Originally Posted by 2_Thumbs_Up

I meant to make this thread myself but was waiting for someone else to do it.

Originally Posted by SaulPaul

can you please explain whats so good about austrian economics, people talk about it like its completely different / far superior

Originally Posted by 2_Thumbs_Up

I'd like to point out that I also think the government bailouts are horrendous. Trillions of dollars in losses are basically being put on the taxpayers expense to bail out financial institutions (Fannie May and Freddie Mac had 5 trillion dollars in bad mortgage loans and toxic debt).

Originally Posted by Trashcona

Maybe this is the wrong thread, but can I ask who's dumbass idea it was to lend 100's of thousands of dollars to people who only earned minimum wage? Why are people(the banks) so stupid? It's almost as if these lending agencies put all of there eggs in one basket and in one big swoop, things turn to shit.

Originally Posted by Trashcona

Maybe this is the wrong thread, but can I ask who's dumbass idea it was to lend 100's of thousands of dollars to people who only earned minimum wage? Why are people(the banks) so stupid? It's almost as if these lending agencies put all of there eggs in one basket and in one big swoop, things turn to shit.

Originally Posted by sarbox68

And the reason why is because they were (in many cases) guaranteed by the government through Fannie and Freddie. So the bank could 1) write the loan with minimal oversight, 2) have it federally guaranteed and therefore 3) package it and sell it as investment grade paper so they could 4) rinse and repeat. This is the sh!t that happens when you don't think government programs all the way through....

Originally Posted by sarbox68

Agreed, tho' I think this situation was a little different. Usually I'm not a fan of bailouts at all... I think the Big 3 automakers should have been allowed to fail into restructuring/rebirth in the 80's, am very happy nobody offered to bailout victims of the 80's and 90's equity implosions even tho' billions evaporated, etc. I'm glad the Fed has (so far) been restrained in not bailing out Lehman, Merrill, AIG (altho' credit line to shore up liquidity has been extended...), Countrywide and I'm sure there will be others.

Originally Posted by zook

I'm pretty sure that the subprime mess is as much or more Wall Street's fault than it is Fannie & Freddie's (if you separate F&F from Wall St.). Investment banks bought up bad loans, repackaged them, solicited AAA ratings from the Wall St. ratings agencies (Standard & Poor's etc.) and sold them to unsuspecting investors. Sure, the way Fannie & Freddie were let loose in the late 60's was a HUGE mistake, and they bought some of these bad loans, but they're in no way responsible for the entire mortgage crisis.

Originally Posted by 2_Thumbs_Up

But the housing market can't be saved. The problem is that people overpaid for houses, not that the prises are coming back down to reasonable levels. Once the bubble pops, there is nothing the government can to do keep the prices from falling. It's like trying to inflate a popped baloon. The best thing to do is to allow house prices to reach market level as fast as possible to shorten the pain.

Also, don't mistake this bailout for helping the homeowners. Short term they may have to move, but once they turn over the key to the bank, they are completely debt-free. So long term it's the banks that has to take the big hit. Since there is more homes than ever before no one will be homeless. People will be able to find a place to rent until prices are so low so they can rebuy the houses they handed over to the bank. Ultimately, this bailout is not for the little guy. This is socialism for the rich.

Originally Posted by UG

once the banks start taking the big hits you'll see banks fail...once banks start failing you'll see a run on the banks, and once that happens........

Originally Posted by 2_Thumbs_Up

But the housing market can't be saved. The problem is that people overpaid for houses, not that the prises are coming back down to reasonable levels. Once the bubble pops, there is nothing the government can to do keep the prices from falling. It's like trying to inflate a popped baloon. The best thing to do is to allow house prices to reach market level as fast as possible to shorten the pain.

Also, don't mistake this bailout for helping the homeowners. Short term they may have to move without it, but once they turn over the key to the bank, they are completely debt-free. So long term it's the banks that has to take the big hit. Since there is more homes than ever before no one will be homeless. People will be able to find a place to rent until prices are so low so they can rebuy the houses they handed over to the bank. Ultimately, this bailout is not for the little guy. This is socialism for the rich.

Originally Posted by UG

p.s. I go to some of the so-called "conspiracy" websites and they've been talking doom-and-gloom like this for a long time now, like this could be as bad or worse than the Great Depression. it's crazy how a lot of the things I've been reading about are now coming true by the day/week.

Originally Posted by zook

Mortgage brokers made these loans because they could immediately sell them to bigger companies who could then package them together and sell them to someone else as a high-yielding security without disclosing the level of risk. To me this is a perfect example of a need for gov't regulation, but I may be missing something.

Originally Posted by SaulPaul

http://www.youtube.com/watch?v=6G3Qefbt0n4

this series looks like a pretty good summation of his stuff from 06. its fucking interesting, and scary

Originally Posted by 2_Thumbs_Up

If the government keeps this pace up you'll see a run on the dollar, and once that happens...

Originally Posted by Brian Wesbury & Robert Stein

Gales of Punitive Destruction

There is not enough room on page one of the nation’s
newspapers for all of today’s news. Any of today’s stories –
a Lehman bankruptcy, a sale of Merrill Lynch, AIG capital
needs, plummeting oil prices, or new Fed lending facilities –
could be above-the-fold headline news. The US is moving
through its deepest set of financial market difficulties since
the 1980s and 1990s, during the banking and S&L crisis.
The key thing to remember here is that the emphasis
belongs on the word financial. These financial market
problems are not a result of widespread economic weakness,
otherwise known as a recession. In fact, real GDP has
grown 2.2% in the past year and accelerated to a 3.3%
annualized growth rate in the second quarter.
The economy is not taking down investment banks;
lousy lending standards and the excessive use of leverage are
taking down investment banks. And just like the problems
of the 1980s and 1990s, the roots of the problem reach back
to a period of absurdly low interest rates. When the Fed cut
interest rates to 1% in 2003, balance sheet math involving
leverage-based strategies turned so lucrative that many
financial market players could not help themselves. Wall
Street based its business model on leveraging up the most
leveraged asset on Main Street – housing.
This double set of leverage has blown up because the
housing market became overbuilt and housing prices stopped
rising. When the Fed pushes interest rates below their
“natural” level, mal-investment always occurs. Mark-tomarket
accounting exaggerated this process by letting firms
mark-up assets above true fundamental value on the way up,
but has now turned to force firms to mark-down assets, to
below true fundamental economic value.
The good news is that this financial earthquake is
unlikely to turn into an economic earthquake. The bad loans
made earlier this decade did not create a widespread
economic boom; and the realization of how bad some of
these loans are will not create an economic bust. The nonhousing
economy, which is roughly 95% of total US
economic activity, has been remarkably stable. In the three
years ending March 2005, non-housing real GDP grew at a
2.7% annualized rate. In the three years since then, nonhousing
real GDP has grown at a 3.2% average annual rate.
This is not that hard to understand. Think about a bad
loan made to a home buyer. Clearly that allows the
borrower to spend more than they have earned. But every
dollar of this cash comes from someone else, who has to
spend less than they earn. Even when the money comes
from abroad, that means fewer dollars available to foreigners
to buy our exports. Is it any wonder that the trade deficit
was booming when capital was readily available for
mortgage loans on easy terms and now the trade deficit is
falling rapidly when mortgage credit has slowed?
Remember: lending and credit expansion, by itself, is not
the equivalent of printing money; it simply shifts the pocket
in which the money is located. Credit contractions come and
go, but only credit contractions caused by government policy
mistakes lead to widespread recession. This is why the
current financial market problems are unlikely to spread.
There have been no major increases in tax rates, no
sudden lurches into trade protectionism, and no prolonged
period of tight monetary policy, where the federal funds rate
is persistently above the trend in nominal GDP growth. In
fact, tax rates are still relatively low and the Fed is holding
interest rates at extremely accommodative levels.
It is difficult to gauge when financial market upheaval
will finally come to an end. However, as long as
policymakers steer clear of tax hikes, tight money, and
protectionism, the economy should remain resilient.

Originally Posted by Silly String

I wholeheartedly disagree. I do not think the housing market has much further to fall except in prime real estate areas(Beachfront, high demand areas like Orange County). As long as the economy continues to be growing, albeit slowly, and the liquidity of loans are still available(Fed is making sure of that) the housing bubble will never pop. Deflate slowly? Sure. Or more likely IMO stagnate for multiple years, thereby crippling the new construction house industry. The glut of new housing built on easy credit in the 2000's will be worked through the system slowly. Once it is, most will have forgotten if our tax dollars ever were paid back by these F-ing bailouts. But things should return to normal and we can all bitch about the oil prices again.

Originally Posted by Silly String

I wholeheartedly disagree. I do not think the housing market has much further to fall except in prime real estate areas(Beachfront, high demand areas like Orange County). As long as the economy continues to be growing, albeit slowly, and the liquidity of loans are still available(Fed is making sure of that) the housing bubble will never pop. Deflate slowly? Sure. Or more likely IMO stagnate for multiple years, thereby crippling the new construction house industry. The glut of new housing built on easy credit in the 2000's will be worked through the system slowly. Once it is, most will have forgotten if our tax dollars ever were paid back by these F-ing bailouts. But things should return to normal and we can all bitch about the oil prices again.

Originally Posted by Warpe

Originally Posted by sarbox68

I will correct you on the walk away and be debt free comment. That's a state by state issue. States where homeowners can truly just walk away from a first mortgage and be debt free are in the minority (i.e. California) And even in those cases, they are still legally liable for any loans beyond the original purchase money loans. So all these idiots that sucked out equity in the form of 2nd & 3rd mortgages cannot be saved by simply walking away. They are still liable for those loans... can still be sued for their outstanding value if they default, and if the bank forgives the loan, are liable for the state and federal taxes on the forgiven amount as if it were income. Full bankruptcy is a way out of the loan (not the tax debt if already forgiven...), but Chapter 7 is much harder to file these days, and most will be bounced in to Chapter 13 with a repayment plan.

Originally Posted by griffey24

I'm pretty uninformed in all this.. doesn't help being up in Canada either.

But does this mean I should take my poker money out of USD??

keep up the talks, interesting stuff.

Originally Posted by Silly String

Don't get all Chicken Little on us. The sky is not falling.
Here is an article from a source I like, Chief Economist for First Trust.

Couldn't have said it better, so I stole it.

Originally Posted by 2_Thumbs_Up

I knew this was more or less the case for regular mortgage loans. Do you know if this is also the case for the subprime loans? I have never heard it when the subprime loans are mentioned but I have no definite source.

Originally Posted by mrhappy333

I dont see the USA breaking up into a bunch of different Countries like Russia, but who the fuck knows?
I don't think the Machine can keep rolling like it has.

Originally Posted by 2_Thumbs_Up

http://biz.yahoo.com/ap/080917/economy_bloomberg.html?.v=2

Originally Posted by sarbox68

One last thing... to the comment about "printing money" and the implications... There is a little more to it than that in this case. The classic economic risk of loose monetary policy is inflation -- and that's effectively exactly what we got with low interest/easy access mortgages that bloated the credit supply and thereby caused house price inflation (which, funny enough, nobody was bitching about when they were shoving money in their shorts hand over fist... ) What we've effectively got with these defaults is equivalent to the evaporation of market cap. Asset A was worth $1M... someone bought it for $950K... now it's worth $400K. You've just effectively removed $600K from the (loosely defined) money supply. The governments guarantee of bridge loans is not increasing the money supply at all in terms of the total net value of liquid assets in the economy -- they're effectively covering a loss. This shouldn't have any impact on inflation. Yes, the govt effectively purchases a portfolio that prima fascia is not worth what they paid for it (government get a bad deal...? ... u forget we are the land of the $170 military toilet seat )... but the idea is that the net impact on the economy is less through this transfer than if left to natural chaotic creative destruction.

The big question becomes what the government is able to do to recover value from that asset. They did a good job in many ways with the RTC during the S&L years, so there is a precedent. Let's see how well they do this time...

Originally Posted by zook

THIS is the shit that worries me!

Originally Posted by zook

this is a sweet thread that deserves more than 2 spades