15 Sep 08
I was just watching the world economy crash on CNN.
The lovely news reader told me that I'd be best off calling my stockbroker to see what to do.
Yeah...
Obviously not my reality.
Nor is the whole money crashing thing. For some reason it just doesn't seem to interest me.
And now they're saying that the European bank is "donating" or "injecting" 30.000.000.000 Euros into the European economy.
Now, I have a peculiar feeling that all this money being lost (I feel bad when I lose a 2 Euro coin, never mind lose billions) can't be a good thing and that I'm going to end up paying for it in the long run.
So, please. Explain to me:
- Who's losing all this money and where's it being lost to?
- If the European bank is donating billions of Euros, who owns those Euros they're donating? Surely that's somebody's money?
- Who exactly is getting that donation? They're injecting it into the European economy? What does that actually mean???
- How is this going to effect me? How am I going to end up paying for it? Who's responsible? Where can I find him?
These are serious questions by the way, I really want to know (well, besides the where I can find him one, that's a joke).
15 Sep 08
5 edits
Originally posted by shavixmirThey are just providing short term money (loans) available to banks that need it.
I was just watching the world economy crash on CNN.
The lovely news reader told me that I'd be best off calling my stockbroker to see what to do.
Yeah...
Obviously not my reality.
Nor is the whole money crashing thing. For some reason it just doesn't seem to interest me.
And now they're saying that the European bank is "donating" or "injecting eally want to know (well, besides the where I can find him one, that's a joke).
To simplify the explanation consider the following:
The people losing money are the ones that bought the bad investments. And by bad investments (or "securities" ) we mean investments largely based in the US Housing market. A person will buy a house and need say a $100,000 mortgage. The bank will give this person $100,000 and in return they get a document stating the person owes the bank $100,000. The bank will then allow investors to "buy" the mortgage document from the bank for say $150,000. This allows the investor to collect all of the interest the person has to pay on the mortgage since on a $100,000 mortgage the interest will be approx another $100,000 on a 20 year mortgage. So the investor stands to make a $50,000 profit
The bank doesn't mind doing this because they have simply acted as a middleman and now sit with $50,000 in their pocket while all of the risk has been transferred to an investor. (The risk being that if the person doesn't ever pay the mortage, then the investor doesn't collect any interest AND loses his $150,000 he originally paid to buy the mortgage document from the bank.)
The real problem here is that the investors didn't really understand what TYPE of mortgage the US banks were giving to homebuyers. These sub-prime mortgages that you paid only 1 or 2% interest on for the first year would then ballon up to 9 or 10% made the monthly payments too high for people. People in the US began in HUGE numbers to default on their mortgage payments which meant the investors were no longer going to be paid. The banks really didnt' care because as long as they could sell the mortgage documents they could walk away with nice tidy profits. Eventually, investors caught on and stopped buying the mortgages and the banks were left holding the bag and suffered their own losses when the housing market prices declined as the supply of homes for sale skyrocketed with all of the foreclosures forcing the price of homes to plummet.
Now multiply this scenario a few million times and you can see how the financial losses add up. The actual details are a bit more complicated but you get the idea.
The problem is that the "investors" who bought these bad investments weren't just individuals. They were foreign central banks, private banks, investment banks, insurance companies etc.
So, now these guys are at risk because of stupid stupid greedy practices by the original mortgage providers. It's not so simple to just say "well let the investors suffer their own fate" because when these institutions suffer, we all suffer.
Try telling the Japanese central bank to stuff it and they'll turn around (which they did last week) and tell the US government they won't buy anymore US bonds that the US government uses to pay for the budget deficits they insist on running every year ($400 billion this year)
It's all intermingled and is becoming quite a big giant frickin mess....all caused by greedy US businessmen...surprise surprise.
😞
15 Sep 08
Originally posted by shavixmirdang, reading that email.....20 seconds of my life i'll never get back.
I was just watching the world economy crash on CNN.
The lovely news reader told me that I'd be best off calling my stockbroker to see what to do.
Yeah...
Obviously not my reality.
Nor is the whole money crashing thing. For some reason it just doesn't seem to interest me.
And now they're saying that the European bank is "donating" or "injecting ...[text shortened]... eally want to know (well, besides the where I can find him one, that's a joke).
15 Sep 08
Originally posted by shavixmirInvestors are losing this money. That means almost everyone with a retirement plan.
So, please. Explain to me:
- Who's losing all this money and where's it being lost to?
- If the European bank is donating billions of Euros, who owns those Euros they're donating? Surely that's somebody's money?
- Who exactly is getting that donation? They're injecting it into the European economy? What does that actually mean???
- How is thi ...[text shortened]... way, I really want to know (well, besides the where I can find him one, that's a joke).
Here in the United States everyone that works gets Social Security, which will be unable to meet its obligations as the average age of the population increases, and as real wages fall.
Investors will recover as working folks are eliminated and as governments shift the tax burdens more towards those that work and barely scrape by. As the world recovers from this economic crash, the acceleration of the transfer of wealth from the poor to the super wealthy will continue as it has been progressing in fits and starts since the late middle ages.
15 Sep 08
Originally posted by uzlessThe idea that foreign central banks are naive victims gets a : LMFAO!
They are just providing short term money (loans) available to banks that need it.
To simplify the explanation consider the following:
The people losing money are the ones that bought the bad investments. And by bad investments (or "securities" ) we mean investments largely based in the US Housing market. A person will buy a house and need say ...[text shortened]... frickin mess....all caused by greedy US businessmen...surprise surprise.
😞
15 Sep 08
1 edit
Originally posted by uzlessA pretty good summary of the sub-prime mortgage fiasco. Now, on top of this mortgage mess, overlay the implosion of the derivatives markets, which Warren Buffett labeled as financial weapons of mass destruction, and you have a truer picture of what's happening.
They are just providing short term money (loans) available to banks that need it.
To simplify the explanation consider the following:
The people losing money are the ones that bought the bad investments. And by bad investments (or "securities" ) we mean investments largely based in the US Housing market. A person will buy a house and need say frickin mess....all caused by greedy US businessmen...surprise surprise.
😞
16 Sep 08
4 edits
Originally posted by shavixmirIt's just another example of how law abiding citizens are attempting to pick up the slack of thieves and/or irresponsible derelicts. You know, kinda like the social welfare system turned corporate welfare. The only problem, however, is that it now appears that the thieves and derelicts far outnumber the law abiding citizens of today. In other words, we're screwed!!!
So, please. Explain to me:
- Who's losing all this money and where's it being lost to?
- If the European bank is donating billions of Euros, who owns those Euros they're donating? Surely that's somebody's money?
- Who exactly is getting that donation? They're injecting it into the European economy? What does that actually mean???
- How is this way, I really want to know (well, besides the where I can find him one, that's a joke).[/b]
I only have one word of advice for everyone out there in the stock market. Sell, sell sell!!!
16 Sep 08
2 edits
Come on, let's keep with the horrible economic news. I'm looking at property. I'd like to see the prices come down even further.
I also love the agony that the owners of ginormous SUVs and pickups are going through. HAHAHAHAHAHAHAHAHAHAH!
Adam Smith's invisible hand is pimpslapping those idiots and I love it.
Nowadays, merit has become more valuable, while being entrenched, popular and well connected has lost value.
For me, that's a net gain 🙂.
16 Sep 08
1 edit
Originally posted by AThousandYoungI think you will get your wish, in fact, be careful what you wish for, you may get it. You may be buying the property with goats and chickens rather than dollars. 😉
Come on, let's keep with the horrible economic news. I'm looking at property. I'd like to see the prices come down even further.
I also love the agony that the owners of ginormous SUVs and pickups are going through. HAHAHAHAHAHAHAHAHAHAH!
Adam Smith's invisible hand is pimpslapping those idiots and I love it.
16 Sep 08
5 edits
Originally posted by whodeyNo problem. I have (a little) experience in pimping, violence and drugs. I'll be just fine.
I think you will get your wish, in fact, be careful what you wish for, you may get it. You may be buying the property with goats and chickens rather than dollars. 😉
I suppose I even know a bit about gay prostitution, considering I was a massage therapist. Not that I accepted those offers...but I could have some homos in my stable of hookers.
It's kinda like when investors "diversify".
Pritybetta, Mexican immigrants and I will be the new elite! We actually think about how to make it if society collapsed.
16 Sep 08
4 edits
Originally posted by uzlessAlthough what you say is generally true, the rates of default have not been that far above what has traditionally been usual for sub prime loans.
These sub-prime mortgages that you paid only 1 or 2% interest on for the first year would then ballon up to 9 or 10% made the monthly payments too high for people. People in the US began in HUGE numbers to default on their mortgage payments which meant the investors were no longer going to be paid.
It's all intermingled and is becoming quite a big giant frickin mess....all caused by greedy US businessmen...surprise surprise.
😞
Leveraged financing was the sure fire way towards wealth creation. While investors still have a healthy margin between the cost of money and the return on investment then things were peachy. A constant lowering of underwriting standards has also meant that more and more debt was raised in the market such that the debt bubble has just been growing bigger and bigger. The problem has been exacerbated by the ratio of debt to equity banks are currently allowed to carry. As banks increased their levels of debt they also found products to pass that debt on to willing investors.
The game is made more interesting because not everyone pays the same level of interest and this is where economics goes from being a science to being an art as well. The 5 year bond rate usually sets the floor as your risk free interest rate. You then add a risk premium to that value to get the nominal interest your industry will pay for any money borrowed. Obviously the differences between all these margins is how a lot of people make a lot of money, and while they are wide enough everyone's happy, but......
What this bust is all about is the collapse of a pyramid debt scheme. At some previous point the markets ability to carry debt and its appetite to entertain taking on more added to contemporary market concerns where the rise of oil that started more than 18months ago had its effect in drying up liquidity in the market which started putting upwards pressure on the cost of money which narrowed the gap between the cost of debt and the return on investment.
Now as the market became more bearish you find that there are people out there, who are horrifically exposed on large positions they have taken on certain stocks. As each reporting cycle comes and goes any whiff of difficulty a company may have in meeting their debt position sends the market into a panic as people sell down their portfolios in that stock such that with each collapse in some industrial giants stock price, the equity that stock may have represented to another company suddenly makes them look very shaky and the whole house of cards starts to collapse.
When you work out all your pension funds and in countries like Australia all our super funds(same dog different smell) are also being buffeted(pun intended) by all this spiral down activity and its a case of everyone not wanting to be the last to be holding overvalued stock. As everything contracts, making all those interest payments gets harder, and then no one wants to lend out any more either, because they are already risked out to the max. As credit starts to squeeze shut, the only way to keep things afloat is cost cutting and retrenchment. But when you consider how long all of this has been going on who's left to cut?
I watched Pretty Woman the other night and realised that the subtext of the movie, the Richard Gere character, the corporate raider who has a change of heart in breaking up the old guys shipbuilding business, the whole way we have pretty much seen business behave in over the past 20 years, using debt to leverage a better position for your company using the cost of servicing that debt as a way to reduce your tax liability, well that whole shabby system of using the public purse to fund corporate welfare has been going on for so long now that the debt that has accrued around is so well layered and distributed around that at this point its hot wired into everything, that its like a perfect feedback loop has been established one that like a musician on a stage who can control it for a while and it makes great rock and roll but lifted up a notch makes a loud screeching noise that if left unattended will blow a lot of equipment.
The other analogy is that all of the debt that has been created between institutions over the years has created this heavy dead weight that now has the potential to sink all of the structures that are being tied to it to give it ballast. Problem is no one can afford to bail out of this one as there is nothing to bail out into.
16 Sep 08
I'll have to delve into your answers tomorrow.
But here's something else some radio presenter was telling me (I don't know if I picked it up correctly):
Banks lend out 9x the amount of money that actually exists. This is no problem until they start asking rent. Rent is a non-existent amount of money on top of a heap of money that doesn't exist.
What the hell does that mean?
And, again, am I screwed because of it?