Financial Meltdown (1 Viewer)

[Njja]

Anyone else following the Financial Meltdown on Wall Street?

Its stunning! I have been in the market for 3 decades and I have never

seen anything like it.

The Political folks are talking about punishing those responsible........but

it may be that no laws have been broken.

MBS- Morgage Backed Securites are an invented item that are so

complicated it is nearly impossible to understand them.......let alone regulate

them.

Here is the basic concept:

You have a Bank writing a lot of Morgages before long it uses up all its

Capital.......now what? It bundles together all its new mortages and sells

them for a small return and its Capital back so it can write more loans.

There is a complicated formula which determins how much the bundled loans

are worth based on:

1. Amount of loans in Bundle.
2. Borrowers ability to pay......Sub Prime are borrowers not required to verify
their income!

These bundled loans are then sold to investors. These investors expect a

steady stream of income from the various institutions such as Leman Bros

that sold them the securites......and AIG which insured the securites!

Now the key is the housing market......as the prices of houses increased

the pool of buyers able to afford them shrunk. So the banks changed the

rules allowing multiple families to purchase "vacation" homes.......then finally

allowing buyers to finance 125% of the price of a home without verifing

their income. Houses were increasing so quickly the banks figured by the

time the extra 25% loaned to the buyer was used up in payments the house

would have doubled in value and could easily be sold.

So what happened you ask?

Unfortunately everyone in America can't have a multi-million dollar home.

The Sub Prime borrowers stopped paying their morgages (over 2 million

homes are in foreclosure) and folks like Leman Bros lost their cash flow and

ability to fund their securites.

In steps the Fed to rescue Fanny May & Freddy Mack and all the folks in

Foreclosure......with new fixed rate loans. Unfortunately the buyers still

don't have the money to make the payments! And Leman Bros does not

have the cash to continue funding the securites......so they file chapter 11.

AIG owes Billions in insurance coverage of the failed securites......which they

don't have the cash to cover........and who is going to get the money? The

banckrupcy court, the people that bought the securites? Yeah pennies on a

dollar maybe.......and who is going to pay for all this you ask?

You and I.

Here are my last two points:

first the Fed just agreed to loan AIG 75 Billion dollars.......yet they only

have 50 Billion dollars protecting over 1 Trillion dollars American citizens

have on deposit in our banks. So if we all went to withdraw our money

tomorrow all the banks would fail.

Second I do not have a business degree...........if I know this stuff what in

the heck were Alan Greenspan......and Ben Bernanke as Chairman of the Fed

doing for the last several decades?

Just a thought.........and Yours?

After all it is our childrens Future!

 

[Toy Soldier Brigade]

It's all a cluster " " I'm tired of taxpayers bailing out mismanaged corporations, and idiots who bought homes with no money down. If I hear one more dead beat crying that they didn't know what they were signing when they bought a house they couldn't afford. You haven't even touched on the fact that soon the Feds are going to have to bail out all of the US automakers, that should be lots of fun.

 

[Njja]

Interesting, Ford and GM have over 42 Billion in cash between them.....yet

they went to the Fed for a 50 Billion dollar loan of our money!

I should mention their combined debt.....209 Billion....as in dollars.

We really need someone with some common sense......and I just don't see

any. A lot of people hold Warren Buffett in high reguard........he always

talks about people paying more taxes especially the wealthy.....yeah right!

How about these Buffett facts..........income $175,000 a year....taxable

income...........holdings 2 Million 20 Thousand 268 shares of Berkshire

Hathaway stock at $125,000 yes One Hundered Twenty Five Thousand

dollars per share .....worlds most expensive stock.

Now I ask you if you earn and pay taxes on $175,000 a year......how do you

amass 62 Billion Dollars worth of stock?

Dividen you ask........why none.....you buy Berk Hath for growth........52

week high $151,000 gain/loss for year so far.......-$36,000.

 

[steveo]

Well its certainly frightening and makes you wonder if your moneys safe,(makes me wonder if my grandads generation was right,when he died we found money all over the house,not a vast amount but still surprising).I hate to think how much my pensions worth as of this week,last year my "safe" pension managed to loose about £500 last year,not exactly encouraging you to save for your retirement is itLooks like i will be working until i am 70Maybe i should use the money that the banks are loosing and buy a safe investment, KING AND COUNTRY,but with shrinking wage packets and rising inflation is it?
DONT PANIC
Regards steve

 

[vandilay]

I guess its such a house of cards now they had little choice but to
bale them out .
As they say investements always come back to their fundamental value
its a sorry state of afairs though when a govournement is forced to bail
out private corporations and greedy individuals, where will it all end.

 

[UKReb]

John

Thanks for clarification of what looks like to me to have been the World's biggest game of poker ever and holding a losing hand at that.

The UK banks are reeling over here but no-one here has fully explained what kicked it off-apart from the US allowing very very low paid workers to purchase houses-doesn't happen a lot over here but our banks are ensnared with these same toxic bad debts by gambling with investors money- not to give savers a good return but for their shareholders and to ensure they received what amounts to nothing more than obscene bonuses even when they failed. We have already seen here a run on a British Bank the first in 150 years with queues of people waiting to draw out their savings it sure was scary and I did think of taking my 10 bucks out.

Who monitors or regulates these investment banks who can wrap risky debts up in a package and sell them on?

As one of your guys stated: We are now unquestionably in the worst financial crisis since the Great Depression.

Appears to me these fat cat bankers free ride has hit the buffers but I fear the worst is not yet over.

Reb

 

[Spitfrnd]

...
We really need someone with some common sense......and I just don't see
any. A lot of people hold Warren Buffett in high reguard........he always
talks about people paying more taxes especially the wealthy.....yeah right!
How about these Buffett facts..........income $175,000 a year....taxable
income...........holdings 2 Million 20 Thousand 268 shares of Berkshire
Hathaway stock at $125,000 yes One Hundered Twenty Five Thousand
dollars per share .....worlds most expensive stock.
Now I ask you if you earn and pay taxes on $175,000 a year......how do you amass 62 Billion Dollars worth of stock?
Dividen you ask........why none.....you buy Berk Hath for growth........52
week high $151,000 gain/loss for year so far.......-$36,000.

You should hold Buffet in high regard; the companies owned by Berkshire are among the strongest and most successful in the world. The stock market is in fact a "market" and prices for every stock rise and fall due to many factors not related to intrinsic value. In fact, that is what you have been seeing for the last year. A few sectors have a disaster and investor sentiment throws the good out with the bad. Large institutional investors choke on a bad investment (mortgages) and have to liquidate to stay solvent which places downward price pressure on the market generally, not just on the bad sectors. Yes Berkshire common is off about 11.5% for the year to date vs a negative 17.5% for the S&P500. More importantly, for the last 12 months, the Berkshire share value has gained over 4% vs over an 18% loss for the S&P 500. Better still, for the last 5 years, the stock has gained 60% vs 20% for the S&P500, fairly impressive IMHO given that it includes the current period of crisis. (BTW, the price you cited is for the Berkshire A common; the Berkshire B common currently trades around $4,175 per share and has performed indentically to the A common) Should you trust in Buffet, you betcha but if you don't, no matter; many of us will.

As to the analogy of the current crisis to the Great Depression; I don't think it comes close. Bank deposits are just fine and with the exception of the big player morgage lender banks, banks in general are fine. The vast majority of banks stuck to their core business and sold their mortgages to these Wall Street idiots and those will weather the storm; the few that did not will simply disappear.

Finally as to the Feds role in all this; what would you have had them do? Their only real tools are the federal funds rate and flow of money and their charter is to balance inflationary vs recessionary pressures; they are not the financial markets cop. The SEC has that role to the extent any such one exists and again they are really limited to policing fraud, misrepresentation and market manipulation; not stupidity. That is one thing it means to have a free market; freedom for brilliance and freedom to fail. I am not a fan of all the bailouts and frankly our government had as much to do with the mortgage crisis as anyone else with its push to increase home ownership and sales but I think you will find this too will pass. Interestingly, the people who lost the most in the great depression were those who sold their investments in panic; that is never a good thing.

 

[Gideon]

You should hold Buffet in high regard; the companies owned by Berkshire are among the strongest and most successful in the world. The stock market is in fact a "market" and prices for every stock rise and fall due to many factors not related to intrinsic value. In fact, that is what you have been seeing for the last year. A few sectors have a disaster and investor sentiment throws the good out with the bad. Large institutional investors choke on a bad investment (mortgages) and have to liquidate to stay solvent which places downward price pressure on the market generally, not just on the bad sectors. Yes Berkshire common is off about 11.5% for the year to date vs a negative 17.5% for the S&P500. More importantly, for the last 12 months, the Berkshire share value has gained over 4% vs over an 18% loss for the S&P 500. Better still, for the last 5 years, the stock has gained 60% vs 20% for the S&P500, fairly impressive IMHO given that it includes the current period of crisis. (BTW, the price you cited is for the Berkshire A common; the Berkshire B common currently trades around $4,175 per share and has performed indentically to the A common) Should you trust in Buffet, you betcha but if you don't, no matter; many of us will.

As to the analogy of the current crisis to the Great Depression; I don't think it comes close. Bank deposits are just fine and with the exception of the big player morgage lender banks, banks in general are fine. The vast majority of banks stuck to their core business and sold their mortgages to these Wall Street idiots and those will weather the storm; the few that did not will simply disappear.

Finally as to the Feds role in all this; what would you have had them do? Their only real tools are the federal funds rate and flow of money and their charter is to balance inflationary vs recessionary pressures; they are not the financial markets cop. The SEC has that role to the extent any such one exists and again they are really limited to policing fraud, misrepresentation and market manipulation; not stupidity. That is one thing it means to have a free market; freedom for brilliance and freedom to fail. I am not a fan of all the bailouts and frankly our government had as much to do with the mortgage crisis as anyone else with its push to increase home ownership and sales but I think you will find this too will pass. Interestingly, the people who lost the most in the great depression were those who sold their investments in panic; that is never a good thing.

Really great insight here. Thank you.

I have been watching this woth great amusement. I have little means, I can't buy a home just yet but I'm working on it and 7-8 years ago I was asking "where is this money coming from?"

It doesn't take a rocket scientist or an economist to see what was happening. It's ridiculous and full of greed and corruption.

I really feel like our "leaders" should have looked at this and said "while our economy is strong, we are troubled by how many loans are being given for homes outside the means of many and we are worried about what this will do to our economy in next few years." This conversation was taking place in 2004 and 2005 but instead we got "Our economy is strong and home ownership is at its highest levels in our history."

This is a travesty and yet another way we "stuck it" to the rest of the world who were clearly equally greedy and foolish.

Our government was absolutely complicit in this. Sometimes stupidity should be curbed in order to protect the average citizen from crap like this.

I agree that our economy is better than it looks right now but not by much. This needs to ripple through and reach its end. Then we'll know the real cost of the damage and start to deal with it.

 

[gk5717]

I read the newspaper, watch the news and try to get a handle on this bank thing, and frankly I didn,t understand this Lehman Brothers, AIG thing, other than the fact it,s kicking a-- to my investments.
Now I read a toy soldier message board and John, you are the only one with an explanation I can somewhat understand.
I,ll have to read it a few more times to get a better picture, but seriously thanks!
In simple language, this is a total mess.
No it,s not the depression of the 30,s, but this is not good.
One more thing that bugs the hell out of me is when some commentator will say something to the effect we may now be heading towards a recession, WHAT!
Well at least I got OTSN to look forward to.
Gary

 

[bromhead]

A bit of history last evening somewhere in the financial media,,in the times of the pre depression ,banks and other institutions were way more regulated then today,,ominous as the financial types are saying they have never "seen" things like today,,we are taking out a portion of an account and opening another to keep things covered by the feds,pending home money too important to chance with.
My first job after graduation was a brokerage trainee at the chicago board of trade ,I hung out on the commodities floor whenevr possible with big money eyes until an experienced trader gave me a few insights on margins and futures etc,,another was seeing two brokers taken out in handcuffs by the security and exchange commission police types in the middle of the day trading,a bit of insider trading,acct mishandling,,now ceo types take and lose millions,put palces into bankruptcy and bail out to get rehired elsewhere. Been in a home depot lately,,seen many employees,,stores closing etc,,the ex ceo bailed and now works for chrysler,,they are in deeper every day.

 

[modwalls]

Well this Gov., seems to pick and choose who to bail out. We heard they fired the CEO of AIG, did he get one of those Golden Parachute firings I'm always reading about, I guess well find that out in a few months from now. I think we are just seeing the tip of the iceberg, hope I'm wrong.

 

[theBaron]

A pertinent quote from a recent essay by Thomas Sowell:

"We don't look to arsonists to help put out fires, but we do look to politicians to help solve financial crises that they played a major role in creating."

("Bankrupt Exploiters, part II", published 23. July 2008 TownHall.com and elsewhere)

 

[sceic2]

Here is my take.

It's a breakdown of society and values. The US Government is willing to bale out the rich and put the burden on the middle class. Where is the ballout for those folks would were not financially smart or made aware of the risk in their mortgage. Why aren't there any laws broken..cause the people in power make the rules and the people in power get the bale out.

When do I get my income taxes back for my bale out!!!!

I still think we have not yet seen the real problems this crap will generate. The last of the bale outs is not yet completed. The last CEO of a bale out has not received his golden parachute. The guys running Freddy Mac and Fanny Mae got payouts worth a very considerable amout of money. So, for those in power, if your business fails you win. If you business succeeds, you win.

Where is the bale out for the tax payer from these greedy immoral degenerates. And I lump both parties in this mess. The Clinton administration started the mortgage system as it exists today and the Bush administration says "Good job Brownie."

 

[Combat]

CEOs typically rob these companies blind for a period of time and them find some external reason or bad judgement for their problems. They then move on, someone bails the company out or they go bust, another CEO moves in fires everyone and the process is repeated. The airlines are a great example. Every plane is full and they go out of business. It reminds me of the guy who wrote Forrest Gump. He had an arrangement with a Hollywood studio to get a piece of the gross from the movie. The movie is released and the box office is several hundred million. The accountants then tell this guy the gross is zero once all the expenses are taken out. He gets nothing. It's all slight of hand.

 

[Leadmen]

I am angry at all these companies getting bailouts. Phony "paper" pushing for big profits. Gee! I had to put 20% down and have a job when I bought my house. These people who bought large houses with extras now say they don't understand why they have to pay for the house. After all they put a thousand dollars into the mortgage. .

One good thing in the paper yesterday is the CEO's of Freddy and Fanny will not get their 25 million dollar parachute from the Fed. They will probably sue and get it. That will cost us more in legal fees.

 

[Warrior]

It all comes down to one word; GREED and despite a quote from Michael Douglas, GREED is not good.

All I know is when I bought my house, they showed me the mortgage payment and told me it was a fixed rate and I said "Good, I take home X amount of dollars a month and the payment is far below that amount, so I can now sign these 35 pages of mumbo jumbo and move into my new house."

The people who took adjustable rate mortgages with no money down and had a payment BEFORE the arm kicked in that they could barely afford are just as much to blame as whoever thought up these no doc/adjustable rate mortgages in the first place.

Regarding the auto companies; it's not my fault they kept building bigger SUV's that get 2 miles to the gallon. The only people I ever seen driving them are soccer moms and 20 somethings who live in mommy and daddy's basement and can afford 4.00 a gallon for gas.

 

[Njja]

John


Who monitors or regulates these investment banks who can wrap risky debts up in a package and sell them on?

As one of your guys stated: We are now unquestionably in the worst financial crisis since the Great Depression.

Appears to me these fat cat bankers free ride has hit the buffers but I fear the worst is not yet over.

Reb

Reb:

Because these MBS's were created......no one was monitoring them. You

would think the FDIC that insures the publics deposits in the Banks should

have been watching, but since this had never come up before......they did

not. We have a fellow Ben Bernanke who is suppose to know what he is doing

he is Chairman of the Federal Reserve. He has degrees from Harvard, and MIT

he is......ready.......a Macroeconomist.......a what?

Lets just call him a super genius that understands how things should work...

just not how they really work.

You can't loan someone 2 Million dollars to buy a house they can't pay for!

Yesterday our government decided to loan AIG the folks insuring the failed

MBS's 85 Billion dollars for 2 years......for an 80% stake in the company.

This is AGAINST our Constitution! Government cannot use taxpayer money

to venture into private industry. Taxpayer dollars cannot be used to bail out

private industry.

We are at a point where idiots.......pure and simple idiots are in charge and

ruining our country, and the world.

Today I have watched the market lose another 450 points even after the

85 Billion dollar cash infussion. I am down 110K in the last 2 days, and my

investments are rock solid and bullet proof.........many people will never

recover.

 

[Njja]

You should hold Buffet in high regard(BTW, the price you cited is for the Berkshire A common; the Berkshire B common currently trades around $4,175 per share and has performed indentically to the A common) Should you trust in Buffet, you betcha but if you don't, no matter; many of us will.

Bank deposits are just fine and with the exception of the big player morgage lender banks, banks in general are fine.

Finally as to the Feds role in all this; what would you have had them do?

1. You hold Buffet in high reguard, I see a man paying no dividen on a stock
valued at $124,800 per share (today) getting rich with other peoples money.
Yes I quoted Class A price........can anyone figure out their system?

Class A shares can be split into 30 class B shares and have 200 votes.
Class B shares have 1 vote and cannot be converted to class A shares....so
if you purchased 30 Class B shares at $4165 a pop you still would not have 1
class A share!........Who figured this system out?
Yes they are up in the long run......but down $25,000 from high this year.

2. Federal Reserve has less then 1% of money required to insure our deposits. 45 Billion to cover 1 Trillion.......so they are hardely safe.

3. What would I have the Fed do? Follow the Constitution, do not use taxpayer money to bail out private industry. Bad decisions, made by bad managers need to fail......so smart businessmen can come in and pick up the pieces and build new solid business.

A person that bought a multi-million dollar home with an income of $17,000 a year should LOSE IT.

Houses should decline to their actual value price vs persons ability to pay. And we should start again building on a rock solid formula of purchase vs
ability to pay.

 

[Njja]

I read the newspaper, watch the news and try to get a handle on this bank thing, and frankly I didn,t understand this Lehman Brothers, AIG thing, other than the fact it,s kicking a-- to my investments.
Now I read a toy soldier message board and John, you are the only one with an explanation I can somewhat understand.
I,ll have to read it a few more times to get a better picture, but seriously thanks!

I sit at night and listen to the financial commentators.....people far more
educated them I am (I have a quick mind but get bored easily) and I am
stunned at how they gloss over important issues.

Our interest rate is sitting at 2%........thats shocking! Everyone expected the Fed to lower interest rates again........to what? Its at 2 %!!

Ben Bernanke said we are holding it in reserve for an emergency.......Ha!
What are they going to do lower it to 1%??? Whats the next step 0%?

Well sign me right up, I'll take 100 Million at 0% interest........I'll pay them
$50 a week back and put the money in a Swiss Account.

Here is the bottom line on this entire mess Dollar is worth .6978 Euros. Every time we bail someone out we start the presses and print more money.

You see according to the Constitution the USA cannot go Bankrupt we get way in over our head we just say OK we don't owe anyone anything......we are just starting over.

Europe knows we are printing money so they devalue the dollar. So everything produced outside the US is going to cost more.........and we are sending our jobs overseas.........so where exactly are we heading?

 

[Njja]

Here is my take.

When do I get my income taxes back for my bale out!!!!

Mike interesting point, everyone needs to be responsible for their own actions. In my lifetime I have owned 3 homes....I never uttered the words I didn't know what I was signing. I never as an adult responsible for my family said I didn't know what I was doing.

When I sold my 1st home I got a Non-refundable deposit (to take it off the market while the buyer obtained his morgage) I also stipulated that I would be paid in Cash At Closing.

This is my standard procedure, I have done this with every sale, and needed it every single time.

Last home I sold, 2 days before the closing I got a call from the bank providing the mortgage to the buyer. They said they had noticed that I wanted to be paid in cash at the closing.....and said they would provide me with a Bank Check. Now a Bank Check is a promise to pay document that you deposit into your bank and the funds are usually available within 30 days. I explained that I would be at the closing, and if cash was not provided I would leave keep the Non-Refundable deposit and put the house back on the market.

To make a long story short I accepted a Cashiers Check at the closing, you should always be in charge in your financial dealings. Get legal advice, know your rights, use common sense but be in charge.

When you sell anything it requires a meeting of the minds.........first mind to be met should be yours.