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 Originally Posted by sarbox68
I will correct you on the walk away and be debt free comment. That's a state by state issue. States where homeowners can truly just walk away from a first mortgage and be debt free are in the minority (i.e. California) And even in those cases, they are still legally liable for any loans beyond the original purchase money loans. So all these idiots that sucked out equity in the form of 2nd & 3rd mortgages cannot be saved by simply walking away. They are still liable for those loans... can still be sued for their outstanding value if they default, and if the bank forgives the loan, are liable for the state and federal taxes on the forgiven amount as if it were income. Full bankruptcy is a way out of the loan (not the tax debt if already forgiven...), but Chapter 7 is much harder to file these days, and most will be bounced in to Chapter 13 with a repayment plan.
I knew this was more or less the case for regular mortgage loans. Do you know if this is also the case for the subprime loans? I have never heard it when the subprime loans are mentioned but I have no definite source.
Originally Posted by griffey24
Originally Posted by 2_Thumbs_Up
Originally Posted by UG
once the banks start taking the big hits you'll see banks fail...once banks start failing you'll see a run on the banks, and once that happens........
If the government keeps this pace up you'll see a run on the dollar, and once that happens...
I'm pretty uninformed in all this.. doesn't help being up in Canada either.
But does this mean I should take my poker money out of USD??
keep up the talks, interesting stuff.
That's what I've done at least. I don't own a single dollar anymore.
Originally Posted by Silly String
Don't get all Chicken Little on us. The sky is not falling.
Here is an article from a source I like, Chief Economist for First Trust.
Originally Posted by Brian Wesbury & Robert Stein
Gales of Punitive Destruction
There is not enough room on page one of the nation’s
newspapers for all of today’s news. Any of today’s stories –
a Lehman bankruptcy, a sale of Merrill Lynch, AIG capital
needs, plummeting oil prices, or new Fed lending facilities –
could be above-the-fold headline news. The US is moving
through its deepest set of financial market difficulties since
the 1980s and 1990s, during the banking and S&L crisis.
The key thing to remember here is that the emphasis
belongs on the word financial. These financial market
problems are not a result of widespread economic weakness,
otherwise known as a recession. In fact, real GDP has
grown 2.2% in the past year and accelerated to a 3.3%
annualized growth rate in the second quarter.
The economy is not taking down investment banks;
lousy lending standards and the excessive use of leverage are
taking down investment banks. And just like the problems
of the 1980s and 1990s, the roots of the problem reach back
to a period of absurdly low interest rates. When the Fed cut
interest rates to 1% in 2003, balance sheet math involving
leverage-based strategies turned so lucrative that many
financial market players could not help themselves. Wall
Street based its business model on leveraging up the most
leveraged asset on Main Street – housing.
This double set of leverage has blown up because the
housing market became overbuilt and housing prices stopped
rising. When the Fed pushes interest rates below their
“natural” level, mal-investment always occurs. Mark-tomarket
accounting exaggerated this process by letting firms
mark-up assets above true fundamental value on the way up,
but has now turned to force firms to mark-down assets, to
below true fundamental economic value.
The good news is that this financial earthquake is
unlikely to turn into an economic earthquake. The bad loans
made earlier this decade did not create a widespread
economic boom; and the realization of how bad some of
these loans are will not create an economic bust. The nonhousing
economy, which is roughly 95% of total US
economic activity, has been remarkably stable. In the three
years ending March 2005, non-housing real GDP grew at a
2.7% annualized rate. In the three years since then, nonhousing
real GDP has grown at a 3.2% average annual rate.
This is not that hard to understand. Think about a bad
loan made to a home buyer. Clearly that allows the
borrower to spend more than they have earned. But every
dollar of this cash comes from someone else, who has to
spend less than they earn. Even when the money comes
from abroad, that means fewer dollars available to foreigners
to buy our exports. Is it any wonder that the trade deficit
was booming when capital was readily available for
mortgage loans on easy terms and now the trade deficit is
falling rapidly when mortgage credit has slowed?
Remember: lending and credit expansion, by itself, is not
the equivalent of printing money; it simply shifts the pocket
in which the money is located. Credit contractions come and
go, but only credit contractions caused by government policy
mistakes lead to widespread recession. This is why the
current financial market problems are unlikely to spread.
There have been no major increases in tax rates, no
sudden lurches into trade protectionism, and no prolonged
period of tight monetary policy, where the federal funds rate
is persistently above the trend in nominal GDP growth. In
fact, tax rates are still relatively low and the Fed is holding
interest rates at extremely accommodative levels.
It is difficult to gauge when financial market upheaval
will finally come to an end. However, as long as
policymakers steer clear of tax hikes, tight money, and
protectionism, the economy should remain resilient.
Couldn't have said it better, so I stole it.
First a comment on the report he refers to that says the economy is still growing. When the government calculates growth they use a GDP deflator to account for inflation. In order to get the growth at 3.3% they need to count with an inflation rate of 1.2% annualized. That would be a ten year low. Does anyone really believe that inflation is at a ten year low right now? With a more reasonable adjustment for inflation the numbers would show the economy contracting. That also makes much more sense considering the news you hear from auto industries, airlines etc.
On his other points, he seem to get the cause of the problem right, mainly too low interest rates. But he seems to think you can just shrug off the losses. The current stimulus package and bailout bill already excedes 500 billion dollars (expect that to rise). The government doesn't have this money. They also can't just raise taxes with half a trillion so the only thing left is printing the money. The problem was caused by the creation of too much money, and the writer of that article seem to think that the solution is to simply create more.
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Witnessing colossal failures of capitalism?
Reply With Quote
) What we've effectively got with these defaults is equivalent to the evaporation of market cap. Asset A was worth $1M... someone bought it for $950K... now it's worth $400K. You've just effectively removed $600K from the (loosely defined) money supply. The governments guarantee of bridge loans is not increasing the money supply at all in terms of the total net value of liquid assets in the economy -- they're effectively covering a loss. This shouldn't have any impact on inflation. Yes, the govt effectively purchases a portfolio that prima fascia is not worth what they paid for it (government get a bad deal...? ... u forget we are the land of the $170 military toilet seat 
)
