cicerone imposter wrote:Some people are just too ignorant to know what they're talking about, and that includes mm.
How rude and unproductive! If you wish to discuss the economy, do so, but childish name calling only leads me to believe you aren't as smart as you pretend to be. If you were, you would post actual reasons, including facts from history and stats from today, explaining why you disagree.
I have found, in general, that many people, many of whom are in congress or running for office, will raise their voice in anger and resort to name calling as well as sloganism when they really have no way to respond using actual data. I don't know you well enough to say if you are generally in this category, but in this particular discussion you certainly sound like it.
pstewart, If you have something to say, question the content of my posts. Otherwise, you're just whistling Dixie and adding to the insults.
you say "I have found,..." Was that a Eureka moment for you?
cicerone imposter wrote:Richard S, I don't think so. Some estimates put the sub-prime loans at a conservative 15 percent of the mortgage market. We're talking not billions, but trillions of dollars. The biggest problem is how these loans were sold and rebought by funds anticipating 3 to 5 percent profit on the exchange - all leveraged buying. There isn't much real money that's backing up those loans. The so-called funds that owns them now is holding almost worthless paper.
It will depend on how the investors react to this crisis. It can be rocky or smooth; but it isn't going to be an easy ride. Japan was able to get out from under a similar situation from the late 1980s. It took them about 20 years to clean up their balance sheets, but the Japanese are some of the best savers. It also helped that their economy remained strong.
Yeah but dont forget these banks can create money out of thin air. up to 9 times of their deposits. so $130 Billion could cover a trillion. OR they could just be bailing out some friends or preferred companies. But Ron Paul says its a bailout and that man is the most honest man in Washington DC.
mysteryman wrote:Richard Saunders wrote:cicerone imposter wrote:Look how the .5 percent rate drop for loans to banks have affected the market on Friday. Pure ignorance! It only matters because of the "psychological" effect it has on investors.
Defaults on sub-prime loans in Silicon Valley is estimated at about 25 percent, and this is a high value estate market.
Banks and mortgage loan institutions are gonna have a huge problem with liquidity. They're gonna be writing off some big bucks from their balance sheets.
I think the federal reserve already bailed them out.
They shouldnt be bailed out at all,and neither should those people in trouble because of the subprime mess.
EVERYBODY involved knew the risk and KNEW they were gambling,yet they did it anyway.
If a gambler loses money in Vegas,should the govt reimburse those losses?
Its the same principle.
I agree.. they should NOT be bailed out.. Of course when Gasoline goes up another 10 cents a gallon along with a loaf of bread in another 6 months youll have one of your reasons in this recent money creation
mysteryman wrote:cicerone imposter wrote:mm: And I have stated mine.
I have said that the fed govt should NOT bail out those that knowingly gambled and lost.
The feds are not bailing out those who have knowingly gambled and lost. They are providing funds to help with the liquidity problem created by the sub-prime lending that is not returning any cash to keep the money in circulation for new loans. Without new loans to those who can afford to borrow the money to make purchases, it will hurt our economy. If our economy is depressed, tax revenue will drop, and everybody will suffer. Get it?
Yet according to the news,most of the lenders being hurt by the liquidity problem are the same ones that created the problem.
I dont see how that can be called anything else but a "bailout".
And lets clarify something here.. The 'Feds' are doing nothing. The 'Federal Reserve' is doing the bailing out and theyre not the government. They are a private bank. They can do whatever they want and the govt wont do **** about it.
Darth War_dodger siphoned off $500 billion dollars out of the treasury for the war of profits for friends and family. The bushes have a financial interest in Kellog and Brown Roots, subsiduaries of Halliburton. Ontopofthat the war alienated Europeans, Arabs and Latin Americans so American products have no market in Europe, Middle East nor in Latin America. Only East Asia and military dictatorships offer a market for American goods. The dictatorships buy weapons. I only see an outflow of American money but little inflow into the treasury. American jobs are disappearing hence the mortgage defaults. Darth War_dodger is ruining the US economy.
The "bail out" is for self-preservation. If there's no more liquidity in the market to loan money to consumers, the economy will stop dead in its tracks. When the economy takes a downturn, retail sales slow down, people begin to lose their jobs, and tax revenue drops.
Actually, the infusion of cash is a good idea; it depends on how far they go with it.
Infusion leads to inflation and too much of it leads to hyperinflation. That is why the dollar is sinking.
Why should a bank give a mortgage to people without any equity to speak of and moreover, a low interest loan with little or no down payment?
Many of those with defaults on their mortgages are the very same ones who lack health insurance, because "they can't afford it"!
Talk about priorities...
Miller wrote:Why should a bank give a mortgage to people without any equity to speak of and moreover, a low interest loan with little or no down payment?
Many of those with defaults on their mortgages are the very same ones who lack health insurance, because "they can't afford it"!
Talk about priorities...
Miller, just look to History for your answer for those of us who forget it are doomed to repeat it..
Listen to this explanation:
"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."
Thomas Jefferson, Letter 1802 to Secretary of the Treasury, Albert Gallatin
Approx 900,000 people have lost their homes since JANUARY. The Banks do this because they profit by it. And they get away with it because they control the issuance of money. It happens just as Jefferson said it would.
There is only one candidate running for office who has balls enough to talk about this openly - Ron Paul.. Google Ron Paul Bernanke.. See how he deals with these people.
talk72000 wrote:Infusion leads to inflation and too much of it leads to hyperinflation. That is why the dollar is sinking.
Talk, Do you understand macro-economics? About M-1 and M-2? The feds try to control the circulation of money by economic models on currency, but nothing in economics is real science; it's more an art.
If you look at the total "available" US currency in the world vs our productive capacity, we already have "inflation." There's more US dollars floating around than can be covered by our GDP; that's inflation.
As I've said many times before, our feds play around with quarter point adjustments to control inflation belongs on the laugher curve. The only thing it does is it affects our stock market, because interest rates vs potential income from the stock market is always at play. For example, if the short-term interest rate is four (4) percent and the stock market gains have a potential to pay ten (10) percent (with a little gambling put in), most poeple witll shift their money from savings to the market. It's primarily a psychological belief, nothing more, but over the long-term we know that the stock market has outperformed bonds.
Have you been keeping track of gas and food prices during the past five or six years? It's been increasing; that's inflation. Because most consumer's pay has not kept up with the CPI, American's savings rate has gone to zero during the same period.
Inflation is already here; most people just don't realize or acknowledge it.
Here's a pretty good explanation from NPR of the liquidity problem we faced.
Analysis
Pumping Money: Financial Market Liquidity Explained
Another good article.
Market liquidity and money liquidity
We talked on Monday about the current level of liquidity in the markets. Today we will take a look at the difference between market liquidity and liquidity in the form of available money and credit.
When we talk about market liquidity, we generally refer to the ease with which assets and investments can be sold for cash. How liquid is the market for "x" - when we ask this question we are basically talking about how quickly we can turn item "x" (be it real estate, stocks, or bonds) into cash.
If we can readily exchange our investment for money and suffer no significant downward price movement in the process, then the asset or investment is liquid. If the market for an asset or investment is shallow, or inactive, with high bid/ask spreads and volatility, that market is said to be illiquid.
Illiquid assets and investments are often hard to sell, and oftentimes their sale can have a significant effect on prices in the market. This is one of the main issues in the ongoing credit-market panic. Fear has produced a surplus of sellers and a shortage of buyers for subprime backed CDOs and other exotic instruments.
Illiquid investments, such as CDOs and asset-backed securities, were widely held by hedge funds, banks, and investment funds. Now that their value has been called into question, panic has spread to much of the credit markets, affecting prices for junk bonds and other forms of corporate debt. This, in turn, has affected the LBO/private-equity deal market. As appetite for debt dried up, "deals galore" became "deals no more".
Recently, that fear spread to the equity markets, triggering a $2.65 trillion sell-off in equities worldwide. Although stock markets have been rebounding a bit in recent days, cheering themselves with visions of continued global growth and the Fed's assurances that the subprime fallout will not wreak havoc on the U.S. economy, one has to wonder what the future holds in store.
With that in mind, let us examine the effects that an expanding global money supply have had on the financial markets in recent years, as well as the likely future effects that any tightening (or further easing) of money and bank credit will have on investment markets.
Jeremy Grantham spoke earlier in the year of a "truly global bubble", one which encompassed all manner of assets in a number of locales. This global bubble was driven by the generous global supply of money and credit, the availability of which helped fuel widespread optimism and excessive risk-taking in financial markets.
Now we see that a reversal of the bubble's high-risk appetites and "animal spirits" is taking place, and so far it is very much in line with the script laid out by Mr. Grantham earlier in the spring. So does this spell the end for the "great bubble" of the early 21st century, or is it just a pause in the madness?
In order to get a better understanding of what will happen in the markets and the economy, we need to look at global money and credit conditions going forward.
Will liquidity, in the form of money and credit created by the banking system, increase or will it dry up? Will an abundant supply of money and credit continue to wash over the globe, taking asset prices higher, or will a money and credit contraction knock investment markets and asset prices down from their recent lofty heights?
In asking these questions, not only are we trying to divine the future of money conditions, we're also trying to find out what effect these conditions will have on our investments and on investment markets as a whole.
Is the relationship between money liquidity and investment/asset prices so straightforward? We'll try and examine that question in "Market liquidity and money liquidity, Part II". Stay tuned.
posted by David @ 9:08 AM
cicerone imposter wrote:
Inflation is already here; most people just don't realize or acknowledge it.
I don't think you can be too confident about that one. Yes, there is some inflation in some sectors, but not in others. How about housing? Do you have any concern for deflation?
okie, Deflation is already happening in the housing market. Most homes for sale are now on the market much longer, and the prices are coming down. There's going to be more homes on the market as more people with sub-prime loans begin to default on their mortgages. There's going to be more empty homes than buyers, and those with good credit are the only ones who will be able to get loans. The past housing market boom is gone. Even the big builders who devleoped most of the new communites during the past decade are saying sales are down. Speculators will be reduced to almost zero, because there isn't the free flow of mortgage money any more.
From CNNMoney:
Bonds keep climbing wall of credit worries
Investors pile into short-term debt in a flight to quality, just a day after yield on 3-month Treasurys posts biggest drop since 1987.
August 21 2007: 10:53 AM EDT
NEW YORK (CNNMoney.com) -- Investors piled into short-term Treasurys for another day in a flight to safety Tuesday, just a day after some shorter-term debt yields posted their biggest one-day drop since the stock market crash of 1987.
Shorter-term debt again posted big gains with the two-year note climbing 7/32, falling below the key psychological mark of 4 percent to yield 3.97 percent. The five-year note jumped 9/32 to yield 4.23 percent. Bond prices and yields move in opposite directions.
Conrad DeQuadros of Bear Stearns offers perspective on the Fed's decision and the reaction on Wall Street.
But the biggest moves came in shorter-dated government debt as investors flocked to the safest place they could find to park their cash. The yield on the three-month Treasury bill fell further, to 2.92 percent in morning trading from 3.20 percent late in the previous session, when the yield posted its biggest one-day drop since the stock market crash of 1987.
This is the reaction of the stock market when people think that it's safer to be in insured treasuries/bonds over the stock market volatility even as bond prices go up. (Supply and demand.)
Inflation most definitely is here. The Feds for some reason exclude food and energy costs from their calculator, and that just happens to be an area which has skyrocketed.
Where is the US economy headed?
NyTimes
Quote: Americans earned a smaller average income in 2005 than in 2000, the fifth consecutive year that they had to make ends meet with less money than at the peak of the last economic expansion, new government data shows.
While incomes have been on the rise since 2002, the average income in 2005 was $55,238, still nearly 1 percent less than the $55,714 in 2000, after adjusting for inflation, analysis of new tax statistics show.
The combined income of all Americans in 2005 was slightly larger than it was in 2000, but because more people were dividing up the national income pie, the average remained smaller. Total adjusted gross income in 2005 was $7.43 trillion, up 3.1 percent from 2000 and 5.8 percent from 2004.
Total income listed on tax returns grew every year after World War II, with a single one-year exception, until 2001, making the five-year period of lower average incomes and four years of lower total incomes a new experience for the majority of Americans born since 1945.
The White House said the fact that average incomes were smaller five years after the Internet bubble burst "should not surprise anyone."
The growth in total incomes was concentrated among those making more than $1 million. The number of such taxpayers grew by more than 26 percent, to 303,817 in 2005, from 239,685 in 2000.
These individuals, who constitute less than a quarter of 1 percent of all taxpayers, reaped almost 47 percent of the total income gains in 2005, compared with 2000.
Can we be any clearer?
Since the Great Depression, we have
never had two years in a row in which the average income didn't rise. In fact, there was only one year in which it didn't, before 2002. Now, we've had
five years in a row of non-growth in incomes, and what growth there has been, is concentrated amongst the richest 1%.
What more evidence do you deniers need that we are in a terrible economic situation? Historically terrible.
Cycloptichorn
So many issues swirling around here. Perhaps it is appropriate to mention the massive influx of illegals, which I think has been a significant factor in depressing wage scales in many industries. One of the arguments for returning to the rule of law is to tighten the availability of labor pool, thus bringing back into balance the true value of labor here, in comparison with other types of labor. It will cause an adjustment in the marketplace, some negative, some positive, but I believe the net effect would be positive.
okie, You're going back to the blame game; we are a country of immigrants.
More on the sub-prime mortgage and liquidity problem.
How Sub-prime Mortgage Problems Cause Liquidity Crisis
But how can problems in sub-prime mortgages cause the worlds largest banks, investment houses and hedge funds problems? Well, it is a complicated process that was put together by some of the leading financial minds on Wall Street.
First, the sub-prime loans were made without properly pricing in the risk of repayment. Loans were made without any collateral to borrowers who did not have to provide normal loan qualification information, such as income sufficient to cover the future loan payments. Many of these loans were adjustable rate with little or no money down. These are more risky loans, yet they were priced as though there was not risk associated with repayment and default.
Then various financial institutions "packaged" these loans together to create financial instruments that could be sold to various investors such as pension funds, hedge funds, etc. The packaging of these loans hid the risk inherent in the original loans. Also the packaged loans could include high risk sub-prime loans as well as high quality credits. The investors buying the packages were unaware of the details. The concept was that the packages were put together so that statistically the package of loans would meet an acceptable loss rate based on the past. Unfortunately, most of these sophisticated investors had no idea what they were buying, or did not fully appreciate the risk they were assuming.
When the repayment problems with these loans become more wide spread, they impacted the value of these packages, negatively. They did not know the value of these asset holdings. Also many were bought with credit to enhance the leverage and as a result the returns. However leverage works both ways.
As defaults in the loans grew beyond expectations, the investors sought sell their positions. The institutions holding these packages of loans had to sell some of their assets to meet cash demands from their investors. However, there wasn't anyone to buy these securities, except as very low prices (pennies on the dollar). This started the liquidity crisis. It expanded when the same intuitions then sold their more solid assets to help meet the cash demand from their investors. This included stocks with solid fundamentals, causing the stock markets to fall.
The banks that had lent money to these funds got concerned that their loans were in jeopardy and issued margin calls. This caused the funds to sell more assets, especially the ones that that they could sell easily, the better assets. This further caused the selling in the markets that lead to the liquidity crisis we saw recently. To help overcome this problem central banks in Europe, the United States and Asia temporarily bought securities from the banks to help provide sufficient cash to help them meet the demand. The banks will have to buy back these securities at a later date.
As a result rates for new loans rose in price to better reflect the realities of the market. New borrowers were faced with rates that were substantially higher than just a few weeks ago. Even well qualified borrowers encountered difficulties borrowing money as the lending institutions "over reacted" to the credit problems.
This is how we experienced the latest liquidity crisis which has caused much of the increase in volatility we have been seeing the stock markets.
Markets Highly Volatile
As the liquidity problems spread beyond mortgages they impacted the ability of private equity firms and hedge funds to borrow money to fund their purchases of stocks and to take companies private. Investors then become fearful that they owned assets that were losing value, so they sold stocks to generate the cash to meet their investor's demands. This caused the prices of stocks to fall. At times there were few buyers willing to buy stock, so the price of shares fell further. As a result "When you can't sell what you want, you sell what you can." This caused the increase in volatility we have experienced in the stock markets.
The VIX is known as the volatility indicator. It is a weighted blend of prices for a range of options on the S&P 500 index. When the VIX rises it is a sign of higher volatility which implies greater fear that the market will fall. Notice how the VIX has risen dramatically.
cicerone imposter wrote:okie, You're going back to the blame game; we are a country of immigrants.
Legal immigrants that all play by the same rules, yes, but if alot of people are not playing by the rules, it skews the market, and I thought it was worth mentioning in regard to wages not growing as much as cyclops would want, but nevermind, carry on with your cut and pastes, imposter.
