Economy: here's your chance to say, "I told you so"

Check out some comments by Peter Schiff back in '06... he totally called this (on CNBC) and was actually laughed at by the other talking heads (one of whom was loading up on Merrill Lynch, lol.) Awesome.

Me? I knew - as a real estate investor myself - that there were WAY too many skanky loans being approved and it would come back to bite someone, though I never could have foreseen the scale of it.

O.

In a conference room in Detroit in March, 2008 a lawyer from a Wall Street law firm told me that the mortgage foreclosure crisis was bad enough, but "massive defaults, bank failures and near collapse" would start in late summer or early fall, 2008. He said that insiders were trying to make deals to minimize the impact or head it off completely and that the White House didn't want to get involved. I told people in Detroit, including auto execs, what I had heard. Since I'm Black and not a financial insider, no one listened. Then it hit. Now they want me on TV.

I don't think that it is all gloom and doom. 4 years ago when I got divorced, I had to refinance my house to buy out my wife. She had fucked up my credit rating so bad that the best interest rate I could get was 10 1/2%. Not the under priced rate that has led to the banking problems. 2 years later I had reestablished my credit rating and refinanced with the same bank at 5 1/4%. I now owe 75K on a home appraised at $240K. I have never invested in the stock market but I do have 1,000 shares in my company that were given to me. Now only worth $7,000 but WTF, I didn't buy them. I recently got an $800/mo increase in pay. I know everyone is not as fortunate as me but I can't complain about the economy.

Peter Schiff did have some insights and foreknowledge, but got some things totally wrong. He didn't forsee that when the bubble burst so spectacularly the big fear would be that of deflation. Hence his position on gold was totally wrong. Schiff is also a supporter of deregulation which is a huge part of the problem here.

Who got it right? John Paulson to the tune of a few billion. Gary Gorton at Yale. I'm not sure even they foresaw how systemic the problem would be become.

Mid-September, Lehman and AIG were in trouble, and people like Greenspan were saying "unprecedented", "once in a lifetime", and so on. My financial adviser trotted out his usual speech: stocks always come back; if you sell you won't get back in at the right time and then you'll really regret it; etc. That may well be right one day, but I had him sell every single stock I owned (about 30% of my investments). That was when the dow was still at 11 thousand something. I think he owes me a commission this year. (On the other hand, in 2000, he did find a way for me to cash out in time, despite various restrictions on my stock, as the dotcoms were crashing, so maybe we're even.)

Deregulation is the problem? Or, maybe it government guarantors such as Freddie Mac and Fannie Mae, as well as the government's legal framework such as corporations (are directors actually responsible to their shareholders?) as well as the government's mandates such as the CRI (community reinvestment act).

It is difficult believe that deregulation was the problem when there were tons of government regulations on the books (maybe lack of enforcement?)-----it sounded like when the mess came to light years earlier government just looked the other way. :)

More regulation is going to make the government do a better job? Or, perhaps the country just needs more government employees . . . I think about 100% of the population is a good number. :)

Economics professors will have a long time to teach this history and sort out what really happened. The rest of us will just get stiffed. I just hope and pray we are not seeing the beginning of the end of the mighty American economic engine that built the middle class and saved the world from Communism.

SuperDude: America will get hit by this less hard than other countries for a couple of reasons:

1. we have a huge trade deficit. So if our economy deflates other countries will lose a huge market to sell their goods to.
2. most of the world's debt is owed in US dollar, which will prop up our currency even though it ought to decline due to all the bailouts.

Kinda funny we are the main originators of the mess but will probably suffer the least.

jablake: I was as surprised as anyone to learn it was primarily deregulation responsible for the mess. How do you think the banks were able to pass along their crappy loans to Fannie and Freddie or dump the CDOs overseas? It's because the loans were insured. One little problem though. There was no regulation of the insuring of loans (CDSs). This meant much of the insurance were backed in opaque elaborate chains, often ending in those who could not cover once people started defaulting in droves.

Doesn't seem like a problem with a lack of regulation from what you described. Sounds like incompetent and or corrupt government again. A good businessman will maximize profits and if the government is too stupid or inept to avoid getting burnt, then it hardly seems like a clarion call for more regulation or a blame of deregulation.

Not a big deal----there is an endless supply of government money. :)

Many in Congress saw it coming, but Barney Frank, Chris Dodd, and their ilk, said NO WAY all is wonderful! democrats blocked 17, read that again, 17 efforts to halt what was coming, in 2008 alone, if I remember correctly!!!

jablake: It wasn't just Fannie and Freddie buying up the bad loans. CDOs were also be sold to non-government investors domestically and overseas. Private firms (the good business men/ profit maximizers) were also got toxic loans on their books, because, even though they were non-government, they were still "too stupid" to see that insurance was worthless (just like Fannie and Freddie, isn't that interesting, hmmm?) Why do you think WAMU went down and Citi came withing a few days of going down? AIG was non-governmental, selling the loan default insurance, and was ready to go down for the count before they got bailed out (MisterGay's claims that they had $1 trillion of liquidity not withstanding). Nope, the deregulated free market self-destructed just fine on its own here.

Once again I am impressed with the intelligence and knowledge of the regulars on this quasi-blog. If the girls only knew!

Many companies that caught up in the whole mess were coerced into accepting the bad debt. I'm sure you've heard of ACORN and others of the type.

Peter Schiff on youtube:

youtube.com

Clubber: ACORN was a very minor factor in the bubble and subsequent burst. Some banks like JPM and BAC were on the hook with toxic assets much less than others like C and WAMU. If it was ACORN why such a disparity in subsequent fortunes?

The main problems were miscalculation of the cost of loan insurance, non-sense bond ratings, inability of loan insurers to cover potential claims, and lack of transparency in the underlying CDOs, such that banks got scared to lend to lend to each other due to inability to collect knowledge about each other's exposure to subprime MBSs.

Read Gary Gorton's paper "The Panic of 2007".

"Nope, the deregulated free market self-destructed just fine on its own here."

It wasn't and isn't a free market and it definitely wasn't deregulated. :) Sorry, but I was watching a Senator get "uppity" with Treasury Secretary Paulson who didn't take even a little BS at that point and with contempt he told the Senator the taxpayers are already on the hook. :) Now, the Congress according to a 5-4 Supreme Court decision isn't bound by its own contracts so technically the Treasury Secretary was wrong.

And, why were these CDOs being purchased by non-government investors? Could it have anything to do with the "implicit" government guarantees? :) Could it have anything to with the fact the insurance industry in the US is highly regulated AND again there are either explicit or implicit government guarantees. Gee, you really think the nitwit government is going to let insurance giant AIG go under? :) NO, NO, NO! It just wasn't going to happen and if it did, then the Great Depression might look like a small correction.

The private profit maximizers did exactly what they should have been doing and that is to trust AIG was backed 100% by the government. That was just good business and their pockets were lined with millions as a result.

Way back, The Wall Street Journal did a series of articles on Long Term Capital and I believe its worst annual return for its super wealthy investors was 40% and over a 100% return wasn't unusual. Of course it collapsed and its "assets" were worthless; something like 3% of its pre crash value. Anyway, were these private profit maximizers stupid? :) Gee, depends on who you ask. Some saw it as a failure of the free market-----funny how those free market types got the government to pick up the tab and the investors got ALL their money returned PLUS ALL their interest. :) The free market types didn't fail they took advantage of the game---the government's game.

Now, before you infer that I believe the profit maximizers never fail or are never stupid let me say that just isn't the case. However, with the recent failure it was profit maximizers doing their best given the rules of the government's game. And, the profit maximizers were generally right. In fact, I can see some of these guys doing better failing than if the bets hadn't soured. :) Failure can be smart and winning if the government is around with billions or trillions of free money. :)

100% blame goes to the nitwit government!!! :)

"Many companies that caught up in the whole mess were coerced into accepting the bad debt. I'm sure you've heard of ACORN and others of the type."

That was definitely part of the problem, however, it went a lot deeper than that. Why not treat the business as a giant gamble? Why be prudent? What exactly are penalties of failure?

Going out of business? Well, yes to little fish who had nothing to with the failure that is a huge penalty, but the big boys pockets were already stuffed with cash by the time the game was shown to imprudent and or a fraud. Even better, failure might bring in even more $$$$$$$$$ from the government like it was raining from heaven. :) So the government screws around with the "free market" with not only a legal sword where dumb decisions may be the best decision to save your ass, but there is also the reward of short term profits. Failure? Well government could make even that rewarding for the top dogs. :)

In the court system often the more an attorney screws up the case the more heavily he is rewarded. Is this a failure of the "free market"? Nope, it is basically a huge government fraud. I had a very simple case that went on for years and years. It should have been decided in less than a couple hours. It was just a government scam by the government judge so that he could award thousands and thousand in "reasonable attorneys' fees." It is just 100% corruption and then more corruption. :) I had the Judge tell me there was "No difference between a Warranty Deed and a Quit Claim Deed." :) The Judge definitely knew the difference, but he was a hoodlum who is above the law.

Basically, my opinion is screw the alleged "free market" and put the government 100% in charge with everyone being a government employee. :)

To buy (assuming you have a choice) Windstorm insurance or not? Well, one neighbor was extremely under insured (he is low income) and another neighbor had NO insurance (also low income). Of course, both the homes were "destroyed" in a hurricane.

They both got screwed?--especially the homeowner with NO insurance, right? Nope. You need to add government to the equation and that includes not only the corruptness of its courts, but also its probable responses in a catastrophe. The homeowner with NO insurance got a brand new home much better than the original, while the underinsured homeowner got royally raped.

(Even those who are fully insured can get royally screwed thanks to government's courts, btw. Yes, I know difficult to believe and it might be only a few cases----but, even after buying "full coverage" insurance a homeowner can be royally screwed in the government's courts. A very wealthy man had his home, more than a mansion, severly damaged by tornadoes during a hurricane. Unfortunately, for him he owned the home free and clear. The expensive insurance premiums that he had paid for decades were finally going to pay and he would be protected? Yeah, right! LOL! No, he found himself in the government's courts for years and years and years spending huge amounts for lawyers, which is how the scam is supposed to work. So, first pay expensive insurance premiums for years and years and then pay expensive lawyers for years and years.)

My former employer had purchased some type of business insurance that would pay the bills (employee salaries, for example) in the case where the business couldn't continue operations due to disaster. Well, a hurricane hit and this expensive insurance was looking like a very good buy. The power meter had been ripped from the wall, but other than that the building suffered very little damage---yes, a "new roof" was needed, but that can be done dirt cheap depending on what and who you know.

Of course, my former employer had a bunch of employees who needed to be paid even though they couldn't do productive work without power----it took months to get the power back. Fortunately, the employer believed in saving for an emergency even though he had expensive insurance so when the insurance company refused to pay, the employer stepped up and kept paying with NO money coming in. Very painful and basically it depleted his hard earned savings. :(

He asked me to read the relevant portion of the insurance contract and I basically said that he needed to hire a lawyer. He said that he'd already hired a lawyer, but just wanted my opinion. My opinion was that he had a very good case (the contract language was surprisingly clear), but don't have any faith in the courts. He says his attorney told him exactly the same thing.

How many years did the employer spend in court? Seven years. And, he got got screwed royally. The court system is basically a giant fraud----yes, you can win, but win or lose it is a giant fraud. The positive news is that he only carries insurance that is mandated by the government. Why pay expenwsive premiums if the insurance companies are just going to use the courts to rip you off?

One unusual and perhaps unwarranted ripple effect is that my employer who was always rah rah rah Buy American lost that zeal. He had always bought American made cars for himself and his family and his business and even for his employees.

Most people, perhaps correctly, would think that being screwed by a corrupt court system has NOTHING to do with whether a person chooses to Buy American. I see my former employer's point and actually applaud it. There is an old rule in economics and I think in law? that beware of the unintended consequences. Anyway, in court case that had absolutely nothing to with them the American auto manufacturer saw hundreds of thousands of dollars worth of business forever switched to the foreign auto manufacturers. :) Life just ain't fair, but he really shouldn't have been buying American in the first place, imo.

"Once again I am impressed with the intelligence and knowledge of the regulars on this quasi-blog. If the girls only knew!"

Exactly. :) Alas, the dancers got better things to do like washing their hair or starring in videos.

If we're so intelligent, why do we give money to women we don't know to flirt with us for the duration of 3 minute song?

jablake: The "default insurance" industry in the US was not highly regulated, in fact it was highly deregulated. It was a new kid on the block and its boom coincedes very nicely with the subprime mortgage bubble.

Many of the entities which counted on implicit government backing got pennies on the dollar when default insurance was payed out. Many subprime MBSs based CDOs got screwed over before the bailouts, and even now I bet none are expecting full government bailouts. (Look at Citi's deal with the government for an example.)

And if you want to know how well these private businessmen did for their companies implicitly counting on government bailouts just have a look at how AIG, WAMU, Citi's and other financial stocks have faired. And look how close they came to getting wipped out completely.

Finally it seems that logically as long as there is any government involvement in the economy then no matter what happens in that economy you can always blame the government. I agree that that is logically possible. However, what you really need to do is drop the ideology and look into the details of the default insurance, and read that paper "The Panic of 2007" and then let your intuition tell you if it was free market problem or not. Let's see the one area of insurance which was easily the most deregulated is default insurance, it blows up, takes trillions out the markets, and nearly flattens. It's clearly a market failure. Is there anything that could happen in the US economy that you would recognize as a legitimate free market failure, or is your ideology so strong that you would always blame the government. This one, once you look at the details, is a no brainer. Even Greenspan admitted as much.

Bobbyl,

RE: ACORN. Perhaps you should go back and READ what I typed, and comment on THAT, rather than what you wish, thought, or pretended I said!

Why would these private businessmen care about their companies? That is just unusual thinking, imo, givern the goverment framework and foundation that has evolved. It is like Burke Mills. Supposedly, its quick sale asset value was $15 to $18 a share for just its real estate holdings, for years and years it traded at about a $1 a share. In a free country the problem of the shareholders being screwed could have been remedied by a LBO, which the media mainly like lemmings frowned upon and the government passed laws to "solve the problem" of LBOs. Burke Mills is 20 or so years later going bankrupt after the businessmen looted the company and of course the shareholders will receive $0.

Before the much heralded $700 billion dollar bailout the media was reporting that the Fed injected a half trillion into the banking system. Considering the difficulty of valuing these "assets" it is possible that if the government is paying 5 cents on the dollar a profit is being made. :)

AIG is highly deregulated? Next you'll be telling me banking is highly deregulated. Besides if these mortgages behind the CDOs are actually secured implicitly or explicity by the government then it seems like problem solved---government just pays in full. A friend of mine has 2 homes going into foreclosure---it seems like again the government is the problem (assuming I'm getting the straight story from the mortgage servicer; yes, a big assumption). Anyway, it would make more sense to cut her interest to 6% so that she can afford the mortgages---seems like the "parties" are in agreement that is the best solution. The problem supposedly is that government "rules" prohibit the lending for more than properties are worth---normally a prudent rule. Not, so prudent in the face of RE market collapse so she will lose and mortgagee will lose assuming the government doesn't bail 'em out. No, I'm not sure the mortgage servicing company is correct either in good faith or factually.

It isn't a question of ideology. It is more like the proof is in pudding. Besides, the government can do a lot of good and private businesses can screw up even if the government is nowhere in sight. I was reading about this problem years and years before "the shit hit the fan." This wasn't some deep dark secret that suddenly sprang upon the government. For good or bad (remember the boom did a lot of good) the government chose to let the game continue and people depended on the government being Mr. Printing Press/Mr. Guarantor if things got bad.

Some people are going to lose money? Yes, I think if the investors of Long Term Capital weren't SUPER RICH the government would have let them go broke. It is sort of like how the 100,000 FDIC is actually unlimited---your deposits are protected for millions IF you choose the right big bang. Choose the wrong bank i.e. a smaller bank the government is only going to give you $100,000. :) Is that equal protection of the laws? Who knows.

"such that banks got scared to lend to lend to each other due to inability to collect knowledge about each other's exposure to subprime MBSs."

I've head this repeated ad nauseum in media and I doubt there is any validity to it. Banks are depending on other banks (besides the FED) for their money? NO, my understanding and I could be wrong is that it was the feds job to provide liquidity to the banking system----they have the "printing press" so turn the spigot on unless there are ulterior motives at work such as screwing smaller banks. :)

"Many companies that caught up in the whole mess were coerced into accepting the bad debt. I'm sure you've heard of ACORN and others of the type."

Seems like a straight forward point to address or dispute. The Wall Street did story after story about how the banks were being "wrongly" threatened by the likes of ACORN.

Thumbs up to the government on this one---the banks needed a heavy hand directed at them, imo. (In a free market, I would say the banks need to be left alone and make loans to whoever they wish. For example, no loans to females? No problem. No loans to asians? No problem. It isn't a free market, especially banking, so thumbs up to the government pushing a helpful social program on the banks.)

Of course they were scared to lend to each other. Did ever you try transferring money between banks at this time, electronically? Especially away from one of the "bad" banks? Normally this just happens instantly because good bank gives bad bank credit. But this time around it took forever because the bad bank wasn't trusted to cover the transfer.

Also, I did not say AIG was highly deregulated over all. I said that the trading of default insurance was highly deregulated. It blew up, and was probably the biggest factor in the bust.

clubber: Actually I did READ what you wrote. I re-read it now just to see what you are so cranky about. My comments remain the same. Sorry if you can't accept that free markets can and have failed and that makes you all cranky. Sorry but just dropping the name "ACORN" is not enough to prove otherwise, your right wing whacko blog commentators notwithstanding. Like I say go and read the details here "The Panic of 2007" if you want to find out what really happen. Prepare to have your faith in the free market shaken, however.

The borrower isn't even 1% responsible because the government created a situation where a person could easily get screwed if he doesn't borrow (by government printed money i.e. inflation) or if he does borrow (the economy tanks taking housing and jobs with it). It horrible position to be placed in, but the smart choice, imo, was to gamble on rising prices---at least you aren't getting clobbered by expensive rent.

A friend many years ago was working his tail off---not a bright guy, but a very hard worker---and saving his pennies while paying expensive rent. So he has about $10,000 in the bank (and remember he is wasting money on rent while he is saving pennies) and at the time it is enough for a downpayment. Oh no, the "brain surgeon" wants to pay all cash and besides he is always worried about losing his job and not being able to meet the mortgage payment.

Of course, you know what happened? The housing prices inflated to such an extent that his $10,000 in savings thanks to government inflation was essentially worthless. It is extremely risky to keep your money in savings like T-Bills, etc. if you have a government that believes (President Bush, the supposed conservative repeatedly chirped about how wonderful a cheaper (read inflated) dollar would be) in devaluing its currency via its printing press.

So what is the poor borrower to do? He can either face his savings being destroyed by government inflation or he can gamble on getting a little bit of security in the form of homeownership. BOTH are gambles, iows, it is a gamble to hold the cash and it is a gamble to borrower.

The government, imo, is 100% responsible for creating this NO WIN situation for many borrowers. In the 70s people who gambled on buying a home were richly rewarded while those who held cash got screwed by the government's inflation big time. :(

"Of course they were scared to lend to each other. Did ever you try transferring money between banks at this time, electronically? Especially away from one of the "bad" banks? Normally this just happens instantly because good bank gives bad bank credit. But this time around it took forever because the bad bank wasn't trusted to cover the transfer."

No, I haven't tried transferring money electronically from bank to bank. So because electronic transfers were delayed a few days that brings down the banking system? :) True, it isn't efficient and seems like an area the government could do a lot of good, but hardly seems like the cotter pin of the U.S. economy. If the economy is that fragile, then damn this country is far more messed up than I believed.

My point about AIG is that people trusted it for damn good reason. The government is going to allow it to collapse? Remember there is a history with Long Term Capital and other financial concerns were the rule is too big to allow to fail. That is a government decision and breeds both confidence and recklessness. Additionally, I'm sure AIG created different financial products, but it is highly regulated. And, the government was put on alert years earlier (hell, if nothing else LTC should have been a good slap in the face), but maybe the right choice was for the government to do nothing and let the game play out. Remember a lot of good was done with all that money.

The borrower is much more than 1% responsible. My credit score was untarnished and I would have easily qualified to buy a home at this time. But I could see the market prices were over inflated, and I knew that it was not a good investment so I held off. Now I am glad that I did. The situation was even worse than I imagine. Next year might be a good time to go house shopping. I'll let it get a bit worse first.

It wasn't a few days. It was a couple of weeks. And yes, if banks can't transfer money betwen each other with confidence that the other won't be able to cover it brings down the whole system. There have been two times in this crisis in which we probably came within a week of having the entire economy collapse. As you said the great depression would have looked like a small correction.

"But I could see the market prices were over inflated, and I knew that it was not a good investment so I held off."

And, would you have held off buying during hyper inflation of the 70s? Where would you have put your money? In the stock market? Gold?

The game could have played out with even higher housing prices and ever higher rents. I remember the brutal inflation of 70s and a lot of people, especially those not invested in real estate, got screwed big time waiting for "lower prices." Even when the prices corrected they were still very high (much higher than the start of the inflationary spiral) and person waiting to buy got screwed by expensive rent payments while waiting for this magical correction.

Seems like the good old days non-electronic transfers weren't even taking that long. Besides that seems like a problem government can solve without giving away hundreds of billions of dollars.

I agree that just giving the banks hundreds of billions NSA was a terrible move. When the news came out what happened the S&P hit its low at 750 and this is one of the two times in the crisis when I think we were within a week or so of complete economic collapse.

Fortunately, the Fed seems to have gotten smarter about how it does things since then: witness the Citi bailout (more like only minorly predatory loan here) and calm in the markets lately.

Where would I have my money in the 70's? I'm not even going try and play that game? Deflation is the bigger worry right now, not hyperinflation. I'll think about what the best course of action is given probable deflation (i.e. make damn sure your job is secure, save money, pay off all your debt, keep cash on hand, delay major purchases to get a better deal later, if you must play the market: buy puts, short sell companies likely to bomb, etc.)

If it looks like it will swing to hyperinflation I'll think about it then.

I was asking the question in order to know whom to listen to the next time I hear financial advice bandied about. Which dudes here on TUSCL succeeded in weathering this thing intelligently? Which ones got screwed by the crisis? How did you know? What should I do, in the future, to stay apprised of accurate predictions of the future?

Partly, I view this thing as simply a come-uppance for the stupid people out there. Signed up for a sub-prime variable-rate mortgage to get more house, boat, driveway, SUV, RV, than you should have gotten or rightly could afford? Gee what a surprise, the rate went up. It's a tax on the dumb-asses and self-indulgent ones among us. Just like the casinos and lottery, if play when you can't afford it, then don't complain about life when you run out of money that you spent when you weren't required to.

Partly, though, I view this thing as ME getting screwed because of (a) THEIR stupidity and (b) the avarice of the corporate greed-mongers running the companies that preyed on them. The notion that a company preys on its customers is as old as John-Saw, but there's a line which the most recent credit abuses crossed that put many lenders and businesses into the realm of mercenary predatory zeal instead of "just doing business according to the rules the way that the rules were set up to do business." I don't know how to draw those lines, but I know they were crossed. And I'm GRAVELY disappointed that (1) the taxpayer foots the bill for someone else's greed depravity or stupidity, and (2) the economy as a whole sinks, to my own and many others' personal detriments, despite our own best efforts otherwise, thanks to someone else's greed depravity or stupidity, and (3) the corporate executives have golden parachutes and still keep their bail-out retirements and their perks and limos and jets and yachts.

Book Guy: They'd like to tell they told you so, but they had to eliminate their internet service, or can no longer get on here at work! JK

PS -- I don't buy the ACORN argument.

I hate that organization, don't get me wrong. They're Politically Correct idiots ruining inner-city movements with their Mau Mau politics. But I think someone else would have found a way to convince uneducated borrowers to get in to a pool way too deep, over their heads, thanks to the context of the credit market and the manner in which loan opportunities were being re-structured and created. I think blaming it on a left-wing inner-city organization is a straw-man game. If anything, it's the right-wing suburban organizations (white-male-dominated government committees, and their cronies in the major financial services organizations) who both (a) precipitated the crisis to their own benefit (they got the income based on new interest dollars!) and (b) get to ride it out without much personal detriment (they still have out-clauses, perks, parachutes, large savings accounts, and an opportunity to leave behind their third fourth and fifth homes without significant loss to personal lifestyle, unlike inner-city dwellers without access to amenities who have lost 100% of their life-investments). It would be nice to blame ACORN for this one but I just don't see it. It's much more clearly a case of Big White Brother takes advantage of Inner City Uneducated Black Brother, than the other way 'round.

I think you're on the right track, BG. They lenders thought they had found a way to squeeze the biggest source of value that most Americas will have: equity in their homes. One little problem though: They thought the value of homes would continue to rise indefinitely and never ran the numbers for what happen if real estate prices stayed flat or dropped.

It's been a religiously held belief in the financial world that real estate is on the order of bonds and close to cash in terms of "safety".

If one were in the mood, it might be a good idea to see other flawed finanical "truths" that one could exploit here. Just writing this, I get the feeling that the safety of "bonds" would be an interesting thing to examine.

Bobbyl,

If you read and understood, then you know what I stated and that I didn't state nor imply that ACORN was THE problem, rather part of it (...ACORN and others of the type). I used that acronym simply because it is in the news, presently.

If you wish, you can go back to the extortion carried out by Jackson, Sharpton, etc. on companies. All, one and the same.

Oh, and I forgot a BIG one, the CRA, aka, the Community Reinvestment Act!

What a great thread. This discussion has generated more sustained enthusiasm than tit or clit size, OTC action or mileage.

I have a buddy who likes to talk about "really smart people" here in Central Ohio...as in, three years ago, some "really smart people are gonna start an airline..." It was Skybus, which they indeed did start and then lost a substantial amount of money when it went bankrupt 8 months ago.

Warren Buffett and Sheldon Adelson, both multibillionaires and "really smart people," have lost billions in this downturn. So even the "really smart guys" were unprepared.

one really smart guy who did anticipate major difficulties is a brit money manager, jeremy granthem. Many people don't recognize the name because he does few interviews, virtually none on tv (he did one recently for a PBS show, tho). Google his name and you can see what he's said over the last few years. Today he is saying stocks are attractive, but not a screaming buy, for someone with a five year horizon...

SuperDude: Well naturally. No money = no strippers and no strippers = no pussy for us. (some sarcasm here for the humor impaired)

We go to the strippers because we consider the exchange marginally to our advantage. Econ 101

"Where would I have my money in the 70's? I'm not even going try and play that game? Deflation is the bigger worry right now, not hyperinflation."

Deflation seems like a very solvable problem. Government prints whatever amount of money is needed so that it can fund all manner of spending programs or "tax refunds" and boom before you know it full employment and rising prices.

My point was the double edge sword that the government's printing press creates. You can either invest in "appreciating" real assets by whatever means are available i.e. ARM loans as more money is pumped into the economy or you can wait. In the 70s waiting would have financially devastated you because the costs of living were rising so dramatically. Those who grabbed "expensive" loans and "expensive" property did very well by comparision because the inflation bailed them out. Even when the market corrected prices were much higher than in the 70s. So the bloke who didn't jump into a home he couldn't afford in the 70s was pretty much screwed big time. He wasted his money on ever rising rent and his dollar savings (what little was left after the cost of living was skyrocketing) was worth pennies due to inflation; again even after the market corrected years later.

"But I think someone else would have found a way to convince uneducated borrowers to get in to a pool way too deep, over their heads"

They didn't need convincing. They needed opportunity. That is what was so wonderful about about the government's CRA. At the time my concern wasn't the loans, which were barely affordable; heaven forbid poor people get the opportunity to buy a home instead of renting themselves to everlasting poverty. My concern was the adjustable rate mortgages----remember their supposed to be helping these poor people by giving them opportunity to borrow----NOT screwing 'em with ARMS. Another well intentioned government program ends up screwing those it was supposed to help---no surprise there! :(

As the game was explained to me, the bankers planned on just refinancing every few years. That still would have been a better deal then renting by and large.

Many of those borrowers were given a Hobson's choice and, imo, it was the only real choice in at least there was hope. Paying skyrocketing rent would have left moving in with their friends or families. I had a complete family, Husband, Wife, and Two Children, living in my neighbor's tiny filthy garage----which they got kicked out of as soon as the Husband was away. But, hell they were there over a year. Think they would have refused a subprime loan? :) No, a subprime loan is wonderful to them compared to rents that were heading one way thanks to the government's printing presses.

BTW, I believe the government's CRA helped a lot of people BIG TIME in the beginning. People who now own homes and who can thank the government for providing them the opportunity to borrow from the banksters. I say believe and perhaps that isn't the case. Perhaps very few people were truly helped.

Anyone, I was disgusted when I learned of the bankster's ARMs. I couldn't believe the government would approve of that filth, but that seems to be the case and perhaps it was the way the politics worked out. Better for poor people often times to get a nasty loan than NO loan---it all depends on the alternatives which are often much bleaker.

To those who say they shouldn't have borrowed the money that sounds like modern version of "Let 'Em Eat Cake!"

Correction:

Anyway, I was disgusted when I learned of the bankster's ARMs.

Hi TUSCL_Brother,

It is like the gangster who came to my grandfather's grocery store and offered him a deal he couldn't refuse. Yes, you could correctly point out that my grandfather was "forced" to accept the gangster's offer. However, that isn't exactly correct. He could have gone to the police and hope for protection for himself and his family. He made a choice. Was it the the right choice? I don't know.

Here's another example. I knew a young woman who supposedly was the daughter of a local politician---a politician who I happened to detest based on what little I knew about him. Anyway, the politician strongly believed that you always have a choice as long as there is another option. AND, that compliance with the law is always voluntary. So if a woman is given the option of having sex with 30 men or having her hands cut off and she decides sex with 30 men is better than losing her hands, she according to their belief system made a voluntary choice. She chose the best option under the circumstances.

Similarly, many of these borrowers made the best choice available----if there was hyper-inflation courtesy of the government's printing presses then said borrower would look pretty smart. So a working class nobody sees the following: Rising prices with the government lying about inflation (Example: it isn't inflation despite the much higher price because the product is better). What to do about these rising prices? Especially the damn ever rising rent for a dump of a living space. Well, a second job might be the answer. Or, moving into a friend's home or garage. Those are choices. And, if hyper-inflation arrives whatever savings the person had are effectively gone and worse the person might not even be able to pay the bills even with a good friend or second job. Hyper-inflation is to be feared if you're struggling to pay the bills.

Enter wonderful government program/mandate: A NO MONEY DOWN opportunity to own a home and not have to worry about ever rising rents. Plus build wealth as you pay off the loan! Sounds too good to be true, but the alternate is fairly bleak to say the least. I saw the tenement a couple of strippers were living in and I commented that they must be able to do better. I had a mini-heart attack when I was told the rent. Sure enough the outrageous rent was considered "normal." I had no idea the rentals had become so expensive. I guess they could have move somewhere where living is cheaper, but then they lose what little support system they have.

So I guess it is how you define FORCE. I've watch the government FORCE people to admit to crimes they didn't commit. How does the government do this? Well, I'm watching case after case after case. Every case it seems like no matter the supposed crime the person is facing a minimum 20 years in prison. Or, cut a deal and get time served or probation. I have friends who defiantly state they'd risk the 20 years and put their faith in a jury trial. Well, that is another issue. My neighbor who can barely understand English was forced by the government to serve on a jury. He voted guilty he says because he didn't understand the case (NO translations for him) and just wanted to follow the leader.

Yes, I see the government as FORCING people to grab whatever tiny bit of hope is available. Many of these people that are losing everything wouldn't of had anything if they just kept paying more expensive rents; anyhow.

Now, in a free market I wouldn't have a whole lot of sympathy for people accepting these loans because hard work and very basic intelligence would, imo, bring rewards. It would just be a question of saving the pennies the way my grandparents did. That free market is long since dead and with its death the government needs to step to the plate as it did with the CRA. The CRA helped---when done properly--- put the house more in balance so that working class and other folks have a chance at financial security.

I can't resist another example of government FORCE.

I was in this long drawn out court battle and lost. The judge wanted me to contest the "reasonable" attorneys' fees the other side was demanding. The problem is that if I litigate that $15,000 isn't "reasonable," then the judge can easily increase it $50,000. (I saw the predecessor judge do that at a different attorney fee hearing---what a complete fraud.) Or, any amount. It is fraud. BTW, the appellate court isn't too interested in lowering attorney fees----surprise, surprise.

In one case a dispute over a $100 bill resulted in the losing side getting hit with a $40,000 court judgment for attorneys' fees. The Third DCA (that is the state appellate court for my area) by a decision of 2-1 said $40,000 wasn't reasonable for the $100 dispute especially since the lawyers had won almost identical cases on the same issue years earlier. The dispute, btw, is now clarified by new legislation where the old couple objecting to the $100 bill would have been in the right and the condo association in the wrong---anyway, it was 15 minute case and that is if the judge put a lot of work into.

So are you applauding the appellate court for stating $40,000 in attorneys' fees for a $100 simple dispute wasn't reasonable? Gee the same trial court may have ultimately awarded $39,000 in "reasonable" attorneys' fees. The court system is basically a huge government fraud to extort money and instill fear.

Bottom line was I FORCED to say the $15,000 was reasonable? Some people would say NO and other people would say YES. I sure as hell didn't want to see the judge increase it to $50,000 or more to show me that he had absolute power in most cases----the appellate court is as much or more of a joke than the trial court. In fact, if the "reasonable" attorney was $30,000, then I wouldn't fight that either because the court was way too corrupt.

If you know anything about real estate law, then you know there is a huge difference between a Quit Claim Deed and a Warranty Deed. Well, my corrupt judge openly and loudly declared there was NO DIFFERENCE between a Quit Claim Deed and Warranty Deed. I couldn't believe he didn't have an ounce of shame to spout such obvious nonsense. The cattle class support this filth so whatever-----I wouldn't support it with even a pin prick of my blood.

Good thread. Clubber has the most accurate insights here.

The liberal policy of opening the housing market to more people was and is the kind of thing that validates the old saying "The road to Hell is paved with good intentions."

how,

All it takes is reading, understanding, and making an INFORMED decision. That, or one can just read whatever propaganda they wish, then accept that as "truth".

how: clubber has absolutely no insights. All he "knows" is what he has read on right wing whacko blogs. He drops the names "ACORN" and CRA and thinks it's a convincing argument. Truly, those were relatively minor factor. clubber doesn't really have a mind of his own, and, in fact, is the one poster on this board who has the dubious distinction of being the only poster so dumb he couldn't even out debate MisterGay.

As for the "good intentions" I say the intentions were neither good nor bad, but just to make money. They thought they had found a way to do it, but their model was flawed.

Hi TUSCL_Brother,

I wouldn't feel as bad if the judge was just slow or uninformed, but I asked him to please put it in his order that there is NO DIFFERENCE between a Warranty Deed and a Quit Claim Deed, if he actually believed that. There was no way in hell he would put such complete nonsense in writing. He is a crook and he is above the law.

This one judge (nothing to do with my case) who had an excellent reputation (perhaps well deserved) had been relegated to special cases. First off, he seemed like a very nice guy who possessed intelligence and education, but he was suffering from some type of dementia. He shouldn't of been sitting on any cases except those that were totally unimportant because his mind wasn't there--it was sad to see. I didn't even believe he was a real judge at first and asked a clerk who confirmed his identity and said what a wonderful man he was. I asked is he still hearing "special cases"? The clerk nodded YES. I'm just shaking my head and the clerk says he is a really good man and he wasn't always like that. I'm thinking to myself what type of "special cases" could he possibly be trusted with? To my amazement he was in the news about 6 months or so later and he was handling a very important case involving alleged police brutality against protesters! According to The Miami Herald article he was known as law and order judge who had a lot of compassion and caring for people. I didn't know from speaking with him that he was law and order, but he did seem like a very caring person.

I had the PERFECT example of FORCE given the nature of this form. I feel stupid for not thinking of it in a timely fashion. :)

I had a stripper living with me for a very short period of time and I didn't want her in my home and she really didn't want to be there.

What happened was she was in jail on a felony charge and the judge didn't want her released and in fact although she had briefly had the opportunity to post bond (if she had the money; she didn't) the judge revoked the opportunity for bond! Enter the public defender who fights valiantly to have her released and the judge just isn't buying it even a little bit. The public defender amazingly, imo, continues to battle on her behalf explaining that she has a child and blah, blah, blah. The judge seems like an immovable rock and these types of hearing are typically fast---not this one and I was very impressed a nobody could get a real hearing. That ain't the America I know.

Anyway, the public defender senses that the hearing has become too "public" and the judge had made it clear that there isn't going to be a release even with bond and definitely not without bond. So, the public defender asks for a sidebar and the judge basically relented, but said the answer is still NO! I can't believe how patient the judge has been---I'd had given up a long time ago if I was the attorney. The judge has been clear and forceful. On and on the public defender is fighting for release at sidebar---I can't hear what is being said, but the judge is definitely in the NO mood. This is getting absurd because a lot of cases need to be heard and most people don't get any time if they're poor.

What happened next STUNNED me. The public defender points me out of the crowd! I definitely DO NOT care for that---the judge knows me just a tiny bit, but has a sharp memory. Nothing too negative, but the judge had found me to be very unusual and I had even had polite words with her bailiff. Now, the judge's eyes open wide at me in what seemed like disbelief. Is the judge going to hold me in contempt??? Then the game changes completely and the judge is agreeing with the public defender!? I'm thinking what in the hell??? Court is way too stressful for me.

As the public defender is walking out of the court room she motions me to join her. She says I've got good news and bad news. I say let's hear it because all I've been hearing for longest time is bad news. She says well the good news is the judge is willing to release her. I say that is FANTASTIC!!! (and I'm all smiles, which extremely rare) What in the world could be the bad news? She well the judge insisted on an electronic bracelet. I say what is bad about that? She says it is real pain and that the a land line phone (i.e. a regular phone and not a cell phone) will be needed. I say and how is that a problem? In my ignorance I thought everyone had a land line phone. She explained that many poor people don't have a regular phone and that can be a real problem (for various reasons it was, btw; again I learn).

I'm thanking the public defender for excellent work and telling her how much I appreciate her not giving up. But, why in the world did she point me out of the crowd (I wasn't a witness)? The public defender said that she told the judge that I wanted the girl released. What??? This is beyond strange at this point. The public defender said she didn't want to do that, but didn't feel there was any alternative. I laugh and say, but I'm nothing. And, I'm not like buddy buddy with the court system. The public defender said well, the judge feels different about the situation. Then the public defender says are you sure you know what you're doing? I said what??? The public defender says that girl isn't all sugar and spice and that she hopes that I know what the hell I'm doing.

So, I call her brother with the fantastic news and told him all that is required is a landline. Blah, blah, blah, landlines are a real problem if you are a certain class of poor.

Default she ends up with living with me! Is she willing to put out? Well, in the past she'd always made it clear that her business stayed in the club. In fact, I'd done FREE OTC---but, she is this goody-two-shoes outside the club so it didn't benefit me except she is just a nice person. I just wished she was willing to put out even a little bit OTC. But, like she said that other girl doesn't exist outside the club.

So NO fun for me while she is staying with me. I asked if I made her stay conditional upon her putting out what would she do? She thought about it for a good pause and said she really wouldn't have much choice (i.e. put out for me or get sent back to jail to await trial), but to make me happy.

I see that as an example of FORCE because she doesn't have real freedom under those conditions. Let's say she wanted to stay with me just to get free room and board and wasn't under any government threat of FORCE (yes, I consider jail a threat of FORCE). In that case, I would see it more like her just making a business decision and I would require that she earn her keep.

I don't like taking adavantage of anyone who is being threatened like that so basically I was just one frustrated old man and I just wanted her gone----NO, I wouldn't kick her out and I treated her like I would a valued house guess. It wasn't any fun for her either. If she had had a real choice, then she wouldn't have chosen to live with me!

"He drops the names "ACORN" and CRA and thinks it's a convincing argument. Truly, those were relatively minor factor."

I'm sure there is a better term than "tipping-point." And, it isn't the "straw that broke the camel's back." Sometimes "minor" changes can precipitate much larger signifcant changes that may sometimes to the casual observer seem totally unrelated.

It seems like prior to the government using its muscle and threats (CRA et al) to FORCE banksters to change their lending practices, which were both conservative and discriminatory that banks of all institutions weren't "preying" or generally even lending to lower income people as far as homes. It also seems like there were vast tracts of Miami that were no-man's lands because loans weren't available in those "red-lined" areas. (For auto insurance purposes my home falls with in the "red-line" and the discrimination is or was of an in-your-face variety.) Once FORCED by government to deal those who the banks would rather shun the changes seemed to come where there was a recognition that gee money is to be made in these violent crime ridden areas that are filled with "undesirables."

Surprise, surprise. Either by cultural conditioning or plain business blindness or even "ethics" or some combination thereof the supposedly all knowing private businesses i.e. banks had failed to cash in on this massive untapped market until government came to the rescue. Well so far so good as long the banksters don't over milk the cows or shear the sheep too severly. But, hey if the powers-that-be (the banksters) have the hammer it shouldn't come as great surpise when they start using it.

The poor people can't afford it? Well, thanks to government, imo, the banksters were no longer thinking in terms of what a consumer could afford----that thinking was defenestrated. Besides the poor were shockingly able to generally shoulder heavy burdens that bankster didn't believe they were capable of i.e. a normal fair home loans, so why not push the envelope and rake in the real $$$? The poor can always do whatever it takes to make higher payments or refinance---either way the banksters win.

Was this new thinking that I've correctly or incorrectly surmised limitedly applied to just the poor? Initially, I think the answer was YES and then the "diseased" thinking spread to include ALL borrowers. Hey, corruption breeds more corruption and small tinkerings and lead to massive changes---both positive and negative.

In short, the CRA and the like may have ended-up being pocket change in the collapse so to speak, but that doesn't exculpate 'em from possibly "getting the ball rolling." IOWs,no government garbage such as CRA may equal no system wide financial collapse.

I imagine a lot of posters here may have enough discretionary income to be able to make strip clubs one of their hobbies.

If you visit elliottwave.com you may still see something about Ben Bernanke saying this doesn't compare to the Great Depression. He is right. It is a lot worse. The credit bubble that was built up is about 3 times worse than what led to the depression in the 1930's. The stock market has been trading similar to that time as well.

Unfortunately I am learning about trading and didn't heed all the advise. I was ahead in my trading and in my 401K accounts year to date until about 2 months ago. Then I guess I got overconfident and started making bets instead of waiting to see trends. However any trend in todays market seems to only last one to 2 days tops at times if not a few hours. Right now this market is safer to day trade but I don't have that much discretionary income to set up accounts that size. I got burned and humbled recently. I'm still ahead of a buy and hold guy I know who told me he has lost 60 percent in the last 12 months. My 401K took a hit and is down roughly 8 to 10 percent year to date. Bad luck and timing. My other accounts took a few major hits and are a lot worse. I even lost money on a double inverse ETF when the market was down over 100 points on a day this week. Fortunately I sold that sucker before it dropped another 20 percent in the same day I sold it. With moves like that, it's easy to lose your shirt.

According to the elliottwave folks if you study socialnomics, then this bear market won't be over until almost no one wants to talk about stocks anymore. I'm expecting a stock market rise early in 2009 and then another collapse in stock prices. That the way the pattern developed in 1929 and then into the 1930's and we're repeating the pattern except this time it is worse. It is possible instead of deflation we will experience hyperinflation and/or a currency collapse due to our overspending government not able to collect enough taxes to pay for all the interest on the national debt and other obligations. We're so screwed but most either don't know it or don't seem to care. Wow, I'm so optimistic tonight.

"hyperinflation and/or a currency collapse due to our overspending government not able to collect enough taxes to pay for all the interest on the national debt and other obligations. We're so screwed but most either don't know it or don't seem to care. Wow, I'm so optimistic tonight."

What is the difference between hyperflation and a currency collapse? I'm assuming a currency collapse is just an extreme form of hyperinflation.

The federal government doesn't need to tax anything; it is free to print as many dollars as it needs. In fact, the way the scam is set up a dwindling debt would be HORRIBLE because that would reduce the dollars in circulation available for spending by ordinary folks. Remember what is backing the dollar? DEBT!!!---not gold or silver. Don't get me wrong----I think taxes are necessary at the lower levels of government for a couple of reasons. First and foremost is to keep the cattle class working their butts off. Second and maybe not too important is the need to soak up excess cash to limit inflationary pressures.

Oh, as far as the taxpayers paying for the $8 trillion dollar giveaway----PLEASE get real. If anything taxpayers will be getting "rebates" (money from the government) to keep the economy from collapsing. Take money out of the working slobs' pockets in the middle of an economic meltdown??? True; government is generally bloodthirsty and brain-dead. But, as it stands now all the talking is about putting a little money back in the working slobs' pockets so that he can spend which in turn creates jobs.

How will the 8 trillion be repaid? Print more money. :)

Elliot wave theory? That's right up there with astrology and reading tea leaves.

You are right that inflation is on the way next year. Only way to kill off these debts. Then interest rate hikes to deal with that. If you get a loan these days make damn sure it's fixed rate.

As for the 8 trillion they are "giving away". Not exactly. Much of it is loan sharking. They will make money off most of bailouts so far. AIG, FRE, FNM, C. (OTOH, the big 3 would be a money losing "bailout" which is why they are much more reluctant). The government will turn a profit on each of these "give aways". Probably the same for the future loans they have in mind: the taxpayers will make money off of them.

The infrastructure rebuilding program will be a money loser short term, but it needs to be done and will be a winner longer term although it will be difficult to quantify. The tax cuts, obviously, will be a money loser for the government, but it's necessary to get consumers spending again.