6
   

THE ROOTCAUSE OF THE FINANCIAL TURMOIL ?

 
 
cicerone imposter
 
  2  
Reply Mon 22 Sep, 2008 10:29 am
@FreeDuck,
FreeDuck, Japan sorta went through this same debacle about two decades ago from their bubble. It took them over a decade to clean up their mess, and is now in "recovery" mode. The US debacle is much deeper, because we have a world economy in stress, while Japan had the tech boom to help their recovery.

This is going to last a very, very, long time.
0 Replies
 
hamburger
 
  1  
Reply Mon 22 Sep, 2008 10:48 am
@cicerone imposter,
there is actually a name for those mortgages with "teaser loans" and other enticements .
they are known in the mortgage business as "NINJO" mortgages :
"no income - no job mortgages" - of course , the mortgage agent will still collect the commission - after all , the mortgage "specialist" has to make a living , right ?
hbg.

in the life insurance business there was at one time a similar scam going on (doesn't work too well any more btw.) :
agent finds a recent immigrant , tells him that his company has a special "deal" for him and his relatives .
agent sets up bank account for client and puts as many as three monthly payments into account . he chalks up the sale and gets commissions for the whole year ! usually equal to a full year's premium - possible even up to 150% with bonus for "high sales" volume . most clients have no intention to continue paying after thre months and let the policy lapse . the scheme often works for 9-12 months before the insurance company wakes up and realizes that the policies aren't staying on the books .
so the agent leaves and finds a new company , shows his great commision statement from his previous company and promptly gets hired ... and repeats the process over a gain ...
profitable for the agent , but not the company <GRIN> .
unfortunately not as many immigrants coming to canada to participate - it's a lot more difficult for an agent to make an "honest" buck these days .
hbg

ps. worked for about 30 years in the industry - many years as an auditor - oh , what fun it was <GRIN> .
0 Replies
 
hamburger
 
  2  
Reply Mon 22 Sep, 2008 10:58 am
@FreeDuck,
really good article , freeduck !

martin feldstein - one of the economics advisers to senator mccain - gave an interview to canada's "globe and mail" (see link for full article) ) .

question : "so how bad could it get ?" .
mr. feldstein : "right now about 20% of mortgages have 'negative equities' .
that could easily rise over the next year or so to 40% " .

i wonder if he told senator mccain the good news ?
hbg

link : http://www.theglobeandmail.com/servlet/story/LAC.20080920.GRANO20/TPStory/?query=martin+feldstein
cicerone imposter
 
  2  
Reply Mon 22 Sep, 2008 11:20 am
@hamburger,
The current trend says 40% is possibly the minimum with the maximum unknown to anyone. They're all guesstimates now, because all those bundled mortgage funds have not been analyzed.

In our area, foreclosures are still over 300% from one year ago. Those numbers will not change any time soon.
0 Replies
 
hamburger
 
  1  
Reply Mon 22 Sep, 2008 05:25 pm
@hamburger,
getting back to "pollyanna creep" :

Quote:
More practically, he writes that some of the biggest changes to CPI calculation happened between 1997 and 1999 “while the public and the politicians were preoccupied by bull market euphoria and the actions in Congress to impeach Bill Clinton”. In their effort to reduce social security outlays - and buttressed by a belief that CPI in fact overstated inflation - Alan Greenspan and others implemented some controversial modifications that factored in such issues as “hedonics”: an abstruse way of measuring increased satisfaction from goods. (Example: as described in a 2005 Wall Street Journal story, a specialist in the Bureau of Labor Statistics (BLS), which compiles the CPI, adjusted the price of a $329.99 TV down to $194.99 after concluding that an improvement in the quality of its screen over a previous model of the same size was worth at least $135. The TV still cost $329.99 retail, but the CPI recorded it as being worth nearly 30 per cent less.)


this reminds of a recent CNBC morning show episode where CPI was touted as being quite low .
one of the fellows said : "yea , that's what i told my wife recently . so she asked me to come along for saturday grocery shopping . i was a little surprised to see that so many prices seen to have jumped lately - something doesn't seem to add up ! " .
one of the other fellows kept repeating the "official numbers " .
so he was asked : "have you done any shopping with your wife lately ? ' .
answer : "cough , cough , mumble , mumble " - cut to commercial !
hbg

btw. that seems to apply to canada as well !
0 Replies
 
JPB
 
  3  
Reply Mon 22 Sep, 2008 06:04 pm
@FreeDuck,
Great article, FD. This part spoke loudly to me...

Quote:
3. This is obviously unfair. It bails out irresponsible behavior, and by implication, punishes responsible behavior. Longer-term, unless there is a lot of pain felt by financial company executives " who, remember, don’t look like they have to go bankrupt to dump their bad loans on taxpayers " this creates a massive moral hazard problem. Further, if such a situation develops, it won’t be lost on voters, who will likely demand greater socialization of consequences of reasonably-foreseeable bad behavior by people who don’t make a million dollars per year. The ideological consequences of the last few weeks will take many years to play out, and conservatives are unlikely to happy about them.
roger
 
  1  
Reply Mon 22 Sep, 2008 06:32 pm
@JPB,
Great article, indeed. Someone already pasted it, but without attributation.
0 Replies
 
cicerone imposter
 
  1  
Reply Mon 22 Sep, 2008 07:00 pm
@JPB,
It is unfair; but the biggest problem with this bailout is that our government really doesn't know the long-term cost of this $700 billion cost to taxpayers. It will not only create more inflation that taxpayers will be flooded with, but that $700 billion figure is the principle amount - not the long-term cost to finance it. If you understand how much a mortgage on a home can cost for 30-years, you can get some understanding of the true impact of this give-away of taxpayer money. There are also other variables I'm sure are being missed from this urgency to pass legislation. Our government continues to work in total darkness, and any bail-out is going to help foreign investors recover their losses, all funded by American taxpayers. Isn't that nice?
0 Replies
 
 

Related Topics

Where is the US economy headed? - Discussion by au1929
The States Need Help - Discussion by Robert Gentel
Fiscal Cliff - Question by JPB
Let GM go Bankrupt - Discussion by Woiyo9
Sovereign debt - Question by JohnJD
 
Copyright © 2022 MadLab, LLC :: Terms of Service :: Privacy Policy :: Page generated in 0.03 seconds on 12/06/2022 at 01:54:57