Silva Lining
CanoHasseLeica
Recession on a world-wise basis? I doubt it. The underlying economies in the US and Europe are actually strong and business confidence in the UK is high. Certainly the sub-prime lending mess in the US is a problem that will need to be solved, but in the long term (which most investments are made over, will be a blip.
For sure the emphasis in growth is shifting to the BRIC countries (Brazil, Russia, India & China) but I see this a a case of markets widening rather than particluar markets declining.
I am concerned about the issues Olsen raised and the demographic changes an aging and decreasing western population will bring, however I believe these will be solved, simply because it will be in everyones interest to do so. (If I could say how, I wouldn't tell you now would i?
)
I'm holding tight on my investments - I fully expect to see the markets recover in September October.....
For sure the emphasis in growth is shifting to the BRIC countries (Brazil, Russia, India & China) but I see this a a case of markets widening rather than particluar markets declining.
I am concerned about the issues Olsen raised and the demographic changes an aging and decreasing western population will bring, however I believe these will be solved, simply because it will be in everyones interest to do so. (If I could say how, I wouldn't tell you now would i?
)I'm holding tight on my investments - I fully expect to see the markets recover in September October.....
ywenz
Veteran
Time to buy? while they're low now?
kevin m
Veteran
As always, it takes two to tango. I'm sure some people went in clear-eyed and took advantage of cheap money equity loans and the like. I'm also sure that many fold more are stuck with ARM's that they suddenly can't refinance and can't possibly afford.
somecanuckchick
Tundra Gypsy
Olsen said:
I knew that czech passport of mine would come in handy!
TEZillman
Well-known
For what it's worth, I've worked in mortgage banking for over 20 years. The "crisis" you have been reading about is primarily due to a couple of factors in the housing market. The most important factors being the extremely lax underwriting guidelines and mortgage parameters that have been available for the last several years and the slowing of inflation in the housing markets.
"Subprime" loans currently make up about 14% of the first mortgages in the US. As recently as 5 years ago they only made up 4%. Three years ago when the refinance boom dried up, mortgage brokers turned to subprime loans to continue making a living. In short making loans to people who couldn't afford them without doing the appropriate risk assessment. With the high returns that subprime loans offer, there were a lot of people who were happy to fund and securitize these loans. This would work as long as housing prices continued to climb since borrowers could always sell their home if the payments became too much. Unfortunately, the housing "bubble" broke about a year ago and now the borrowers can't make the payments and there's no way out for them but to default on their loans.
In short, it's all about greed. A number of large investors are taking major hits. It's nothing that many people in the industry have been predicting for years. If you want to read a lot about the situation, Today's Wall Street Journal has several articles that are also on their website.
Tom
"Subprime" loans currently make up about 14% of the first mortgages in the US. As recently as 5 years ago they only made up 4%. Three years ago when the refinance boom dried up, mortgage brokers turned to subprime loans to continue making a living. In short making loans to people who couldn't afford them without doing the appropriate risk assessment. With the high returns that subprime loans offer, there were a lot of people who were happy to fund and securitize these loans. This would work as long as housing prices continued to climb since borrowers could always sell their home if the payments became too much. Unfortunately, the housing "bubble" broke about a year ago and now the borrowers can't make the payments and there's no way out for them but to default on their loans.
In short, it's all about greed. A number of large investors are taking major hits. It's nothing that many people in the industry have been predicting for years. If you want to read a lot about the situation, Today's Wall Street Journal has several articles that are also on their website.
Tom
cmedin
Well-known
What's "low"?
jarski
Veteran
ywenz said:
I hope there are more people that think like ywentz, so I fear currently for nothing.about trade war between US putting import sanctions and China returns by trying to shake dollar (einolu's first post). Chinese economy is very dependant on foreign companies bringing jobs, and then exporting the goods abroad. I think it would be stupid move from them to disturb this balance, as they have most to gain from it. I doubt Chinese domestic market could not keep the speed as it has been past years, with the help of foreign companies.
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Olsen
Well-known
TEZillman said:
.... only 14%... Is that what CNN is tellin'yea?
How large would that be of the total private dept on the globe..? You will see that it is pritty much. And this debt will not be payed, - or...? I am worried because it is european pension funds that has borrowed ya' this money. When will you pay up? What has happened so far is that the Federal Reserve has printed up more dollars, - how do you think we feel about that..? Relieved..?
What kind of growth of PPP - in Euros, mind you, will we have to see in the lower middle class to make them able to pay that debt? Will we see such a growth, by any chance? No! Will the super-rich of America off the Forbes list pay it? No.
Or more likely; how many more americans will be without a house to live in by Christmas? - And is the pension statements we 'potentially prosperous european pensionairs' get every year just a day dream? I wonder...
mervynyan
Mervyn Yan
einolu said:
I don't think you know what you are talking about.
You can not wish "OTHER" people to live in slum while we vacation in national parks. Law of average will equalize the living standards (I hope). If they consume a little bit more natual resources in this generation, then they can devote their efforts on conservation in the next generation. Peolpe are not unreasonable.
Also we can't tell them to hold USD forever, it is a business, there is no reason to hold worthless papers. If not for financing the trades, they don't need the USD, just like uncle sam doesn't have to hold USD to pay for things, we just print more. Only lukcy thing for us is that USD is a world currency, otherwise we will be screwed. Where can the FED find 50billion cash to inject to the market? Here is where, we print them for free!!
TEZillman
Well-known
Actually, the 14% number came from a trade publication called "Inside Mortgage Finance" One needs to consider that of the 14% around 20% will "default" (typically defined as 90+ days delinquent), while about 4% (of the 14%) will actually be foreclosed. On those loans that actually go to foreclosure sale, the typical loss is about 31-32% of the loan amount. We're talking about a number that is a loss of .0018 of the value of the market rather than 14%. This is an amount that will be covered by loss reserves. The real losses from loans are not the issue.
Where the significant losses are occuring is when these loans are "marked to market" As the market has completely dried up, the accountants are being very conservative. Loans that were valued at par and above a couple months ago have "lost" 40% of their value. In six months or so when the market is stabilized, these loans will valued much higher. Unfortunately there are funds that are leveraged to the point that a 40% loss wipes out all of their capital and they can't meet a margin call, so they are basically out of business.
Yes, this will impact people all over the world, but IMO, the majority of the people who will take a loss are the same ones who created the problem in the first place by trying to make a killing off of a high risk investment. No pension fund should ever have been investing in CDOs and the like. If they have been, they should have fired their fund manager a long time ago.
Tom
Where the significant losses are occuring is when these loans are "marked to market" As the market has completely dried up, the accountants are being very conservative. Loans that were valued at par and above a couple months ago have "lost" 40% of their value. In six months or so when the market is stabilized, these loans will valued much higher. Unfortunately there are funds that are leveraged to the point that a 40% loss wipes out all of their capital and they can't meet a margin call, so they are basically out of business.
Yes, this will impact people all over the world, but IMO, the majority of the people who will take a loss are the same ones who created the problem in the first place by trying to make a killing off of a high risk investment. No pension fund should ever have been investing in CDOs and the like. If they have been, they should have fired their fund manager a long time ago.
Tom
xayraa33
rangefinder user and fancier
mervynyan said:
yup, just print some more, it is fiat money anyways.
einolu
Well-known
mervynyan said:
a. walmart wouldnt allow allow China to get rid of those "worthless papers"
.b. wikipedia: federal reserve.
mpt600
Established
The average Brit has £19,000 worth of unsecured debt. Scary. In a lot of European countries, credit cards must be paid off in full three weeks after the bill arrives, so they're more like charge cards. Over here that would be seen as the nanny state getting too involved, but at least the economy wouldn't be based on money that doesn't really exist.
mikeh
-
Tom, thanks for the summary. I wonder if you could expand a bit on the ramifications of the Fed dumping $35B cash into the banking sector?
Mike
Mike
Olsen
Well-known
Over here we have just had our Friday dinner and are watching the news. Take the soccer away, the major news is indeed the financial crises that tops on the news stands. Sky News (a flock of liers, usually) - is suprisingly frank & blunt and say a warning that this 'financial crisis' could lead to 100 billion US$ of defaulted loans (that would be a tenth of 'the Mother of all Bank-crises'; the Savings & Loans Crisis 16 years ago). But that it is 'the domino effect' that could lead this into a 'world reccession'.TEZillman said:
A Norwegian shipping trade newspaper (Trade Winds) tries to give us a glims into 'how norwegian financial institutions', our governmental run pension fund included, are exposed to this high risk morgage market. 'It is low', they say, but the indirect effect is... 'difficult to say'.
The Savings & Loans Crisis showed us that 'money don't go away', it just changes owners. I wonder who will come out as the winners here....
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climbing_vine
Well-known
einolu said:
Actually, financial markets are exactly as instable as they always have been. Precisely the same pyramid schemes burn through the economy via different sectors with different names, with regularity. The leveraging (and naked shorting) that were the cause of the '29 crash and kicked in the Great Depression is precisely the same as the various real estate bubbles of the past thirty years, the late 90's stock bubble (which was NOT just in tech stocks, as is so often stated), the current housing and private equity bubbles, the junk-bond and Savings/Loan messes of the 80s.
They all boil down to: people with the ability to manipulate the market, do. They "produce" and package investment "products" via leverage which, basically, amount to selling stock that doesn't exist, and putting money down on paper that also does not exist. At some point, obviously, this is owed to someone. Who is it owed to? Who comes calling? People at the bottom of the pyramid scheme. These "products" were sold to the guy managing your pension fund. Pension funds, hedge funds, private equity bagholders? Broke. Day traders? Broke--they're a huge cornerstone of every market pyramid. Day traders overwhelming lose money. By a huge margin.
There's nothing new under the sun, including this. What's changed is the pace, and the post-dating, if you will, of many of the consequences. Since the States' experience with double-digit inflation in the 1970s, monetary policies with the nearly sole goal of minimizing such have had a stranglehold on the public discourse--and the Federal Reserve. This has been addressed on two fronts:
1. Manipulating the definition of "inflation" to keep consumer confidence up, and keep the turnover of money going. The Consumer Price Index, which is the number in the Sates that the media trumpets as the be-all-end-all of inflation, no longer includes, for example: mortgages; health insurance; tuition and other education fees; etc. It also uses some silliness to try to account for the "deterioration" in the quality of goods and services, leading to assumptions such as: cars are higher quality every year, and hence the same car (one that *isn't* higher quality) supposedly "costs" less though the cost has gone up. Some of this is outright manipulation, some is just methodological absurdity, but there it is.
So, while the average person *knows* they're getting pinched more all the time, supposedly "inflation" barely exists so we should all be happy!
2. Pumping "money" into the economy via the devices mentioned above. Much better than printing real money is to "create" it by selling things that don't exist to one person, and selling the obligation to either produce it or otherwise compensate that "purchase" to someone else. This is, essentialy, what most of the financial market is. Thus, trillions of dollars are "created" out of whole cloth... for those lucky enough to be at the top and middle of the pyramid. (Those at the top are by a huge margin the beneficiaryies--that's why they do it--but some people in the middle, who are in the right place at the right time, can benefit. For example, cashing out a retirement fund or investment in the company when you switch jobs. IE, getting out before the reckoning hits.)
This, of course, is not to disparage *real* creation of wealth, which comes from production, value adds, and etc. As opposed to play money "creation" which you sucker someone else into paying for.
So, where are we? Keep "inflation" stats low and real inflation tolerable --> Now you can keep interest rates artificially low (only reason to raise them, in the inflation-fighting world, is to deter impending inflation--and nobody cares that things like savings accounts no longer pay any interest, because you should be investing your money in the market, stupid!) --> "renting" and "creating" money is cheap, so there an absolute glut of it out there. So the old cycles are accelerating, because so much more money is feeding in. So we get one bubble after another, with each (as noted above) being more or less the same pyramid con under different--not yet regulated by the SEC--names.
But there's one further distortion... because none of this money, and many of the investment vehicles (the stocks, the funds) don't actually exist in any meaningful sense, there are all sorts of tricks that can be done to hide these huge outstanding debts until someone actually comes calling for their money. So we've only seen mini-"corrections" after each bubble, in fact. When millions of people have lost their homes, are perpetually broke because they can't declare bankruptcy, and cannot borrow anything because their credit is ruined, we have a nasty "correction" going.
When 75 million boomers (including many in the group above) come calling for their pensions and investments and find out that a lot of it doesn't exist (because that's where the financial market huckster sold an obligation, rather than an actual investment) that's a depression.
Maybe. We'll see!
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Olsen
Well-known
Link to good news line about the 'crisis' here:
http://www.spiderednews.com/Markets....bbc.co.uk/go/rss/-/1/hi/business/6939757.stm
http://www.spiderednews.com/Markets....bbc.co.uk/go/rss/-/1/hi/business/6939757.stm
einolu
Well-known
awesome post "climbing_vine"! i'm slowly learning more about the world of economics and finance, so i am glad i could learn something, though i can’t say i have fully digested it yet.
(what i was referring to regarding the 1929 crash was that the fed seemed to have absolutely no idea what to do that time and made the problem much worse than it could have been. so while the instability is still there, people also know how to respond to it in a faster and smarter way.)
(what i was referring to regarding the 1929 crash was that the fed seemed to have absolutely no idea what to do that time and made the problem much worse than it could have been. so while the instability is still there, people also know how to respond to it in a faster and smarter way.)
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Al Patterson
Ferroequinologist
NickTrop said:
Just so you know, both of my senators voted for this bill. And neither is a Republican. Your "Bush Derangement Syndrome" is as bad as some folks "Clinton Derangement Syndrome" was in the 1990's.
climbing_vine
Well-known
einolu said:
Ah, gotcha. You might have a point there.