posted
This sub-prime mortgage mess has me frosted! Not only has it totally screwed up the stock market and my retirement savings, but is plunging the U.S. economy into a recession. The rest of the world is hurting for it, too, as credit world-wide is now tighter than ever.
Why?
Because with interest rates low a few years ago, sharks from virtually all the major banks enticed people who should have never received home loans to purchase homes for nothing down and low interest for one or two years -- then "adjustments" as the markets dictated. Many lower middle-class people took the bait and didn't ask enough questions. Now they can't pay back their "adjusted" loans and are foreclosing in droves. Meanwhile, the banks are crying for help and pleading to the Federal Reserve to help them stay afloat.
Well, what's just, here, is for all these banks to get hosed and for those suffering foreclosures to declare bankruptcy and start over (next time read the small print, or get someone who knows about these matters to look over the loan). Of course, there would be a gazillion unintended consequences from this, none the least of which is sound businesses being unable to borrow as before. My sympathies are more with the borrowers than the bankers, who clearly made stupid business deals and should have known better!
Grrr!
OK, that feels better.
-------------------- "The Light shines on in darkness . . ." - John 1: 3 - Posts: 7539 | From: Wichita, KS | Registered: Aug 2001
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HeartPrayer
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posted
Never thought I’d see you write a thread headline like this! I totally agree, Phil. My sympathies too are with the borrowers, not the banks.
So let the banks in question be forced to be flexible. Which means abstaining from foreclosure in most cases.
In addition, let them cancel bonuses and pay raises to their top management. And if that ain’t enough, let their largest shareholders pay. Or go bust.
Even conservative governments have a strange habit of privatising the profits -- but putting unmanageable debts into the public domain.
Which is what the Fed is being asked to do.
Respectfully -- HeartPrayer
PS. I know people here in Norway who for medical reasons are not working, their income is minimal -- and yet they receive dozens of credit card and loan offers every year. Bankmanship is a craft, and this is just shoddy handywork. Let the poorly banks bleed!
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posted
HP, there's nothing going on here that resonates with conservative principles. Poor business deals made for short-term greed are in a whole other class of transactions!
I agree. Let the bankers eat a little crow here and settle for lower payments. That's bound to be preferable to foreclosures.
-------------------- "The Light shines on in darkness . . ." - John 1: 3 - Posts: 7539 | From: Wichita, KS | Registered: Aug 2001
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HeartPrayer
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posted
Conservative practice, not principles.
It has been a long-standing practice for the conservative business community to scream for a federal bail-out when the going gets tough. Whereas they want federal hands off their profits when times are good.
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posted
Bah, we were actually having a good conversation until you posted that cynical tripe.
But by what criteria do you consider a "business community" to be conservative when they don't act according to conservative principles? Their desire to make money? That's hardly a defining principle. I would guess liberal bankers have the same interest, no?
-------------------- "The Light shines on in darkness . . ." - John 1: 3 - Posts: 7539 | From: Wichita, KS | Registered: Aug 2001
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quote: It has been a long-standing practice for the conservative business community to scream for a federal bail-out when the going gets tough. Whereas they want federal hands off their profits when times are good.
HP: I can't believe this, but I actually, sort of, agree with you! To use Phil's term, I am "frosted" over any bailout that shifts the burden to those of us who are prudent in our financial matters. I do not want to see people lose their homes, but I have no sympathy for bankers and financiers who put together shaky derivatives based on high risk debt. Mortgage backed securities used to be one of the safest investments around.
I also have no sympathy for people who bought on "margin", hoping to flip houses in a boom market with no money down and no risk. Like they say - You play, you pay! We should not have to pay for that, either.
That being said, the fallout has been bad enough to call into question the whole industry, the Fed is getting nervous. Maybe JB can share his unique perspective. Should we have any money in the bank at this point, or should we "go to the mattresses?" Posts: 417 | Registered: Oct 2007
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quote:However, the crisis has had far-reaching consequences across the world. Sub-prime debts were repackaged by banks and trading houses into attractive-looking investment vehicles and securities that were snapped up by banks, traders and hedge funds on the US, European and Asian markets. Thus when the crisis hit the subprime mortgage industry, those who bought into the market suddenly found their investments near-valueless. With market paranoia setting in, banks reined in their lending to each other and to business, leading to rising interest rates and difficulty in maintaining credit lines. As a result, ordinary, run-of-the-mill and healthy businesses across the world with no direct connection whatsoever to US sub-prime suddenly started facing difficulties or even folding due to the banks' unwillingness to budge on credit lines.
-------------------- "The Light shines on in darkness . . ." - John 1: 3 - Posts: 7539 | From: Wichita, KS | Registered: Aug 2001
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posted
You had had a good response, then I had one, then your remark.
Never mind, however. This isn't really about conservatives or liberals.
-------------------- "The Light shines on in darkness . . ." - John 1: 3 - Posts: 7539 | From: Wichita, KS | Registered: Aug 2001
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HeartPrayer
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posted
Ok ok, I shall abandon that vantage point.
Whatever label we choose to put on it, the notion of profits staying in the private domain, and losses often being kicked over into the public domain really irks me.
I’ll move on.
A big finance scandal here in Norway is Terra Securities’ sale of risk investments for CitiBank and other international banks to Norwegian municipalities. The inexperienced politicians and bureaucrats have been playing with public money, trying to make it grow.
That was fine as long as it really did grow.
The problem is that CitiBank saw what was happening and sold a sham. And people bought it. Terra Securities (a Norwegian company) sold it in a highly speculative manner, with a reprehensible lack of information, especially warnings of the risk involved.
As a result Norwegian financial authorities withdrew their authorisation -- whereupon the company immediately declared itself bankrupt.
CitiBank gains (lessens its losses). The brokers in Terra have earned their wages and bloated bonuses only to move on. The municipalities have lost a bundle.
Taxpayers, of course, will have to make up the difference. Money that was to be used for investments in schools, retirement homes and other needed projects in the near or distant future.
No one is held truly accountable. The parent bank chain (Terra) shrugs its shoulders. And CitiBank? Well, when one municipality tried to call their London office, they were told: "Sorry, we don’t have a customer by that name" and hung up. (Terra had bought the risk investments in their own name rather than their customers’!)
That is the way of things.
So it wouldn’t surprise me if the Fed (and thus the public) ends up picking up the tab in the USA. While banks and shareholders minimise their losses -- with no real accountability.
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posted
That's a sad story, HP. It sounds like they bought into some of those "investment packages" loaded with subprime vermin. That's how this thing has propagated beyond mortgage companies.
The Fed, here, isn't paying any price. Their strategy thus far has been to lower interest rates, print more money, and loan it to banks at discount rates. What's happened is the dollar has soared with respect to other currencies, and that's a two-edged sword. This entices people overseas to purchase U.S. products because of a favorable exchange rate, but it makes foreign goods and travel abroad more expensive. I'm confident that credit will be loosened soon and the market will relent a bit, but it's all so unnecessary.
-------------------- "The Light shines on in darkness . . ." - John 1: 3 - Posts: 7539 | From: Wichita, KS | Registered: Aug 2001
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quote: What's happened is the dollar has soared with respect to other currencies, and that's a two-edged sword.
Phil: I think you meant the dollar has soured with respect to other currencies. --------
The situation in the Norway towns, as well as in other municipalities, churches, etc, is sad. A lot of people were taken in by the returns they were promised. The old saying,"if it is too good to be true, it probabaly is" applies here.
Posts: 417 | Registered: Oct 2007
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quote: What's happened is the dollar has soared with respect to other currencies, and that's a two-edged sword.
Phil: I think you meant the dollar has soured with respect to other currencies.
Right. By "soared" I meant exchange rate. I think the latest was 1 Euro = 1.55 USD. They used to be pretty close, almost 1 = 1.
-------------------- "The Light shines on in darkness . . ." - John 1: 3 - Posts: 7539 | From: Wichita, KS | Registered: Aug 2001
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HeartPrayer
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Yes, that’s right.
The Fed may not be stepping in. Yet. But ask yourself the following: When they’re printing more money, and lending it out at discount rates -- who is paying the bill? This isn’t Monopoly money. Or is it?
The public pays. You and other Americans.
I must confess that I haven’t seen the dollar rising. In fact, two or three weeks ago it was worh NOK 5.43; when I checked today it was listed at NOK 5.10 That’s a drop of more than 6 %!
I’ve previously mentioned that I subscribe to a conservative financial daily, Dagens Næringsliv. (Check out today’s headline: "We are in a recession".) The experts that I’ve been reading therein seem to agree that the USA’s problems are very deep, fundamental, and that there’s no quick fix.
For Americans, and for the world, I hope that the crisis does not worsen in a way that spreads difficulties or suffering. Certainly the people who should be paying the price, are not.
At the moment I must confess that I fear the worst -- a downward spiraling recession, and then a depression of global dimensions. I pray that I’m wrong.
posted
I’m hardly an expert on loans, with this whole foreclosure epidemic against homeowners who are in default seems very ill-considered to me.
In the end, I think it’s self-destructive for the banks.
I find that lack of flexibility shocking! Can you or someone else please explain it to me? Certainly it can’t make good business sense...
In most cases, the banks would probably be better off lowering and deferring loan payments.
There have, in fact, been times when I have requested that, especially in the early stages of building up my own business. Fortunately, my key creditor (the government-owned institution Husbanken) was flexible. Otherwise I might not be a house-owner today. Today my debt is almost totally paid off. It think the remaining is < $ 25,000.
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quote:The Fed may not be stepping in. Yet. But ask yourself the following: When they’re printing more money, and lending it out at discount rates -- who is paying the bill? This isn’t Monopoly money. Or is it?
It is not really Monopoly money, but it creates inflationary pressures, and continues to depress the value of the dollar. ------ HP - I hope you are wrong about a full fledged depression - ------
quote:They used to be pretty close, almost 1 = 1.
When the current Euro was launched, it quickly slid to US$.82 in 2000.
Posts: 417 | Registered: Oct 2007
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posted
Seems the Norwegians and other Scandinavian countries had a severe banking crisis in the early 90s that was resolved by strong government intervention akin to nationalizing them. Now the U.S. Fed is looking to this as a possibility. - http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/31/cnfed131.xml
What happened, there, HP? Is it working out?
-------------------- "The Light shines on in darkness . . ." - John 1: 3 - Posts: 7539 | From: Wichita, KS | Registered: Aug 2001
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HeartPrayer
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A quick note on Norway --------------------------------
The banks in question were later re-privatised. (Primarily DnB, known as Den norske Bank)
However, there are a few Norwegian banks experiencing a liquidity squeeze. Some (DnB Nor again) have taken up very expensive loans abroad. I’ve heard this explained as a strategic move to drive up interest rates in general, and hence increase margins on their floating-interest loan portfolio. (Must confess that I don’t understand the macroeconomics here.)
Icelandic banks that have set up shop in Norway and other countries have especially acute problems, and are trying to attract capital by offering very high interest rates.
There is a consensus that the Icelanders are ripe for a fall. One of Norway’s most respected financial strategists recently resigned from one of them in protest against developments.
With the exception of Husbanken (a government bank offering building and home related loans) I believe Norwegian banks are privately owned.
posted
Thanks, HP. I'll do some more research to see what happened there. Meanwhile, it seems that the Deutsche Bank is also getting hit pretty hard by the subprime mess -- a 4 B write-down! Now that's not necessarily from bad loans they extended, but from their getting on on these cancerous "investment packages" infested with subprime loans. - http://biz.yahoo.com/ap/080401/germany_deutsche_bank.html
posted
JB, AMH, HP . . . someone: help me understand what's happening, here. It would seem that with falling interest rates these ARMs (adjustable rate mortgages) would be adjusting down. Why, then, the continuing defaults and foreclosures? I'm not understanding how this all works, I guess.
-------------------- "The Light shines on in darkness . . ." - John 1: 3 - Posts: 7539 | From: Wichita, KS | Registered: Aug 2001
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HeartPrayer
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posted
Simple question: Would not the banks be better served by being more flexible? I myself have been in situations where I wasn’t able to service a loan. Thankfully, what it took was a phone call.
I don’t understand what seems to me the knee-jerk reaction of banks with regard to foreclosures.
I can’t possibly even see how it is self serving. Surely they would lose far less in the long term, than by demanding foreclosure in areas where real-estate prices have dropped significantly, and there just isn’t the market.
JohnBoy, you know banking. I would particularly interested in hearing you chime in here:
Why so little flexibility from US banks?
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I am no expert here, Phil, but I do know that mortgage rates do not always correlate to the fed funds rate. In particular, ARM’s often are tied to something like a 10-yr Treasury, and the rates on those do not always move lockstep with the Fed cutting rates, either.
The other issue, I think more importantly, is that the secondary market for mortgages is awful – liquidity, risk, etc. – I am referring to where banks and other financial investors buy and sell in the open market. Since no one is buying, they can’t lower rates because that makes them less attractive. When the liquidity issues get resolved, I think you will see rates go down. The other thing that is getting some notice is that the yield curve for short term and long term interest rates is pretty steep right now, which usually indicates a economic recovery and a stock market rebound. This should also bode well for the ARM market.
With regards to banks and foreclosure, I don’t think banks are being overly aggressive in foreclosing – I think most banks are willing to work with people to help them out, with foreclosures being the last resort. I also think they do not want huge real estate numbers on their balance sheets, particularly if the value is suspect. What is more shocking to me is the fairly large number of people just walking away from these mortgages.
Posts: 417 | Registered: Oct 2007
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posted
I read an article about this in The Economist a few years back. This of course was long before any crisis became apparent. The article said that financial institutions, in their relentless quest for growth, are steadily taking on more and more risk. This increases their returns short-term. Long-term, of course, the risk will eventually catch up with them. This applies not just to residential mortgages, but throughout the world's financial systems.
Posts: 134 | From: Canada | Registered: May 2008
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HeartPrayer
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posted
Derek, I missed that article, but from your description it sounds like a good read. I would be very interested in hearing more about your thoughts on this, or things that you recall from the Economist’s article.
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Now that's not necessarily from bad loans they extended, but from their getting on on these cancerous "investment packages" infested with subprime loans.
