Re: the Stock Market, greed vs tangibles
 

This crisis started at the grass roots level. In '93, there was a big drop in interest rates, prompted by Allen Greenspan lowering the prime rate. This caused a huge refinance boom, but this boom was mostly conforming Freddy and Fanny paper that the banks wanted, due to the fees they could get away with, like charging for points, etc.
When the investors saw this, it took about 2 years for the cycle to repeat itself. Only this time, the mortgage brokers were getting cheap money that theoreticily would bring much bigger profits if the underwriting guidlines were relaxed, thus creating the sub-prime market.
(As a neccesary foot note, remember back to the Carter administation when inflation drove the interest rates into the 18% range. As the rates came down, the demand for refinancing was created. BIG FOOTNOTE, the credit card rates NEVER came back down.)
By '96, the conforming refinance boom had dried up, but the greedy brokers had loan officers that were hungry for easy money. With the help of crooked appraisers creating bogus home equity, help by crooked title companies that got their hidden closing costs built into the loans, the sub-prime stampead was on it's way.

I have to pause here to interject where this market was coming from. Big corporate storefront loan sharks, like American General, HFC, Ford, Benificial, etc. had exploited the ignorance of basic arithmatic of the working class that they could use their home equity to borrow $$$ for whatever they wanted. Buy the American Dream, they said, with out mentioning that you were turning you house into a revolving line of credit at 18%. If the public didn't buy into this, they just ran up revolving credit card debt, and started paying the minimum monthly payments, at 10-18%. But if you missed a payment, the rates could jump up as high as 23%.

This is where the the picture starts getting fuzzy. There was no oversight on what you needed to become a loan officer. Guys who were selling used cars last week were now selling mortgages. All you needed were postage stamps and a telephone, and the knowlege of how to go to a county court house and make note of who had mortgages with the finance companies. Contact these borrowers, show them how to convert their bad Finance company loans into a "REAL" mortgage, saving them somtimes hundreds of $$$ a month on their payments. Or, pay off all of those credit cards using your new found equity to convert bad debt into good debt. BTW, these mortgages were being bought by the the big lenders, using a string of shell companys posing as funders for these loans, (think Coutrywide and New Century). The reality was that American General, HFC, Ford, GMAC and others were the real owners of this subprime paper. https://www.yenko.net/ubbthreads/imag...emlins/eek.gif Stealing from Peter to pay Paul? Not really, since they now owned a 30 year note on a piece of collateral that could be sold again on a secondary market. This was also true for new home purchases as well, like the "No money down" deals. https://www.yenko.net/ubbthreads/imag...thumbsdown.gif

Greed, avarace, a sencence of entitlement, and con-artists convincing people of what a great deal they were getting.
Whether it was credit card debt, finance company bloodsuckers, hedge funds or derivatives, or credit "swaps", everybody was after the easy money. https://www.yenko.net/ubbthreads/images/graemlins/bs.gif https://www.yenko.net/ubbthreads/images/graemlins/bs.gif
Folks, the cows have come home. Now we all have to shoulder the load, or it will be 1929 all over again. A de-flationary depression that will take years to recover from.
History repeats itself, again and again. https://www.yenko.net/ubbthreads/images/graemlins/no.gif
JMHO https://www.yenko.net/ubbthreads/imag...ns/scholar.gif

Re: the Stock Market, greed vs tangibles
 

I've got a slightly different take on the subject. See what you guys think of this:

The Source of It All: "Fannie Mae Eases Credit To Aid Mortgage Lending" NYTimes 9/99

Look at who pushed us into subprime hell. Amazing McCain or Bush haven't brought this up....

Re: the Stock Market, greed vs tangibles
 

Oh we have the abiltiy to control this, we just didn't want to exert that control. It's called regulation. Carefully applied and vigorously enforced regulation is the key to any successful system. You don't over-rev your race engine (unless you don't care if it explodes) because you regulate how high you take the rpm. You regulate the rpm so as to preserve the life of the engine. I think the engine of our financial system was revved well past its redline and it just grenaded in our face.

Somewhere between unrestrained free-market forces and an over-bearing smothering federal government lies the acceptable manageable middle ground. That middle ground has been pushed aside in favor of free-market forces over the past 28 years and here we are.

In the 1987 movie "Wall Street," Gordon Gekko, played by Michael Douglas, said the famous line, "Greed is good, greed works." Well, until it doesn't work anymore. It's like saying, "Cancer is good, cancer works." Well, the human body can survive certain levels of cancer, beyond which the body dies. Same with unrestrained greed. The system supported it, with minor ups and downs, since 1981 but is now succumbing to cancerous greed allowed to thrive because of ignored, unenforced and abolished federal regulation.

Hey, I love to make money and I love watching my investments make money but the power players in our system have run it head-on into the iceberg and all of them took the cash-filled lifeboats and paddled away from the sinking ship, not ever looking back at the rest of us. (See: F--K YOU!)

But we Americans don't show outrage at the things that truly deserve our outrage. We tend to show our outrage at things that are "safe" to be outraged about, "popular" to be outraged about. Okay, so we showed a little outrage a few weeks ago when Henry Paulson tried to shove a no-limits, no oversight, no-questions-asked (ever) POS Wall Street bail-out* bill quickly down Congress's throat but the rest of us found out and put the brakes on...for a few days anyway.

We should have let the free-market work itself out. We should not have dumped yet more taxpayer money (pork-laden by both parties) down the Wall Street black hole. If the unrestrained free-market is so Go*-damn great then let's back-off and let it work! Let's let the sick and weak businesses and investments be eaten by the healthy strong free-market beast! Hey, that's how it works for 99% of us. If I stop paying my bills they sick the beast on me and take all my stuff away from me! Those are the rules that 99% of us know we have to play by in the American system. I love making money and I love paying my bills--and I love sleeping soundly at night. It's part of being a true American and a responsible American.

We have been assured and reassured that Wall Street was led by (mostly) responsible people and regulated and watched over by (mostly) responsible government servants but once again we are learning that the opposite is the case. Fool us twice, fool us three times, fool us four times...

Greed is good as long as it's smartly regulated and those regulations are enforced. If you don't believe in that then you put money in the stock market at your peril.

For future reference, whenever there is a change in presidential administrations the wealthy gradually pull out of the stock market in a long practiced "wait-and-see" manner. Gradually so that they don't spook the rest of us into causing a stock market and/or banking collapse. They wait and see which political party will be elected and thus which financial playbook will be put into use. Once that new (or same) playbook is in place they carfully re-invest accordingly. That's why the wealthy rarely lose money on the stock market while the rest of us take it in the shorts every time. The tech bubble burst at the end of the Clinton years as the wealthy got out of over-valued tech stocks and thus the market tanked. The bubble was so large that as the wealthy pulled out the bubble burst. Much the same thing has been happening as Bush nears the end of his term, only this time the system is collapsing under the immense weight of incredibly bad financial policy decisions such as sub-prime mortgages and a total lack of federal regulatory oversight, not to mention the massive amount of debt we Americans have too-easily run-up in the past decade. Money has been too cheap for too long. (I wanted to borrow against my house to buy a sweet '66 427/390 Vette five years ago but I decided not to. I couldn't afford it and it would have put a huge strain on the family budget. Two years later I took a 33% pay cut. Dodged a bullet there.)

Let's pray to God that there are very, very smart people hard at work trying to stop the massive bleeding that has stricken the global financial system.

"The fatter the pig the more danger he is in." Seems like a good rule to use when investing in the stock market. Another rule I use is whenever there is money involved NOBODY can be trusted 100%. As Ronald Reagan said, "Trust but verify." We didn't verify that Wall Street was being watched by regulators and our engine went KABOOM.

*Socialism for the rich, capitalism for everyone else.

Re: the Stock Market, greed vs tangibles
 

[ QUOTE ]
Amazing McCain or Bush haven't brought this up....

[/ QUOTE ]

Because both of them are complicit in this, as are all the wealthy Democrats and Republicans. That's why the pork-laden Wall Street bail-out bill basically whistled through congress with only a little "outrage" last week. The only politicians who voiced outrage last week are those who are in close re-election races back home and they are playing the safe-outrage card. Both sides have to play this catastrophe VERY carefully because 1) most of these politicians don't know what the hell to do (nor does Wall Street, except to hope for more federal bail-out money), and 2) the American people are now watching them all very closely.

Re: the Stock Market, greed vs tangibles
 

Bill, tell us how you really feel. https://www.yenko.net/ubbthreads/imag...emlins/eek.gif
Jeff, I have no disagreement with what you added, but please include all of the crooked real estate agents who made those homes sales happen. https://www.yenko.net/ubbthreads/imag...thumbsdown.gif https://www.yenko.net/ubbthreads/imag...ins/stupid.gif
There is no real law against owning both a real estate brokredge and a title company. Having a tight relationship with a mortgage broker is par for the course. With the permission of the Fed, (run by a republican, Greenspan), the tap was opened and the pigs lined up at the trough. https://www.yenko.net/ubbthreads/imag...thumbsdown.gif
I could go on, (and on) https://www.yenko.net/ubbthreads/images/graemlins/no.gif, but what we really need now is that vision thing we were promised, or this sucker is going down. (qoute from George W. Bush) https://www.yenko.net/ubbthreads/images/graemlins/bs.gif

Re: the Stock Market, greed vs tangibles
 

[ QUOTE ]
We should have let the free-market work itself out.

[/ QUOTE ]

Unfortunately, that would be a one way ticket to 1929. We face a very real problem that has nothing to do with bubbles or rich getting richer, no matter what the root cause is.

The system is so shaky at present that banks won't even lend to other banks overnight (the interbank market) due to capital hoarding and mistrust of counterparties' solvency. The recent raising of the FDIC guarantee is simply there to prevent runs on banking deposits that would make the matter worse.

If the banks don't lend to each other, they don't lend to the largest AAA or AA rated companies (witness AT&T and GE saying that they can't access the short term lending market, "commercial paper".)

If the highest grade borrowers can't get access to funds, they can't generate sufficient cash flow to buy inputs or meet the payroll. GM has closed its European plants until year end as a result. If they can continue they end up stretching payables out to 60 or even 90 days, which destroys the small and medium enterprises (SME) who supply these inputs and have even less liquidity than the big guys.

These SME companies are facing 30-50% higher margins on their borrowing costs on their overdraft or revolving credit lines, if they can keep them open. Their margins get pinched and they go out of business due to liquidity shortfalls. As we all know, it is the SMEs that employ most of a developed country's labor force.

The problem gets worse for farmers and others relying heavily on credit to get through seasonal ups and downs.

Good luck getting any consumer credit.

If the government doesn't unlock the system at the top, the whole thing falls apart. Wall Street is Main Street, like it or not.

The real worry is that due to political brinksmanship, everything that is being done may be too little too late. The markets continue to react very negatively on a daily basis despite unprecedented, and I mean never before seen, actions like the coordinated central bank interest rate cuts that happened today.

Even if they can get things moving again from a liquidity perspective over the next few months, we have a significant chance of sustained recession (we are already in one) because the US and global consumer is tapped out and won't be able to spend us to growth.

Our chief economist (oh BTW, for those of you that don't know, I work for one of the largest investment banks) is predicting that the US Government, regardless of who is in the White House, will have to undertake massive infrastructure projects to get things moving just like during the 30s (TVA, highway system, Hoover dam, etc.). They are also predicting that global GDP growth over the next 12-18 months will almost entirely be driven by the Chinese consumer/economy.

Rosy picture, huh? https://www.yenko.net/ubbthreads/imag...emlins/eek.gif


[ QUOTE ]
I think I overserved myself and got angry

[/ QUOTE ]

Jude, I think everyone deserves the occasional booze induced rant https://www.yenko.net/ubbthreads/imag...lins/beers.gif

https://www.yenko.net/ubbthreads/imag...mlins/flag.gif

Re: the Stock Market, greed vs tangibles
 

Also interesting is how this "Made in America" crisis has so vastly effected the rest of the world in such a short time.
We,The United States Of America,did to ourselves and now the entire globe for that matter,what Bin Laden was just hoping to accomplish here on 9/11.

Re: the Stock Market, greed vs tangibles
 

I think the problem started with the Community Reinvestment Act under Jimmy Carter. This paved the way for cheap credit, placing mandates on banks to right these loans. Combine this with deregulation and you have a recipe for big trouble. It you had money in the market on 1929 and held it through the 1933 crash it took you 22yrs to recover your money. I will be happy if I recover the money that I lost in 10yrs. I say we need a viable third party and term limits https://www.yenko.net/ubbthreads/imag...emlins/mad.gif

Re: the Stock Market, greed vs tangibles
 

[ QUOTE ]
I think the problem started with the Community Reinvestment Act under Jimmy Carter. This paved the way for cheap credit, placing mandates on banks to right these loans. Combine this with deregulation and you have a recipe for big trouble. It you had money in the market on 1929 and held it through the 1933 crash it took you 22yrs to recover your money. I will be happy if I recover the money that I lost in 10yrs. I say we need a viable third party and term limits https://www.yenko.net/ubbthreads/imag...emlins/mad.gif

[/ QUOTE ]

Even the mighty Oak starts out as an acorn or is it ACORN? https://www.yenko.net/ubbthreads/imag...lins/blush.gif I was involved in a de novo bank in 1990 and I can tell you for a fact that we were told by the OCC that we WOULD make loans in so-called 'red-lined areas' if we wanted to expand and borrow at the lowest fed rates. We scratched our heads in loan committee meetings, bit the bullet and made what we knew were bad loans.

We were capitalized at about $10mil. at that time so I can only image the quantity of bad loans mega banks had to make. This was the first I had seen of the Community Reinvestment Act up close and personal. CRA......... sounds harmless enough doesn't it?

Re: the Stock Market, greed vs tangibles
 

Both pol. sides are at fault. A few years ago we baled out the S&Ls now we are doing the same thing again. Sorry but you can't borrow your self rich. Stinken thinken. https://www.yenko.net/ubbthreads/images/graemlins/bs.gif