 20/20 is bullshit. It's ok if you're just some random guy on the internet and just don't look past the cheerleaders in the WSJ for your financial news. It's not ok if you're supposed to know what you're talking about, and I've been seeing this line in articles from analysts and economists all fucking morning.

    Bolded and limed for "no fucking shit."

    As much as some people would like to convince themselves otherwise, this was not in any way an unforeseen consequence. A few years ago probably 10% of articles on the issue were suggesting that this was a bubble, and that it would burst, and that buying a house with the intent to either refinance or sell in the short-term was a horrible, horrible idea. Which would also suggest that financing such purchases was a horrible idea. These guys chose to listen to the 90% that basically said "it prints money, bitches!" without a care.

    2003 me (who decided to continue renting rather than settle in and buy a house that we'd only stay in for 4-5 years) apparently knew better than Wall Street analysts and the CEOs of financial institutions. But they're getting paid 6-9 figures, and I make squat.

    mcdermott on
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    [Tycho?][Tycho?] As elusive as doubt Registered User regular
    edited September 2008
    So, can we turn this into a thread about how fucked the US (perhaps world) economy is? The financial system is taking a massive blow today, and this whole thing is not over yet. There are plenty more banks and financial institutions that are going to go under before everything has worked itself out. With the US at record high debt and deficits (yet still bailing out some of these financial institutions, essentially just tacking another big number onto the national debt), the US economy isn't looking so good right now. The dollar will be taking yet more serious blows as people start to realize this. If the US dollar were to fall too far, well, all manner of shit could hit the fan.

    So, fun times!

    [Tycho?] on
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    CauldCauld Registered User regular
    edited September 2008
    mcdermott wrote: »
    xa52 wrote: »
    Home values were only increasing on paper. Salaries weren't increasing. Homes are only worth what potential buyers can afford and no matter how to work the loan, you eventually have to pay for the fucking house. That's why people were calling it a bubble from as far back as 5 years ago. Analysts and investors and gullible home buyers worked themselves into a frenzy thinking, for some reason, that we were all getting free money. Anyone who wasn't blinded by dollar signs thought the whole thing was pretty ridiculous, and you don't have to look very hard to find articles that say so. That hindsight is 20/20 is bullshit. It's ok if you're just some random guy on the internet and just don't look past the cheerleaders in the WSJ for your financial news. It's not ok if you're supposed to know what you're talking about, and I've been seeing this line in articles from analysts and economists all fucking morning.

    Bolded and limed for "no fucking shit."

    As much as some people would like to convince themselves otherwise, this was not in any way an unforeseen consequence. A few years ago probably 10% of articles on the issue were suggesting that this was a bubble, and that it would burst, and that buying a house with the intent to either refinance or sell in the short-term was a horrible, horrible idea. Which would also suggest that financing such purchases was a horrible idea. These guys chose to listen to the 90% that basically said "it prints money, bitches!" without a care.

    2003 me (who decided to continue renting rather than settle in and buy a house that we'd only stay in for 4-5 years) apparently knew better than Wall Street analysts and the CEOs of financial institutions. But they're getting paid 6-9 figures, and I make squat.

    2003 you probably made a mistake. If you had bought that house in 2003, chances are it would be worth more now than it was then. Whether the particulars of your case mean it would have been profitable or not are important of course, but in general I think prices are still above their 2003 levels in most markets. I would agree that CEOs were greedy though. Just because there's a consistent counter argument to the prices increases didn't mean that it was completely foreseeable. In 2003 some people said oil was going to $100/barrel and I bet not many people believed them.

    To all those people who are saying this was completely foreseable, did you short the companies in question? Did you put money on your prediction that large banks were going down? If you did, I respect you. More power to you. If you couldn't afford it, I understand that too. Plenty of stupid people lost a lot of money (and homes), but plenty of smart people did too.

    Cauld on
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    CauldCauld Registered User regular
    edited September 2008
    [Tycho?] wrote: »
    So, can we turn this into a thread about how fucked the US (perhaps world) economy is? The financial system is taking a massive blow today, and this whole thing is not over yet. There are plenty more banks and financial institutions that are going to go under before everything has worked itself out. With the US at record high debt and deficits (yet still bailing out some of these financial institutions, essentially just tacking another big number onto the national debt), the US economy isn't looking so good right now. The dollar will be taking yet more serious blows as people start to realize this. If the US dollar were to fall too far, well, all manner of shit could hit the fan.

    So, fun times!

    I would support this proposed thread topic change. On that note I'll post this:
    Nightmare on Wall Street
    Sep 15th 2008 | NEW YORK AND WASHINGTON,DC
    From Economist.com

    A weekend of high drama reshapes American finance

    EVEN by the standards of the worst financial crisis for at least a generation, the events of Sunday September 14th and the day before were extraordinary. The weekend began with hopes that a deal could be struck, with or without government backing, to save Lehman Brothers, America’s fourth-largest investment bank. Early Monday morning Lehman filed for Chapter 11 bankruptcy protection. It has more than $613 billion of debt.

    Other vulnerable financial giants scrambled to sell themselves or raise enough capital to stave off a similar fate. Merrill Lynch, the third-biggest investment bank, sold itself to Bank of America (BofA), an erstwhile Lehman suitor, in a $50 billion all-stock deal. American International Group (AIG) brought forward a potentially life-saving overhaul and went cap-in-hand to the Federal Reserve. But its shares also slumped on Monday.

    The situation remains fluid, and investors stampeded towards the relative safety of American Treasury bonds. Stockmarkets tumbled around the world (though some Asian bourses were closed) and the oil price plummeted to well under $100 a barrel. The dollar fell sharply, and the yield on two-year Treasury notes fell below 2% on hopes the Federal Reserve would cut interest rates at a scheduled meeting on Tuesday. American stock futures were deep in the red too. Spreads on risky credit, already elevated, widened further.

    With these developments the crisis is entering a new and extremely dangerous phase. If Lehman's assets are dumped in a liquidation, prices of like assets on other firms' books will also have to be marked down, eroding their capital bases. The government's refusal to help with a bail-out of Lehman will strip many firms of the benefit of being thought too big to fail, raising their borrowing costs. Lehman’s demise highlights the industry’s inability, or unwillingness, to rescue the sick, even when the consequences of inaction are potentially dire.

    The biggest worry is the effect on derivatives markets, particularly the giant one for credit-default swaps. Lehman is a top-ten counterparty in CDSs, holding contracts with a notional value of almost $800 billion. On Sunday, banks called in their derivatives traders to assess their exposures to Lehman and work on mitigating risks. The Securities and Exchange Commission, Lehman’s main regulator, said it is working with the bank to protect clients and trading partners and to “maintain orderly markets”.

    Government officials believed they had persuaded a consortium of Wall Street firms to back a new vehicle that would take $40 billion-70 billion of dodgy assets off Lehman’s books, thereby facilitating a takeover of the remainder. But the deal died when the main suitors, BofA and Barclays, a British bank, walked away on Sunday afternoon. Both were unwilling to buy the firm, even shorn of the worst bits, without some sort of government backstop.

    But Hank Paulson, the treasury secretary, decided to draw a line and refuse such help. After the Fed had bailed out Bear Stearns in March and the Treasury had taken over Fannie Mae and Freddie Mac last weekend, expectations were high that they would do the same for Lehman. And that was precisely the problem: it would have confirmed that the federal government stood behind all risk-taking in the financial system, creating moral hazard that would take years to undo and expanding taxpayers’ liability almost without limit. Conceivably, Congress could have denied Mr Paulson the money he needed even if he had been inclined to bail Lehman out.

    This left Lehman with no option but to prepare for bankruptcy. Though the bank has access to a Fed lending facility, introduced after Bear’s takeover by JP Morgan Chase, the collapse of its share price left it unable to raise new equity and facing crippling downgrades from rating agencies. Moreover, rival firms that had continued to trade with it in recent weeks—at the urging of regulators—had begun to pull away in the past few days. The inability to find a buyer is a huge blow to Lehman’s 25,000 employees, who own a third of the company’s now-worthless stock; in such a difficult environment, most will struggle to find work at other financial firms. It also makes for an ignominious end to the career of Dick Fuld, Lehman’s boss since 1994, who until last year was viewed as one of Wall Street’s smartest managers.

    Merrill’s rush to sell itself was motivated by fear that it might be next to be caught in the stampede. Despite selling a big dollop of its most rotten assets recently, the market continued to question its viability. Its shares fell by 36% last week, and hedge funds had started to move their business elsewhere. Its boss, John Thain, concluded that it needed to strike a deal before markets reopened. It approached several firms, including BofA and Morgan Stanley, but only BofA felt able to conduct the necessary due diligence in time.

    Not only has Mr Thain managed to shelter his firm from the storm, but he has also secured a price well above its closing price last Friday, $29 per share compared with $17. How he managed that in such an ugly market is not yet clear. Ken Lewis, BofA’s boss, is no fan of investment banking, but he is a consummate opportunist, and he has coveted Merrill’s formidable retail brokerage. Still, the deal carries risks. It will be a logistical challenge, all the more so since BofA is in the middle of digesting Countrywide, a big mortgage lender. Commercial-bank takeovers of investment banks have a horrible history because of the stark cultural differences. And it is not clear if BofA has a clear picture of Merrill’s remaining troubled assets.

    The takeover of Merrill leaves just two large independent investment banks in America, Morgan Stanley and Goldman Sachs. Both are in better shape than their erstwhile rivals. But this weekend’s events cast a shadow over the standalone model, with its reliance on leverage and skittish wholesale funding. Spreads on both banks' CDSs, which reflect investors views of the probability of default, soared on Monday.

    Wall Street has company in its misery. Washington Mutual, a big thrift, is fighting for survival under a new boss. Even more worryingly, so is AIG, America’s largest insurer, thanks to a reckless foray into CDSs of mortgage-linked collateralised-debt obligations. Investors have fled, fearing the firm will need a lot more new capital than the $20 billion raised so far. Prompted by the weekend bloodletting, AIG brought forward to Monday a restructuring that was to have been unveiled on September 25th. This was expected to include the sale of its aircraft-leasing arm and other businesses. It is also reported to be seeking a $40 billion in bridge loan from the Fed, to be repaid once the sales go through, in the hope that this will attract new capital, possibly from private-equity firms.

    With Lehman left dangling, official attention is now turning to putting more safeguards in place to soften the coming shock to markets and the economy. The first step has been to encourage Lehman’s counterparties to get together and try to net out as many contracts as possible. On Sunday the Fed also expanded the list of collateral it will accept for loans at its discount window, to include even equities; and dealers may lend any investment-grade security, not just triple-A rated, to the Fed in exchange for Treasury bonds.

    Markets are also pricing in some possibility that the Fed will cut its short-term interest rate target from 2% when it meets for a regularly scheduled meeting on Tuesday. That would be an abrupt turnaround from August, when officials figured their next move would be to raise rates, not lower them.

    In a sign of how bad things are, even straitened banks are stumping up cash to help the stabilisation efforts. On Sunday, a group of ten banks and securities firms set up a $70 billion loan facility that any of the founding members can tap if it finds itself short of cash.

    Even if markets can be stabilised this week, the pain is far from over—and could yet spread. Worldwide credit-related losses by financial institutions now top $500 billion, of which only $350 billion of equity has been replenished. This $150 billion gap, leveraged 14.5 times (the average gearing for the industry), translates to a $2 trillion reduction in liquidity. Hence the severe shortage of credit and predictions of worse to come.

    Indeed, most analysts think that the deleveraging still has far to go. Some question how much has taken place. Bianco Research notes that while the credit positions of the 20 largest banks have fallen by $300 billion, to $1.3 trillion, since the Fed started its special lending facilities, the same amount has been financed by the Fed itself through these windows. In other words, instead of deleveraging, the banks have just shifted a chunk of their risk to the central bank. As spectacular as this weekend was, more drama is on the way.

    Edit: Oil prices are down about 3% and are below $100 again, mainly on news that nothing major was damaged by IKE, so that's good news I guess.

    Cauld on
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    mcdermottmcdermott Registered User regular
    edited September 2008
    Cauld wrote: »
    2003 you probably made a mistake. If you had bought that house in 2003, chances are it would be worth more now than it was then. Whether the particulars of your case mean it would have been profitable or not are important of course, but in general I think prices are still above their 2003 levels in most markets. I would agree that CEOs were greedy though. Just because there's a consistent counter argument to the prices increases didn't mean that it was completely foreseeable. In 2003 some people said oil was going to $100/barrel and I bet not many people believed them.

    To all those people who are saying this was completely foreseable, did you short the companies in question? Did you put money on your prediction that large banks were going down? If you did, I respect you. More power to you. If you couldn't afford it, I understand that too. Plenty of stupid people lost a lot of money (and homes), but plenty of smart people did too.

    It's hard to tell how much (or if) housing prices are up in my market, because a lot of them aren't selling. And since there's about a 90% chance I'll be leaving the state in 8 months or so, whether or not I would actually be able to unload the house is a primary concern.

    There's a fair chance I'd have been able to sell for a tidy profit, even now, but it's hardly a given. This was a huge factor in our decision, the fact that we needed to sell the house in three to five years, or we'd have some serious financial issues. I saw that as being a crap shoot, while everybody we know (who all seemed to be buying houses, getting their real estate licenses, or both) just told us it was a no-brainer, and that there was no way we wouldn't make fat stacks of cash.

    EDIT: To be clear, my particulars at the time were I was starting my degree, and would more than likely be unable to find work locally (particularly work that would pay said mortgage...I get paid better as a student that I'd make working retail) upon graduation. So moving in four years (possibly five, with a deployment with the Guard) was likely going to be absolutely necessary.

    mcdermott on
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    CauldCauld Registered User regular
    edited September 2008
    mcdermott wrote: »
    Cauld wrote: »
    2003 you probably made a mistake. If you had bought that house in 2003, chances are it would be worth more now than it was then. Whether the particulars of your case mean it would have been profitable or not are important of course, but in general I think prices are still above their 2003 levels in most markets. I would agree that CEOs were greedy though. Just because there's a consistent counter argument to the prices increases didn't mean that it was completely foreseeable. In 2003 some people said oil was going to $100/barrel and I bet not many people believed them.

    To all those people who are saying this was completely foreseable, did you short the companies in question? Did you put money on your prediction that large banks were going down? If you did, I respect you. More power to you. If you couldn't afford it, I understand that too. Plenty of stupid people lost a lot of money (and homes), but plenty of smart people did too.

    It's hard to tell how much (or if) housing prices are up in my market, because a lot of them aren't selling. And since there's about a 90% chance I'll be leaving the state in 8 months or so, whether or not I would actually be able to unload the house is a primary concern.

    There's a fair chance I'd have been able to sell for a tidy profit, even now, but it's hardly a given. This was a huge factor in our decision, the fact that we needed to sell the house in three to five years, or we'd have some serious financial issues. I saw that as being a crap shoot, while everybody we know (who all seemed to be buying houses, getting their real estate licenses, or both) just told us it was a no-brainer, and that there was no way we wouldn't make fat stacks of cash.

    I agree with you that buying a house, knowing you'll have to sell it in about 5 years is a move that too many people make without actually thinking about it. Had I been in your shoes I would have likely rented as well, for a variety of reasons. One of which is that I'm relatively conservative in regards to buying big ticket items. Also I'm weary of doing home maintenance and lawn maintainence and all that. It's just not for me right now. It did take some good foresight not to do it in 2003 though, so I appluad you for making the right choice. I think a lot of people who buy homes (at least in the last few years) weren't doing the right calculations anyway (beyond straight financial calculators).

    Cauld on
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    JastJast Registered User regular
    edited September 2008
    Someone talk to me. I know the Lehman bankruptcy is bad, I know the market is going down, but I want to know more. I'm not a financial guy, so in layman's terms please, explain to me how this is going to affect the economy. Basically, what's going to happen now. I'm hearing all sorts of things right now.

    Jast on
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    NightslyrNightslyr Registered User regular
    edited September 2008
    Jast wrote: »
    Someone talk to me. I know the Lehman bankruptcy is bad, I know the market is going down, but I want to know more. I'm not a financial guy, so in layman's terms please, explain to me how this is going to affect the economy. Basically, what's going to happen now. I'm hearing all sorts of things right now.

    Seconded. My economic knowledge is pretty limited. Beyond the world of student loans and handling my own finances (credit cards and checkbook), I'm pretty much clueless.

    Nightslyr on
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    mcdermottmcdermott Registered User regular
    edited September 2008
    Nightslyr wrote: »
    Jast wrote: »
    Someone talk to me. I know the Lehman bankruptcy is bad, I know the market is going down, but I want to know more. I'm not a financial guy, so in layman's terms please, explain to me how this is going to affect the economy. Basically, what's going to happen now. I'm hearing all sorts of things right now.

    Seconded. My economic knowledge is pretty limited. Beyond the world of student loans and handling my own finances (credit cards and checkbook), I'm pretty much clueless.

    *shrug*

    I'm betting that even the guys getting paid to have comprehensive answers to this question would probably just be guessing at this point. This is a once-in-a-century event, and we really haven't had one in the modern era with modern safeguards. The dot-com bubble was close, but I don't think it was anywhere near the scope of this.

    Basically, Lehman goes under. Their assets get devalued and liquidated, causing a negative impact on other companies in the same field. As a result, credit gets tighter (it'll be harder for you to get a home loan, that's for sure). This makes it harder for people to unload their houses (buyers can't get credit), further depressing home values...but this devalues the mortgage assets of other banks, lather rinse and repeat. Eventually everybody winds up homeless, the banking industry is wiped off the face of the map, and we're all riding motorcycles through the desert killing each other over gasoline.

    Or not.

    The other issue is that this is in no way limited to those that own houses, or those that work in finance. Basically, a lot of the wealth in this country is invested in these banks, because they were seen as safe and offering good growth potential. Obviously, anybody (or any company) with half a brain will have been diversified to the point that this won't be a critical loss, but it will be a loss. So look for mild impacts to the entire economy.

    But the real issue is homes. Especially since of a majority of Americans with a positive net worth, a considerable portion of that net worth is in their home equity. People lose that, they stop spending money on other shit, and then the economy continues to spiral downward.

    And again with the motorcycles and the gasoline.

    Really, anybody who tries to tell you where bottom will be on this, whether it's the chairman of the fed or a bank CEO or any random economist, is probably just guessing.

    mcdermott on
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    JastJast Registered User regular
    edited September 2008
    Domino effect, eh? We're finished. Game over man! Game over!

    Seriously, that doesn't sound too good, and even if it's not going to lead to a post apocalyptic wasteland, the economy is going to get even worse? Man, I miss the 90s right about now.

    Jast on
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    JragghenJragghen Registered User regular
    edited September 2008
    Jast wrote: »
    Seriously, that doesn't sound too good, and even if it's not going to lead to a post apocalyptic wasteland, the economy is going to get even worse? Man, I miss the 90s right about now.

    From comments in WSJ, if you choose to believe those sorts of things:
    I have worked on Wall Street for the last 25 years. What is happening now is beyond belief and unprecedented. It started a year a year ago with the mortgage & real estate market and everyone thought it would be contained. In 12 short months we have illustrius firms like Bear Stearn (80+ years of profits until one losing quarter), now Lehman (over 150 years in business and now toast), Merrill is Wall Street and Main Street-forced sale to avoid going out of business at 1/3 of the old stock high, then there is also WaMu, AIG, Countrywide, Wachovia, and others. Imagine 12 more months of this. Everyone owns sub prime. Everyone. If Merrill is in trouble, every financial institution is suspect. Our system is suspect. Why was AAA paper gobbled up by all and then became worthless? The wealth that has been lost for shareholders and employees is unprecedented and unfortunately with not be recovered. Period. In addition, further problems from this collapse will be found in commercial real estate affecting investors and banks, and municipalities that find themselves in financial difficulties from borrowing money to buy these same AAA bonds that turned out to be crap. Leveraging to increase yield and losing taxpayers entrusted funds. Who is going to raise money in this country with the brokerage firms in collapse? We are in deep shit.

    Jragghen on
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    [Tycho?][Tycho?] As elusive as doubt Registered User regular
    edited September 2008
    mcdermott wrote: »
    Nightslyr wrote: »
    Jast wrote: »
    Someone talk to me. I know the Lehman bankruptcy is bad, I know the market is going down, but I want to know more. I'm not a financial guy, so in layman's terms please, explain to me how this is going to affect the economy. Basically, what's going to happen now. I'm hearing all sorts of things right now.

    Seconded. My economic knowledge is pretty limited. Beyond the world of student loans and handling my own finances (credit cards and checkbook), I'm pretty much clueless.

    *shrug*

    I'm betting that even the guys getting paid to have comprehensive answers to this question would probably just be guessing at this point. This is a once-in-a-century event, and we really haven't had one in the modern era with modern safeguards. The dot-com bubble was close, but I don't think it was anywhere near the scope of this.

    Basically, Lehman goes under. Their assets get devalued and liquidated, causing a negative impact on other companies in the same field. As a result, credit gets tighter (it'll be harder for you to get a home loan, that's for sure). This makes it harder for people to unload their houses (buyers can't get credit), further depressing home values...but this devalues the mortgage assets of other banks, lather rinse and repeat. Eventually everybody winds up homeless, the banking industry is wiped off the face of the map, and we're all riding motorcycles through the desert killing each other over gasoline.

    Or not.

    The other issue is that this is in no way limited to those that own houses, or those that work in finance. Basically, a lot of the wealth in this country is invested in these banks, because they were seen as safe and offering good growth potential. Obviously, anybody (or any company) with half a brain will have been diversified to the point that this won't be a critical loss, but it will be a loss. So look for mild impacts to the entire economy.

    But the real issue is homes. Especially since of a majority of Americans with a positive net worth, a considerable portion of that net worth is in their home equity. People lose that, they stop spending money on other shit, and then the economy continues to spiral downward.

    And again with the motorcycles and the gasoline.

    Really, anybody who tries to tell you where bottom will be on this, whether it's the chairman of the fed or a bank CEO or any random economist, is probably just guessing.

    Well said, I'll just tack on a few things.

    1) This isn't over. Put simply, this whole thing was mostly caused by people lending lots of money to people who couldn't pay it back. Now we're finding out that people cannot pay it back, and the people who did the lending get to eat the losses (or get the government to eat the losses for them). Why now? Well, mostly because of mortgage stuff. There were lots of sketchy deals made over the past decade, where anyone and their dog could get a mortgage, with really low or zero interest rates, for a while. After a few years, the small print on their mortgage kicks in and they have to pay a much higher interest rate. They can't; shit goes bad. Now, there are still lots of mortgages like this. Sometimes that interest rate goes up after a year, or two, or five. The sketchy-est mortgages have gone away now, but now more reputable people will be facing an increase in their interest rates. So there's still plenty of people who can forclose, especially with the housing market and other areas of the economy tanking. Which means yet more losses for the lenders, and more financial institutions which will fail in the coming months.

    2) This isn't just one problem in an otherwise strong economy. The US economy (in my uneducated opinion) is fucked. The US is in huge debt. Like, massive, enormous. Here is a National Debt Clock. The debt should hit 10 trillion dollars pretty soon, since the US is also running a huge deficit. The US dollar has dropped very significantly in value recently, because people are now less willing to see the US dollar as a secure way to hold onto money. As the US economy gets worse, people will be less inclined to buy and do business in dollars, lowering their value further. What does that mean? Well, if the dollar is worth less, then the money in your wallet is worth less as well. This is especially noticeable when paying for things overseas, which nowadays is pretty much anything, from electronics to cars to food.

    3) This makes countries that have large reserves of US dollars not so happy. China, for example, has around 500 billion dollars in US currency reserves. Lets say the value of the dollar drops by 1% one day. Well, that means China has just lost 5 billion dollars. Poof, gone. China has these reserves for several reasons, but like everyone else they like US dollars because they're so stable. The US economy is solid, so you know that dollars will always be worth something. Well, this isn't set in stone. The value of the US dollar has dropped. Several countries are getting rid of some of their dollar reserves, instead getting Euro's or other more stable currencies. This may not sound that bad for the US, except that these currency reserves are largely US debt. Yes, China, and many other nations own large portions of US debt in the form of treasury bonds. If countries started selling these bonds (or even just stopped buying them) en masse, then the US dollar would tank, as would the US and world economies. Nobody is going to do this lightly, but if countries are losing their shirts over these US dollars, they're going to be forced to get rid of them, regardless of the consequences. This is pretty much the absolute worst that can happen, economy wise.

    So, I guess this isn't so much a prediction. More of a highlight I suppose, that the US economy should no longer be thought of as invincible. Its taken a huge beating, and its only going to get worse. And it could get a lot worse if things keep going the way they have been. We'll see plenty more of this in the coming months.

    [Tycho?] on
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    CauldCauld Registered User regular
    edited September 2008
    Jast wrote: »
    Domino effect, eh? We're finished. Game over man! Game over!

    Seriously, that doesn't sound too good, and even if it's not going to lead to a post apocalyptic wasteland, the economy is going to get even worse? Man, I miss the 90s right about now.

    I think we'll be relatively ok. Mcdermott's assessment is pretty good IMO. The big problem here is that with Lehman bankrupt their assets will be sold at cut-rate prices. All other banks with similar assets will have to revalue them to the current market prices (ie. what Lehman sold them at). It's pretty uncertain what will happen, but the market doesn't seem to think it will be too bad.

    There's some not so bad news also, Bank of America bought Morgan Stanley for well above their market value. And there are still some banks out there who are in great shape. The shares at the bank I work for are roughly unchanged today since we're known to be conservative and aren't very exposed to any of this fallout. Also, oil prices are falling which is good news.

    The dollar is also falling, which is good news for manufacturers, but bad news for consumers. There's a lot of uncertainty now. People are moving their money into US treasury bills, since they're one of the most secure places to invest money.

    In short, I wouldn't hoard anything yet.

    Edit: also a consortium of large banks has set up a $50 billion fund to help struggling smaller banks, which is pretty good, I guess.

    Cauld on
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    YarYar Registered User regular
    edited September 2008
    Really smart and experienced businesspeople I've talked to who have been through similar situations more than once are saying that things will continue to get worse for the rest of this year, stay bad for about 6 months, and then start to get better. Actually, they said that before the recent trouble, so we're already seeing the "continue to get worse" part. When I talked to them 3 - 6 months ago, they were totally unsure. Now, they are much more sure.

    Unemployment was 5 times worse during the Depression. Bank failures were 10 times worse during the S&L crisis. Today isn't anything like Black Monday. It isn't good, but it isn't the worst.

    Yar on
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    nexuscrawlernexuscrawler Registered User regular
    edited September 2008
    nexuscrawler on
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    mcdermottmcdermott Registered User regular
    edited September 2008
    Jragghen wrote: »
    Jast wrote: »
    Seriously, that doesn't sound too good, and even if it's not going to lead to a post apocalyptic wasteland, the economy is going to get even worse? Man, I miss the 90s right about now.

    From comments in WSJ, if you choose to believe those sorts of things:
    I have worked on Wall Street for the last 25 years. What is happening now is beyond belief and unprecedented. It started a year a year ago with the mortgage & real estate market and everyone thought it would be contained. In 12 short months we have illustrius firms like Bear Stearn (80+ years of profits until one losing quarter), now Lehman (over 150 years in business and now toast), Merrill is Wall Street and Main Street-forced sale to avoid going out of business at 1/3 of the old stock high, then there is also WaMu, AIG, Countrywide, Wachovia, and others. Imagine 12 more months of this. Everyone owns sub prime. Everyone. If Merrill is in trouble, every financial institution is suspect. Our system is suspect. Why was AAA paper gobbled up by all and then became worthless? The wealth that has been lost for shareholders and employees is unprecedented and unfortunately with not be recovered. Period. In addition, further problems from this collapse will be found in commercial real estate affecting investors and banks, and municipalities that find themselves in financial difficulties from borrowing money to buy these same AAA bonds that turned out to be crap. Leveraging to increase yield and losing taxpayers entrusted funds. Who is going to raise money in this country with the brokerage firms in collapse? We are in deep shit.

    See, I think the red part is where people are missing the forest for the trees. That wealth? It can't be recovered because it never existed in the first place. It was magical fairy wealth. People were saying "bubble" four and five years ago, and that's exactly what that means...the appearance of a lot of wealth being created, when really it's just full of air.

    mcdermott on
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    SavantSavant Simply Barbaric Registered User regular
    edited September 2008
    Cauld wrote: »
    mcdermott wrote: »
    xa52 wrote: »
    Home values were only increasing on paper. Salaries weren't increasing. Homes are only worth what potential buyers can afford and no matter how to work the loan, you eventually have to pay for the fucking house. That's why people were calling it a bubble from as far back as 5 years ago. Analysts and investors and gullible home buyers worked themselves into a frenzy thinking, for some reason, that we were all getting free money. Anyone who wasn't blinded by dollar signs thought the whole thing was pretty ridiculous, and you don't have to look very hard to find articles that say so. That hindsight is 20/20 is bullshit. It's ok if you're just some random guy on the internet and just don't look past the cheerleaders in the WSJ for your financial news. It's not ok if you're supposed to know what you're talking about, and I've been seeing this line in articles from analysts and economists all fucking morning.

    Bolded and limed for "no fucking shit."

    As much as some people would like to convince themselves otherwise, this was not in any way an unforeseen consequence. A few years ago probably 10% of articles on the issue were suggesting that this was a bubble, and that it would burst, and that buying a house with the intent to either refinance or sell in the short-term was a horrible, horrible idea. Which would also suggest that financing such purchases was a horrible idea. These guys chose to listen to the 90% that basically said "it prints money, bitches!" without a care.

    2003 me (who decided to continue renting rather than settle in and buy a house that we'd only stay in for 4-5 years) apparently knew better than Wall Street analysts and the CEOs of financial institutions. But they're getting paid 6-9 figures, and I make squat.

    2003 you probably made a mistake. If you had bought that house in 2003, chances are it would be worth more now than it was then. Whether the particulars of your case mean it would have been profitable or not are important of course, but in general I think prices are still above their 2003 levels in most markets. I would agree that CEOs were greedy though. Just because there's a consistent counter argument to the prices increases didn't mean that it was completely foreseeable. In 2003 some people said oil was going to $100/barrel and I bet not many people believed them.

    To all those people who are saying this was completely foreseable, did you short the companies in question? Did you put money on your prediction that large banks were going down? If you did, I respect you. More power to you. If you couldn't afford it, I understand that too. Plenty of stupid people lost a lot of money (and homes), but plenty of smart people did too.

    It was completely foreseeable that something like this was going to happen, if you knew what to look for. The affordability index was becoming incredibly strained, and the whole system was becoming more and more dependent on prices always increasing. It was just a matter of time before they stopped and the whole thing came crashing down.

    However, the big thing that made it harder to make money off of it and make shorting dangerous was because it was impossible to tell when it was going to collapse and how bad when it did. You could not tell beforehand what sort of spark there would be to set it off, or whether it would simply collapse under its own weight. And before it stopped it was going to go higher and higher as it was fueled by irrational exuberance.

    I knew about a year or so beforehand that it would go bad, just not whether it would blow up like we are seeing now or just stagnate for a long time. The analogy I was using at the time was musical chairs: the music was going to stop, and not everyone was going to have a chair when it did.

    Savant on
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    SkyGheNeSkyGheNe Registered User regular
    edited September 2008
    I think the united states will evolve into a carry trade, similar to that of Japan.

    I mean, really, we're all doom and gloom about things, but it just means we'll have to be more frugal with our spending. Instead of getting a bmw when you're just out of college you'll have to settle for a second hand ford.

    Boo hoo.

    But I don't think anyone has a reason to panic...at least not anyone on these boards. The guys on wallstreet might be slitting their throats if they understand the concept of shame. If you have money invested in good companies - stick with them and perhaps plow more money into them during the low and you'll see some awesome returns once the economy rebounds. I mean - I doubt wrigley (Now with Mars Candy), microsoft, or coke are going to be so devastated that they lose their market share. They'll be hit, but watch them rebound nicely once this debacle is over.

    But be sensible people. This isn't doomsday - we're just wearing thorned underwear instead of silk. It'll hurt like fuck and life will suck for a few years, but everything always corrects itself. I just don't think we'll be AS large of a financial force in the world economy after this. At least not as much leverage.

    SkyGheNe on
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