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09/25/2008 03:23:05 PM · #26 |
Glad you like giving the government an excuse to take free reign with YOUR money. Without the consideration of the money not really being theirs they don't take care with it. That is the biggest problem.
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09/25/2008 03:28:25 PM · #27 |
Originally posted by cpanaioti:
Glad you like giving the government an excuse to take free reign with YOUR money. Without the consideration of the money not really being theirs they don't take care with it. That is the biggest problem. |
Oh, don't get me wrong. I do not like it, but that's how I see it... When someone asks you how much do you make, do you tell them your monthly amount that you pocket, monthly income before taxes, or as I've seen in the US, yearly before everything income? How can I say that I make x thousand a year, when I ever see about 60% of it in my hands?
(ETA: with only about 50% of that staying in my hands longer than 24 hrs)
Message edited by author 2008-09-25 15:29:19. |
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09/25/2008 03:32:52 PM · #28 |
Originally posted by srdanz:
If this is true, it is counter-intuitive at least to me. If you lent the money out and in exchange all you've got is a bunch of property that is worth less than what you as a bank had paid for, where is that bunch of money coming from? |
This is how I understand it: If you encourage lending with low interest rates and lax restrictions, then more people can afford to buy. With lots of buyers available, the demand (and value) of real estate goes up. The faster that value goes up, the more attractive it becomes as an investment, both to regular buyers and to Wall Street types. At some point, you have to raise those low interest rates to prevent inflation and the eroding value of your currency. Suddenly, people who were barely meeting their payments can no longer afford the artificially cheap mortgage they had. Now you have people foreclosing right and left at the same time it becomes harder for buyers to get credit. The value of real estate takes a nosedive. Property that had seemed like a sound investment– the potential reward of skyrocketing values backed by the security of people making their payments at 4-5% interest rates– now becomes a liability as the bottom drops out of real estate prices, buyers dry up, and people can no longer afford those regular payments.
If you were an bank or other institution with a big position in that market, your liabilities can quickly exceed your assets, and there's no easy way to discard the now-toxic investment. Not only are buyers afraid to take over a sudden glut of properties with prices still falling, but getting credit to even make such a purchase becomes difficult because even the banks themselves are threatened with bankruptcy as their assets dwindle and they become a credit risk to other banks (a vicious cycle). At face value, it might seem like a case of musical chairs, where the last one holding property when the music stops loses, but it goes MUCH deeper than that. People who invested in the "safety" of Lehman or AIG might not have known that those companies in turn were relying so heavily on real estate.
The "bailout" plan is an attempt to break that cycle by taking the toxic properties off the books of these institutions, in turn eliminating the liabilities that make them a credit risk. The idea is to suspend the paranoia that all these banks are about to go bankrupt, thereby allowing credit to flow again. With more careful scrutiny, potential buyers can get back in the market and the property values stabilize. The prices with then rise at a more natural pace with the increase in demand, and the government can then sell their holdings at a higher price. The government is the only entity large enough to hold these properties long-term, and this is basically how the savings & loan crisis was solved.
The alternative is an acceleration of the recent bankruptcies, with large banks like Washington Mutual going under, and taking other companies connected to them along for the ride. Foreclosures skyrocket and home values fall, while the people who would normally swoop in to snap up a bargain find it difficult to get the necessary financing. Loans backed by home equity values go from assets to liabilities and accelerate the crisis further. People who were perfectly capable of making their mortgage payments lose their jobs as their companies go under and add more fuel to the fire, etc. In short, it's the HOV lane to another Great Depression. |
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09/25/2008 05:47:47 PM · #29 |
| Shannon pretty much hit the nail on the head, it would be a nasty domino effect if this is left to fester with no help from the Feds. I heard today that Caterpillar, the machinery co., had to take a higher interest loan/bond today despite the fact that they are strong and no where near the finical debauchery that is going on right now. If a major corp like CAT, with a good credit rating, is starting to feel the effects it's not long before jo schmo will too. There is another nasty side implication in this whole mess and that is that a lot of pensions and retirement investments are tied into these loans. I'm not happy about spending tax dollars on this but if done right it will turn out to be more of a loan in the long run. |
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09/25/2008 06:08:18 PM · #30 |
| Have to agree Shannon has it right on the nail. |
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09/25/2008 06:30:05 PM · #31 |
Hmm, I would not necessarily agree with scalvert on all points. I do not believe that fear from unknown should be the driving force behind making decisions that would break governments pretty much everywhere else.
I see what's happening today as another fearmongering campaign. If nobody can explain to people why is this a good thing (and I've been listening today that leading economists from this country deem this 'solution' problematic), then I am remaining highly skeptical and against submitting to policy that resulted from fear.
Bankers are least likely kind to stop making money by not lending money to strong companies like US:CAT
What's your source for CAT news and their difficulties? CAT has $6-$7B in unused credit lines (source), and is not concerned or afraid. If they will spend $10 billion on making tractors that no one else will have the money to buy, then maybe they are better off not making those $10B in tractors.
Yes, that may mean reductions in workforce, but that's reality. Didn't we learn that you cannot increase spending by throwing money at people (think of that ridiculous advance tax refund from 2008). If we are not solvent, if we cannot afford stuff, stop making so much of it. Automakers are learning the lesson with SUVs (I hope they do) and do not make millions of them any more. Adjust to reality!
Or, alternatively, spend $700B today on keeping the economy up. But, be ready to spend another $500B in 2009 or 2010 again, because it is not sustainable this way. Especially if we keep manufacturing nothing here, and importing everything within your reach from abroad. US is in a great situation (re: $ vs Euro exchange rate) to start selling their products abroad. Alas, we have nothing (or not enough) to sell...
Let's wait and see. |
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09/25/2008 07:29:08 PM · #32 |
I was against the whole bailout package from the get because I want to punish the jackasses that took out loans they couldn't afford as well as the bankers that gave them the money. I don't care if they lose the house they can't afford anyway. Let them eat cake! Where's my extra money for being smart maintaining a debt level I can actually afford?!! Give ME an asset to leverage courtesy of the stinking government! I'd at least know what to do with it.
However, after more research I can see where this whole thing could go horribly awry not just here at home, but also abroad with our foreign investors. Even the smart peeps and companies are starting to get squeezed, through no fault of their own, courtesy of the idiots.
So, I resentfully would not argue against some sort of government intervention.
But I want the stupid people to not be able to profit. I want the bankers to go broke. Through taxes, this money is coming out of my pocket to help people that I don't really want to see get help. I'd like to choose who I loan money too, and it's not the "keep up with the Jones" peeps down the street.
The thing that pains me the most is that these morons are voting both locally and nationally. They clearly cannot manage their own finances, and IMO should not be able to vote on any local bond issue (since they clearly have no concept of how to manage credit) or for a presidential candidate that they think will continue the free handouts.
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09/26/2008 12:21:14 AM · #33 |
| Well said.. My question is would the financial industry not have to self correct this on their own if the government was in no position to help them out? Companies that can survive, survive the rest go belly up. Just as well the people who took out these bad loans on homes they could not afford should not get help from the government either. Basically it is their "all involved in the bad loans on both sides" own fault for being stupid and/or greedy. Do people really not know when enough is enough when it comes time to stop buying on credit? |
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10/03/2008 04:14:48 AM · #34 |
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10/03/2008 08:12:27 PM · #35 |
Before I get too far in, let me make it clear--I am SICK about yet again having to mortgage my kids' futures to play parent to a lot of grown adults who thought that the economic cycle had suddenly vanished and were playing fast and loose with a buttload and a half of money and should have known better.
That being said, this financial problem is no longer limited to the people who instigated it. It's a lot like cancer treatment, the disease has metastasized to otherwise healthy parts of the economy. When you give chemotherapy to a cancer patient, you basically are filling them with a poison and hope that the cancer cells die more than the healthy parts do. But the "cure" is toxic and highly unpleasant.
I'm extremely unhappy with the bailout, we may even be being lied to now about the extent of the problem to extract more money from us for all I know. But the fundamentals of the problem are real, and you will pay for it, even though you may not have been the cause of it, either through your taxes or from the fallout if the market is left to shake things out itself. |
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10/04/2008 09:31:41 AM · #36 |
| Ok lets see if the system actually works better if left alone. So what I understand from all this is if we do nothing people/businesses involved in the bad loans lose. Sounds fair so far. Then people and businesses that can't qualify and never should have cannot get credit anymore. Still sounds fair. This is where is sucks for more people. Now due to less being sold, some people and business go under due to the lack of need for these services and products. Sucks but still sounds fair. So over time industry shifts and people go back to work and the scare tactics go away. Economy recovers naturally instead of being covered by a band-aid. Works for me. Well at least Sen Shelby voted against the bill. Someone needs to slap the rest of the politicians in the head. Oh and why is it we are only blaming the U.S. and not the rest of the world too? We are not the only country that likes 6 plasma tvs. |
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10/04/2008 09:40:13 AM · #37 |
| As an aside: I talked to someone yesterday and was on my rant about "six TVs" only to discover one of his coworkers DOES have six TVs - all plasma, no less - and discovered that they won't work in Europe. Darn. So he bought six LCD multisystem TVs. He and his wife life alone - no kids. Six TVs for two people. |
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10/04/2008 09:45:09 AM · #38 |
Originally posted by scalvert:
]
This is how I understand it: If you encourage lending with low interest rates and lax restrictions, then more people can afford to buy. With lots of buyers available, the demand (and value) of real estate goes up. The faster that value goes up, the more attractive it becomes as an investment, both to regular buyers and to Wall Street types. At some point, you have to raise those low interest rates to prevent inflation and the eroding value of your currency. Suddenly, people who were barely meeting their payments can no longer afford the artificially cheap mortgage they had. Now you have people foreclosing right and left at the same time it becomes harder for buyers to get credit. The value of real estate takes a nosedive. Property that had seemed like a sound investment– the potential reward of skyrocketing values backed by the security of people making their payments at 4-5% interest rates– now becomes a liability as the bottom drops out of real estate prices, buyers dry up, and people can no longer afford those regular payments.
If you were an bank or other institution with a big position in that market, your liabilities can quickly exceed your assets, and there's no easy way to discard the now-toxic investment. Not only are buyers afraid to take over a sudden glut of properties with prices still falling, but getting credit to even make such a purchase becomes difficult because even the banks themselves are threatened with bankruptcy as their assets dwindle and they become a credit risk to other banks (a vicious cycle). At face value, it might seem like a case of musical chairs, where the last one holding property when the music stops loses, but it goes MUCH deeper than that. People who invested in the "safety" of Lehman or AIG might not have known that those companies in turn were relying so heavily on real estate.
The "bailout" plan is an attempt to break that cycle by taking the toxic properties off the books of these institutions, in turn eliminating the liabilities that make them a credit risk. The idea is to suspend the paranoia that all these banks are about to go bankrupt, thereby allowing credit to flow again. With more careful scrutiny, potential buyers can get back in the market and the property values stabilize. The prices with then rise at a more natural pace with the increase in demand, and the government can then sell their holdings at a higher price. The government is the only entity large enough to hold these properties long-term, and this is basically how the savings & loan crisis was solved.
The alternative is an acceleration of the recent bankruptcies, with large banks like Washington Mutual going under, and taking other companies connected to them along for the ride. Foreclosures skyrocket and home values fall, while the people who would normally swoop in to snap up a bargain find it difficult to get the necessary financing. Loans backed by home equity values go from assets to liabilities and accelerate the crisis further. People who were perfectly capable of making their mortgage payments lose their jobs as their companies go under and add more fuel to the fire, etc. In short, it's the HOV lane to another Great Depression. |
I have continuously tried to get my head around this whole mess and Shannon has put it in a way that has finally made sense to me... I am going to copy and paste his post to friends as it makes this whole mess a lot easier to understand and digest.. |
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10/04/2008 10:31:37 AM · #39 |
I'm glad to hear regulation is hip now. Let's look at the entire record of regulation vs. deregulation, not just Fannie and Freddie which never should have been privatized in the first place, and then we'll see whether Democrats or Republicans come out ahead. |
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10/04/2008 12:04:05 PM · #40 |
Please don't make the mistake of believing that all people who are being foreclosed on or who will be helped in the rescue package are undeserving. Some of what I am reading really shocks me. The thought that people are that greedy (the lenders) and uncaring really pushes me towards Dr. Archoo's assertion (paraphrased) that people, in general, suck.
Elderly victims
congressional testimony
lending abuses
and the other side - not so stupid people who take advantage
Message edited by L2 - Continue here. |
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