SageAndOnion

Then you have no understanding of finance. No investment banks / stockcbrokers etcetera = no market for companies to raise money = no or very slow expansion = less jobs. Also, who the fuck is going to lend you money to buy a house if they don't stand a good chance of making a profit from it?

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Killing Me Softly 101

LOL. I was in Argentina right after the collapse of their currency. Sure everything was cheap for me (the collapse caused the peso to go from 1:1 to 1:4. But the streets were full of people, tourists were returning because it was now affordable. The opera houses and theaters were open. Sure the economy collapsed but life went on.
And when America gets a cold they go on life support.
I got badly burned back in the tech bubble in 2001. So played it a bit smarter this time. When things started turning sour about a year ago, bought TIPS, moved my stocks all to divident paying blue chips international (avoiding financials) and US so I am only down about 10 percent compared to say Citibank or AIG. Since I had been getting 20-25 % growth since about 2002, not bad.
You still own the exact same slice of the pie. (IE. If you owned one trillionth of the economy you still own that same one trillionth, it may get you less $$$ if you need to make it liquid right now, but it is still the same part of the whole.
In the future, consider more diversification. Since you are young, lesson learned. Good luck.

PS. I bought a house in a redevelopment area. When it started going up 50% a year, I knew everyone was on board a bubble. When it suddenly was worth a third of a million dollars, I cashed out. The buyers wanted to put up $5,000. I laughed (because of the liquidated damages clause in my state). They finally put up $10,000. The deal was structured so that they actually paid me $6000 more than I had asked for, and I turned around and paid the closing costs (about $10,000). That ghetto house that I had been making $771 a month payments would now have 2 loans, (both without documents as the buyers were not actually citizens of the US but their children were.) So their PITI with the first at about 7% and a second at 9.75% was around $3,000. per month.

I put the money in CDs, quit my job, and moved here. I appraised the house yesterday. It has gone down in value $74,000 (from $345,000 to $271,000). So the buyers now have that much negative equity. If they walk away, the proceeds of a sale will cover the first trust deed but the second would be worthless.

Apply this same set of stats over much of the market and you see the problem that is "unwinding". I was lucky in that I cashed out. Many people including my brother, got caught in refinancing or in buying up. For them they may have had a good amount of equity, but now are faced with negative equity. They cannot sell their houses. They must either continue to pay the higher amounts on the property, or declare bankruptcy and walk away.

The problem that all of these banks face is those seconds (do people continue to pay them?) and the firsts with negative equity (what percent of people will continue to pay their mortgage when faced with huge negative equity?) How the financial system values these obligations it the crux of the matter.

Are they full value. IE everyone pays their obligation?
a % of value ie. Valuation assumes that 90%(or what ever) are good and the remainder are bad.
or the cost of liquidation of the obligations in auction at whatever price they can get. (Mark to Market).

It will not be over until these issues play out.

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esoteric1

What is money?

Money as debt

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martyboy

I said they don't create anything. I didn't say they had no function. And what is the cause of all this massive indebtedness. The lending institutions throwing money at you. We all said the early 90s would never be repeated i.e. people borrowing 6 times their annual income. It wasn't long before it all started again - result - mortgage repossessions, misery. The person I mentioned who ran up £30,000 of credit card debt was an idiot but if money wasn't so easy to buy, if the lending institutions hadn't throw money at him (at usurious rates of interest) he wouldn't have got in such a pickle. The banks etc. are far from squeeky clean.

tomcat

Here's an interesting article from a Bloomberg columnist attempting to assess blame (it was only a matter of time) for this mess:

Let's Start by Finding Some People to Behead: Michael Lewis

Commentary by Michael Lewis

Sept. 17 (Bloomberg) -- With Lehman Brothers Holdings Inc. collapsing, and Merrill Lynch & Co. surrendering, and all hell breaking loose in the financial markets, Bloomberg News sent reporters out to gather some impressions from ordinary non- financial Americans.

Many had no idea what any of it meant but few were happy about it. They sensed they'd just been handed the role of the little fat kid in the game of crack the whip, who, at the start of the game, feels nothing at all but then suddenly finds himself launched headfirst into the neighbor's bushes.

They hadn't suffered yet but were preparing to, and they were perplexed by their inability to figure out who had the idea for this game.

``If I knew more I could find someone to blame,'' said Linda Burke, a 57-year-old service consultant at AT&T in Atlanta, speaking, no doubt, for the American people.

She'll probably never get her hands on the real villains of this piece. They're obscure; their crimes are hard to understand. Who inside Wall Street dreamed up the first subprime-mortgage- backed mezzanine CDO and allowed BBB credit to be laundered through the credit-rating companies and come out the other end as AAA? Who inside the credit-rating companies made the decision to rubber stamp the paper? Who inside Lehman Brothers -- and at all the other Wall Street firms -- fought to get into the business over the objections of saner traders?

This is a pleasant side-effect of Wall Street's complexity. Not only does it enable the firms to hide the risks they run; it allows the people who make fortunes, while at the same time helping destroy vast amounts of capital, to remain essentially unknown to the wider public.

Two Culprits

Even if they were to be somehow dragged out into the square for a shaming, no one would understand what they did. It's impossible to publicly humiliate a derivative.

There are, however, two culprits whose crimes are easy to grasp. I offer them up to Ms. Burke, so she can get to work on her feelings about them.

1) Christopher Cox. He's the chairman of the Securities and Exchange Commission, and so has the job of regulating these companies that helped make it possible for every poor American to get a mortgage and are now, as a result, falling apart.

That, in itself, is no reason to blame him. He inherited a broken operation: the SEC has been morally bankrupt for some time now. The people who work for the place -- especially the ones who call the shots -- have for years had a disconcerting habit of leaving their low-paying government jobs regulating Wall Street firms for high-paying ones at those same Wall Street firms.

Systemic Corruption

They are meant to guard against systemic corruption when they are themselves systematically corrupt. It's hard for people who are paid $85,000 a year to police people who are paid $15 million.

Happily, you can still blame Cox for something. He went as far out of his way as he could to enable the brokerage firms by harassing the small group of informed financial people who have been trying to tell the truth to the markets: the short sellers. They bet against the stock price of a company and so have always had a bad reputation with the public. But in this case, they are the closest thing we have to heroes.

A man named David Einhorn is a case study. He runs a hedge fund called Greenlight Capital, which sells short some stocks and buys others. That is, he doesn't just bet against companies but for them, too.

Blaming Shorts

Still, for some time now, he's been standing up in front of large audiences, announcing that he was short Lehman Brothers stock, and then explaining in great detail its dubious accounting practices. The SEC responded by demanding to see his firm's e- mail, hinting darkly that he was part of some conspiracy to drive Lehman Brothers out of business, and generally making him feel that he'd pay a price for telling the truth.

Christopher Cox is probably a nice man who has no real idea what just happened. But for the way he treated people with the nerve to speak the truth to power you should feel free to blame him anyway.

2) The Wall Street CEO.

Stan O'Neal was the chief executive officer of Merrill Lynch, Dick Fuld was the CEO of Lehman Brothers, James Cayne was the CEO of Bear Stearns Cos. Each took home tens of millions of dollars in pay for making the decisions that destroyed his firm.

Stan the Man

Of the lot, O'Neal deserves perhaps the greatest scorn as he took a business that wasn't well designed to take huge trading risks and wagered it all on a single bet.

He screwed up the lives of more innocent people than the others. But interestingly, if any of these men had behaved well and resisted the pressures and temptations of the moment, his firm would have, for several years, dramatically underperformed the competition. Probably he would have lost his job.

Even O'Neal can probably look back on his performance and say to himself, ``There's nothing I'd do different, given what I knew at the time.''

That's what they all say -- right before they're beheaded.

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esoteric1

see the Gramm-Leach-Bliley Act of 1999 for starters:


The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub. L. No. 106-102, 113 Stat. 1338 (November 12, 1999), is an Act of the United States Congress which repealed the Glass-Steagall Act, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services.
Congressional history of the Act

The bills comprising the act were introduced in the Senate by Phil Gramm (R-TX) and in the House of Representatives by James Leach (R-IA). The bills were passed along party lines with Republican support in the Senate[1] and with bipartisan support in the House of Representatives[2]. It was signed into law by President Bill Clinton.


The banking industry had been seeking the repeal of Glass-Steagall since at least the 1980s. In 1987 the Congressional Research Service prepared a report which explored the case for preserving Glass-Steagall and the case against preserving the act.[3]

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SageAndOnion

Well we'll have to differ in our opinions then. I have met several people who knowingly overextended themselves financially and ended up in the shit. My initial sympathy turned to contempt when they tried to blame the institutions that they borrowed from.

I've done it myself in the past. I take full responsibility for my actions though - I made mistakes, I didn't seek to lay the blame at someone elses doorstep though.

As for bankers not "creating" anything, I would say that as a system they create opportunities that would not otherwise exist.

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MisterModo

12/21/12

that's the date for the end of the world.

the ignorance of some people. I swear.

tomcat

^Why are newbies allowed to post on an adult thread?

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jonny danger

Keep movin movin movin keep those doggies movin ... rawhide!

aging one

Add AIG to the mix, and we are in for some interesting times.

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