US Financial Crisis

[beautydigger]

Media Mum on Barney Frank's Fannie Mae Love Connection
http://www.businessandmedia.org/printer/2008/20080924145932.aspx

“Prominent Democrats ran Fannie Mae, the same government-sponsored enterprise (GSE) that donated campaign cash to top Democrats. And one of Fannie Mae’s main defenders in the House – Rep. Barney Frank, D-Mass., a recipient of more than $40,000 in campaign donations from Fannie since 1989 – was once romantically involved with a Fannie Mae executive.”The Washington Post reported Frank, who is openly gay, had a relationship with Herb Moses, an executive for the now-government controlled Fannie Mae. The column revealed the two had split up at the time but also said Frank was referring to Moses as his “spouse.” Another Washington Post report said Frank called Moses his “lover” and that the two were “still friends” after the breakup.

 

[korbel]

Wrong, Lou is an independent.

Yes BTYDGR,

He is officially registered as an Independent. But he often pronounces out loud about his devotion to Conservative philosophies, especially on economics. He rejects the "bail out" completely.

Cheers,

Korbel

 

[Poker King]

Wrong, Lou is an independent.

Actually Lou Dobbs is an orginalist ... in the US that means they follow the Original US constitution. It is the age old fight on Federal power that Lou champions. If you follow this simpletons belief system you find that he firmly believes that US should be an isolated power and that individual States should determine their own destiny.

The fool screws up on foreign trade on a regular basis and it is very unfortunate that he has a microphone to broadcast these silly views.


pk

 

[beautydigger]

Illegals : ?? With all the background check each bank does before they land money, do you really believe they will land money to illegals?

HUD: FIVE MILLION FRUADULENT MORGAGES HELD BY ILLEGALS
Some five million fraudulent home mortgages are in the hands of illegal aliens, according to the U.S. Department of Housing and Urban Development.

 

[EagerBeaver]

Dow Jones was down another 678 points today. I don't know how many more 600 point drops we can have? It's really starting to look like a massive downward spiral.

 

[EagerBeaver]

It would not be a surprise to me if these big financial guys are playing games, keeping the entire system hostage in order to extract more and more goodies ($700B bail-out plan, interest rate cut, etc) from the governments.

This is an interesting theory. Personally, I am not really enamored of the bailout package insofar as it is rewarding specific institutions that failed. The free market system should never see governments, or anyone else rewarding failure. I agree with your general point.

Regarding the question of whether we should be blaming Republicans, Deomcrats, both or neither party, let me say this: I think it was Korbel who mentioned in another thread, with respect to the subprime lending crisis, that the majority of all of the loans that are in default were originated between 2004 and 2006. I can corroborate this as someone who on a daily basis deals with the fallout in terms of foreclosures of these failed loans. What was happening between 2004 and 2006 that led to all of these loans being made, I can't say for sure. But all of those loans were made on the watch of George W. Bush. Obama is claiming he wrote a letter to Congress warning of the subprime lending problem some time in 2006, and I have to believe him since nobody (i.e., McCain) has said no such letter was written.

Finally, I saw the testimony of Richard Fuld before Congress on C-Span. Fuld was CEO of Lehman Brothers, and he was grilled and cross examined about various public statements he made that appeared at variance with the actual financial health of his company at the time of such statements. Fuld appeared to me to be a very intelligent guy, and probably the best way to objectively characterize his testimony is that he was very optimistic about Lehman Brothers' financial picture at a time when he should not have been. I think his attitude is typical of those in the financial services industry. It's all about hype and false optimism. Fuld will of course walk away with his $300 million compensation over the last few years, which was justified, in his view, because the shareholders all voted on it and he did not request any bonuses or golden parachute, though he could have. He repeatedly said "I believed in the company", as much as George W. Bush has said "our economy is strong" consistently for the last 4 years.

 

[NJDude]

Even after adding the contributions I made this year, I am down 40% from last year in my retirement and non retirement accounts. I try to deceive myself by reminding me that I still have 25 more years to retire. I have lost weight, can't sleep properly, and unable to focus at work during the past 3 weeks. So what I am going to do. Come to Montreal this weekend and see some SP's. Hopefully that will help.

 

[Poker King]

I

I'm not an economist, but I do wonder why more Americans do not ask themselves why their supposedly 'laissez-faire economic approach' Administration would suddenly think it was a good idea to buy up debt that most likely will not be paid back.

I believe it was the same Administration who gave the go ahead for zero down on a house.

The millions who bought beyond their means are at fault. It is just plain stupid to take out such a big loan while knowing you'll never be able to pay more than the minimum. Same can be said of the millions of credit card owners who've maxed out because of flat-screen tvs and expensive restaurants. But the banks, who gave out mortgages to the very people they never would have given as much as a 10K credit line a few years ago, are to blame as well. They made a bad bet. Now, the entire world population that invested in mutual funds, like my dad, is paying for their bad business sense.

Adam Smith must be turning in his grave.


JAG

On the first point there never was such an animal as zero% down ... just that some builders gave a discount that acted as a down payment ... I know nit picky but there you have it.

The problem never was the loans to the so called high risk ... in a low interest market it means there is lots of cash around that has to find a home (investment) ... where the problem begins is the price of the loan which was mitigated by credit default swaps that had little or no capital reserves to cover rising default rates. We saw this when they liquidated Lehman Brother default swaps at under .09 on the dollar. BTW this kind of corresponds to the capital reserves set aside for defaults, 10 to 15% the rest of the capital raised went to earnings and big bonuses, hence their popularity with the seller.

Another point you make is the reckless behavior of consumers in the US ... well low interest rates mean you get little or nothing on savings so why not buy the big toys for boys.

We really should have had a mid size recession in 91 but the Bush Administration did everything to stop it from being longer than a few months ... markets need this kind of cleansing or tossing out the garbage to be healthy ... by prolonging it we get this mess.

As for Adam Smith ... he had disdain for shareholders and management of Corporations ... he actually be saying "Told ya so"

pk

 

[IamNY]

The FHA has been lending over 100% financing for years. There has been such a "zero point animals" for over 40+ years. The reason they are performing well is because they have been underwritten properly. That is not the problem, as these loans are performing well today. As much as everyone would like to blame our President's administration for this mess, that would not be a good example to use.

Yes, builders have been giving discounts that have been acting as a down payments (sellers concessions), but that isn't related to the zero percent down theory.

 

[eastender]

Financing

The FHA has been lending over 100% financing for years. There has been such a "zero point animals" for over 40+ years. The reason they are performing well is because they have been underwritten properly. That is not the problem, as these loans are performing well today. As much as everyone would like to blame our President's administration for this mess, that would not be a good example to use.

Yes, builders have been giving discounts that have been acting as a down payments (sellers concessions), but that isn't related to the zero percent down theory.

In the 1970's and 1980's when mall construction was a growth industry it was possible to get up to 115% financing if a project was nearly 100% pre-leased and the developer had other properties that were performing.

The subprime situation in the USA is a combination of housing developers who might qualify as iffy, using brokers and agents that were quick buck artists targeting clients who were not equipped for home ownership in any circumstances.

 

[Vancouver Tim]

The next shoe to drop...

While everybody has been focussed on the crisis in the housing and financial sectors, new rumours are swirling that a major storm is about to develop in the U.S. auto manufacturing industry.

Reports are surfacing to indicate that General Motors will either file for bankrupcy or enter a distressed merger with Chrysler within a matter of days. Both alternatives signal massive impending lay-offs in the industrial heartlands of Canada and the United States.

It is difficult to foresee either presidential candidate resisting the call for massive trade barriers that will inevitably arise.

 

[rollingstone]

I was wondering if anyone saw the Mad Money segment on upcoming insurance payouts related to the Lehman collapse.

http://www.cnbc.com/id/27218295

I was completely shocked that this form of de facto insurance fraud could go on unregulated. What are these credit default swaps that the Hedge funs purchased? I looked it up on Wikipedia but if anyone can explain it in layman's terms that would be great. The part I don't understand is how one party can acquire insurance on the debt of another party they have no association with. Sounds like something that belongs in Vegas, not Wall St. I am sure I am missing something though.

 

[EagerBeaver]

RS,

I don't think you are missing anything. Basically a credit default swap is selling unregulated insurance on financial institutions or financial instruments. I have a friend who specializes in these CDSs, in the Asian markets. He travels to Asia all the time, makes tons of money and gets laid like crazy and has told me everything you need to know about hobbying in Japan.

The bottom line on credit default swaps is that now that the proverbial horse is out of the barn, and the US government is left holding the bag, you can expect much more pervasive regulation in the future. Politics aside, it has become clear that much of the financial crisis has been precipitated by certain groups in the financial industry engaging in unregulated activities in order to make money for themselves, despite the detriment to the market as a whole.

By the ways, in the housing market, there are immense logistical problems for companies which have been assigned defaulted mortgage debts. Usually what happens is there are a chain of assignments of the debt, some or most of which are not recorded in the local land records. An astute attorney defending the homeowner in a foreclosure action will raise a lack of technical ownership of the note and mortgage, as evidenced by the chain of title in the land records, as a defense. Right now such defenses are working in the courts because the companies inheriting these debts are very sloppy and don't know or haven't familiarized themselves with the laws of the states in which they are foreclosing. The result is dismissal of the foreclosure actions and/or delaying of such actions until such time as they get their paperwork in order and record it.

 

[banger]

Here is the problem with the credit default swaps and is the root of whats the markets are in fear of....first of all...the size of the market is 45 TRILLION dollars...roughly twice the market cap of the US stock market.

Many institutions like Lehman, AIG, Bear Sterns were able to use these and other derivatives to use leverage on leverage....they put these derviatives into the Level 3 accounting slot, which meant they could put whatever value they wanted....and they did...and it was "off balance sheet". You think lehman and these broker dealers like Goldman are only 20 to 1 or 30 to 1 leveraged...that is a accounting trick...if you look at their off balance sheet books they are many time more leveraged on capital.

The problem with credit default swaps is that they trade "over the counter", which means by appointment....so they are very illiquid. Also they are written contracts between 2 counterparties and they periodiclly re-price the trade relative to current value and the counter party that is losing money posts additional "margin-collateral"....if they cant...then they must liquidate the trade at fire-sale prices...

Now whats happening is that the whole 45 trillion dollar market for CDS's is deleveraging because no one trusts the other counterparty's accounting!!! and everyone wants to cash out because they are not sure if the counterparty on the other side of the trade will be viable tommorrow....

Just like the problem EB mentions with mortgage defaults the CDS market has the same problem.
Counterpary A trades a swap with CounterParty B
Counterparty B assigns that swap to Counterparty C
So Counterparty A has exposure to the credit of Counterparty C and doesnt even know it!!!
If counterparty C goes bankrupt Counterparty A loses...

This is the problem that is bigger than sub-prime and is just begining to unwind....that is why 700 billion doesnt seem like much, when there is a 45 trillion dollar problem.




Banger

 

[rollingstone]

Many institutions like Lehman, AIG, Bear Sterns were able to use these and other derivatives to use leverage on leverage....they put these derviatives into the Level 3 accounting slot, which meant they could put whatever value they wanted....and they did...and it was "off balance sheet". You think lehman and these broker dealers like Goldman are only 20 to 1 or 30 to 1 leveraged...that is a accounting trick...if you look at their off balance sheet books they are many time more leveraged on capital.

This is very good to know. I invested in Morgan Stanley on the notion they were reducing their leverage from 30 to 1 down to 20 to 1. It performed well, but I held on to it because when the government buys the mortgage derivatives (the so called toxic financial products) it would get the credit markets going again and the stock would climb further. However, if these companies are misrepresenting their leverage and the 700 billion package is no where near enough to solve the problem, then I am going to take my winnings (it does seem like gambling, doesn't it?) and walk.

 

[banger]

Surely those drops do not reflect the real productivity of American / Global industries. This crisis is purely financial. Dow Jones movements (upward or downward) do not depend on the average Joe investors but are generally caused by the actions of the big movers. Most of those big movers are financial firms that are involved in / affected by unregulated derivatives /swap side betting. It would not be a surprise to me if these big financial guys are taking advantage of the crisis, playing games, and keeping the entire system hostage in order to extract more and more goodies ($B700 bail-out plan, interest rate cut, etc) from the governments. It's true that we are in a financial crisis but it would not be a surprise to me if the current severity of the crisis is being artificially created.
As a small investor, I'm not willing to realizing my loss by selling now.

The crisis is not purely financial....its effects now are on paper assets, but if the problem is not fixed it will affect everyone to the day to day level.
It's like a person having a stroke where the blood flow is blocked.....
that is whats happening throughout the world credit markets right now...
once the money is flowing again, you dont know what the damage is done to the person because of the lack of blood flow...

That is why this crisis is like no other financial crisis before...it's systemic.

 

[banger]

Global Meltdown...

Russian was down 15% overnight they closed the markets till Oct28th!

Japan down 10%!!

Most world markets down 8-10%!!!

This is all overnight!

Us futures are Limit down 6% pre-open...expect a ugly open maybe down 10%
....

This is panic selling and liquidation...if your in the market dont panic now...

I think I'm not going to be the only person to get fucked up tonight....I'm gonna need a drink or two when this day is over!

I'm glad I got a good nights sleep last night...

Banger

 

[Kepler]

Russian was down 15% overnight they closed the markets till Oct28th!
Japan down 10%!!
Most world markets down 8-10%!!!

Look at the bright side: you can't have too many more days like this, since the market can't go below 0.

 

[vtguy]

This is panic selling and liquidation...if your in the market dont panic now...

Still holding as of 2:00 PM only ~400 down. We haven't even reached the low point of dow ~7900 from several days ago. Should be an interesting close.

 

[EagerBeaver]

This is panic selling and liquidation...if your in the market dont panic now...

You have been saying this for weeks now. When is it going to end? How many more 500 point daily drops are there going to be? I just heard today that Mohegan Sun Casino in Connecticut has stopped work on a new hotel they had already poured the foundation for. Laid off hundreds of workers. Obviously they don't think there is going to be a need for the new hotel at this time. You can't gamble if you don't have money to gamble with.