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10-13-2008, 05:36 PM
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#41
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Recycles dryer sheets
Join Date: Jun 2007
Posts: 118
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In broad strokes, as I understand the financial crisis, financial institutions are in trouble because they are over-leveraged and their customers took on too much debt -- and are increasingly unable to pay back their loans. As defaults rise, financial institutions have become increasing reluctant to make loans, even to each other for fear of not being repaid.
The proposed cure to this mess is for the various Western governments to inject massive amounts of money into the financial system. Of course, the governments involved don’t actually have this money . . . they will have to borrow it from the folks (citizens) who couldn’t pay their own bills in the first place. Hmmmm . . . interesting if it works.
Assuming we can all collectively borrow ourselves out of debt, what effect will this massive borrowing by the various governments have on the cost of borrowed money? As demand rises, am I correct to assume that we can expect to see the cost of money increase? Does this mean that I can expect a higher yield on Government bonds that I purchase in the future?
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10-13-2008, 05:37 PM
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#42
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 9,067
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Doesn't look fat enough.
__________________
Retired 3/31/2007@52
Investing style: Full time wuss.
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10-13-2008, 05:39 PM
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#43
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Thinks s/he gets paid by the post
Join Date: Dec 2005
Location: Lake Livingston, Tx
Posts: 4,203
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Some how, when I look at last quarters numbers this does not feel like a gain. Guess everything is relative. Not so big a loss looks like a gain.
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10-13-2008, 05:39 PM
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#44
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Quote:
Originally Posted by Geoffrey
Assuming we can all collectively borrow ourselves out of debt, what effect will this massive borrowing by the various governments have on the cost of borrowed money? As demand rises, am I correct to assume that we can expect to see the cost of money increase? Does this mean that I can expect a higher yield on Government bonds that I purchase in the future?
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For an answer to that question look at the trend of real yields available on TIPS. Good now and seemingly getting better.
Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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10-13-2008, 05:56 PM
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#45
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2007
Posts: 5,596
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All I know is, I'm happy the market is up!!!!
__________________
I purr therefore I am.
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10-13-2008, 06:04 PM
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#46
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2006
Location: Collin County, TX
Posts: 9,294
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let it all hang out if just for one day....
__________________
There's no need to complicate, our time is short..
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10-13-2008, 06:07 PM
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#47
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Recycles dryer sheets
Join Date: Jul 2008
Location: ENE MO - near STL
Posts: 424
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Quote:
Originally Posted by FinanceDude
Wonder how all the folks who sold last week are feeling........
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Some of them are scared to death and sick about it but will stay out. Others are sick about it and will rush to buy back in because they're afraid the train is leaving without them. Then when it drops dramatically again in the near future (if not tomorrow), they'll be scared again and sell. And on and on.
I can't imagine we won't see either another dramatic drop or two still when the next shoe drops or a more gradual drawback as we start to really think about what the economy's going to look like in the next couple of years.
But who the heck knows!
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10-13-2008, 09:05 PM
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#48
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Dryer sheet wannabe
Join Date: Oct 2008
Posts: 12
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Some days investing in the stock market is like playing Craps. Last week was like rolling craps. Today was like making the hardways...
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10-13-2008, 09:44 PM
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#49
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,007
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Here we go again:
The futures are up strongly again tonight. The US will use $125 of the bailout package to directly invest in 9 major US banks - thus recapitalizing them. This is basically the same as what Europe decided over the weekend.
Audrey
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10-13-2008, 10:32 PM
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#50
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Quote:
Originally Posted by audreyh1
Here we go again:
The futures are up strongly again tonight. The US will use $125 of the bailout package to directly invest in 9 major US banks - thus recapitalizing them. This is basically the same as what Europe decided over the weekend.
Audrey
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Listen to us socialists gleefully celebrating! All it takes is a good scare and niceties go out the window.
Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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10-14-2008, 01:47 AM
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#51
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2006
Posts: 7,733
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Quote:
Originally Posted by haha
Listen to us socialists gleefully celebrating! All it takes is a good scare and niceties go out the window.
Ha
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No atheist in a foxhole, no pure capitalist in a stock market meltdown.
Give me the choice between being richer and ideologically purity---
SHOW ME THE MONEY
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10-14-2008, 07:52 AM
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#52
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Quote:
Originally Posted by clifp
No atheist in a foxhole, no pure capitalist in a stock market meltdown.
Give me the choice between being richer and ideologically purity---
SHOW ME THE MONEY
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Agree completely. Since as big taxpayers we are going to be paying for all this, we had better get what we can from the lift.
Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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10-14-2008, 08:28 AM
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#53
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,821
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Quote:
Originally Posted by clifp
No atheist in a foxhole, no pure capitalist in a stock market meltdown.
Give me the choice between being richer and ideologically purity---
SHOW ME THE MONEY
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Quote:
Originally Posted by haha
Agree completely. Since as big taxpayers we are going to be paying for all this, we had better get what we can from the lift.
Ha
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But weren't' some socialist practices (*everybody* should be able to buy a home, even if they can't afford it) a big contributing factor? If so, I don't think it's fair to say that capitalists are being hypocrites. To the extent the govt got us into this problem, we need them to help get us out.
I would have preferred they stay out in the first place.
-ERD50
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10-14-2008, 09:21 AM
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#54
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Thinks s/he gets paid by the post
Join Date: Feb 2007
Posts: 2,605
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Quote:
Originally Posted by ERD50
But weren't' some socialist practices (*everybody* should be able to buy a home, even if they can't afford it) a big contributing factor?
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Well that's certainly one perspective. Mine is that banks and mortgage brokers were greedy. They could make almost pure profit on the fees, and then go and borrow more $ to lend. That's how people were convinced it was their right to own a home. The failure to adequately underwrite the risk was shunted aside to make profits (pay commissions, executive bonuses, etc.).
-- Rita
__________________
Only got A dimple, would have preferred 2!
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10-14-2008, 09:26 AM
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#55
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,821
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Quote:
Originally Posted by Gotadimple
Well that's certainly one perspective. Mine is that banks and mortgage brokers were greedy. They could make almost pure profit on the fees, and then go and borrow more $ to lend. That's how people were convinced it was their right to own a home. The failure to adequately underwrite the risk was shunted aside to make profits (pay commissions, executive bonuses, etc.).
-- Rita
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But didn't that happen because the govt was backing these loans through Freddie/Fannie?
That's my understanding, but I'll be the first to admit that I've been buried in all the info, I'm not sure that I know what I
know, or that I don't know what I don't know. So take that as a question, just as I wrote it, not a rhetorical one.
edit/add: Mine is that banks and mortgage brokers were greedy.
I addressed this earlier, but it bears repeating. I just don't buy this 'greed' thing as an explanation. Sure, they were greedy. Just like the majority of businesses and people are greedy. That is not a recent phenomenon. So it does not explain recent events. It appears to me that the normal risk that keeps greed in check is what got messed with - and that allowed greed to run free, and contributed to the mess.
So back to my question - wasn't it the govt support of Fannie/Freddie that took the checks/balances off of the ever-present greed?
-ERD50
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10-14-2008, 10:42 AM
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#56
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Thinks s/he gets paid by the post
Join Date: Jan 2008
Posts: 2,020
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Quote:
Originally Posted by ERD50
So back to my question - wasn't it the govt support of Fannie/Freddie that took the checks/balances off of the ever-present greed?
-ERD50
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It was greed that gripped the populace... the truly great makings of a bubble. I haven't given this enough thought, but something akin to this could be causal.
There's a limited number of houses at all levels of supply (there's a finite number of $50k houses, $150k houses, $500k houses, $5mm houses, etc).
Purchases increase along the lower band. As supply goes down, if demand remains, then price will go up to stabilize demand.
But, now we see that prices are going up, this looks like more of a sure bet. I'm comfortable taking on a slightly higher mortgage, especially since I'm leveraged and more leverage plus increase in price means I make even more.
This ripples up and down the chain. Supply is still limited. I can only build so many houses at a time.
We can assume supply was tight simply because of the percentage increase in home ownership (from 65%-74% or thereabouts). I recall that, at one point, even in Minneapolis... with lots of land to expand and no reason for a bubble, houses would be bid over asking price by 5-10% on the first day of listing at the height of the craze. That promoted a weird mentality of people being convinced that they had to buy.
At some point, we're not even talking about F&F backed paper any more. We're talking about people going for loans for houses they could barely afford that were well over the size of the loans that F&F would buy.
So, it takes greed on a few parts. You need someone that thinks their house will only go up and they should get the biggest house they can afford. You need someone that will offer them an ARM, 40 yr mortgage, whatever. You need underwriters that will go along with it. you need appraisers that will agree that the house is fairly valued.
It's not just greed in an isolated form of capitalist greed, but a weird kind of greed that makes shows like Property Ladder and House Flippers popular.
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10-15-2008, 10:24 AM
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#57
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,821
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Quote:
Originally Posted by Marquette
....
So, it takes greed on a few parts. You need someone that thinks their house will only go up and they should get the biggest house they can afford. You need someone that will offer them an ARM, 40 yr mortgage, whatever. You need underwriters that will go along with it. you need appraisers that will agree that the house is fairly valued.
It's not just greed in an isolated form of capitalist greed, but a weird kind of greed that makes shows like Property Ladder and House Flippers popular.
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Sorry I didn't reply sooner - been busy....
But it seems that the MAIN reason that prices were going up, up, up and tempting so many to jump on board, was the easy mortgage money. If every buyer required the traditional 20% down, and trad income, there would be fewer buyers. Less demand relative to supply, more stable prices.
So wasn't that govt intervention that caused that? If we look at what was happening in Australia, we see that this money was not easily available. I think the main diff is the extent to which the govt got involved.
http://www.early-retirement.org/foru...1&postcount=32
So I would not call it 'weird greed'. I would call it government subsidized greed.
I am very open to challenges on this, it's a complex topic and I don't pretend to know the details - but I'm getting a pretty good sense that this govt intervention was key to the problem. Please, (anyone) correct me if there is flaw in my logic/info. I'm trying to learn.
-ERD50
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10-15-2008, 10:59 AM
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#58
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Moderator Emeritus
Join Date: May 2007
Posts: 12,894
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Quote:
Originally Posted by ERD50
But weren't' some socialist practices (*everybody* should be able to buy a home, even if they can't afford it) a big contributing factor? If so, I don't think it's fair to say that capitalists are being hypocrites. To the extent the govt got us into this problem, we need them to help get us out.
I would have preferred they stay out in the first place.
-ERD50
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I don't know if universal homeownership is a socialist ideal (everyone should have a home, yes, but not necessarily own it). The percentage of people owning their homes is much lower in many socialist countries than it is in America (60% in the US Vs. around 50% in much of Western Europe).
NationMaster - Home ownership (most recent) by country
I think that the high level of homeownership in the US has more to do with people wanting to live the American dream rather than socialist practices. Having lived in a socialist country, I can assure you it is much harder to buy a home there than it is to buy a home in the US. Credit is much harder to obtain (qualifying for credit is often based on many factors such as your income and credit score but also your age and health) and the down payment requirements are much higher. Those obstacles are in place in part to protect the banks, but also to prevent people from overextending themselves (that's the socialist part of the equation: the state must protect people, from themselves included).
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10-15-2008, 11:59 AM
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#59
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Posts: 35,712
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In response to ERD50:
Yes, I believe the low interest rate by the government and the greedy loan processors and mortgage bankers got us in this mess. More than that, our tax policy didn't help either. Instead of channeling money into "good investments" (alternative energy, mass transit, etc...), the low interest rate pours it into McMansions. People looked at the mortgage deduction and figured that was where they would get the "surest return" for their money! I'd rather the tax was cut across the board. Incentivizing homeownership too much causes a good thing to turn bad.
In response to FireDreamer:
From many earlier threads, I learned that no other countries encourage home ownership to the extent that we do, with easy loans and special tax treatment. I am referring to posts by ladelfina and some Canadian posters. What was the American Dream turned into the American NIGHTMARE. There is no other better illustration of the Law of Unintended Consequences, regarding our housing policy.
Don't get me wrong. I like to own my home(s). But the system encouraged us to buy a much bigger house than we needed or could afford. All that homebuilding drove up the GDP, making the economy look very good indeed. Now, the nation is stuck with big houses that were funded by foreign money. They won't be sending us money anymore.
I am trying to say that there are many factors at play here. Collectively, they cause this problem, the bad karma.
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10-15-2008, 12:02 PM
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#60
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,821
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OK, thanks for that perspective. I guess 'socialist' wasn't the best term to use then. Maybe the 'redistribution of wealth' idea? Is that closer? The idea that 'rich' and 'middle class' people own homes, so the lower class should too? And if they can't really afford it, the govt (I guess that's where I come back to 'socialism') will help them get it?
And since looser lending practices helped the lower classes to afford housing, it also helped the middle and middle-upper class to afford MORE housing than previously. Bubble forms.
And it is my impression that, left to themselves, the banks would not have made such risky loans. So it seems the protections are already in place, and it was the (US) govt that messed with them.
I don't know - was this housing bubble mostly a US phenomena? Did the more conservative lending practices in other countries protect the people there? I assume that is the case.
-ERD50
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