Economics business.The Sub-prime Crisis. How bad is it?

[Michaelangelica]

Stay Put

"Stay Put" and When the Sheriff Comes, Tell Him to "Show Me the Paper." [Video]

There are a lot of houses inforeclosure where: 1. The paperwork can't be found 2. No one is able to figure out who actually owns the loan because it's been sold, resold, packaged and repackaged so often. [Oooops!]

Stay Put
Video

CITI'S SKY-HIGH ARROGANCE
Just weeks after Citigroup averted total collapse with a $45 billion shot in the arm of taxpayer cash, the bank jetted its former CEO and his family on one of its corporate jets to a posh Mexican resort for New Year's, The Post has learned.

Sandy Weill, 75, hopped aboard the tanking bank's Bombardier BD 700 Global Express on Dec. 26 with his wife, Joan, daughter Jessica, her husband and their children. They flew from Westchester County Airport to the Los Cabos shore region in sunny Baja, according to aviation records and sources familiar with the trip.

The holiday jaunt came the same week that Citigroup - which lost $28.2 billion over the last five quarters and cut 75,000 jobs globally in 2008 - agreed to curtail runaway corporate expenses as part of a deal to get the massive influx of federal money.

CITI'S SKY-HIGH ARROGANCE - New York Post

[Michaelangelica]

In finance, leverage (or gearing) is borrowing money to supplement existing funds for investment in such a way that the potential positive or negative outcome is magnified and/or enhanced

-Wiki

The way i see it Man A has a mortgage with Company B
Company B leverages this asset maybe 6-20 times and buys shares and makes money
Company B sells man A and a few others mortgage assets to Company C they leverage this 6-20 times and then sell on the mortgage packet to company D and so on ad infinitum to thousands, millions of banks, mutual funds and Australian Local Councils (who should be spending the money not investing it)
So on it goes, though the alphabet to Z or Zee if you are Yank.
Everyone is very happy. The market seems to be heading for the stratosphere and why wouldn't it as everyone is buying stock with money they don't have-- leveraged against an asset that they have since sold
This works wonderfully
Corporations, shareholders make heaps of money and reward their CEOs with obscenely high saalries and perks.
China can't keep up the demand for consumer goods for Wal Mart et al.
Australia can't ship 'dug-up-stuff' fast enough to get it to China

Then the market falls.
No problem, the stock market, brokers banks say your shares aren't worth as much now I need you to give us more money, this happens #1 everyone is still happy.
Then the market falls again.
the stock market, brokers banks say your shares aren't worth as much now I need you to give us more money, this happens #2 everyone is still happy
Then the market falls.
The stock market, brokers banks say your shares aren't worth as much now I need you to give us more money, this happens #3 but a few small companies go broke everyone is still happy
Then the market falls.
The stock market, brokers banks say your shares aren't worth as much now I need you to give us more money, this happens #4 a lot more companies go broke everyone is still happy but a little nervous
Then the market falls-again
brokers banks say your shares aren't worth as much now I need you to give us more money, this happens #5 a couple of big banks and corporations are in trouble the government bails them out a few CEOs fall on their swords/golden parachutes, everyone is relieved if not overly happy.

Reporting season comes. A lot of companies have a lot of bad debts and are in a lot of trouble. Government bailouts happen across the globe. Sane Governments like the Brits nationalise (get something for their money) This can't happen in the protestant USA as socialism =evil, will sapping, anti-Christian, COMMUNISM.
The stock market starts a steady slide, brokers banks say your shares aren't worth as much now I need you to give us more money, no money left.

The stock market really stars a free fall there is panic, brokers banks say your shares aren't worth as much now I need you to give us more money, lots of people go broke. The banks grab all the money they can and lock it up. Very few people are happy. The banks won't lend; In fact the banking system is broken.

Now if you reflect on this, the $54BILLION (over 4% of Aust.'s GDP in a good year) lost by the Scottish Bank, this was leveraged about 18 times. So these 'masters of capitalism' had actually created lots, and lots, and lots, of money based on nothing, except perhaps misplaced trust and belief in the system, -with a good dolop of the 'Old Boys Club" or 'Old School Tie' or in London the amorphous unnamed "The City".
You would think people would have learned from Bond's collapse when The City in London decided this upstart house-painter from the colonies could not join their club. What Bond did, the The world's best banks have been doing in spades for years. Bond went to jail. Will they?

No one has enough money to do all the "bailing out" necessary.
That amount of money does not exist. It is an illusion , paper
As Rudd said some Banks will have to be let fail. Yes they will. We should know in about 4-6 months how bad this is (yes we are no where near the bottom yet-- still a lot of company reports to come in). fortunately the States has all its debts in its own $s so it can just print more paper. So far China has not stopped buying this paper (You and I would call it a loan, based on the mutual trust and co-dependence of two friends or a married couple.)??

Now, assume, I have just invented a solar panel that costs me a $1 to make. It produces 1,000 Kws of energy. Delighted I go to the bank to set up a factory to make and business to sell these . I can employ millions as demand for my product will be limitless. The bank says "No way Hose".
"We have it all locked up we can't trust anyone these days. Our CEO- Scrooge Mac Duck- is using it as swimming pool."

More unemployment less spending fear happens. The banking system just collapses. The Reserve/Federal banks reduces the cost of money to help them along ( 3.5% in Oz; 0.25% in Japan) but the Banks lend it at 7- 9-12-19%. "We have to have money for our shareholders1", they say. "We have so many bad debts as no-one is buying anything, so we have to foreclose on all these businesses!"

Keynesian stimulus packets are tried, but have limited success, even the best governments haven't got THAT much money.

The banking and financial systems and Economics are broken. Can they be fixed?

Surviving
make a garden, If you have money buy a gold brick or a silver ingot and bury it in the garden, barter and swap. Don't take crap from bankers lawyers or the sheriff.

Global World Economic Crisis Study Guide 101.
by MA

[REASON]

Here's a link to a new report called Sold Out: How Wall Street And Washington Betrayed America

It's an indepth investigative report into the financial crisis we are currently experiencing that looks back over the past decade and beyond at the efforts of giant Wall Street firms to press for the deregulation of key financial markets through lobbying practices and campaign contributions of lawmakers.

Here is the Table of Contents to wet your appetite for information:

Table of Contents
Introduction: A Call to Arms, by Harvey Rosenfield ..……………. 6
Executive Summary ………………………………………………... 14
Part I: 12 Deregulatory Steps to Financial Meltdown ....................... 21

1. Repeal of the Glass-Steagall Act and the Rise of the Culture of ………….. 22
Recklessness
2. Hiding Liabilities: Off-Balance Sheet Accounting ………………………… 33
3. The Executive Branch Rejects Financial Derivative Regulation ………….. 39
4. Congress Blocks Financial Derivative Regulation ………………………… 47
5. The SEC’s Voluntary Regulation Regime for Investment Banks …………. 50
6. Bank Self-Regulation Goes Global: Preparing to Repeat the Meltdown? … 54
7. Failure to Prevent Predatory Lending ……………………………………… 58
8. Federal Preemption of State Consumer Protection Laws ………………….. 67
9. Escaping Accountability: Assignee Liability ……………………………… 73
10. Fannie and Freddie Enter the Subprime Market …………………………… 80
11. Merger Mania ……………………………………………………………… 87
12. Rampant Conflicts of Interest: Credit Ratings Firms’ Failure …………….. 93

Part II: Wall Street’s Washington Investment ..……………………. 98

Conclusion and Recommendations:
Principles for a New Financial Regulatory Architecture ..……... 109
Appendix: Leading Financial Firm Profiles of Campaign
Contributions and Lobbying Expenditures ...…………………… 115

To me, this is the type of non-partisan report, with it's references, recommendations, and appendices, we should be looking to as we try and understand what has brought about the economic conditions we are facing. Unless we are able to properly understand them, we will continue to be unable to avoid these problems over future generations.

[Michaelangelica]

The final word?

[LaurieAG]

I'm glad that the US govt intends to seriously regulate derivatives.

Especially since todays paper said there were hundreds of trillions of them on the global financial system.

[Michaelangelica]

Originally Posted by LaurieAG

I'm glad that the US govt intends to seriously regulate derivatives.

Especially since todays paper said there were hundreds of trillions of them on the global financial system.

just as well they can just keep the printing presses going
can you buy shares in the paper Company that supplies the USA treasury?
Another final word?

[LaurieAG]

Hi Michaelangelic,

When they regulate them they'll find out that much of it is a gimme that can be manipulated to minimise the 'risk' (by corrupting the system). There will be a big fight, we probably won't be aware of it, about whether to put these sick little puppys to sleep for their (and ours and the systems) own good or whether the terrible forces generated (greed probably the largest) can be harnessed for the greater good (by those with a vested interest).

Unfortunately LTCM and the investment backs that bailed it out are all gone now, in just ten years their puppies turned into much larger monsters, the next time we won't be so lucky, if we ever let this logical progression continue any further.

I read last week that US economists predict that things will start getting better around August. When the dot com bubble burst they were just deciding that two consecutive quarters of negative growth don't define a recession. I also read that tent citys are starting to form outside US cities. The tent cities will be a good benchmark for the problem at hand although further socialist interventions may modify these observations.

The Australian banking solution should also be seen for what it is before global politicians become desperate for a real solution. Allowing userous fees and charges (their profits are very similar to what they rake in out of our pockets regardless of interest) to forestall the inevitable would surely guarantee that a much more global socialistic system would have to be adopted to compensate for the human misery generated.

You too can live in a world like mine where the state politicians are going to remove our 8.5 cent per liter petrol subsidy. Brilliant, we'll only be paying 8.5 cents per liter more than every other Australian pays for theirs.

[LaurieAG]

I saw a graph in the Australian newspaper yesterday that showed that new US non financial lending was negative.

There was an other article last week that described a company that had a revolving line of credit (Revolver) renewed after 6 years. The old terms were .2% above LIBOR (London Interbank Borrowing Rate, which is higher now than 6 years ago) for 6 billion dollars for 6 years. The new terms were for 5.3 billion over 1 year at a rate 2% above the current LIBOR.

I can understand why these new lending figures have gone negative

If the trillions pumped into the financial sector only just balances their current and future obligations with regards to their respective derivative monsters, surely these monsters must be removed now, while the true value of the financial sector is zero.

The only equitable solution is that these monsters should be banned and the current monster be banished to another planet for a long time.

[Michaelangelica]

Originally Posted by LaurieAG

I saw a graph in the Australian newspaper yesterday that showed that new US non financial lending was negative.

There was an other article last week that described a company that had a revolving line of credit (Revolver) renewed after 6 years. The old terms were .2% above LIBOR (London Interbank Borrowing Rate, which is higher now than 6 years ago) for 6 billion dollars for 6 years. The new terms were for 5.3 billion over 1 year at a rate 2% above the current LIBOR.

I can understand why these new lending figures have gone negative

If the trillions pumped into the financial sector only just balances their current and future obligations with regards to their respective derivative monsters, surely these monsters must be removed now, while the true value of the financial sector is zero.

The only equitable solution is that these monsters should be banned and the current monster be banished to another planet for a long time.

Yes agreed Unless the banks lend to BUSINESS at good even generous rates we are all in deep doo doo.
Here they are just worried about their bottom line. Stuff the economy/society/community. As long as the shareholders pay my bonus the world is rosy -Short-sighted bastards.
They (ALL Banks and Credit Unions) have been given a blank cheque by the government but don't see any need or responsibility now to pass on Reserve Bank's lowering of interest rates. That should help their profit forecasts. They are awash with cash, some starting to come in from OS as they are offering some of the best and certainly safest (due to Govt guarantee) rates in the world-- c. 5%
Meanwhile lending to business at 11-14%, even -19%(a common credit card rate), while making them jump though all sorts of expensive and time consuming hoops to get even that .Mostly they are not interested in running a mortgare on your factory just your home.
Lately they refused to administer small low interest government green loans for pensioners & the poor to "green" their homes- arrogant shites that they are. (The credit unions are coming to the party though)
Sort of makes you wish they had all gone broke and we socialised the lot of them

[LaurieAG]

So, if the global financial system isn't lending new money to business then existing business must be paying more for the money they need to continue running and they must pass on these costs to their consumers or reduce their profit margins. If they ruduce their profits the market will punish them so they must retain or increase their profits to stop their share prices falling.

Like the US Federal Reserve, the Australian Reserve, George Soros, Allan Greenspan and Rupert Murdoch, we all should be running around shouting that there is no problem and things are going to get better any time now, because we're the ones who are going to be paying for it.

It looks like we are all going to pay for it twice, at least, and that'll only keep the global economy sustainable with no real growth.

I hope this isn't the new mantra for the 21st century.

Autocrat king is just tyrannus rex
all hail thrall.

Elites who turn their peasants into serfs
all hail thrall.

Politicians ruled by economics at work
all hail thrall.

BTW, thrall is slavery.