2008-09-24, 07:13 | Link #102 | |
AS Oji-kun
Join Date: Nov 2006
Age: 74
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In this system no one has any incentive to conduct "due diligence" and confirm that the mortgagee actually had the resources to pay off the mortgage. They all bet on the expectation that property values would continue to rise so that the soundness of the mortgages themselves would never come into question. When values started falling, the whole structure collapsed like a house of cards. In the past, banks actually held the mortgages they wrote, so the banks had a much greater incentive to make sure that the mortgagee could cover the payments. Until we start requiring mortgagors to hold a substantial share of their mortgage portfolios I fail to see how we're going to create incentives for good behavior. Especially if we bail them out for making bad decisions without much of anything in return.
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2008-09-24, 07:43 | Link #103 |
Senior Member
Join Date: Oct 2007
Location: Land of the rising sun
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It all boils down to what is known as "Money Game".
Stocks, commodities, future Indexes, even mortgage. It had strayed away from it's original purpose and people who participated are now paying the price. Capitalism at it's purist is as dangerous as pure Socialism because both do not factor in Human Greed nor laziness. As for federal money being injected, although it may seem as a bail out, but if you study the last depression caused by president Hoover deciding not to use federal fund it was the main factor causing a downward economic spiral due to no confidence to finacial institutions by the public. To tell you the truth injecting tax money should be a good lesson to all US citizens. Look at the present US household savings rate, it is below zero. In a way it is every USA citizen's fault, borrowing money thinking lightly of the consequences whether it be credit card or sub-prime morgage. Don't just blame it on a few wallstreet gambling junkies since at the end you were providing funds expecting high return rate to pay off whatever loan you had made. |
2008-09-24, 12:13 | Link #104 |
Obey the Darkly Cute ...
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Join Date: Dec 2005
Location: On the whole, I'd rather be in Kyoto ...
Age: 66
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The main hilarity in this mess is watching aggressive "free market" "anything goes" "anti-regulatory" CEOs, finance tough guys, and speculators all running and screaming from the consequences of "getting what they wanted".....
Listening to some idiot harumphing that consequences for these buffoons is a "deal breaker" just makes you want to pelt him with poo. I mostly agree with you Tri-ring other than the average American was just emulating what they saw the "big guys" in America doing --- leveraging current and future anticipated assets way past the lunatic point. Every time the economy dipped the last 8 years .... Bush was on his podium encouraging Americans to "shop our way out of the dip". Before that we had the "greed is good" nonsense which got amplified in the late 80s by a number of changes in policy and regulation in the finance/banking sector.
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2008-09-24, 13:01 | Link #105 | |||||
Moving in circles
Join Date: Apr 2006
Location: Singapore
Age: 49
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FBI probes finance giants for fraud
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I highlighted the third point because I see it as an essentially pointless suggestion. How much leverage is safe leverage? That's virtually impossible to say in advance. It all depends on an organisation's risk appetite. It doesn't change the simple fact that if you owe more than you can pay, you'd still be bankrupt, no matter how little you owe. Quote:
Even simple things like learning fiscal discipline, how to calculate simple and compound interest, how to read basic financial statements and so on, can go a long way towards improving an individual's financial literacy. Most of all, people ought simply to learn how to save. Consumers have been suckered by commercials about easy money for so long that they've forgotten that cash in hand is worth a lot more than all the "future money" you haven't actually earned. Rule No. 1: Credit doesn't make you richer. It only makes you poorer the longer you hold on to it. Quote:
Someone has to pay the price. It's very unfortunate, however, that he ends up being the American taxpayer. I'd much rather see every chief executive of failed investment banks and insurance companies surrender their pay cheques instead. It is galling that ordinary people should foot the bill for a mess that they've created, and earned millions while doing so. Meanwhile, regarding Green2's assertion that the bailout would weaken the US dollar, he is right. In the long term, the US Treasury will have to print more money to pay for all the debt it is proposing to buy. That would eventually lead to the devaluation of the US dollar, which would make imports more expensive. That would curb consumption, and if this happens severely enough, it could trigger a US recession. On a wider scale, the world might be tempted to abandon the greenback on global forex markets, which would further destablise the US economy. A weaker dollar also makes US dollar-denominated financial instruments less attractive to foreign investors, making it harder for the US government to raise cash to pay for the bad debts. On the other hand, a weaker dollar could help boost US exports, and in a best-case scenario, that could help the US close its trade deficit. It would also make US assets more attractive to foreign buyers. Of course, Americans would be leery about letting foreigners buy various national institutions, but then again, beggars can't be choosers. |
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2008-09-24, 19:01 | Link #106 | |||||||
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Join Date: Dec 2005
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As to your tangent about how the government should have addressed the problem months ago, apparently they have. It appears that the Paulson plan has been in the works for eight months, and that they were just waiting for an opportune crisis to unleash it on the rest of the country. I really hate conspiracy theories, but the people in charge seemed to be aware of an imminent disaster, and instead of doing anything about it, they seem to have been trying to figure out how best to gain from it. Even worse, they did so while constantly bleating out the "fundamentals are strong" mantra. Quote:
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http://www.forbes.com/home/2008/09/2...23bailout.html Quote:
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2008-09-24, 20:53 | Link #107 | |
Senior Member
Join Date: Oct 2007
Location: Land of the rising sun
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Most people do not understand the implications this has to the US economy so let me elaborate. For example, every barrel of oil bought by Japan have to be paid by US dollar so the Japanese company purchacing that barrel needed to exchage Yen into dollar and everytime a currency transaction is made a US Federal Bank made profit through transaction surcharge of 2 percent. OPEC nations selling oil (after placing some of the dollar into national reserve), is placed into investment to another nation's economy. Keep in mind that the fund is in US dollar so if placed into another nation's economy other than the US then transaction surcharge will be subtracted from the gross amount so OPEC nation's logical choice will be to invest primarly into the US economy. This was the main driving factor of the US economy. This was further exceled by the entire oil future index subjagated by WTI prices which consists of only 1 percent of the global oil transaction amount thus making it much easier to manipulate then taking on the entire global oil market. I believe the original intent of WTI was to maintain oil prices at a low rate to ensure it will not hamper the growth of US economy but this changed substantially as institutional investors came in "investing" into this market. Bottom line is US federal banks made tons of money out of nowhere by just changing money from one foreign currency into US dollar and then re-investing those dollars as fund by OPEC nation into other investments like sub-prime loans, stocks, and/or commodity future index and everyone was pulled into this money game like a bug attracted to a lamp post at night. Oil transaction surchage is like heroin to the US economy(especially the federal government) and the nation as a whole should go into rehab of it. |
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2008-09-26, 00:22 | Link #109 |
Kuu-chan is hungry
Join Date: Apr 2007
Location: Raleigh, NC
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House Republicans alternative plan for the bailout:
http://news.yahoo.com/s/ap/20080926/...ut_alternative |
2008-09-26, 00:45 | Link #110 | |
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Join Date: Nov 2007
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2008-09-26, 09:01 | Link #111 | ||||
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Join Date: Dec 2005
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http://www.reuters.com/article/marke...16693720080925
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http://marcambinder.theatlantic.com/...Principles.pdf This plan looks terrible, and I don't know if any credible economist think that it has any chance of accomplishing anything. If you want to compare, the Dodd plan is much better than both this one and Paulson's original one. Quote:
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2008-09-26, 10:02 | Link #112 | |
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Join Date: Oct 2007
Location: Land of the rising sun
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As for transaction currency for oil pegged to the US dollar, it has been that way for so long that lot of people do not understand the significance especially after the Nixon Shock transitioning to floating exchange rate. As I wrote before all nation purchasing oil from OPEC needs to exchange own nation's currency into US dollars since this is the only currency OPEC will accept. The federal bank will gain surcharge but there is also a hidden meaning in which it virutually means that the US had exported that much goods to that certain country offsetting the export amount since the transaction is done through US dollar. Therefore that certain nation needs to export back to the US an equal amount in monetary value to maintain balance. If you look at past US import/export balance with all industrial nations, the US is at deficit with almost of them for the past 20 years and yet the strength of the dollar had not collapsed. That simply can not be possible unless the US dollar was supported by an alternative export source. That is the power and adictiveness of transaction currency have to a nation. A nation that controls the transaction currency does not need a substantial export industry to maintain it's currency strength in the global market and all nation relying on oil needs to export whatever they can so to keep balance of their own currency so they can obtain enough oil. If for some reason the transaction currency was to change and/or allow other national currency beside the US dollar then the US economy will suddenly go bankrupt since there is virtually no export industry within the US with enough competetiveness in the global market to maintain import/export balance. |
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2008-09-26, 22:27 | Link #117 | |
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Join Date: Dec 2005
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2008-09-26, 23:14 | Link #119 | |
Senior Member
Join Date: Oct 2007
Location: Land of the rising sun
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The present investment banking system is based on creating profit on investments and as long as they follow anti-trust rules and regulations they are able to basically invest on what ever they want. Investing in this case is more like betting utilizing probability models but how ever good the models is it still cannot anticipate dynamic changes that had not happened before. It's like saying you are using too much carbon fuel AFTER realizing global warming is occuring. It's too late in pointing fingers. The only thing you can do is repent, learn from your mistakes and develop better regulations so it will not happen again. |
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2008-09-26, 23:22 | Link #120 | |
Senior Member
Join Date: Dec 2005
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It's deadlock. Only a tiny handful of economists seem to have a clue as to what's going on, and the politicians don't really know who to trust. The Republican plan is direct proof as to the prevailing lack of understanding. However, unlike almost any other situation, deadlock is vastly preferable to a hasty decision. Think of it this way, if an actual plan is push through, Congress will go to recess and not convene again until January. That's four months of suffering under a bad plan.
The other side of the equation is that the chance of Congress passing an effective plan that can deal with the crisis is vanishingly small. There are certain measures that are simply too unpopular to bring up politically. However, the alternative of not doing anything major might well bring about those measures as a result of inaction, and that might be better in the long run. Quote:
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