Does Everyone Understand What Is Going On Here??
Real Estate Investor · Las Vegas, NV · Member since 2008 · 1k+ posts · 447 votes
We may be witnessing the largest financial collapse in centuries. Take a step back and look at what is happening:
ï‚· Subprime meltdown
ï‚· Housing bubble
ï‚· Foreclosure crisis
ï‚· Bear Stearns collapse
ï‚· Countrywide Mortgage rescue
ï‚· Fannie Mae & Freddie Mac bailout
ï‚· Lehman going under
ï‚· Merrill Lynch takeover
ï‚· Wamu in trouble
ï‚· Wachovia in trouble
ï‚· Citibank at risk
ï‚· Banks pool together $70 BILLION to shore up liquidity
The financial & banking system is being held together with bubble gum and bailing wire. The government is like the Little Dutch Boy trying to plug the holes in the dike that is our financial system. The Fed is probably going to cut rates again. Watch out for the falling dollar….again.
We all were taught about the Great Depression in school, our kids and grandchildren will be told about this in history class. Lucky us, we get to live through it. It makes you wonder why ANYONE is running for President, this is all going to land squarely in the lap of the next administration.
Good Luck!
:cool:
Are you seriously comparing what is happening now to the Great Depression?
I have a few questions for you.
How many banks have failed in this current down turn?
What is the percentage of homeowners in default?
How has that percentage of defaulting homeowners changed over the last five years, ten years and twenty five years?
How many banks failed in the down cycle of the early 1990's?
How many banks failed in 1929/1930?
We are not entering another Great Depression. Granted this is one of the more unusual downturns because the cycles of interest rate, stock market, commodities, core inflation, consumer prices and employment have not followed the "normal" course. Normal meaning what has been observed before. But to claim this is the largest financial collapses in centuries ignores the historical facts.
I agree the Fed will almost assuredly cut the rates at their next meeting. But, as we have seen over the last couple of months, there is much more than just US interest rates affecting the US dollar in the world market.
The most interesting thing about the current financial situation in this country is the amount of debt consumers continue to hold. Because of that one difference between now and the late 1920's if the financial problems ever do get as bad as they were then we really will see a world-wide financial crisis unlike anything you can possibly imagine.
If that happens, the investors who have positioned themselves will be in a great spot to pick up bargains at sub-pennies on the dollar.
I wouldn't hold my breath though, it is not likely to happen.
People have been predicting the financial collapse of this country for as long as I can remember. Look up Howard Ruff for one of the more extreme doom and gloom loonies.
I have always had faith in the resilience of the US economy, and still do. But this going to take a long time to unwind.
:cool:
Whats next on deck?
High tax rates so we the people can help foot the bill the government paid to bail some of these big corps out?
Just another hit to the purse for many people that are already struggling to get by.
It's going to be a while before we recover from this one.
Let just hope Iran doesn't become a problem or that will really drain our sources.
Taz,
I hope you are right. I am seeing a mutiple of "vapor paper" to real cash just under 30 to 1. We have a lot more pain still to come. It is hard to really know what we will call this downturn.
No matter what, It is going to leave a mark. The same players who brought us the RESO TRUST have done it all over again. They got a lot better this time :cry:
Yeah, unfortunately, it is very hard to figure out what is really vapor paper and what is really real.
For example, part of the Lehman Brothers problem was the rating agencies insisting on a 30% write down on the commercial paper they carried. But, the actual losses due to current and projected write-offs is only 1%. But, because of the convoluted way these deals were put together there is no real way to figure out which figure is closer to the "truth".
The media hype is really funny now. They focus on the 500 point drop yesterday, yet fail to point out it was a 4% drop. Compare that to the 1987 Black Monday 508 point drop. That was 22% of the market. In historical terms, yesterday was little more than a blip on the screen.
Hype, and not rational analysis is driving this stuff. Fortunately, for real investors this creates opportunities.
Using the number of banks that have failed to write off that this is totally unlike previous crises is an apples to oranges comparison. So many banks have been consolidated that the larger banks represent what would have been hundreds or even thousands of banks before. A quick search shows that WaMu in 2006 had 2600+ offices through out the country. So do you count that as 1 bank that fails (either this Friday or next is my guess as their bonds have just been downgraded to junk status and their CEO is out saying everything is fine to anyone who will listen) or what?
Also, this current crisis is barely over 1 year old, whereas the Great Depression was at least 12 years long. How much has happened in the last 16 months? Also, much of what we (we being regular people) know about the Great Depression does come from history books/class. Did you know that WW2 was about 2 weeks long? I'm exaggerating that but when teaching history they take out the mundane day to day stuff and just focus on what, after the fact, turns out the be the most important events. Add up the important events in WW2 and what, there are about 14 days that get taught/we learn about. The same thing with the Great Depression. Read this article: http://www.minyanville.com/articles/depression-california-housing-mortgage-time/index/a/18055 It's really interesting that it points out what Time magazine was featuring as, looking back, huge events were happening during the Great Depression. Guess what, people were still concerned about football, plays and politics during the middle of the Great Depression and it was only later, when the effects of the events were felt, that people knew that what happened that weekend that interrupted so many great football games really affected their lives.
I don't think we will repeat the Great Depression, but I think we will rhyme-to paraphrase an old saying about history.
You may wish to chek out this NY Times article as well:
http://www.nytimes.com/2008/09/15/opinion/15krugman.html?_r=1&oref=slogin
:cool:
WaMu may fail, the stars are certainly aligning against them. But, even though their bonds have been reduced to junk, and they are in pretty famous company there, their balance sheet does not point to imminent failure. We will see.
There are no metrics you can use about the Great Depression that compare to what we are seeing today. Unemployment is over 6% today, but it was over 25% then. Homeowners in default is about 7% of all households, it was WAY over 50% then. The stock market fell over 50% over night, now that is a crash! The closest we have come to that since then was in 1987 when it dropped 22% in one day and later analysis showed it was a combination of programmed trading and changes in tax policy. Now there are automatic stops in the programmed trading and as for tax policy, well, until the fair tax gets here it will continue to have unintended consequences.
I am being sarcastic but that is really my point. The financial world is not coming to an end.
I agree. This is becoming the perfect storm. With it being an election year and all. We will all make it thru. If you choose to.
As far as the hype.....
Lehman killed itself - the most-serious "conspiracy" to take it down was crafted within its own Boardroom, which has been populated by idiots for over 2 decades.
The idiots at Lehman simply found bigger idiots in the marketplace long enough to enrich some at the expense of the rest.
This guy GETS IT on the economic warfare game being played forever on a global scale. He even finally realized the US Team is EXCELLENT at the game, though he was a bit late to the education on that part.
report on business
The key point in the article brings some light to his stumbling method of learning why Socialists should NEVER play economic chess with Capitalists:
Darwin wasn't completely right, nor was he completely wrong. Evidence builds on both sides of the debate, but Darwin's gaining ground daily in the world of money.
Today the Oracle of Omaha is seen as naked - a "brilliant" businessman
with $2B in cash and $1T in liabilities in his largest "investment"
known as AIG.... Will that be found in the future financial history
books? In near-term history, perhaps. In long-term history, all we'll
find is the same level of "how/when/why" available today on Enron.
I was just looking at the charts to see how much of the Dow was lost during the depression.
Aug 26 1929 - Dow 380.33 Peak
July 5th 1932 - Dow 41.63 Bottom.
In about 3 years the dow lost 89% from its peak.
The market didn't fully recover to its peak until November of 1954. About 25 years.
Today's equivalent.
October 8 2007 - Dow 14,093 peak
October 2010 - Dow 1,550.
Recovery not until 2035 to reach the 14,000 level.
I don't ever see those kind of dire times reaching us, thankfully.
The depression was an entirely different beast.
While we are in some challenging times, it's certainly not the 30's nor is it the market crash of 87'.
Regardless, my IRA isn't liking 2008 much. Luckily I'm 25 and it doesnt mean all that much. Other then the ability to add and lower my basis for my return in 40 yrs.
Krzysztof....I don't think my post was optimisitc.
I think we'd be hard pressed to see the Dow go down to 1,550....ever again. I dont see a great depression style crash thats all I was saying. If saying that is optimistic...then I don't even want to ponder what the pessimists say.
I do agree we are in a heap of trouble. One bank collapse unwinds another...and so on.
It's going to get ugly out there but I can't even imagine seeing the Dow below 7,000.
I don't expect this torrid pace of 400-500 pt drops to conintue for the next 21 days.
The asset markets are not going to zero. Sheeeesh!
The number of bank failures this year is very low. In the early 1990's banks failed by the hundreds per year. So far, this year, you can count the number of failures using both hands. That is less than ten for those not paying attention.
As for the stock market in general, you can't really compare the diversification in the asset markets of today with the lack of it in the 1920's leading up to the crash in 1929.
What is "happening" in the markets is more hype than reality. The credit default swap market is the tail wagging this dog at the moment.
Enjoy the days - make of them what is allowed, play as hard as you work, don't forget to DO WHAT YOU WANT TO before it's too late even if you could later do it. Old folks who have money and no memories are pretty boring company, so that should NEVER be a goal.
Who I am doesn't matter - it's who we BECOME that might one day improve the world, if only by a fraction. My "Heroes" wear the Unform of the USA, my mentors have been those whose lives have changed the world for the better. Be they good teachers, great Doctors, Vets, hard-working scientists, engineers, realtors, lenders, store owners, single Moms/Dads, if their lives somehow improved theirs AND others', I listen carefully to all they have to say
Here is an article from the Wall Street Journal calling this the worst financial crisis since the 1930s.
http://online.wsj.com/article/SB122169431617549947.html
:cool:
Interesting article. I wonder how leveraged things truly are. I can understand (more or less) the whole CDO/SIV deal. But I wonder how much credit was involved in these purchases. Was leverage applied at every step of these transactions, with the net that $1 of real assets is all that's really behind $100 of paper? And we've had this spiral of more and more convoluted vehicles for years now, to the point where the true amount of value is only a small fraction of current book values. Maybe the markets won't go down by the percentage they did in the great depression. But maybe they will go down a bunch more than they already have.
Interesting to go back six months and see what the then chairman of Lehman had to say:
http://www.businessweek.com/magazine/content/08_13/b4077023363140.htm
While the financial sector does have a strong influence to say the least on the financial market, they are still mearly one part of the equities market. Due to recent stringent accounting changes all companies have to disclose much more then they use to. Very few investors would pass on the opportunity to buy into stocks at real market value with the future return that offers. Will they be American's, probably not, most of us forgot to save our money over the last several decades. I think there is still too much value in the market to fall to the levels discussed here. For me, I see the opportunity for buying equities and houses in the near future. My only real concern is that the crippled financial sector will stop my "growth" by limiting my access to cash.
http://en.wikipedia.org/wiki/Great_Depression
The collapse of the US stock market in 1929 led to a worldwide economic depression called the Great Depression in the United States.
The "Black Tuesday" stock market crash of October 29, 1929, marked the beginning of a decade of high unemployment, poverty, low profits, deflation and lost opportunities for economic growth and personal advancement. Although the causes of the Great Depression are still uncertain, the basic cause was a sudden loss of confidence in the economic future (hence the decline in stocks.) Many economists agree with Will Divey's argument that blames the length of the depression (but not its cause) on an unwillingness by the Federal Reserve System to help banks avoid runs on their deposits. The traditional explanation of a combination of high consumer and business debt, ill-regulated markets that permitted malfeasance by banks and investors, growing wealth inequality, and natural disasters such as the Dust Bowl and 1926 Miami Hurricane creating a downward economic spiral of reduced spending and production are also offered as alternative explanations. The initial government response to the crisis exacerbated the situation; protectionist policies like the Smoot-Hawley Tariff of 1930, rather than helping the economy, merely strangled global trade. Industries that suffered the most included agriculture, mining, and logging.
Uncle Ben has studied this, his entire Academic Life. He will not make the SAME mistakes. He could make new ones. The man is doing the best he can.
I believe that we have a DEPRESSION on the horizon. It's not because of the housing market; subprime issues; or banking crisis. These are just symptoms of the real problem. The real problem is that we spend too much, both individually and especially as a government. The real problem is that we can't afford social security, medicare, welfare, and all the other entitlements and that doesn't even include the things that we truly need (like roads and defense). Adding to the pain is the $850 BILLION or so that the government has put on the tab for bailouts in the last couple of months (with MUCH MORE TO COME). The bottom line is that we're BROKE and the government's response has been to simply print money, backed by nothing but thin air.
The bill is coming due for all the excesses of the public and especially the government. The government can not tax us enough to fix the problem and therefore runaway inflation will be the method of payment. The dollar will collapse and so will the economy. Fiat currencies always end this way and so will ours. It's an absolute certainty, the only question is WHEN.
Obviously, that doesn't mean that equities are going to zero. It also doesn't mean that unemployment will be 100%. Quite the contrary. Things will go on in a relatively normal way for the majority of Americans (70 - 75% if history repeats itself) while others will experience great pain.
The good news is that a collapse will result in a chance to start over, after the depression. The politicians can use it to take an axe to all our socialist programs and get us back on the right track fiscally.
Mike
http://biz.yahoo.com/ap/080918/wall_street.html
So whats the repository and how exactly does it work? Obviously the market seems to love it we are up 400 pts on the news.
The banks can just hand there bad debt over to this government entity and make it go poof off their balance sheets?
Hmm...I have a car loan can I just roll that over there too?
Does this mean our government takes the hit and the defciet grows and the tax payers have to take a hike?
I don't understand how this plan works and to me its just pushing one huge problem over to another side of the table. It might buy us some time but its going to catch up somehow.
I dont think this is the silver bullet or the government would have done this a long time ago if it were that simple.
How can the government take a hit? They don't make money - THEY TAKE MONEY - from you and me!
It's very simple, they nationalize the debt. That means that the banks are off the hook and YOU are on the hook. Since the debt is too huge to be paid with taxes, we will pay the tab through the devaluation of our currency and the invisible tax of inflation.
EVERYTHING IS GOING UP! I bought some Slim Jims at Walmart yesterday. They went up from $3.50 last week to $3.78 this week (up 8%). Fire extinguishers that were $9.97 a few months ago are not $18.97 (up 90%). According to the news, AEP has asked for a 45% increase in electric rates over the next 3 years (15% per year). Natural gas rates are up more than 50% just since last February!!! The bad news is that inflation hasn't even gotten a good start yet!
The economy is going to collapse - that is an absolute certainty. All the government is doing now is postponing the inevitable!
Mike
They aren't nationalizing the debt and the economy is not going to collapse.
What they are talking about is RTC version 2.0, you can read about the original RTC at http://en.wikipedia.org/wiki/Resolution_Trust_Corporation