Thoughts are with the 4 people I know who work there
Housing market huh?
This isn't over yet either. My buddy's uncle works at Lehman Brothers and they called an emergency meeting. Everyone is preparing for a ripple effect.
The first in a whole house of cards.
They screwed up, made horrible decisions and now they'll be paying for it.
That's how business works. I just wish the Fed understood that.
People will be hurt. People will lose money. And guess what - the Fed's reactionary panic-driven response is setting us up for a whole cascade of financial disasters.
When rates bottom out (wouldn't shock me if we get to zero and let me tell you, I'll find a home or homes to buy) the dollar will start to go up - FAST. When that happens, commodity prices will drop like a stone. When that happens a whole new bunch of businesses are going belly up.
The Fed is taking a situation that's deserved - people and companies making stupid credit decisions and suffering for it - and transferring it to all kinds of financial sectors that don't deserve it by irresponsible rate cutting and lending. Once the commodity markets crash stocks will follow.
Is that inevitable? No - it doesn't make sense. But it will happen because corporate holdings and net worth will be tied up in commodities by then and when they fall the whole house could crash down.
Every time the Fed does something - I mean really, could you do a better job of sparking panic than to announce a rate cut on SUNDAY NIGHT??? Maybe next they'll shoot for Easter morning - rather than bite the friggin' bullet they endanger the entire financial sector - not just the ones that were dealing with risky credit.
Things are going to get bad. Then they'll get badder. Until the dollar starts to rise we have a bit of a buffer because goods and services from here will be cheaper for the rest of the world. When the dollar starts to rise then exports will drop, the layoffs will follow and the commodities (which by then is where a lot of corporate and individual net worth will be vested) will take a dive. The Fed will find itself in an impossible situation by then - one it helped create.
Last edited by DisplacedKnick; 03-17-2008 at 04:32 PM.
DK, you really think we could see 0% interest rates on home loans? That would be incredible! I'd buy a house just to say I had one!
This is nothing new. It's actually a century in the making. The federal reserve was created as a direct result of JP Morgan saving the United States from complete and total bankruptcy during the bankers panic of 1907. Flash forward a hundred years: The federal reserve gave a special loan to JP Morgan Chase (what a surprise) that was signed off by Treasury Secretary Hank Paulson and President George Bush (ON A WEEKEND FOR CHRIST'S SAKE!) so they could buy a seven billion dollar company for a mere 250 million. 250 MILLION! That's less than A-rod's last contract! Only to have their investment in Bear Stearns TRIPLE OVER 2 DAYS! This is one of the biggest and most blatant displays of high level corporate and governmental corruption and greed in history. Read more on the banker's panic of 1907 and how our current economic status directly relates to policy created by President Wilson and the wealthy tycoons from the 19th century:
The fed panicked there is no doubt about that, but had they not acted we would be in 1929 again right now. It would be a full blown depression. Nothing wrong with bailing out the banks, but you must help everyone.
The economy is NOT strong enough to handle what the Fed is setting us up for which is to weaken the dollar so much that we A) start an inflationary cycle and b) get everyone invested in commodities.
Commodities aren't meant to be investments - they're meant to be markets based on supply and demand. Commodities rise and fall far, far quicker than any mutual fund ever thought of doing. When a significant portion of this country's wealth becomes vested in commodities and THAT market crashes (which it will do as soon as interest rates bottom out and the dollar starts to rise) you'll see the financial equivalent of blood running in the streets. And I actually shouldn't call it a crash - a commodity market halving or doubling its value in a year's time isn't exactly normal but it's certainly something that's happened from time to time - in 1996 corn futures rose to over 6 on a short crop and a year later it was around $2.30.
In addition, money in commodities doesn't work for our economy the same way money in the stock market does. That's not capital businesses can invest. SOME businesses can because they'll hold contracts but again, when those contracts start to drop they'll be in trouble. For the most part though, contracts are just pieces of paper with value floating around in a very limited sector of the economy, without doing a whole lot to help the economy as a whole.
Commodities markets have always been the gambling man's investment game. It isn't built the same as the stock market and it isn't meant to be used that way - but people are using it that way now and I'm afraid the hurt will be tremendous when it comes.
If the stock market went from the 12,000 it is now to 6,000 in a period of 6 to 9 months we'd have a sure-fire full-blown depression. The commodity market has those kind of year-to-year swings as a matter of course.
A year ago corn was trading about $3.10. Today (just checked) it's at $5.50. Soybeans was somewhere in the high 7's - maybe 7.60 or so. Today it's over $13 (two weeks ago it was at $14.60). I know less about crude except it's shot up. The problem is, these can all go down just as quick. Do people understand how the Malaysian Palm Oil Market impacts soybean prices? Do they know how the weather in S America impacts wheat and soybeans? Or how corn impacts pork bellies and live cattle?
These markets aren't put together like stocks, they carry far, far more risks than stocks and people - and companies - are beginning to invest in them like stocks. That scares me. As interest rates fall the dollar will weaken and commodities will become more attractive. That scares me even more.
Or maybe I'm wrong.
Last edited by DisplacedKnick; 03-18-2008 at 04:39 PM.
Had Bear Stearns declared bankruptcy we would be seeing an even larger ripple effect...
As it is, JP Morgan picked it up which means they have their contracts and client lists - but they already have their own people to do what Bear Stearns people do. The layoffs may be greater than if they'd gone bankrupt and I don't think people think any more or less of the company.
As usual the buyout benefited the people at the top of the food chain at BS - the employees are screwed - half to 2/3 will lose their jobs since JP already has people to do those things and the stock selling at $2 is pretty much the same disaster as if it had dropped below a dollar - for people who likely bought the stock when it was above a hundred.
Yeah! The Fed saved a company from bankruptcy.
So what? So executives can keep their jobs and not have their moves and decisions examined by a bankruptcy court?
It's not like bankruptcy means the end of a company. Conseco went Bankrupt, got leaner and more efficient and is back - not as the giant it was but as a profitable insurance-based company (well, not profitable last quarter). I don't know enough specifics but bankruptcy may have been the better option for BS.
Last edited by DisplacedKnick; 03-18-2008 at 05:49 PM.
The execs will probably be getting charges pressed against them soon. Don't forget the CEO of Bear Stearns went on TV on Thursday and said they had almost 50 billion dollars in assets and more than enough cash to cover their debts in the near future. However that was clearly not the truth. On top of that we'll never what would have happend had Bear Stearns announced bankruptcy. It can be speculated however that stockholders would have sold off shares of companies like Lehman Brothers quicker than they had to in the first place.
Either way we haven't even begun to hear the end of this IMO. At least in terms of what may have gone on behind the scenes.
Bankrupty may have been the better option for BS, but it would not have been the better option for the market as a whole IMO.
The economy has gotten to the point where I'm closing my eyes. The bail out was another mark in the bad news column. The feds didn't help the situation.
This election is all about the economy now. If this is how Republicans handle a free market I might hope for Clinton.
"They could turn out to be only innocent mathematicians, I suppose," muttered Woevre's section officer, de Decker.
"'Only.'" Woevre was amused. "Someday you'll explain to me how that's possible. Seeing that, on the face of it, all mathematics leads, doesn't it, sooner or later, to some kind of human suffering."
We need to have a recession - we'll be better for it IF it's the right kind of recession.
There - I feel better now.
I've been posting from the middle of my position on this mess so I figure I better restate my core position or everyone will think I'm just some big old meanie. I posted this back in Aug or Sept but even though everyone should hang on my every word folks have probably forgotten it.
Our economy - for at least the past 30 years - has been built on a flawed credit policy. The suprime crisis is the final straw but not the biggest part of this or even the main issue.
I don't know when the last time was that Americans spent less money than they made and average personal net worth was rising. The reason is that credit has been so ridiculously easy to get that folks can bury themselves under debt before they realize what's happening.
The subprime crisis was just the first step. The next one is credit cards and other forms of bad credit. Our society needs to transform itself into one where we actually earn more than we spend.
The only way to get there is by having a recession. I don't see any way how we can change from a society where people are spending 1-2% more than they earn to one where people earn 1-2% more than they spend without one. We're taking 2-4% of the consumer dollars out of the economy. Except when the economy is really booming, that makes a recession.
The subprime crisis was the perfect opportunity to do this. It would be painful. People would hurt. But in the end we'd have a much healthier economy.
Instead we have the Fed. We have the Fed foaming at the mouth in some crazy effort to avoid a richly deserved recession. We have the Fed doing everything in its power to make money easy to get and to keep credit cheap - to continue the same policy that got us in this mess in the first place.
I cannot stress how much I disagree with that. Ordinarily I like the Fed lowering rates to stimulate the economy. This situation is not ordinary. This is a situation the financial sector brought upon itself with easy credit and crappy mortgage policy. The financial sector should feel pain. It should be hurt. It deserves it. If there's someone I feel sorry for it's the homeowners. Some were housing speculators and they're also getting what they deserve - a bear market. But some were first-time homeowners taken in by some slick mortgage broker. I could have supported some sort of plan to bail them out so they could keep their homes. I've discussed elsewhere what I think the consequences should be if they get that - the same damage to their credit as if they'd defaulted on their mortgage. But they keep their homes.
I have no sympathy for Bear-Stearns. They did this to themselves and what's more, they did this to thousands of homeowners. If that company needed to die for its screw-ups then it should die. That's how business works - if you're a bad business, you go under.
So that brings us to where we are today. Nobody's lending money because the subprime mess is still a black hole sucking all the energy out of the housing market - and will be for the next 2 years at least. Credit's gotten tougher to get but not tough enough IMO.
So into what should be a fairly solid recession but stronger economy and society for us we have the Fed. We have the Fed running around trying to keep credit cheap and easy so people can continue to spend more than they earn and we don't get into a recession. But credit isn't getting cheaper or easier. Instead the dollar's getting cheaper and easier. That's good for industry because our exports are priced very favorably and it will keep people in jobs for a while. But it's inflationary. It's going to spark a rise in commodity prices - already has started it actually. And that means inflation.
But now we're at the point where rates can't go much lower. And when they bottom out the dollar will start to rise. Our exports will become less attractive. US citizens will already have less buying power because of inflation and voila! people are laid off, inflation is running wild and we will be in a serious world of hurt.
The Fed is in the process of taking a moderate, necessary recession sparked by one aspect of the economy and turning it into a huge downhill spin cycle which will involve virtually every aspect of our economy.
Again, I hope I'm wrong but this is where I see us headed, thanks to the Fed.
See? I'm really not a meanie.
I can't wait to go buy my Thanksgiving turkey with a wheelbarrow full of money.
Inflation is going to be out of control. There's no stopping it now.
I just don't understand why they needed to open the discount window and drop the rate 75 points. Goldman and Lehman have both already run to take Fed money so it's not like their was any stigma for using the window. And now we're down to 2.25% I know you gotta quell the panic and re-instill some semblence of confidence in Wall Street, but the combination of everything they've done in the past week is just overcorrecting, IMO.
Last edited by JayRedd; 03-18-2008 at 11:13 PM.
Uh-oh - they got Freddie and Fannie too. I've bolded several pieces that really trouble me:
Once again, the response to a crisis brought on by overly liberal lending policies is being addressed by making lending policies more liberal.Fannie, Freddie to get lending boost
Government plans to ease capital requirements on the two firms so they can provide more funding for home loans.
WASHINGTON (AP) -- The government is loosening capital restraints on Fannie Mae and Freddie Mac so that the mortgage-finance companies can expand their roles in the stricken housing market.
The Office of Federal Housing Enterprise Oversight, which oversees the government-sponsored companies, was announcing the plan Wednesday, people familiar with the matter said Tuesday.
The agency has reached agreement with the companies on an arrangement in which the cash cushion they are required to maintain against risk - now nearly $20 billion for the two - will be reduced by a third. The freed-up money will go toward buying mortgages of struggling homeowners to enable them to refinance into more affordable loans.
The capital requirement for each company will be reduced from the current 30% to 20%, one person familiar with the discussions said. Under the deal, Fannie and Freddie will commit to raise additional capital. That could be done through special sales of stock or cuts in dividends. Together they will be expected to provide up to $200 billion in new funding for home loans, the person said.
People familiar with the matter spoke on condition of anonymity because the plan hadn't yet been made public.
OFHEO, the federal agency, was holding a news conference with its director, James B. Lockhart, Fannie Mae President and Chief Executive Daniel Mudd, and Freddie Mac Chairman and CEO Richard Syron.
Agency spokeswoman Stefanie Mullin declined to comment, as did Fannie Mae spokesman Brian Faith. Spokesmen for Freddie Mac couldn't immediately be reached for comment Tuesday evening.
The two companies together hold or guarantee around $4.9 trillion in home-loan debt. As the mortgage crisis and ensuing credit crunch have worsened in recent months, policy makers have increasingly looked to them to step up their participation in the hobbled market for securities backed by mortgages.
It would be the third step the government has taken in recent weeks to allow Washington-based Fannie and McLean, Va.-based Freddie to shoulder larger burdens in the mortgage market despite their multibillion-dollar fourth-quarter losses and expectations of further red ink this year.
The $168 billion economic stimulus package enacted last month included a temporary increase in the cap on mortgages that the companies can purchase or guarantee, from $417,000 to $729,750 in high-cost markets. And, as a reward for filing timely financial statements following multibillion-dollar accounting scandals, Fannie and Freddie were freed on March 1 of a combined $1.5 trillion cap on their mortgage-investment holdings.
Influential Democratic lawmakers have been pushing for a reduction in the companies' capital-holding requirements. Bush administration officials and numerous Republican lawmakers, on the other hand, have long opposed allowing Fannie and Freddie to take on more debt, contending that doing so could threaten the global financial system.
Now some of this is OK - the refinancing purchases, frex. But when taken in conjunction with what the Fed's been doing we once again have an institution unwilling to face reality.
And of course we have a business that's been losing money because of poor mortgage decisions being virtually forced to take on more risky mortgages and lower their capital reserves.
I'm reminded of an old saying, "Decisions made for the sake of political expediency will almost always be wrong."
Of course thinking too much on that will get me started on the state's property tax bill that's just been passed. Don't think I want to go there today.
JP Morgan got a pretty good deal.
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Does this make one think the Democrates are going to do a better job?Influential Democratic lawmakers have been pushing for a reduction in the companies' capital-holding requirements. Bush administration officials and numerous Republican lawmakers, on the other hand, have long opposed allowing Fannie and Freddie to take on more debt, contending that doing so could threaten the global financial system.