Good Layman's guide to the financial crisis

[carl]

The only package I want to hear about is the package of penalties, fines, and jail terms for those who ran the choo choo of the tracks.

In the interest of national financial stability, some bail out is needed but someone deserves more than just a loss of their golden parachute.

Tom

There are thousands and thousands and thousands to blame, starting with the lenders who made foolish loans to those who took them and moving on up the line. All these people forgot about tomorrow and bet that things would always get better, always. It is as if "an institutional bias against rational thought" has become a national character trait. If it has, that is the big security risk.

[J Wolfsberger]

There are thousands and thousands and thousands to blame, starting with the lenders who made foolish loans to those who took them and moving on up the line. All these people forgot about tomorrow and bet that things would always get better, always. It is as if "an institutional bias against rational thought" has become a national character trait. If it has, that is the big security risk.

Heh! Everybody remember the TV ads for second mortgages at 110% of equity?

[jmm99]

Here is my "bible" on the current financial events.

The End of an Era
by Gary North
.....
This investment era began on Monday, August 16, 1982. On Friday the 13th, Mexico had threatened to nationalize all foreign banks and default on its debt. That weekend, the world's central bankers were meeting. They agreed to start pumping in new money. They negotiated new terms with Mexico. On Friday, the 13th, the Dow Jones Industrial Average bottomed at 777.

The week of September 14, 2008, will go into the textbooks as the end of an era. It marked the end of the investing public's confidence in the Powers That Be.
.....
CONCLUSION

Investors last week began to figure it out. A lot more investors are going to figure it out. They are going to have two years to figure it out. This is if things go well. They may have three years to figure it out.

Whoever is elected President in November is going to preside over the worst financial disaster in American history in the postwar era. Some lucky soul is going to lose this election.

You had better batten down the hatches.

http://www.lewrockwell.com/north/north654.html

While Gary North and I differ on religion, we do not differ much on economics. For the last few years, he has been predicting correctly in the economic arena. He also takes a practical, applied approach to things economic, and is no Ivory Tower theorist.

He also is not trying to sell you anything, only his views.

Clicking on the Gary North Archives (bottom of page), takes you here.

http://www.lewrockwell.com/north/north-arch.html

These (going back to 26 May 2000) may be helpful to your own planning.

----------------------------------------------

from cavguy
.... but I think this has huge security ramifications

Yup, in terms of what I call policy (national strategy), we will be seeing this for the next few years: dimE.

[Xenophon67]

......but were afraid to ask.

Absolutely comprehensive economics videos. I believe his analysis to be objective with the purpose being to educate.

Khan Academy: http://www.khanacademy.org/

Also RAND Organization produces some outstanding publications. (Ignore the price/add to cart and go to the pdf download)

[TristanAbbey]

Do you folks think there's a need for a layman's guide to global finance, written with an eye towards a security/defense audience? Could cover things like the potential impact of a shift in global reserve currency, impact of oil volatility, touch upon sovereign wealth funds, things like that...

[Fuchs]

You should look at trade balances instead.

Finance is 99.9999999% illusion and 0.0000001% paper.

[Dayuhan]

Do you folks think there's a need for a layman's guide to global finance, written with an eye towards a security/defense audience? Could cover things like the potential impact of a shift in global reserve currency, impact of oil volatility, touch upon sovereign wealth funds, things like that...

It would probably useful, as 90% or more of what's written for the layman on the subject is agenda-driven nonsense. Of course many who read on the topic seem primarily interested in hearing what they want to hear, so the agenda-driven stuff often makes them happy.

[slapout9]

Bill Still was down my way recentlyso here is the Still report#12 on the Economy.

http://www.youtube.com/watch?v=QYIhc3GyANI&feature=sub

[slapout9]

Latest from James Galbraith on President Obama's Plan B for the economy.



http://growth.newamerica.net/publica...ts_on_a_plan_b

[Tom Odom]

There are thousands and thousands and thousands to blame, starting with the lenders who made foolish loans to those who took them and moving on up the line. All these people forgot about tomorrow and bet that things would always get better, always. It is as if "an institutional bias against rational thought" has become a national character trait. If it has, that is the big security risk.

True, Carl, and many at the lower end will pay by losing their homes. It does not however obviate reaponsibilty at the CEO level for pursuing those policies whether we are talking Fannie May, Mac, Lehman Bros, or AIG (and whoever comes next). Oversight has to mean penalty.

Tom

[carl]

True, Carl, and many at the lower end will pay by losing their homes. It does not however obviate reaponsibilty at the CEO level for pursuing those policies whether we are talking Fannie May, Mac, Lehman Bros, or AIG (and whoever comes next). Oversight has to mean penalty.

Tom

The trouble is, most of what the CEO's did was probably legal. Bad judgement isn't against the law. The Congress always had the power to change the law, but they didn't. My opinion is they didn't because they also believed tomorrow would never come, or at least not until after the next election. No percentage in saying "No, you can't."

[Tom Odom]

The trouble is, most of what the CEO's did was probably legal. Bad judgement isn't against the law. The Congress always had the power to change the law, but they didn't. My opinion is they didn't because they also believed tomorrow would never come, or at least not until after the next election. No percentage in saying "No, you can't."

Agree 100% but there is a responsibility that comes with position and associated entitlements. If the Fanny Mac CEO can have an if fired clause with a golden parachute tied to it, we have gone the wrong way and as we all know this is hardly the first time. But in this case we are looking at the bill for the current wars all over again.

Tom

[carl]

Agree 100% but there is a responsibility that comes with position and associated entitlements. If the Fanny Mac CEO can have an if fired clause with a golden parachute tied to it, we have gone the wrong way and as we all know this is hardly the first time. But in this case we are looking at the bill for the current wars all over again.

Tom

You and I and all the people on this council believe responsibility comes with position I'll wager; but the elites don't. The anointed ones (sorry for the bitter tone) believer the rules that apply to us flyover people don't apply to them. They are better and they are different and what they get they well deserve.

There is something very wrong with so much of the leadership class in this country, business, political, academic, media etc. They have gone so wrong it is affecting the "we", the Americans. I wish I knew what we can do about it but I don't.

[tequila]

In reality, BOTH happened. The government forced lenders to "find a way" to lend money to poor people who cannot really afford one, AND greedy lenders exploited the relaxation of rules to make all sorts of stupid loans.

I cannot emphasize enough how much this did NOT occur. Again, the majority of bad mortgages in the current crisis were not sold because the government "forced" them to do it. Absolutely not.

Good question. I can't discern the rationale used by Freddie and Fannie. I can only look at their actions and surmise that they had reason to judge that doling out campaign contributions and setting up a network of lobbyists was essential to further their goals. Then again, I guess their judgment is also pretty suspect, in retrospect.

I was referring here specifically to the big investment banks, hedge funds, private equity, etc. that make up the shadow banking system that is in the process of collapsing. Goldman Sachs especially has a stranglehold on the Treasury Dept.

I had suggested "No one has yet stepped up to suggest any of the actions that could allow the private sector (read "Market") to fix the problem. For example, reduce the reserve requirement on commercial banks. Or eliminate capital gains taxes on mortgage securities containing x percent sub-prime loans."

Your points, which would involve having the banks voluntarily forego adjusting the interest upward on ARMs, or converting the mortgages to fixed rate at an affordable payment schedule, are also good.

And all of these would have required a bit more intelligence than the banking/finance community seems to possess.

Not sure if you guys have been paying attention, but it's not exactly like the "market" is begging for these solutions you proffer. The market is in the process of collapsing or folding up shop at the moment. Things like cutting capital gains taxes on MBS are rather beside the point when no one can accurately value them right now. Changing home loan payment terms would be nice if anyone could figure out who owns what terms on which set of loans --- the whole key to this process is the degree to which these loans were securitized and leveraged to a whole slew of different counterparties up the stream from the initial lender.

[Ski]

Spot on analysis here.

Mortgages have been bought and sold numerous times. Most lenders don't even know who actually owns the mortgage. That's a problem. You can't refi a loan because no one can identify what lending facility owns it.

There was an example I remember from a year or so ago. Dude in Miami owns a $3M house. Isn't making payments on the house. Lender calls him and says he owes. He says, "tell me who owns the mortgage and I'll pay them directly." Lender comes back two weeks later and says we don't know.

Dude is still living in his house.

I cannot emphasize enough how much this did NOT occur. Again, the majority of bad mortgages in the current crisis were not sold because the government "forced" them to do it. Absolutely not.



I was referring here specifically to the big investment banks, hedge funds, private equity, etc. that make up the shadow banking system that is in the process of collapsing. Goldman Sachs especially has a stranglehold on the Treasury Dept.



Not sure if you guys have been paying attention, but it's not exactly like the "market" is begging for these solutions you proffer. The market is in the process of collapsing or folding up shop at the moment. Things like cutting capital gains taxes on MBS are rather beside the point when no one can accurately value them right now. Changing home loan payment terms would be nice if anyone could figure out who owns what terms on which set of loans --- the whole key to this process is the degree to which these loans were securitized and leveraged to a whole slew of different counterparties up the stream from the initial lender.

[Ken White]

I cannot emphasize enough how much this did NOT occur. Again, the majority of bad mortgages in the current crisis were not sold because the government "forced" them to do it. Absolutely not.

It is true as stated; however, replace the word 'forced' with 'allowed and / or encouraged' and your statement becomes quite erroneous.

Greedy lenders and equally greedy but risky purchasers both contributed but there was tacit government (read: Congressional) encouragement to do so. The Administration tried to rein in Fannie and Freddie in 2003 -- and Congress refused to allow it.

Same phenomenon that had lead to excessive credit card debt...

Vote 'em all out!!!

[reed11b]

It is true as stated; however, replace the word 'forced' with 'allowed and / or encouraged' and your statement becomes quite erroneous.

Greedy lenders and equally greedy but risky purchasers both contributed but there was tacit government (read: Congressional) encouragement to do so. The Administration tried to rein in Fannie and Freddie in 2003 -- and Congress refused to allow it.

Same phenomenon that had lead to excessive credit card debt...

Vote 'em all out!!!

True, also in order to afford ANY reasonable home in many communities meant that lower middle-income famlies had to take whatever risks were offered. If housing had been truly affordable to the middle-class, then we could berate them for taking needless risks. I have a household income of a little under six-figures and I can not get approved for any housing except for a condo, unless I chose to take a risky mortgage. I chose not to, but I see easily why many did. In fact my wife and I often second-guessed our decision to not buy a home.
Reed

[120mm]

I cannot emphasize enough how much this did NOT occur. Again, the majority of bad mortgages in the current crisis were not sold because the government "forced" them to do it. Absolutely not.

So... you weren't there when congress held hearings when they "castigated" the loan industry for the awful, incredibly outlandish and elitist (and sometimes racist/sexist) practice of "red-lining" people who couldn't afford to buy a house? I mean, the NERVE of lenders to suggest that broke people with insufficient (or even no) income shouldn't be able to buy a $1.5 million house if they should want to.

I seem to recall congress issuing threats to regulate the industry at that time. Perhaps I misheard, completely....

And, no, I am no big fan of the "Big Debt" industry. I think consumer debt is stupid, and America would be MUCH better off without it. I'm just pointing out that tequila is wrong about government not forcing lenders to "find a way" to get everyone into house debt.

I also seem to recall Bush crowing about how well it was working prior to the 2004 election.