View Full Version : Treasury prints $200B in money ... Fed gives it away
itisbruno
03-11-2008, 11:55
This should help strengthen the dollar!
SOURCE (http://money.cnn.com/2008/03/11/news/economy/Fed_lending.ap/index.htm)
WASHINGTON (AP) -- The Federal Reserve on Tuesday announced it is ramping up efforts to provide more relief in the spreading credit crisis, saying it will make up to $200 billion in cash available to cash-strapped financial institutions.
The Fed said it will lend the money to financial institutions for a term of 28 days, rather than overnight. The action is being coordinated with central banks in other countries to try to provide help in a global credit crises that threatens to push the U.S. economy into its first recession since 2001 if it hasn't already.
"Pressures in some of these markets have recently increased again," the Fed said in a statement. "We all continue to work together and will take appropriate steps to address those liquidity pressures." The other banks involved are the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank.
In addition, the Fed has authorized increases in existing programs called "swap lines" with the European Central Bank and the Swiss National Bank
"These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB respectively," the Fed said, extending the term of these swap lines through Sept. 30.
The new lending initiative "is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally," the Fed said. Its announcement said that securities will be made available through an auction process on a weekly basis beginning March 27.
The new program, called the Term Securities Lending Facility (TSLF), is geared to provide primary dealers -- big investment firms that trade directly with the Fed -- with short-term loans. They would pledge other securities -- including federal agency debt, federal agency residential-mortgage-backed securities -- as collateral for the loans.
The loans would be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008.
The Fed since December has been making short-term loans available to banks through a new auction facility. It has provided $160 billion available to squeezed banks in hopes it will help them to continue lending to individuals and companies.
Last week, the Fed announced that it would increase the amount of loans it plans to make available to banks this month to $100 billion. At the same time, it said it would make another $100 billion available to a broad range of financial players through a series of separate transactions.
The Fed has been working to pump billions of dollars into the banking system to aid an economy rocked by the subprime mortgage crisis and the severe tightening of credit.
A meltdown in the housing and credit markets has made banks and other financial institutions reluctant to lend to each other, causing a cash crunch. Financial companies wracked up multibillion-dollar losses as investments in mortgage-backed securities soured with the housing market's bust. Problems first started in the market for subprime mortgages-- those made to people with blemished credit histories. However, troubles have spread to other areas.
The picture worsened just after the Fed's announcement Friday, when the Labor Department released a report showing employers slashed another 63,000 jobs in February, the most in five years. To top of page
WellArmedSheep
03-11-2008, 12:03
That's just what we need!!!
:upeyes:
El Duderino
03-11-2008, 12:15
Yay, problem solved!!!
I do the same thing with my checking account. I'm never broke as long as I have checks left.
One of the funniest things I've seen in a while...
It really sums up my attitude toward the Federal Reserve and their "monetary policies".
http://www0.gsb.columbia.edu/everybreath/
(BTW, the references to "CBS is great" at the end refer to "Columbia Business School", not the CBS broadcast network)
speedracer815
03-11-2008, 12:52
Strap in and hang on... This going to be a bumpy ride.
The Fed decided to tackle the housing loan crisis first, then they will try to focus (yeah right) on the inflation they caused by printing so much extra money!
joeblow1078
03-11-2008, 13:08
What makes you think they are giving anything away?
This should help strengthen the dollar!
SOURCE (http://money.cnn.com/2008/03/11/news/economy/Fed_lending.ap/index.htm)
WASHINGTON (AP) -- The Federal Reserve on Tuesday announced it is ramping up efforts to provide more relief in the spreading credit crisis, saying it will make up to $200 billion in cash available to cash-strapped financial institutions.
The Fed said it will lend the money to financial institutions for a term of 28 days, rather than overnight.
That's just what we need!!!
:upeyes:
Actually IT IS just what we need. One of the major problems the economy is facing right now is that lenders are unwilling to lend at any cost. Part of the problem is that ANY asset backed security (regardless of quality) is taking it on the chin right now because of all of the de-leveraging among the non bank lenders . Many banks and brokerages are holding hundreds of billions in AAA Agency securities. The Fed is simply taking these as collateral and giving treasuries in return. It has the bonus affect of getting billions of $$$ in agency debt off the open market NOW.
What is your concern? This is a short term kick start which doesn't affect the long term money supply.
mitchshrader
03-11-2008, 13:59
the *AAA* securities are junk.
the fed is working for the bankers.
they should be personally responsible FIRST ..
if the fat boys ain't, us skinny boys ain't either.
ya'll reckon tax collections may get iffish?
Where's Rabbi when you need him?
the *AAA* securities are junk.
What total nonsense. These aren't CDOs, CMOs, CDS, REMICs, etc these are agency securities with a federal backing. These are the people who's mortgages were actually underwritten (i.e. Prime borrowers)
The Fed decided to tackle the housing loan crisis first, then they will try to focus (yeah right) on the inflation they caused by printing so much extra money!
Please explain to us in your own words what extra money this action is "printing" Last time I checked when you take $200,000,000,000 - $200,000,000,000 you get zero but my arithmetic might be off.
jakemccoy
03-11-2008, 14:55
Don’t believe those that say nothing’s wrong here. Here’s why:
First, the Federal Reserve Bank (FRB) is not a branch of the government. The FRB is basically a private company that includes a cartel of private central banks. The FRB’s first incentive is to make a profit. Making a profit is not necessarily the same thing as doing the right thing. The FRB is not accountable to the American people. We cannot vote for the managers of the FRB. The FRB is loosely accountable to the President.
Second, The FRB creates money from nothing, loans it back to us through banks, and charges interest on our currency. The FRB also buys Government debt with money printed on a printing press and charges interest to U.S. taxpayers.
Read the last paragraph again. It’s particularly relevant here. Do you really think the banks here will be able to pay back $200,000,000,000 (plus interest) in 28 days?
Get real. The banks will be in debt to the FRB for an extremely long time. Actually, at the end of the day, the American people will be in debt for that money somehow. The bottom line is that the dollar will be noticeably devalued further because of this move.
tampashooters
03-11-2008, 14:59
Crisis.... The next time I hear Housing Crisis, I am going to puke... There is no Crisis, Dumbasses who make $7 an hour were buying $300,000 houses... And we are bailing them out? I've been paying my Mortgage + Extra Principal for 9 years, I bought a house I can actually afford..
Better yet, lets throw money at financial institutions who caused all of this problems..
Lets tackle the tough issues, like Steroids in baseball...
Read the last paragraph again. It’s particularly relevant here. Do you really think the banks here will be able to pay back $200,000,000,000 (plus interest) in 28 days?
Get real. The banks will be in debt to the FRB for an extremely long time. Actually, at the end of the day, the American people will be in debt for that money somehow. The bottom line is that the dollar will be noticeably devalued further because of this move.
What part about this is so hard to understand? These "loans" are FULLY COLLATERALIZED if they don't pay back in kind they lose their collateral. :faint:
Some people (especially here) are just looking for a conspiracy
jakemccoy
03-11-2008, 15:17
What part about this is so hard to understand? These "loans" are FULLY COLLATERALIZED if they don't pay back in kind they lose their collateral. :faint:
Some people (especially here) are just looking for a conspiracy
You can't see the forest for the trees.
You can't see the forest for the trees.
yeah :upeyes:
Crisis.... The next time I hear Housing Crisis, I am going to puke... There is no Crisis, Dumbasses who make $7 an hour were buying $300,000 houses... And we are bailing them out? I've been paying my Mortgage + Extra Principal for 9 years, I bought a house I can actually afford..
Better yet, lets throw money at financial institutions who caused all of this problems..
Lets tackle the tough issues, like Steroids in baseball...
Best post ever...I feel no sorrow for idiots that made bad business decisions. Actually it pisses me off to no end.
Yep, let's penalize people for saving money by driving down interest rates so that those who don't save have something to spend so that people can keep the consumer economy going. Makes sense to me.
Money is NOT wealth, we are not creating wealth by printing money, we are dilluting our money supply. It is as if there were not enough food to feed everyone so we decided to slice the bread thinner so there are more slices in a 1 pound loaf.
itisbruno
03-11-2008, 15:56
No money down, easy rates, bad credit, no credit, no problem
Ahhh ... yea, there is a problem
stevelyn
03-11-2008, 16:08
That's just what we need!!!
:upeyes:
Printing more worthless money to make more worthless money available.
Yeah............In the real world it would be called conterfeiting. :steamed:
This was to manipulate the stock market and it worked the market was up around 416 points.BUT watch and see what the market is at the end of the week.
This was to make "someone" rich,I'm not sure who all the big players are.
All these forms of trading should be watched and regulated to make sure they are not manipulating the market price on goods, companies,or the Dollar.
Day trading oil or currency ect
Future
hedge
speculators
Other forms I don't fully understand yet
Rumors always flew that Osama bin Laden did trading like this knowing 9-11 was going to crash our market.
Other forms I don't fully understand yet
You are correct, you don't understand it. This action didn't put a single extra dollar of US currency into circulation.
The ONLY purpose of this TAF was to encourage member banks to lend which is something they have been hesitant to do lately. It gives them more liquid collateral in exchange for less liquid but equal quality collateral. That's it, no conspiracy, no printing presses, thats all, nothing to see here. It's pretty sad that among all the self appointed monetary geniuses here not a single post has accuratley described what is taking place.
You are correct, you don't understand it. This action didn't put a single extra dollar of US currency into circulation.
The ONLY purpose of this TAF was to encourage member banks to lend which is something they have been hesitant to do lately. It gives them more liquid collateral in exchange for less liquid but equal quality collateral. That's it, no conspiracy, no printing presses, thats all, nothing to see here. It's pretty sad that among all the self appointed monetary geniuses here not a single post has accuratley described what is taking place.
No it caused a 417 point rise in the market.You understand that?
Someone bought low and sold high by the end of the day.You understand that?
i dont see the problem:supergrin: hell if congress can waste time and money trying to find out which sports stars used steroids ,why cant they make more money for all muhahahahahaha
Minuteman
03-12-2008, 04:45
What part about this is so hard to understand? These "loans" are FULLY COLLATERALIZED if they don't pay back in kind they lose their collateral. :faint:
Some people (especially here) are just looking for a conspiracy
Swapping $200 billion of our federally insured T' Bills for worthless subprime hedge funds is not collateral if it has no value.
The hedge funds created inflated paper that had no real value, but now get to swap them for the most secure investment on earth, US Gov't Bonds.
That' is a wholesale give away of tax money and reward for bad business practices.
Another $200 Billion on top of the hundreds of Billions the fed has allready thrown down the toilet on this issue. We can't afford to build America's infrustructure but this we can afford?
NYC Drew
03-12-2008, 05:31
Crisis.... The next time I hear Housing Crisis, I am going to puke... There is no Crisis, Dumbasses who make $7 an hour were buying $300,000 houses... And we are bailing them out? I've been paying my Mortgage + Extra Principal for 9 years, I bought a house I can actually afford..
Better yet, lets throw money at financial institutions who caused all of this problems..
Lets tackle the tough issues, like Steroids in baseball...
You are grossly oversimplifying, so please forgive me if I also do the same.
The $300k house is sold. Who, apart from the $7/hr dumbass profits?
1. The bank.
2. The town where the house is located, from collection of property & school taxes.
3. Any investment/financial engines tied to that loan, which, as we are finding out now, A LOT of investment engines were riding the real estate wave.
4. You. Because if the dumbass lived two houses down from you, and forecloses, and crackhead take over the house, YOUR house, the same one you've been paying down in earnest in 9 yrs could possibly be worth a bit less than you thought it would.
'Drew
Swapping $200 billion of our federally insured T' Bills for worthless subprime hedge funds is not collateral if it has no value.
"Subprime hedge funds"? What are you talking about. Hedge funds are private investment partnerships. They issue no stock and offer nothing their investors can post as collateral.
These are Government Entity AAA rated agnecy bonds. These bonds already have a government guarantee. They accept NO subprime debt.
Yeah this is all good.
Up 617 points Tues.
Down 47 points Wed.
I'm sure "someone" did make some money for that one day.
And we the tax payers owe another 200 billion
BoCharry
03-12-2008, 14:22
So what's the deal? I thought they created this money to retire the bad mortgage paper the banks and financial companies had, then re-issued T-Bills. The Gov't will hold the paper and maybe make a few bucks on it someday. It sounds like a wash.
And, isn't the weak dollar good for you if you're in the exporting business? :dunno:
WellArmedSheep
03-12-2008, 15:06
Actually IT IS just what we need. One of the major problems the economy is facing right now is that lenders are unwilling to lend at any cost. Part of the problem is that ANY asset backed security (regardless of quality) is taking it on the chin right now because of all of the de-leveraging among the non bank lenders . Many banks and brokerages are holding hundreds of billions in AAA Agency securities. The Fed is simply taking these as collateral and giving treasuries in return. It has the bonus affect of getting billions of $$$ in agency debt off the open market NOW.
What is your concern? This is a short term kick start which doesn't affect the long term money supply.
My concern is the continuing devaluation of the dollar.
WellArmedSheep
03-12-2008, 15:09
Printing more worthless money to make more worthless money available.
Yeah............In the real world it would be called conterfeiting. :steamed:
My post was complete sarcasm...just making sure you knew that.
doubletap1
03-12-2008, 15:10
edit.
Deuce_27
03-12-2008, 15:14
The FED is just rearranging chairs on the Titanic.
They just prevented a meltdown in the credit markets.
The greed and corruption on Wall Street is beyond imagination.
Just think Enron, but with banks.
It's gonna get ugly.
Got preps?
doubletap1
03-12-2008, 15:19
The FED is just rearranging chairs on the Titanic.
They just prevented a meltdown in the credit markets.
The greed and corruption on Wall Street is beyond imagination.
Just think Enron, but with banks.
It's gonna get ugly.
Got preps?
Sorry.
But you're wrong.
This is a good thing.
The sky is not falling.
Read Saluki's posts.
Ron Paul is not going to be elected President.
doubletap1
03-12-2008, 15:21
My concern is the continuing devaluation of the dollar.
What exactly bothers you about that? Haven't exports kept us out of recession?
They have 28 days to return all this money....so stay tuned for a crash.
This is our gut reaction.Just in print.
http://www.bloomberg.com/apps/news?pid=20601087&sid=amCKjxCgFR7o&refer=worldwide
Minuteman
03-12-2008, 15:49
"Subprime hedge funds"? What are you talking about. Hedge funds are private investment partnerships. They issue no stock and offer nothing their investors can post as collateral.
These are Government Entity AAA rated agnecy bonds. These bonds already have a government guarantee. They accept NO subprime debt.
The subprime lenders turned thier worthless loans into "bonds" and other "stock" schemes, but they are worthless. No one will buy them. That is what they are offering as collateral for these new "loans" or $200 billion.
What did you think they're using as collateral? These companies are nothing but debt. Bad debt. Now they get to trade that bad debt for gov't bonds.
Sounds like a great deal. How can I turn my inflated credit card debt into gov't bonds that pay me to hold them rather than pay them off?
That is what has happened here.
The funny thing about this whole auction facility is that the Federal government is actually going to make money on it.
The subprime lenders turned thier worthless loans into "bonds" and other "stock" schemes, but they are worthless. No one will buy them. That is what they are offering as collateral for these new "loans" or $200 billion.
What did you think they're using as collateral? These companies are nothing but debt. Bad debt. Now they get to trade that bad debt for gov't bonds.
Sounds like a great deal. How can I turn my inflated credit card debt into gov't bonds that pay me to hold them rather than pay them off?
That is what has happened here.
I work in these markets and you have provided a poor description. Do you understand that the bonds being traded for collateral ARE GOVERNMENT BONDS? Do you understand what agency bonds are?
If your credit card debt was backed by AAA conforming mortgages with a minimum of 20% equity and full underwriting and was paying 300bps over comparable treasury debt I would buy it all from you in a second.
Minuteman
03-12-2008, 16:48
I work in these markets and you have provided a poor description. Do you understand that the bonds being traded for collateral ARE GOVERNMENT BONDS? Do you understand what agency bonds are?
If your credit card debt was backed by AAA conforming mortgages with a minimum of 20% equity and full underwriting and was paying 300bps over comparable treasury debt I would buy it all from you in a second.
You seem confused. The bankers are GETTING gov't bonds as loans. They are trading them their own company bonds as collateral. The company bonds are worthless. These companies are on the verge of total failure. There is no equity, the collateral can never be sold.
You want to buy Bank of America bonds? Your the only one on earth, except for our FED. These bank bonds have been mortaged to the hilt with worthless subprime debt from playing hedge fund games.
They are trading worthless debt for golden gov't securities.
How can peole in the industry be so obtuse? No wonder they were able to sell these worthless hedge fund schemes to insiders for so long. Everyone on the outside was pointing fingers calling it a pyramid scheme that would collapse, and insiders were blindly buying into it.
These companies are worthless. Their value has been totally lost on bad investments and worthless debt. Their is NO EQUITY in these companies. None. This is a giant shell game leaving the US Dollar and American Tax payer as the sucker on these worthless bets.
http://www.businessweek.com/the_thread/hotproperty/bernanke-helicopter.jpg
Minuteman
03-12-2008, 16:51
The funny thing about this whole auction facility is that the Federal government is actually going to make money on it.
Wanna bet? I beleive the banks will "renegotiate" the loans and terms before the repayment date.
These are "loans" that won't be repaid, and they will get new "loans" to cover the old loans. = Free money.
This is another example of dropping money from helicopters. The result is increased inflation and devaluing of our currency on the global market.
Ridgeway
03-12-2008, 17:02
i think this thread (with few exceptions) exemplifies why this is a gun and not financial forum :)
Money comes easy when You can print your own. :upeyes:
This current administration is going to bankrupt this country.
You seem confused. The bankers are GETTING gov't bonds as loans. They are trading them their own company bonds as collateral. The company bonds are worthless. These companies are on the verge of total failure. There is no equity, the collateral can never be sold.
I think we've reached the point where you've made it clear you don't know what you're talking about :rofl:
Yes, there is a reason this is a gun forum and not a financial forum, this thread should serve as an example why.
Please do yourself a favor and do a google search on the terms Agency bond, Fannie Mae, and Freddie Mac and reverse repo. Once you understand those terms you might be versed enough to understand this discussion.
Agency debt which has an indirect federal government guarantee is one of the primary sources of collateral for overnight repos and reverse repos. Normally these bonds are the closest equivalents to US Treasury bonds (i.e) good as gold. However, because there is so much (truly bad) asset backed paper on the market these (true AAA) bonds are being tarnished and selling at 95-98 cents on the dollar which is really hurting the economy. In order to facilitate more liquidity the Fed is allowing major dealers (JP Morgan, Citi, BOA, etc) to do a 28 day repo trade with the fed. That's all this is. No money created, no secret deals. It's a public auction, the results are public, etc.
paynter2
03-12-2008, 21:07
"Subprime hedge funds"? What are you talking about. Hedge funds are private investment partnerships. They issue no stock and offer nothing their investors can post as collateral.
These are Government Entity AAA rated agnecy bonds. These bonds already have a government guarantee. They accept NO subprime debt.
Saluki: Is this 3A entity you are referring to guaranteed by Moody's? :) There's lot's of 3A paper out there - some of it contains sub-prime mortgages and other toxic sludge.
I read this as an attempt by the FED to trade treasury paper for who knows what. As a financial 'expert', are YOU invested in Freddy or Fannie? I think these FSEs have two ways to go. Bankrupt or bailed out.
To paint this picture as rosy is irresponsible in the extreme. Consider this. If things are so good, why do we see Helicopter Ben, Paulson, Bush, etc., telling us things are alright on a daily basis. Why are we seeing new FED 'techniques' to solve the (non existent) problem?
-----------------------------------------------
The Associated Press
via Yahoo News
Tuesday, March 11, 2008
WASHINGTON -- Trying to pump more cash into a tight credit market, the Federal Reserve and other central banks on Tuesday jointly announced a new $200 billion expansion of its lending program.
The Fed acted in conjunction with the European Central Bank, the Bank of Canada, and the Swiss National Bank.
In its announcement, the Fed noted that "G-10 central banks have continued to work together closely and to consult regularly on liquidity pressures in funding markets. Pressures in some of these markets have recently increased again. We all continue to work together and will take appropriate steps to address those liquidity pressures."
A Fed statement released Tuesday said that loans to dealers under the new initiative will be secured for 28 days instead of overnight, as is currently the case, by a pledge of other securities, including federal agency debt and residential mortgage-backed securities.
The lending facility "is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally," the Fed said…
http://news.yahoo.com/s/ap/20080311/ap_on_bi_ge/fed_credit_crisis;_ylt=Ak2xODPz4QRvFSw4O6jojjCs0NUE
"The Federal Reserve announced it would allow squeezed financial institutions — including big investment houses and banks — to borrow up to $200 billion in super-safe Treasury securities by using some of their more risky investments as collateral."
I wonder what they mean my ''risky investments" - "Government Entity AAA rated agency bonds"? :)
jakemccoy
03-13-2008, 00:47
The funny thing about this whole auction facility is that the Federal government is actually going to make money on it.
If you're talking about the Federal Reserve Bank making money, the Federal Reserve Bank is not a branch of the federal government.
Deuce_27
03-13-2008, 01:02
Sorry.
But you're wrong.
This is a good thing.
The sky is not falling.
Read Saluki's posts.
Ron Paul is not going to be elected President.
The sky is not falling, I agree.
But the dollar is plummetting and that is not good.
Wall Street is in an absolute panic, as they should be.
They have lied and cheated and their day of reckoning is coming.
The otc derivatives meltdown that is coming will destroy our financial system.
I have read saluki's posts and he doesn't know what is going on.
The reason banks don't want to lend is that they know they all have toxic debt on their books and no one trusts the other party because they know how much corruption and lying is going on.
The meltdown is coming.
Deuce_27
03-13-2008, 01:29
You are correct, you don't understand it. This action didn't put a single extra dollar of US currency into circulation.
The ONLY purpose of this TAF was to encourage member banks to lend which is something they have been hesitant to do lately. It gives them more liquid collateral in exchange for less liquid but equal quality collateral. That's it, no conspiracy, no printing presses, thats all, nothing to see here. It's pretty sad that among all the self appointed monetary geniuses here not a single post has accuratley described what is taking place.
What happened is the FED's primary dealers got caught in a short squeeze and the FED had to bail them out.
They had to use the only collateral they had to stay solvent.
The FED is just delaying the inevitable collapse of a huge financial institution or two.
Let the bail out games begin!!
No one seems to bring up the big point.
The U.S. is out of cash and is going around the world to get these loans.So other countries will see a return(small).
30 day loans are around 1.83% right now.The only way anyone in the U.S. is going to make money is if we go buy homes on 30 year fixed loans at 5.5% or higher.
Do you really think banks can turn 200 billion around into "good money/loans" in 28 days?
stevelyn
03-13-2008, 05:07
My post was complete sarcasm...just making sure you knew that.
I know that. I'm agreeing with you.
Saluki: Is this 3A entity you are referring to guaranteed by Moody's? :) There's lot's of 3A paper out there - some of it contains sub-prime mortgages and other toxic sludge.
I read this as an attempt by the FED to trade treasury paper for who knows what. As a financial 'expert', are YOU invested in Freddy or Fannie? I think these FSEs have two ways to go. Bankrupt or bailed out.
To paint this picture as rosy is irresponsible in the extreme. Consider this. If things are so good, why do we see Helicopter Ben, Paulson, Bush, etc., telling us things are alright on a daily basis. Why are we seeing new FED 'techniques' to solve the (non existent) problem?
[/B]
I wonder what they mean my ''risky investments" - "Government Entity AAA rated agency bonds"? :)
There is some real crap out there, nobody including me is denying that. However, even among the more complex instruments like the CDOs, CMOs, REMICs the AAA tranches are still pretty secure. Lower tranches will get wiped out on many of them and some already have. However the AAA tranches on most are overcollateralized at 120 to 140%. There would have to be A LOT of losses to be affected. Please remember that 98% of people are paying their mortgages on time. Looking at my bloomberg terminal right now I can tell you that these agency bonds you think are junk are selling at $.99 on the dollar.
One thing that has impacted this market recently is the broad strokes people are using to paint fixed income (and I see that happening here) Please don't confuse a CDO loaded with subprime, the dressed up with credit enhancements to real AAA securities. If you think there is no such thing as a AAA security then you're probably "investing" in gold coins and ammo in which case there isn't much reason to be in this debate to begin with.
No, thing aren't great out there, but it's being made much worse by the fact that banks aren't lending, they are pulling in capital and in many cases ruining relationships with good customers in the process. If banks don't lend the economy grinds to a halt. That is the problem the fed is trying to correct right now. Another problem that is hurting the dollar is that the ECB and other central banks have been unwilling to cut their rates for fear of overheating their economies (I think they also like to watch us squirm) For those GTs who are unfamiliar higher interest rates in a country cause it's currency to appreciate because more people will trade into the currency to invest and conversely lower rates hurt a currency as we're seeing with the dollar.
paynter2
03-13-2008, 13:26
Saluki: I need to back up a bit. I mis-understood your position. I thought you were saying all AAA paper was solid. I think we agree that, though there is good paper, there is some poor AAA that, in part, is causing the 'lock-up' in liquidity.
I'm not sure I'm good enough in economics to realize if we are in the midst of a systemic breakdown or if the FED will be able to pull this out. There's a lot of negative news out there. That (negative news) in itself is not necessarily of concern to me considering the source of the news. However, there are some quotes by FED governors that is disturbing to say the least.
I AM and have been invested in gold, silver and oil (and commodities in general) for 7-8 years. I may be in position to make money if we do have a melt-down. But, all things considered, I'd just as soon have a strong and growing economy.
mitchshrader
03-13-2008, 13:36
98% of people are NOT paying their mortgages on time.
that's the problem.
right now the default and arrears is touching 8% and it's going up.
that's NOT 98% paying on time. if they were, there'd be no problem.
so, back up and punt. the default and arrears rate is 4x what you claimed NOW, and increasing.
the problem, i'll speculate, is also 4x what you claim, and increasing.
call me silly. wave your inflated numbers if you want to. it's a batch of damn lies and everybody knows it.
paynter2
03-13-2008, 13:43
98% of people are NOT paying their mortgages on time.
Mitch: We need a source for that assertion... :shocked:
98% of people are NOT paying their mortgages on time.
that's the problem.
right now the default and arrears is touching 8% and it's going up.
that's NOT 98% paying on time. if they were, there'd be no problem.
so, back up and punt. the default and arrears rate is 4x what you claimed NOW, and increasing.
the problem, i'll speculate, is also 4x what you claim, and increasing.
call me silly. wave your inflated numbers if you want to. it's a batch of damn lies and everybody knows it.
Those are bad bad numbers mitch and they lead to even worse math. The National Foreclosure rate is (as of last month) less than 1/5 of 1% (If you had a 100 dollar bill it is under 20 cents) and those are the fillings...a certain number of them will not be foreclosed.
The number of homes in arrears is also less than 1%
Oh, and the number of fillings was DOWN 4% from the month before.
http://news.yahoo.com/s/ap/20080313/ap_on_bi_ge/foreclosure_rates_6
Where are your numbers to support your claims?
Yes, it is a bit of a crap storm, it isnt over, we havnt seen the worst of it, it is triggering other problems....you wont get me to disagree with such things. However, if you get to the heart of the numbers and understand the math...and also understand banks dont have as much bad debt as people think, although more than they should, you will see that more of this problem is emotion than reality...again...for the final time, not that there isnt a real problem.
Life will go on. Things will cost more, people will become rich and rich people will get richer. People wake up and go to work and some people will find themselves in a bad way, poor people will vote for more handouts, middle class people will do all the work and rich people will pay all the bills.....while most everyone will compain a lot. For the most part....not all that much changes.
When you have a nickle you want something that costs a dime and by the time you have a dime it costs a quarter. That is the nature of life, it always has been and always will be. What most people forget is how damned good it is to have the nickle in the first place.
Every last one of you cold be making a Million Dollars a year. Go find the closest reputable Network marketing company and sign up. Someone in this country today is doing just that and will be making a Million bucks a year within the next 5 years....of course a 1000 are also signing up who wont make a 100 bucks. Same opportunity, different outcomes.
In 5 years...you will have one person with a million bucks a year laughing to himself (or if he is an azz, outloud, but being an azz doesnt mean he is wrong) and 1000 others blaming everone but themselves. Such is life.
Deuce_27
03-14-2008, 14:09
and also understand banks dont have as much bad debt as people think, although more than they should, you will see that more of this problem is emotion than reality...again...for the final time, not that there isnt a real problem.
So Bear Stearns is collapsing because of emotions?
Banks and financial institutions are in real big trouble.
Time to wake up.
Wall Street is going Enron.
So Bear Stearns is collapsing because of emotions?
Banks and financial institutions are in real big trouble.
Time to wake up.
Wall Street is going Enron.
Taking a loan for a term of 28 days while they secure longer term financial relationships hardly qualifies as collapsing.
Again, now you are really running on emotions and not financials.
Lets try it this way. People just dont understand that math but believe the headlines, dont be that person.
(This is oversimplified, but I am trying to get accross the reality of the situation...as opposed to "The sky is falling")
You own a business.Your business generally always makes money. Good money. It is a strong business that is run well and has good branding.
Your cost to keep the doors open are $10,000 a month. (I am not going to get into fixed and variable costs, for this....it is just 10K no matter what)
You tend to make around 20K a month and have for years. For whatever reason, your income drops below 10K a month to 5K.
Now, every month you are in the hole 5K. You decide to sell of a very small part of the business, it happens to be the part that hurt you in the first place and got you into trouble for the most part. Since it is bad business in the first place, you sure dont get what it was worth a few years ago for it, you get pennies on the dollar...or hell, you just have to write it all off.
However, now it only costs you 8K a month to keep the doors open and your income has riden to 6K. You are still in the hole 2K a month but your business is slimmer and more competitive than it has been in a long time.
So, you approach the bank you have had a relationship with for ages and tell them what is up. They look at everything and agree to extend you the money you need to keep the doors open until business picks up again. It is a pretty safe bet and the Bank understands the market forces that hurt you in the first place...you have also already taken the hit by spinning off or writing down that part of your business.
Now, The Bank wins because you are a safe bet. to put it in perspective, What do banks do? They loan money. In this case it is a good bet. You have a track record, a brand and you have assets. That is a better bet than loaning money to a startup....yet no one complains when banks loan money to a startup.
So, The bank has a safe and semi-collatoralized loan out. You still have your business that has a good chance of being OK within a short amount of time and your costomers have continuity of service.
Call it a bail out if you want but the market makes many more better choices than bad ones. All odds are this will go into the "Better" column in a few years.
Again, things are getting darker. Capital is getting tight and someone always gets cut hard in a fight. Sometimes it is fatal sometimes it heals and life goes on. And so will the U.S. economy.
The U.S. economy is the engine that drives the globe. It is sputtering. We are all interconnected far more than most people know. Times have been good for some time. So, many countries have been getting a little big for their britches and acting like the U.S. is not as important as we think we are. Well, watch what happens to all of them as the U.S. economy slides more and more. Their problems will mount as well and in most cases pass ours. Of course, by this time, because of cheap dollars, they would have pumped a lot of dollars into the U.S. economy looking for deals (and they will get them) We are about to enter a phase, just like the 80's when the Japs were buying everything in sight, where a lot of foriegn dollars are going to start pumping in. Will it be this year or in 2, I dont know but History repeats, Look what most of the 90's were like for Japan.
It's a cycle. We are the king of the hill which means everyone wants to take a swipe at us but at the end of the day they will have to pay homage. It will just take a while for everything to balance out.
Again, you can believe the headlines or understand the math...but which one would you rather be?
Deuce_27
03-14-2008, 16:23
Again, you can believe the headlines or understand the math...but which one would you rather be?
Oh, I understand the math.
There are about $500 trillion worth of otc derivatives out there that are unregulated, without listing, no bid/ask market, no transparency, fraudulant, unfunded, overleveraged, and Warren Buffet calls them financial tools of mass destruction.
You are living in an idea that bankers are honest.
They are not.
Greed and fraud rule Wall Street.
It's gonna get ugly beyond measure.
Oh, I understand the math.
There are about $500 trillion worth of otc derivatives out there that are unregulated, without listing, no bid/ask market, no transparency, fraudulant, unfunded, overleveraged, and Warren Buffet calls them financial tools of mass destruction.
You are living in an idea that bankers are honest.
They are not.
Greed and fraud rule Wall Street.
It's gonna get ugly beyond measure.
Predict gloom all you want. It does come, there is no doubt. However, if you side with gloom, you will be wrong most of the time.
Deuce_27
03-14-2008, 16:47
Predict gloom all you want. It does come, there is no doubt. However, if you side with gloom, you will be wrong most of the time.
I don't side with gloom just to be gloomy.
But when the ship is sinking, at some point it is wise to admit such and head for the life boats.
I don't side with gloom just to be gloomy.
But when the ship is sinking, at some point it is wise to admit such and head for the life boats.
Thats just not the case. The United States is not going under. It is in a doldrum, but that is a far cry from sinking.
Seriously, Tell us, you have said
"It's gonna get ugly beyond measure."
Give us an idea of what that means? Who is it going to get ugly for? How much so? How does that effect most Americans? A statement like that means you think it is going to get worse than the depression. Tell us how? How does the math lead us to that? How is half the country going to be unemployed and soup lines in every city with lines a mile long.
Of course, if that is not what you are saying...you are being a bit overdramatic. And that doesnt do anyone anygood.
doubletap1
03-14-2008, 18:20
Thats just not the case. The United States is not going under. It is in a doldrum, but that is a far cry from sinking.
Seriously, Tell us, you have said
"It's gonna get ugly beyond measure."
Give us an idea of what that means? Who is it going to get ugly for? How much so? How does that effect most Americans? A statement like that means you think it is going to get worse than the depression. Tell us how? How does the math lead us to that? How is half the country going to be unemployed and soup lines in every city with lines a mile long.
Of course, if that is not what you are saying...you are being a bit overdramatic. And that doesnt do anyone anygood.
+1
Yeah Chicken Little, do tell. Lay it out here for us. Is there anything but drama behind your argument? :dunno:
Minuteman
03-14-2008, 18:24
You are correct, you don't understand it. This action didn't put a single extra dollar of US currency into circulation.
The ONLY purpose of this TAF was to encourage member banks to lend which is something they have been hesitant to do lately. It gives them more liquid collateral in exchange for less liquid but equal quality collateral. That's it, no conspiracy, no printing presses, thats all, nothing to see here. It's pretty sad that among all the self appointed monetary geniuses here not a single post has accuratley described what is taking place.
:whistling:
Last week, the Fed announced an industry-wide rescue package that would provide as much as $200 billion in loans to banks and investment houses and allow them to put up risky home-loan packages as collateral. It was the Fed's latest effort to stem a global credit crisis that began last August with rising loan defaults for subprime mortgages, loans provided to borrowers with weak credit histories.
http://biz.yahoo.com/ap/080314/fed_credit_crisis.html?.v=20
It's pretty sad that among all the self appointed monetary geniuses here ....
Pot meet kettle.
.264 magnum
03-14-2008, 18:34
:whistling:
Pot meet kettle.
I might add, yahoobiz is is patently alarmist and shrill.
Read them everyday for a month and I think you'll agree.
Minuteman
03-14-2008, 18:36
Fed Takes Rare Path to Aid Bear Stearns
Friday March 14, 4:54 pm ET
By Martin Crutsinger, AP Economics Writer
Fed Endorses Rescue Effort for Bear Stearns and Pledges to Supply Cash to Financial System
WASHINGTON (AP) -- The Federal Reserve invoked a rarely used Depression-era procedure Friday to bolster troubled Bear Stearns Cos. and said it will provide even more help to combat a serious credit crisis.
...
"The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system," the board said in its statement. It said members had voted unanimously to approve the arrangement, announced by JP Morgan Chase and Bear Stearns earlier.
Delivering a speech on the economy in New York, Bush voiced confidence in the Fed's actions to aggressively cut interest rates and the Fed announcement last week that it would supply up to $200 billion in loans to cash-strapped financial institutions
...
The action by the Fed board in Washington represented an endorsement of a rescue effort for Bear Stearns that had already been arranged by JPMorgan and the Federal Reserve's New York regional bank.
It was seen as a last-ditch effort to save the investment bank, which on Friday acknowledged its serious financial problems after a week of denials.
http://biz.yahoo.com/ap/080314/fed_credit_crisis.html?.v=20
fabricator
03-14-2008, 18:46
+1
Yeah Chicken Little, do tell. Lay it out here for us. Is there anything but drama behind your argument? :dunno:
Ever hear of the perfect storm? Add everything together here, the credit fiasco, 112 dollar a barrel oil, the falling dollar, food prices rising because ill concieved government ethanol subsidies, historic national debt.
Bear Stearns stock went from 100 down to 30 today, with many experts saying this is probably only the beginning, I would submit there is no way in hell anybody knows where this is going, nope, not even our vaunted rabbi, but in the prognostications of most economists it is gonna get a lot worse before it gets better.
Minuteman
03-14-2008, 18:51
I might add, yahoobiz is is patently alarmist and shrill.
Read them everyday for a month and I think you'll agree.
The source was the Assosiated Press.
Is the WSJ alarmist and shrill as well?
The Fed unveiled a broadened securities-lending program for banks and bond dealers, offering to lend them as much as $200 billion of much-sought Treasurys from its own portfolio for as many as 28 days in return for a variety of collateral, including bonds backed by mortgages that aren't guaranteed by government-sponsored Fannie Mae and Freddie Mac.
http://online.wsj.com/article/SB120528406131829077.html?mod=sphere_ts&mod=sphere_wd
itisbruno
03-14-2008, 18:53
Ever hear of the perfect storm? Add everything together here, the credit fiasco, 112 dollar a barrel oil, the falling dollar, food prices rising because ill concieved government ethanol subsidies, historic national debt.
Bear Stearns stock went from 100 down to 30 today, with many experts saying this is probably only the beginning, I would submit there is no way in hell anybody knows where this is going, nope, not even our vaunted rabbi, but in the prognostications of most economists it is gonna get a lot worse before it gets better.
If OPEC moves off the dollar, watch out.
IMHO, there may be a power shift in the world, if we do not cut reliance on fossil fuels (which I do not see happening), the countries of the world with oil will be the countries wielding the most power, but I ain't too bright.
.264 magnum
03-14-2008, 19:00
The source was the Associated Press.
Is the WSJ alarmist and shrill as well?
I know. I'll put in a manner you might like better, yahoobiz gathers and promotes only the most shrill and negative. Most of its regular writers are crackpots.
The WSJ article carries nothing like the tone of the AP piece.
doubletap1
03-14-2008, 19:29
Ever hear of the perfect storm? Add everything together here, the credit fiasco, 112 dollar a barrel oil, the falling dollar, food prices rising because ill concieved government ethanol subsidies, historic national debt.
You left out the Book of Revelation, real estate market, Ron Paul, al-Queda, Hillary Klintoon, the galaxy's alignment with the 13th constellation, and the price of tea in China. :scared:
Bear Stearns stock went from 100 down to 30 today, with many experts saying this is probably only the beginning,
Like most financials, Bear Sterns' balance sheet has taken a beating, but emotion is what led to it's getting killed today. They suffered an emotional run on their cash, and as a result became insolvent. It is a big deal, but it's a perfect, classic example of the greed/fear cycle running amok in the stock market.
I would submit there is no way in hell anybody knows where this is going, nope, not even our vaunted rabbi, but in the prognostications of most economists it is gonna get a lot worse before it gets better.
See, here's what I mean. You don't know where things are going- but you're sure the end is near. Do yourself a favor and liquidate your brokerage accounts, then put it under your mattress and hide there with it. You'll feel better until the next bull- which will be here in about ninety days.
Things aren't great, but we still aren't seeing inflation, the weak dollar has kept us out of recession, and we were in need of a correction in the real estate market.
Financial news is always full of high drama, and it's worse this time with the elections going on. If the markets aren't 'soaring' then it's a 'bloodbath'. There's never a middle ground, and that's about where we are now.
Warren Buffet is famous for saying that he wouldn't care if he were on a desert island and did not receive any financial news until it was two weeks old. Try to keep that in mind, and you'll keep things in pespective. :thumbsup:
I would submit there is no way in hell anybody knows where this is going, nope, not even our vaunted rabbi, but in the prognostications of most economists it is gonna get a lot worse before it gets better.
You are wrong, I do know what is goint to happen. I just dont know when. It will get better...and at some point better than it ever was.
Seriously, are you going to take a stand that it is all over and down hill from here? Because if you dont take my stance, by default you are in a camp that advocates it's over....it is just a matter of at what rate.
Lets put it in understandable terms...
A group of people who think the world will come to an end in a certain date. Of course, until that day passes, you cant prove them wrong...and if they are right, what does it matter to those who went on with life as usual? So if they are right, everyone loses (or it doesnt matter) however, if they are wrong...they lose. That is the problem with the sky is falling crowd....they lose either way. Sometimes though....well, hell, everytim, we all wake up and it is just another day. Some days are better than others no doubt but if you take positive outlook people and negative outlook people....science leaves no doubt as to which group is going to have a better life. Chose wisely.
If you are right, what does it matter anyways? We will have a lot more things to worry about than the markets. If I am right....well, history says I will be right and the doom and gloomers will keep on doom and glooming. I'll buy another Lamborghini.
fabricator
03-14-2008, 19:42
You left out the Book of Revelation, real estate market, Ron Paul, al-Queda, Hillary Klintoon, the galaxy's alignment with the 13th constellation, and the price of tea in China. :scared:
Like most financials, Bear Sterns' balance sheet has taken a beating, but emotion is what led to it's getting killed today. They suffered an emotional run on their cash, and as a result became insolvent. It is a big deal, but it's a perfect, classic example of the greed/fear cycle running amok in the stock market.
See, here's what I mean. You don't know where things are going- but you're sure the end is near. Do yourself a favor and liquidate your brokerage accounts, then put it under your mattress and hide there with it. You'll feel better until the next bull- which will be here in about ninety days.
Things aren't great, but we still aren't seeing inflation, the weak dollar has kept us out of recession, and we were in need of a correction in the real estate market.
Financial news is always full of high drama, and it's worse this time with the elections going on. If the markets aren't 'soaring' then it's a 'bloodbath'. There's never a middle ground, and that's about where we are now.
Warren Buffet is famous for saying that he wouldn't care if he were on a desert island and did not receive any financial news until it was two weeks old. Try to keep that in mind, and you'll keep things in pespective. :thumbsup:
Not seeing inflation? Seen the price of gasoline lately? The price or eggs has gone up 40% from last year, diary, 20%, go to the supermarket tomorrow and tell me we are not seeing inflation.
fabricator
03-14-2008, 19:46
I'll buy another Lamborghini.:upeyes:
doubletap1
03-14-2008, 19:50
Not seeing inflation? Seen the price of gasoline lately? The price or eggs has gone up 40% from last year, diary, 20%, go to the supermarket tomorrow and tell me we are not seeing inflation.
Eggs?
:rofl:
It's called the Consumer Price Index, or CPI. Have you ever taken Econ 101?
It's tame- for now. We had a good number today. Read this:
http://money.cnn.com/2008/03/14/news/economy/cpi/index.htm?postversion=2008031410
:upeyes:
All I said and you go for this?
Again, you said "No one knows"
Point blank..."yes" or "no" are you advocating that this could be it? It's all over? We will never achieve and pass the highs marks in an economic sense we have already set? It is just all down hill from here?
paynter2
03-14-2008, 19:55
Eggs?
:rofl:
It's called the Consumer Price Index, or CPI. Have you ever taken Econ 101?
It's tame- for now. We had a good number today. Read this:
http://money.cnn.com/2008/03/14/news/economy/cpi/index.htm?postversion=2008031410
Yah! Who in hell includes food or energy in their own, personal 'consumer price index'? Why should the government? :rofl:
This thread is just great! I'm gonna copy it when it's done. I'll bring it back in 6 months or so and we can all see what we said and how perceptive we were.
fabricator
03-14-2008, 20:08
All I said and you go for this?
Again, you said "No one knows"
Point blank..."yes" or "no" are you advocating that this could be it? It's all over? We will never achieve and pass the highs marks in an economic sense we have already set? It is just all down hill from here?
Is this it? I dont know, I dont set myself up as an oracle, but I do personally believe we are close to the end of anything approximating good times for a long time to come, but again this is just personal opinion which I am still allowed to have.
Yah! Who in hell includes food or energy in their own, personal 'consumer price index'? Why should the government? :rofl:
This thread is just great! I'm gonna copy it when it's done. I'll bring it back in 6 months or so and we can all see what we said and how perceptive we were.
6 months wont prove anything one way or the other. Most reasonable people realize things are not all that good right now and would appear they are going to get worse. In 6 months, a safe bet will be that has not changed or we have more proof that things are in fact not good in the economy.
If short term economics worry you, you have already failed, OR have not had enough of a chance to do the right thing in the first place (I.E. young people or older people going back into the work force after obtaining a new skill set(s) for a better job)
Bring it back in 30 years and see how things trend.
paynter2
03-14-2008, 20:30
6 months wont prove anything one way or the other. Most reasonable people realize things are not all that good right now and would appear they are going to get worse. In 6 months, a safe bet will be that has not changed or we have more proof that things are in fact not good in the economy.
If short term economics worry you, you have already failed, OR have not had enough of a chance to do the right thing in the first place (I.E. young people or older people going back into the work force after obtaining a new skill set(s) for a better job)
Bring it back in 30 years and see how things trend.
Short term economics don't worry me. I'm very comfortable with the position of my investments. Actually, I haven't changed my positions, in a meaningful way in years. I just think there are different factions within this thread. Some feel we are staring into the abyss. Some feel there is nothing, at all, to worry about (the CPI is great).
Hell, 6 months ago the FED was telling us everything (including the sub-prime mess) was 'contained'. Now (6 months later) they have dumped 400 billion in two weeks to try to inject liquidity into the system. Everything they have tried, so far, has only provided a short, quick, fix. Maybe they'll find something to get the system to 'flow' again. We all hope so. However, I'd say there's been a hell of a lot of change in the last 6 months. And, I don't think it's been for the better.
If you're looking for proof that of 6 months can matter, I'd say the last 6 months 'proved' the FED wrong - I don't think they've 'contained' anything - yet.
:whistling:
Pot meet kettle.
A 15 second lesson on our monetary system.
When the fed wants to quickly add currency to the "system" they buy treasury bonds on the open market (called open market operations) this takes treasury debt off the market (holding down yields) and they give the sellers US DOLLARS
When they want to take currency out of the system they sell treasuries and take the money out of circulation that they receive from the sales.
When the Fed exchanges one collateral for another it creates a NET ZERO NEW DOLLARS. Read your own quote again, they LOANED BONDS.
:rofl:
[QUOTE=itisbruno;10084928]If OPEC moves off the dollar, watch out.[QUOTE]
Watch out for what? You can pay for oil in Euro's, pounds, or dollars.
Deuce_27
03-15-2008, 00:17
Thats just not the case. The United States is not going under. It is in a doldrum, but that is a far cry from sinking.
Seriously, Tell us, you have said
"It's gonna get ugly beyond measure."
Give us an idea of what that means? Who is it going to get ugly for? How much so? How does that effect most Americans? A statement like that means you think it is going to get worse than the depression. Tell us how? How does the math lead us to that? How is half the country going to be unemployed and soup lines in every city with lines a mile long.
Of course, if that is not what you are saying...you are being a bit overdramatic. And that doesnt do anyone anygood.
Drumroll please....
It will make the last depression look like a tea party.
Only this time, a police state will be added for extra fun.
Best stock up on food, ammo, water, shelter, and precious metals.
Drumroll please....
It will make the last depression look like a tea party.
Only this time, a police state will be added for extra fun.
Best stock up on food, ammo, water, shelter, and precious metals.
You honestly believe that? I am just clarifying, in case I am missing some sarcasm.
The next question is, like most doom and gloomers with open ended predictions...at what point will you realize you called it pretty wrong? How long before you just get on with life...or do you just wait around, because, in theory you cant be proven wrong, and continue to expect it?
BTW, stocking up on supplies is always a good idea, however, the wisest choice is to just go on with life and focus on that...because chances are nothing all that bad or long term will happen....and considering that is the most likely outcome, it seems that a real survivalist would spend the majority of his efforts on that possible outcome as well.
Minuteman
03-15-2008, 00:52
A 15 second lesson on our monetary system.
When the fed wants to quickly add currency to the "system" they buy treasury bonds on the open market (called open market operations) this takes treasury debt off the market (holding down yields) and they give the sellers US DOLLARS
When they want to take currency out of the system they sell treasuries and take the money out of circulation that they receive from the sales.
When the Fed exchanges one collateral for another it creates a NET ZERO NEW DOLLARS. Read your own quote again, they LOANED BONDS.
:rofl:
You seem to laugh at your own posts a lot. I laugh at your posts too.
You claimed they offered "equally quality bonds" as collateral. You were shown to be wrong. They gave huge loans with crap for collateral and many of these loans will never be repaid.
I told you these companies were on the verge of failing, you said they weren't. Now just 5 days later, they admit they are on the verge of failing.
Wake up and smell the coffee! These companies made very bad investments, and thier being bailed out by the fed with our tax money.
Feel like buying any Bears Sterns stock/bonds?
Feel like buying any Bears Sterns stock/bonds?
I for one sure as hell do. The timming is to early for my taste, not because I am scared but because I can do something else with that money for a while and then buy into Sterns at a similar price. Of course I run the risk of missing the boat trying to time the market...but I win more than I lose.
There are some real opportunities out there. This has Chrysler 1979 written all over it.
Minuteman
03-15-2008, 01:03
I for one sure as hell do. The timming is to early for my taste, not because I am scared but because I can do something else with that money for a while and then buy into Sterns at a similar price. Of course I run the risk of missing the boat trying to time the market...but I win more than I lose.
There are some real opportunities out there. This has Chrysler 1979 written all over it.
Oh, I see. It has gov't bail out written all over it. The company is ruined with debt and bad investments, but it's a good time to buy because they will be bailed out by the gov't... just like Chrysler.
Oh, I see. It has gov't bail out written all over it. The company is ruined with debt and bad investments, but it's a good time to buy because they will be bailed out by the gov't... just like Chrysler.
FOr one, I dont think the company is ruined. In a bad way...you bet, but not ruined. No point in arguing it, that is just how I see the math. You seem to see it another way.
As for a bailout, it doesnt have to be all goverment. However, why am I somehow bad for taking an equity position based on what I see comming down the pipe? If a bailout does come, and like Chrysler did, they start doing better...it is a great time to buy.
Minuteman
03-15-2008, 01:26
I think we've reached the point where you've made it clear you don't know what you're talking about :rofl:
Yes, there is a reason this is a gun forum and not a financial forum, this thread should serve as an example why.
Please do yourself a favor and do a google search on the terms Agency bond, Fannie Mae, and Freddie Mac and reverse repo. Once you understand those terms you might be versed enough to understand this discussion.
Agency debt which has an indirect federal government guarantee is one of the primary sources of collateral for overnight repos and reverse repos. Normally these bonds are the closest equivalents to US Treasury bonds (i.e) good as gold. However, because there is so much (truly bad) asset backed paper on the market these (true AAA) bonds are being tarnished and selling at 95-98 cents on the dollar which is really hurting the economy. In order to facilitate more liquidity the Fed is allowing major dealers (JP Morgan, Citi, BOA, etc) to do a 28 day repo trade with the fed. That's all this is. No money created, no secret deals. It's a public auction, the results are public, etc.
More wrong info. I hope your not investing other people's money with your rose colored glasses.
Moody's, S&P Defer Cuts on AAA Subprime, Hiding Loss (Update3)
By Mark Pittman
March 11 (Bloomberg) -- Even after downgrading almost 10,000 subprime-mortgage bonds, Standard & Poor's and Moody's Investors Service haven't cut the ones that matter most: AAA securities that are the mainstays of bank and insurance company investments.
None of the 80 AAA securities in ABX indexes that track subprime bonds meet the criteria S&P had even before it toughened ratings standards in February, according to data compiled by Bloomberg. A bond sold by Deutsche Bank AG in May 2006 is AAA at both companies even though 43 percent of the underlying mortgages are delinquent.
Sticking to the rules would strip at least $120 billion in bonds of their AAA status, extending the pain of a mortgage crisis that's triggered $188 billion in writedowns for the world's largest financial firms. AAA debt fell as low as 61 cents on the dollar after record home foreclosures and a decline to AA may push the value of the debt to 26 cents, according to Credit Suisse Group.
``The fact that they've kept those ratings where they are is laughable,'' said Kyle Bass, chief executive officer of Hayman Capital Partners, a Dallas-based hedge fund that made $500 million last year betting lower-rated subprime-mortgage bonds would decline in value. ``Downgrades of AAA and AA bonds are imminent, and they're going to be significant.''
Holding Capital
Bass estimates most of AAA subprime bonds in the ABX indexes will be cut by an average of six or seven levels within six weeks.
The 20 ABX indexes are the only public source of prices on debt tied to home loans that were made to subprime borrowers with poor credit histories. About $650 billion of subprime bonds are still outstanding, according to Deutsche Bank. About 75 percent were rated AAA at issuance.
``I think our reputation has been hurt by what's been going on and it would be disingenuous of me to say it hadn't,'' Chief Executive Officer Raymond McDaniel told the Bear Stearns Cos. investor conference in Palm Springs, Florida. ``We are in a business where reputational capital is more important and this is of particular concern to me. That restoration of confidence is under way, not through marketing but through action.''
Rising Losses
The AAA securities included in the ABX are the most junior because they get repaid after other AAA securities from the same mortgage pools. The ABX is used by investors to place bets by buying credit-default swaps linked to the indexes. Credit-default swaps are financial instruments based on bonds and loans and used to speculate on a borrower's ability to repay debt. Contracts on asset-backed securities cover losses if the securities aren't repaid as expected, in return for regular insurance-like premiums.
Within one AAA index, the $79 million Deutsche Bank bond, known as ACE 2005-HE-7 A2D, is rated AAA by S&P and Moody's even though 18 percent of its loans are in foreclosure, 15 percent of the properties have been seized by lenders and about 10 percent have been delinquent for more than 90 days. When the bonds were created, Moody's and S&P required capital support to cover a loss rate of no more than 7 percent for all three loss categories combined. Fitch doesn't rate the debt.
On a $118 million Washington Mutual bond issued in 2007, WMHE 2007-HE2 2A4, 5.6 percent of its loans are in foreclosure and its safety margin, or the debt available to absorb losses, is less than the combined total of its loans at risk. Both S&P and Moody's rate it AAA.
Fitch rates that bond B, five levels below investment grade and 15 levels less than its rivals.
Years to Fix?
``It will take years for the ratings agencies to fix their problems,'' said Janet Tavakoli, president of Chicago-based Tavakoli Structured Finance. The firms are in a ``crisis of confidence,'' she said
http://www.bloomberg.com/apps/news?pid=20601109&sid=aU9CQgvfHRzI&refer=home
Minuteman
03-15-2008, 01:35
FOr one, I dont think the company is ruined. In a bad way...you bet, but not ruined. No point in arguing it, that is just how I see the math. You seem to see it another way.
As for a bailout, it doesnt have to be all goverment. However, why am I somehow bad for taking an equity position based on what I see comming down the pipe? If a bailout does come, and like Chrysler did, they start doing better...it is a great time to buy.
Ruined may be too harsh. How about gutted? Rotted? Diseased?
I don't think your bad, I think it's is bad to bail out companies for making bad investments. Let the market correct itself. Eventually it will anyway, they are just delaying the inevitable.
The banks made bad loans, and then made absurd, possibly criminal, gambles on the unsupportable projected incomes from those loans. Then the investors should suffer for their companies failures, just as when they reap the rewards for thier profits.
Ruined may be too harsh. How about gutted? Rotted? Diseased?
I don't think your bad, I think it's is bad to bail out companies for making bad investments. Let the market correct itself. Eventually it will anyway, they are just delaying the inevitable.
The banks made bad loans, and then made absurd, possibly criminal, gambles on the unsupportable projected incomes from those loans. Then the investors should suffer for their companies failures, just as when they reap the rewards for thier profits.
I agree...I really do. However, if you read my posts, you will notice me talking about its all a game and we must learn the rules to the game if we even want a chance to play it well.
I dont get to live in the world I want...for the most part, none of us do. We have to live in the world as it is and that is the game we have to play. So I will.
Although I dont think it is bad as some of you are making it all out to be...bad, again, you bet...but not the end of the world. The Media makes these things seem far bigger and worse than they are 99% of the time. I dont care what the media says (for long term planning, for short term emotion...you bet I listen, they set the mood) I just want to see the math. Not many people know what they are looking at when they look at the math. I do. Now, I dont always make the right choice based on what the math says and I sure as hell miss important things from time to time but I know what I am looking at and how it is different than the spin the media is putting on it.
Minuteman
03-15-2008, 01:54
"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves." - President Andrew Jackson, when he forced the closing of the Second Bank of the U.S., by revoking its charter
Minuteman
03-15-2008, 02:21
I agree...I really do. However, if you read my posts, you will notice me talking about its all a game and we must learn the rules to the game if we even want a chance to play it well.
I dont get to live in the world I want...for the most part, none of us do. We have to live in the world as it is and that is the game we have to play. So I will.
Just remember than before you repeat your claim that 90% of us aren't pulling our weight and are on welfare. There is your welfare right there. Gov't bailouts that you turn into profit. I agree your just playing the game, but so are we all. When the gov't takes my tax dollars or intentionally deflates the value of the dollars in my pocket to bail out investors they are stealing from me to give welfare to you (figuratively) and others.
IMO, there is no need for it. The market will correct itself, one way or the other. That is the one thing I have faith in.
My biggest complaint with the money games they're playing is that poor fiscal policy is bad for our economy and a strong economy is vital to our national security.
the way i see it is we're just in a correction period. things aren't as bad as people are making them out to be. we had a red hot real estate market that has slowed down. you have to realize that a socal home bought in 2000 for 250k still sells for 430k in this sky is falling subprime mess market. yes some people are struggling but I still see many SUVs being driven around, lower level BMWs still selling for over sticker, home prices much higher than they were 9 years ago and many other examples. Subprime meltdown stories creates more attention than the figure of 1% of homes in default. And yes, of course the # of defaults are many % higher than last year....we're in a correction period. If you add up the increase in gas it isn't a huge deal unless you drive or operate a vehicle for a living.
Minuteman
03-15-2008, 04:02
I think you fail to see the long term and serious damage this has on our currency and our economy.
The US dollar is worth less than half what it was back in 2000, and will probably fall much further. Our country is saddled with debt we can't repay with a shrunken economy. The cost of everything will rise significantly with a currency that is worth less. That is why gas already costs more, gold, wheat, milk, etc. It will get worse as the dollar keeps falling.
The biggest danger, my personal doom and gloom in all this, is that this is a danger to our national security. Some countries are doing great. Dubai/UAE, Saudi, Russia, and many others are in the middle of an economic boom, while our economy is shrinking.
The golden rule used to be "the one with the most guns, makes the rules". That has changed. Now the one with the biggest economy makes the rules, because they can afford the most guns.
fabricator
03-15-2008, 06:37
Just remember than before you repeat your claim that 90% of us aren't pulling our weight and are on welfare. There is your welfare right there. Gov't bailouts that you turn into profit. I agree your just playing the game, but so are we all. When the gov't takes my tax dollars or intentionally deflates the value of the dollars in my pocket to bail out investors they are stealing from me to give welfare to you (figuratively) and others.
IMO, there is no need for it. The market will correct itself, one way or the other. That is the one thing I have faith in.
My biggest complaint with the money games they're playing is that poor fiscal policy is bad for our economy and a strong economy is vital to our national security.
This bears quoting for its clarity and truth.
hikerpaddler
03-15-2008, 06:43
The Federal Reserve is like the Supreme Court. It is created, controlled, and exists solely for the U.S.A., but due to it's critical nature, it must be insulated from any one political administration. If a President could give orders and hire and fire SCOTUS justices at will, they'd be above the law, so the justices have to have some level of autonomy. For this reason, SCOTUS is not a regalar government agency, and their terms don't end with each election. The Federal Reserve is similar. If any President or political administration could directly control the Fed, which in essence directly controls the economy, they'd essentially be a king instead of a democratic president. For this reason, the Federal Reserve is governed by a Board of Governors in Washington, which oversees every aspect of Federal Reserve Policy and operation. There are cost recovery targets, but the Fed is not a for profit agency. Empolyees of the federal reserve, even their federal law enforcement folks, are not GS due to the insular charter of the Fed. The Federal Reserve was created to protect the public from shady banks and the economy from the same. The Federal Reserves primary tasks are:
Providing cash and coin to your bank. Every dollar or dime you've every spent came from a fed. Banks that have more cash on hand than they need or want ship it back to the fed, where it is credited to their account. When they need more, they place an order with the fed.
Check processing. The fed processes a majority of the ever-decreasing volume of paper checks. On a side note, while the use of paper checks has been declining for more than a decade, the use of credit/debit cards and cash continues to rise. Bank Regulation. The supervision and regulation arm of the federal reserve regulates and inspects banks to make sure they are run soundly, according to established standards, and that the bank manager isn't looting your and my account to fund high priced hooker excursions. Policy. Using information from the public sector from local boards across the country, together with droves of economists, the fed shapes and monitors monetary policy. On a few related notes- Banks don't run the fed, but the fed does regulate banks. Banks have to open an account with the fed in order to use the services of the fed (i.e.- to order and deposit cash). The fed has it's own federal law enforcement with nationwide jurisdiction, with a mandate to protect the personnel, assets and operations of the fed. The fed has its own group of folks that do nothing but do educational sessions in schools, tours for the public, general schmooze stuff. If they did more educational activities, I suppose there'd be fewer crack smokers selling the evil-jew-the-fed-is-out-to-get-us paranoia.
Don’t believe those that say nothing’s wrong here. Here’s why:
First, the Federal Reserve Bank (FRB) is not a branch of the government. The FRB is basically a private company that includes a cartel of private central banks. The FRB’s first incentive is to make a profit. Making a profit is not necessarily the same thing as doing the right thing. The FRB is not accountable to the American people. We cannot vote for the managers of the FRB. The FRB is loosely accountable to the President.
Second, The FRB creates money from nothing, loans it back to us through banks, and charges interest on our currency. The FRB also buys Government debt with money printed on a printing press and charges interest to U.S. taxpayers.
Read the last paragraph again. It’s particularly relevant here. Do you really think the banks here will be able to pay back $200,000,000,000 (plus interest) in 28 days?
Get real. The banks will be in debt to the FRB for an extremely long time. Actually, at the end of the day, the American people will be in debt for that money somehow. The bottom line is that the dollar will be noticeably devalued further because of this move.
More wrong info. I hope your not investing other people's money with your rose colored glasses.
Hmmm I must have missed the point in there where they referenced Fannie's, freddies, or Ginnies. I was speaking of ONLY of Agency bonds. I too think many of the banks own bonds are loaded with crap.
Minuteman
03-15-2008, 07:25
Hmmm I must have missed the point in there where they referenced Fannie's, freddies, or Ginnies. I was speaking of ONLY of Agency bonds. I too think many of the banks own bonds are loaded with crap.
You were telling us how great the collateral was they were using in trade for Govt' T bills. Which was also wrong.
You missed this as well...
The Fed unveiled a broadened securities-lending program for banks and bond dealers, offering to lend them as much as $200 billion of much-sought Treasurys from its own portfolio for as many as 28 days in return for a variety of collateral, including bonds backed by mortgages that aren't guaranteed by government-sponsored Fannie Mae and Freddie Mac.
http://online.wsj.com/article/SB1205...&mod=sphere_wd We have gone another 2 pages and we are back to the point I first made, which you mocked and I have now proven: The banks have traded their bad debt for gov't T-bills and used worthless subprime loans as collateral.
MSgt Dotson
03-15-2008, 07:30
the fed is working for the bankers.
Despite the "Federal" sounding part of the name, the Fed is nothing but a group of private bankers, nothing governmental about it.
Inflate, or die...that is their policy.
(ONly way they can pay off so many tens of trillions in debt is to pay off with worthless currency 30 years later...)
Since the "federal" resrve created in 1913, dollar now worth about 8 cents...; I am sure they can lower it to 2 cents value in another 20 years! :-)
I love posts that show a fundamental lack of knowledge about the subject they're referencing. :upeyes:
Big Bird
03-15-2008, 07:53
Just remember than before you repeat your claim that 90% of us aren't pulling our weight and are on welfare. There is your welfare right there. Gov't bailouts that you turn into profit. I agree your just playing the game, but so are we all. When the gov't takes my tax dollars or intentionally deflates the value of the dollars in my pocket to bail out investors they are stealing from me to give welfare to you (figuratively) and others.
IMO, there is no need for it. The market will correct itself, one way or the other. That is the one thing I have faith in.
My biggest complaint with the money games they're playing is that poor fiscal policy is bad for our economy and a strong economy is vital to our national security.
Just an observation...but when was the last time you ever heard of a welfare recipient paying back the government? I don't think anyone here got a grant or a gift. They will pay it back with interest.
slowdown
03-15-2008, 08:25
Someday all this inflating by the Fed will stop. Too much inflation will cause the economy to stall due to high prices. The fed will have to raise the interest rates to restrain inflation, and forcefully so. This day is surely coming. Raise cash is what I say and wait for the panic. We haven't seen nothing yet.
The housing market is not going to hit bottom anytime soon. Bank failures haven't even started yet. Unless the housing market hits rock bottom, I don't see any improvements happening in the economy.
You were telling us how great the collateral was they were using in trade for Govt' T bills. Which was also wrong.
You missed this as well...
We have gone another 2 pages and we are back to the point I first made, which you mocked and I have now proven: The banks have traded their bad debt for gov't T-bills and used worthless subprime loans as collateral.
You have not proven anything unless you can tell me what was actually posted as collateral. MBS are very hard to value which is why they don't trade as easily as other paper. The auction bids were closed yesterday. The nice part about this TAF is that it's only 28 days. We can all come back to this thread on 4/10/08 and see who was right and wrong.
With the same people in charge of the financial world it is foolish to think we will have a different result.
We have not hit bottom yet.
But in about 12 to 18 months things will turn around.
Minuteman
03-17-2008, 06:17
You seem to laugh at your own posts a lot. I laugh at your posts too.
You claimed they offered "equally quality bonds" as collateral. You were shown to be wrong. They gave huge loans with crap for collateral and many of these loans will never be repaid.
I told you these companies were on the verge of failing, you said they weren't. Now just 5 days later, they admit they are on the verge of failing.
Wake up and smell the coffee! These companies made very bad investments, and thier being bailed out by the fed with our tax money.
Feel like buying any Bears Sterns stock/bonds?
I for one sure as hell do. The timming is to early for my taste, not because I am scared but because I can do something else with that money for a while and then buy into Sterns at a similar price. Of course I run the risk of missing the boat trying to time the market...but I win more than I lose.
There are some real opportunities out there. This has Chrysler 1979 written all over it.
Sorry, had to throw that up.
Good thing you didn't buy. When we wrote that it was selling for $30 a share, and just sold for $2!!! Down from $80 just a few months ago.
I wonder how much of thier $50 BILLION they just "borrowed" they will repay in 22 days? Since the compay just sold for a grand total of $270 million. Less than their building is worth.
Minuteman
03-17-2008, 06:20
You have not proven anything unless you can tell me what was actually posted as collateral. MBS are very hard to value which is why they don't trade as easily as other paper. The auction bids were closed yesterday. The nice part about this TAF is that it's only 28 days. We can all come back to this thread on 4/10/08 and see who was right and wrong.
I figure I need to quote this so you don't go back and change it when they fail to pay the money back in 3 weeks.
itisbruno
03-18-2008, 13:48
Rates lowered by .75 points 3/18/8
Release Date: March 18, 2008
For immediate release
The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.
Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.
Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.
Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at this meeting.
In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 2-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, and San Francisco.
2008 Monetary Policy Releases
I figure I need to quote this so you don't go back and change it when they fail to pay the money back in 3 weeks.
You will find that unlike a lot of people here I readily admit when I'm wrong.
I stand by the fact that not only will they repay the loans, the fed will actually turn a profit on the loans. The simplistic answer a lot of people seem to be giving is that all ABS are crap. The truth is that they are hard to value and when there is a lot of selling pressure even the best paper sells at a discount.
I figure I need to quote this so you don't go back and change it when they fail to pay the money back in 3 weeks.
Also, you don't seem to understand how repo facilities work. They don't mail a check at the end of a term. When you execute a repo think of it as taking your diamond ring to a pawn shop. I don't need to come find you, I already have your collateral.
Minuteman
03-31-2008, 10:56
Also, you don't seem to understand how repo facilities work. They don't mail a check at the end of a term. When you execute a repo think of it as taking your diamond ring to a pawn shop. I don't need to come find you, I already have your collateral.
Except in this case the fed is holding worthless glass but "loaned" money for diamonds. They bought into worthless companies. It was a gift, tax paid of course.
Fed eyes Nordic-style nationalisation of US banks
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 2:58pm BST 31/03/2008
The US Federal Reserve is examining the Nordic bank nationalisations of the 1990s as a possible interim solution to the US financial crisis.
The Fed has been criticised for its rescue of Bear Stearns, which critics say has degenerated into a taxpayer gift to rich bankers.
A senior official at one of the Scandinavian central banks told The Daily Telegraph that Fed strategists had stepped up contacts to learn how Norway, Sweden and Finland managed their traumatic crisis from 1991 to 1993, which brought the region's economy to its knees.
It is understood that Fed vice-chairman Don Kohn remains very concerned by the depth of the US crisis and is eyeing the Nordic approach for contingency options.
Scandinavia's bank rescue proved successful and is now a model for central bankers, unlike Japan's drawn-out response, where ailing banks were propped up in a half-public limbo for years.
While the responses varied in each Nordic country, there a was major effort to avoid the sort of "moral hazard" that has bedevilled efforts by the Fed and the Bank of England in trying to stabilise their banking systems.
Norway ensured that shareholders of insolvent lenders received nothing and the senior management was entirely purged. Two of the country's top four banks - Christiania Bank and Fokus - were seized by force majeure.
"We were determined not to get caught in the game we've seen with Bear Stearns where shareholders make money out of the rescue," said one Norwegian adviser.
"The law was amended so that we could take 100pc control of any bank where its equity had fallen below zero. Shareholders were left with nothing. It was very controversial," he said.
Stefan Ingves, governor of Sweden's Riksbank, said his country passed an act so it could seize banks where the capital adequacy ratio had fallen below 2pc. Efforts were also made to protect against "blackmail" by shareholders.
Mr Ingves said there were parallels with the US crisis, citing the use of off-balance sheet vehicles to speculate on property. All the Nordic banks were nursed back to health and refloated or merged.
The tough policies contrast with the Fed's bail-out of Bear Stearns, where shareholders forced JP Morgan to increase its Fed-led rescue offer from $2 to $10 a share. Christopher Wood, chief strategist at brokers CLSA, says the Fed's piecemeal approach has led to "appalling moral hazard".
"Shareholders have been able to lobby for a higher share price only because the Fed took over the credit risk on $30bn of the investment bank's dubious paper. The whole affair also amounts to a colossal subsidy for JP Morgan," he said.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/31/cnfed131.xml
Minuteman
03-31-2008, 11:24
More "good news" for saulki to try to spin with his rose colored glasses...
Brace for $1 Trillion Writedown of `Yertle the Turtle' Debt
Review by James Pressley
March 31 (Bloomberg) -- Be it ever so devalued, $1 trillion is a lot of dough.
That's roughly on a par with the Russian economy. More than double the market value of Exxon Mobil Corp. About nine times the combined wealth of Warren Buffett and Bill Gates.
Yet $1 trillion is the amount of defaults and writedowns Americans will likely witness before they emerge at the far side of the bursting credit bubble, estimates Charles R. Morris in his shrewd primer, ``The Trillion Dollar Meltdown.'' That calculation assumes an orderly unwinding, which he doesn't expect.
``The sad truth,'' he writes, ``is that subprime is just the first big boulder in an avalanche of asset writedowns that will rattle on through much of 2008.''
Expect the landslide to cascade through high-yield bonds, commercial mortgages, leveraged loans, credit cards and -- the big unknown -- credit-default swaps, Morris says. The notional value for those swaps, which are meant to insure bondholders against default, covered about $45 trillion in portfolios as of mid-2007, up from some $1 trillion in 2001, he writes.
Morris can't be dismissed as a crank. A lawyer, former banker and author of 10 other books, he knows a thing or two about the complex instruments that have spread toxic debt throughout the credit system. He once ran a company that made software for creating and analyzing securitized asset pools. Yet he writes with tight clarity and blistering pace.
The financial innovations of the past 25 years have done some good, Morris notes. Collateralized mortgage obligations, invented in 1983, saved homeowners $17 billion a year by the mid-1990s, according to one study.
Slicing and Dicing
CMOs transformed the business by slicing pools of mortgages into different bonds for different risk appetites. Top-tier bonds had the first claim on all cash flows and paid commensurately low yields. The bottom tier was the first to absorb all the losses; it paid yields resembling those on junk bonds.
What began as a good thing, though, soon spawned a bewildering array of new asset classes that spread throughout the financial system, marbling balance sheets with what Morris calls inflated valuations, hidden debt and ``phony triple-A ratings.'' The more the quants fine-tuned the upper tranches of CMOs and other collateralized debt obligations, the more dangerous the bottom slices grew. Bankers began calling it ``toxic waste.''
Guess where the toxins wound up? That's right: Credit hedge funds are now the weakest link in the chain, Morris says. Their equity stands at some $750 billion and is so massively leveraged that ``most funds could not survive even a 1 percent to 2 percent payoff demand on their default swap guarantees,'' he writes.
`Utter Thrombosis'
Morris sketches a scenario in which hedge fund counterparty defaults would ripple through default swap markets, triggering writedowns of insured portfolios, demands for collateral, and a rush to grab cash from defaulting guarantors. The credit system would suffer ``an utter thrombosis,'' he says, making the subprime crisis ``look like a walk in the park.''
As bankers and regulators try to prop up the ``Yertle the Turtle-like unstable tower of debt,'' Morris points to two previous episodes of lost market confidence.
The first was the 1970s inflationary trauma that prompted investors to suck money out of the stocks and bonds that finance business. Confidence returned only after Fed chief Paul Volcker slew runaway inflation by ratcheting up interest rates.
The other precedent is the popped 1980s Japanese asset bubble. In that case, politicians and finance executives tried to paper over their troubles. Two decades later, Japan still hasn't recovered, Morris writes.
We should be as bold as Volcker, he suggests: Face the scale of the mess, take a $1 trillion writedown and shore up regulatory measures. His recommendations include forcing loan originators to retain the first losses; requiring prime brokers to stop lending to hedge funds that don't disclose their balance sheets; and bringing the trading of credit derivatives onto exchanges.
What he fears is that the U.S. will instead follow the Japanese precedent, seeking to ``downplay and to conceal. Continuing on that course will be a path to disaster.''
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aHCnscodO1s0
I say screw it all and trash the paper money and credit system go back to a barter system and leave the survival to the darwin rule.
I say screw it all and trash the paper money and credit system go back to a barter system and leave the survival to the darwin rule.
Great idea...lets do away with the system that allows people the ability to cure diseases and walk on the moon...and instead go back to living in only what we can build and kill for ourselves. Yes it is a life time of back breaking work but that life only lasted till 40 or so if you are lucky.
The corporate bailout system the feds have set up cannot continue like this.They have a open credit line to just about anyone who wants(not needs) cash.
I now see the airlines to be the next to receive a federal bailout.
The middle class will not be able to carry this burden much longer.Locally it has brought our economy to a stop(not slowdown).Three more months of this and start reading your local news.See local companies that employ people just like you, begin to cut jobs and close up shop.
This is fact! Already one of the 22 year old furniture companies has closed it's doors.So I lost a great customer and he lost his company.The media isn't telling the real story of these bailouts and weakening dollar.
paynter2
04-11-2008, 05:26
I fully expect to turn on Bloomberg today and see story after story of banks paying back the 28 day repos and taking back their toxic sludge. :)
I fully expect to turn on Bloomberg today and see story after story of banks paying back the 28 day repos and taking back their toxic sludge. :)
Is today the 28th day?
I'm sorry but I totally have lost track of time on this one.
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