Current Financial Mess 22

[cjd97]

I thought that a group of Engineers would be the perfect audiance to ask the question......Is this financial crisis being talked about on TV for real? What do you guys think?

A large part of me doesn't feel sorry for people who bit off more than they could chew with their mortgage. I also don't feel sorry for the banks who wrote the bad mortgage. I personally think we should let the banks fail, let the people lose their houses, and get back to the old times of actually sharing risk when lending/borrowing money, ie having 20% down to buy a home.

Kind of a side note, with everyone supposedly losing their homes and the banks not being able to liquedate them, where does the PMI insurance come into play? I would assume these folks are paying PMI if they are "subprime" loan canidates. Isn't PMI designed for situation such as this?

Just wondering your thoughts.

 

[TheTick]

The problem isn't just the poor idiots with houses they can't afford. It has escalated to the point where the credit market is profoundly damaged and stalled. The implications go far beyond homes lost. With the credit market in its current state, it will not be possible for the economy to expand.

A bailout of some form is necessary. The form of that bailout is the question. It is possible to structure the financing of the bailout such that ultimately the U.S. taxpayers will get their money back. The last thing we need to do is hand over a bag o'cash with no strings attached.

The current bailout plan simply puts the U.S. taxpayer on the hook for the worst of the liabilities. Not good. there are plenty of good loans in banks' portfolios to ensure that the bailout money is not lost, or even gets a return.

Part of the problem is equity trading gamesmanship. Speculators have been trading debt in an underregulated credit-swap market. Investors have been suckered into believing this debt was higher grade than it was. Credit is not cash, and the end result is that the losses are mounting.

Must read:

http://www.2000wave.com

[!]Heavy but worthwhile reading.[/!]
John Mauldin and his buddies had this pegged a full year in advance. I pulled my money from stocks before the crash. My portfolio has actually been making money in the last few months.

Honesty may be the best policy, but insanity is a better defense.

http://www.EsoxRepublic.com

-SolidWorks API VB programming help

 

[evelrod]

The overall problem, as it always is with high stakes economics, is greed. Of course you may include stupidity and incompetence if you wish. I've seen this before, and, yes Mable, I've been bitten...hard. I learned my lesson.
Last year with housing prices 'out the roof' in my area of Socal, I spread my accts to three financial institutions, Wachovia, WaMu and, B of A and sold ALL my stocks and put my money into mutual funds and CD's...Seems like I guessed correctly...at least this time. ;-)

Even the much publicized failure of WaMu Thursday, it was 'business as usual' yesterday. Even a 'run' of $16B still left WaMu with $307B assets and $188B in deposits...Certainly a good buy for JP Morgan/Chase!

Rod

 

[EngineerDave]

Actually many of these banks for political reasons were forced to lend to less than desirable candidates. They didn't want to and it wasn't necessarily predatory bank practices.

There was an act passed in 1995 that made matters far worse. If I remember then name I'll post it on here.

 

[IRstuff]

"Stated Income" loans were EVERYWHERE last year. That's what broke the bank (literally), coupled with falling housing prices. The majority of these people, both borrowers and lenders, were betting on the come, thinking they could ride the bubble upward and get out before they were caught holding the bag. As usual too many people got on the bubble and it collapsed, as is ALWAYS the case. It's just that the bubble got so large that a WaMu, with $310B in assets can't get a decent loan to save its life.

In some respects, the Fed is also complicit; by ramping down interest rates to try for a soft landing, it prolonged the borrowing bubble, allowing even more people to borrow indiscriminately. Had the Fed been less aggressive in interest rate drops, credit would have been tighter earlier, thus keeping the likes of WaMu from digging the deeper hole that it found itself in last weekend.

Think about it. There were, and still are, hundreds of homes in Yorba Linda, CA, alone, that are listed at well above $1M. Someone without a house to sell would need $200K in down payment, and would have to pay about $5K a month on a fixed rate loan. This would require about $15K a month in income to qualify. So, the majority of these homes were purchased through trading up, but even still, they probably shot for the "most" house they could get away with, figuring that if they got into trouble, they could unload the house. Everyone was in on it, even those that bought "cheaper" houses at $500K, trading up whatever they were living in, prior.

People are basically greedy; it's human nature. 25 yrs ago, there are plenty of people caught in adjustable mortgages with balloon payments, and they bit the dust. People have absurdly short memories when it comes to financial debacles. A measley 3 generations after the Depression, almost no one has any savings to speak of.

Of course, many appear to have bought into the notion that they're screwed on SS anyway, so why not spend like there's no tomorrow? Besides, they're also betting on the come, that Uncle Sam will always come to the rescue.

TTFN

FAQ731-376

 

[evelrod]

I once actually liked Yorba Linda. I spent a lot of time at the shooting range...it's just 'Yuppieville' now.

Banks fail, even in good times they change hands. WaMu is gone, officially. It's now Chase and all the logos are to change within six months. No big deal, I suppose. I opened the acct. in the 80' when it was Household Savings Bank which was sold to Home Savings and then to Washington Mutual...Now it's JPMorgan-Chase. Now I need to look at Wachovia, which absorbed my Prudential accts a few years back. I've got a couple CD's with them, but they are FDIC and less than $100k so I suppose I'll be okay here, as well. We must be kinda careful with using the FDIC as our backup, they only have $40B in reserves and, should it have been required, WaMu would have eaten up $30B of it!

I know it's pretty bad and could potentially get much worse. Just keep in mind that only 13 bank failures so far. The Enron/Worldcom/S&L deal caused over 700 failures, albeit no really big ones.

Rod

 

[plasgears]

Are bank mgrs immune from prosecution? Haven't heard anything about identifying the culprits and bringing them to justice. The machinery of regulations and justice should put the fear of God into the hearts of bank mgrs and their staffs, who are playing hard and fast with other people's money.

I don't commit crime because of moral training and the fear of retribution on several levels. You get the feeling that bank people have an immoral bent and no fear of anything.

 

[Zapster]

An interesting look on what some believe was the root cause of the United State’s financial problems:

http://hotair.com/archives/2008/09/26/video-financial-crisis-in-10-minutes-or-less/

Personally, I am adamantly against bailing out any business by political means. The problem was created by politicians that did not understand the full ramifications of what they were doing. Their plan was for the crisis to develop on someone else’s watch, mostly for our children to deal with while they raid the bank for personal gain. Yes I mean the politician’s personal gain; the foxes were in charge of the hen house, and they were selling out our future for votes to keep themselves in office. The politicians were not the only ones to blame. The American people who wanted goodies from the government, all for free, are also to blame.

Now the same folks that brought the United States this problem are the ones proposing a solution to the problem they made. No doubt they will create a greater problem in the future by not allowing a correction now. The only real long term solution is a correction in the housing-markets/financial-markets and to stop the deficit spending. In the long run, people will not lose a place to live. There are a 3 million people in the United States and around 160 million households. If there is an adjustment to the markets, these numbers will not change.

If you are an American and want to leave something better for your children, let’s take the financial hit now instead of making a bigger problem for our children.

 

[cedarbluffranch]

One thing I'll say is we need to let the price of homes drop to market value.

Speaking as someone who is 29, and recently watched the last five years as housing has zoomed incredibly high, I believe that we need affordable homes in the United States. Just because I wasn't born 10 years earlier shouldn't mean that I can't own a home.

The overall appreciation of homes over the last five or ten years was unsustainable, because everyone's home can't rapidly increase in value beyond increasing incomes. At some point, the home become unaffordable to the general public and prices fall. No government bailout can change free market economics (supply and demand).

 

[ctopher]

I like what Jay Leno said Friday night.

Crime is down in this country.

Something like this....
-No banks to rob
-No cash to steal from the remaining banks
-No gas for the get-away car

I think this is the show...

http://www.nbc.com/The_Tonight_Show_with_Jay_Leno/video/clips/monologue-925/702841/

Chris
SolidWorks/PDMWorks 08 3.1
AutoCAD 08
ctopher's home (updated Aug 5, 2008)
ctopher's blog
SolidWorks Legion

 

[bvanhiel]

There's a few things you can't blame the current crisis on...

1) Greed. Greed is the force that runs capitalism. It's a mistake to assign any motivation other than greed to any corporation. If such an alternate motive existed in a particular company, it's stockholders should sue.

2) Any particular person. What happened was not predictable or else it wouldn't have happened. Read up on the tulip bulb craze. That's how bubbles work. While I love the fact that the exec's are going to get pummeled in the bailout agreement, I recognize that it's a purely political bone thrown to us plebs.

I'm not sure the bailout is the best thing, as I think it's going to just prolong the pain rather than taking it as one hit. It will only be a slower, softer ride to the bottom. But that is speaking as one who's not counting on the equity in his home to keep himself solvent.

-b

 

[ctopher]

My 2 cents....
I believe a lot of this started with the unions about 20 years ago. There were strong aerospace and mfg industries and the unions demanded more money. This was the start of mfg leaving California, trickling into other states. In time, outsourcing began, then house prices went up. Realstate boomed, then jobs were finally lost to more outsourcing. The US gave away technology and services to China and India, killing our economy. Schools were hit hard (which should be the last on the list to touch financially).
More jobs were lost, houses foreclosed, leading up to our current mess.
The Iraq "war" didn't help. Taking away US citizen's taxes and giving it away to other countries. Not not this is bad, but US citizens should come first.

Companies can not afford the rising costs of unions, going bankrupt or moving out of state or country.

My kids are honor students, but the way the world is going, I fear for their futures.

I have lost trust in our US gov't, and do not see anything getting better in the near future.

Chris
SolidWorks/PDMWorks 08 3.1
AutoCAD 08
ctopher's home (updated Aug 5, 2008)
ctopher's blog
SolidWorks Legion

 

[TheTick]

The hotair.com partisan propaganda video oversimplifies and/or ignores key facts and does not go nearly deep enough.

This crisis could no have happned without banks' complicity. A flood of subprime loans alone was not enough to blow this situation up to current levels. Banks were aware of their own overleveraging and treated these bad loans as if they were AAA assets.

Besides, who owns the politicians? Are they not all just flunkies on lobbyists' leashes?

 

[evelrod]

Chris, it's interesting that you lay a lot of the blame on "unions". Interesting in so far as the majority of outsourcing has been done by non union companies.

This current 'crisis' should easily point out the probability that 'management' does not have our best interests at heart. Is it just possible that the unionization of the labor market in this country is responsible, at least in part, to our overall prosperity? How much money would the aforesaid management be willing to part with 'as wages' for us 'campasinos'?

Tick....Partisan propaganda? Ya think?

Rod

 

[ctopher]

A lot of companies are outsourcing, union or not.

We are going to get hit more. The union is one strike at Boeing, hurting production. Russia and China are teaming up to start their own commercial aircraft line. With them and Airbus, they will kill Boeing.

Chris
SolidWorks/PDMWorks 08 3.1
AutoCAD 08
ctopher's home (updated Aug 5, 2008)
ctopher's blog
SolidWorks Legion

 

[IRstuff]

If the jobs are being outsourced, then those affected would be earning less, or leaving the state to go get the jobs elsewhere. Both would lead to LOWER housing prices.

China started their domestic aircraft business more than 20 yrs ago, with the help of McDonnell Douglas, which sold aircraft to China, with the stipulation that China be allowed to build parts of the aircraft in China.

There's a big difference between "self-interest" and "greed." Capitalism runs on self-interest, coupled with the self-control needed to prevent complete crippling of the economy and to ensure long-term success. Greed doesn't care about the consequences or the future.

It's interesting that every time capitalism takes a dump there's a rush to blame unions, who are doing the precise same thing at the behest of their constituents. And yet, when times are booming, it's because of capitalism, and not the unions.

Is the CEO of Lehman really doing 1000 times the work of their lowest paid worker? Given Lehman's track record, the CEO is making way more mistakes, and hurting the company way more than the mailroom guy.

TTFN

FAQ731-376

 

[Zapster]

Unions have little, if anything to do with the current housing/financial problems. There are huge problems with government regulations involving union labor. The biggest problem I know about is the “Davis-Bacon Act” which results in public projects costing more than they should. The reason for the “Davis-Bacon Act” was to buy votes from unions. Although I cannot site off hand government regulations that were developed to buy votes in other industries, I am certain they are there. How many public school districts have non NEA work forces?

The current problem is a society in America that is more concerned about what the government can give them in the near future without concern of the long term consequences. Most people think that it is the other politicians that are the problems and that their elected representative is just looking out for their local interests.


PS In my previous post I meant 300 million and not 3.

 

[davidbeach]

The best bailout would be for the government to buy any load going into foreclosure at $0.25 to $0.50 on the dollar. That would take the foreclosures out of the loop, and would establish a floor under the securitized mortgages that seem to be the major problem. That price guarantees a loss for the lender, as should be for failure to ensure the borrow had means to repay. That price then allows the government to rewrite that mortgage at $0.30-$0.60 on the dollar, to the advantage of both the taxpayers in general and the mortgage borrower. Far better to keep people in homes and gently push down housing prices than to bailout Wall Street without doing anything to help the people being displaced by this mess. The borrower would have to be living in the house to qualify.

 

[Zapster]

davidbeach, Let me get this straight. You want to exclude all homeowners and businesses that are in a strong financial position to competitively participate in purchasing foreclosed mortgages, by allowing the existing defaulted home owner to have the right of first refusal at 30 to 60 percent of the balanced owed on the mortgage? This would create a rush for people to become insolvent with their mortgages so they could change the terms of their debt to 30 to 60 percent of the mortgage.

 

[IRstuff]

I think that's why we're all engineers, and not investment bankers

TTFN

FAQ731-376