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The Economy Keeps on Tanking

By Jeralyn, Section Other Politics
Posted on Mon Sep 15, 2008 at 08:46:00 AM EST
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Even someone with as little knowledge of stocks and big business as I have knows that this is another failure of the Bush Administration's economic policies.

Can anyone explain for those of us who are economically challenged what this means to our day to day lives and pocketbooks?

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    The Economy Keeps on Tanking | 96 comments (96 topical)

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    My thinking (5.00 / 1) (#4)
    by SomewhatChunky on Mon Sep 15, 2008 at 02:07:29 AM EST
    In this environment, anybody could go under in a matter of days.  All of these financial institutions are levered and even small declines in the supposed "value" of their pools of mortgages can force them into bankruptcy.  I think this is going to continue for a few months after housing prices stop going down.  And they haven't stopped.

    My two cents:

    1. I wouldn't have more than $100,000 in a bank.  Any bank.  Accounts up to $100,000 are FDIC insured.  Good luck over that.

    2. I wouldn't have a margin account at a broker.  Any broker.  In a bankruptcy, securities in a margin account are not always protected - they can be loaned out to another account holder and you can end up a creditor of a failed broker.  In a non-margin account  they are yours.  if you don't know what type of account you have, call and ask.  Brokers often try to get you to set up margin accounts even when you do not need them because they benefit the firm in several ways.

    If you didn't know #1 or #2, don't delude yourself that you (or your broker) have the ability to evaluate the health of your bank or broker.  Many many really smart people lost buckets of money at Bear Stearns, Lehman, Merrill and now AIG.  One can quickly take the needed steps to rectify #1 and #2.  I think of it as free insurance.

    In addition (none / 0) (#52)
    by Makarov on Mon Sep 15, 2008 at 09:21:58 AM EST
    to #2, remember that in the event your broker goes belly up, the SPIC only guarantees $100K of cash and $500K of securities. Most people who own and trade stocks do so on cash accounts, they don't hold the stock certificates themselves.

    As far as I know, the same applies to securities and cash in 401K and IRA accounts. You are insured by the SPIC for up to $500K in securities (stocks and mutual funds) and $100K in cash (money markets). If you have a 401K or IRA account worth, say $750K, you want to consider distributing to two or more brokerages. It's easy to roll over a 401K to an IRA at another brokerage, although if the account is with a current employer you may not be able to do so.

    From a securities perspective in the short term, there is some fear of a run on short selling, particularly on investment banks. When you "short" a stock, you are betting it will fall in value. A short is essentially a contract (promise) to buy a stock at today's value with an intention to sell it at a later date. Under most circumstances, the trader (an individual, mutual fund manager, etc) "borrows" the shares for a period of time. The SEC barred short selling of Fannie and Freddie, as well as a number of brokerage firms recently. They may extend this, perhaps to every stock, according to various news sources today.

    Parent

    An explanation, as I understand it (5.00 / 2) (#9)
    by Prabhata on Mon Sep 15, 2008 at 03:28:51 AM EST
    Caveat -- I'm not an economist, just an accountant.

    The banking system is the life blood of our economy.
    We all know what happens if one hemorrhage.  That's basically what's happening to the banking system.  Banks must have a certain amount of assets to support its business.  In a mini example, if a bank loans $80K for a home that's worth $100K, and later the home is re-valued at $70K, the bank will have an instant loss of $10 in its asset base.  If a bank losses enough of its asset base, it cannot lend money, and losses mount because that how banks make profit.

    The who's who of banking (world wide) have had billions and billions in losses, and their asset bases evaporated.

    Worst case scenario:

    If banks collapse, it might approach to what happened during the Great Depression, when there was no money because of bank failings (people lost their deposits).  We've all experienced inflation, but worse than inflation is deflation.  Prices keep dropping, but nobody has money to buy.  FDR put safeguards so that people would have confidence in banks again with the FDIC. But the new scenario is not so much the loss of deposits, but banks not having money to lend, a credit crunch.  People cannot borrow to buy homes, cars or improve their home.  Businesses cannot borrow to maintain their businesses.  For example, retail businesses depend on lines of credit to keep their inventory, but many retailers are also in deep trouble because of decrease in sales and lack of available credit. As businesses fail, unemployment rises with a snowball effect.

    Jeralyn, you are right that this is a failure of the Bush administration, but also of Congress.  Right now I would blame Pelosi and Reid the most because Bush can give leadership, but Congress must act, and our current leaders have done absolutely nothing.
    Hillary was our best candidate for our economic troubles.  She gave a speech on March 2007, about the sub-prime problem.
    Hillary at the NCRC

    Its a failure of conservative economic policies (5.00 / 1) (#29)
    by Molly Bloom on Mon Sep 15, 2008 at 07:22:25 AM EST
    It is directly related to the conservative mantra of no government oversight.

    Did some Democrats play a role? Absolutely. But it is by and large a Republican thing. And I don't see the so called "original mavericks" offering any solutions.  

    Parent

    On what basis do you say this is all Bush? (none / 0) (#69)
    by Prabhata on Mon Sep 15, 2008 at 10:30:32 AM EST
    Unless you can support it, I don't see it. The banks work within a set of regulations written by Congress.  It's not like a bank broke the law.  The disaster is the result of of Congress abdicating its duties.

    Parent
    Which was the Republican control untill... (none / 0) (#82)
    by alexei on Mon Sep 15, 2008 at 11:21:15 AM EST
    2006.  Yes, the Dem leadership has been slow in getting this turned around.  And, yes, the Dems during that time were woefully ineffective as an opposition Party, unlike the Republicans who are doing a bang up job of thwarting moves (blue dogs are also a big problem as well as corporate shills).

    See if we can get Obama to change his campaign, if not, it is a lost cause.  That means, get the strongest Dem Congress in and elect the strongest leaders, Hillary Clinton for Majority Leader and her equivalent in the House.  We all have precious resources and our options are closing rapidly.  Mine are going to the Dem Congress and local and state races.

    Parent

    I disagree..this is 90% on Bush (none / 0) (#17)
    by steviez314 on Mon Sep 15, 2008 at 05:53:23 AM EST
    This has been a failure of the SEC to regulate.  A failure of OFHEO to oversee Fannie and Freddie properly.  

    The Bushies have had 3 incompetent Treasury Secretaries--O'Neill, Snow and Paulson (He's probably competent, but has been co-opted by the total laisse-faire Republican attitude.)

    There are estimates that these problems could have been handled for $500 billion over 1 year ago.  Failure to act then by the Fed, Treasury and Administration (we call them the 3 Stooges) will drive the price tag and misery up substantially.

    This really is Katrina and "heck of a job Brownie" taken to the next level financially.

    Parent

    The problem with the idea... (5.00 / 1) (#28)
    by Strick on Mon Sep 15, 2008 at 07:15:55 AM EST
    That this is the Republican's fault is that Fannie and Freddie were lobbying Congress so hard to avoid the kind of regulation you describe.  And that sort of thing is a bipartisan sport.

    Actually, Open Secrets lists the members of Congress who took the most money from F&F's lobbyist over the past 20 years and it doesn't look good for Democrats.  70% of the nearly $1.4 million they passed out went to Democrats, with some very familiar names topping the list.

    http://www.opensecrets.org/news/2008/07/top-senate-recipients-of-fanni.html

    Something to consider when certain people talk about their opponent's ties to lobbyist.

    To be fair, these guys have been smart, giving the most money any given year to the party in power, but over time, the big money's gone to Democrats.

    The least you can say is that they share in the blame for a lack of regulation.  

    Parent

    Update... (5.00 / 2) (#34)
    by Strick on Mon Sep 15, 2008 at 07:42:06 AM EST
    A more current list of members of Congress who received money from Freddie and Fannie lobbyists.  271 members of the current Congress received $3 million since 1989, with 72% of that going to Democrats.

    Brothers Grim: Is Lehman Next?

    It seems preventing the effective regulation of these two organizations was truely a bipartisan sport.

    Parent

    I think that is why (5.00 / 1) (#39)
    by Militarytracy on Mon Sep 15, 2008 at 08:17:35 AM EST
    this isn't being used for campaign purposes.

    Parent
    You got it (none / 0) (#68)
    by Prabhata on Mon Sep 15, 2008 at 10:22:19 AM EST
    I would place most of the blame on Congress.  Like I said in my original post, Hillary saw the writing on the wall and gave her speech in March of 2007.  This problem is not new, we're just seeing the results from two pigs eating from the same trough.  Until voters recognize that both parties need an overhaul and we stop absolving the Democrats and the Republicans from their sins, Washington won't change.  I worked hard in 2006 to get a Democratic Congress because I believed they still held the ideals of FDR. I admit I was wrong.  We're in deep trouble and we don't have leaders to take us out of the morass.

    Parent
    Um - the Democrats have had (5.00 / 1) (#79)
    by inclusiveheart on Mon Sep 15, 2008 at 11:14:14 AM EST
    control of Congress with a Republican president for two years while the GOP had the House for twelve years which is where most of the banking regs are created and destroyed.  Clinton's Administration - Bill's - was pretty good at SEC regulation, but lacked in DOJ enforcement of anti-trust laws imo.  Blaming this situation on Pelosi and Reid - on the Democratic Congress is non-sensical.  What we are seeing right now is years and years - nearly three decades now of reckless deregulation coming to its natural result - which is collapse - the result I mean.

    Parent
    Accoding to wiki: (none / 0) (#97)
    by sarcastic unnamed one on Mon Sep 15, 2008 at 01:36:56 PM EST
    On November 12, 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933. One of the effects of the repeal was to allow commercial and investment banks to consolidate. Some economists have criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis.[7][8]


    Parent
    The SEC works with regulations set by Congress (none / 0) (#73)
    by Prabhata on Mon Sep 15, 2008 at 10:35:14 AM EST
    If the SEC does not do it's job, it's up to Congress to fix.  An example would be the FAA.  If the FAA doesn't do a good job because its guidelines are not keeping air travel safe, Congress has to step in and fix the situation.  Don't absolve the Democrats because if you do, you'll never have a party that works for Americans.  Democrats can point the finger at the Republicans, but as Nixon said, "That would be wrong".

    Parent
    The SEC is administrated by the (none / 0) (#81)
    by inclusiveheart on Mon Sep 15, 2008 at 11:20:26 AM EST
    Executive branch.  They actually still do have some rules which they have failed to enforce.  I filed a valid complaint with a company about them about stock holder manipulation practices where the company wanting shareholder to vote for a merger made specific representations about what the stock would do if you voted against their proposition - as did a number of fat cat investors by the way - the deal essentially destroyed what was supposed to be a long-term investment which was completely the opposite of what they represented would happen - and the SEC did nothing.  The money is gone - the company gutted completely with huge payouts to the board and the CEO.  It was bad and it was a well publicized dispute and the SEC did nothing.  Bush could have and should have ordered them to enforce the law.

    Parent
    My View of the Problem (5.00 / 3) (#24)
    by SomewhatChunky on Mon Sep 15, 2008 at 06:45:36 AM EST
    The 'Problem" here was the creation of a huge mortage industry which was fee based, not credit based.  In the old old days, one used to get their mortgage at their local bank, who held the note and actually worried abut getting paid back.  Think 20% down and a rigorous credit check.  That's a credit-based mortgage.

    Now, it's all done through Wall street.  You goto a mortgage broker, who (for a fee) gets you a loan from a lender who quickly resells the note (for a fee) to some Wall street firm. This firm then groups hundreds of mortgages (for a fee) into one big note which is broken up into risky and less-risky parts (mortgage backed securities).  These are then sold (for a fee) to investors of all type.  These are the securities which are owned by all these banks and are causing such problems.  These are fee-based mortgages.

    Note in the "Fee-based" system, nobody actually worries about getting paid back.  They just want to create more and more mortgages to get more and more fees.  Hence the invention of "sub-prime" mortgages which is a polite term for a mortgage given to  person who shouldn't be able to get  a mortgage.  It was so bad that in the last few years many many mortgages were issued w/o any income verification or credit checks of any type.

    They get investors to buy this junk using mathematical models of historical default rates.  Well.....   we never had mortgages with no credit checks or income verification, so maybe those models won't hold up. Which is what has happened.

    Both Fannie and Freddie have used extensive lobbying connections in Congress to get involved with this charade, sometimes over the objections of their regulators.  Democrats Chris Dodd and Barney Frank deserve a huge amount of the credit for what happened there as they have used their Banking Committee connections to try and implement political goals as to who should get mortgages.  My opinion - the only people who should get mortgages are those who are going to pay them back.  This is by far not just a Republican issue.

    All this easy money coupled with artificially low interest rates (thanks Alan Greenspan) caused housing prices to appreciate for year far faster than the rate of inflation and far faster than the ever had.  All bubbles eventually burst and when the housing bubble burst all of the sudden you had all these homes worth less than their mortgage. People don't pay, banks foreclose, dump the homes, which depresses nearby home and the cycle continues.  It's a death spiral until housing prices stabalize.

    You can't even agree to not foreclose - no one bank actually holds the mortgage - they are split up into thousands of small parts held by thousands of investors.  You have to do what the documents say you have to do.  That's why some of the proposals to legislate "freezes" or other such things were nonsense, unless you are willing to just chuck all that legal stuff regarding contracts.

    If any politician of any stripe had stood up 3 or 4 years ago and said they were going to take actions to slow down the growth in housing prices...  Well, let's just say they soon would have been a former politician....

    I'm glad you titled this "my view" (5.00 / 2) (#33)
    by independent voter on Mon Sep 15, 2008 at 07:39:30 AM EST
    because you are incorrect on several of your assertions. The "no credit check" mortgage you refer to is a hard money mortgage and is NOT a part of this current mess we are in. You have some points correct, as in the resale of mortgages, but you don't seem to understand that mortgages have been originated and sold this way for many decades without trouble. The problem we face now is directly attributable to the LACK OF REGULATORY oversight in the packaging of mortgage backed securities. You are wrong to state no one cares if the money is paid back. The (very simplified) reason we are having these problems is the increase in defaults on mortgages that were not properly identified as to risk to the final investor. This was able to occur as a result of Republican policies of less government oversight. Jeralyn is correct in placing the blame. McCain wants to continue these policies. I will be curious to see if Obama can effectively point this out. The scenario is very complicated, and difficult to explain in a sound bite.

    Parent
    as someone who doesn't (none / 0) (#36)
    by TimNCGuy on Mon Sep 15, 2008 at 08:02:32 AM EST
    necessarily understand the proper "semantics" or "terminology" to use I certainly wouldn't hesitate to refer to mortgages given to people where the broker didn't bother to verify income or even "suggested" for the borrower what to write on the form as their "income" as "no credit check". This type of mortgage practice has certainly been front and center in the media reporting about the sub-prime mortgage mess.

    Parent
    You are referring to a (none / 0) (#45)
    by eric on Mon Sep 15, 2008 at 08:50:40 AM EST
    Stated Income Loan, and you are right, they can be trouble.

    I do think that a lot of people here are right about the lack of regulation and accountability in the mortgage business, all the way from origination to securitizing them.

    But part of the problem is also that too many people were buying houses that they couldn't afford.  Some people were buying too much house.  Others, well, they probably weren't qualified to buy any house at all.  It was all justified in people's minds by the fact that the house was going to go up in value and the equity would be created out of thin air.  Money for nothing.

    Parent

    the real question (none / 0) (#47)
    by TimNCGuy on Mon Sep 15, 2008 at 09:08:45 AM EST
    that probably can never be answered is what percentage of these loans which should never have been made were the fault of the broker "convincing" the borrower taht it would all work out and what percentage of them were the borrowers knowing full well they couldn't afford the loan. In my mind, if we could separate them, then we would know how to deal with them. I'm all for helping the borrowers who got "suckered" into a deal. But, I don't want to help the borrowers who knew what they were doing. And, I don't want to help brokers at all. IN fact, I'd like to find a way to punish brokers who got out of this in tact financially if they were part of creating the problem.

    Parent
    I don't really think of it in terms (none / 0) (#54)
    by eric on Mon Sep 15, 2008 at 09:24:16 AM EST
    of punishment.  I look at it this way.  If you find yourself in a position where you cannot make the mortgage payments, and cannot refinance into a mortgage that you can afford, then you cannot afford the house.  You never could.  You were either gambling on the free equity scam or you were hoping for a big raise at work.

    Now, I know it isn't fair because, after all that has happened, there are some houses that have decreased in value and refinancing isn't going to help you because there just isn't enough equity there.  But these are the risks that we all take.  And none of us is entitled to be a property owner.

    If you can't afford your house, get a smaller cheaper one or, god forbid, rent like the rest of us.

    Parent

    it still matters to me (none / 0) (#56)
    by TimNCGuy on Mon Sep 15, 2008 at 09:38:37 AM EST
    whether the borrower was tricked into thinking they could afford the house when deciding what to do. I fully agree that people who knowingly bought houses they couldn't afford shouldn't get any help. But, people who ar in house that they CAN afford at a reasonable interest rate should get assistance. Especially those were were "directed" into sub-prime adjustable mortgages (so the broker could get a higher fee) when they would have qualified for a fixed rate mortgage.

    Parent
    ASk yourself this: (5.00 / 1) (#62)
    by independent voter on Mon Sep 15, 2008 at 09:51:53 AM EST
    You earn $40k per year, which means you take home monthly around $2400 per month. You want to buy a $200,000 home that will have an interest only payment of $1100 not including taxes and insurance. Your housing cost will be over 50% of your net income. As the potential buyer YOU KNOW that you cannot afford this home. Because you have a good credit score (not anymore, but this used to be the case) you can get approved without showing income. You tell the broker you make $60,000 per year, and get approved. NOW the value of your home is $150,000 and you are struggling to make the payment. Do you A) say I should not have LIED about my income to get this home, I cannot refinance it, I cannot afford to pay for it, it is MY FAULT or B) say that broker TRICKED me into taking out this mortgage and I am not responsible?

    Sadly, many people are saying B). I do not feel that there were no brokers that mislead people and sold them loans they did not understand. I know that it is grossly exaggerated in the media. It just didn't happen all that much. Easy credit was dangled in front of people's noses and they wanted to buy homes. This is NOT the fault of the broker, it is the fault of the secondary market that developed and priced these loans, and the US government that put in place policies to encourage these loans and increasing home ownership. The reality ism everyone is not meant to be a homeowner. Some people really are meant to be renters.

    Parent

    you KNOW????? (none / 0) (#64)
    by TimNCGuy on Mon Sep 15, 2008 at 10:03:02 AM EST
    how do you KNOW it is grossly exaggerated? All I have said is that I want the categories defined accurately and treated differently. Based on your statements, I would guess you wuold agree with that. The only difference is that you fell those falling in the "duped" category would be fewer than I do. Or, is this the standard repug theme that we can't help anyone because someone who doesn't really deserve help might get it. As opposed to the standard dem theme that we should help people even if some who don't deserve help get it, because we want to make sure that all who do deserve the help get it? We are willing to help some who don't seserve it so that we don't miss helping any that do deserve it.

    Parent
    I have two friends (none / 0) (#83)
    by waldenpond on Mon Sep 15, 2008 at 11:25:10 AM EST
    One lost the home, the other downsized.  I went and looked at homes with one.  I said REPEATEDLY you can't afford it, it's too big.  When we were at an event a few months ago, and everyone started sympathizing, I just looked away.  

    The other friend felt their lifestyle had actually changed with the larger house and began a spending boom.  3 mos after purchase they got new car, took out a second for home renovations but spent it on multiple vacations, maxed out credit cards... they had to get out from under.  It's sad.

    Parent

    I totally agree that it is sad (none / 0) (#90)
    by independent voter on Mon Sep 15, 2008 at 12:50:08 PM EST
    and I am not unsympathetic. I have seen how this happens to people, there is a lot of pressure in this society to live a certain lifestyle.
    I just am very frustrated with the quickness to pin this all on the broker (full disclosure, I AM a broker and have supported my family this way for 15 years). The broker is the peon, we are low man(woman) on the totem pole. There are bad brokers out there, probably 10% of the industry, but that number is dropping every day as we get back to the traditional way of originating that worked for many, many years.

    Parent
    Also in Finance (none / 0) (#92)
    by waldenpond on Mon Sep 15, 2008 at 01:22:17 PM EST
    and did hospital budgets for years.  There is plenty of blame for everyone and brokers would not even make my list.

    Parent
    Fair enough (none / 0) (#58)
    by eric on Mon Sep 15, 2008 at 09:42:45 AM EST
    about people that were truly mislead.  But it still comes back to this - if you really could afford your house, or you were refinancing into a variable rate, you should be able to refinance into a fixed rate you can afford.

    Parent
    maybe (none / 0) (#63)
    by TimNCGuy on Mon Sep 15, 2008 at 09:56:18 AM EST
    but the credit markets have tightened up so much in response to this now that people who are ablr to afford loans are having trouble getting them.

    Parent
    and I do still want some (none / 0) (#60)
    by TimNCGuy on Mon Sep 15, 2008 at 09:46:11 AM EST
    punishment for the brokers who knowingly did this, made a TON of money and got out while the getting was good and have not paid one little bit of financial penalty at all.

    Parent
    Housing prices (none / 0) (#86)
    by MichaelGale on Mon Sep 15, 2008 at 12:00:32 PM EST
    are so inflated in my area, S. Fla, that people who buy are squeezed.  Wages are also lower in this area as FL is a right to work state but that's a whole other thread.

    Teachers, police, service employees (tourist area) could never afford the prices for homes if they don't have two incomes.  The median price for a home  where I live is over $340,000.  Of course, over the last six months prices have fallen and assessed value has been cut in half but prices are still inflated.

    Of course, this has happened all over the country.
    There are hard working people who just can't afford
    to live in this class divided economy.

    Parent

    You can't even agree to not foreclose (none / 0) (#30)
    by Molly Bloom on Mon Sep 15, 2008 at 07:28:25 AM EST
    Lenders agree not to foreclose and enter into loan workout plans or short sales every day, so this is not completely accurate.

    Also as a general proposition contracts are renegotiated every day.

    I haven't read any of the freeze proposals so I would withhold judgment as to whether or not they are all complete nonsense, but I agree there are practical issues that may make a freeze proposal nonsense.  

    Parent

    members of congress (none / 0) (#37)
    by TimNCGuy on Mon Sep 15, 2008 at 08:05:37 AM EST
    have been proposinbg a 90 day freeze on foreclosures for over 6 months. If congress ever were to actually ACT on anything, tere might be some progress. But, the proposed 90 day freeze should have come and gone by now and possibly would have inserted a bit more stability into the current situation. If congress moves with their usual speed, especially since this is an election year, by the time they are ready to do anything to "assist" mortage holders, they will have all been foreclosed on anyway.

    Parent
    Well that is an argument for leadership (none / 0) (#44)
    by Molly Bloom on Mon Sep 15, 2008 at 08:44:17 AM EST
    However, since this is a subject I have some real life familiarity with, I can tell you that the judiciary here in Florida (and I gather elsewhere) is responding in the only fashion that they can- procedurally. Judges are "slowing down" the foreclosure process by demanding every i dotted and every t crossed.

    I can't give you a link but there was an article on this subject in the Daily Business Review July 17, 2008 entitled Court Crackdown, Judges getting tough on banks they say are taking short cuts to rush legal process by Julie Kay.

    The opening sentence:

    Alarmed by the dramatic rise in foreclosures across the nation, judges have taken a variety of actions to slow the pace...

    Not quite the same thing, but it is all they can do.

    Parent

    So you (none / 0) (#49)
    by Wile ECoyote on Mon Sep 15, 2008 at 09:14:40 AM EST
    are saying the taxpayers who did not get in over their heads, who did not buy homes with no money down, homes they knew they could not afford, should pay not only their own mortgages, but the mortgages of others.

    Parent
    I may not (none / 0) (#51)
    by TimNCGuy on Mon Sep 15, 2008 at 09:20:36 AM EST
    know the full details of the "plans". But, I don't think they called for taxpayer money, did they? I think they were along the lines of forcing the mortgage companies to re-write the mortgages to a fixed rate that the buyer could afford to pay. And, in general, the lender was going to lose money and the buyer was going to lose home value. Both would lose, but neither would lose ALL.

    Parent
    I am saying we all sink or swim together (none / 0) (#65)
    by Molly Bloom on Mon Sep 15, 2008 at 10:16:25 AM EST
    One example, do you or any one you know by chance live in a community association which collects monthly assessments? Do you have any idea what the foreclosure crises is doing to those community associations' budgets and their ability to maintain the common area, which has a direct impact on the property values? Putting it another way, if you (or anyone you know) lives in a community association (condo or HOA) what do you think will happen to their sales price, if the association doesn't keep up the grounds, doesn't maintain the community pools. Many of these association have private roads and sewers (don't ever buy in one with private roads and sewers)? People who are in foreclosure rarely if ever, pay their community assessments. Why bother if you are going to lose your home?

    What if you only live next door to one- well the comps still affect your home's value, even if you don't actually live in one.

    Look beyond your nose. We all will sink or swim together. There will be a ripple effect in the economy. People who lose their homes usually do so because they are unemployed, not because they got in over the head.  People who lose their employment don't buy things. Which means you or your employer won't be selling them things - or will sell them less. Your employer may decide s/he can't afford Wile E. Coyote. Then you are personally affected.

    What the solution will be, may or may not involve your scenario. One thing I am certain of reading your posts for the past few years- you don't have a solution - other than let them eat cake.

    Parent

    I disagree (none / 0) (#76)
    by Wile ECoyote on Mon Sep 15, 2008 at 10:40:54 AM EST
    more and more people have bought houses with no money down, homes they could not afford if it required 10-20% down.  They did not look beyond their nose.  They wanted a fancy house and bought beyond what they could truly afford.  And now the crows have come home to roost.  You are saying we should pay their mortgages so they can stay in those houses?  For how long?  

    Parent
    Disagree with the facts all you want (none / 0) (#80)
    by Molly Bloom on Mon Sep 15, 2008 at 11:20:21 AM EST
    The subprime mortgages are only a small part of this. Argue the facts as they are, not how you wish them to be.

    And you have not addressed the point I made, so I guess this means you don't have an answer.

    Parent

    What was your point? (none / 0) (#95)
    by Wile ECoyote on Mon Sep 15, 2008 at 01:29:33 PM EST
    Let me address them HOA, sewers, common areas, we are all in this together?  HOA:  Don't fly too big a flag.  Sewers:  go septic.  Common areas volunteer weed wacking, move rural, it is more fun.  We are all in this together: Take a gramme of Somma (quick what book is that from?)

    Parent
    Non-sequiters (none / 0) (#100)
    by Molly Bloom on Mon Sep 15, 2008 at 02:15:41 PM EST
    Everybody urban and suburban areas should go rural? You are as clueless as McCain-Palin.

    No surprise really.  


    Parent

    Yeah, and ... (none / 0) (#85)
    by Robot Porter on Mon Sep 15, 2008 at 11:51:00 AM EST
    rape victims are just "asking for it."

    Gimme a break.

    Your argument that it's the borrower's fault is an argument even Republicans don't believe anymore.

    Parent

    I disagree. My daughter bought a house (none / 0) (#89)
    by hairspray on Mon Sep 15, 2008 at 12:44:45 PM EST
    in a good neighborhood so her daughter could go to a good school.  She makes a 6 figure (just barely) income and bought a house that was just within reach. It is not a subprime loan. She has marvelous job security, however, her extra income from taking call on weekends and extra students has dried up in the last 6 months because of the slowing economy, thus reducing her income by about 15%.  In addition, the housing values have slipped and in her neighborhood they have declined about 15%.  Fortunately she did some remodeling of kitchen and bath when she first moved in so her home is on the higher side of the appraisal range. In 2.5 years her interest will rise from 5% to 10%. How is she to blame for that?

    Parent
    I wish I could make (none / 0) (#93)
    by Wile ECoyote on Mon Sep 15, 2008 at 01:24:29 PM EST
    a six figure income.

    Parent
    Its barely six figures. (none / 0) (#102)
    by hairspray on Mon Sep 15, 2008 at 07:26:40 PM EST
    But she is single and cute too!!

    Parent
    Some questions (none / 0) (#96)
    by waldenpond on Mon Sep 15, 2008 at 01:30:46 PM EST
    did she check with a financial manager before she purchased?  A couple of things right off the top, could she have bought a smaller house in a different neighborhood and gotten an inter-district transfer to get her child in to the desired school?  Did she purchase under the old guidelines under which lenders required a lower level of income to go to a house payment, down payments were higher and supplemental income would be discounted?  If she went under less stringent market conditions she may have gotten more house than is manageable.

    Interest from 5 to 10%? Can she refinance?  did she set aside funds to cover the increase when she purchased?

    I think it comes back to... did she check with a financial manager or seek a bank that offered this service before she purchased?  If she wasn't in this to invest, her risk should have been limited.

    Parent

    She sold high and bought high when (none / 0) (#101)
    by hairspray on Mon Sep 15, 2008 at 07:23:03 PM EST
    real estate was going crazy. At the time you had to grab a house or someone would buy it out from you so she might have been able shop better in a slower market (she is in CA). She worked with a broker who found her a teaser loan but she held out for a no prepayment penalty. She had a sizeable down payment from her smaller house. She did business with a good bank that was reported recently to be okay because they didn't have risky loans. But she does have an interest only loan and is to refinance in 2.5 years which is causing her sleepless nights. With the drop in value of her home she can't count on the stable price (including the upgrades her brother did for her). And of course her income may be heading south now.

    Parent
    Blame (5.00 / 1) (#35)
    by liberalone on Mon Sep 15, 2008 at 07:54:20 AM EST
    There is more than enough blame to go around with this recent meltdown:  Bush, Greenspan, and any Democrats with financial knowledge but remained silent.  

    I take issue with your comment that reduces this situation to a problem of folks purchasing homes that they could not afford.  This is not true.  Some people refinanced homes that they had owned for years. The banks showed zero responsibility in providing loans.  The problem of greed starts at the top and works its way down.  

    A recent study suggests that blacks and latinos, regardless of their credit rating, were targeted for predatory lending.  Blacks and latinos faced the greatest loss of wealth as a result of the bad lending.  See faireconomy.org

    Yes, blame those folks who choose to look the other way while the economy went into a frenzy then a nose dive. The warning signs were there.

    And here we go (none / 0) (#42)
    by rightyinaleftworld on Mon Sep 15, 2008 at 08:37:56 AM EST
    "A recent study suggests that blacks and latinos, regardless of their credit rating, were targeted for predatory lending.  Blacks and latinos faced the greatest loss of wealth as a result of the bad lending.  See faireconomy.org"

    Reminds me of the old joke: a metero is about to hit earth, killing everyone. The NY TIMES headline the next day: "Meteor Coming, Minorities and Women Hurt Most".

    I mean come on, does everything now have to be racially motivated? If blacks and hispanics had good credit, they should have shopped around for a better deal. I don't doubt hispanics and blacks were taken advatnage of, but so were plenty of whites. The one common denominator is stupidity not skin color or ethnicity.

    Parent

    If the study fits (none / 0) (#70)
    by liberalone on Mon Sep 15, 2008 at 10:30:53 AM EST
    No, not everything is racially motivated; however, if there are relevant case studies it is perfectly acceptable to site them.  It is especially relevant since the Bush administration touted increasing home ownership among minorities as evidence of their record on both the economy and minority relations.

    If I knew of studies on how many elderly persons and persons recovering from illness lost their homes in this meltdown, I would use those as well.  The issue here is not necessarily race, but rather yet another indication of how dismal the Bush Co. economy has been.  To the degree that blacks and latinos represent the lower echelon, I feel the study accurately indicates the devastation of the housing crisis on the poor and working class.

    Finally, IF you had read the comment it noted that even with good credit blacks and latinos were targeted for subprime loans.  IF this mess is a result of stupidity, I guess we need to start with those who created it rather than those who bear the most severe burden of it.

    Parent

    blame game (none / 0) (#91)
    by rightyinaleftworld on Mon Sep 15, 2008 at 01:07:54 PM EST
    "Finally, IF you had read the comment it noted that even with good credit blacks and latinos were targeted for subprime loans."

    And IF you read my comment you'd see that I didn't dispute that. What I said was even IF that were true, it should be up to the blacks and latinos to have better sense and not sign up for these loans. I'm not sure how this is anyone's fault but their own. Caveat emptor, remember? Or does that not apply anymore?

    And when this study talks about subprime, what does it mean? Subprime can be defined in various ways. When I got my mortgage, I got an ARM. I had a 790 FICO. For the purpose of this study, it was a subprime loan because the definition of a subprime loan often means any loans that is not a 30 year fixed.

    By that logic I was a "victim" myself of these evil mortgage lenders. Except I got that ARM purposely, knowing that I wouldn't live in the house past the adjustment date.


    Parent

    Not just Bush. (5.00 / 1) (#41)
    by LarryInNYC on Mon Sep 15, 2008 at 08:30:51 AM EST
    The crisis really traces itself back to deregulation fever which started becoming policy under Reagan.  And, sadly, it's one part of the Reagan legacy that many Democrats have embraced.  It continued during the Clinton Administration and found solid backing among otherwise sensible and liberal legislators who represent states heavy with business interests (Charles Schumer, I'm looking at you).

    Certainly the hands off approach taken by the Bush Administration has made the problem worse, but the underlying weakness has been there for twenty years, and getting worse over that time.

    Is it just me (none / 0) (#1)
    by s5 on Mon Sep 15, 2008 at 01:31:21 AM EST
    Or has anyone else noticed that Bank of America seems to be swallowing up all these troubled companies? Pretty soon they're going to be THE bank of America.

    Maybe we're headed towards a split in the banking industry. Half of it will get swallowed up by a monopoly, the other half will get nationalized, like Freddie and Fannie. Then the government either decides to nationalize BofA, or split it up like the old AT&T.

    As for what this means to our day to day lives and pocketbooks,  no f****n clue! I'm just confused by all this as anyone else. I wish someone would come out with a dummies guide.

    where to start (5.00 / 1) (#2)
    by christinep on Mon Sep 15, 2008 at 01:50:16 AM EST
    Well, since we have to call our AIG broker tomorrow...I'm up late fretting. My husband and I have been muttering about "greed" and the decades long, slow descent of the "deregulation" attitude.Reading the articles tonight gets you nowhere but depressed or fed up when it brings to mind then-Fed chair Greenspan advising that if he were younger he would invest in the housing bubble with the sub-primes (some years back.) They all grabbed; and, here we are. Now: These are the kinds of times that can shine a light on a leader...which presidential candidate can define the situation, the challenge, and his steps for a stabilized recovery in a clear, concise, and reassuring way for the average American? (A bit of irony, of course, is that Biden has deep knowledge of the banking industry and can speak with some authority...but, if memory serves, he also has close ties to some of the players.)

    Parent
    All I can say is (none / 0) (#3)
    by shoephone on Mon Sep 15, 2008 at 01:51:33 AM EST
    Thank goodness I'm with a credit union! I am worried about WaMu, which is in a very precarious position. It holds billion$ in mortgages, has had net zero growth in deposits since last year at this time, and has laid off employees by the tens of thousands this year alone. They just replaced Kerry Killinger with a new CEO, Alan Fishman, a couple of days ago but they have been fishing around for a buyer. Apparently, B of A is not interested, which is a relief. I despise B of A. But the outlook for WaMu does not look great.

    Oh, me too (none / 0) (#5)
    by andrys on Mon Sep 15, 2008 at 02:14:14 AM EST
    I keep reading WAMU denying they're in trouble, which is what happened with the banks that didn't do well.  But I've kept the money in.  What there is of it.

    I've been playing with the idea of moving some of it to the university credit union.

    But are those safer?  Supposedly, both are federally guaranteed but what happens when too many of these institutions get into trouble?

    Parent

    Are you in Western Washington? (none / 0) (#6)
    by shoephone on Mon Sep 15, 2008 at 03:18:24 AM EST
    Most all of the credit unions in Seattle are in a "shared banking" partnership, which means you can go to any of them and make a deposit, move money from a savings to a checking, etc. (though usually, you can't just take out cash). In comparison to banks, the rates on savings and CDs and money markets are generally higher and the rates on loans are lower. Although I just found out that Key Bank which I hate) has a better rate on CDs than my credit union.

    Check into it. I've been really pleased with Prevail (used to be King County Credit Union) for almost 15 years. They treat you like a human being. At the credit union you are a "member" and not a "customer".

    Parent

    Clarification on "shared banking" (none / 0) (#7)
    by shoephone on Mon Sep 15, 2008 at 03:24:02 AM EST
    You can, obviously, take cash out of your own credit union, just not all the ones in shared banking. I think BECU (Boeing Credit Union) might be the most restrictive.

    Parent
    shoephone, I'm in California (none / 0) (#12)
    by andrys on Mon Sep 15, 2008 at 04:21:35 AM EST
    But your info and that from others here is helpful.

    Still mulling.  Will go visit the credit union this week.

    Thanks !

    Parent

    Credit unions federally insured by: (none / 0) (#8)
    by shoephone on Mon Sep 15, 2008 at 03:27:44 AM EST
    The National Credit Union Share Insurance Fund (NCUSIF), an independent agency of the U.S. Government and a branch of the National Credit Union Administration (NCUA).  

    Parent
    WaMu has my first mortgage (none / 0) (#43)
    by echinopsia on Mon Sep 15, 2008 at 08:42:57 AM EST
    and I'd love to take it away from them and refi with my credit union, which has my second. I HATE WaMu. I LOVE my credit union.

    What I'm wondering is what happens to my mortgage if WaMu goes under.

    Parent

    Not Good (none / 0) (#10)
    by pluege on Mon Sep 15, 2008 at 03:41:08 AM EST
    Can anyone explain for those of us who are economically challenged what this means to our day to day lives and pocketbooks

    • a lot more layoffs coming
    • possible deflation spiral resulting in banana republichood
    • 40 years of republicans stealing our children's and grandchildren's future and vichy dems doing nothing about it, coming home to roost, i.e., bad, bad, bad.


    It means the longest economic downturn (none / 0) (#11)
    by Militarytracy on Mon Sep 15, 2008 at 03:55:49 AM EST
    America has experienced since the Great Depression and we are only at the beginning of the worst of it.

    According to McCain (none / 0) (#14)
    by bob h on Mon Sep 15, 2008 at 05:12:19 AM EST
    the answer is more "deregulation".

    Well, one thing it means is 401k and (none / 0) (#15)
    by robrecht on Mon Sep 15, 2008 at 05:18:19 AM EST
    college funds will continue to do poorly.  Privatizing Social Security isn't being mentioned as much.  

    One good thing going on is oil futures are trading under $100/barrel for 5 straight days and look to stay there, despite OPEC's efforts to the contrary.  In the past week or so, this price drop is increasingly due more to the dynamics of the oil market and less to the improvement of the dollar, which is another good thing.

    Oil prices dropping is not a good thing (none / 0) (#40)
    by pluege on Mon Sep 15, 2008 at 08:25:59 AM EST
    Americans will go back to sleep until the next crises (sure to be not too far away). No pain, no gain.

    Had high gasoline prices been gradually implemented 30 years ago when we knew dead certain this day was coming:

    • there wouldn't be an oil crises,
    • there wouldn't be an Iraq invasion,
    • there wouldn't be a roiling Middle East because no one would care about the Middle East, and there wouldn't have been 9/11
    • the economy would be bursting with renewable energy diversity instead of in rapid decline,
    • 3/4ths of a generation's brilliance wouldn't have been wasted on creating high tech military gadgets whose only purpose is mass annihilation of humanity, promotion of fear, creating instability, and intimidation.
    • the US wouldn't be stuck in a suburban sprawl configuration with no way out.
    • global warming wouldn't be threating mass extinction.

    We have a ton to thank the US oil policy and the insatiable greed of oil barron's for.

    Parent
    I agree (none / 0) (#66)
    by robrecht on Mon Sep 15, 2008 at 10:16:31 AM EST
    There are indeed good long-term results that can come from an energy policy designed to respond appropriately to high oil prices, but nothing is automatic, either for good or ill.  In the context of this thread, I was merely speaking of short-term effects on our economy.  About 3/4 of the current fall in oil prices is actually due to lower use, which shows an actual  response to higher prices, which is good in part.  About 1/4 is currently due to a stronger dollar, which is also good in part.  

    Where Carter failed, others may succeed, that too is part of the larger historical process.

    Parent

    Basically... (none / 0) (#16)
    by Strick on Mon Sep 15, 2008 at 05:52:38 AM EST
    It means the current financial crunch will continue, probably on a path similar to that of around the S&L failures in 80s.  I don't recall that turning into a "Great Depression".  Greenspan predicts it going into the middle of next year no matter who's President or what anyone in Washington does.

    Interestingly, from what I've read the last time certain economic indicators, like home foreclosures, were this "bad" was in the late 90s.  Something about another bubble bursting.  Who was President then?  I forget.  No Depression then, either.

    There is a risk of deflation, but it will probably get that severe only if we decide to disband the Federal Reserve and most of the other financial safe guards instituted over the last 70 years.  No, the GOP hasn't done that yet.

    You realize this is the other thing that invariably hurts Democrats: they love to misery use as a political tool.  They try to manufacture it every chance they get.  Worked so well in 2004.

    Don't get me wrong, some people are hurting, but talk of Depression is absurd.

    I said it was worse case scenario (none / 0) (#75)
    by Prabhata on Mon Sep 15, 2008 at 10:39:16 AM EST
    Don't believe that something like the Great Depression won't happen.  The S&L was a US problem. What's happening now is world wide.

    Parent
    Hows That Deregulation Working Out? (none / 0) (#18)
    by john horse on Mon Sep 15, 2008 at 05:57:02 AM EST
    As someone who doesn't have much expertise in economics I defer to Paul Krugman.

    I am so glad that the Republicans have gotten the government off our back. (sarcasm alert)

    Krugman doesn't know (none / 0) (#19)
    by koshembos on Mon Sep 15, 2008 at 06:12:47 AM EST
    Which means, no one does. My guess is that if the US was the financial beacon of the world, those days are over and the Chinese are probably the new financial center.

    Changing of the Guard ... (5.00 / 1) (#38)
    by pluege on Mon Sep 15, 2008 at 08:11:49 AM EST
    after a disastrous period of instability.

    The $trillion bush and the republicans flushed down the Iraq sinkhole (while vichy dems slept) would come in handy right about now.  

    Parent

    That's right -- nobody knows (none / 0) (#77)
    by Prabhata on Mon Sep 15, 2008 at 10:46:21 AM EST
    We're like a ship without a rudder.  Bush is clueless; the Democratic leadership is clueless; the Republicans are clueless.  If Bill Clinton were the president he would get the best heads from this country and other nations to fix the a world wide problem.  But with Bush at the helm and Congress too busy trying to get money to get elected, we're left adrift with the hurricane approaching.

    Parent
    Question (none / 0) (#87)
    by MichaelGale on Mon Sep 15, 2008 at 12:08:55 PM EST
    will the dollar continue to drop and that seems to be a fear, and if it does, how does it impact us?

    Parent
    I wonder about that too. n/t (none / 0) (#88)
    by shoephone on Mon Sep 15, 2008 at 12:22:40 PM EST


    Parent
    The photoshop is great, it reminds me (none / 0) (#20)
    by JoeA on Mon Sep 15, 2008 at 06:23:14 AM EST
    of the Stephen Colbert line at the correspondents dinner with Bush present,  where he told off the press for saying that the Bush White House was rearranging the deck chairs on the Titanic,  he said that the administration was "soaring" and were rearranging the deck chairs on the Hindenburg.

    That whole speech was genius.

    Not just Wall St. (none / 0) (#22)
    by mmc9431 on Mon Sep 15, 2008 at 06:36:24 AM EST
    It isn't just the large banks either. People that live in small towns and the burbs should also watch out. Our local paper had an article about our local independant bank being in trouble because their money is tied up in bankruptcy of two subdivisions that went under.

    Credit will be very tight... (none / 0) (#25)
    by wasabi on Mon Sep 15, 2008 at 06:54:14 AM EST
    •  For consumers, unless you have a stellar credit rating.

    •  For any business expansion or growth (or staying afloat).

    The 5 Wall Street investment banks are now down to two.

    From The Economic Populist blog:

    Mega Merger on Wall Street just announced!!!

    The new entity, which Wall Street sources said was to be called CitiLehmanUnitedBearStearnsJPMorganGoldmanSachsAIGMerrillWaMu - FannieFreddieUnionCountrywideKravitz, will trade on the Exchanges under the shortened acronym, CLUSTERF*CK.
    Analysts said the new mega-investment bank would have a net asset value, after writedowns, of $2.48.

    Not Really 2 (none / 0) (#31)
    by pluege on Mon Sep 15, 2008 at 07:31:53 AM EST
    bear Sterns is still around as part of Morgan Stanley doing what they did before and Merrill Lynch will continue to make bad decisions and suck the life savings from old ladies as part of Bank America. Lehmann doesn't go away, it just gets broken up.

    A few fatcats get giant golden parachutes and new multi-million jobs elsewhere; a few thousand worker bees (maybe 10s of thousands) get laid off and suffer, tax payers get stuck holding the bag on the fatcat's bad decisions, and life goes on in Capitalism R US bizzaroland where the wealthy always get wealthier and are never punished for their crimes, and the little guy always is made littler.

    Parent

    I guess I'll keep renting (none / 0) (#46)
    by eric on Mon Sep 15, 2008 at 08:56:37 AM EST
    and driving my 10 year old car.


    Parent
    why keep renting? (none / 0) (#48)
    by TimNCGuy on Mon Sep 15, 2008 at 09:11:33 AM EST
    if you have a good stable job and good credit and can qualify for a FIXED rate mortgage, it's agreat time to buy a house. They are all on SALE.

    Parent
    You think they're on sale.... (none / 0) (#53)
    by kdog on Mon Sep 15, 2008 at 09:22:06 AM EST
    and it does look that way compared to the last few years...but who is to say property values won't keep droppin'?

    Parent
    Seriously? (none / 0) (#55)
    by rightyinaleftworld on Mon Sep 15, 2008 at 09:32:30 AM EST
    Buying a house today is like buying pets.com at $25. Sure it's better than buying at $100, but still a bad move.

    Parent
    if you are going to buy (none / 0) (#59)
    by TimNCGuy on Mon Sep 15, 2008 at 09:44:14 AM EST
    a home to live in for many, many years and not treat it as an investment and get a FIXED rate mortgage that you can easily afford without straining your budget, why would you want to keep renting? If things get as bad as you think they might get, at least your monthly mortgage won't be going UP like people's rent will be.

    Parent
    Only if... (none / 0) (#72)
    by santarita on Mon Sep 15, 2008 at 10:33:42 AM EST
    you view a house primarily as a financial investment.  Renting is fine and makes more sense for many people especially if they value mobility.  

    Parent
    'Twas Bubba (none / 0) (#26)
    by allpeopleunite on Mon Sep 15, 2008 at 07:12:25 AM EST
    Wasn't it Bill Clinton who started this round of deregulation in 1997?

    yes (none / 0) (#57)
    by waldenpond on Mon Sep 15, 2008 at 09:39:31 AM EST
    There have been articles for years... and the media sure is jumping on it.  Here's Newsweek.  CNN pointing out it was Clinton who signed the deregulation.  

    I keep saying voters blame government not just Repubs.

    Parent

    Which Round of Deregulation... (none / 0) (#67)
    by santarita on Mon Sep 15, 2008 at 10:21:11 AM EST
    are you talking about?  

    R Reagan and friends started the ball rolling in the 1980's.   The Gramm-Biley-Leach Act eliminated the wall between investment and banking but that wall had been crumbling for years.

    Parent

    Bush: home ownership policy ..just another failed (none / 0) (#27)
    by Katherine Graham Cracker on Mon Sep 15, 2008 at 07:14:54 AM EST
    plank in the fight against terrorism

    "But I believe owning something is a part of the American Dream, as well. I believe when somebody owns their own home, they're realizing the American Dream. They can say it's my home, it's nobody else's home. (Applause.) And we saw that yesterday in Atlanta, when we went to the new homes of the new homeowners. And I saw with pride firsthand, the man say, welcome to my home. He didn't say, welcome to government's home; he didn't say, welcome to my neighbor's home; he said, welcome to my home. I own the home, and you're welcome to come in the home, and I appreciate it. (Applause.) He was a proud man. He was proud that he owns the property. And I was proud for him. And I want that pride to extend all throughout our country." Bush 2002

    Bush once again just another mandate with no real policy to bring about healthy home ownership...another bunch of unfunded mandates.

    What does itg all mean? (none / 0) (#32)
    by Doc Rock on Mon Sep 15, 2008 at 07:33:25 AM EST
    It means that that loud, sucking sound you hear is your brokerage accounts going down the toilet!

    Damned if I know..... (none / 0) (#50)
    by kdog on Mon Sep 15, 2008 at 09:19:48 AM EST
    what it means for Joe and Jane Blow...I'm just glad my life savings is under the mattress.

    Obama statement (none / 0) (#61)
    by kenosharick on Mon Sep 15, 2008 at 09:51:38 AM EST
    I admit that I know little to nothing about economics and finance, but I found Obama's statement concerning all these developments, to "modernize the rules of the road" and "change" things, less than reassuring.

    Eliminating Wealth Effect... (none / 0) (#71)
    by santarita on Mon Sep 15, 2008 at 10:31:42 AM EST
    is what this meltdown means.  It means 401ks and IRAs are going to lose a lot.  Pensions could be in trouble.  It means that people will spend much less and will spend what they have on necessities. It means higher unemployment (except for lawyers who do bankruptcy work and maybe for white collar criminal defense bar).  It means that high and lofty ideals will be on the back burner for quite some time.    

    To me this is the equivalent of s slow storm surge instead of a tsunami.  It won't kill as many people as a tsunami but after awhile you'll notice that the water is in your house up to your ankles.

    I'll try (none / 0) (#74)
    by kulta on Mon Sep 15, 2008 at 10:36:08 AM EST
    We go back to a time when banks were banks, investment houses were investment houses, insurance companies sold insurance.  Clear lines, no crossover.  But, banks were seeing interests rates go down and wanted a piece of the other pies.  Investment houses wanted to control more of their big customers' money beyond stocks.  And so it went, and came to be that the walls came tumbling down.  Glass Stegall, put in post depression (all history is doomed to be repeated, etc) was eliminated.  Now everyone could jump in everyone else's pond.  Except for expertise, except for regulation, except for consumer protection.

    But who cared when the market was bullish and interest rates just kept being cut (despite worrying signs of a bubble developing and concerns of not only inflation, but loss of buying power of the dollar, trade imblance and overheating) so money was freer and easier to get.  So, everyone expanded from top to bottom.  People were convinced to buy bigger homes with complicated mortgages that would rise as value and income did. Except they didn't.  More and more wasa built, if not occupied.  

    And it continued.  As a bank, or investment company, if I can make money off one mortgage, can't I make more money bundling many mortgages into another investment I can sell as if it were a bond?  Hence, CDOs, or DMOs (I won't go into the squaring). So good and bad mortgages were combined into investments and sold.  And rated AAA by Moody's and others who had separate investment groups selling these investments.  This caused state pension funds to buy them, as well has many 457s and 401K plans.  

    As foreclosures grew, these investments dropped in value, but noone could actually figure out which ones were still good and which ones were bad because they were too co-mingled.  They all dropped.  Companies tried to sell, no buyers.  They then turned to write them off and collect the insurance on them from the Monolines (large specialized insurers). But, the Monolines didn't have enough in reserves to pay.  They are close to liquidation in no small part right now, looking for buyouts (more behind the scenes and part of AIG mess).  No insurance?  Ratings dropped to B or even below on the CMOs.  Pension funds, etc. now had to try to dump as they can't hold by law such low rated investments.  But they can't. And so it goes right now.

    Pension funds are hit hard.  401 and 457s are hit hard. People who would have retired, can't.  Unemployment will go up, straining state budgets.  Interest rates will go up if they want to shock the economy, or down if they are too panicked about firms going bust.  Foreclosures will increase.  Commercial real estate will lie fallow.  .  

    Oh and by the way, know who those Monolines also insured?  State and Muni bonds now caught in the cross fire. Wall Street meet Main Street in the perfect storm

    Symptoms vs disease (none / 0) (#78)
    by Prabhata on Mon Sep 15, 2008 at 10:56:40 AM EST
    I see lots of comments blaming easy credit for the reason the financial system is in trouble.  That would be like blaming airlines for not putting safety doors between the crew and the passengers.  When Bill Clinton was president, Al Gore headed a commission that advised airlines to put safety doors to protect the command center of the plane from terrorists.  The airlines fought the regulation and Congress folded, then we had 9=11.  If you notice, nobody blamed Congress for not doing its job.

    wait 4 weeks (none / 0) (#84)
    by Jlvngstn on Mon Sep 15, 2008 at 11:28:33 AM EST
    when the next retail sales and jobs reports hit.  Then sit back and wait for the personal credit crisis and stagnation of the economy. Today looks really bad, but in four short weeks it will look a hell of a lot "worser".

    we are dangerously close to stagflation and methinks we may have a bout of it coming.  

    Recessions are usually ending when a bank or two fails.  Not this time.  

    And true to the first half of my prediction, the stimulus has worn off and the markets are not being propped up artificially.  

    The second half of the prediction is Palin's star begins to fade when she tours on her own (she is just starting) and the polls change as her star fades and as the economic realities set in.  Foxnews and McCain have been saying all along we are not in a recession and we are fundamentally sound.  We are in a recession (a long one) and our financials are not fundamentally sound.

    Two weeks, four weeks, Americans start to feel the recession minus the stimulus help and it will start to hurt.  It will look bleaker and bleaker as we close in on November.  McCain can play reformer in sound bytes but his economic policy is not substantially different from Bush, in fact they are pretty darned close.  Obama needs to speak on the economy but more importantly conduct more news conferences like he did 10 days ago with Fannie and Freddie.  

    His perception problem will be eased with press conferences and his growing confidence in answering questions as opposed to stumping.

    The Economy Keeps on Tanking | 96 comments (96 topical)

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