Where does it stop

[vmx42]

Hey Lozza,
Don’t for a minute think I was belittling the efforts of our more creative ‘financial engineers’ [as you put it] in creating this mess. Their efforts will go down in history for their foolishness, greed and incompetence. And yes there were 1000’s of employees just doing their job and history will judge them more kindly than the architects of these outragous schemes.

I was only trying to point out that if it wasn’t for the unmitigated, short sighted, live for now greed demonstrated by the Man In The Street [MITS] the situation probably wouldn’t have occurred in the first place. These actions are what layed the foundations for the current market collapse.

Currently the MITS around the world is screaming blue murder and accusing every banker, economist and politician of every crime under the sun [probably rightly so] whilst simultaneously accepting NO responsibility for his own credit fueled excess. We all made this mess whether you choose to admit it or not. Whilst some are some are more obviously accountable than others in the end it will affect all of us.

I was also trying to point out that to fix and learn from this mess [and so as to try to not repeat it] that the politicians have to stop playing the popularist, short term game that they are currently engaged in. They need to identify all the players and their individual roles at every level, but to do this and ignore the MITS for fear of upsetting the electorate [and jeapardise their own re-election] is too scary to contemplate. This is time for some genuine leadership.

As for Leveraging, well that has been around since the earth cooled. Have you ever used an asset to gain credit - well that is leveraging. These creative [don’t you love the thought of a creative accountant - an oxymoron if there ever was one] financial dudes just took it to an extreme level. For example Lehmann Bros had a capitalisation [assets] of just $3 billion, but due to the ease of credit they were able to leverage 300 billion dollars against it. Try that little trick with your house if you can. And whilst this was happening the media and government [and investors] were lauding their magnificent deeds as wonderful - that perspective has changed just a little in the past months.

As for Short-selling. Well you can make money on the Stockmarket just by the movement of stocks, either up or down. It doesn’t really matter which, only the game changes. I don’t think that will change [although it probably should - if the entire world could agree].

Naked Short Selling is something completely different and should be outlawed immediately.

The real core issue is that in deregulating the banking markets around the world, governments created a situation where the banks had to go out and find people or organisations to lend to. Have you ever received a letter from your credit card provider offering ‘Free Additional Credit’, just sign here - well it is the same thing on a smaller scale. The banks had money and they wanted someone [and often, anyone] to help them out by borrowing it.

The bonuses the lenders were awarded were based on the AMOUNT of lending, not the QUALITY of loans and the real almost criminal situation was the ability of the institutions to onsell their bad debts, to keep their books [and bonuses] looking healthy. The public auditors and statutory bodies would have been aware of this practice, but did nothing to alert us [if in fact we would have listened as we were making too much money] - this is an almost criminal act and this area should be tightened severely world-wide.

The bottom line is, if you are lowly geared [or cashed up] the coming recession will hurt, if you are highly geared then it could be agony as unlike America, we Aussies can’t just walk away from our debts. Society as a whole will be paying for this for decades to come.

You gotta love a VMX forum that explores issues like this. I just hope we learn something from it [but I won’t hold my breath].

Back to work now.
VMX42

[Nathan S]

I'm sure you have used a toll road, you fully understand that you pay a price for the convienice.However if if a bridge on the toll way collapes, it's impossible to blame the unfortunate souls driving across it at the time of the collapse.

Yes but...
But if you know the road has multiple toll booths along the way, and you've only got enough to pay at the first couple of booths, then you are part of the problem.

I was on a US-based forum, and guys were talking about people entering into mortgages that had super-sweet-heart rates at first (like a couple of percent) and then after a few years the interest rate ballooned out to above the market average.... So these idiots were saying "2% interest? Yeah, I can afford that!", and then three years down the track they're paying 14% and they're forked.

And I think that an interest in VMX typically means that we're people that reject the most blatant forms of consumerism.

[vmx42]

Nathan,
Mate you're on fire. Great stuff.
Who would have thought that VMX could save the world [they won't know what hit them ]
I learn something everyday.
Keep it up.
VMX42

[Wombat]

After four pages of financial angst I thought we could use an intermission - with nice legs.
So anyway, as you were saying?

[YSS]

Yea right Wombat , they cost now more too 

[mx250]

Yes but...
But if you know the road has multiple toll booths along the way, and you've only got enough to pay at the first couple of booths, then you are part of the problem.

The problem is that the bridge has collapsed. Both prudent people with more than enough money in the pocket and people without the toll money have fallen in.

It was a lousey bridge and the bridge maker are at fault.

Arise, arise, death and retribution to the bridge makers I say .

There were also people paid to inspect the bridge. They didn't do there job.

Arise, arise, death and retribution  to the bridge inspectors I say

But not only were we paying tolls we were also paying taxes so bridge makers and bridge inspectors were to be checked, inspected, audited and regulated so I could use the bridge without having a degree in bridge engineering myself.

Arise, arise, death and retribution to the bridge makers/inspector policy makers (politians) I say .

[asasin]

That ought to get you paid a visit by the "anti terrorisom" Squad!

[mx250]

That ought to get you paid a visit by the "anti terrorisom" Squad!

Don't SAS me boy

[Nathan S]

A lot of yanks hate the idea of government. Not that they hate George Dubyah (although they probably do hate GWB...), but the idea of 'anyone' interferring in the free market.

This is why the $700B bail-out was rejected the first time around - regardless of the clear and present danger, they ("they" includes McCain, FWIW) still clung to the simplistic ideology that says the government is bad, and does nothing but interfere and introduce pointless inefficencies..

In other words, "The bridge makers know what they're doing! It's in their own interests to make good bridges! Nobody else should ever question their work - they're the experts in making bridges, not us! If anyone else checks the bridge, it'll just add to the cost of the bridge, with no gain to anyone."...
Which might sound acceptable, except for the bit where several bridges had already collapsed, and many others were built to the same basic plan....

[oldfart]

http://money.ninemsn.com.au/article.aspx?id=644079

[mx250]

A lot of yanks hate the idea of government. Not that they hate George Dubyah (although they probably do hate GWB...), but the idea of 'anyone' interferring in the free market.

This is why the $700B bail-out was rejected the first time around - regardless of the clear and present danger, they ("they" includes McCain, FWIW) still clung to the simplistic ideology that says the government is bad, and does nothing but interfere and introduce pointless inefficencies..

In other words, "The bridge makers know what they're doing! It's in their own interests to make good bridges! Nobody else should ever question their work - they're the experts in making bridges, not us! If anyone else checks the bridge, it'll just add to the cost of the bridge, with no gain to anyone."...
Which might sound acceptable, except for the bit where several bridges had already collapsed, and many others were built to the same basic plan....

Ahhh, now there's the rub.

The Americans hate government interference and believe in the good of market forces. Yet it was the interference in the free market processes 20 years ago and since that has caused this melt down. Their continueing distain for government regulation only served to compound the mistake.

20 years ago American poor, especially American Black poor, had trouble getting home loans from the banks. They whinged to their congressmen. Their congressmen agreed. Their congressmen past a law that forced the banks to lend to the poor at low interest rates.

(However well meaning or well intentioned this is in direct conflict with their own principles of Free Market. It was also a complete contradiction of the principle of economics; interest rates are the price of Capital, the higher the rate the higher the risk. Even a schoolboy student of economics knows the Capitalist economic; supply and demand equal price: ya can't muck with one without effecting the others. It was a time bomb ticking.)

The banks whinged, "we'll go broke. These are high risk loans, we would normally discourage them with high interest and pay for our losses out of the additional income of the high interest."  US congressmen, "don't worry about that we'll set up a quasi govt body to gaurantee the loans". Enter Freddie Mac and Fanny Mae. The normal constraining brakes (we might lose our money) came off. 

Things go swimingly, for a while. Tick, tick, tick.

A whole new market opens up. Everyones happy. The poor are happy in their new homes. The morgage brokers are happy, the real estate agents, the builders, even old home owners are excited to see their house double then triple in value. The Govt is happy, the economy is firing along and they don't have to lift a finger. Everyones happy. Tick, tick, tick.

Then Freddie Mac and Fanny realise the more dodgey loans they gaurantee the more money they make. The Banks, the morgage brokers, the real estate agents, the builders, worked together in the very best of Free Enterprise synergy and advertise and marketed effectively in the best traditions of Capitalist. Even the most prudent punter is assailed 'you are been left behind. Its only gonna get harder and harder to get into the home market. Do it now or it will be too late.'  The pie got bigger. The pigs had the eyes down and their nose in the trough. They eat and eat and eat and goraged. They were in capitalist heaven. They were all happy.Tick, tick, tick.

Time past. The banks, "What are we going to do with this stinking oversize pile of dodgey loans. We are also running out of money to lend, What will we do? I know, we'll sell them to superannuation funds and the repayments can be the the superannuates weekly payments. Great idea, but they won't buy our stinking pile of dodgey loans will they? We'll tell them that they are Triple AAA securities gauranteed by the US govt. But they not. Ah, don't worry, they'll never know (until after I get my commission/performance bonus ).Tick, tick, tick.

Kapowee. Blam. Boom.

Which brings us to today :'(.

Essensially its not a $700 billion 'bail out', it America paying back taxes. The housing policy they pursued using the 'Free Market' was actually US govt policy that should have been paid for and controlled through the budget process. They were trying to be too smart by half, broke they own rules and now we are all paying.

The pollies have avoided admitting the above. Spin Doctors are out in forces ensuring the grey men of Wall St are seen as the scape goats. Americans are happy in their ignorance and it will all happen again.

[oldfart]

Couldn't of explained it better myself ... well done go to the top of the class

[YZ250H]

Ok Graeme you have me interested - what happens in the second half of the "prophesy"  ??

[Kane Mcguire]

one thing that Rudd has to stop, is the banks continually sending in the mail offers to increase your credit card limit. just sign the form, send it back and your limit is increased. mine could have increased by 5 grand in the last 12 months if i accepted the offers from the bank. They have no idea if i could pay it back, if i have a job or any thing else about me.   

Another thing i hate about the bastards (banks) is that when they loan you say 100 thou for a house and you pay back to them 200 thou! they act in their adds that they are your best mate!   

also people whingeing about the high cost of house prices. Every new house built in my town has an ensuite and a bloody theatre room and a double car garage and a bedroom for everybody! no wonder the repayments are so high! i shared a bedroom all my childhood, no theatre room etc. want want want.  I was at a bbq the other night and all were complaining about how tough it is! saying most weeks they only had $20 left over from their wages!  half of them smoked, they all had near new cars, brick homes with ensuites, camping trailers, etc. people today think that if they have not got a 502cm plasma tv that they are doing it tough. My grandparents would think these hard times ? would be a doddle to live through! 

[mx250]

Ok Graeme you have me interested - what happens in the second half of the "prophesy"  ??

Ok Graeme you have me interested - what happens in the second half of the "prophesy"  ??

That describes only 'one of the balls in play'. Probably the most important 'ball' because it has caused a crisis of trust between lending institutions, but only one of many.

Around the western industrialised world there has been a similar economic model of high borrowings pushing home prices. There has been a need for a 'price adjustment' which is part of that economic 7 year cycle that others have postulated. Ditto in the share market. That is normally done by 'the recession you need to have'. This is all known and managed and minimised by responsible govt's with fiscal and budgetary policies.

Now, superimposed over this is the credit crisis between lending institutions brought about by the mistrust introduced by the American misrepresenting their securities, by their dodgey accounting practices, and by the 'unexpected bankruptcy' of American banks that have used their dodgy practices to misrepresent themselves to the market, their shareholders, the regulators and other banks.

This is a crisis of trust. Trust is a human element and can't be measured or managed or predicted.

The combination of recessionary forces throughout the western industrial world and the crisis of trust is uncharted waters.

The share markets see all of this and are uncertain. They are edgey. They could panic and sell us into a depression. They could steady.  Panic is a human element and can't be measured or managed or predicted.

All 52 cards are in the air. They will all hit the ground. Which ones are up and which one will be down we don't know.

Australia will go into a recession. How deep, how long? Who knows. But we will weather it better than most. Our fundamentals are good and strong. But our wealth comes from trading so when America sneezes Australia and our trading partners will get the virus.

The wild card this time is China. China will suffer because she relys on trade with America. But she also has a lot of development and infrastucture building going on. If China can continue to finance that remains to be seen.
If she can, we as suppliers of raw materials will do okay.

IMHO, totally unqualified opinion .