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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
    Yeah, it's mainly a matter of comparing payments to the lender over a reasonable period of time. If consolidating gets your overall interest payments down, the any fees associated with the consolidation don't offset this savings too much, then you are probably making a good bet.

    However, it will likely go on your credit report as a "charge off" for each account you consolidate instead of as a "paid as agreed." This hurts your credit, but not nearly as much as being late on payments would.

    And if the lender goes under and no one buys the debt, I wouldn't call it "home free." I'd call it "OMG WTF happened to the economy?!?!" because someone somewhere has got to be willing to pony up at least some money to own the right to collect your debt payments. If not, you may be free of your debt, but you'll probably be living in an society in chaos and ruin.

    Yar on
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    MuddBuddMuddBudd Registered User regular
    edited September 2008
    So what happens if Wamu goes too.

    Cause like, that's where my checking account is.

    MuddBudd on
    There's no plan, there's no race to be run
    The harder the rain, honey, the sweeter the sun.
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    FencingsaxFencingsax It is difficult to get a man to understand, when his salary depends upon his not understanding GNU Terry PratchettRegistered User regular
    edited September 2008
    MuddBudd wrote: »
    So what happens if Wamu goes too.

    Cause like, that's where my checking account is.
    FDIC insured up to $100k

    Fencingsax on
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    JebusUDJebusUD Adventure! Candy IslandRegistered User regular
    edited September 2008
    MuddBudd wrote: »
    So what happens if Wamu goes too.

    Cause like, that's where my checking account is.

    But you probably won't be able to get at your money for a week or so. That's what happened to that california bank. People couldn't get at their money for a few days.

    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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    YarYar Registered User regular
    edited September 2008
    Yeah, the fed takes over operations and transfers accounts to another bank. A couple around here have failed but the customers barely noticed until they got a welcome packet from their new bank.

    Yar on
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    FyreWulffFyreWulff YouRegistered User, ClubPA regular
    edited September 2008
    Even if a bank doesn't go under, it's accounts still get bought out.

    when Bank of the West (bunch of jerks) bought Commercial Federal here in Omaha, they sold my parent's mortgage to Wells Fargo (aka the bank nobody likes because they're the most annoying/assholish bank EVER)

    This was the second time they had to deal with that bank. The original bank in the building, Norwest, bought our accounts from Packers Bank.

    FyreWulff on
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    AegisAegis Fear My Dance Overshot Toronto, Landed in OttawaRegistered User regular
    edited September 2008
    It's like the Energizer bunny at this point,

    Fed in AIG rescue - $85B loan
    Government response reaches dramatic new level: U.S. will take 80% stake in nation's largest insurer to prevent global financial chaos.

    NEW YORK (CNNMoney.com) -- In an unprecedented move, the Federal Reserve Board is lending as much as $85 billion to rescue crumbling insurer American International Group, officials announced Tuesday evening.

    The Fed authorized the Federal Reserve Bank of New York to lend AIG (AIG, Fortune 500) the funds. In return, the federal government will receive a 79.9% stake in the company.

    Officials decided they had to act lest the nation's largest insurer file bankruptcy. Such a move would roil world markets since AIG (AIG, Fortune 500) has $1.1 trillion in assets and 74 million clients in 130 countries.

    An eventual liquidation of the company is most likely, senior Fed officials said. But with the government loan, the company won't have to go through a tumultuous fire sale.

    "[A] disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said in a statement.

    The bailout marks the most dramatic turn yet in an expanding crisis that started more than a year ago with the mortgage meltdown. The resulting credit crunch is now toppling not only mainstay Wall Street players, but others in the wider financial industry.

    The line of credit to AIG, which is available for two years, is designed to help the company meet its obligations, the Fed said. Interest will accrue at a steep rate of 3-month Libor plus 8.5%, which totals 11.31% at today's rates.

    AIG will sell certain of its businesses with "the least possible disruption to the overall economy." The government will have veto power over the asset sales and the payment of dividends to shareholders.

    The company's management will be replaced, though Fed staffers did not name the new executives. The board will remain. For customers, it will be business as usual, officials said.

    Taxpayers will be protected, the Fed said, because the loan is backed by the assets of AIG and its subsidiaries. The loan is expected to be repaid from the proceeds of the asset sales.

    The government had resisted throwing a lifeline to AIG, hoping to entice investment firms to set up a $75 billion rescue fund. Officials opted not to bail out Lehman Brothers, which filed for bankruptcy on Monday. But by Tuesday night, it became clearer that the private sector would not step in to help AIG, which has a greater reach into other financial companies and markets than Lehman does.

    "We are working closely with the Federal Reserve, the SEC and other regulators to enhance the stability and orderliness of our financial markets and minimize the disruption to our economy," said Treasury Secretary Henry Paulson. "I support the steps taken by the Federal Reserve tonight to assist AIG in continuing to meet its obligations, mitigate broader disruptions and at the same time protect the taxpayers."

    The firm's options grew more limited as the day wore on. Its already-battered share price fell another 21% with more than 1 billion shares trading hands, and plummeted another 46% in after-hours trading.

    At one point Tuesday morning, shares fell more than 70% - a day after losing 61% of their value.

    In a statement late Tuesday night the company said, "AIG is a solid company with over $1 trillion in assets and substantial equity, but it has been recently experiencing serious liquidity issues. We believe the loan, which is backed by profitable, well-capitalized operating subsidiaries with substantial value, will protect all AIG policyholders, address rating agency concerns and give AIG the time necessary to conduct asset sales on an orderly basis."

    The company also commended the Federal Reserve and the Treasury Department for "taking action to address AIG's liquidity needs and broader financial market concerns."

    Furthermore, the firm expressed its gratitude to New York Governor Paterson, and other NY State as well as Federal officials.

    New York State officials, who regulate the insurance titan, had urged the federal government to rescue AIG. The state attempted to help AIG on Monday by allowing it to tap into $20 billion in assets from its subsidiaries if the company could comes up with a comprehensive plan to get the much-needed capital, said a state Insurance Department spokesman.

    Pleased with the federal government's response, New York Gov. David Paterson said Tuesday night: "Policy holders will be protected. Jobs will be saved. Business will continue."

    The funding became ever more crucial as the insurer was hit Monday night by a series of credit rating downgrades. The cuts meant AIG (AIG, Fortune 500) could be forced to post more than $13 billion in additional collateral.

    Late Monday night, Moody's Investors Service and Standard & Poor's Ratings Services each said they had lowered their ratings. A few hours earlier, Fitch Rating had also downgraded AIG, saying the company's ability to raise cash is "extremely limited" because of its plummeting stock price, widening yields on its debt, and difficult capital market conditions.

    The downgrade could force AIG to post $13.3 billion of collateral, Fitch said in a statement. Also, the moves would make it more expensive for AIG to issue debt and harder for it to regain the confidence of investors.

    All the while, analysts urged the company to unveil its restructuring plan.

    "Management needs to address investor concerns now before the market sell-off becomes a self-fulfilling prophecy," Rob Haines, analyst at CreditSights, said Tuesday.
    Global ripples

    The failure of AIG could have caused unprecedented global ripple effects, said Robert Bolton, managing director at Mendon Capital Advisors Corp. AIG is a major player in the market for credit default swaps, which are insurance-like contracts that guarantee against a company defaulting on its debt. Also, it is a huge provider of life insurance, property and casualty insurance and annuities.

    "If AIG fails and can't make good on its obligations, forget it," Bolton said. "It's as big a wave as you're going to see."

    AIG has had a very tough year.

    Rocked by the subprime crisis, the company has lost more than $18 billion in the past nine months and has seen its stock price fall more than 91% so far this year. It already raised $20 billion in fresh capital earlier this year.

    Its troubles stem from its sales of credit default swaps and from its subprime mortgage-backed securities holdings.

    AIG has written down the value of the credit default swaps by $14.7 billion, pretax, in the first two quarters of this year, and has had to write down the value of its mortgage-backed securities as the housing market soured.

    The insurer could be forced to immediately come up with $18 billion to support its credit swap business if its ratings fall by as little as one notch, wrote John Hall, an analyst at Wachovia, on Monday.

    This year's results have also included $12.2 billion in pretax writedowns, primarily because of "severe, rapid declines" in certain mortgage-backed securities and other investments.

    The company brought in new management to try to turn the company around. In June, the company tossed out its chief executive, Martin Sullivan, and named AIG chairman Robert Willumstad, who joined AIG in 2006 after serving as president and chief operating officer of Citigroup (C, Fortune 500), in his place.

    Aegis on
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    nexuscrawlernexuscrawler Registered User regular
    edited September 2008
    At some point i think the lenders started to believe their ow ridiculous speculation

    And the investment firms were equally foolish to base investments off of such shaky credit.

    nexuscrawler on
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    FyreWulffFyreWulff YouRegistered User, ClubPA regular
    edited September 2008
    This is the way it should be. Not a real bail out, just protection for the customers and then selling the assets and closing shop.

    Maybe the banks learned their lesson. Probably not.

    Also I wonder what your work day is like if you get to legimately write down 85 billion dollars on a loan contract. I'd probably draw fireworks around it and put "HOLY SHIT!" next to it.

    FyreWulff on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    At some point i think the lenders started to believe their ow ridiculous speculation

    It wasn't their money, whether or not they believed it didn't even matter.

    Goumindong on
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    MrMonroeMrMonroe passed out on the floor nowRegistered User regular
    edited September 2008
    Second verse, same as the first.

    At least this time they're using Fed money and not just letting Treasury print fucking bills to pay for it.

    MrMonroe on
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    CauldCauld Registered User regular
    edited September 2008
    MrMonroe wrote: »
    Second verse, same as the first.

    At least this time they're using Fed money and not just letting Treasury print fucking bills to pay for it.

    They kind of are printing money for it. The Fed asked the Treasury to sell bonds to cover their plans. The Fed agreed to sell the bonds. I don't really see much of a problem with that anyway. Just be glad we're not on the gold standard, so we do these things when they're needed.

    Cauld on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    MrMonroe wrote: »
    Second verse, same as the first.

    At least this time they're using Fed money and not just letting Treasury print fucking bills to pay for it.

    The fed might not print bills but it certainly creates money. They buy and sell U.S. bonds. When they want to expand the money supply they buy the bonds and create the money to do so out of thin air. When they want to contract the money supply they sell the bonds and disappear the money to nowhere.

    This loan was "supported" by the selling bonds, thus contracting the money supply by the amount that the loan went out. Keeping the money supply more or less stable.

    They do not need to keep the money supply stable if they do not want to.

    Goumindong on
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    firewaterwordfirewaterword Satchitananda Pais Vasco to San FranciscoRegistered User regular
    edited September 2008
    Just brilliant...

    Privatize the profits, socialize the losses.

    Anyone want to bet a six-pack on who's next to go? My money's on WaMu, but both Goldman and Morgan Stanley are good bets as well.

    firewaterword on
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    DmanDman Registered User regular
    edited September 2008
    Just brilliant...

    Privatize the profits, socialize the losses.

    Anyone want to bet a six-pack on who's next to go? My money's on WaMu, but both Goldman and Morgan Stanley are good bets as well.

    In this AIG case I'm not sure the losses have been socialized. Their stock is still worth shit, dividends will not be payed out, and AIG will be made to sell profitable subsidiaries to pay back the loan (I'm a little confused as to what happens to the Fed's 80% stake in the company at that point, it just vanishes and the regular stocks regain their value?)

    Dman on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Just brilliant...

    Privatize the profits, socialize the losses.

    Anyone want to bet a six-pack on who's next to go? My money's on WaMu, but both Goldman and Morgan Stanley are good bets as well.


    WaMu then Wachovia
    Dman wrote: »
    Just brilliant...

    Privatize the profits, socialize the losses.

    Anyone want to bet a six-pack on who's next to go? My money's on WaMu, but both Goldman and Morgan Stanley are good bets as well.

    In this AIG case I'm not sure the losses have been socialized. Their stock is still worth shit, dividends will not be payed out, and AIG will be made to sell profitable subsidiaries to pay back the loan (I'm a little confused as to what happens to the Fed's 80% stake in the company at that point, it just vanishes and the regular stocks regain their value?)


    The fed will sell the stock.

    Edit: but as firewaterword mentions it probably is not in stocks.

    Goumindong on
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    firewaterwordfirewaterword Satchitananda Pais Vasco to San FranciscoRegistered User regular
    edited September 2008
    Dman wrote: »
    Just brilliant...

    Privatize the profits, socialize the losses.

    Anyone want to bet a six-pack on who's next to go? My money's on WaMu, but both Goldman and Morgan Stanley are good bets as well.

    In this AIG case I'm not sure the losses have been socialized. Their stock is still worth shit, dividends will not be payed out, and AIG will be made to sell profitable subsidiaries to pay back the loan (I'm a little confused as to what happens to the Fed's 80% stake in the company at that point, it just vanishes and the regular stocks regain their value?)

    The way I understand it, and I could be totally wrong, the 80% (which, for some reason, is actually 79.9%) is in equity-linked notes (also called equity participation notes). When (or, you know, if) AIG can repay the Fed, the stake, I assume, shrinks in some proportion. Again, I could be totally wrong, but it's a thought.

    Regarding Wachovia, I'd say they're in a slightly better position, but they're going to have to pump a hell of a lot of money into Evergreen to cover the three money market funds exposed to Lehman, lest they "break the buck," and follow Primary Fund's example. If more MM funds start nosediving, things are going to get much, much worse.

    firewaterword on
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    AegisAegis Fear My Dance Overshot Toronto, Landed in OttawaRegistered User regular
    edited September 2008
    I'm quite surprised at the low level of impact this is having on Canadian Banks and investment institutions. From what I keep reading (and at least from what our banks our telling us), while most of the Canadian Banks and the like (considering at least up here the investment houses are one and the same with the bank unlike the US where you have them separated out) are saying they have some exposure to these sub-prime and loan issues, most of the consensus is that it's not terribly that huge.

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    firewaterwordfirewaterword Satchitananda Pais Vasco to San FranciscoRegistered User regular
    edited September 2008
    Aegis wrote: »
    I'm quite surprised at the low level of impact this is having on Canadian Banks and investment institutions. From what I keep reading (and at least from what our banks our telling us), while most of the Canadian Banks and the like (considering at least up here the investment houses are one and the same with the bank unlike the US where you have them separated out) are saying they have some exposure to these sub-prime and loan issues, most of the consensus is that it's not terribly that huge.

    Well, Canadian insurer Manulife (which happens to be the biggest life insurance company in North America) is said to be considering acquiring AIG's variable annuity business.

    Reuters has a pretty interesting article on what the fall of AIG may mean for some of its rivals in the insurance business, Manulife being one of them.

    For example, Zurich Financial Services is up %5.28 on the news of the bailout.

    firewaterword on
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    khainkhain Registered User regular
    edited September 2008
    Dman wrote: »
    Just brilliant...

    Privatize the profits, socialize the losses.

    Anyone want to bet a six-pack on who's next to go? My money's on WaMu, but both Goldman and Morgan Stanley are good bets as well.

    In this AIG case I'm not sure the losses have been socialized. Their stock is still worth shit, dividends will not be payed out, and AIG will be made to sell profitable subsidiaries to pay back the loan (I'm a little confused as to what happens to the Fed's 80% stake in the company at that point, it just vanishes and the regular stocks regain their value?)

    The way I understand it, and I could be totally wrong, the 80% (which, for some reason, is actually 79.9%) is in equity-linked notes (also called equity participation notes). When (or, you know, if) AIG can repay the Fed, the stake, I assume, shrinks in some proportion. Again, I could be totally wrong, but it's a thought.

    The payout of ELNs is based on the underlying asset, in this case tha AIG stock, so if the AIG stock rises then the FED makes money. Also according the WSJ the loan carries a interest rate as well. I'd also have to agree with Dman that the bailout of AIG doesn't really socialize the losses of the company the FED loan is secured in part by AIG's assets and the stock has crashed so anyone that invested lost a ton.

    khain on
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    nexuscrawlernexuscrawler Registered User regular
    edited September 2008
    So the market is crashing again huh

    nexuscrawler on
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    CauldCauld Registered User regular
    edited September 2008
    So the market is crashing again huh

    Really, this isn't much. I mean its bad and all, but the actual drop in the market is much less than it was on Black Monday. The DJIA is down about 9% in the last month, 7% over the last 3 days, and 4% today. For comparison sake, on Black Monday the DJIA dropped 22.6%.

    Cauld on
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    DasUberEdwardDasUberEdward Registered User regular
    edited September 2008
    At some point i think the lenders started to believe their ow ridiculous speculation

    And the investment firms were equally foolish to base investments off of such shaky credit.

    Yup. It's scary when you really think about it.

    DasUberEdward on
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    HounHoun Registered User regular
    edited September 2008
    The Market, in simple terms:

    http://www.youtube.com/watch?v=UC31Oudc5Bg

    Houn on
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    DasUberEdwardDasUberEdward Registered User regular
    edited September 2008
    What am I watching?

    There's so much hand ringing.

    DasUberEdward on
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    nexuscrawlernexuscrawler Registered User regular
    edited September 2008
    If Goldman Sachs and J.P Morgan can hang in there it'll be ok

    nexuscrawler on
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    JragghenJragghen Registered User regular
    edited September 2008
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    HounHoun Registered User regular
    edited September 2008
    Jragghen wrote: »

    Link Broken

    Houn on
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    JragghenJragghen Registered User regular
    edited September 2008
    Fixed it. Thought I had typo'd the closing bracket but it was part of the URL.

    Jragghen on
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    nexuscrawlernexuscrawler Registered User regular
    edited September 2008
    Oh jebus

    nexuscrawler on
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    MuddBuddMuddBudd Registered User regular
    edited September 2008
    I've decided I would be more worried if I actually had any savings.

    MuddBudd on
    There's no plan, there's no race to be run
    The harder the rain, honey, the sweeter the sun.
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    JragghenJragghen Registered User regular
    edited September 2008
    MuddBudd wrote: »
    I've decided I would be more worried if I actually had any savings.

    For what it's worth to anyone, just checked out my high-interest savings account on http://www.bankrate.com/ and it's still 5 star. If you're looking for somewhere to transfer to, I suppose that's as good as any - Capital One. Rate's dropped a fair bit since I first got it (the no minimum balance one is 3% right now), but them's the breaks in this sort of market.

    Jragghen on
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    Fuzzy Cumulonimbus CloudFuzzy Cumulonimbus Cloud Registered User regular
    edited September 2008
    Yeah, Wamu just hit.

    Fuzzy Cumulonimbus Cloud on
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    Fuzzy Cumulonimbus CloudFuzzy Cumulonimbus Cloud Registered User regular
    edited September 2008
    Additionally, this whole fiasco is highly troublesome. Where are we headed?

    Fuzzy Cumulonimbus Cloud on
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    DaedalusDaedalus Registered User regular
    edited September 2008
    Additionally, this whole fiasco is highly troublesome. Where are we headed?

    It'll level out, not everybody got involved in this stupid bullshit. It just might take a little while.

    Daedalus on
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    wasted pixelswasted pixels Registered User regular
    edited September 2008
    As of last year, wasn't the FDIC's Deposit Insurance Fund only at around $52 billion? Has that changed? If not, couldn't one large enough bank collapse pretty much wipe out that entire fund?

    Curious non-economist here.

    wasted pixels on
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    FyreWulffFyreWulff YouRegistered User, ClubPA regular
    edited September 2008
    Additionally, this whole fiasco is highly troublesome. Where are we headed?

    Hopefully a lot of those check advance places close

    I swear one time I saw 8 within a 2 block radius

    FyreWulff on
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    JragghenJragghen Registered User regular
    edited September 2008
    Additionally, this whole fiasco is highly troublesome. Where are we headed?

    My personal pessimistic outlook is that we've got at least another half a year to a year of getting worse before there's any possibility of getting better. This isn't based on anything in particular, though.

    What I will say is that anyone who tells you anything about what's going to happen is talking out of their ass. This is unprecedented - no one really knows how all of this is going to fall out.

    Jragghen on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    As of last year, wasn't the FDIC's Deposit Insurance Fund only at around $52 billion? Has that changed? If not, couldn't one large enough bank collapse pretty much wipe out that entire fund?

    Curious non-economist here.

    Implicit backing. You'll be fine.

    Regarding the crisis. It will even out, the question is just how long it will take.

    Goumindong on
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    nexuscrawlernexuscrawler Registered User regular
    edited September 2008
    The worst case for the Fed is they're forced to make more money and devalue the dollar

    nexuscrawler on
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