Financial Collapse

[Krunkeh]

Interesting set of times we have to work with here. It appears that the reshuffling of the financial giants on Wall St. will be for the better of the average American. Yet, it remains to be seen how much. My guess is that this crisis doesn't begin to turnaround until the government begins to deal with the bad loans, and finds a way to stop foreclosures. Anyways just want to here some opinions about the current situation....

Btw, Hi Everybody

 

[f0xx]

Re: Financial Collapse

The crisis won't over until the Americans and all other native speaking english people don't realise the difference between "here" and "hear"

 

[Augustus]

Re: Financial Collapse

lmao! Another constructive comment from f0xx

IMO the American Government is trying to stop something that is an integral part of the economic cycle. I would like to hope that their actions will have a positive effect, as being in the U.K, I have already felt the repercussions of the American financial problems. However I am not too optimistic, threats of recession are still looming and government intervention may only serve to postpone the inevitable.

 

[Maxi]

Re: Financial Collapse

Too bad the plan they've come up with doesn't tackle the real cause of the problem... Doubt it'll work in the long run. It's a downwards spiral! Mounting debts and shrinking assets, banks freeze or tighten credit which brings the system to a nearly halt. Investors flee, banks are trapped in the cycle.

Some fun facts from a Time article; what you could do with $700,000,000,000

1. 
   * give every person in the US $2,300 or $6,200 per household
   * Pay the income taxes of every American
   * Fully fund the Defense, Treasury, Education, State, Veterans Affairs and Interior Departments next year, as well as NASA
   * Buy gasoline for every car in the US for 16 months
   * Buy every NFL, NBA and Major League Baseball team and build each one a new stadium-and pay your players $191 million a piece for a year
   * Create the 17th largest economy in the world-roughly equal to the of the Netherlands :shock:
   * Or just pay off 7% of the $9,8 trillion national debt
   * Hire 6,36 million CW's and get killed by some random Striker or RPG player.

 

[Garrett]

Re: Financial Collapse

oh augustus my misguided friend you have no real idea what this bailout is supposed to do or the debt that it's covering...


The $700B bailout is to pay those people who hold in the insurance policies on the bad debt. But not insurance as you know it, people took out 'bets' on a bunch of these funds and loans going bad. Now that they have, the financial companies are supposed to pay on these 'ins policies' but can't because their stuff went bad and they have no more cash on hand to pay on these policies. These policies were able to be made thanks to the deregulation of the banking system the Republicans pushed thru oh so many decades ago.

The Bailout is to make rich businessmen paid. So hopefully they will buy other busineses or fund other banks to be started. The purpose of the bailout is to give money to the rich so that they will invest in other places and hopefully those places will have jobs that you can apply for and once you have a paycheck then the economy should be ok, right? ok!

We are supposed to be in a free market system. If we allow the people who make bad choices fail, then the market will correct itself in record time. The only reason the market hasn't recovered is because our wonderful government keeps putting their hands in it in the wrong places.

Any questions?

 

[Twigley]

Re: Financial Collapse

Oooh how fun im doing a module at uni about this

I will reply when i have actual knoledge rather than speculation
All i know so far is that the banks in England have been messed up by the collapse in America ;o
But clever banks saw it coming and wtf pwn buying all the bigger people who where too foccused on buying and selling.

 

[Garrett]

Re: Financial Collapse

really it's simple. investment bankers are supposed to look for places to make more than the average 3-4% of return. choices are supposed to be based on good risk management. so a couple people took a small gamble on the nonprime mortgages. for a while since the rates were low, it looked like everything was performing.... however... there is a reason these peoples credits are worse than others....

so everyone jumped on the bandwagon packaging these mortgages and other forms of debt into CDO (collateralized debt obligations) and for a while everyone was making 12-14% return on their investment...

now is when doom and gloom sets in... oh company A did due diligence and underwriting research and they are making huge bank... we're not going to do our own research and jump on the bandwagon! EVERYONE PUT ALL YOUR MONEY ON BLACK AND TAKE A SPIN! Oh look, it landed on red. Oh look you bet future money and not money in hand that you can afford to lose. Oh you owe the house your company pretty much.

Also the problem for a lot of banks is solvency/liquidity... cash on hand. It's not that the banks went belly up per se, but that they simply had no more cash to operate and keep their doors open with. Once these CDO's (that everyone was gobbling up like they couldn't live without it) started to go south, every investor started pulling their money from the CDO's and bonds and mutual funds that these banks had stakes in. If no one is flooding your products with money, you can't keep lending, paying, operating. Their CDO's and Funds are not valueless it's just that no one wants to buy them anymore so there is no market for it. So you can't put a price tag because no one is willing to pay for it. That's how you get into cash flow problems.

As far as joe schmo middle america - credit problems.... making credit dirt cheap. In this country there is no 'savings' anymore. Everyone in this country views 'credit cards' as their savings and use the cards like supplemental income and not as a debt they have to repay. Why? Because we've been fed that this is what we are supposed to do. Spend spend spend because the banks will take care of you. They will just give you more credit.

Alot of people are against making credit regulations tougher. That's BS if credit wasn't as easy to get as it is/was, we wouldn't be here.

 

[Hobbezak]

Re: Financial Collapse

We are supposed to be in a free market system. If we allow the people who make bad choices fail, then the market will correct itself in record time. The only reason the market hasn't recovered is because our wonderful government keeps putting their hands in it in the wrong places.

Lol, so you suggest that we wait for a few more banks to get wtfpwned, and have everyone do a run on the bank...
I think we should talk plainly here, the global economy is in recession. If we want to deal with this, and solve the problems asap, we need to have health financial institutions. Normally I would agree with you, let the financials be sick, let the weaker banks die or be eaten by the larger/healthier banks, and that way reward companies with healthy policies.
But the fact is that the industry is in trouble as it is, and a recession at this moment would be catastrophical for some gigantic American companies (GM & Ford spring to mind here, if the carmarket doesn't get back on track fast, they're dead and just imagine how many people would lose their jobs that way). And the only way to solve this, is through the financial markets, through cheap loans etc. But since the banks don't have any liquidities (being cash, don't know if it's liquidities in english too), they're not eager to hand out loans, and especially not to companies who come even close to actually needing loans, because they're risky business.

Second reason why the government needs to intervene, is, and I don't know if that's a major issue in the US, but it definitely is in Europe, that the negative publicity banks get these days, increases the danger of runs on banks. Just this weekend the largest bank in Belgium, the Netherlands and Luxembourg has had a capital injection of 11.5b Euro, imho mainly because they were being targeted by the press, and people were starting to withdraw their savings. If the government hadn't intervened this weekend, that bank would've been dead today due to a run on the bank.
So the government needs, at the very least, to give a 100% guarantee on savings, to make sure people don't do these run on banks, because the slightest rumour at this point can cause a catastrophe for a bank (imho all analysts who make these kind of rumours, should be shot).

Anyway, just like to say it's not all as black and white and easy as you try to make it look Garrett, there are quite good reasons for the government to intervene in the financial market (Because there's imho a large difference between a bank and a normal company, see reason 2 for why I think that).

 

[Garrett]

Re: Financial Collapse

it's ok hobbes. but you also have to remember, my country... (at least yet) is not a socialist country, it's a capitalist country and the continuation of the poking and prodding by gov't is exactly what is wrong currently in *MY* country.

bank runs have been happening nonstop for the last 8 months, so I fear you are adding grease to the fire about 'runs on the bank'. A run on the bank is a late fear and is not what needs to be tackled at this point.

I'm afraid I find your analysis 6 months too late. At least where the US is concerned and that is what the topic is about.

What needs to happen is to bring central, common sense regulation back to the industry. Let certain 'giants' fall and fail because they *need* to. You are proposing a continual band aid to the sick and elderly when all that's going to happen is that they get sicker and older.

An injection of cash is pumping false life into an already dead horse and continuing to beat on it. We need stricter controls around underwriting credit. Stricter controls on what can be packaged as a 'derivative'. And more than anything else, everyone involved needs to use more common sense and less 'intelligence'.

 

[Harbinger]

Re: Financial Collapse

Hobbe seems to have a better grasp of economics than Garrett

But I agree with Garrett on this one - let capitalism die

 

[Augustus]

Re: Financial Collapse

oh augustus my misguided friend you have no real idea what this bailout is supposed to do or the debt that it's covering...

I was under the impression that ALL the Governments who are bailing out the banks/mortgage lenders, are trying to stop the recession from taking full effect....which is what I was getting at. So what are they really trying to achieve Garrett?

 

[tobapopalos]

Re: Financial Collapse

Hobbe seems to have a better grasp of economics than Garrett

Hobbezak's awful grasp on the economy is exactly what caused the current recession. He started investing right before the economy collapsed! COINCIDENCE???

 

[Maxi]

Re: Financial Collapse

Seems Congress didn't agree on the plan. Are there any alternatives?

 

[BlackWolf]

Re: Financial Collapse

I think this is so hilarious.
First people pay huge amount money for banks investment funds, which then aims it all to shares of companies that have money as their only reason to work. Then those banks and all investors are running all kind of future obligation businesses, (you know btw. that someone counted that theres like 7,4 trillion in futurs, which is like 3 times all the money invested to stocks of firms).
Then those awesome banks who now have all that money from people to invest, as they must pay some percentages to keep them investing to their bank are throwing it to left and right, trying to make some profit. Well some banks are throwing the money to shares, others are loaning to people who shouldnt be able to afford any kind of loan, what happens next?

Well one day some "rich" californian retired old lady goes to bank to ask them to give her all her savings, all that 100$ so she can buy cat food and bank founds out they actually have no money. This causes chain affect, someone hears bank didnt have money to give to old lady and wants his money out, and next and next, bank will collapse due its "loans" and that drops down all stocks and this will end up to those people & companies who have put their money on stocks to lose those.

That is one hell of a bang when they finally come down, we have only seen the beginning of it. What did we all learn from this? That US goverment wants to give 700B to the hands of this people... rofl!

I can only ask who are to blame of this? It is whole stock market system that has turned making money to whole new level, you dont make money by selling products anymore, you make money by kicking people out so your stock prices go up. Another funny side is that how they always keep telling how on long run stocks go always up, well I wonder how high they must be 1000 years from now if they never come down

PS. Yes I know this is very simplified version of what happend, but basically it is exactly what happend.

 

[Garrett]

Re: Financial Collapse

Hobbe seems to have a better grasp of economics than Garrett

maybe globally, but not locally. but lets not even split the hairs there cuz I could care less. And unless you are an avid studier of the american economy and economics most of this banter will be chalked up to blah blah blah. even 2 economists sitting side by side can have varying views on how the economy is and what it looks like and what should be done with it. your comment is less than helpful to this conversation.

the bailout only helps the failed institutions, doesn't do anything to stem foreclosures or the credit crisis. it's simply a bandaid to keep going on with business as usual... hell our initial foreclosure bill in the states was only designed to help about 300k peoples. It only does that by restructuring their mortgages (so basically a refinance), but if you take that then you have to indebt at least half your equity to the agency helping you refi under that bill. So even if you get your house saved from a bad mortgage... you still have to pay EVEN MORE to someone else.


business as usual got us to this point... the reason we have big falls is to force a change in behavior because the current behavior is unsustainable

I'm not in favor of returning to business as usual, whether you agree with my take on the economy or not. (yes, stocks, investments, 401k, i has them)

 

[Maxi]

Re: Financial Collapse

Roughly put, if I 'got it' right, it's the taxpayers who will be paying for the bankers errors and to let continue increasing their wealth. Isn't that profoundly against Capitalism? They should let the sick parts die off, but then we'd be in a similar situation as '29, so they're just pumping in more money. I'm no specialist, but what if this doesn't work out in the long run? Are they going to keep pumping in huge sums every couple years? Can economical growth be infinite? Why are we still based on a system using/aiming an increasing curve, and not an upwards spiral or circle? Aah all the questions...

 

[Lupus]

Re: Financial Collapse

we are all going to hell in a handbag...no wait we wont be able to afford the hand bag so we'll be going in a cardboard box or possibly a plastic bag, u know one of the ones that are always left floating around in cities. So yeah we should all be very proud of ourselves and all go out and get more credit cards and shizzle, yay spam!

 

[Garrett]

Re: Financial Collapse

Roughly put, if I 'got it' right, it's the taxpayers who will be paying for the bankers errors and to let continue increasing their wealth. Isn't that profoundly against Capitalism? They should let the sick parts die off, but then we'd be in a similar situation as '29, so they're just pumping in more money. I'm no specialist, but what if this doesn't work out in the long run? Are they going to keep pumping in huge sums every couple years? Can economical growth be infinite? Why are we still based on a system using/aiming an increasing curve, and not an upwards spiral or circle? Aah all the questions...

it would be the taxpayers trying to use a $700B band-aid on putting humpty dumpty back together again. Yes, government intervention is against capitalism's fundamentals.

I doubt anyone on these forums is a 'specialist'. this is from the different news sources plus internal communications from my job summarizing certain events.

I couldn't fortell the future for you (or i'd be insanely rich AND i probably wouldn't be here, sounds so nice) however, their goal is to get everyone off their back for now. And their big solution is that if they right the economy back on the track it was, then everything will be ok and no one needs to worry... but that 700B has to come from somewhere... some program is going to experience cutbacks. some may get cut all together. but yes if you are pumping cash into a failing system without redoing the system... then yes in a few years time (or less) we'd be right back talking about injecting cash.

oh btw, many analysts projected that the $700B to restore, would not be enough. so what happens if we do inject all this cash and we go 'oh hell, someone wasn't honest about their debt' and it all goes south anyway?

people are doing right now, exactly the same that got us here. I need immediate return on my money. bailout will do it. Sweet I got immediate return on my cash... not looking that 3 days from then they could lose it all - all over again.

p.s. looks like the dow is all kinds of healthy today. hmm that bailout sure was critical

 

[Harbinger]

Re: Financial Collapse

p.s. looks like the dow is all kinds of healthy today. hmm that bailout sure was critical

Wall Street, and the rest of the world, knows that on Thursday Congress will vote to accept a very slightly changed rescue package that might cost $699 bill The Dow is already discounting that fact.

I don't disagree with you Garrett about letting the banking industry sort itself out or die - but politically there has to be an intervention.

 

[Garrett]

Re: Financial Collapse

the p.s. comment was such a fire stoker


I agree that regulation needs to return. I disagree that Paulson or basically the office of the fed chief treasurer should have absolute power. Should the bailout occur for these companies, that I'm not so sure of. There can be intervention, but it needs to be careful and measured. Not reactionary to the point that omg we just have to throw a trillion dollars at it.