Investment Banks Holding $300 Billion in Bad Debt? My, My, My.
Lisa Lisa
Analysis Last Updated: Aug 13th, 2007 - 00:42:58
--------------------------------------------------------------------------------
The Grim Reaper pays a visit to Wall Street
By Mike Whitney
Online Journal Contributing Writer
Aug 13, 2007, 00:21
Last Thursday, Alan Greenspan's low-interest, "supply side" bandwagon
tipped over on Wall Street sending the Dow Jones into a 387-point
nosedive. In overnight trading in Europe and Asia, the equity-rout
continued despite the European Central Bank's (ECB) unprecedented
injection of 95 billion euros ($135 billion) into the region's banking
system.
The ECB's emergency action has had no manifest effect on the slumping
indexes. Global markets have been roiled by the dramatic downturn in
the US housing market and the subprime contagion which is unwinding
trillions of dollars of over-leveraged bets in the secondary market.
There's no doubt now that the euphoric-days of easy money and soaring
markets has come to come to an end. In a matter of hours, Maestro
Greenspan's Bull Market Sideshow deteriorated into a full-blown credit
crunch.
Mortgage blues
No one has summed up the disaster in the mortgage lending business
better than Paul Muolo of Broker Universe: "I'll put it bluntly: if
you operate a non-depository mortgage firm and don't have a deep-
pocketed parent or hedge fund as a sugar daddy you're likely to be out
of business by year-end, probably sooner. In the 20-plus years that
I've been covering residential finance I haven't seen a financial
meltdown this swift since the S&L crisis of the mid-to-late 1980s. One
subprime executive who closed his shop a few months ago told me, 'This
is a liquidity crunch the likes I have never seen.' Meanwhile, the
mudslide is rolling downhill from Wall Street to mortgage bankers, to
loan brokers, and then the consumer."
"The mudslide from Wall Street." That says it all.
In a matter of days, the credit markets have frozen, making it
impossible to secure financing on anything from a leveraged buyout
(LBO) of a major corporation to a meager home loan. The cheap money
and easy credit have vanished into the summer ether, leaving the
investment banks holding $300 of billion toxic debt they have no way
of offloading.
It's a real mess and there are no simple solutions. Lenders are
standing on the sidelines waiting for the next shoe to drop or the
next body to float to the surface. Deals are going undone; business is
grinding to a halt.
What were the geniuses at the Federal Reserve thinking when they
dropped rates to 1 percent and pumped out trillions of dollars that
made their way into "no document" liar's loans to applicants with bad
credit? Didn't they know there'd be a day of reckoning when the
housing and credit bubbles would smash into each other, taking down
much of the US economy with them?
Was it an honest miscalculation or a sinister plot? Or, maybe, it was
just stupidity?
Who knows; who cares. Whatever it was; the aftershocks are bound to be
felt for a very long time. Decades maybe.
Warnings from China
The Chinese have added to the subprime woes by threatening to dump
their reserves of US dollars and US Treasuries if Congress passes
protectionist legislation.
According to MarketWatch, "A report in the U.K.'s Daily Telegraph that
China, the second-largest foreign holder of U.S. government debt with
$407 billion, is prepared to sell its holdings in the event of U.S.-
imposed trade sanctions. Japan owns $615 billion of Treasuries."
That ought to stop Congress in a hurry. China has $1.3 trillion of US
paper they can toss into the jet stream and crash the greenback
whenever they choose. That's why they've stockpiled dollar-backed
assets for the last decade -- not because they like us. They don't.
They intend to use their massive FOREX reserves like a cattle prod to
keep us in line. That's how bankers always do it. And China is now
America's banker. That's why it pays to run the country the old
fashioned way; by strengthening the manufacturing sector, increasing
exports and building up national savings. Debt is just the fast track
to slavery.
China is now calling the shots. If they even get a whiff of US-imposed
tariffs, they'll bring the US economy to its knees. And there's
nothing Congress can do about it, either. They'd be better off just
pulling up a lawn chair and watching as US jobs and wealth go chugging
off to the Far East.
But China is probably the least of our worries. The looming credit
crunch is a much bigger immediate concern. The Wall Street Journal
provided a glimpse of a sudden breakdown in lending in an article
earlier this month: "Credit Chill Freezes Leveraged Deals," Aug 3.
"The big chill gripping global credit markets has caused 46 leveraged
financing deals around the world to be pulled since June 22,
representing more than $60 billion in funding that companies had
planned for mergers and acquisitions.
The number of deals pulled last year: zero."
Another article put it like this: "The investment grade corporate bond
market has ground to a halt, making it difficult for companies to
access capital and hard for investors to find a place to put their
money to work. . . . The problems in the primary market could, if they
persist, throw a wrench in the workings of corporate America, making
it tougher for companies to finance, among other things, investments,
buyouts and equity buybacks. . . . For July, corporate bond issuance
was down 77 percent from June." ("Corporate Bond Market has come to a
Standstill," Wall Street Journal)
Still, President Dumbo assures us, "There's enough liquidity in the
system to allow markets to correct" and that "the U.S. economy remains
the envy of the world."
Err, correction, "Was the envy of the world."
The easy money is drying up, the big mergers are slowing down and the
hand-wringing in the front office has just begun. Next question: How
low can the stock market go?
At present valuations; stocks are vastly overpriced, reflecting the
inflationary pressures from our recycled $800 billion current account
deficit and the loony expansion of the money supply at the Federal
Reserve (now running at a whopping 13 percent). Presently, the stock
market is hanging on by its fingernails. One little gust of wind --
like a few more collapsing hedge funds -- and the market will go
somersaulting through deep space.
The ISI Group's Andy Laperriere put it like this: "It's worse than the
most pessimistic assumptions. In these kinds of financial corrections,
it pays to expect more surprises." (WSJ, Aug 6, 2007)
Still, even though the subprime contagion has spread to all loan
categories, the glut of homes continues to increase, and the mortgage
industry is flatlining on the emergency room floor; there is room for
optimism. Consider the comforting comments of Secretary of Treasury
Henry Paulson: "I don't think it [the subprime mess] poses any threat
to the overall economy. . . . .In an economy as diverse and healthy as
this, losses may occur in a number of institutions, but that overall
this is contained and we have a healthy economy."
"Contained?" This is "contained?"
Newsweek's Daniel Gross had this reaction to Paulson's remarks: "If
the containment policy of the Cold War worked as well as this subprime-
mess containment policy, we'd all be speaking Russian and living on
collective farms."
Gross is right, we've only begun to see the spillover from the housing
fiasco. There's plenty more carnage in the pipeline. Paulson needs to
stop blowing smoke and tell the truth.
"A self-reinforcing negative cycle"
Economy.com's head honcho, Mark Zandi, gave the best overview of what
lies ahead in the near term as credit becomes scarcer: "There is a
substantial risk that the mortgage market will devolve into a self-
reinforcing negative cycle. Mounting credit problems could beget more
restrictive underwriting standards, which would weigh heavily on the
fragile housing market as potential borrowers become unable to obtain
credit, and existing borrowers facing large payment resets are unable
to refinance. Foreclosures would mount, leading to weaker house
prices, falling homeowners' equity and even more substantial credit
problems. The cycle repeats with more intensity and the mortgage
market corrections unravel into a crash."
The "Great Unwinding" appears to be taking place already and can be
expected to accelerate as inflationary pressures increase and the
price of oil -- which has gained 20 percent in the last three months
-- continues its upward trek. There are other concerns, too, besides
the slump in housing sales and falling stock market. The downstream
effects of tight credit will hurt retail sales and employment. We can
anticipate a decline in both areas in the next two quarters.
Automakers have already reported the weakest sales in nine years.
There's also been a steady erosion of investor confidence and a plunge
in consumer spending from 3.7 percent to 1.3 percent. Credit card debt
continues to soar, but that's only because the poor American consumer
is strapped and has nowhere else to turn. He has no savings and his
wages have stagnated. What choice does he have except to use the
plastic?
Some market analysts believe that the credit storm will pass without
inflicting too much damage. Don't bet on it. The big picture is pretty
grim. Trading in mortgage-backed securities (MBSs) has slowed to a
trickle while the appetite for corporate bonds has nearly disappeared.
No one really knows how many trillions of dollars will be lost in
funky mortgage-related CDOs. But one thing is certain; the blowups in
the hedge fund industry will continue through the autumn and early
winter. These are End Times for the fund managers; they'd better make
their ablutions and kiss their kids goodbye.
Still, the sudden reversal in the credit markets is not without its
lighter side. Jim Kunstler provided this witty summary of frantic
traders trying to sort through the current mess while still enjoying
the waning of summer: "One can only imagine the number of cell phone
minutes racked up this weekend out in the Hamptons by players trying
desperately to finagle their way out of the brutal fact that their
firms and funds suddenly lay exposed to the cruel ravages of reality.
A lot of catered crab tidbits and mini-quiches must have gone uneaten
out along the dunes as weeping men in blazers realized that "marked to
market" had come to mean the same thing as 'holding a bundle of
shit.'"
"Weeping men in blazers." Priceless. Later in the post, Kunstler
offers this synopsis of the subprime, CDO, "Ponzi-loan racket" which
is swirling through the financial markets like a tornado: "The whole
racket this time was designed to dissociate the loan contracts as far
as possible from their company of origin, and then to slice and dice
the liabilities of ownership so finely that all the lawyers
theoretically ever producible in the life of this universe, or several
like it, may never succeed in patching together a coherent skein of
ultimate responsibility. In the meantime, a remorseless chain of mere
procedure in the form of default and foreclosure notices issued by
computers will be sent through the mail, and sheriff's deputies will
fan out through the subdivisions with their rolls of yellow tape,
tossing residents out on the street (if they haven't already mailed in
their keys to some company that fired all its employees and shuttered
its offices back in June)." (Clusterfuck Nation by Jim Kunstler)
As the banks tighten up their lending standards; the number of
business deals will drop accordingly and the economy will slow to a
crawl. This process is already underway. A few "Up Days" in the stock
market mean nothing. This is a Force-5 hurricane headed for a trailer
park. Nothing will slow it down. The problems are too deeply rooted --
the infection too far along. The huge, overleveraged bets will
progressively unravel and the economy will go into freefall. It's
always painful when fundamentals reemerge and economic gravity takes
hold.
When credit markets freeze, consumers become wary of spending too
much, and the economy stalls. This is how deflationary cycles begin.
The Daily Reckoning's Bill Bonner puts it like this: "The Fed is still
talking about the risk of inflation . . . while the risk of deflation
rises daily. Deflation happens when liquidity dries up. Suddenly,
money disappears. Lenders don't lend. Spenders don't spend. The
velocity of money declines as everyone holds on to what he's got . . .
fearful of losing it.
"When this happens even the feds can't do much about it. They have
their printing presses . . . but they have no good way of getting the
money into the hands of people who will move it around. The usual way
is through the credit markets. The Federal Reserve pushes down short-
term interest rates, for example, enabling lenders to offer money at
lower rates.
"But when a deflationary mentality takes hold of people, the last
thing they want to do is to borrow money. They're afraid that they
might not be able to pay it back. Besides, in deflation, consumer
prices fall. . . . As prices fall, consumers become even more
reluctant to spend. They begin to see that they'll get a better deal
if they wait." (Bill Bonner, "The Daily Reckoning")
"Spenders don't spend. Lenders don't lend." That says it all. People
get scared and liquidity gets choked off at the source. This is the
"reinforcing negative cycle" which ends in Depression. The only way it
can be avoided is by central banks quickly taking action and priming
the economic pump with cheap credit that stimulates economic activity.
But the Fed doesn't want to lower rates because foreign investment
will flee the country and put the greenback in a fatal swoon.
According to reports on the Internet, the Bank of Canada has assured
"financial market participants and the public that it will provide
liquidity to support the stability of the Canadian financial system
and the continued functioning of financial markets."
This sounds serious.
And a similar report on Bloomberg: "The European Central Bank, in an
unprecedented response to a sudden demand for cash from banks roiled
by the subprime mortgage collapse in the U.S., loaned 94.8 billion
euros ($130 billion) to assuage a credit crunch. . . . The ECB said it
would provide unlimited cash as the fastest increase in overnight
Libor since June 2004 signaled banks are reducing the supply of money
just as investors retreat because of losses from the U.S. real-estate
slump." ("ECB Offers Unlimited Cash as Bank Lending Costs Soar,"
Bloomberg News, Aug 9)
Hmmmmm. Has the light started blinking red yet?
Credit crunch: Out of the pan, into the fire
The impending credit crisis can't be avoided, but it could be
mitigated by taking radical steps to soften the blow. Emergency
changes to the federal tax code could put more money in the hands of
maxed-out consumers and keep the economy sputtering along while
efforts are made to curtail the ruinous trade deficit. We should
eliminate the Social Security tax for any couple making under $60,000
per year and restore the 1953 tax-brackets for America's highest
earners so that the upper 1 percent, who have benefited the most from
the years of prosperity, will be required to pay 93 percent of all
earnings above the first $1 million income. At the same time,
corporate profits should be taxed at a flat 35 percent, while capital
gains should be locked in at 35 percent. No loopholes. No exceptions.
Congress should initiate a program of incentives for reopening
American factories and provide generous subsidies to rebuild US
manufacturing. The emphasis should be on reestablishing a competitive
market for US exports while developing the new technologies which will
address the imminent problems of environmental degradation, global
warming, peak oil, overpopulation, resource scarcity, disease and food
production. Offshoring of American jobs should be penalized by tariffs
levied against the offending industries.
The oil and natural gas industries should be nationalized with the
profits earmarked for vocational training, free college tuition,
universal health care and improvements to the nation's infrastructure.
Unfortunately, these issues cannot be resolved within the framework of
the current political model -- the system has been thoroughly
corrupted by private interest and corporate money. The feudal system
of predatory capitalism is incompatible with democratic values, civil
liberties, and basic human needs. Ending the two party duopoly would
be a good place to start -- along with public funding of political
campaigns. Then we can begin the serious work creating a world where
environmental protection, human rights, and economic justice have a
chance to flourish.
Credit meltdown: Another Katrina?
Neither Bush nor his colleagues at the Federal Reserve will use the
present crisis to bring about the sweeping changes that would
strengthen the middle class, build confidence in the financial system,
or eliminate inequities in the present distribution of wealth.
Instead, they will choose the path of least resistance, that is,
Bernanke will eventually lower interest rates and set off a
hyperinflationary cycle that will destroy the currency, strip workers
and pensioners of their savings and retirements, and plunge the
country into Third World poverty.
Inflation is the purest form of class warfare. That's why we can say,
with some degree of certainty, that it will be George Bush's first
choice.
Mike Whitney lives in Washington state. He can be reached at
fergie...@msn.com.
Copyright © 1998-2007 Online Journal
Email Online Journal Editor
FrediFizzx
GDP. Suck it up and spit it out. The chumps that bought into this crap
deserve to get burned. It won't last very long at all. The parking lot
at Sears was full today.
Fred
"Lisa Lisa" <mand...@verizon.net> wrote in message
news:1186982308.1...@o61g2000hsh.googlegroups.com...
Analysis Last Updated: Aug 13th, 2007 - 00:42:58
--------------------------------------------------------------------------------
The Grim Reaper pays a visit to Wall Street
By Mike Whitney
Online Journal Contributing Writer
Aug 13, 2007, 00:21
Last Thursday, Alan Greenspan's low-interest, "supply side" bandwagon
tipped over on Wall Street sending the Dow Jones into a 387-point
nosedive. In overnight trading in Europe and Asia, the equity-rout
continued despite the European Central Bank's (ECB) unprecedented
injection of 95 billion euros ($135 billion) into the region's banking
system.
The ECB's emergency action has had no manifest effect on the slumping
indexes. Global markets have been roiled by the dramatic downturn in
the US housing market and the subprime contagion which is unwinding
trillions of dollars of over-leveraged bets in the secondary market.
There's no doubt now that the euphoric-days of easy money and soaring
markets has come to come to an end. In a matter of hours, Maestro
Greenspan's Bull Market Sideshow deteriorated into a full-blown credit
crunch.
[snip rest of junk]
Charles Aulds
> Yada, yada, yada. $300 billion is not much compared to the total world
> GDP. Suck it up and spit it out. The chumps that bought into this crap
> deserve to get burned. It won't last very long at all. The parking lot
> at Sears was full today.
>
> Fred
That's called "whistling past the graveyard." It's a self-destructive
tendency to rationalize threats and crises.
Ever live with a person who lived like that?
I have. Never again.
Charles
zzpat
>
> No one has summed up the disaster in the mortgage lending business
> better than Paul Muolo of Broker Universe: "I'll put it bluntly: if
> you operate a non-depository mortgage firm and don't have a deep-
> pocketed parent or hedge fund as a sugar daddy you're likely to be out
> of business by year-end, probably sooner.
Sounds a lot like the Savings and Loan debacle that hit the markets in
the late 80's and early 90's doesn't it? I can't tell you the last time
I saw a S&L. Now mortgage companies are going to die off just as fast.
Who will replace them?
--
Impeach Bush
http://zzpat.bravehost.com
Impeach Search Engine
http://www.google.com/coop/cse?cx=012146513885108216046:rzesyut3kmm
zzpat
> Yada, yada, yada. $300 billion is not much compared to the total world
> GDP. Suck it up and spit it out. The chumps that bought into this crap
> deserve to get burned. It won't last very long at all. The parking lot
> at Sears was full today.
>
Central banks pumped more money into the system than they did after 911
so this is/was big, very big. If they hadn't done what they did, the
global economies would have collapsed.
FrediFizzx
news:b941c313qi2d0q6h9...@4ax.com...
> On Mon, 13 Aug 2007 06:34:17 -0300, Charles Aulds <cau...@hiwaay.net>
> wrote:
>
>>On Sun, 12 Aug 2007 23:27:07 -0700, FrediFizzx wrote:
>>
>>> Yada, yada, yada. $300 billion is not much compared to the total
>>> world
>>> GDP. Suck it up and spit it out. The chumps that bought into this
>>> crap
>>> deserve to get burned. It won't last very long at all. The parking
>>> lot
>>> at Sears was full today.
>>>
>>> Fred
>>
>>
>>
>>That's called "whistling past the graveyard." It's a self-destructive
>>tendency to rationalize threats and crises.
>
> as there are credit cards, and available balances, the reckless US
> consumer will continue to dig deeper and deeper into debt.....
No problem. The US as a whole is actually under-indebted relative to
the GDP. You should look at the true facts and figures. The proper
amount of debt is a good thing; not a bad thing.
Fred
aero...@flight.net
<fredi...@hotmail.com> wrote:
debt.....
>
>No problem. The US as a whole is actually under-indebted relative to
>the GDP. You should look at the true facts and figures. The proper
>amount of debt is a good thing; not a bad thing.
>
>Fred
I assume you are referring to the over-inflated GDP number that's hand
fed to the American public?
FrediFizzx
news:mdd1c31b29bv0fntv...@4ax.com...
Heck, you can deflate the GDP number and increase the debt number and we
are still under-indebted overall. We should borrow more money while
interest rates are still reasonable and invest a ton more into
infrastructure and R&D. These are assets that will increase the overall
US bottom line in the future.
Fred
aero...@flight.net
<fredi...@hotmail.com> wrote:
>Heck, you can deflate the GDP number and increase the debt number and we
>are still under-indebted overall. We should borrow more money while
>interest rates are still reasonable and invest a ton more into
>infrastructure and R&D. These are assets that will increase the overall
>US bottom line in the future.
>
>Fred
I don't disagree with you, but "should" is the operative word....The
cheap money is becoming a thing of the past....
With regards to consumers, regardless of the GDP, I believe they are
to the point of tapping out....
Charles Aulds
> Central banks pumped more money into the system than they did after 911
> so this is/was big, very big. If they hadn't done what they did, the
> global economies would have collapsed.
Let me see if I understand what happened ... that $38 billion that the US
Federal Reserve "injected" into the banking system last week was money
that was almost certainly obtained by the US by issuing certificates of
debt, US Treasury Bills, which were almost certainly purchased by foreign
lenders. In other words, it was money borrowed from overseas lenders ....
but it gets worse than that. The Federal Reserve gave the money to
domestic lending institutions that were having trouble borrowing from
other sources, and accepted, in exchange, from these institutions
"mortgage-backed bonds" as collateral
So the Fed essentially exchanged borrowed money for bad debts that no one
else in the world would touch.
Or, put another way, in even simpler terms, the US government used public
funds (tax money or public debt, whichever) to bail out lenders who
KNOWINGLY made some $300 billion in bad loans.
That is BAD business, in my opinion ... and those people who think a
economic crisis was averted last week are fools. A crisis was DEFERRED
until a later date.
My wife called my attention this morning to this statement that appeared
in an article "American Homeowner Woes Felt All Over the World" on
msnbc.com:
Global interdependency isn’t a recent phenomenon: The Wall
Street stock market crash of 1929 and the Great Depression
affected the entire world, and helped create the conditions
for the rise of fascism in Europe.
Essentially, the conditions are being made better for the transition of
power and wealth to a small ruling class.
Intentionally? Are there really men that nefarious, that uncaring about
their country?
You better believe it ... they have ALWAYS existed.
The only people who are absolutely wrong about the future are those who
insist that "it can't happen here".
It CAN happen here, and without more attention and consideration from an
overly-compliant public; it will.
Charles
aero...@flight.net
wrote:
>Or, put another way, in even simpler terms, the US government used public
>funds (tax money or public debt, whichever) to bail out lenders who
>KNOWINGLY made some $300 billion in bad loans.
But, but it HAD to be done......It was necessary to save the stock
market, and ensure that it never becomes reasonably valued....
John Galt
"Charles Aulds" <cau...@hiwaay.net> wrote in message
news:pan.2007.08.13....@hiwaay.net...
> On Mon, 13 Aug 2007 09:38:19 -0500, zzpat wrote:
>
>
>> Central banks pumped more money into the system than they did after 911
>> so this is/was big, very big. If they hadn't done what they did, the
>> global economies would have collapsed.
>
>
> Let me see if I understand what happened ... that $38 billion that the US
> Federal Reserve "injected" into the banking system last week was money
> that was almost certainly obtained by the US by issuing certificates of
> debt, US Treasury Bills, which were almost certainly purchased by foreign
> lenders. In other words, it was money borrowed from overseas lenders ....
> but it gets worse than that. The Federal Reserve gave the money to
> domestic lending institutions that were having trouble borrowing from
> other sources, and accepted, in exchange, from these institutions
> "mortgage-backed bonds" as collateral
>
> So the Fed essentially exchanged borrowed money for bad debts that no one
> else in the world would touch.
Sort of. It would be more proper to say that the % of the borrowed money
injected into the system is the same as in the overall budget. The US runs
about an 10% budget deficit right now, if memory serves, so it would be more
correct to say that 10% of the money injected was borrowed.
Further, the mortgage backed bonds it took back aren't worthless. Pricing
them is a problem right now, but the Fed not being stupid, I suspect that
they took enough of them back as collateral so as to break even even if the
financial institutions don't redeem them.
>
> Or, put another way, in even simpler terms, the US government used public
> funds (tax money or public debt, whichever) to bail out lenders who
> KNOWINGLY made some $300 billion in bad loans.
I doubt that's how it will ultimately turn out. However, no way of really
knowing, since nobody's real sure what the mortgage backed bonds are worth
right now.
>
> That is BAD business, in my opinion ... and those people who think a
> economic crisis was averted last week are fools. A crisis was DEFERRED
> until a later date.
Well, it's not bad business if the alternative is economic meltdown. Again,
I suspect the Fed's economists who engineered the deal designed it with a
reasonable chance of coming out whole.
Further, there are a lot of very bright financiers and economists who would
disagree with your "crisis deferment" theory. There are certainly those that
think this is going to cause a major financial problem; there are those who
believe that the pain will be so spread out as to avoid such.
It was a good sign today to see Goldman Sachs choose to inject 3B of its own
cash to cover the risk of default in one of its exposed hedge funds. IOW,
the decision was made to stand by their customers than to let them lose
their money. I suspect that led to a good deal of weeping and wailing and
gnashing of teeth at JP Morgan and Merril Lynch, as the pressure is now on
them to follow suit.
>
>
> My wife called my attention this morning to this statement that appeared
> in an article "American Homeowner Woes Felt All Over the World" on
> msnbc.com:
>
> Global interdependency isn't a recent phenomenon: The Wall
> Street stock market crash of 1929 and the Great Depression
> affected the entire world, and helped create the conditions
> for the rise of fascism in Europe.
Yea, but be careful on these 1929 comparisons. We were on a gold-based
standard then, and when you're on a precious metals standard, your ability
to inject liquidity into the economy is obviously limited.
>
> Essentially, the conditions are being made better for the transition of
> power and wealth to a small ruling class.
Well, maybe.......but I doubt that's what's going on.
>
> Intentionally? Are there really men that nefarious, that uncaring about
> their country?
>
> You better believe it ... they have ALWAYS existed.
Sure there are. However, conditions are not always conducive to their
objectives.
JG
Charles Aulds
> Sort of. It would be more proper to say that the % of the borrowed money
> injected into the system is the same as in the overall budget. The US runs
> about an 10% budget deficit right now, if memory serves, so it would be more
> correct to say that 10% of the money injected was borrowed.
But it's 100% public money, whether raised through taxes or by borrowing;
it is the people's money that is being used to bail out lenders who acted
irresponsibly.
If the American public doesn't raise an outcry ... oh, why bother; we know
by now that they're too meak, too cowed, too submissive, too frightened,
too cowardly to do anything but go along quietly.
That's the tragedy in all of this ... the loss of what is America; the
independent self-reliant boldness that made this country great.
RIP.
Charles
John Galt
>
>> Sort of. It would be more proper to say that the % of the borrowed money
>> injected into the system is the same as in the overall budget. The US
>> runs
>> about an 10% budget deficit right now, if memory serves, so it would be
>> more
>> correct to say that 10% of the money injected was borrowed.
>
> But it's 100% public money, whether raised through taxes or by borrowing;
> it is the people's money that is being used to bail out lenders who acted
> irresponsibly.
Right, but it's not a "bailout" if you're taking collateral that you expect
will cover your potential losses, meaning you expect to be paid back one way
or another. It's simply business. The goverment is simply acting as a larger
buyer than you could normally find. The alternative for the financials would
be to re-package the assets into more saleable packages that *could* be
accurately priced and look for investors. (Underline "investors." Very
different than "bailout.")
Remember, behind each and every one of these subprime mortgages is a real
piece of property that carries real value. The "loss" is not the entire face
value of the package; it's the spread between the face value and the money
you can get for the property.
And the goverment already has a complete infrastructure built out that sells
defaulted real estate from the FHA and VA. All it has to do is put the
properties into its existing sales channel, making them uniquely able to
facilitate the matter.
>
> If the American public doesn't raise an outcry ... oh, why bother; we know
> by now that they're too meak, too cowed, too submissive, too frightened,
> too cowardly to do anything but go along quietly.
I doubt if any of that is really what is going on with Americans. People who
have comfortable lives will, in general, not see any personal benefit in
doing otherwise but work within the system. You and I may agree about many
"issues" that the US faces, but taking time off from work to become an
activist (or whatever you have in mind) would be an abrogation of my
responsibility as a husband and a father. (And, in the extreme, the notion
fhat the largest economy in the word ought to be put into crisis by some
sort of revolutionary activity would be the height of irresponsibility not
only to my family, but to the entire world. A financial crisis in the US
usually means that we are forced to buy cheaper table wine at dinner. while
in the developing world, people die as a result of a US downturn.)
The entire problem would be solved if the democratic process would provide
us candidates with real solutions to national problems. However, that is an
entirely different thread.
JG
alexy
>Further, the mortgage backed bonds it took back aren't worthless.
I haven't seen anything about that. All I have seen is stories about
the Fed increasing the money supply ("Injecting liquidity"). Have you
seen somewhere that they are taking the subprime mortgage funds as
collateral? I haven't seen anything to that effect. If they are, this
smell more like a Chrysler bailout than a macromanagement of the
economy.
--
Alex -- Replace "nospam" with "mail" to reply by email. Checked infrequently.
Charles Aulds
> Remember, behind each and every one of these subprime mortgages is a
> real piece of property that carries real value. The "loss" is not the
> entire face value of the package; it's the spread between the face value
> and the money you can get for the property.
And that's what's really set to decline; the value of properties, as a
percentage of what's financed for each. The debt far exceeds the real
value of the asset against which the money's been borrowed. In the same
sense that stocks represent real wealth as each share is part ownership of
a real company and its assets. That didn't help my father-in-law with his
Global Crossing and Worldcom securities; he wasn't able to get at any
assets those companies might've had; he was left only with worthless
paper, as will be so many investors in "derivative" and
mortgate-based securities".
I suppose someone will end up with those houses ... the wealthy; not the
poor luckless people who just wanted a place to live.
Charles
John Galt
"alexy" <nos...@asbry.net> wrote in message
news:v4s1c35fkgeqbplsn...@4ax.com...
> "John Galt" <whoisj...@bluebottle.com> wrote:
>
>
>>Further, the mortgage backed bonds it took back aren't worthless.
> I haven't seen anything about that. All I have seen is stories about
> the Fed increasing the money supply ("Injecting liquidity"). Have you
> seen somewhere that they are taking the subprime mortgage funds as
> collateral? I haven't seen anything to that effect. If they are, this
> smell more like a Chrysler bailout than a macromanagement of the
> economy.
JG
Charles Aulds
> I haven't seen anything about that. All I have seen is stories about
> the Fed increasing the money supply ("Injecting liquidity"). Have you
> seen somewhere that they are taking the subprime mortgage funds as
> collateral? I haven't seen anything to that effect. If they are, this
> smell more like a Chrysler bailout than a macromanagement of the
> economy.
http://www.cbsnews.com/stories/2007/08/12/politics/animal/main3159763.shtml
alexy
>
>"alexy" <nos...@asbry.net> wrote in message
>news:v4s1c35fkgeqbplsn...@4ax.com...
>> "John Galt" <whoisj...@bluebottle.com> wrote:
>>
>>
>>>Further, the mortgage backed bonds it took back aren't worthless.
>
>> I haven't seen anything about that. All I have seen is stories about
>> the Fed increasing the money supply ("Injecting liquidity"). Have you
>> seen somewhere that they are taking the subprime mortgage funds as
>> collateral? I haven't seen anything to that effect. If they are, this
>> smell more like a Chrysler bailout than a macromanagement of the
>> economy.
>
>http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-08-13T134640Z_01_NYG000673_RTRIDST_0_USA-MARKETS-FEDOPS-AMOUNT-URGENT.XML
>
>JG
Thanks for the info. That smells.
John Galt
> On Mon, 13 Aug 2007 18:56:10 -0500, John Galt wrote:
>
>> Remember, behind each and every one of these subprime mortgages is a
>> real piece of property that carries real value. The "loss" is not the
>> entire face value of the package; it's the spread between the face value
>> and the money you can get for the property.
>
> And that's what's really set to decline; the value of properties, as a
> percentage of what's financed for each. The debt far exceeds the real
> value of the asset against which the money's been borrowed.
Well, how do you define "far"?
In many cases, I'm sure the delta will be "far", particularly in the case of
Miami and Las Vegas luxury condominiums. In many more cases, (as most of the
country has seen flat real estate prices rather than a decline) the value of
the property will be close to, or at, the original sales price.
From the Fed's standpoint, all it has to do is insure that the value of the
collateral (expected sales price of the properties), plus the value of the
known securities in those portfolios, meets or exceeds the value of the
infused capital.
In the same
> sense that stocks represent real wealth as each share is part ownership of
> a real company and its assets. That didn't help my father-in-law with his
> Global Crossing and Worldcom securities; he wasn't able to get at any
> assets those companies might've had; he was left only with worthless
> paper, as will be so many investors in "derivative" and
> mortgate-based securities".
Well, right, but in the case of stocks, the "collateral" is the real assets
of the invested company. Obviously, stocks sell at many times the book
value, unless something is extremely wrong with the company.
JG
Vid...@tcq.net
> Analysis Last Updated: Aug 13th, 2007 - 00:42:58
>
great article as usual lisa lisa.
but the below paragraphs are perhaps the most important factors
facing america. how to implement them over the firestorm the financial
parasites and welfare queens of the pull yourself up by your own
bootstrap, rugged individual, self reliant, self responsible silver
spoon crowd.
Vid...@tcq.net
russia got stalin, germany got hitler, italy got mussolini, japan got
tojo. we were lucky, we got fdr after the last free market blowout.
will we be that lucky again?
alexy
Actually, the article Charles cited,
http://www.cbsnews.com/stories/2007/08/12/politics/animal/main3159763.shtml
sheds more light on what they did. The term "mortgage-backed
securities" has apparently gotten everyone (me included) jumping to
the conclusion that they were buying back these subprime mortgage
funds, which IMHO would be providing corporate welfare to those who
took that risk and lost. In fact, it sounds like the mortgage backed
securities they accepted as collateral are all conforming loans, not
sub-prime, jumbo, limited documentation, non-owner occupied, etc.
loans. As the article Charles cites points out, offering of the same
interest rate on all three types of collateral may offer some subsidy
for this segment of the debt market, but it's not like the Fed bought
Bear Stearns' subprime mortgage backed debt.
John Galt
If they're all conforming loans, then all the Fed is doing is "buying low",
knowing that "selling high" and thus making tidy profit is highly probable.
Nice to know somebody in goverment has some chops.
JG
com...@webtv.net
property-THEN SELLS IT !!!!! lions and tigers and bears: oh my !
" Children should be treated as ambassadors from a higher culture "