Bye Bye Banks and Wall Street

[BarTopDancer]

Can someone explain what is going on with the banks and Wall Street?

I'd really prefer a non-political explanation - I'm really trying to understand what is going on.

Thank you

[Snowflake]

Black Friday comes to mind.
but I am not savvy enough to explain it to me, except I see my 401k is bleeding on the pavement.

[Alex]

I don't know if I can explain in a way that will make sense within a length of text that you'd actually read.

I've tried to write a short version several times and it immediately starts to become a long version with serious caveats about important things being left out.

There was an episode of This American Life a few months ago that explained it as well as just about anything I've seen. I'll try to track that down for you. The basics remain true to the events of the last few days (though it doesn't explain why Lehman Brothers was allowed to die while AIG was bailed out).

However, if I lose my job soon (which isn't outside the realm of possibility since I work for the company widely considered next in line) I'll have plenty of time to write things up.

[innerSpaceman]

In a nutshell, the economy is tanking because of the speculative bubbles that have been allowed to run rampant with nary enough banking regulation for the past 30 years. We are mostly familiar with the Silicon Valley bubble that burst, and now the Housing Mortgage bubble has burst.

This non-regulatory environment is a product largely of Republican government processes. As is the redistribution of wealth over the same time period so that more concentration of money is in the hands of the least people since the 1900's.

That much money in the hands of people who don't need it floods the markets with speculative investments, going from one boom-town investment to the next, with no brakes by government regulators, and certainly not by the banking industry itself. This is a world-wide phenonmen, and not limited to the U.S.

But in the U.S., it is precisely the kind of economy the Republicans have pushed for, and now its pushed us over the edge into total economic meltdown.


Most Americans aren't paid enough to live the American Lifestyle, so everyone's gone deep into debt. All American institutions have done likewise, and our government - afraid to raise taxes - has followed suit. There's no money on earth to pay back all this debt, and the entire house of cards is starting to crumble.


The Fed Reserve Chairman says he will do everything in his power to prevent a Great Depression, but he may not have that power. Nonetheless, Wall Street has rallied a bit today on the leaked report that the government will continue to take over faililng businesses. Most of the major brokerage houses have already been bailed out/taken into conservatorship by the goverment. Insurance giant AIG followed earlier in the week, mortgage giants Fannie Mae and Freddie Mac were last week.

We the taxpayers are already on the hook for those bailouts to the tune of some 4 trillion dollars, but that's not yet necessarily money lost. Depends on what happens. But a total financial collapse of the world economy is looking more and more likely, in which case those "investments" or "meddling" by the U.S. government would be worthless and would be a total loss to taxpayers in addition to the millions of jobs that are going to be lost.

Meanwhile, $15 trillion in stock wealth has been lost since the beginning of the year, and that's the tip of the iceburg.

And if you think we have it bad here in the U.S., consider what rampant speculative investing has done to poorer parts of the world. Investments in commodities have driven food prices through the roof, and by year's end fully ONE BILLION PEOPLE will be classified as going hungry.



I say while we still have some discretionary income, we get out the tar and the feathers and the torches and the pitchforks. Half of us head to D.C. with the tar and feathers, the rest to Wall Street with the torches and pitchforks.

[sleepyjeff]

My brother is a VP at a major US bank. He explained it to me like this:

Let's say there are 5,000 boxes on display. You can't look into any of the boxes but you know that 4,900 of them contain a million dollars.......the remaining 100 contain nothing. What value would you assign to any one box?

If you assign a million dollars to one box and it turns out to have nothing in it you end up in the hole for a million dollars.......so you are likely to assign a lower value to any given box, even though in all likelyhood that box is still really worth a million.

Yeah, I still don't get it either;)

[Morrigoon]

It's... complicated.

Let's just say that the market operates in cycles, and when the pendulum is allowed to swing too far one way, natural forces (eg: market cycles) force it to swing back the other way.

The less simple explanation is that in recent years, the market invented a way to turn mortgage investments into stock investments by bundling large numbers of supposedly similar mortgages together so they could sell shares in them just like you'd sell shares in a company.

Since real estate is considered a safe, secure investment, managers of large portfolios (such as investment funds sold by investment houses or those owned by insurance companies (that's what they do with the money)) invested heavily in these mortgage-backed securities. So with the record number of foreclosures we're seeing, these securities are losing value like crazy, which means the funds that invested in them are losing money like crazy and coming crashing down. Which means that the companies selling or holding these large portfolios are suffering a serious liquidity problem (no cash) so they can't pay their debts (investors selling their shares in the funds, or payouts to insurance policy holders), so the companies are coming crashing down.

[Morrigoon]

The good news is that fortunes are made by people who have the foresight (and the capital) to pick things up at bargain-basement prices.

If I had the dough right now, I'd be buying real estate like crazy - especially after Thanksgiving, and maybe into next year. But I don't.

[Alex]

My brother is a VP at a major US bank. He explained it to me like this

That's true. You'd assign the boxes a value of $980,000. But I don't see what it has to do with the current situation.

[sleepyjeff]

That's true. You'd assign the boxes a value of $980,000. But I don't see what it has to do with the current situation.


Now suppose you can only afford one box......do you still assign it a value of $980,000...or do you elect not to play?

..and no, I really don't see what it has to do with anything either....just repeating what I heard and there's a good chance I didn't even hear it all.

[Morrigoon]

That's true. You'd assign the boxes a value of $980,000. But I don't see what it has to do with the current situation.

That strategy would work if you were investing in all the boxes. Unless it turned out that 80% of the boxes ended up being empty.

[Kevy Baby]

This non-regulatory environment is a product largely of Republican government processes.So much for respecting the OP's wishes :rolleyes:

I'd really prefer a non-political explanation - I'm really trying to understand what is going on.

[Alex]

It isn't a strategy, it is a simple mathematical fact that the boxes are collectively worth $980,000 each.

Whether the 98% chance of a 2% ROI is worth the 2% risk of a 100% loss is a different question.

The valuation including risk will be different than the simple valuation of the boxes and will vary widely from person to person depending on risk aversion.

And, of course, the example is irrelevant to actual investing since risk is not an absolute known value in investing. What is described with the boxes is simply casino-style gambling as demonstrated on Deal or No Deal.

[innerSpaceman]

So much for respecting the OP's wishes :rolleyes:
Frankly, Kevy, and with all due respect to BarTopDancer, I never give a frell about the O.P.'s wishes. We've been through this before, and just recently in fact. An O.P. does not own the thread they started, nor do their stated desires control the subsequent conversation.


As it happened, I skimmed the O.P. and didnt' read that part. So I posted my political views unknowingly. I likely would have left that out, but eventually --- and sooner rather than later on a subject like this --- politics is going to come up and be discussed.


My apologies to BTD.

[BarTopDancer]

Apology accepted and if I skim past the political commentary I can make sense of it (more than SJs [appreciated] effort).

Basically people with to much money were buying what they wanted and people with not enough money were buying what they wanted and now the money came due but no one has the money to pay it back?

[scaeagles]

Actually, the biggest portion of the problem started in the Carter administration when laws were passed forcing backs to lend at subprime rates to less than qualified borrowers.

[innerSpaceman]

He's right, Carter started it all ... actually with airline deregulation. And it was Clinton who did the most harm with the repeal of strong banking regulations. But he was a barely closeted Republican.

In any event, Congress was responsible for all of this, not the president on whose watch they happened, even if they happened with his support.

Both parties are very pro-business, but generally speaking it's been the Republicans who've been more virulently anti-regulation, and certainly the Republicans who are most responsible for the wealth redistribution that made this whole mess possible.

There was simply too much money floating around in the market system, with nowhere legitimate to go.



Anyway, my editing window has expired, and I made a big typo in my tirade above. Taxpayers are on the current bailout hook for about 4 billion dollars, not 4 trillion.

The $15 trillion in stock wealth lost in 2008 to date is an accurate number, as is the 1 billiion hungry by year's end. So sorry for my error, and again apologies to BTD for the inevitability of me bringing politics into this.


For fairness sake, a pox on both their houses. Torches and pitchforks, please.

[€uroMeinke]

I think it all boils down to the fact that the value of money is imaginary

[Alex]

That's true. Abandoning fiat currency would have avoided most of the current problems.

[Andrew]

That's true. Abandoning fiat currency would have avoided most of the current problems.
In favor of what? Bits of shiny metal?

[BarTopDancer]

I like shiny.

[Alex]

I wouldn't advocate abandoning fiat currency, it would just avoid the kind of thing causing trouble now. Of course, it would prevent most of the things that we really like having at the risk of things like the stuff causing trouble now.

[Morrigoon]

Yeah, going back to the gold standard isn't going to work. Expectations of inflation are too ingrained at this point.

[€uroMeinke]

But the value of Gold is also imaginary - as is Cowrie Shells

[DreadPirateRoberts]

Here's an interesting explanation (http://www.businesspundit.com/sub-prime/) (with stick figure pictures!)

[Alex]

Looks like the feds have decided to save the entire sector.

Can't say I approve, but it would be an interesting outcome if the government ends up making a huge profit off it all (because even in the segment they'll be buying up the vast majority of homeowners are still meeting debt obligations). Can't wait to see how they decide to price them.

[BarTopDancer]

I'm confused again :(

[cirquelover]

I don't really understand all this either BTD!

[Alex]

Essentially, a lot of banks have debt that is failing in a big way, and the way that debt is structured makes it very difficult for them to reorganize it (when 19 institutions own part of a mortgage things get complex). And this has significant downstream ripples on other companies (which is why bad mortgages brought down AIG, an insurance company, earlier this week).

A lot of the problem here is the uncertainty as to just how bad it is going to be so nobody is willing to invest in entities heavily exposed to this debt.

So it looks like the government is saying they will step in and buy from the banks a huge portion of these bad mortgages. They'll do it at a significant discount but it creates certainty for the institutions. They can finally just write off actual losses and move on.

The government will then bear the risk of all these loans, but they can also be much more flexible in reorganizing them (of course, they might be too flexible) so while you'll hear numbers in the hundreds of billions as what the government will spend buying these loans that, in the end, won't be the final cost of them since most of the mortgages will eventually pay off and since the government will have purchased at a huge discount it could all prove ok in the end. Or the government could still take a bath.

[BarTopDancer]

YAY! Thank you Alex!

[sleepyjeff]

A lot of the problem here is the uncertainty as to just how bad it is going to be so nobody is willing to invest in entities heavily exposed to this debt.



"Uncertainty"......like not knowing if the box has a billion dollars in it or if it sits empty?

[Alex]

No, not like that.

[sleepyjeff]

No, not like that.

Darn, I was hoping.

[Andrew]

Here's an interesting explanation (http://www.businesspundit.com/sub-prime/) (with stick figure pictures!)
That was very clever, thanks!

[Alex]

Darn, I was hoping.

Here's the key difference: in your example, everything about the system is known. Values can be assigned rationally. The only question then is risk aversion.

In your example you have 5,000 boxes, 4,900 of which contain $1MM. You may not be willing to pay $980,000 for a box because the risk is too big but there is also no reason for the person with the boxes to sell them for less than $980,000 because he would then be losing money. He has $4.9 billion dollars in cash, why would he sell it for less than $4.9 billion? Heck, why would he sell it for even exactly $4.9 billion; it wouldn't be worth his trouble. So he has to find people who are simply willing to gamble on the outcome and pay more than $980,000 for a chance at a box that contains $1 million. This is how the lotter works? If the jackpot on the lottery is $1 million the expected value of a single ticket is $0.055 (5.5 cents). So they go out and find people willing to pay a lot more ($1) than the value for the chance of a huge return (but the vast majority lose their dollar).

Investing is not this kind of system. You aren't looking at absolute odds and making a risk decision, you are guessing at the odds and making a compounded risk decision (the risk that your guess on the odds is wrong and then the risk that you lose as well). It is a fundamentally different type of uncertainty than you face at a roulette wheel.

Essentially, rather than being told "we've spread $4.9 billion in $1MM increments through 5,000 boxes" it is "we're asking you to buy one of our 5,000 boxes. We suspect that most of them contain $1MM but we aren't certain of that. We've been told, but can't confirm, that there is at least $4.9 billion in our boxes but we aren't sure how many boxes there are, it could be 5 or it could be 5 billion. How much would you pay for a box?"

Now, obviously, real investing isn't that random and ideally there are well informed decisions with all of the information laid out. What has been revealed over the last two years is not that there are 32 slots on the roulette wheel and you have to pick one, but rather than the people playing the game didn't actually know how many slots were in the wheel.

[sleepyjeff]

Here's the key difference: in your example, everything about the system is known. Values can be assigned rationally. The only question then is risk aversion.

In your example you have 5,000 boxes, 4,900 of which contain $1MM. You may not be willing to pay $980,000 for a box because the risk is too big but there is also no reason for the person with the boxes to sell them for less than $980,000 because he would then be losing money. He has $4.9 billion dollars in cash, why would he sell it for less than $4.9 billion? Heck, why would he sell it for even exactly $4.9 billion; it wouldn't be worth his trouble. So he has to find people who are simply willing to gamble on the outcome and pay more than $980,000 for a chance at a box that contains $1 million. This is how the lotter works? If the jackpot on the lottery is $1 million the expected value of a single ticket is $0.055 (5.5 cents). So they go out and find people willing to pay a lot more ($1) than the value for the chance of a huge return (but the vast majority lose their dollar).

Investing is not this kind of system. You aren't looking at absolute odds and making a risk decision, you are guessing at the odds and making a compounded risk decision (the risk that your guess on the odds is wrong and then the risk that you lose as well). It is a fundamentally different type of uncertainty than you face at a roulette wheel.

Essentially, rather than being told "we've spread $4.9 billion in $1MM increments through 5,000 boxes" it is "we're asking you to buy one of our 5,000 boxes. We suspect that most of them contain $1MM but we aren't certain of that. We've been told, but can't confirm, that there is at least $4.9 billion in our boxes but we aren't sure how many boxes there are, it could be 5 or it could be 5 billion. How much would you pay for a box?"

Now, obviously, real investing isn't that random and ideally there are well informed decisions with all of the information laid out. What has been revealed over the last two years is not that there are 32 slots on the roulette wheel and you have to pick one, but rather than the people playing the game didn't actually know how many slots were in the wheel.


Very well put. Thank you.

[Morrigoon]

Hey BTD, here's an article for ya:
http://www.livescience.com/history/080919-history-banking-industry.html

[Alex]

Because I figure someone will eventually call it out I just want to acknowledge a small mistake. The value of the lottery ticket is not 5.5 cents. That would be the value if any given number could be picked only once.

However, lottery number selections are not a random distribution (largely random but not completely) and the same sequence can be picked more than once.

[3894]

I think it all boils down to the fact that the value of money is imaginary

Should I try that line with the bursar of my daughter's college?

[€uroMeinke]

Should I try that line with the bursar of my daughter's college?

No, then they might want something of real value

[bewitched]

Because I figure someone will eventually call it out I just want to acknowledge a small mistake...

I was gonna say...;)

[Bornieo: Fully Loaded]

Fastpasses will now be the new money.

Got this email today:


Dear American:

I need to ask you to support an urgent secret business relationship with a transfer of funds of great magnitude.
I am Ministry of the Treasury of the Republic of America. My country has had crisis that has caused the need for large transfer of funds of 800 billion dollars US. If you would assist me in this transfer, it would be most profitable to you.

I am working with Mr. Phil Gram, lobbyist for UBS, who will be my replacement as Ministry of the Treasury in January. As a Senator, you may know him as the leader of the American banking deregulation movement in the 1990s. This transactin is 100% safe.

This is a matter of great urgency. We need a blank check. We need the funds as quickly as possible. We cannot directly transfer these funds in the names of our close friends because we are constantly under surveillance. My family lawyer advised me that I should look for a reliable and trustworthy person who will act as a next of kin so the funds can be transferred.

Please reply with all of your bank account, IRA and college fund account numbers and those of your children and grandchildren to wallstreetbailout@treasury.gov so that we may transfer your commission for this transaction. After I receive that information, I will respond with detailed information about safeguards that will be used to protect the funds.

Yours Faithfully,
Minister of Treasury Paulson

[Betty]

So - they just announced the new penny redesign on tv this morning. Like the new quarters, there will be different designs on the back of pennies - each reflecting a different part of Lincoln's life.

Now - no offense to the dead President, but why are we bothering spending any money to remake the penny design in this time of financial crisis? Frankly, even if we weren't, there was some discussion about getting rid of the penny. But now in the this time of our countries impending doom, wouldn't the money be better spent on something?

[scaeagles]

When it's all any of us will have, at least they'll entertain us with their new look and shinyness.

[Alex]

This article (http://blogs.wsj.com/numbersguy/when-quarters-add-up-to-billions-237/) explains why the Mint is interested in commemorative editions of coins: they make money; probably more than $4billion on the state quarters program.

I assume they are expecting something along the same lines from the Lincoln biography series of pennies though it will be harder, last I heard it costs more to make a penny than it is worth. But maybe their numbers show the direct collectors market compensates (and I wouldn't be surprised if at the same time minor composition changes are made to bring down the materials cost of making a penny).

But ultimately I doubt it costs that much to make the different coins.

[Kevy Baby]

But ultimately I doubt it costs that much to make the different coins.And I suspect that the plan was in the works long before the crash began.

[Betty]

And I suspect that the plan was in the works long before the crash began.

I'm sure it was. That doesn't mean those plans can't change though. I guess I'm of the mind that if there is a financial crisis, or budget shortfall or whatever, that things like roads and schools are better things to spend money on then a new coin design.

Kind of like at home - I should spend money on rent and food instead of HBO and Showtime.

[Ghoulish Delight]

You can't start playing the "there are better things to spend money on" game.

How can they spend money on coffee for federal employees when children are starving?

How can they spend money on a new laptop for a bureaucrat when a citizen is going into foreclosure?

How can they spend money to replace signs at a passport office that are still legible when bank employees are losing their jobs.

There will ALWAYS be "something better to spend their money on." Things can't be prioritized like that. Though it would make passing a budget much easier. "What's the single most important thing in the world to spend money on. We vote that the entire budget goes to that because we don't want to spend money on anything else while there's something more important to spend it on."

[Betty]

I hear ya - but to some extent they should be doing that. If there's a budget issue, they should cut out the coffee before they fire someone. I'm not suggesting they do this on a daily basis - but that should be what the budget is all about.

I'm really not very sympathetic about people going into forclosure - they knew or should have known what they were getting into. I too would have loved to buy a house - but could see that wouldn't be able to afford it. Why should they get a house for being stupid.

I'm not advocating for putting all the money in the most important thing either - but like I said - there are the more frivolous items that can wait.

[Snowflake]

Now - no offense to the dead President, but why are we bothering spending any money to remake the penny design in this time of financial crisis?

I think it is because they, like the state quarters, are expected to MAKE money. The state quarters have been very lucrative from what I understand.

As usual, Alex beat me to it, and explained it far better, oops!

[Ghoulish Delight]

Personally, I don't think the federal government should be spending a dime on this.

We're here because the decision was made to deregulate and allow the free market to rein. Agree or disagree with that decision, that's where we are. But guess what, failure is a risk in the free market. These idiots gambled with it and lost and now they're begging to be rescued.

Now, I could have told them, back when they were being deregulated, that this was a possibility. And that's why I am in favor of regulation. Failure should not be an option when you're talking about the underpinnings of our entire economy. But failure IS an option in the free market and the people who chose the free market and chose to gamble deserve to bear the consequences.

It sickens me to see talk of how to limit the amount of money the people who made the horrible decisions walk away with when we should be talking about how much they're going to lose.

The fed should do little to nothing. The bare minimum to prevent things from spiraling out of control. Make the gamblers cut their loses, ensure that the people who made smart investments aren't dragged down in a rip tide. It's going to hurt. Homes will lose value, people will lose jobs. But unless the people who have been taking risks with money that's not their own without threat of real consequence (an 8 digit severance package is not a consequence) get hurt, we will find ourselves back here once again in short order.

[BarTopDancer]

I'm really not very sympathetic about people going into forclosure - they knew or should have known what they were getting into. I too would have loved to buy a house - but could see that wouldn't be able to afford it. Why should they get a house for being stupid.

I think there was some predatory lending but most people were just stupid and keeping up with their neighbors.

You don't buy a house you can barely afford at one interest rate only to have that rate be adjustable when there is no way you could afford it at the higher rate.

I started looking at buying a condo a few years ago - I was offered a mortgage amount based upon credit score alone and they said I could use stated income vs. actual income. Payments would have been "interest only" and I would have barely been able to afford it then. If I had actually gone through with it I would have been SoL now.

Read the fine print people.

The market is supposed to hit bottom around December of next year. Don't give up hope on buying Betty. You'll need 20% down or money for PMI and stellar credit to get a mortgage but housing isn't done dropping.

[bewitched]

I think now is the perfect time to revive that plan to let people take the money they contribute to social security and invest it in the stock market and mutual funds.

:rolleyes:



In other news:

"I nationalize strategic companies and get criticized, but when Bush does it, it's OK,'' Chavez said on weekly television program Sept. 21. "Bush is turning socialist. How are you, comrade Bush?''


Swell, even Chavez is mocking us now.

[LSPoorEeyorick]

Here's an interesting explanation (http://www.businesspundit.com/sub-prime/) (with stick figure pictures!)

That was great!

[Alex]

I still support allowing individuals to invest their social security contributions (within defined parameters for age targeting).

[Betty]

"It sickens me to see talk of how to limit the amount of money the people who made the horrible decisions walk away with when we should be talking about how much they're going to lose."

THIS!

[Ghoulish Delight]

What the hell?!

Deal said near on bailout (http://www.msnbc.msn.com/id/26884523/).

:mad:

God I hate Congress. HATE. There seems to be the belief that asking aggressive questions is good enough opposition to things. Sit in front of the TV cameras, talk tough, and then go ahead and vote for whatever it is you were just railing against anyway.

There is no way that the bailout plan was fixed in a day with a few little compromises. It was lightyears away from something that isn't just throwing good money after bad. I know there was no way they were going to follow my advice (jerks didn't even ask) and just leave the dummies who lost their money to their fate, but I had hoped they'd stand by the outrage they showed publicly and not let themselves get bullied into some rush job by the President.

But here we go. Several hundred billion dollars being handed to people who've already gambled and lost, followed by countless foreclosed homes that the government's just going to hang onto to avoid depressing housing prices. Executives will have the chance to get multimillion dollar compensation packages and the financial industry will have learned the valuable lesson that they can play these ridiculous paper games, inflate bad investments, and the government will come charging in and clean up their mess.

I guess the only hope is that the analysts are right and that the restrictions on executive compensation will make most banks hesitant to take advantage of the dela and it just fizzles anyway.

[Betty]

Wasn't Bush just saying a few weeks ago that the economy was bascially sound? How can he go from that to OMG the sky is falling !11!!11!!!!

[blueerica]

Because he's Chicken Little - LMFAOZOMGIGGLEZ

[Morrigoon]

Because Bernanke just had a "Come to Jesus" meeting (behind closed doors, meaning the economy would suffer from hearing what he had to say) with Congress (and presumably POTUS) about the state of the economy and told them they have to take action immediately to avoid complete collapse.

[Tom]

Among the least-surprising news articles of recent times:

Students are turning away from careers in banking (http://www.politico.com/news/stories/0908/13785.html)

[innerSpaceman]

God I hate Congress. HATE.

I think I'll watch Mars Attacks! tonight just to see that scene where the Martians destroy Congress and Silvia Sydney cackles in glee.

[bewitched]

Geez, having not read (in detail) the conservative Republicans' proposal...I think I might actually agree with them. :eek:









Will someone please hold my hand? I'm scared.

[innerSpaceman]

The deal announced early today Falls Apart This Evening (http://www.msnbc.msn.com/id/26884523/?GT1=43001).


Good.


Unfortunately, it won't completely fall apart. For once, I applaud conservatives in Congress, those who are balking at government interference in private business.


I'm sorry for all the people who were suckered into mortgages they could not afford to pay, and for people who invested with institutions that liked to gamble dangerously with their money. Sorry, but why should I pay to bail the likes of you out? I didn't buy a house I couldn't afford. I didn't have my money invested with charletans. Dems da breaks.


As for the cascading chain reaction of doom ... well, if that's what's to come, then why try putting our fingers in the breaking dam? I hope the so-called deal goes nowhere and we let the chips fall where they may.


It's easy for me to say, because I'm not a gambling man. This is why.


If there were no way of losing, I would have played along all this time.

[Cadaverous Pallor]

Yay! For the first time in a long time, I applaud the Republicans. :)

And just to show how un-partisan I can be, let me say it's really distressing that the Democratic controlled Congress can get that close to passing it. Yeech.

[€uroMeinke]

Part of me is curious to see what it would be like to have the economy completely collapse

[Kevy Baby]

How many people here bank at Washington Mutual?


JPMorgan Chase buys Washington Mutual
The nation's largest thrift is seized by federal regulators and immediately sold.

Washington Mutual Bank, the country's largest savings and loan, was seized late today by federal regulators and immediately sold to JPMorgan Chase & Co., the New York banking giant that has long coveted the thrift's California and Florida branches.

With assets of $307 billion and deposits of $188 billion, Washington Mutual is the largest bank to fail in U.S. history.

<snip>

As news of the bank's deteriorating condition spread, nervous Washington Mutual depositors withdrew $16.5 billion of their money in the last 10 days, prompting the seizure by regulators.
Story (http://www.latimes.com/business/la-fi-wamu26-2008sep26,1,7648045.story)

[€uroMeinke]

Hmmmm

[Alex]

I know one person who works there.

[katiesue]

Am I incorrect in understanding that the bailout or whatever you want to call it is just at the financial institution level. It does nothing to help mortage holders directly?

[BarTopDancer]

I'm glad I'm not bailing out people who couldn't afford to buy the house they bought. I do hope that penalties are issued for predatory lending practices but the people who signed the loans they could barely afford should have known better.

[BarTopDancer]

Am I incorrect in understanding that the bailout or whatever you want to call it is just at the financial institution level. It does nothing to help mortage holders directly?

From what I understand, there may be a mortgage payment reduction plan of sorts introduced. I'm not clear if it literally shrinks the total mortgage or extends the payment terms which would shrink the payments and they end up paying more in the long run.

[Alex]

The fundamental cause of the current problems are not people buying mortgages they can't afford. The problem was systemic and grew out of many factors.

The subprime mortgage issue was just the fuse.

And I understand (and pretty much agree with) the idea that those who gamble should be punished. But it is also a fact that if that punishment is great enough great harm will be done to people who didn't gamble or had no way of knowing that they were gambling.

Much has been made about privatizing the profits and socializing the losses, but it is also true that this is how our system has operated for more than 100 years and in European economies for a lot longer. And I'm not really opposed to that idea when the losses reach a sufficiently broad level. I just don't think that the Paulson plan was the best way to do it and that they're creating a rush to solution that isn't necessarily needed.

But they are also in a screwed if they do and screwed if they don't situation. No matter which way we go, with a bailout or not, the next few years will be tough for a lot of people and so no matter what public opinion will be that the untaken road would have been better.

[Andrew]

I know one person who works there.

I hope the person who works there either is not affected or at least bounces back quickly.

[Alex]

I'm definitely affected. JPMorgan has a large U.S. retail banking operation based on the East Coast. My job is now redundant and opportunities in my field will almost certainly be based in New York.

At this point I expect at least 6-12 months of stable employment if I want it since bank mergers are slow, but I won't know for sure for a bit. I'm definitely in full job hunt mode now (I've been keeping an eye on things for a while). Time to see if the cinders have cooled on those bridges I burned at Wells.

[Ghoulish Delight]

And I understand (and pretty much agree with) the idea that those who gamble should be punished. But it is also a fact that if that punishment is great enough great harm will be done to people who didn't gamble or had no way of knowing that they were gambling.
Agreed. Some action is definitely warranted, but the aim should be to prevent the above, stem the collateral damage to responsible bystanders. They'll be some bleed over, and I'm cool if it's tilted in favor of a few undeserving gamblers.

It's just a little more comforting that they seem to be resisting the political b.s. pressure to get it done NOW NOW NOW at the expense of getting it done intelligently. "Throw billions at it and we don't have to worry about the details."

[€uroMeinke]

I just want to have the opportunity to help the crisis out by buying back my mortgage for pennies on the dollar

[BarTopDancer]

I'm just hoping the market goes low enough I can afford to buy a house.

[Ghoulish Delight]

I just hope the dollar holds through the weekend so I can still afford the bottle of scotch whiskey my friend is going to courier to me from Scotland.

[Bornieo: Fully Loaded]

Wow - it's like the "Sh!t hitting the fan" heard around the world.

[Tenigma]

I'm just hoping the market goes low enough I can afford to buy a house.

One issue people are running into now is that it's apparently much more difficult to get a mortgage loan.

[Morrigoon]

I just want to have the opportunity to help the crisis out by buying back my mortgage for pennies on the dollar

Wouldn't THAT be nice!

[Ghoulish Delight]

One issue people are running into now is that it's apparently much more difficult to get a mortgage loan.Or the other way to look at it - you actually have to be able to afford a loan to get it.

[Morrigoon]

I'm just hoping the market goes low enough I can afford to buy a house.
Where are you looking? Properties in my neighborhood have taken a major hit in value, but I don't know if Lake Forest is too far south for you. Consider buying between Thanksgiving and New Years for the best prices and negotiating ability.

[Alex]

Or the other way to look at it - you actually have to be able to afford a loan to get it.

No, that isn't necessarily the other way to look at it. If the credit markets seize up sufficiently then it could easily get to the point that regardless of whether you can afford the mortgage there won't be anybody looking to lend. Or rather, the house will get cheaper but the debt servicing will get more expensive.

I don't know how far we'll go down that path and a lot depends on the nature and success of whatever bailout plan is eventually passed, but ultimately that is what they are seeking to avoid. Not so much individual corporate failures. That is the collateral damage.

[Ghoulish Delight]

No, that isn't necessarily the other way to look at it. If the credit markets seize up sufficiently then it could easily get to the point that regardless of whether you can afford the mortgage there won't be anybody looking to lend. Or rather, the house will get cheaper but the debt servicing will get more expensive.

I don't know how far we'll go down that path and a lot depends on the nature and success of whatever bailout plan is eventually passed, but ultimately that is what they are seeking to avoid. Not so much individual corporate failures. That is the collateral damage.Again, I agree that that needs to be avoided. But Morigoon is talking about people having a harder time now, which to me simply means they've stopped writing the blatantly bad loans for people who can't afford them.

[innerSpaceman]

I just hope the dollar holds through the weekend so I can still afford the bottle of scotch whiskey my friend is going to courier to me from Scotland.

I hope it holds through the new year, so I can afford a pastrami sandwich in 2009.

[Alex]

Again, I agree that that needs to be avoided. But Morigoon is talking about people having a harder time now, which to me simply means they've stopped writing the blatantly bad loans for people who can't afford them.

Yes, a lot of the questionable underwriting is flushing out of the system, but it is also true that solid borrowers are already finding it difficult (which generally just means more expensive) to get access to credit, in all kinds of areas not directly related to mortgages.

[Gemini Cricket]

Well, if we've learned anything from the movie Hope and Glory, bad times can be fun!
:D

[BarTopDancer]

One issue people are running into now is that it's apparently much more difficult to get a mortgage loan.

Yup. A minimum of 20% down and stellar credit to start with. It's even harder in SoCal since our market went so high.

Where are you looking? Properties in my neighborhood have taken a major hit in value, but I don't know if Lake Forest is too far south for you. Consider buying between Thanksgiving and New Years for the best prices and negotiating ability.

It's not done falling yet. I will be moving back to HB or FV but I won't be considering anything until next year winter which is when our company thinks it will be at the bottom, or close to. I work in the industry and have my friends and co-workers keeping an eye on the values of what I am looking for.

[Morrigoon]

Yeah, winter is good. And 20% does seem to be the minimum these days.

[mousepod]

Yeah, winter is good. And 20% does seem to be the minimum these days.

Not so. 20% only if you don't want to pay PMI. I happen to know someone with excellent credit who's able to borrow a reasonable amount of money for a home with 10% down.

[cirquelover]

So my bank fell last night or this morning. I went to website this morning and it already says Chase, dam their fast!!

[Morrigoon]

Mousepod:
That's good to hear. But what I'm hearing from consumers is that it's still very difficult to get the banks to loosen their purse strings.

[Alex]

Weird, for some reason I haven't figure out yet, all of my meetings today are getting canceled.

[Ghoulish Delight]

Weird, for some reason I haven't figure out yet, all of my meetings today are getting canceled.
See, there IS a upside to your company collapsing.

[Kevy Baby]

Wow - it's like the "Sh!t hitting the fan" heard around the world.The defecation is definitely hitting the rotary oscillator!

Mousepod:
That's good to hear. But what I'm hearing from consumers is that it's still very difficult to get the banks to loosen their purse strings.It sounds like it is just returning to the banks requiring what the used to (rightfully) require. The reason there is so much trouble is because they were too loose.

[BarTopDancer]

Or the other way to look at it - you actually have to be able to afford a loan to get it.

It sounds like it is just returning to the banks requiring what the used to (rightfully) require. The reason there is so much trouble is because they were too loose.

Completely agree.

No more stated income or "sure, we can afford the $2500 a month mortgage but we can't afford anything else and live on credit" mortgages.

The rental market has been tightening up as well, credit and income requirements wise.

[Andrew]

Weird, for some reason I haven't figure out yet, all of my meetings today are getting canceled.

See, there IS a upside to your company collapsing.

They're just celebrating the weekend a day early. Or going home to watch the debate.

[JWBear]

My mother called me. The conversation went like this:

Mom: "If those Democrats don't agree to pass the bail-out, I'm going to lose all my money!"

JW: "Mom, it's the Republicans in Congress that are holding it up."

Mom: "That's not true. The News (meaning Fox News) said it was the Democrats. If they don't agree to it, the stock market will crash!"

JW: "No mom, it's the Republicans in the House."

Mom: "Are you sure? Why would the Democrats want to pass it? They all want us to be communists."


<<Sigh>> She drank the Cool-Aid decades ago....

[innerSpaceman]

No offense to your mom, but please ask her to forward me the $2,300 it will be costing me to bail her out.

[cirquelover]

Makes me glad my Mom hasn't called me yet. Although I am very surprised she hasn't! I can hardly wait for the " You didn't pull all your money out of the bank?!! You'll lose it all!!" conversation. Sigh, it's awful hard to teach them anything at this age.

[sleepyjeff]

My mother called me. The conversation went like this:

Mom: "If those Democrats don't agree to pass the bail-out, I'm going to lose all my money!"

JW: "Mom, it's the Republicans in Congress that are holding it up."

Mom: "That's not true. The News (meaning Fox News) said it was the Democrats. If they don't agree to it, the stock market will crash!"

JW: "No mom, it's the Republicans in the House."

Mom: "Are you sure? Why would the Democrats want to pass it? They all want us to be communists."


<<Sigh>> She drank the Cool-Aid decades ago....


If the Dems want to pass it they can pass it.....they have a majority, no Senate Republican would dare to fillibuster and the President is eager to sign.

What's stopping them?

[Ghoulish Delight]

The fact that it's a terrible solution?

[innerSpaceman]

Where are you getting there's a filibuster-proof majority in either the House or Senate? Um, there isn't, or lots would have been done instead of 2 completely squandered years of NOTHING.

[Alex]

There's no filibuster in the House and there isn't much risk of a filibuster in the Senate.

The reason the Democrats won't pass it completely on their own is that no matter what solution is done (and regardless of whether ultimately the right or wrong thing) it will be generally unpopular in the short term. If they do it all alone it will become a campaign issue.

So, they need the cover of bipartisanship so that it doesn't become a weapon in the last month of the 435 congressional campaigns going on right now. And that is also why, unless there is extremely broad bipartisan support McCain and Obama will both probably find a way to not vote on it.

[DreadPirateRoberts]

Upcoming artwork from Mad Magazine:

http://craphound.com/images/MADGreedSpiritsmall.jpg

[sleepyjeff]

Where are you getting there's a filibuster-proof majority in either the House or Senate? Um, there isn't, or lots would have been done instead of 2 completely squandered years of NOTHING.

No one is threatening filibuster. The Dems can do this if they want; but like Alex stated, they are afraid.

You can blame it on the Republicans, but asking them to go along with this is, to many of them, asking them to completely throw away their basic principles.

[innerSpaceman]

First of all, I'm APPLAUDING the Republicans for the first time in decades for objecting to this socialist move on principal, or what appears to be on principal.

[Andrew]

First of all, I'm APPLAUDING the Republicans for the first time in decades for objecting to this socialist move on principal, or what appears to be on principal.
iSm made a funny (http://www.google.com/search?q=define:%20principal).

[JWBear]

Oh, those wacky homonyms!

[innerSpaceman]

Those are the two I mess up ALL THE TIME (and I have to use the right one at work, no less). That and it's. I'm always going back and taking out the apostrophe. (There's one in I'm, right?)

[BarTopDancer]

Makes me glad my Mom hasn't called me yet. Although I am very surprised she hasn't! I can hardly wait for the " You didn't pull all your money out of the bank?!! You'll lose it all!!" conversation. Sigh, it's awful hard to teach them anything at this age.

And my dad is calling to reassure me that their accounts, especially the ones at Washington Mutual are fine and I don't have anything to worry about with my CU.

[BarTopDancer]

In other news, I went into my CU today and on the way out asked how their lending practices for mortgages have changed - the woman said they have remained the same, since they never took on sub-prime lending. She handed me a document that looks identical to one I received 2 years ago (except the interest rates are different).

Only difference I'm seeing between the CU and other lenders is that you need 5% down for a single family home and 10% down for a condo (and PMI - I think).

[Stan4dSteph]

Some of the change is what credit scores are considered sub-prime. There has apparently been a shift to requiring a higher credit score.

[innerSpaceman]

I have a GREAT credit score. What I don't have is a down payment.


Strike that. If I sold my condo, that is completely paid off, I'd have a perfect down payment on a house in West L.A. -- that I'd be paying off for the next 30 years. Oh, except I'm retiring in 20.

[BarTopDancer]

Some of the change is what credit scores are considered sub-prime. There has apparently been a shift to requiring a higher credit score.

Agreed. Based upon the documentation, mine hasn't changed, but they never went to anything unconventional when other financial institutions did.

[Kevy Baby]

That and it's. I'm always going back and taking out the apostrophe. (There's one in I'm, right?)Thanks to someone here on LoT (I can't recall who, but I wish I could to thank them again), I use this handy tip:

Always think of "it's" as the contraction of "it is". If "it is" doesn't fit in your usage, it should be "its" (no apostrophe).

Strike that. If I sold my condo, that is completely paid off, I'd have a perfect down payment on a house in West L.A. -- that I'd be paying off for the next 30 years. Oh, except I'm retiring in 20.What about a 15 year mortgage? You significantly reduced your cost of money (vs a 30-year loan). Unless you buy a mansion that costs four times what you get for your condo, your monthlies should be relatively painless.

[Ghoulish Delight]

your monthlies should be relatively painless.
And if they aren't painless, there's always naproxen.

[bewitched]

Those are the two I mess up ALL THE TIME (and I have to use the right one at work, no less). That and it's. I'm always going back and taking out the apostrophe. (There's one in I'm, right?)

Your school principal is your "pal". ;)

(of course, that doesn't help you with the non-person definitions)

[innerSpaceman]

Thanks, Kev. I know the rules on it's (I just make the mistake anyway). I've read the rules on Principle/principal a zillion times and cannot get them thru my thick skull.


Also, the price of a modest house in West L.A. is the price of a mansion anywhere else in the world besides Manhattan.

[Kevy Baby]

Thanks, Kev. I know the rules on it's (I just make the mistake anyway). I've read the rules on Principle/principal a zillion times and cannot get them thru my thick skull.For some reason, the quick rule I posted (again: not taking credit for it) has been how I've remembered it. I too knew the rules.

Also, the price of a modest house in West L.A. is the price of a mansion anywhere else in the world besides Manhattan.True, but presumably, your condo in West LA will fetch a fair price. Without significantly switching neighborhoods, I was thinking that the condo would be a minimum of 50-60% down on an upgrade to an SFR.

[Isaac]

Citigroup (Citibank - THE largest bank in the nation) has bought Wachovia.

Off to work I go (to find out the details of our next merger).

[The Lovely Mrs. tod]

I heard that this morning as I was on my way out for my 2 minute commute however, having some SERIOUS issues with Wachovia, I have mixed feelings. I didn't hear, what is Citi paying? Frankly, I think Chase got the deal of the century last week.

[BarTopDancer]

I hate Chase. Love Citi. My student loans were with Wachovia but they were paid off 2 weeks ago. Kinda bummed now, I heard that the bailout was going to provide something for student loans. Oh well, $30k off my debt plate.

[Kevy Baby]

And in other news, I bought a chili dog at the LA County Fair. Although I didn't get it for pennies on the dollar.

[Gemini Cricket]

"Wa-Moo" is a lot more fun to say than JPMorgan Chase.

[wendybeth]

According to MSNBC, the House is rejecting the bailout bill, and the Dow has dropped more than 400. What a fvcking mess.

[wendybeth]

CNN is reporting the Dow is down 600 points. Here we go- wheeee!

[Ghoulish Delight]

Sigh, partisan politics reigns supreme.

Democrats don't want to vote for it without Republican support so that if it fails they can point across the aisle. Republicans know this and are happy to let it stagnate and point at the Dems for not using their majority to pass it.

Though I still think the agreement is too hasty I'm not horribly upset that it's going to go through another round of review.

[Snowflake]

According to MSNBC, the House is rejecting the bailout bill, and the Dow has dropped more than 400. What a fvcking mess.

CNN is reporting 600 points down, but not reporting yet the bailout is scotched.

You are so right WB, an effing mess. Brother, can you spare a dime?

[wendybeth]

I'm not sure the market can take another round of review. This is one instance where there are too many people expressing urgency to not take it them seriously.

[BarTopDancer]

So is now a good time to buy some stock?

[DreadPirateRoberts]

maybe

[wendybeth]

The bill was rejected. Going to be an interesting day.

[BarTopDancer]

Still can't afford Google.

[Gemini Cricket]

Huge banner headline on CNN.com. Yikes.

[Moonliner]

So is now a good time to buy some stock?

You might want to wait a bit....




EDITED TO ADD: Drat, WB beat me to it.

[Disneyphile]

For once, I'm starting to see an advantage to having no savings left and only scraping by. At least now I don't have to worry about losing money I don't have anyway.

[Alex]

Right or wrong, congress needs to act definitively one way or another. Nobody is making serious decisions on the business side unless completely forced to do so because the government is creating too much uncertainty.

[innerSpaceman]

No they don't. They need to do just what they've done. Reject this bullsh!t of $700 billion throwaway of OUR money that won't do a damn thing to solve the financial debacle of banks.


I feel bad for Alex and for zapppop, you are both likely to lose your jobs. Banks are going to drop like flies (there are only a handful left standing at this point anyway, right?). But the bailout would only delay the inevitable.

The deal included no protection against windfall golden parachutes and outrageous CEO compensation for the dickwads who caused this disaster, and no relief for homeowners who can't pay their mortages. The only "concession" the democrats (supposedly in charge of Congress) got was oversight for the money (i.e, half now and half to be approved later by Congress).


Voters are not buying the Sky Is Falling Scenarios in the press, and they are letting their representatives know it. A Republican Congressman from Texas wisely pointed out the bailout proposal is, "like the Patriot Act and the Iraq War, borne of fear and haste." Bravo for him.



Perhaps voters will feel differently soon, perhaps not. Right now, the crisis is only in the news. No one's feeling it in their lives. During the Great Depression, no one had to read it in the paper to know there was a great depression. Until people start seeing this as a calamity affecting them, I can't blame them for thinking this is just a bailout of reckless Wall Street Tycoons, and likely a feckless way to prop up global markets that simply can't be propped up at this point.

[Alex]

I didn't say they should pass the bailout. I said that whatever they are going to do they need to make it a certainty, whether this is passing a bail out or not.

As things now stand nobody people who need to be making important decisions at various companies (and not just financial companies) are hamstringed because they have no idea what the marketplace will look like in two days. "We have a deal, no we don't, we'll keep talking for a week, we have another deal, oops now we don't, we'll try again but we'll definitely get a deal that will look roughly like this or something completely different."

Uncertainty is the great cause of the short term problems and by dithering the government is just making it worse. I'm fine if they end the dithering by saying absolutely that the sector is on its own.

[innerSpaceman]

Ok, so howzabout they say, We're not lifting a finger? I guess that's impossible. So the markets will have to roll.


I'm with DP ... this is the first time I've ever been glad to have no savings and no investments, and no real estate that I'm interested in selling.

[Alex]

That would be better than the present of "we're going to do something immediately" and then not. That is just creating more of what they are trying to reduce.

And no, it doesn't need to be permanent final answer. If they aren't going to get anything done until after the election, just say that so everybody knows what game they're playing.

[The Lovely Mrs. tod]

No they don't. They need to do just what they've done. Reject this bullsh!t of $700 billion throwaway of OUR money that won't do a damn thing to solve the financial debacle of banks.

... Perhaps voters will feel differently soon, perhaps not. Right now, the crisis is only in the news. No one's feeling it in their lives. During the Great Depression, no one had to read it in the paper to know there was a great depression. Until people start seeing this as a calamity affecting them, I can't blame them for thinking this is just a bailout of reckless Wall Street Tycoons, and likely a feckless way to prop up global markets that simply can't be propped up at this point.

While I'm not sure as to whether or not the bailout would help much, I disagree with the contention that voters aren't feeling the crisis in their lives. Three banks in as many months, every customer wondering what's going to happen to their assets, every employee wondering what's going to happen to their job. Approximately one million foreclosures in California alone are predicted for 2008...that's a LOT of people who are feeling this crisis in their lives. Face it...the nation's nervous. And not without reason.

[JWBear]

Can't the Feds suspend trading untill we get past the immediate crisis (and start working on the long term crises).

[Isaac]

I feel bad for Alex and for zapppop, you are both likely to lose your jobs.
Don't cry for me Argentina. I still have a job.

The merger was brought to my attention last Friday by my co-worker, Sean. Citi met w/ Wachovia to begin negotiations of a potential merger. Over the weekend things moved quickly and an agreement was made early this morning. Wachovia (unlike Washington Mutual / 'Wa-Mu') didn't fail but was encouraged by the FDIC to merge w/ Citi. The merger will be a $42 billion loss for Citi. Wachovia suffered a loss of $15 billion earlier this year but that was mainly due to the bad home loans that were acquired when Wachovia bought out Golden West. The merger won't be finalized til the end of the year. Some of the bank employees might get laid off.

So what does this mean for me ? Not much (at least for now). Though Wachovia Bank is having it's bank woes (like all banks right now), my company, Wachovia Dealer Services, is continuing to generate more & more revenue. Each quarter we set a new record high. Though we're only a small part of the Wachovia Corp. we're very successful. Citi has an auto finance division but it's much smaller than ours. There doesn't seem to be much cause for alarm where I'm at. So for at least the next 3 months it looks like it'll be business as usual.

[innerSpaceman]

Perhaps bank employees and stockbrokers are feeling it. I'm sure tons of investors are not happy. But that's not the same as widespread unemployment and starvation. Everyone's deposits are insured up to $100K per institution, and I'm sure those with more than that in the bank had the wisdom to spread it out over many banks (though, heheh, I don't know what happens when those 3 banks are now one bank due to buy-outs and forced mergers).


Meanwhile, investors have lost money ... ON PAPER, in abstract. And aside from stock brokers, there haven't even been job losses among bankers ... yet.


I'm not saying a major slowdown of the economy due to credit tightness won't lead to wider job losses ... just that the public at large is noticing NADA in their everyday lives right now ... while the government is claiming they need $2,300 right now from every single American or the Sky Will Fall.




ETA: zapppop, I am much relieved. I know you work for Dealer Services, but wasn't sure if your job would be duplicated by a similar CitiBank service. Whew.

Meanwhile, I was finally getting used to seeing WACHOVIA everywhere, and now it will be going away? I used to tease zapppop about the unwieldy name ... but even though the bank's new to L.A., it's been around for centuries. So this is rather sad. Wachovia is, apparently, not a Polish word ... but an American Indian word ... and the bank is finally going the way of the American Indians.

[Alex]

They could halt trading but that would be a disaster beyond words. Nothing makes people want to remove money from a marketplace faster than being told that they may not be able to get it out when they want it.

That's what brought down WaMu. WaMu's problems were significant but they were not immediate in nature. Until people began getting worried and withdrew $16 billion from deposit accounts in a week. Then once WaMu was out of the way the press could focus on Wachovia and the fear moved to them.

The same would happen if the markets were closed. As soon as they re-opened there'd be a huge rush to withdraw money from them in case they get closed again. It is one thing to temporarily close them in response to an external crisis such as 9/11 where a cool off can work. People don't know what the implications are and react out of blind panic that can cool down with a day or two consideration (plus, the infrastructure literally had to be checked).

But if the markets are closed simply to prevent people from responding to events in the marketplace then you'd see a global sell off. It would become a self-fulfilling prophecy of humongous proportions.

[wendybeth]

The more immediate impact on the public is already happening: no money to lend = no home sales or opportunities to purchase bargains, unless you have a substantial amount of cash reserve and/or someone willing to go private contract. Home equity has plummeted, especially in the markets that were most inflated; here in Spokane home values did not rise as rapidly or as high as elsewhere, so we are still sitting pretty good in that area. Our home is still worth what it was last year, and we haven't tapped into the equity very much so we have some wiggle room. We also locked into a 5.5% rate two or so years ago, so we're off that ARM that could have cost us a fortune. We don't have a lot of stock, but we also don't have a lot of debt- I'm with everyone else that lives paycheck to paycheck. In the long run we won't feel the hurt as bad as some. (I hope).

[innerSpaceman]

But how many people are tapping into their home equity right now? How many people are applying for unusual loans?


Until they start calling in peoples' credit card debt, I don't see how most Americans will care? They won't be doing that, btw ... because just as with the Savings & Loan crisis, credit card debt - with jacked up interest rates, fees, and penalties - is how banks are going to eventually get out of this mess. Consumers are going to pay for it one way or another.


Yes, businesses unable to get credit might mean layoffs. Wake me when that becomes widespread.

[wendybeth]

Anyone who tapped into their equity over the past few years- with the thought that their homes were actually worth what the previous market stated- are gonna be in a world of hurt right now. You're in upside-down on your house, which is the average American's main asset. You now owe more than your house is worth, and God help you if you're on an ARM, or have a balloon payment coming up. (There will be no borrowing on the equity to meet that payment). California is probably going to be hit especially hard- this is where Morri can step in and offer her expertise, as I am not as familiar with that market. Construction is way down, which means a lot of people are going to be out of work, etc. It's a domino effect- sooner or later it will hit pretty much everyone in the pocketbook.

[Alex]

Credit card companies are already starting to reduce limits and re-evaluate credit and risk profiles.

But yes, the vast majority of people will oppose government bailouts up until the moment they are personally and directly benefiting from said bailout (be it through direct assistance with their mortgage or saving their employer from Chapter 11).

[Gemini Cricket]

My hope is that during the whole Wamu/JPMorgan switchover, my file will get lost and the balance on my Wamu credit card will disappear.

One can hope, can't she?

[wendybeth]

GC- It could happen! WaMu lost three deposits I made in less than two months- they kept giving the money to other people. They tend to hire really young, inexperienced (can you say 'cheaper'?) help, so I learned to be vigilant when dealing with them. I finally gave up and went Credit Union about six years ago.:rolleyes:

[BarTopDancer]

Credit card companies are already starting to reduce limits and re-evaluate credit and risk profiles.

AMEX lowered the limit on a card that I had $0 balance on and hadn't touched in 3 years. Can't say I blame them, but I went ahead and closed the account.

[Gemini Cricket]

I am a member of 2 Credit Unions back home in Hawai'i. I think I'll dust one of those off and open a checking.

[Alex]

Something just occurred to me. This forum is members only, right?

Just wanted to confirm since otherwise I need to do a better job of filtering myself.

[BarTopDancer]

Alex,

I think only Parking LoT is members only.

Yup. I just logged out and can still see this forum.

[Ghoulish Delight]

No, this forum is readable by non-registered/not-logged in users.


(ETA: That's "no" to Alex's post, not "no" to BTD's post, who is correct)

[Morrigoon]

How many foreclosures could be averted if the government, instead of bailing out the banks, just told them to suck it up and retroactively re-set the last 5 years' or so worth of ARMs to their original interest rate (or that date's comparable fixed interest rate)? That would help keep homeowners with loans that have accelerated out of control (and nobody's asking the Fed about how fast they raised interest rates? Why?) from going into foreclosure, as long as they were able to make their original payment schedules.

Wouldn't that be a better answer than the government purchasing the loans and getting into a business it so clearly doesn't understand?

[Gemini Cricket]

Stocks skidded Monday afternoon, with the Dow's nearly 778-point drop being the worst single-day point loss ever, after the House rejected the government's $700 billion bank bailout plan.$ource (http://money.cnn.com/2008/09/29/markets/markets_newyork/index.htm?cnn=yes) (Bolding is mine.)
Wow. This is intense.

[Kevy Baby]

Records were made to be broken. ;)


I wouldn't panic. This is just crap on paper and will balance itself out.

[Moonliner]

$ource (http://money.cnn.com/2008/09/29/markets/markets_newyork/index.htm?cnn=yes) (Bolding is mine.)
Wow. This is intense.

Just for reference sake, percentage wise today's drop is not even in the top 5.

[Ghoulish Delight]

I wouldn't panic. This is just crap on paper and will balance itself out.B.S. The numbers may be on paper, but somewhere down the line people's lives are affected. And just because the numbers eventually come back doesn't mean people aren't left in the dust when they do. It's not about balance sheets, it's about people who are very likely to get screwed by the dumb risks that other people have taken.

I am not in support of a blank-check bailout plan that props up the people who made the mistakes (and that includes the consumers who willingly took loans they couldn't afford). But that doesn't mean I don't believe that something needs to be done, relatively quickly, to prevent their mistakes from adversely affecting those who did NOT take part in the reckless risk taking.

[innerSpaceman]

it's all self-fullfilling disaster. The only reason something now needs to be done to calm the markets is because Paulson told the world that Congress would do something this week to calm the markets. Now that they might not, the markets are in a panic they wouldn't otherwise have been.


Similarly, I can't blame anyone for balking when the Treasury and the Fed are asking for 3/4 of a trillion dollars to control, claiming they are the only guys smart enough to fix the problem they weren't smart enough to contribute mightily to in the first place.


It's all topsy-turvy, LewisCarollian illogical craziness. Burn, baby, burn.



Very callous of me, but things will play out whether we throw money at it or not ... might as well not, imo.

[Moonliner]

I wouldn't panic. This is just crap on paper and will balance itself out.

B.S. The numbers may be on paper, but somewhere down the line people's lives are affected. And just because the numbers eventually come back doesn't mean people aren't left in the dust when they do. It's not about balance sheets, it's about people who are very likely to get screwed by the dumb risks that other people have taken.

I am not in support of a blank-check bailout plan that props up the people who made the mistakes (and that includes the consumers who willingly took loans they couldn't afford). But that doesn't mean I don't believe that something needs to be done, relatively quickly, to prevent their mistakes from adversely affecting those who did NOT take part in the reckless risk taking.

I took Kevy's comments to be about today's stock market dip rather than the crisis as a whole. People who own stocks don't need to panic due to today's drop, they just need to ride it out. Sure on paper some of my investments are worth about 6% less this afternoon than this morning. Meh. I'll just wait for tomorrow, or the next day, or the next month or the next year..

[3894]

I'll just wait for tomorrow, or the next day, or the next month or the next year..

Which is fine ... if you can wait. What about the retirees and the college students and all the others who, for one reason of another, truly need the money to be there?

No guarantees in life, not for retirement or college or any of it. This is the way the Reagan era dies, not with a whimper but a bang.

[Morrigoon]

It's all topsy-turvy, LewisCarollian illogical craziness. Burn, baby, burn.



Very callous of me, but things will play out whether we throw money at it or not ... might as well not, imo.

Noted. So any LoTers who lose their homes/jobs to this crisis can come stay at your place, right?

[Moonliner]

Which is fine ... if you can wait. What about the retirees and the college students and all the others who, for one reason of another, truly need the money to be there?

No guarantees in life, not for retirement or college or any of it. This is the way the Reagan era dies, not with a whimper but a bang.

Then they were idiots for having it in the stock markets. That is not a place to keep money you need anytime soon.

[3894]

Then they were idiots for having it in the stock markets. That is not a place to keep money you need anytime soon.

For retirees, a lot of them had no choice. Their pension funds are automatically in stocks.

[innerSpaceman]

So any LoTers who lose their homes/jobs to this crisis can come stay at your place, right?
Oh, all those people have my sympathies. But that's about it.


That's not about to make me trust the wolves to suddenly guard the henhouse better. Congress? The Federal Reserve? The Treasury Department? The Administration? Oh, and add-in the Wall Street firms who would manage the re-packaging of the deabbeat mortgage debts for purchase by the government.


Nope sorry. Not gonna trust a one of 'em to get us out of the mess they got us into. And I don't think their puny offer of $2300 from each and every American is going to solve the problem anyway.

[CoasterMatt]

Why doesn't the government call one of those 800 numbers that advertises about every 10 minutes, how they can help people work out their debts?

[Gemini Cricket]

If there ever was a time for the LoT Commune. It's now.
:D

[Not Afraid]

It's time to turn off the radio when they interrupt The World for a statement from John McCain that announced that nothing has changed and it's Obama's fault.

[The Lovely Mrs. tod]

Why don't they call ME? I've got an idea of what they need to do and it won't cost 700 gazillion dollars, either.

[Morrigoon]

Okay, so the 700-point drop is affecting me right now at this very moment. It's scaring my company's potential customers off pursuing real estate right now, and therefore they don't need what I'm selling (access to foreclosure database). So my performance and commissions are being directly affected.

There, proof that this does affect people directly, even if only because of the effect the emotions have on everything else that happens.

Of course, sales suck in a bad market anyway... just worse when what you're selling relates to one or more of the markets in trouble.

[Chernabog]

If there ever was a time for the LoT Commune. It's now.
:D

Shhhh we still haven't figured out what do do with all those kids that are going to be born in the commune. My vote is still for "make them craft handsome bedroom sets for poor stylistically-challenged persons" but Not Afraid just wants them to clean the catbox twice a week. Jeeeeeez.

[LSPoorEeyorick]

It's affecting me, but I don't feel up to looking at our retirement fund to find out how much. It'll get better someday but... bummer.

[BarTopDancer]

I'm not even looking at my 401k. So far my job is safe, they just announced merit raises (max cap 3% and no one gets that). But I'm still worried, money is still super tight and just getting tighter. At least gas is down about $1 from 6 months ago, which is about $50 a month in savings (with how often I fill up).

[Not Afraid]

Twice a week? Try twice a day, babe!


I was just reading an article on "Depression-style". I'm always interested in how some of the fundamentals of American culture are effected by such things as war or the Great Depression. I wonder what sort of trends we will see this time?


My job hasn't been effected at all - as a matter of fact, I'm busier now that I ever have been. Weird.

[Snowflake]

but Not Afraid just wants them to clean the catbox twice a week. Jeeeeeez.

Twice a week for a gazillion cats, not enough! :eek:
unless Thurston is eating cat poop these days!

[Not Afraid]

Thurston still LOVES cat poop (as do most dogs) but he can't get to the cat boxes. Poor deprived dog.

[Chernabog]

Wow ok this thread took a sharp turn for the eeewwwwww. :p

[Not Afraid]

I'd MUCH rather talk about dogs and cats than the fact that it's raining cats and dogs.

[BarTopDancer]

Does whatever bailout they are proposing have any help for people who didn't fvck up and take on more debt then they could afford?

Or are us people who didn't get in over their heads expected to hold on for the dive.

[Morrigoon]

Thurston still LOVES cat poop (as do most dogs) but he can't get to the cat boxes. Poor deprived dog.
I supposed I should stop complaining about my dogs' obsession with used Kleenex...

[Kevy Baby]

I took Kevy's comments to be about today's stock market dip rather than the crisis as a whole.Yep.

Okay, so the 700-point drop is affecting me right now at this very moment. It's scaring my company's potential customers off pursuing real estate right now, and therefore they don't need what I'm selling (access to foreclosure database). So my performance and commissions are being directly affected.What will happen tomorrow when the market goes up (as I predict it will)?

But I still don't think it is a good time to invest in real estate as values will only be going down from this point. That is, assuming one is a cash investor. While real estate pricing will go down from here, the cost of money will go up, so the net cost to purchase will remain about the same.

[Disneyphile]

From being very strapped lately, I will say this:

Because we've been forced to eat at home and cook (since raw foods can be cheaper than pre-packaged crap if a little effort is made), we've been healthier and enjoying a lot of neat dinners lately. I've even slowly been losing weight without trying at all. So, not being able to eat out or run over to a drive-thru has been a blessing really.

I think that people feel the burn more when they don't get creative with what they already have. I've even been rediscovering all kinds of old hobbies lately and having a blast with them. It's a way to "ride the tide" until things get better. Why be miserable when I don't have to be? There might not be money to buy new things, but we have plenty of crap already that can be enjoyed.

For example, I really wish we could afford a Wii, but it's not in the cards right now. However, I have my old NES system out in the garage that hasn't been touched in over a decade. It will be like setting up a whole new system and playing the games for the first time. I'm quite looking forward to it. :)

[Snowflake]

From being very strapped lately, I will say this:
There might not be money to buy new things, but we have plenty of crap already that can be enjoyed.

For example, I really wish we could afford a Wii, but it's not in the cards right now. However, I have my old NES system out in the garage that hasn't been touched in over a decade. It will be like setting up a whole new system and playing the games for the first time. I'm quite looking forward to it. :)

No kidding, having no mad money at all is forcing me to write (AUGH) and watch some DVDs that have been gathering dust that I bought about 4 years ago!

[wendybeth]

iSm- do you own, or rent? If you rent, the market is probably going to get tighter and as a result spendier. If you own, you're going to see your property's value take a nosedive- and I really believe that you all have a long way to fall before you hit bottom in SoCal. Investment groups own/operate many rental properties up here, so I'm guessing that's the same dynamic down there as well. Those groups are probably going to falter, and who will pick up the pieces? I don't pretend to understand the intricacies of real estate, but I do know that it is largely an investment and to invest takes capital.

[Moonliner]

Okay, so the 700-point drop is affecting me right now at this very moment. It's scaring my company's potential customers off pursuing real estate right now, and therefore they don't need what I'm selling (access to foreclosure database). So my performance and commissions are being directly affected.

There, proof that this does affect people directly, even if only because of the effect the emotions have on everything else that happens.

Of course, sales suck in a bad market anyway... just worse when what you're selling relates to one or more of the markets in trouble.

In the last three hours? I doubt that. The crisis as a whole is causing that effect not a one day drop in the market. The drop is a symptom not the disease.

[The Lovely Mrs. tod]

Does whatever bailout they are proposing have any help for people who didn't fvck up and take on more debt then they could afford?

Or are us people who didn't get in over their heads expected to hold on for the dive.

A lot of people who went in "over their heads" didn't know they were doing it...there was a LOT of predatory lending and "pick your own payment" action going on out there.

The majority of foreclosures didn't have to take place. Most homeowners WANTED to pay their mortgage. But they were stuck in ARM's and neg am's and the banks, rather then working with them simply made land grabs. Wachovia sold homes without notifying their customers they were going to do it. Those houses are sitting empty now, and some guy is making a fortune painting dead grass green so they don't hurt neighborhoods plummeting property values any more than they already have been.

It would, most likely, take some sort of government intervention to accomplish it, but not to the tune of how many bazillion dollars? Take that empty house, put the owner back in it and give him a payment plan he can make for 12 - 18 months. THEN go back and see if the loan CAN be made workable. Call the terrified owner up and say, "okay, we don't want your house, we want your business. Let's see what we can do to save this."

And yep, I know there's WAY more to deal with than just that. But it's a jumping off point.

[Ghoulish Delight]

In the last three hours? I doubt that. The crisis as a whole is causing that effect not a one day drop in the market. The drop is a symptom not the disease.I was bitten by a mosquito couple weeks ago. I've started to develop a headache, and now nausea. Oh, and just today, my fever spiked to 103!

But hey, fevers break, it's just a symptom, so I shouldn't really worry.

[Moonliner]

I was bitten by a mosquito couple weeks ago. I've started to develop a headache, and now nausea. Oh, and just today, my fever spiked to 103!

But hey, fevers break, it's just a symptom, so I shouldn't really worry.

OK, so go with the idea that Goonies entire business has crashed in the last few hours just due to this one day drop in the market. I expect she'll be rolling in it as soon as the market recovers the 700 points. :rolleyes:

[Ghoulish Delight]

OK, so go with the idea that Goonies entire business has crashed in the last few hours just due to this one day drop in the market. I expect she'll be rolling in it as soon as the market recovers the 700 points. :rolleyes:
I was more talking in the context of Kevy's post. I understand that the drop in the stock market has particular instantaneous effect, but that doesn't mean it's "just crap on paper".

[sleepyjeff]

That's not about to make me trust the wolves to suddenly guard the henhouse better. Congress? The Federal Reserve? The Treasury Department? The Administration? Oh, and add-in the Wall Street firms who would manage the re-packaging of the deabbeat mortgage debts for purchase by the government.




Makes sense to me.......who'd hire an arsonist for the Fire Dept?

[BarTopDancer]

A lot of people who went in "over their heads" didn't know they were doing it...there was a LOT of predatory lending and "pick your own payment" action going on out there.

I don't buy the "there was a LOT of predatory lending and pick your own payment option" argument. There is no room for ignorance in a several hundred thousand dollar purchase. The terms were laid out in the paperwork, the people should have read it. Yes, there was some predatory lending - I was targeted. But I knew that I could barely afford it then and would be hosed with the adjustments.

Maybe I should have bought something I could barely afford back then. Then I would have property that I barely can afford that the government is going to help me keep and afford.

I'm not happy about having to pay for those who couldn't bother to read the fine print and got in way over their heads. It's [for the most part] their fault. And if there are lenders who failed to disclose the terms of what the payments could be, then they need to be responsible for this. Not me.

Try again.

Oh, and my rent? Pretty fvcking close to a mortgage payment.

[CoasterMatt]

The whole bailout package as currently put forth, reminds me of the Three Stooges, "Booby Dupes (http://www.youtube.com/watch?v=bcbnIrXDsyE)" - when Curly drills another hole in their leaky boat to "let the water out"

[innerSpaceman]

To answer Wendy, I own my condo. I don't care if property values take a dive, because I'm not looking to sell, nor am I looking to take out a home equity loan.

For that matter, I won't need a car loan for a few years.


This month, between art framing and a fabulous Halloween party, I'm going a lot deeper into credit card debt. But I'm finally out of IRS debt.


I have no savings and I have no investments.


All in all, I'm about the most non-affected person in America. Oh, and my job only gets more secure as the economy worsens and everone starts suing everyone else for the money owed.

[innerSpaceman]

I'm not happy about having to pay for those who couldn't bother to read the fine print and got in way over their heads. It's [for the most part] their fault.

Ditto. I suffer no fools. And BTD is right, there's no excuse for stupidity and ignorance with a multi hundred thousand dollar real estate purchase.

Oh, and my rent? Pretty fvcking close to a mortgage payment.
Oh pulease. My condo association fee is pretty fvcking close to a mortgage payment, and I own the thing. I know I'd likely pay more in maintenance for an SFR (not to mention way higher property taxes), but I hate having a condo that I must shell out mortgage-level payments for on a monthly basis.

[LSPoorEeyorick]

Well, be glad that you don't have any room for ignorance in a several-hundred-thousand-dollar purchase. Lots of people aren't educated enough, or are ignorant enough, not to know better. And they're encouraged to live the American Dream, considered a failure if they don't - and, yes, the predatory lenders pounced on them. Basically - be glad you're smart.

But, no, the non-ignorant people like you and I, who did not purchase more than we could afford, should not have jumped on that bandwagon. It'd be an even bigger mess.

Plus, it's not my understanding that the homeowners are benefiting from any of this, or would particularly be benefiting from a bail-out. With so many homes in foreclosure, the write-off is more about the stupid bank lending/greed than the people who've lost their homes.

[Ghoulish Delight]

Or how about the homeowners that got into loans they CAN afford, and due to the irresponsible actions of OTHER people who couldn't afford their loans and the greedy people who took advantage of them are now seeing their home values drop precipitously and their options for keeping their home loan affordable in the future disappear?

[BarTopDancer]

Oh pulease. My condo association fee is pretty fvcking close to a mortgage payment, and I own the thing. I know I'd likely pay more in maintenance for an SFR (not to mention way higher property taxes), but I hate having a condo that I must shell out mortgage-level payments for on a monthly basis.

I didn't say it was the same. I said it was pretty close. When I was looking at buying I did the math.

Well, be glad that you don't have any room for ignorance in a several-hundred-thousand-dollar purchase. Lots of people aren't educated enough, or are ignorant enough, not to know better.

If they couldn't be bothered to do a little research, read one of the kazillion finance and home buying for dummies style books out there and bother to read the fine print and realize that when their rate adjusted they wouldn't be able to afford what they could barely afford, well I don't have sympathy for them. That they are losing their house? Ya, that fvcking sucks. But it's a huge amount of money and common sense should dictate to research before spending it. I'm not saying that the predatory lenders shouldn't be punished but I resent having to bail out those who bought way more than they could afford and that they knew that going in (if you can barely afford a house at $1500 a month what makes you think you can afford it when it adjusts to $2k a month with principal?)

And they're encouraged to live the American Dream, considered a failure if they don't - and, yes, the predatory lenders pounced on them. Basically - be glad you're smart. .

You think that I don't feel like a failure because I have to rent while those around me are able to own? You don't think I feel like a failure because unless I have a dual income or some sort of miracle I won't be able to buy? You think I'm not encouraged to live the American Dream? I want that "white picket fence" It really sucks having a place that isn't big enough to have people over. It really sucks throwing away money on rent every month. It is a feeling of failure every time I rent that rent check instead of a mortgage payment. What do I have to show for the $20k or so I pay in rent every year. Nothing. FAIL.

[The Lovely Mrs. tod]

I don't buy the "there was a LOT of predatory lending and pick your own payment option" argument. There is no room for ignorance in a several hundred thousand dollar purchase. The terms were laid out in the paperwork, the people should have read it. Yes, there was some predatory lending - I was targeted. But I knew that I could barely afford it then and would be hosed with the adjustments.

Maybe I should have bought something I could barely afford back then. Then I would have property that I barely can afford that the government is going to help me keep and afford.

I'm not happy about having to pay for those who couldn't bother to read the fine print and got in way over their heads. It's [for the most part] their fault. And if there are lenders who failed to disclose the terms of what the payments could be, then they need to be responsible for this. Not me.

Try again.
The smartest of people miss things in 32 page loan agreements. Just becasue YOU got it all doesn't mean everyone did. There's blame to share, and plenty of banks approved loans they knew full well the customer wasn't qualified for. "But gee, you think $4000 a month is out of your league? Well, we have options, let's look at them. How about $2475, would THAT work for you?" If it were all the fault of the borrower no lender would have to write down up to 30% principle on a neg am loan. Why not just say "I'm sorry, you don't qualify for that kind of loan." Lenders were handing over money as fast as the government could print it.

And no, I'm not talking about people who deliberately lied on their "stated income" app. I'm talking about the people who were promised such a rosy future by their banks, how in five years, even through their payments would double there would be SO many options for re-financing. The people who honestly said "my wife and I clear $60K annually" and were gleefully told by their loan officer "excellent! I can approve a loan up to $425K for you".

No one's blameless. But the mortgage industry (in general, not in specific) failed to work with it's customers an attempt to rectify the problem. What good did declining to modify an existing loan do anyone? The homeowner's on the street, the house sits abandoned, the lender may, if they're lucky, get a short sale on the property. A bank working with a customer to avoid the worst case scenarios that are becoming so common would not have affected you or your loan adversely. It's been a fairly common practice to demand "all or nothing" payments from customers. So here's some honest guy, probably in over his head and the lender says "you owe me $2500. And the honest guy says "I have $1965, I can give it to you right now." But the lender, as a rule, says "nope, $2500 or nothing."

And nothing is exactly what everyone winds up with. The lender's carrying bad paper, the house sits empty and abandoned, the neighborhood propery values go down yet again and another family's on the street. Everyone loses.

[innerSpaceman]

Oh, my condo fee wasn't meant to negatively compare to you, BTD. I was just joining the chorus.


And yeah, I want the American Dream as much as everyone else whom it's peddled to. But I didn't go buying a house I could not afford, and even though I'm a single guy, I feel pretty failure sometimes not owning a house long past the time when most people do.


Oh, but I do owe a truckload of credit card debt. Yay American Dream!!!

[LSPoorEeyorick]

Well, that's what I'm saying. I'm saying you're smart. I'm glad you're smart. I'm glad I'm smart. I am sorry that others are not smart. And what they did - live beyond their means - is frustrating. And I'm not celebrating them for it. But I do think there are people out there who don't have the smarts or the resources to know they're being conned (or that they even NEED to read up on the subject.) This does not resolve them from their responsibilities, and I don't exactly feel sympathy for them. Mostly, I feel glad I'm smart.

But the lenders NEVER should have given them loans to begin with. This situation is just as much their responsibility.

[BarTopDancer]

Oh, my condo fee wasn't meant to negatively compare to you, BTD. I was just joining the chorus.

Thanks for clarifying.

Oh, but I do owe a truckload of credit card debt. Yay American
Dream!!!

Me too. I'm working really hard to not accrue more and pay it off. But even if I was debt free I still couldn't buy a house.

Well, that's what I'm saying. I'm saying you're smart. I'm glad you're smart. I'm glad I'm smart. I am sorry that others are not smart. And what they did - live beyond their means - is frustrating. And I'm not celebrating them for it. But I do think there are people out there who don't have the smarts or the resources to know they're being conned (or that they even NEED to read up on the subject.) This does not resolve them from their responsibilities, and I don't exactly feel sympathy for them. Mostly, I feel glad I'm smart.

But the lenders NEVER should have given them loans to begin with. This situation is just as much their responsibility.

Agreed.

[Kevy Baby]

A lot of people who went in "over their heads" didn't know they were doing it...there was a LOT of predatory lending and "pick your own payment" action going on out there.

Well, be glad that you don't have any room for ignorance in a several-hundred-thousand-dollar purchase. Lots of people aren't educated enough, or are ignorant enough, not to know better. And they're encouraged to live the American Dream, considered a failure if they don't - and, yes, the predatory lenders pounced on them. Basically - be glad you're smart.About the only Latin I know is Caveat Emptor. While there were mistakes made on both sides (lenders and buyers), the majority of the blame seems to be falling on the lenders. We always want to go after the big bad evil corporation but I don't think that people (individuals) take the responsibility that they should.

Again, I am not letting the lenders off the hook in a wholesale fashion; just pointing out that a lot of people made some stupid decisions.

[Strangler Lewis]

What other responsibility do prospective home buyers have to take other than pledging their home as collateral and losing it if they can't pay?

[Disneyphile]

To me, success and wealth are measured by the quality of the people in our lives and how we spend our time, not by what objects we own.

I know of many very successful people who rent their home, and I also know some much less successful people who own theirs. A home is what we make it, whether it be rented, made, or purchased.

[Alex]

About the only Latin I know is Caveat Emptor. While there were mistakes made on both sides (lenders and buyers), the majority of the blame seems to be falling on the lenders.

The majority of the blame does belong upstream from the individual homeowner.

Sure the mortgage company and the homeowner can split the blame 50-50 on the stupidity of the initial loan. But the homeowner gets none of the blame for that stupid mortgage being repackaged in such a way that the entire world economy comes to be so dependent on ever increasing home values that a widespread 5% value drop and less than 3% default rate triggers a global economic crisis.

Yes, there was a lot of homeowner stupidity. But then there are a lot of simply not well informed/educated people who can obviously see that they're getting more than they think they should be able to get and yet being told by a massive international corporation "hey, we're experts in this. No, you can't afford the balloon payment but you'll never need to make it. In a couple years, you can refinance and get out if it, you're personal income situation will likely have improved dramatically since that is the standard life cycle for people, and worst case scenario if you don't you just sell the house at a small profit and move into something smaller when the time comes. We don't want to foreclose on your house so this must make sense, why would we give you money expecting to lose it?" You may recall a thread here on LoT a couple years ago when someone was asking for advice on whether to refinance their loan into some option arms. Fortunately, I believe if you go back and look at that you'll find the LoT giving good advice (primarily that the loan was structured on the faulty assumption of guaranteed appreciation of the home) but there were compelling arguments in favor and the last 15 years supported them.

On top of this you have major "how to" organizations telling people that if you aren't continuously extracting equity out of your house (read: living perpetually at maximum debt) then you're a sucker (for some reason I haven't seen so many people reading Rich Dad, Poor Dad on the train this last year and some).

Lani and I have watched over the years wondering how it is that we make 2-3 times what most people we know do and yet we're driving around in one $22k car, no kids, and an apartment and not exactly socking it away. Yes, it could be said we were very prudent and smart about the whole thing. We're just lucky in that we are temperamentally disinclined to each own a nice car (seriously, if I really wanted to I could have my dream car, an SL500) or even our own house (mostly just lazy, we hate shopping so much that buying a house seems like pure torture).

[The Lovely Mrs. tod]

About the only Latin I know is Caveat Emptor. While there were mistakes made on both sides (lenders and buyers), the majority of the blame seems to be falling on the lenders. We always want to go after the big bad evil corporation but I don't think that people (individuals) take the responsibility that they should.

Again, I am not letting the lenders off the hook in a wholesale fashion; just pointing out that a lot of people made some stupid decisions.
Oh, agreed. But I don't think we HAD to end up where we are because of them. Slamming the door shut on lending wasn't the answer, it may have been the last straw. This has been simmering for several years now, I maintain that it could have been fixed long before it imploded.

[bewitched]

Does whatever bailout they are proposing have any help for people who didn't fvck up and take on more debt then they could afford?

Or are us people who didn't get in over their heads expected to hold on for the dive.

That's about the long and short of it. My house was entirely affordable prior to my (almost but not quite yet) divorce. It is still barely (with child support and spousal support) affordable; but I've had to make cutbacks. Do I get any relief? Does anyone want to cut me a deal? Nope.

Thankfully, my mortgage is held by a smaller, local bank and they have been willing to work with me when I've had money flow problems (like when I had to replace my furnace, air conditioner and water heater-- all within about 6 weeks of each other.)


All in all, I'm about the most non-affected person in America. Oh, and my job only gets more secure as the economy worsens and everone starts suing everyone else for the money owed.

Luckily, my not quite ex is a lawyer too so I feel pretty secure about what I have. In good times, and especially bad, lawyers are ALWAYS in demand.

[Ghoulish Delight]

, the majority of the blame seems to be falling on the lenders. We always want to go after the big bad evil corporation but I don't think that people (individuals) take the responsibility that they should.
As it should. The lenders were playing with an unfair advantage. They were the only ones with implied assurance that the federal government had their back should something go wrong.

It's one thing to irresponsibly put yourself at risk when the playing field is even. It's an entirely different ballgame to knowingly take advantage of people in a situation where you had an insurmountable advantage which guarantees that you can't lose the game.

[BarTopDancer]

What happened to the saying "when something is to good to be true it probably is?"

[Ghoulish Delight]

What happened to the saying "when something is to good to be true it probably is?"
What happened to it is that it's a nice little platitude, but reality is not platitudes. It's just a wee bit more complex than Bartlet's Book of Quotations.

Look what's happening. "Our economy is basically soun......what? It's the BANKS that are losing money?! Oh sh*t, open the coffers!!"

I can't possibly say this any more clearly - I do not want consumers who made poor decisions off the hook any more than I want the sheisters with the money off.

But the reality is, we're dug in deep and we're going to need to do some backfilling, to use a mediocre analogy. It'd be nice if they backfill and get the playing field back to even instead of digging the dirt from the low side onto the high side. Because as long as someone in a two sided deal has absolutely nothing to risk, people are going to get taken advantage of, putting the value of MY home at risk.

[The Lovely Mrs. tod]

What happened to the saying "when something is to good to be true it probably is?"
No one makes a decision knowing it's the wrong one. Alex nailed the lenders' sales pitch perfectly. I can understand consumers feeling abused and resentful of the mere fact that the government is even considering bailing out the banks. Or home owners. But I doubt most of these people intended to default. Lenders refused to negotiate, they refused to modify, some lenders simply sold property without telling the homeowners until the sale was complete.

Had these lenders taken some responsibility for their part in this mess when it started to simmer instead of putting it on the back burner and pretending it wouldn't explode there's a distinct possibility that there would be no need for a bail out. This one was a bad deal, but, I think, it's inevitable that one will be necessary down the line.

[BarTopDancer]

What happened to it is that it's a nice little platitude, but reality is not platitudes. It's just a wee bit more complex than Bartlet's Book of Quotations.

Thanks (and thanks to Alex and Moonie too). I am trying to understand this in the scope that it is. I get why it's happening, trying to understand the different thoughts of fixing it.

[wendybeth]

Another problem adding fuel to the mortgage fire is the 2005 BAPCPA law, which severely limited a person's ability to file Chapter 7 bankruptcy. Credit card companies, etc, can garnish wages -which they do, leaving the debtor with little choice but to stop paying other things, like mortgages. It doesn't take much to find yourself in financial straits, especially not these days. Most people are a paycheck away from the poorhouse. Illness, layoffs.....anything can happen to any one of us here that would be our financial undoing, yet we are left twisting in the wind while the government takes our tax dollars and bails out the big boys. No wonder people are so pissed off.

[Morrigoon]

iSm: it becomes your problem when your HOA can't afford to maintain your building because nobody's paying HOA dues on the foreclosed condos.

That's what's happening in our neighborhood. So many defaulting homeowners have simply stopped bothering to pay up their dues that our HOA is strapped for cash right when we have a major termite tenting/painting project going on (one that is LONG overdue and can no longer be postponed).

However you may feel about bailing out the banks, or the defaulting homeowners, etc, the reason that the government is getting involved is that it's not just the wrongdoers or the foolish who will pay the price.

There were lots of people in the 20's who didn't buy stocks on margin, but when unemployment hit 23.6% IT WAS EVERYBODY'S PROBLEM. So you can sit back on your heels and laugh at all the people who are not like you and did things you didn't do getting taken down by their actions. But they're taking you down with them, your head just hasn't gone below water yet. And if you wait till then, it'll be too late. Oops, it probably already is.

[PanTheMan]

Well... Bush needed the icing on his cluterf*ck of a presidency.

Mission Accomplished!

[innerSpaceman]

Geebus, Goonie, stop exaggerating my position. I'm not sitting back and laughing.

I'm not even that much less concerned than most. I just don't favor the bailout plan because I don't think it would work. The current version is soundly unfair, but I also think the concept is tragically flawed.


So I think we're screwed either way. And I know I'm not coming out of this unscathed, and I'm not "laughing" at folks who will be coming out of this far worse ... or not coming out of this at all.

[BarTopDancer]

The government should take money from the golden parachutes of the CEOs and Presidents of the failed businesses to get their bailout money. While I don0t' support a cap on what a person can earn, I do have a huge problem with someone getting 11 million dollars for a weeks worth of work. I also have a huge problem for someone getting millions for running a company into the ground. Why do they get so much money and their employees get what they can from unemployment.

[Alex]

I'd have a comment on that $11 million statement but that really could get me in trouble (but part of my response: when the money was offered to him, they didn't know it would only be 10 days).

As for taking the golden parachutes, that isn't as much money as you may think. Using 2005 numbers, if you took 100% of the annual pay of each of the top five executives at every Fortune 500 company, you'd have collected $14 billion (and realistically you'd only get a small fraction of that). Yes, a lot of money at the individual level but collectively just a large drop in the bucket.

I'm not defending executive compensation, it is definitely way out of proportion. But while any attempt to cap or regulate may appeal to a sense of fairness or punishment it doesn't really impact the financials.

[Ghoulish Delight]

I don't particularly care what the cost is. If the cost is high, the cost is high. I'm more concerned that it be spent intelligently, and not just funneled right back to the people who mishandled it thus far, reinforcing the belief (no longer belief but proven fact) that the federal government will prop them up if they get unlucky.

[scaeagles]

Why I can't stand Barney Frank and Chris Dodd. (http://www.realclearpolitics.com/articles/2008/09/bailout_politics.html)

I realize politics will be played, but something tells me Pelosi isn't going to be talking about this while blaming republicans.

Five years ago, Barney Frank vouched for the "soundness" of Fannie Mae and Freddie Mac, and said "I do not see" any "possibility of serious financial losses to the treasury."


Earlier this year, Senator Christopher Dodd praised Fannie Mae and Freddie Mac for "riding to the rescue" when other financial institutions were cutting back on mortgage loans. He too said that they "need to do more"
to help subprime borrowers get better loans.


In other words, Congressman Frank and Senator Dodd wanted the government to push financial institutions to lend to people they would not lend to otherwise, because of the risk of default.


And Frank and Dodd are are leading the effort to fix this? Puke.

[innerSpaceman]

Don't get me wrong ... I think politicians, the fed, treasury and the streeters saw this coming five, ten, even 20 years ago. But a comment made five years ago about the soundness of the lax and deregulatory financial environment is quite different than one made earlier this year.


If John McCain hadn't said the economy is basically sound just a few weeks ago .... :p

[Morrigoon]

To that end, iSm, I agree with you. I think the bailout plan in its current form is pretty ill-conceived.

It seemed from your posts that you were against any sort of action, and that you wanted to let the chips fall where they may, which I'd ordinarily agree with, except that the current problem has grown to such a proportion that it quite seriously endangers the entire economy and not just the people directly involved. To that end, I'd rather see some people get some help they may not deserve, than see innocent parties get taken down in a bad economy they had nothing to do with creating.

But I also think that a solid part of this package would be trying to re-set people's loans back to what they were at before the FED started raising interest rates like mad. Heaven forbid the government admit it was overly aggressive about that and acknowledge their own part in the mess.

Not saying that ARMs don't have a right to adjust, of course they do, but if you wanna undo this mess with the government purchasing fewer troubled loans, that's one thing that would help. Yes there could be major repercussions from a massive interest rate re-set, but these are extenuating circumstances, and the alternative is to let the homes be foreclosed upon and have the government purchase them as per the bailout plan.

[scaeagles]

Don't get me wrong ... I think politicians, the fed, treasury and the streeters saw this coming five, ten, even 20 years ago. But a comment made five years ago about the soundness of the lax and deregulatory financial environment is quite different than one made earlier this year.

So you then think Dodd is an idiot for what he said earlier this year?

[Kevy Baby]

Well... Bush needed the icing on his cluterf*ck of a presidency.I by no means am defending Bush, but what culpability does the Democratically-controlled Congress hold in this?

The government should take money from the golden parachutes of the CEOs and Presidents of the failed businesses to get their bailout money.Something I was thinking about on the drive in this morning: can anything LEGALLY be done to limit the golden parachute payouts? Are these considered employment contracts? If so, CAn they be restricted?

I am NOT saying that I want these people to get the money regardless, just a legal ramification I was wondering about.

[innerSpaceman]

So you then think Dodd is an idiot for what he said earlier this year?
Yes, that was an idiotic remark.


The rest of them are just crooks. The whole lot of 'em.




Morrigoon ... the mortgage crisis is simply the back-breaking straw. I like your solution better than simply throwing money at buying the worthless debt. But the problem is far deeper than merely the latest symptom (mortgage-backed-securities). It's been headed this way for 30 years, and it's the entire concept of free-markets-uber-alis. Homeowner relief does nothing to address that.

It's not that I want no action taken, it's that I don't think our system is capable of taking any action that would make a difference. Look at the complete failure of Congress to agree on the band-aid. How in the world would they ever accomplish healing the disease???



We.Are.Fvcked.

[Ghoulish Delight]

Something I was thinking about on the drive in this morning: can anything LEGALLY be done to limit the golden parachute payouts? Are these considered employment contracts? If so, CAn they be restricted?
If congress passes a version of the bailout plan with restrictions, then yes. Basically it would be in the form of, "If your company accepts money from the bailout fund, you will agree to these restrictions on executive compensation."

The argument in favor of those restrictions is that the executives at the companies in most need of help do not deserve to cash out on whatever compensation contracts they have seeing as they failed to do what they were contracted to do. They shouldn't be allowed to accept a bailout and then profit from it.

The argument against it is that it'll defeat the purpose of the bailout. Institutions that aren't in dire shape won't want to agree to the restrictions so they won't take the money. That leaves only the ones that are in absolute dire straits who might be willing to take it. But then taking it would be a sure sign that they're in bad shape, so people are going to be reluctant to invest in them, bailout or no, so THEY'LL be reluctant to buy into the program also.

[Kevy Baby]

If congress passes a version of the bailout plan with restrictions, then yes. Basically it would be in the form of, "If your company accepts money from the bailout fund, you will agree to these restrictions on executive compensation."Thanks for the explanation. Although I wouldn't be surprised down the road if someone who ends up not getting their golden parachute sues to get it anyways.

[Betty]

What happens if they do nothing? If they don't do any bail out at all and just the chips fall - what could happen?

The entire collapse of our economy? If so, what does that mean? That I'll be growing my own vegetables because my store won't have any? Will we all start stocking up on canned goods and hoard things? Will I not have gas for work? Or worse, will no one want what we sell and my employer will go out of business? Or will things fall then stablize before things like that happen?

[Morrigoon]

Unemployment in 1933: 24.9%

Great Depression Timeline (http://www.huppi.com/kangaroo/Timeline.htm)

[Betty]

From Goonie's link - I was not aware of this:

Alarmed by Roosevelt's plan to redistribute wealth from the rich to the poor, a group of millionaire businessmen, led by the Du Pont and J.P. Morgan empires, plans to overthrow Roosevelt with a military coup and install a fascist government. The businessmen try to recruit General Smedley Butler, promising him an army of 500,000, unlimited financial backing and generous media spin control. The plot is foiled when Butler reports it to Congress. (More)

[Ghoulish Delight]

What happens if they do nothing? If they don't do any bail out at all and just the chips fall - what could happen?

The entire collapse of our economy? If so, what does that mean? That I'll be growing my own vegetables because my store won't have any? Will we all start stocking up on canned goods and hoard things? Will I not have gas for work? Or worse, will no one want what we sell and my employer will go out of business? Or will things fall then stablize before things like that happen?
Basically, businesses will no longer have easy, liquid access to money. Millions of dollars of loans get approved pretty much daily to keep businesses going and able to act quickly. If the institutions that provide these loans don't stabilize, if they don't feel confident that they'll get the money they loan out back and they don't feel confident that the investments that provide them the money to loan out will continue to have value, then business can't move forward. Instead of borrowing that money, companies will have to get it from somewhere, in the form of increasing revenue and decreasing costs. Supplies will drop, prices will go up, jobs will be eliminated, shipping lines will be slowed down. Debts will be called in, credit available to consumers will start to erode away, etc. etc.

In the best case, a new balance point is found and things do stabilize. Worst case, the sh*t hits the fan, the fact that we exist on an economy of almost pure credit catches up with us, and the concept of value gets completely out of whack and we see out of control inflation.

[Morrigoon]

I don't know how much of that linked timeline is true, as it does seem to be an opinion piece, but interesting if it is so. Given knowledge of people at the time, I suppose it's entirely plausible.

[Ghoulish Delight]

Wiki info (http://en.wikipedia.org/wiki/Business_Plot) on the alleged plot.

[BarTopDancer]

http://graphjam.files.wordpress.com/2008/09/700bil.gif

[Alex]

I know it is a joke, but what would the chart look like if it was "who suffers if there is no bailout"?

A comment I saw today asked who was hurt more, a billionaire becoming a half-billionaire or the administrative assistant losing his/her job?

[Disneyphile]

A comment I saw today asked who was hurt more, a billionaire becoming a half-billionaire or the administrative assistant losing his/her job?And thus I have no sympathy for the person who might be forced to sell off one of their yachts, or have to succumb to only owning 4 penthouses instead of 6. I also have no sympathy for those who might have to trade in their filet mignon for New York strip.

Cry me a river. :rolleyes:

[Alex]

I think you missed the point.

[Betty]

So - the new deal they are voting on now includes tax breaks and mental health provisions?

source: http://money.cnn.com/2008/09/30/news/economy/bailout_tuesday/index.htm?eref=rss_topstories

WTF is up with that? whether I agree with the add ons or not isn't really the point. Why can't they just pass the bill on it's own merits without trying to bundle it up with other stuff. This is why bridges to nowhere get built.

[BarTopDancer]

I think you missed the point.

I didn't.

The billionaire who loses half his wealth can still live and has resources to not have to struggle to make ends meet (even if it means selling off stuff down the road). The administrative assistant who was laid off probably doesn't have any savings and is going to be SoL if she loses her job.

[Not Afraid]

I don't get the rancor against the wealthy. So these people did well with their careers and investments, they aren't required to suddenly become charitable organizations.

People made bad choices with loans. Lenders made bad choices in lending. The economy has always gone up and down and it will return to normal in time. This may be a larger hiccup, but this too shall pass (unlike a bail out decision with congress).

[Ghoulish Delight]

For anyone wondering if they'll be affected by the economic situation, this might help:

http://www.phdcomics.com/comics/archive/phd092908s.gif

[scaeagles]

Oh good lord.

The senate bailout bill now includes demands that health insurers provide mental health coverage.

Riders irrelevant to the bill at hand suck, and whomever puts them there sucks, and most likely should be shot.

[BarTopDancer]

Oh good lord.

The senate bailout bill now includes demands that health insurers provide mental health coverage.

Riders irrelevant to the bill at hand suck, and whomever puts them there sucks, and most likely should be shot.

It used to include some sort of mental health coverage. I can't say it's a bad idea to force that. But it is a bad idea to force it in this particular bill.

[Ghoulish Delight]

Irrelevant to the bill at hand? After two weeks of dealing with that b.s., I'd be trying to pass mental health legislation too.