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.

 

[IRstuff]

Track them down for what, exactly? The guys at the top are all teflon-coated. They might even have the plausible, or real, deniability, since the heavy-lifting for creating the bad loans were all done at your friendly, local loan broker's office. By the time someone at Lehman Brothers even saw a mortgage, it had already passed hands a few times.

You can't realistically jail or punish them for simply betting on the come. That would probably put have of the defense industry in jail, as well. After all, most contract cost overruns are bets on the come.

TTFN

FAQ731-376

 

[stanier]

Howt about the due diligence necessary in running a business? Have not the shareholders interests been compromised by the ineptitude of those who didnt check out the fundamentals? Isnt there a duty of care on the part of the teflons?

You generally know a contract is going to overrun a long time before it does. The project manager then reports a forecast overrun to the Board of Directors. provisions are then made in the revenue account for the loss. The tools used in the construction industry are a lot less sophisticated than those used in the finance industry.

By their silence the corporate teflons are culpable. They conspired with the market to hide this mess, even from themselves, for so long. Alarm bells were ringing 18 months ago but they kept trading and all the punters got was the the three wise monkeys. Hear no evil, see no evil and speak of no evil. The teflons even advised local councils in Australia to take up these financial commodities. Before they can sue them they have gone bust. Where is the money?

For a start how about a class action against the local brokers who lent money to people who he/she knew couldnt pay it back? Take their houses from them. Perhaps they will spill the beans on the teflons and what they did know.

 

[hokie66]

stanier,

The problem with punishing the guilty, especially the lawyers, is that the lawmaking bodies are dominated by lawyers. So to make a start, we need to vote out all the lawyers.

 

[KENAT]

Amen to that, I've said before there should be a quota for how many politicians are ex lawyers, no idea how you'd do it though.

KENAT,

Have you reminded yourself of faq731-376 recently?

 

[stanier]

I grew up in North London where the Kray twins held sway. Take a couple of hundred grand from those guys and you would find your head nailed to the floor of the Blind Beggar's public bar.

I dont think the teflons are out of the woods yet. There will be some angry hoods out there who have trying to launder money into legit businesses. They are going to be very angry they have been robbed.

If I were a lawyer or financier involved in these scams I would be changing names and location pretty quickly. Teflon isnt much protection.

 

[AutoXer]

So, in short, the cause of all this was the rapid increase and later VERY rapid decrease in home prices. Coupled with covering up the rapid decrease by those selling the "paper". ...and bad lending practices. Correct?

Did the supply go up or the demand go down to cause the rapid decrease? Or both?

I think everyone knows that one area hit the hardest by the increase/decrease of housing was California. My area, WV, seems to be affected very little. What are some of the other hard hit areas?

 

[jistre]

"The first thing we do, let's kill all the lawyers"

--The Bard

 

[dvd]

Don't forget to add local, county and state governments to the list of guilty parties. All of the above were very anxious for property values to increase because the property taxes rose accordingly. So much of the rise in real estate values was "blessed" by governments from top to bottom.

Although only a fraction of the total number of homes were sold or re-financed, they were all re-assessed. The only question posed by government was how to spend the money. Now, will tax assessments fall quickly, or will we learn that our property tax levies will need to increase to support government at the level they choose.

 

[stanier]

It would appear greed and avarice still remain some of the most potent deadly sins. The Confessional will have to be fitted with a revolving door to handlethe increase in traffic.

What is most gauling is that loose laws & greed in the USA cost the rest of the world.

Sooner the oil & gold standard moves to Euros or Yuan the better. The Arabs and Chinese must be rueing the day they invested in the USA.

 

[ctopher]

Abraham Lincoln's frightening premonition:

"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country... corporations have been enthroned, and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war."


– Abraham Lincoln (1809-1865) letter to Colonel William F. Elkins, 21 Nov 1864.

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

 

[KENAT]

Nice quote Ctopher, goes to show many of the fundamental issues behind the current crisis have always been around, or at least for a long time.

At the end of the day it comes back to the golden rule - he who has the gold makes the rules.

Stanier, why would the Chinese be regretting it? They're making bank, the Arabs aren't doing badly either. At this rate the "land of the free & home of the brave" will be all but owned by a communist dictatorship and several absolute, or near absolute, moarchies.

As for putting all the blame on the US greed, I don't recall 'the city' being much different in the UK and seem to remember Australia may have had it's own issues.

KENAT,

Have you reminded yourself of faq731-376 recently, or taken a look at

http://eng-tips.com/market.cfm?

 

[DonPE]

Even though they have $519B worth of US Treasuries, the Chinese economy is highly dependent upon exports to the US and Europe. Many of us are just worried about paying the mortgage, not spending on more stuff we don't really need. The domestic Chinese economy won't be able to pick up the slack in demand. Chinese stocks are likely to fall even further than this years 58% plung, upsetting their new economy.

 

[KENAT]

Sorry Don, I was going for the popularist vote, you know blaming China.

KENAT,

Have you reminded yourself of faq731-376 recently, or taken a look at

http://eng-tips.com/market.cfm?

 

[Dirtguy4587]

Excellent discussion here - many interesting points. I'm curious though - being a Canadian Engineer; what do other Canadians (or those who know of the Canadian economy) think the impact will be on Canada, given our strengths in the 'not-likely-to-fizzle' oil/gas/energy sectors?

My personal opinion is that the Canadian economy will likely follow the US economy, but not to the same extent. Our banking system is far more stable (more legislative control), and we are not facing the sub-prime mortgage fiasco. I think that the bailout will improve the Canadian economy as much as it will the US (or perhaps even more), as the more stable energy sector will draw additional investments from those feeling uncomfortable with on-goings south of the border.

 

[BigInch]

Not all Canadian exports are oil and gas. Your trading partner statistics will suggest that there are many industries contributing to the Canadian trade balance that will also stand to suffer significantly with reduced trade to the US.

"Make everything as simple as possible, but not simpler." - Albert Einstein (1879-1955)
***************

http://virtualpipeline.spaces.live.com/

 

[IRstuff]

The recession of the early 90s was engineered to take down the Japanese juggernaut. If you may recall from that time, much gallows humor was invested in the notion of having to learn Japanese to survive. The US semiconductor industry was getting clobbered by the likes of Hitachi, Toshiba, etc. They bought up billions in US real estate. Fujitsu, whose corporate logo mimicked the corporate logo of Fairchild Semiconductor, was a hairs breadth away from purchasing one of the two founders of the US semiconductor industry before the Reagan administration nixed the deal.

Yet, a mere 5 yrs later, the company that roared in to purchase the Century City headquarters of Northrop Grumman for $200M went belly up, and it took nearly 10 years for Japan to regain its industrial preeminence.

China has gotten quite financially powerful; there's no doubt that "those" in charge are looking for a way to manipulate the US economy into tanking the Chinese economy. It's not clear that they'll be successful this time around, since the Chinese should have learned lessons from the Japanese. Should be interesting to see what happens...

TTFN

FAQ731-376

 

[BigInch]

IRStuff, Which side are you referring to when you say, those in control"? How do you know that its not been the Chinese at the wheel? Is it not possible that Chinese control over the value of the Yuan at excessively low rates and their placement of 1/2 trillion dollars + at very low US Treasury interest rates to finance the resulting feeding frenzy level US appitite for Chinese products wasn't actually part of an economic warefare plan to take down the US economy? Hey, the same concept used to work very effectively to take out independent gas stations competing with the major dealers in the 60's. Why else did China, a communist model, implemented on a scale so large and more perfect than Carl Marx ever imagined, suddenly and radically change philosophy to accept a limited capitalistic model? Was it because of Tiniman Square, or just because all-of-a-sudden they realized the value of money? Is such a thing at least minimally possible?

"Make everything as simple as possible, but not simpler." - Albert Einstein (1879-1955)
***************

http://virtualpipeline.spaces.live.com/

 

[BigInch]

BTW DirtGuy, I think the oil industry is anything but stable at this point. On one hand they face a great potential shortage of supply (even an OPEC flood and glut of oil), in the face of ever increasing costs to the majors companies for finding, producing and moving it to markets. On the other hand they also face either a significant potential drop in demand and revenue going into a possible worldwide recession with probable still increasing exploration costs. To compound matters, a rapid increase in demand with exploration budgets that would undoubtedly have been reduced during recession and resulted in little addition to new reserves might be probable, if the economy happens to find its way out to the other side of the chasm in a relatively short time. That scenario might produce price increases which would be so fast and severe that oil might not be afforadable to anybody. Care to chose a long-term strategy from those alternatives? I'll bet it involves reducing present costs as much as possible.

"Make everything as simple as possible, but not simpler." - Albert Einstein (1879-1955)
***************

http://virtualpipeline.spaces.live.com/

 

[Dirtguy4587]

Of course, given the financial situation, OPEX, and even Capital investment costs are under large scrutiny, as much in the oil industry as all others. Many people, however, are suggesting that the pending recession (notwithstanding the US Bailout) could be as bad or worse than the Great Depression. My suggestion is that the energy sector may in fact become a more stable 'lifeline' for economic disaster, as certainly the western world has such a great dependency on oil (certainly far moreso than in the 1930's). We all drive more, heat our houses using natural resources, rely heavily on international and intercontinent transport of goods etc. So despite the decrease in demand on the manufacturing industry (people won't be buying as much), my feeling is that the energy sector may be our saving this time around.

I recognize that Canada's exports are more than just oil and bitumen, however, our oil reserves (esp. in the oilsands) exceed most others on the planet (even in Saudi), and certainly, they are a more stable form of reserves (based on political situation). Thus, doesn't this make Canada a candidate for fairing well through this economic downturn?

 

[BigInch]

I would predict, with the occurance of any reduction of demand, that the expensive oilsand to the north will be the first oil to feel any production cutbacks. The Saudi's can still get it out of the ground for appx $15/BBL or less. The cheapest sources are ALWAYS preferred. In the mid 80's Texas had hundreds of producing gas and oil wells shut in when the oil world market price went to $10/BBL and the Saudis were selling still cheaper FOB for $4. We were selling gas at $1.18/MMCF even though it cost us more to produce it, just so we could make payroll until pink slips could be handed out.

"Make everything as simple as possible, but not simpler." - Albert Einstein (1879-1955)
***************

http://virtualpipeline.spaces.live.com/