Financial topics

Investments, gold, currencies, surviving after a financial meltdown
freddyv
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Diana Olick Article: The Reality of Mortgage Programs

Post by freddyv »

I recently came across a few articles by Diana Olick and she seems to be one of the few analysts out there dealing with reality. Here is a link to a recent article on the home mortgage situation:
http://www.cnbc.com/id/27891145

To summarize, she says that the FHA's New Loans Make Housing Even Riskier.

Is it just me or are we just continuing to make the same, stupid mistakes? I certainly hope that Obama is listening closely to Paul Volker as I think he is one of the few people out there who has the perspective to help guide us through this mess with a minimum of carnage...or is it too late....

--Fred

scared_sh+tless
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Joined: Thu Oct 09, 2008 5:30 pm

Re: Financial topics

Post by scared_sh+tless »

An interesting take on why the subprime mess is more damaging than it should of been:

Banks counterfeiting subprime papers

http://www.thesanitycheck.com/BobsSanit ... fault.aspx

mark
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Joined: Tue Oct 28, 2008 6:48 pm

Re: Financial topics

Post by mark »

Paul Volker was chairman of the fed circa Jimmy Carter days (late 70's early 80's). I remember under him, "Prime" interest rates hit 20%.

I remember the economy was so bad under Carter/Volker, people (including me) were collecting aluminum cans to trade for cash to bridge the gap to payday.

Lots of consumer items were labeled "generic", of low quality and less price than regular items. You bought these just before payday, because there was no csh left.

I remember money being so tight I bought used motor oil at a convenience store, to keep the hydraulic lifters in my Ford from clicking when the oil got too low, as I couldn't afford regular oil.

The good news is, it didn't stay in there long enough to do any damage.

I remember mounted police on horseback beinhg a "presence" in Denver parks, and people getting crawdads out of the small lakes in the parks to eat.

I am no fan of Paul Volker. The Carter/Volker years were the worst years in my life.

freddyv
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Re: Financial topics

Post by freddyv »

mark wrote:Paul Volker was chairman of the fed circa Jimmy Carter days (late 70's early 80's). I remember under him, "Prime" interest rates hit 20%.
...
I am no fan of Paul Volker. The Carter/Volker years were the worst years in my life.
Nobody should dispute what you say, the questions is: did he make things better? I believe so. Here is a quote from the NY Times from 1987:

"The main philosophical difference between Mr. Volcker, a Democrat, and Mr. Greenspan, a Republican, appears to be in their views of the structure and regulation of the banking system. Mr. Volcker has tended to resist deregulation of banks while Mr. Greenspan is more favorably disposed to it."

...which brings us right up to the present problems we are experiencing and it plays right in to the Generational Dynamics theme; had Vocker stayed in there long enough, perhas we would not be in such a huge mess now. This is a man who grew up in the Depression and is known for his thrift. He understood that in order to get your finances in order you must do what is necessary, even if it is painful. It's likely we would still have found a way to live beyond our means but perhaps he is the right man at the right time to help us turn this mess around.

--Fred

freddyv
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Re: Financial topics

Post by freddyv »

scared_sh+tless wrote:An interesting take on why the subprime mess is more damaging than it should of been:

Banks counterfeiting subprime papers

http://www.thesanitycheck.com/BobsSanit ... fault.aspx

GREAT ARTICLE!!! And right on the money, I'd say.

"...explains how the penchant of Wall Street to counterfeit crosses over from stocks, to bonds, to commodities, to anything it can touch. Phrases like "Financial Innovation" in reality describe increasingly sophisticated counterfeiting schemes. I believe that the creation of derivative bonds, as described above, is likely to be exposed as a massive global counterfeiting scheme by Wall Street's most venerated names. I also think that is why you've seen massive amounts of money lent to undisclosed groups by the Fed, in exchange for undisclosed collateral. The Fed has had to step in and essentially backstop the fraudulently created paper with the taxpayers' money, to keep China and Russia from going berserk at being cheated, and to keep the global banking system from completely melting down."

--Fred

John
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Negative Interest Rates

Post by John »

When the Treasury Dept. auctions off Treasury bills, financial
institutions can bid on them, essentially as a very safe investment.
When the T-bills expire (say, after 3 or 6 months), the investors
redeem them to get their money back, plus interest. The amount of
money they get back is always the same, and so the interest rate (or
"yield") depends on the price they initially paid for them. The
higher the price at auction, the lower the yield.

In "normal" times, the yield is a little higher than the overnight Fed
Funds rate, which is currently set at 1%.

Yesterday, the Treasury sold $27 billion of 3-month T-bills with a
negative yield: -0.01%. $30 billion of 4-week T-bills were sold at
0% yield.
http://www.bloomberg.com/apps/news?pid= ... refer=home

This is the first time that this has happened since 1929.

It means that these institutions need a safe place to put their
money, and they're willing to pay a small amount to the government to
hold their money for them. It's like putting your money into a safe
deposit box, where you get no interest but also pay for the box.

Sincerely,

John

ojavaid
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Joined: Wed Sep 24, 2008 3:41 pm

Re: Financial topics

Post by ojavaid »

Chinese Consumers Loosen Their Fists

Now overlay the last story with this one, and then compare the attitudes of citizens towards savings here (or in Japan) versus the conspicuous consumption culture we celebrate. It is one stark difference - people who act like this in America are viewed as "strange" or "out of the ordinary". And why at the individual level (not for all, but for many) and national level, we rely on the generosity of others to be our creditors. Once more, one of the more interesting "fallouts" over the next 5-10 years will be to see the cultural and attitude changes that potentially (or not) happen after this "lesson". We'll see how soon we forget.

He does not know it yet, but Dang Fu has been tapped to save the Chinese economy. A ruddy-faced millet farmer from northeast China, Mr. Dang, 56, has managed to save two-thirds of his family’s $2,200 annual income in recent years. He grows much of his own food, wears a winter coat until it is ready for the rag heap and buys niceties only when his wife’s nagging becomes intolerable.

Last year’s indulgence, a new 25-inch television, still makes him wince. “It was painful to spend so much money,” he said, strolling through the aisles of a supermarket last week with his prodigal sister-in-law (she saves just half of her salary).

But such tenacious thrift, once an admirable quality here, has become a liability as the nation’s export-driven economy slows, a prospect that has stoked the government’s fear of unemployment and social instability, and that could threaten the Communist Party’s hold on power.

Government analysts are looking to consumers, especially the country’s hundreds of millions of high-saving peasants, to pick up much of the slack. “If we can boost people’s confidence and they spend more money, it will not only be beneficial to China but it will help stabilize the world’s economy,” Zhu Guangyao, the assistant finance minister, said last week. (I encourage a citizen exchange with Americans - you know a 1 for 1 trade for 6 months - plunk those peasants into a lifestyle of malls, celebrity culture, and "acquiring more toys than the Joneses", and send the Americans to be pig farmers or bean growers - that'll teach those Chinese folk how to spend like a true patriot! Or simply get your President to tell the citizens that the terrorists have won if we don't shop - it worked wonders here)

But getting people to spend more, especially in the face of an economic slowdown, may be a tall order. Consumer spending makes up 35 percent of China’s G.D.P., and that number has been dropping since the 1980s, when it stood at 50 percent; consumer activity in the United States, by contrast, is responsible for more than two-thirds of the economy.
As part of subsidy programs... the measures include subsidized housing to persuade homebuyers to fill their new dwellings with furniture, and rural electrification projects that will give farmers access to affordable power. On Monday, the government introduced a subsidy in 14 provinces that would make it cheaper for people to buy cellphones, washing machines and flat-screen televisions. (sounds good, we'll do the same thing here, but we don't mess with small stuff like that - we do it for homes - Americans need no major incentive to buy those small gadgets you speak of - all it takes is a Best Buy flier and a post Thanksgiving morning and they herd like cattle outside stores at 3 AM - again, about that citizen exchange program... a lot can be learned)

Mr. Dang and his wife, Zhang Fengxia, 52, are the apotheosis of Chinese thrift. They do not use banks — “better to keep money at home,” Ms. Zhang said — and the couple’s biggest expenditure was a used tractor they bought for $1,200 a few years ago. Everything else is set aside for their retirement and for potential medical costs.

Although high savings rates can be found across Asia, the Chinese propensity to save is rooted in deep-seated memories of scarcity and a tattered social safety net that forces people to save up for education, retirement and medical costs. The government has introduced a subsidized health care system in the countryside but most Chinese, rural and urban, live in fear of medical emergencies. (well some things are the same in both our cultures)

In addition to health care reforms and reliable social security benefits for retirees, Ms. Wang and other analysts say the floodgates of personal consumption may have to await a marked rise in wages. “That is something that will take years, not months,” Ms. Wang said. (hmm, more similarities)

For the moment, it is people like Li Xiuqing who hold the greatest promise for China’s emerging consumer economy. A secretary in a Beijing accounting firm, Ms. Li, 28, makes less than $600 a month but she spends almost every yuan on stylish clothing, restaurant meals and prepaid minutes for her fuchsia-and-gold Nokia cellphone. (ah the great hope! The youth of the world - bathing in American consumption habits - thank god for the internet where people can learn our habits from 8,000 miles away) Raised on a hog farm in Hunan Province, she laughs off the penurious ways of her parents and grandparents. “The most expensive thing my father ever bought was a wristwatch,” she said as she picked up a $100 pair of stilettos at one of the capital’s ubiquitous malls. “China’s days of starvation are over.”

http://seekingalpha.com/article/109658- ... ource=feed

freddyv
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Re: Financial topics

Post by freddyv »

Here's an excellent video featuring Meredith Whitney:
http://www.cnbc.com/id/28155366

Mrs. Whitney is one of the few financial experts out there dealing with reality, though she focuses on the banks and not the stock market. I think her comments about mortgages being too big of a mess to fix is right on the mark. Only time and a lot of pain will solve this problem and all the problems that stem from it.

She suggests that we have another 2-3 years before we hit bottom and things can begin to turn around. Given that the we refuse to let people fail who should fail I think it may end up taking considerably longer. Last I heard over 50% of those whose mortgages have been reworked have defaulted again within 3 months...3 MONTHS!

--Fred

John
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Treasury bubble

Post by John »

-- Treasury bubble

The worry du jour is a "Treasury bubble," and what will happen
when it crashes.

As I wrote a couple of days ago, investors are pouring money into
Treasury bills as a safe place to keep their money. This increased
demand is driving prices up and yields down -- so far down that
yields (interest rates) are now negative. That is, investors are
paying the government to hold their money for them.

Now the discussion is that this is a "Treasury bubble," and pundits
are wondering what will happen when the bubble crashes.

I'm wondering too.

If you believe that hyperinflation is coming, it would mean a big
flight from the dollar, probably into gold.

If you believe, as I do, that deflation is coming, then it would mean
.... that you're doing something dumb, since the Treasuries would be
getting more valuable as the dollar becomes more valuable.

Or, still assuming that deflation is coming, it would mean that the
dollar is becoming more valuable and that Treasuries are becoming
less valuable -- i.e., it would mean that investors expect the US
Government to default, and not redeem their Treasuries.

Interesting times.

Sincerely,

John

freddyv
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Re: Treasury bubble

Post by freddyv »

John wrote:-- Treasury bubble

The worry du jour is a "Treasury bubble," and what will happen
when it crashes.
It is absolutely amazing how one crisis after another keeps popping up and yet the moron talking heads keep to the same strategy that got us into this mess...BUY, BUY, BUY!!!

Here is a link to video of 2 moro...well, I'll be nice and call them misguided fellows who suggested the worst was over in early September.

http://www.cnbc.com/id/26560130/site/14081545

...very interesting times. When I would hear "may you live in interesting times" referred to as a curse I would wonder if it was really a curse or just seen as a curse by those who aren't smart or brave enough to deal with a crisis. I am still not sure and despite profiting from the falling market and being entralled by the historic events taking place right before my eyes I rather long for the good old days of ignorance and bliss.

--Fred

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