The Global Financial Crisis

[baboon]

Time to buy gold, rice, alcohol, soup. Good luck everyone stay safe!

[DRU842]

All the cash that's been taken out will need to find a home eventually.

[King Nothing]

Originally Posted by DRU842

All the cash that's been taken out will need to find a home eventually.

But the root of the problem, as far as I understand, is that a lot of money has just disappeared. The housing market fell over, mortgages were worth far more than the property, people defaulted on loans, or "handed back to the bank" as you can do in the US. So instead of having a mortgage worth say $800k and security of a 400K house with say 5-10% defaulting, a lot more people are defaulting and the houses would be worth 200K. So the money no longer exists. What was once a mortgage worth $800K on paper, is now a house worth $200K to the banks. Multiply by a huge number of houses, and thats why banks are running short of real money at the moment.

[StAndArdAU]

Would it be worth, being Australian, buying a house in the US??? Would you stand to make money if you sold after the crisis??

[Yellow_Festiva]

Originally Posted by StAndArdAU

Would it be worth, being Australian, buying a house in the US??? Would you stand to make money if you sold after the crisis??

I wouldn't... way too risky. It would be a gamble investment, and should only be done with spare money you were happy to live without should the deal go sour.

[gcg2503]

Originally Posted by StAndArdAU

Would it be worth, being Australian, buying a house in the US??? Would you stand to make money if you sold after the crisis??

That would be a total logistical nightmare mate........

[StAndArdAU]

i wasn't going to do it. i havent got any money as it is. i am trying to get my head around the situation with their housing market. so its not the fact that their house prices are low, its the fact that people owe ALOT more money than what they ARE worth??

[Yellow_Festiva]

Originally Posted by StAndArdAU

So its not the fact that their house prices are low, its the fact that people owe ALOT more money than what they ARE worth??

Yes. Their housing crisis started by Clinton introducing laws that forced lenders to provide a certain percentage of their business to dissadvantaged / minority groups. "Sub Prime Mortgages"..

This meant a ton of people who would never dream of buying a house were in the position to buy, as they would get a loan very easily.

When a heap of people are buying, such demand increases the vale of an asset. So people bought in a market with inflated prices.

Economy now buggered, banks need to get a return on their loans, only to realise that when everyone is selling, values of assets drop. So the house bought for $100 grand in the boom with a mortgage of $95 grand has to be sold for $70 grand. The bank has just lost $25 grand on that one transaction.

Multiply that by a few million houses, and you can see how the snow ball gets bigger and bigger...

Well, thats my understanding of it anyway.

[StAndArdAU]

yeah cool cheers for that. That was a long the direction my understanding had taken. I guess its got a lot to do with those financial institutes that offer 100%-110% house loans without the need for a deposit. I reckon if you cant afford a deposit, you cant afford a house.

[birdman941]

Originally Posted by Yellow_Festiva

Yes. Their housing crisis started by Clinton introducing laws that forced lenders to provide a certain percentage of their business to dissadvantaged / minority groups. "Sub Prime Mortgages"..

This meant a ton of people who would never dream of buying a house were in the position to buy, as they would get a loan very easily.

When a heap of people are buying, such demand increases the vale of an asset. So people bought in a market with inflated prices.

Economy now buggered, banks need to get a return on their loans, only to realise that when everyone is selling, values of assets drop. So the house bought for $100 grand in the boom with a mortgage of $95 grand has to be sold for $70 grand. The bank has just lost $25 grand on that one transaction.

Multiply that by a few million houses, and you can see how the snow ball gets bigger and bigger...

Well, thats my understanding of it anyway.

Very good analysis.
There's one guy here who has been in the news a lot lately,
(a Congressman) who warned his counterparts about it a few years ago.
He's a war hero who was in a N. Vietnamese prison and tortured for 5 years.
Anyway, no one listened to him,
but I do wish he had made a bigger stink about it.
Maybe do a search on youtube for "Oreilly and Barney Frank"
and see if you can find anyone with a guilty conscience.

I would not buy a home here right now.
Real estate is pretty volatile right now.

[birdman941]

Here's a link from a "comedy" show here: (Un-edited)
It sort of "explains" what went on here with corrupt officials.

http://msunderestimated.com/SNLBailoutSkit.wmv

[jxr62]

Originally Posted by Yellow_Festiva

Yes. Their housing crisis started by Clinton introducing laws that forced lenders to provide a certain percentage of their business to dissadvantaged / minority groups. "Sub Prime Mortgages"..

This meant a ton of people who would never dream of buying a house were in the position to buy, as they would get a loan very easily.

When a heap of people are buying, such demand increases the vale of an asset. So people bought in a market with inflated prices.

Economy now buggered, banks need to get a return on their loans, only to realise that when everyone is selling, values of assets drop. So the house bought for $100 grand in the boom with a mortgage of $95 grand has to be sold for $70 grand. The bank has just lost $25 grand on that one transaction.

Multiply that by a few million houses, and you can see how the snow ball gets bigger and bigger...

Well, thats my understanding of it anyway.

my understanding is that they still have to reply the 25 grand. also at higher interest. our bankrupcy laws are very different to yankey land. If you declare bankrupt you might survive but if the bank takes possession first then you are up for a lot. ie heeps of fees, costs of selling and legal fees..

[Yellow_Festiva]

Originally Posted by jxr62

my understanding is that they still have to reply the 25 grand. also at higher interest. our bankrupcy laws are very different to yankey land. If you declare bankrupt you might survive but if the bank takes possession first then you are up for a lot. ie heeps of fees, costs of selling and legal fees..

Nope. We here in Oz we will get chased up by the banks to get back any outstanding money.

In the US, if you can't pay back the loan you just default and that's that. The banks take the loss and there is no chasing of missing funds.

That's what I remember hearing on the radio at least. Seems odd but apparently true.

[gcg2503]

Its all about risk appetite and risk profile

Unfortuantely every investment bank (not to mention other institutions) got onto the band wagon and started being all these crap sub prime related products all packaged up. ie grouped together and sold as Asset backed Securities (derivative products)

Now we are in quite the financial quagmire.

Quite annoying for me personally as I was meant to be on a plane this Wednesday coming home to melbourne permanently...looks like i am staying here for another 6 months to ride out the storm a bit more. Not that i think all will return to normal by march / april.....

[fmc351]

Originally Posted by King Nothing

But the root of the problem, as far as I understand, is that a lot of money has just disappeared. The housing market fell over, mortgages were worth far more than the property, people defaulted on loans, or "handed back to the bank" as you can do in the US. So instead of having a mortgage worth say $800k and security of a 400K house with say 5-10% defaulting, a lot more people are defaulting and the houses would be worth 200K. So the money no longer exists. What was once a mortgage worth $800K on paper, is now a house worth $200K to the banks. Multiply by a huge number of houses, and thats why banks are running short of real money at the moment.

Homes are involved, and the institutions that offer loans are involved, but this crisis has bugger all to do with defaulting home loans. Someone pull out a calculator and do some maths. The level of default required to account for the amount that the financial sector has suffered, and the resulting losses on the stock market, has not occurred. Some simple maths would show that.

AIG $85B, Freddie and Fannie $200B, $700B bailout bill, and AIG*** just got another $38B

$12B shy of 1 trillion dollars. Thats 1,000,000,000,000.

Put that number in perspective, it is...
- $140billion more than the cost of the Iraq war since the invasion.
- 9 times the amount spent on education in one year in the US
- 35 times the amount of US foreign aid
- 1/3 of the bailout $$$ could reduce US oil dependency by 20%

To account for the $1trillion, 3.3 million homes ($300k each) would need to be defaulted on, and the home burnt to the ground. and the land unusable. If we accept that the sale should fetch 50% of the loan principle, then the number doubles. You should keep in mind, low income loans in the US were not for $300k homes. Our prices in Aus suggest $300k doesnt buy a lot now, in the US, there are far more affordable homes in places.

We hear of US foreclosure rates jumping by 45% in some cities, some as much as 200%. Sounds huge, but when you consider the foreclosure rate in the US is 1 in 1147 households for 2007, a 200% increase isnt much, and 200% is only some cities and is extreme. Numbers sound huge, until they have perspective. Yet 1 trillion doesnt register as the number is just astronomical.

When you the home owner borrow against a house to 80% of its value from ANZ, you cant then go to Westpac and do the same and then to StGeorge borrowing a principle total from 3 banks that is 240% of the homes value. Then add in the problem of the house value falling.

But heres the thing, 1st thing you should remember, the banks in trouble are not banks in the same sense as ANZ or whatever, they are merchant banks, not banks with branches for mums and dads and ATM's, this is where companies like other banks and BHP or GM go to borrow money. The US has had a number of everyday customer type banks fall over too, but they are not the crisis.

The loans they are talking about have been borrowed against to 30 times their value. But its not houses being borrowed against directly, its your loan being borrowed against by the bank that holds your debt, banks borrowing from other banks against the debts they hold. Its a shell game shifting risk from one holder to another, FOR A FEE, with the potential to make money off the risk for the purchaser of the risk. Selling and buying risk. As stated above, its the derivatives market that has caused all the problems. Read up on it, if you understand it, good on you. Its convoluted, and very shady, because it is a PYRAMID scheme that has nothing to do with home owners, and everything to do with bankers making money.

Its the money behind the money and the high flyers handling the credit discovering new ways to make a buck in risk. This flows on to the mum and dad banks with the ATM's as they cant get credit because the banks bank, has no money when the pyramid collapses.

Part of the issue has been shady loan practices to 'home owners' in the first place, but these are not the major issue and certainly not the cause of the crisis. For this to have been related to low income loans, there would be a corresponding number of defaults in said housing, there is not such a correlation. These have an impact on the economy and the everyday banks, and there are issues, but blaming the low income loans is disingenuous and downright partisan hackery.

That Vietnam vet, 'Mr Maverick', represents a party that had a congress majority and had ample opportunity to 'step in', they did nothing to stop it anyway. Not that doing so would have stopped anything, it was already too late. Low income loans werent the issue, it was the Vietnam vets (and his party's) insistence on no regulation, and the pyramid of derivatives that deregulation allowed. Not just him, but many on both sides of politics in the US believe in small government to such an extent its silly which means little to no regulation, let the market sort it out, which clearly does not work. Small gov is good to an extent, but not entirely, and the market is always crowded with incentives for employees/executives to self serve, not serve share holders. This needs some regulation.

[Bent8]

Some facts...

Did you know that the US Federal Reserve (like our Reserve Bank) is privately owned by European banks?

Did you know that every dollar that the Fed prints is actually an "I owe you" for these same private banks which the US taxpayer is responsible for?

Hard to believe?....watch this, http://www.youtube.com/watch?v=WD3KCCrYVk0

This is all part of a big plan to centralize banks across the globe while buying up real assets with the money they create!

And this from the Director of the Bank of England in the 20's

“Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money." Sir Josiah Stamp (thought to be the 2nd wealthiest man in England at the time)

Google "The Money Masters"...it's from the 90's but explains things really well.

[birdman941]

Originally Posted by fmc351

That Vietnam vet, 'Mr Maverick', represents a party that had a congress majority and had ample opportunity to 'step in', they did nothing to stop it anyway. Not that doing so would have stopped anything, it was already too late. Low income loans werent the issue, it was the Vietnam vets (and his party's) insistence on no regulation, and the pyramid of derivatives that deregulation allowed. Not just him, but many on both sides of politics in the US believe in small government to such an extent its silly which means little to no regulation, let the market sort it out, which clearly does not work. Small gov is good to an extent, but not entirely, and the market is always crowded with incentives for employees/executives to self serve, not serve share holders. This needs some regulation.

That is simply not true, and factually incorrect.
In order for a bill to reach the floor, there has to be a majority.
The "maverick's" party was stymied by the opposing party
so it never reached the floor for debate.
The did not have enough votes in that part of the gvt.
The crux of the issue is the socialists' insistence on giving loans
to unqualified minorities.
If the bank refused the risky loan, they were either sued or threatened
with lawsuits by a group led by the "maverick"'s current opponent.
He was a lawyer for the group suing banks for not wanting to make risky loans.
This is pretty much common knowledge here now that the mainstream media
has been forced into reporting it.
I do have a digital copy of the original warning signed by the "Maverick".
Not sure if this is an appropriate place to post it though.
Here is the link to it:
http://www.humanevents.com/article.php?id=28973
Yes, the majority of the problem was a group of greedy Americans.
Many of those greedy people are high in a certain candidate's campaign staff,
and it ain't the "Maverick".
Look it up.
Accurate information is out there if you know where to look.
The lowering of loan standards is a completely different issue than deregulation, unless you believe a biased press.

[InTrail]

Originally Posted by fmc351

Put that number in perspective, it is...
- $140billion more than the cost of the Iraq war since the invasion.

IIRC. The cost of the Iraq war/occupation actually surpassed $6 trillion a few months ago.

[Darkr]

Originally Posted by Bent8

Some facts...

Did you know that the US Federal Reserve (like our Reserve Bank) is privately owned by European banks?

Did you know that every dollar that the Fed prints is actually an "I owe you" for these same private banks which the US taxpayer is responsible for?

Hard to believe?....watch this, http://www.youtube.com/watch?v=WD3KCCrYVk0

This is all part of a big plan to centralize banks across the globe while buying up real assets with the money they create!

Conspirisy thoery does not equal facts.

[King Nothing]

Originally Posted by fmc351

Homes are involved, and the institutions that offer loans are involved, but this crisis has bugger all to do with defaulting home loans. Someone pull out a calculator and do some maths. The level of default required to account for the amount that the financial sector has suffered, and the resulting losses on the stock market, has not occurred. Some simple maths would show that.

AIG $85B, Freddie and Fannie $200B, $700B bailout bill, and AIG*** just got another $38B

$12B shy of 1 trillion dollars. Thats 1,000,000,000,000.

Put that number in perspective, it is...
- $140billion more than the cost of the Iraq war since the invasion.
- 9 times the amount spent on education in one year in the US
- 35 times the amount of US foreign aid
- 1/3 of the bailout $$$ could reduce US oil dependency by 20%

To account for the $1trillion, 3.3 million homes ($300k each) would need to be defaulted on, and the home burnt to the ground. and the land unusable. If we accept that the sale should fetch 50% of the loan principle, then the number doubles. You should keep in mind, low income loans in the US were not for $300k homes. Our prices in Aus suggest $300k doesnt buy a lot now, in the US, there are far more affordable homes in places.

We hear of US foreclosure rates jumping by 45% in some cities, some as much as 200%. Sounds huge, but when you consider the foreclosure rate in the US is 1 in 1147 households for 2007, a 200% increase isnt much, and 200% is only some cities and is extreme. Numbers sound huge, until they have perspective. Yet 1 trillion doesnt register as the number is just astronomical.

When you the home owner borrow against a house to 80% of its value from ANZ, you cant then go to Westpac and do the same and then to StGeorge borrowing a principle total from 3 banks that is 240% of the homes value. Then add in the problem of the house value falling.

But heres the thing, 1st thing you should remember, the banks in trouble are not banks in the same sense as ANZ or whatever, they are merchant banks, not banks with branches for mums and dads and ATM's, this is where companies like other banks and BHP or GM go to borrow money. The US has had a number of everyday customer type banks fall over too, but they are not the crisis.

The loans they are talking about have been borrowed against to 30 times their value. But its not houses being borrowed against directly, its your loan being borrowed against by the bank that holds your debt, banks borrowing from other banks against the debts they hold. Its a shell game shifting risk from one holder to another, FOR A FEE, with the potential to make money off the risk for the purchaser of the risk. Selling and buying risk. As stated above, its the derivatives market that has caused all the problems. Read up on it, if you understand it, good on you. Its convoluted, and very shady, because it is a PYRAMID scheme that has nothing to do with home owners, and everything to do with bankers making money.

Its the money behind the money and the high flyers handling the credit discovering new ways to make a buck in risk. This flows on to the mum and dad banks with the ATM's as they cant get credit because the banks bank, has no money when the pyramid collapses.

Part of the issue has been shady loan practices to 'home owners' in the first place, but these are not the major issue and certainly not the cause of the crisis. For this to have been related to low income loans, there would be a corresponding number of defaults in said housing, there is not such a correlation. These have an impact on the economy and the everyday banks, and there are issues, but blaming the low income loans is disingenuous and downright partisan hackery.

That Vietnam vet, 'Mr Maverick', represents a party that had a congress majority and had ample opportunity to 'step in', they did nothing to stop it anyway. Not that doing so would have stopped anything, it was already too late. Low income loans werent the issue, it was the Vietnam vets (and his party's) insistence on no regulation, and the pyramid of derivatives that deregulation allowed. Not just him, but many on both sides of politics in the US believe in small government to such an extent its silly which means little to no regulation, let the market sort it out, which clearly does not work. Small gov is good to an extent, but not entirely, and the market is always crowded with incentives for employees/executives to self serve, not serve share holders. This needs some regulation.

Fair enough, good explanation, I'll take your word on the numbers. That was the way it was explained to me, but anyway.

"The loans they are talking about have been borrowed against to 30 times their value. But its not houses being borrowed against directly, its your loan being borrowed against by the bank that holds your debt, banks borrowing from other banks against the debts they hold."

This is the bit that gets me, I can't quite understand what is meant here (I'm not an economist). Banks borrowing against debt? I don't quite understand. Where is the reward/security?

[fmc351]

Originally Posted by birdman941

That is simply not true, and factually incorrect.
In order for a bill to reach the floor, there has to be a majority.
The "maverick's" party was stymied by the opposing party
so it never reached the floor for debate.
The did not have enough votes in that part of the gvt.
The crux of the issue is the socialists' insistence on giving loans
to unqualified minorities.
If the bank refused the risky loan, they were either sued or threatened
with lawsuits by a group led by the "maverick"'s current opponent.
He was a lawyer for the group suing banks for not wanting to make risky loans.
This is pretty much common knowledge here now that the mainstream media
has been forced into reporting it.
I do have a digital copy of the original warning signed by the "Maverick".
Not sure if this is an appropriate place to post it though.
Here is the link to it:
http://www.humanevents.com/article.php?id=28973
Yes, the majority of the problem was a group of greedy Americans.
Many of those greedy people are high in a certain candidate's campaign staff,
and it ain't the "Maverick".
Look it up.
Accurate information is out there if you know where to look.
The lowering of loan standards is a completely different issue than deregulation, unless you believe a biased press.

Mate, if low income home loans were the problem, why dont the value of low income defaults reflect the level of the crisis? Use your head. You can spout off all you like, but it is baseless, the maths doesnt lie.

Until 2006, Republicans had control of both houses for several years, they could have passed a bill. The 'Maverick' was a chief supporter of deregulation of Wall St in the 90's. He supported the bill and as recently as September this year still thinks it was a good decision. Deregulation has had a massive involvement in the crisis.

Obama on the other hand, supported a bill for the provision of loans to low income families, a situation that may or may not have merit as a piece of legislation depending on your view of things, but in no way can be blamed for the crisis. Im not saying Obamas legislation was good or bad, Im saying it has bugger all to do with the crisis. The maths dont lie.

There would need to be 3.3 million defaulting low income home loans on homes worth $300k to account for $1,000,000,000,000, if low income loans were the problem. Think for a minute, with a nation that still has many property prices in places of $100-150k, reality is most of the low income loans went to homes under $150k. So there would actually need to be 6.6 million defaults at that rate, 6.6 milllion, more when you consider the real price of housing for low income home owners. You dont think $300-500k loans were given to low income earners do you? How does someone earning $5-7 an hour ever pay back $500k plus interest?

Of the defaults that do exist many are the home owners who should be borrowing up to say $400k, yet borrowed $500-600k because they could as a result of the bubble, these are not loans that resulted from the legislation in question, low income loans dont go to those who can buy $400k homes. These result from far too easy to get credit due to derivatives, resulting from deregulation.

Pull out a calculator and check for yourself, dont come at me with Republican soundbites. That line in bold in your post, for it to have merit, find me the low income loan foreclosures to the value of $1,000,000,000,000.

There is reason, and its the banks dealing with themselves that has caused the crisis, and that is directly from a lack of any oversight, or deregulation to an insane level, that was the "Mavericks" doing.

[fmc351]

Originally Posted by InTrail

IIRC. The cost of the Iraq war/occupation actually surpassed $6 trillion a few months ago.

Not even close. The current estimates are the war may cost $3trillion before its over (who knows when that is), and thats a number reflecting into the future, and the costs of caring for veterans for years to come long after the war.

Five years in, the Pentagon tags the cost of the Iraq war at roughly $600 billion and counting.

http://www.nytimes.com/2008/03/19/wa...on/19cost.html

This was in March this year and estimates are the war now adds as much as $40b a month. I used an upper figure in the above post (I could have used a lower estimate), there is no accurate account for the costs as yet, but 6 trillion to date is laughable when 3 trillion is the estimate for its entirety including veterans affairs long after the war is forgotten.

Originally Posted by King Nothing

Fair enough, good explanation, I'll take your word on the numbers. That was the way it was explained to me, but anyway.

"The loans they are talking about have been borrowed against to 30 times their value. But its not houses being borrowed against directly, its your loan being borrowed against by the bank that holds your debt, banks borrowing from other banks against the debts they hold."

This is the bit that gets me, I can't quite understand what is meant here (I'm not an economist). Banks borrowing against debt? I don't quite understand. Where is the reward/security?

Honestly dude, its not a good explanation, its just my best grasp at it, its too shady to be fully understood.

But youd be right, it doesnt make sense in the scale it was done. Its similar to income insurance when taking out a loan. The profit for the lender is shifting risk to someone else, and the profit to the assumer of the risk is a fee for doing so, and hoping they earn more revenue from default free coverage than they lose due to defaults. This would be fine if the risk was secured by an asset to recover losses should they eventuate, it may even work if levered to 2 or 3 times its value. But when the asset is levered to as much as 30 times its value, thats a problem of epic proportions when the ar5e falls out.

Why do banks do it, or more importantly, underwriters do it? Because the people who approve these things are not the owners of the money at risk, shareholders are. Until the ar5e falls out of it it looks good on the books and those selling the service are paid according to those benchmarks so they have incentive to sign up as many as they can, and those seeking the service also are rewarded by the position of the company they work for by their own books. Income from bonuses/commissions to the bankers/reps and salaries of bankers/executives, using a system the average shareholder doesnt understand, shareholders who rely on the execs to keep the ship floating trusting in their judgement, while those employees play the system to best suit their annual rewards.

The directors of AIG (who has received $85b, and now will get another $38b as the initial $85b wasnt enough) celebrated on the company dollar with a spa and massage day costing $24k. Thats just rude.

Imagine owing $3,000,000 to banks all secured by your $100,000 house, and losing your job. This is not what home owners have done, this is what banks have done between themselves.

As I said, the foreclosure rate in the US does not reflect the $1trillion crisis. The crisis can not be blamed on loans to low income families which is what one side of US politics is trying to do, the maths doesnt lie. Its what bankers did behind the scenes chasing bonuses/commissions etc for their own personal income. That side of politics is trying to defend its stance on no regulation by shifting blame to home owners. Simple maths reveals that they are using a scapegoat.

Sure there are a lot of foreclosures, on properties that no longer reflect the values they once had, and this has an impact, but not $1trillion. The scale of this thing is a result of derivatives, and that is a lack of regulation.

[King Nothing]

Originally Posted by fmc351

Honestly dude, its not a good explanation, its just my best grasp at it, its too shady to be fully understood.

But youd be right, it doesnt make sense in the scale it was done. Its similar to income insurance when taking out a loan. The profit for the lender is shifting risk to someone else, and the profit to the assumer of the risk is a fee for doing so, and hoping they earn more revenue from default free coverage than they lose due to defaults. This would be fine if the risk was secured by an asset to recover losses should they eventuate, it may even work if levered to 2 or 3 times its value. But when the asset is levered to as much as 30 times its value, thats a problem of epic proportions when the ar5e falls out.

Why do banks do it, or more importantly, underwriters do it? Because the people who approve these things are not the owners of the money at risk, shareholders are. Until the ar5e falls out of it it looks good on the books and those selling the service are paid according to those benchmarks so they have incentive to sign up as many as they can, and those seeking the service also are rewarded by the position of the company they work for by their own books. Income from bonuses/commissions to the bankers/reps and salaries of bankers/executives, using a system the average shareholder doesnt understand, shareholders who rely on the execs to keep the ship floating trusting in their judgement, while those employees play the system to best suit their annual rewards.

The directors of AIG (who has received $85b, and now will get another $38b as the initial $85b wasnt enough) celebrated on the company dollar with a spa and massage day costing $24k. Thats just rude.

Imagine owing $3,000,000 to banks all secured by your $100,000 house, and losing your job. This is not what home owners have done, this is what banks have done between themselves.

As I said, the foreclosure rate in the US does not reflect the $1trillion crisis. The crisis can not be blamed on loans to low income families which is what one side of US politics is trying to do, the maths doesnt lie. Its what bankers did behind the scenes chasing bonuses/commissions etc for their own personal income. That side of politics is trying to defend its stance on no regulation by shifting blame to home owners. Simple maths reveals that they are using a scapegoat.

Sure there are a lot of foreclosures, on properties that no longer reflect the values they once had, and this has an impact, but not $1trillion. The scale of this thing is a result of derivatives, and that is a lack of regulation.

Ok, that makes it a little bit clearer, thanks, but I'm still not 100% there. To me it just reeks of a scam, and I'm sure it is. I'm stunned that this hasn't been picked up earlier, that nobody bothered to check assumptions or even have a reality check of the risk they were taking on.

So my understanding now is that the drop in the housing market actually kicked off a series of events, which resulted in banks calling in debts when the money didn't even exist in the first place, it was all just credit. I understand the flow on effects of credit freezing, as banks won't loan as they hoard capital to secure their own holdings and they won't loan to other banks as they don't know who will go under next. And that by refusing to give out credit, but still calling in loans, effectively the amount of "money" going around in the economy will shrink. Ahh, it's starting to do my head in!

[fmc351]

Originally Posted by King Nothing

Ok, that makes it a little bit clearer, thanks, but I'm still not 100% there. To me it just reeks of a scam, and I'm sure it is. I'm stunned that this hasn't been picked up earlier, that nobody bothered to check assumptions or even have a reality check of the risk they were taking on.

So my understanding now is that the drop in the housing market actually kicked off a series of events, which resulted in banks calling in debts when the money didn't even exist in the first place, it was all just credit. I understand the flow on effects of credit freezing, as banks won't loan as they hoard capital to secure their own holdings and they won't loan to other banks as they don't know who will go under next. And that by refusing to give out credit, but still calling in loans, effectively the amount of "money" going around in the economy will shrink. Ahh, it's starting to do my head in!

This is the question at the heart I reckon. If it was your money, your company, you would spot these things and scream about it, people would be fired etc. But the CEO's arent the business owners, they are managers of managers paid on performance, and this stuff makes for huge annual payments. The AIG CEO took home $350 million over ?7 years?, they have incentive to allow these things to take place, when the poo hits the fan, they are $350 million better off. The guys lower down, all get rewards by selling these derivatives. AIG needed $123billion of taxpayers money to stay afloat. How the hell is the CEO worth $350million?

Shareholders, the owners, dont know what is happening, and dont understand it. Mostly, CEO's hide it with accounting measures that are at best sketchy, but more likely to be downright dishonest, and its all legal for now. Shareholders get left holding the empty bag.

Enron anyone?

[gcg2503]

AIG got into all this trouble because they were a massive underwriter for the Credit Default Swaps that were out there

WHo knows what would have happened if the US govt didnt bail them out :(

[Charliewool]

Close of Wall Street at 7am today (our time).... UP 930 points... That is the HIGHEST single day rise in Wall St. history!!
How do you make sense of this?

[SB076]

Originally Posted by charliewool

Close of Wall Street at 7am today (our time).... UP 930 points... That is the HIGHEST single day rise in Wall St. history!!
How do you make sense of this?

Governments around the world as guarnateeing transfers between banks and funds. This has given investors confidence and some may beleive the crisis is over.

[Keepleft]

Originally Posted by SB076

This has given investors confidence and some may believe the crisis is over.

Yes, some would - it will play out over some years.

[4Vman]

What a rollercoaster!

[SB076]

Will be interesting to see what US and European markets do tonight, if they make significant gains than you can expect gains here - however there are still issues and the finanical crisis is still not over - IMHO