U.s. Banking Crisis: Capitalism "gone Wild"?

[cclub75]

I would like to come back on a technical point of the Paulson Plan;l

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Here I see a kind of leverage.

What if the Treasury buys 700 billions in one time... then "resale" 100 billions (to the same banks). It would be able after to "buy" 100 billions more, etc.

The aim of the PP is simply to put a "label price" on "assets" that currently don't have... any.

It is designed to avoid the pain of accounting rule FAS 157. : the mark-to-market rule.

With the PP and a simple writing game, it can be achieved. And the manipulation can go on (buy, resale, set an accounting price, and buy others).

No more write-offs ! The party can continue for a while.

So we are not speaking about 700 billion that would have an effect of 700 billions if I may say, but 700 billions time X, acting like a big eraser/painkiller that would reset itself.

Okay, during the process there would be a loss (because the buying price and resale price would not be perfectly equal). No problem : the tax payers is there.

Of course, the PP can't solve the core of the problem (those "assets" are toxic, and have no value, because... people can't pay back their loans, one factor among other).

Their fair value is indeed zero (roughly).

For that matter the PP is just a magic trick, albeit an expensive one.

The PP is focused on the idea that the problem is only a liquidity problem. Other people (Mish, Roubini etc.) say that it's solvency problem.

Edited September 27, 2008 by cclub75

[siamamerican]

I would like to come back on a technical point of the Paulson Plan;l

Sec. 6. Maximum Amount of Authorized Purchases.

Their fair value is indeed zero (roughly).

For that matter the PP is just a magic trick, albeit an expensive one.

The PP is focused on the idea that the problem is only a liquidity problem. Other people (Mish, Roubini etc.) say that it's solvency problem.

The fair value is far form zero. The more liquid the market become (big if) the value increases. Currently there are buyers for most mortgage backed assets and they are offering much more than ZERO cents on the dollar. Opportunists ( labeled greedy - LOL) are even buying 2nd mortgages that by definition are in the 2nd position behind the first. Most companies are unwilling to sell these assets because of the fire sale prices ( 35 cents on the dollar). 2nd mortgages are basically unsecured debt at this point, considering the first mortgage would receive all the proceeds if foreclosed and sold. If a 2nd mortgage is worth 35 cents, 1st mortgage assets are worth much more than ZERO.

1st mortgages still have value and many corporations, last week included, were selling these assets to investors at 2%+ yields ( Bank of America, CITI, Wells Fargo...). Fear has gripped the markets and for a highly leveraged company with a portfolio with substantial exposure to subprime, negative amortization, and second mortgage loans, lack of liquidity is the death nail. As you stated, solvency then becomes the issue.

The $700 mil bailout has a fighting chance of adding liquidity to the market. If successful, interest rates will gradually come down, more people will be able to afford homes, unsold home inventories will drop and with some luck the world economy will avoid a disaster. Alternatively we can spend energy blaming the borrowers that signed agreements to pay back money borrowed from banks, the banks that lent them money, the investors ( domestic and international) that greased the wheels with cash, and the administration that provided easy money.

[VegasVic]

So Wall Street, with its multi-millionaire brokers and investors, will get rescued from bankruptcy because they are too rich to fail, while Ma and Pa Sixpack's home is foreclosed. Ma and Pa can live under the bridge and be ThaiVisa trolls.

PB, let me act as advocatus diaboli and present the other side of the coin with fiction and facts.

fiction (but highly likely):

Ma and Pa Sixpack had most probably already a home which they could afford. then they decided to buy a bigger one or refinance the old one to withdraw the surplus because Pa wanted to replace his big ol' truck with a shiny new Cadillac, Ma the latest model of plasma big screen TV (amongst other things they bought) and then they spent two weeks holidaying in Cancun. now they don't have a home because they could not afford what they bought.

facts:

the lion part of the money did not flow into the pockets of greedy bankers but into the pockets of those who sold their home to suckers because it appreciated 100% in a couple of years!

real money (besides the usual fancy commissions connected to mortgages) flowed into the bankers' pockets only after they repackaged shitty mortgages, sold them to each other and of course to investors who were tricked by AAA ratings of the meanwhile infamous triplets Poor Standards, Moody Blues and Bitch&Co!

But what about the ones that have lived in the same house for 15 or 20 years and have been putting $ into there 401K so they could retire with a reasonable lifestyle. Now the house value has dropped and the 401K is in the mud. They did nothing wrong and they get shafted right along with everyone else. Now they have to put off retirement for a few years or skrimp and save rather than living a comfortable lifestyle. Those are the people I really feel for and there are a hel_l of a lot of them out there.

BTDT, I have to say that you have really outdone yourself showing your ignorance on this post! Lets take a look at that couple that have been paying on the same house for 20 years and have been contributing (with employer matching funds) to their 401K for the past 20 years. They bought their house for $100,000 (lets say they put nothing down just to try and help your argument) back in 1988 , by 1998 their home was worth $172,000 and in late 2003 (just before the realestate run up) their home was worth $210,000. In early 2006 at the height of the relestate runup their house had a market value of $385,000. Today that house has dropped nearly 35% off its high and is currently valued at $255,000. These hard working folks have dutifully made their payments for 20 years and have a balance of approximately $45,000 remaining, lets see now that gives them $210,000 in equity currently. In the spirit of brevity and further embarrasment to you, I will not get into the couples 20 year consevative retirement investments in their 401K, because after 20years of both their contributions and employer matching contributions and the reinvesting of dividends and the compounding of interest not to mention capital gains the ammount they have after the 20% drop from recent U.S. market highs is well in excess of the equity they have in their home. This poor American couple consevatively has a net worth of over $500,000! I can verify the house price in 1988, 1998, 2006 and currently ,the 2003 number is a very close estimate of value at that time. The reason that I can verify the house price is because it was my home in Las Vegas Nevada and the 1998 price was the price that I sold it for then. The $385,000 price is the price that a former neighbor of mine sold his identical house ( except we had a much larger lot and nicer yard) for in January 2006, and the $255,000 current value is actually a bank repo of the same model of home about a block over that sold at auction last month. The $255,000 number was a bank repo and if I were still in my home I am certain I could hacve gotten $275,000-$280,000 in the current market. All of this also assumes that the only investments this couple had was their 401K and their home! QED

Not sure I understand your point here vic. Are you saying $500,000 is adequate to retire on? After you replace that house you sold for something smaller you still don't have much $ left over. But even assuming you don't have to buy a house, $500,000 is IMHO not near enough to retire on. But then your living requirements might be considerable different than mine. I prefer to spend my retirement years in reasonable comfort and not have to worry about my electric bill etc. But then some people might be perfectly happy on that amount. To each his own. I have to admit I'm not familiar with the cost of living in Arizona.

Very funny BTDT The point that I was obviously making was that the poor "generic" hard working American family that you were feeling so sad for is still quite well off and has considerable equity, the fact that I used one of the houses I use to own as an example was for the purpose of lending some reality to the situation with actual numbers. My wife and I have had multiple rental properties since the late 80's and have done quite well thank you. As far as $500,000 being enough to retire on, I guess it depends on at what age one wants to retire, and what comforts one wants in retirement? The generic couple in the aforementioned description is in their mid 40's and both still working, contributing to their respective 401K's, and living very comfortably because they have a very reasonable house payment on that original $100,000 loan As far as the cost of living in Arizona goes it can range from some of the most reasonable in the U.S. to some of the most expensive in the U.S., where my wife and I reside in Sedona, $500,000 might get you a decent condo but you wouldn't be able to get a house for that price, of course we are older than the generic couple in the description and we have owned multiple pieces of real estate for many years so we are much more comfortable in our financial situation than the generic couple I am quite surprised that you were initially in such a quandry about the meaning of my post, as it was simply a rebuff to your proposterous postion that the "average American" who has been making house payments and 401K contributions for 20 years is "in the mud" as you so deftly put it. On a final note, I have to say that I would be very surprised to find out that the average expat in Thailand has more than $500,000 U.S. dollars in "liquid assets"

[VegasVic]

BTDT, I have to say that you have really outdone yourself showing your ignorance on this post!

i resent that you attack a good friend of mine Vic not all of us have the required background knowledge required to make correct judgments. BT is an honest soul, speaks (as i do) from his heart and needs perhaps some guidance and explanation.

Naam, BTDT's post was indeed ignorant of the facts of the situation and hence the opening line! The fact that you would take this as an attack on BTDT is rather odd given you eclectic sense of humor If I were to enter into a conversation on subject I had no first hand knowedge of like say french impressionist art, and then go on expounding about something that I read in an article once and when someone pointed out and proved my ignorace on the subject matter, then I would admit that indeed I had no first hand knowledge of French impressionist art, hence I am ignorant on french impressionist art just as BTDT is ignorant on "the typical American" who has been making house payments and 401K contributions for 20 years. Savvy!

[pampal]

It sure is a fine mess this time around. I see alot of posters are concerned for the average Joe in the US, but it's the average Joe that borrowed too much money from the banks and cannot pay it back, resulting in the aforementioned foreclosures and bankrupticies. As far as the bank and corporations involved, they should be allowed to fail and the market will adjust to a new equillibrium. If bailed out by the gov't, they will continue practising the same shoddy business that got them into this mess in the first place.

[VegasVic]

It sure is a fine mess this time around. I see alot of posters are concerned for the average Joe in the US, but it's the average Joe that borrowed too much money from the banks and cannot pay it back, resulting in the aforementioned foreclosures and bankrupticies. As far as the bank and corporations involved, they should be allowed to fail and the market will adjust to a new equillibrium. If bailed out by the gov't, they will continue practising the same shoddy business that got them into this mess in the first place.

I tend to agree with you as far as some of the investment banks and hedge funds go, but you seem to miss the point of why we are where we are currently. The fact is that less than 2% of homes in the U.S. are in foreclosure, so your point that the average joe borrowed to much and can't pay it back is largely incorrect. The primary reason for the curent crisis is the lack of regulation, transparancy and oversight of the Wall Street investment banks and the Hedge Fund industry and the fact that they were allowed to create and then leverage these instuments by 40 or 50:1. The really scarey part is that some of the Senators and Congressmen who were paid off to kill any meaningful legislation regulating these entities, are the ones you see on the news in front of the speakers saying what a terrible travisty this is and we need to act now, Chiris Dodd of conneticuit comes to mind as someone who has been in the back pocket of the hedge fund industry for years now and Charles Schumer of New York is owned by Wall Street investment banks. The hypocracy is at an all time high in WashingtonD.C. currently!

[LaoPo]

It sure is a fine mess this time around. I see alot of posters are concerned for the average Joe in the US,

1. but it's the average Joe that borrowed too much money from the banks and cannot pay it back, resulting in the aforementioned foreclosures and bankrupticies.

2. As far as the bank and corporations involved, they should be allowed to fail and the market will adjust to a new equillibrium.

3. If bailed out by the gov't, they will continue practising the same shoddy business that got them into this mess in the first place.

Sorry for breaking up your message but it's the best way for me to answer your interesting views:

1. I fully agree; however the Banks (and Government) have a moral duty as well and they're guilty as h_ll, supplying too much money, luring, conquering and 'making love' with insecure clients...telling them beautiful untrue stories....NOT telling them how BAD it could become (for the client) if things go really bad.

Does the client not have his own responsibility ? Yes, of course but everyone knows how creative and tricky those financial products are wrapped and packed up...ready for a Xmas excitement...but not if it goes bad

The responsibility from the Banks towards their clients was swept under the carpet. Smiling when a product was sold...looking nasty when the client is in problems....

2. I agree again; however it depends how much money YOU would have stashed in a certain bank...I just read today, here on TV, that the Australian government doesn't even have a single OZ $ guaranteed for their fellow countrymen if a bank goes under. If you would have $ 100K in a certain bank and it goes bust.....you wouldn't write what you did..I suppose.

3. I agree with you once more and it's a rotten system if Governments (in this case the US) are bailing out banks and/or bad products/mortgages.

In this particular time frame we live in right now there is no other option though than bailing out those institutions/banks/insurers although market economists despise the idea of bailing out banks, companies etc.

Sometimes a -very- bad choice has to be made out of two, even worse, scenarios in order to avoid a total financial collapse.

But, we still have to wait and see if this $ 700 Billion rescue operation is going to work..or not...IF they reach an agreement this weekend. I certainly hope so or otherwise....

I am in doubt but....give them the benefit of the doubt, for the time being.

I simply don't know.

LaoPo

Edited September 27, 2008 by LaoPo

[siamamerican]

Naam, BTDT's post was indeed ignorant of the facts of the situation and hence the opening line! The fact that you would take this as an attack on BTDT is rather odd given you eclectic sense of humor If I were to enter into a conversation on subject I had no first hand knowedge of like say french impressionist art, and then go on expounding about something that I read in an article once and when someone pointed out and proved my ignorace on the subject matter, then I would admit that indeed I had no first hand knowledge of French impressionist art, hence I am ignorant on french impressionist art just as BTDT is ignorant on "the typical American" who has been making house payments and 401K contributions for 20 years. Savvy!

and Naam would be one of the first members to ridicule you. Probably would come back with dry and humorous jibe.

This woe is me attitude is nothing but pathetic. Home owners aren't due crazy returns inevitably. The logic of some posters is nuts! If you bought a home as an investment or primary residence and you lose money, you are on the hook. Most have profited exorbitantly the last 20 years.

If borrowers weren't reneging on their promises, we wouldn't have the crisis we have today. Most borrowers aren't walking away from their homes because they can't afford the payments. They are walking away because they are underwater and have made a self serving choice. If I understand correctly, many feel we should reward those that are breaking their promises and also provide money to those that might if they don't receive some sort of compensation.

How about someone lending me money so I can purchase gold. It has increased dramatically the last few years. Now when it drops in value, I'll blame you for giving me the money and walk away from the debt. You were greedy to give me money, knowing there was a chance I might lose a lot of cash.

[flying]

If borrowers weren't reneging on their promises, we wouldn't have the crisis we have today. Most borrowers aren't walking away from their homes because they can't afford the payments. They are walking away because they are underwater and have made a self serving choice. If I understand correctly, many feel we should reward those that are breaking their promises and also provide money to those that might if they don't receive some sort of compensation.

As a contractor I can only speak about what I have seen here.

I have seen almost no home owners walking. In fact they are trying so hard,

What I have seen though is speculators walking. They built spec homes hoping to make 100k on each & took out bad loans that reset. Then they couldn't or wouldn't pay the new payments & just walked thinking they lost nothing anyway. Since the bank gave them much more than the cost to build they in fact did realize a profit already. Now we have a large inventory of new empty homes that the bank is stuck with at prices higher than they can sell them.

But really the folks who bought houses got 30 year fixed motgages at great rates so they are still there.

This is what I see here.

[Naam]

It sure is a fine mess this time around. I see alot of posters are concerned for the average Joe in the US, but it's the average Joe that borrowed too much money from the banks and cannot pay it back, resulting in the aforementioned foreclosures and bankrupticies.

I tend to agree with you as far as some of the investment banks and hedge funds go, but you seem to miss the point of why we are where we are currently. The fact is that less than 2% of homes in the U.S. are in foreclosure, so your point that the average joe borrowed to much and can't pay it back is largely incorrect.

that only 2% of homes in the U.S. are under foreclosure might be correct Vic. but nobody knows how many homes will be foreclosed in future. and as far as the underlying mortgages of 'toxic' bonds are concerned the percentage will definitely be a multiple of 2% if...

if that was not the case we wouldn't have a crisis, no global write downs of meanwhile 500bb losses but a peaceful weekend for U.S. politicians and bankers/investors worldwide.

[LaoPo]

This woe is me attitude is nothing but pathetic. Home owners aren't due crazy returns inevitably. The logic of some posters is nuts! If you bought a home as an investment or primary residence and you lose money, you are on the hook. Most have profited exorbitantly the last 20 years.

If borrowers weren't reneging on their promises, we wouldn't have the crisis we have today. Most borrowers aren't walking away from their homes because they can't afford the payments. They are walking away because they are underwater and have made a self serving choice. If I understand correctly, many feel we should reward those that are breaking their promises and also provide money to those that might if they don't receive some sort of compensation.

How about someone lending me money so I can purchase gold. It has increased dramatically the last few years. Now when it drops in value, I'll blame you for giving me the money and walk away from the debt. You were greedy to give me money, knowing there was a chance I might lose a lot of cash.

In bold:

You can move gold....but you can't move a house. Your comparison doesn't make sense. Buying gold with borrowed money is the same as buying shares with borrowed money....very RISKY.

And.........it was VERY risky what the Banks/Institutions/Insurers and Hedge funds were doing, selling their rotten products.

I agree with you if someone bought a house as an investment and got hooked...bad luck. That's the risk of an investment: it could go UP or DOWN.

But it wasn't so much the house owners with bad loans -living in that house- (which, in principal, they couldn't afford) who caused the subprime crisis; it were the Banks and their counterparts in the financial industry causing the present debacle who, in their turn got a free ticket from Mr. G.W. Bush on October 15, 2002...promoting/pushing mortgages and loans to the lower income citizens of the USA....look it up. ***

Mr Freddie and Mrs. Fannie.....GO AHEAD ! That's (in some other wording of course) the message GWB gave and ahead they went

THAT is where the roller coaster started.

Let's see if the guys in Washington can make a deal, or not.

edit:

*** I save you some time..have a read:

http://www.thaivisa.com/forum/World-Leader...61#entry2235161

LaoPo

Edited September 27, 2008 by LaoPo

[siamamerican]

If borrowers weren't reneging on their promises, we wouldn't have the crisis we have today. Most borrowers aren't walking away from their homes because they can't afford the payments. They are walking away because they are underwater and have made a self serving choice. If I understand correctly, many feel we should reward those that are breaking their promises and also provide money to those that might if they don't receive some sort of compensation.

As a contractor I can only speak about what I have seen here.

I have seen almost no home owners walking. In fact they are trying so hard,

What I have seen though is speculators walking. They built spec homes hoping to make 100k on each & took out bad loans that reset. Then they couldn't or wouldn't pay the new payments & just walked thinking they lost nothing anyway. Since the bank gave them much more than the cost to build they in fact did realize a profit already. Now we have a large inventory of new empty homes that the bank is stuck with at prices higher than they can sell them.

But really the folks who bought houses got 30 year fixed motgages at great rates so they are still there.

This is what I see here.

I see the same thing. Only small minority are walking from their homes. The average equity in US home is at its lowest level on record, but is still hovering around 50%. The average joe would be stupid to walk and if the sht hits the fan, they still have enough equity refinance. Lenders are still lending on low loan to value properties with little regard to credit.

The issue are the speculators and non-speculators that bought or refinanced between 2004-2007 with high loan to values. It only took a small percent to go late on payments or walk ( currently 2% ish) to create the current crisis. The majority of mortgages held by investors are in great shape and with a little liquidity, the housing/mortgage market would most likely recover. Probably no recovery soon, but until the posturing and silly blame game stops, we won't resolve the current crisis.

[LaoPo]

If someone was questioning how much money was pocketed by the 5 biggest Wall Street Firms in the past 5 years, here's the answer:

Wall Street Executives Made $3 Billion Before Crisis

By Tom Randall and Jamie McGee

Sept. 26 (Bloomberg) -- Wall Street's five biggest firms paid more than $3 billion in the last five years to their top executives, while they presided over the packaging and sale of loans that helped bring down the investment-banking system.

Merrill Lynch & Co. paid its chief executives the most, with Stanley O'Neal taking in $172 million from 2003 to 2007 and John Thain getting $86 million, including a signing bonus, after beginning work in December. The company agreed to be acquired by Bank of America Corp. for about $50 billion on Sept. 15. Bear Stearns Cos.'s James ``Jimmy'' Cayne made $161 million before the company collapsed and was sold to JPMorgan Chase & Co. in June.

rest of long article here:

http://www.bloomberg.com/apps/news?pid=206...&refer=home

What a world....

LaoPo

[LaoPo]

1. It only took a small percent to go late on payments or walk ( currently 2% ish) to create the current crisis.

2. The majority of mortgages held by investors are in great shape and with a little liquidity, the housing/mortgage market would most likely recover.

3. Probably no recovery soon, but until the posturing and silly blame game stops, we won't resolve the current crisis.

Sorry for breaking up your post.

1. Are you saying that the current 2%ish foreclosures are the only reason for the current crisis ? How much money are you talking about in total for these 2%ish mortgages ? How many Billions ?

2. I don't doubt, so far, the great shapeness of the 98% of the remaining mortgages; lets hope so but your quote that with 'a little liquidity' the mortgage industry would be solved/saved is wishful- and VERY optimistic thinking. I think the real pain has yet to start but I hope I'm wrong.

3. Who, in your opinion, is/are to be blamed for this crisis ?

LaoPo

[Groongthep]

Many people are misunderstanding what the Paulson Plan suggests. The term "bailout" is not an accurate term to describe what is being proposed.

The banks in question have these packaged mortgage products which are now distressed and which are very difficult if not impossible to sell making it nearly impossible for those banks to raise the capital needed to loan money to the average Joe to buy a home, a car, a refrigerator, a college education or whatever. These packaged mortgage products became distressed due to lack of regulation of the banking industry which irresponsibly loaned money to individuals to buy homes they knew they couldn't afford by telling them that home values would continue to increase as they had through the 90's and early 2000's. The inference being that the homeowner would build equity and later be able to sell their overpriced home at a big profit and use that profit to buy a home they could indeed afford. Well, the bubble finally burst and housing prices stopped going up and the homeowner's variable rate mortgages reset at rates they can't afford to pay. They cannot get out of the mess by selling their homes because the homes are no longer worth what they had to borrow to buy them.

If the banks do not have the money to make loans, no one will be able to get a loan to buy a car, and the auto makers will go broke, The auto makers will be forced to lay off thousands, and all the parts makers and tire manufacturers will lay off thousands too. Same with homes and home builders, and everyone in the home building and related industries. With so many people out of work small businesses will also begin to fail because no one will have any money to buy their products and services. The stock market will crash as companies go out of business and investors flee stocks for more solid assets. In other words, if the major banks go under it will cause a chain reaction across the entire economy possibly resulting not in just a severe recession but an outright 1930's style depression with huge unemployment and social unrest. A catastrophic scenario.

What the Paulson Plan proposes is that the US Treasury buy these distressed mortgages at pennies on the dollar. There are so many of them though that they say it will take 7 hundred billion dollars to buy them all. With the 700 billion the banks get for these mortgage products they will be able to continue to loan money to the average Joe to buy that car, house, refrigerator or whatever and keep the economy running. Keep in mind that the Treasury will hold these mortgages until the housing market stabilizes and then sell them back to the banks to recoup the taxpayers money. Yes, some of the mortgages will default, but the overwhelming majority probably will not. If Congress does not pass a rescue bill and the above dooms-day economic scenario happens everyone loses. What the House and Senate are doing now is trying to work out a bi-partisan bill that will ensure proper oversight of the buying of these mortgage products and attach other strings that will hopefully keep the whole process from happening again once the housing market and economy as a whole stabilizes. Congressional spokesmen from both the House and Senate and from both political parties say they are shooting for a bill to be agreed upon by Sunday night Washington time before the Asian markets open Monday morning. We can only hope they have their shit together enough to get it done. I am not now nor have I ever been a big fan of the Bush administration, but in this instance I believe that what they are proposing is the right thing to do not just for the US economy but for the world enconomy as well. If the US economy tanks the US consumer will no longer be able to buy much of anything from anyone else in the world either.

Edited September 27, 2008 by Groongthep

[siamamerican]

You can move gold....but you can't move a house. Your comparison doesn't make sense. Buying gold with borrowed money is the same as buying shares with borrowed money....very RISKY.

And.........it was VERY risky what the Banks/Institutions/Insurers and Hedge funds were doing, selling their rotten products.

I agree with you if someone bought a house as an investment and got hooked...bad luck. That's the risk of an investment: it could go UP or DOWN.

But it wasn't so much the house owners with bad loans -living in that house- (which, in principal, they couldn't afford) who caused the subprime crisis; it were the Banks and their counterparts in the financial industry causing the present debacle who, in their turn got a free ticket from Mr. G.W. Bush on October 15, 2002...promoting/pushing mortgages and loans to the lower income citizens of the USA....look it up. ***

Mr Freddie and Mrs. Fannie.....GO AHEAD ! That's (in some other wording of course) the message GWB gave and ahead they went

THAT is where the roller coaster started.

Let's see if the guys in Washington can make a deal, or not.

edit:

*** I save you some time..have a read:

http://www.thaivisa.com/forum/World-Leader...61#entry2235161

LaoPo

I agree, the gold analogy is a little far fetched. Risk historically varies, depending on the type of investment. There are many parties to blame, just like there were during the Asian crisis, Norway's ( now arguably the soundest country, economically speaking ) financial melt down in the early 90s, Latin Americas not to distance financial meltdown, and the list could go on.

The problem we are currently is facing is comparable to many crisis caused by other countries other than the US, during the last 20 years. Being the US, that dwarfs any other country in national inflow of foreign investment, magnifies the crisis. Many of the American bashing is coming from countries that are at great risk of a comparable meltdown.. Throwing rocks from glass houses isn't going to resolve the crisis.

I agree with you – regulation is needed. Investors domestically and internationally need more transparency. I have doubts this would have avoided the current crisis, but it sure wouldn't hurt. This real estate bubble had to burst someday.

Read the article. I wish Bush, Fannie and Freddie could have been clairvoyant back in 2002. In the future, do you suggest they don't try to help the poor, benefit in financially rewarding experience of owning a home. Low end homes run around 100k. Few low income individuals will ever amass a 5% down payment and fewer a 20% down payment.

Good points – we just are on the opposite side of the spectrum on many economic issues.

[Wrong Turn]

Many people are misunderstanding what the Paulson Plan suggests. The term "bailout" is not an accurate term to describe what is being proposed.

The banks in question have these packaged mortgage products which are now distressed and which are very difficult if not impossible to sell making it nearly impossible for those banks to raise the capital needed to loan money to the average Joe to buy a home, a car, a refrigerator, a college education or whatever. These packaged mortgage products became distressed due to lack of regulation of the banking industry which irresponsibly loaned money to individuals to buy homes they knew they couldn't afford by telling them that home values would continue to increase as they had through the 90's and early 2000's.

I presume you're talking about the bundled mortgages (CDOs). These mortgages were "securitized."

A bank take say, 2,000 mortgages, bundles them together as one and sends them to Fannie and/or Freddie where they get a AAA stamp of the highest quality rating. But actuality the rating was far less because of the subprime mortgages in these bundles. Then they are sold, even to a town in Norway.

This, was fraud, IMO. People should go to prison for this. At best, there may be a couple of fall guys in then that get fined and sent to a golf club penitentiary.

[LaoPo]

1. Many of the American bashing is coming from countries that are at great risk of a comparable meltdown.. Throwing rocks from glass houses isn't going to resolve the crisis.

2. In the future, do you suggest they don't try to help the poor, benefit in financially rewarding experience of owning a home. Low end homes run around 100k. Few low income individuals will ever amass a 5% down payment and fewer a 20% down payment.

3. Good points – we just are on the opposite side of the spectrum on many economic issues.

Again...sorry for breaking up our post.

1. I understand that you and many other Americans view sometimes upon the non-Americans (or even foreign countries) as bashers. I can't speak for anyone else, but I'm not bashing America/USA as such because that would be unfair from my side.

But I am strongly opposing the way ''Wall St." and "Washington" handled the financial system as such in the past, letting the system slipping into this disaster and allowed it to expand into other world areas.

I also oppose to the lies DC and London pushed into our throats and thus creating a completely unnecessary war, killing hundreds of thousands Iraqi's and allied soldiers, mainly from the US but also in a smaller part from other countries, including my own.

A very tragic example is the death of a young soldier, by a road bomb in Afghanistan,...being the son of the Supreme Commander of my country who was installed as such the evening before his son died thousands of miles away...

Was it worth all that ? In my opinion..NO.

But all this is not bashing upon the US although I can understand the sensitivity this has for Americans; on the other hand: you are a very proud nation with equally proud citizens so a little criticism is in place sometimes

2. That's a very interesting question and of course I would say YES, the government should help those people.

But if it was the right decision to give a relatively poor man, who never ever would have owned his own house under normal circumstance, now a complete new house/loan, whilst KNOWING (the Bank) that he never ever could have paid back his loan is asking for trouble; big trouble.

How to help them ? That's more an answer to be given by the next President and his administration of your country. I am not envying the man, whoever wins.

edit:

sorry, forgot to answer your point 3.

I'm not sure if I understand your sentence ? Could you explain a little more specific please ?

LaoPo

Edited September 28, 2008 by LaoPo

[siamamerican]

1. It only took a small percent to go late on payments or walk ( currently 2% ish) to create the current crisis.

2. The majority of mortgages held by investors are in great shape and with a little liquidity, the housing/mortgage market would most likely recover.

3. Probably no recovery soon, but until the posturing and silly blame game stops, we won't resolve the current crisis.

Sorry for breaking up your post.

1. Are you saying that the current 2%ish foreclosures are the only reason for the current crisis ? How much money are you talking about in total for these 2%ish mortgages ? How many Billions ?

2. I don't doubt, so far, the great shapeness of the 98% of the remaining mortgages; lets hope so but your quote that with 'a little liquidity' the mortgage industry would be solved/saved is wishful- and VERY optimistic thinking. I think the real pain has yet to start but I hope I'm wrong.

3. Who, in your opinion, is/are to be blamed for this crisis ?

LaoPo

1. No, the 2% aren't the only reason. The markets are forward looking and correctly assume 2% is just the beginning. I don't know the dollar amount of home in foreclosure, but I'm sure you can google for an answer.

2.Never stated that 98% of mtgs are in great shape. Again you can do some internet research to come up with an estimate. My guess is 15% - 20% have more than one 30 day late in the last year. The value of these assets is greatly diminished if held in a portfolio. The odd thing is there is still a market for new originations with borrowers that have multiple 30 day lates in the last year. Of course the borrower will need at least 20% equity.

3.If you want a list of who is to blame: the borrowers that signed agreements to pay back money borrowed from banks, the banks that lent them money, the investors ( domestic and international) that greased the wheels with cash, and the administration that provided easy money. I'm sure there are many more to blame.

We can argue who is to blame and to what extent. In the end, I don't think we will ever see the others point of view. Hopefully a plan is passed in the coming days and with A LOT of luck, we might fix this mess in the coming years.

[Groongthep]

Many people are misunderstanding what the Paulson Plan suggests. The term "bailout" is not an accurate term to describe what is being proposed.

The banks in question have these packaged mortgage products which are now distressed and which are very difficult if not impossible to sell making it nearly impossible for those banks to raise the capital needed to loan money to the average Joe to buy a home, a car, a refrigerator, a college education or whatever. These packaged mortgage products became distressed due to lack of regulation of the banking industry which irresponsibly loaned money to individuals to buy homes they knew they couldn't afford by telling them that home values would continue to increase as they had through the 90's and early 2000's.

I presume you're talking about the bundled mortgages (CDOs). These mortgages were "securitized."

A bank take say, 2,000 mortgages, bundles them together as one and sends them to Fannie and/or Freddie where they get a AAA stamp of the highest quality rating. But actuality the rating was far less because of the subprime mortgages in these bundles. Then they are sold, even to a town in Norway.

This, was fraud, IMO. People should go to prison for this. At best, there may be a couple of fall guys in then that get fined and sent to a golf club penitentiary.

Yes, I agree. IMHO the present situation is a result of the a certain US political party's fixation that "Big government is bad" and that the free market should be left alone for it to work best. Without transparency and government regulation and oversight however, there will always be those who will work the system to their advantage. There's lot's of blame to go around but that can be determined later. I agree that many should go to jail, but the pressing issue right now is get the economy back on track as soon as possible.

[siamamerican]

1. Many of the American bashing is coming from countries that are at great risk of a comparable meltdown.. Throwing rocks from glass houses isn't going to resolve the crisis.

2. In the future, do you suggest they don't try to help the poor, benefit in financially rewarding experience of owning a home. Low end homes run around 100k. Few low income individuals will ever amass a 5% down payment and fewer a 20% down payment.

3. Good points – we just are on the opposite side of the spectrum on many economic issues.

Again...sorry for breaking up our post.

1. I understand that you and many other Americans view sometimes upon the non-Americans (or even foreign countries) as bashers. I can't speak for anyone else, but I'm not bashing America/USA as such because that would be unfair from my side.

But I am strongly opposing the way ''Wall St." and "Washington" handled the financial system as such in the past, letting the system slipping into this disaster and allowed it to expand into other world areas.

I also oppose to the lies DC and London pushed into our throats and thus creating a completely unnecessary war, killing hundreds of thousands Iraqi's and allied soldiers, mainly from the US but also in a smaller part from other countries, including my own.

A very tragic example is the death of a young soldier, by a road bomb in Afghanistan,...being the son of the Supreme Commander of my country who was installed as such the evening before his son died thousands of miles away...

Was it worth all that ? In my opinion..NO.

But all this is not bashing upon the US although I can understand the sensitivity this has for Americans; on the other hand: you are a very proud nation with equally proud citizens so a little criticism is in place sometimes

2. That's a very interesting question and of course I would say YES, the government should help those people.

But if it was the right decision to give a relatively poor man, who never ever would have owned his own house under normal circumstance, now a complete new house/loan, whilst KNOWING (the Bank) that he never ever could have paid back his loan is asking for trouble; big trouble.

How to help them ? That's more an answer to be given by the next President and his administration of your country. I am not envying the man, whoever wins.

edit:

sorry, forgot to answer your point 3.

I'm not sure if I understand your sentence ? Could you explain a little more specific please ?

LaoPo

well go figure, I actually agree with 90% of your post. The parts I disagree with are inconsequential. I agree, Shtty war and this humbling experience for America, has its positives.

Edited September 28, 2008 by siamamerican

[VegasVic]

If borrowers weren't reneging on their promises, we wouldn't have the crisis we have today. Most borrowers aren't walking away from their homes because they can't afford the payments. They are walking away because they are underwater and have made a self serving choice. If I understand correctly, many feel we should reward those that are breaking their promises and also provide money to those that might if they don't receive some sort of compensation.

As a contractor I can only speak about what I have seen here.

I have seen almost no home owners walking. In fact they are trying so hard,

What I have seen though is speculators walking. They built spec homes hoping to make 100k on each & took out bad loans that reset. Then they couldn't or wouldn't pay the new payments & just walked thinking they lost nothing anyway. Since the bank gave them much more than the cost to build they in fact did realize a profit already. Now we have a large inventory of new empty homes that the bank is stuck with at prices higher than they can sell them.

But really the folks who bought houses got 30 year fixed motgages at great rates so they are still there.

This is what I see here.

There were certainly creative loans (i.e. no docs, interest only ect.) that were pushed during this period to consumers who ordinarily wouldn'y qualify, but I can also vouch for your observation that speculators who bought up 10 or 15 homes in a tract to try and flip them got caught in the middle and when they couldn't flip them for a profit they rented these homes out for a negative cash flow for a while then they just walked away. I am part of a loose network that has bought up repos in CA,NV and AZ and for the most part the neighbors have told us that renters were in the houses since nearly day one. I hope these investor/flippers enjoy bad karma for the rest of their lives, because they were really the impetus for the outrageous appreciation in housing during 2004-2006! Your point on the spec homes is also spot on. I will only add this, and that is that many of these speculators (especially in Florida) were not Americans, they were Europeans, and Latin American investors.

[VegasVic]

It sure is a fine mess this time around. I see alot of posters are concerned for the average Joe in the US, but it's the average Joe that borrowed too much money from the banks and cannot pay it back, resulting in the aforementioned foreclosures and bankrupticies.

I tend to agree with you as far as some of the investment banks and hedge funds go, but you seem to miss the point of why we are where we are currently. The fact is that less than 2% of homes in the U.S. are in foreclosure, so your point that the average joe borrowed to much and can't pay it back is largely incorrect.

that only 2% of homes in the U.S. are under foreclosure might be correct Vic. but nobody knows how many homes will be foreclosed in future. and as far as the underlying mortgages of 'toxic' bonds are concerned the percentage will definitely be a multiple of 2% if...

if that was not the case we wouldn't have a crisis, no global write downs of meanwhile 500bb losses but a peaceful weekend for U.S. politicians and bankers/investors worldwide.

Naam, There are less than 2% of homes in foreclosure, which is 3 times more than the normal foreclosure rates with U.S. mortgages. The problem arose not because the foreclosure rate went up from .6% to 1.8%, as you have noted this alone couldn't have created this crisis. The crisis arose becuase these mortgages were sold off to Goldman, Morgan, Bear , Lehman ect. and these firms bundled them and then leveraged them by up to 50 times and then they got sold off and releveraged. Its actually far more complicated than this, but for the sake of simplicity if you are expecting .6% of potentially bad loans in a bundle and you leverage that bundle by 50 times then you put yourself at risk for a 30% loss on the original bundle, but since you are making so much money in the investments on the borrowed leverage (through yen carry trade or deivative trading whatever the big boys were chasing) you really don't care. Now all of a sudden that .6% number is 1.8% and the potential loss is now 90% on your original bundle, and your derivative investments are going south and nobody will buy your bundles and the leveraged loans are getting called in, can you see now what occured? All things being normal , as long as unemployment doesn't skyrocket from here there will be no further apprecieable ammount of foreclosures in the U.S., but the damage has been done by the investment banks and the hedge funds already and some have paid the price. Once a situation like this arises, it becomes a panic very quickly and if you are holding a $8 billion bundle of these CDS's that have no market for their resale and you can't borrow against them anymore then basically you are screwed. The reason Goldman is still around is that they saw this coming a while back and sold off a most of their CDO's and CDS's (nice bunch of fellows hunh!). The reason for the $700 billion bailout, is so the U.S. government can buy these bundles and thereby create a market for them and a value on them, and give the banks the liquidity they need so that they can make commercial loans and keep the economy going. If this is not done then the situation becomes a self fulfilling prophecy and a unstopable downward spiral. This will of course not just happen in the U.S. , so for any of you Bush haters or U.S. bashers out there be very careful what you wish for There are many variables in this whole mess but what I have posted here is kind of the basics of what occured.

[midas]

The reason Goldman is still around is that they saw this coming a while back and sold off a most of their CDO's and CDS's (nice bunch of fellows hunh!). The reason for the $700 billion bailout, is so the U.S. government can buy these bundles and thereby create a market for them and a value on them, and give the banks the liquidity they need so that they can make commercial loans and keep the economy going. If this is not done then the situation becomes a self fulfilling prophecy and a unstopable downward spiral. This will of course not just happen in the U.S. , so for any of you Bush haters or U.S. bashers out there be very careful what you wish for There are many variables in this whole mess but what I have posted here is kind of the basics of what occured.

I am not American but I can't understand why the American taxpayer is being asked to carry the risk ?

It is obvious these very big Wall Street companies intend to be around for many more years to come

so why shouldn't they like Goldman agree to " indemnify " the taxpayer for any potential losses now in the future.

This is where it looks like the bankers are getting away with it

[BEENTHEREDONETHAT]

So Wall Street, with its multi-millionaire brokers and investors, will get rescued from bankruptcy because they are too rich to fail, while Ma and Pa Sixpack's home is foreclosed. Ma and Pa can live under the bridge and be ThaiVisa trolls.

PB, let me act as advocatus diaboli and present the other side of the coin with fiction and facts.

fiction (but highly likely):

Ma and Pa Sixpack had most probably already a home which they could afford. then they decided to buy a bigger one or refinance the old one to withdraw the surplus because Pa wanted to replace his big ol' truck with a shiny new Cadillac, Ma the latest model of plasma big screen TV (amongst other things they bought) and then they spent two weeks holidaying in Cancun. now they don't have a home because they could not afford what they bought.

facts:

the lion part of the money did not flow into the pockets of greedy bankers but into the pockets of those who sold their home to suckers because it appreciated 100% in a couple of years!

real money (besides the usual fancy commissions connected to mortgages) flowed into the bankers' pockets only after they repackaged shitty mortgages, sold them to each other and of course to investors who were tricked by AAA ratings of the meanwhile infamous triplets Poor Standards, Moody Blues and Bitch&Co!

But what about the ones that have lived in the same house for 15 or 20 years and have been putting $ into there 401K so they could retire with a reasonable lifestyle. Now the house value has dropped and the 401K is in the mud. They did nothing wrong and they get shafted right along with everyone else. Now they have to put off retirement for a few years or skrimp and save rather than living a comfortable lifestyle. Those are the people I really feel for and there are a hel_l of a lot of them out there.

BTDT, I have to say that you have really outdone yourself showing your ignorance on this post! Lets take a look at that couple that have been paying on the same house for 20 years and have been contributing (with employer matching funds) to their 401K for the past 20 years. They bought their house for $100,000 (lets say they put nothing down just to try and help your argument) back in 1988 , by 1998 their home was worth $172,000 and in late 2003 (just before the realestate run up) their home was worth $210,000. In early 2006 at the height of the relestate runup their house had a market value of $385,000. Today that house has dropped nearly 35% off its high and is currently valued at $255,000. These hard working folks have dutifully made their payments for 20 years and have a balance of approximately $45,000 remaining, lets see now that gives them $210,000 in equity currently. In the spirit of brevity and further embarrasment to you, I will not get into the couples 20 year consevative retirement investments in their 401K, because after 20years of both their contributions and employer matching contributions and the reinvesting of dividends and the compounding of interest not to mention capital gains the ammount they have after the 20% drop from recent U.S. market highs is well in excess of the equity they have in their home. This poor American couple consevatively has a net worth of over $500,000! I can verify the house price in 1988, 1998, 2006 and currently ,the 2003 number is a very close estimate of value at that time. The reason that I can verify the house price is because it was my home in Las Vegas Nevada and the 1998 price was the price that I sold it for then. The $385,000 price is the price that a former neighbor of mine sold his identical house ( except we had a much larger lot and nicer yard) for in January 2006, and the $255,000 current value is actually a bank repo of the same model of home about a block over that sold at auction last month. The $255,000 number was a bank repo and if I were still in my home I am certain I could hacve gotten $275,000-$280,000 in the current market. All of this also assumes that the only investments this couple had was their 401K and their home! QED

Not sure I understand your point here vic. Are you saying $500,000 is adequate to retire on? After you replace that house you sold for something smaller you still don't have much $ left over. But even assuming you don't have to buy a house, $500,000 is IMHO not near enough to retire on. But then your living requirements might be considerable different than mine. I prefer to spend my retirement years in reasonable comfort and not have to worry about my electric bill etc. But then some people might be perfectly happy on that amount. To each his own. I have to admit I'm not familiar with the cost of living in Arizona.

Very funny BTDT The point that I was obviously making was that the poor "generic" hard working American family that you were feeling so sad for is still quite well off and has considerable equity, the fact that I used one of the houses I use to own as an example was for the purpose of lending some reality to the situation with actual numbers. My wife and I have had multiple rental properties since the late 80's and have done quite well thank you. As far as $500,000 being enough to retire on, I guess it depends on at what age one wants to retire, and what comforts one wants in retirement? The generic couple in the aforementioned description is in their mid 40's and both still working, contributing to their respective 401K's, and living very comfortably because they have a very reasonable house payment on that original $100,000 loan As far as the cost of living in Arizona goes it can range from some of the most reasonable in the U.S. to some of the most expensive in the U.S., where my wife and I reside in Sedona, $500,000 might get you a decent condo but you wouldn't be able to get a house for that price, of course we are older than the generic couple in the description and we have owned multiple pieces of real estate for many years so we are much more comfortable in our financial situation than the generic couple I am quite surprised that you were initially in such a quandry about the meaning of my post, as it was simply a rebuff to your proposterous postion that the "average American" who has been making house payments and 401K contributions for 20 years is "in the mud" as you so deftly put it. On a final note, I have to say that I would be very surprised to find out that the average expat in Thailand has more than $500,000 U.S. dollars in "liquid assets"

Naam thank you always appreciate the support of a good friend.

Vegas Vic I was talking about a couple that were about ready to retire and now they have to postpone it for x years because of the economic conditions which they had no control over that dropped their retirement income substantially. The amount of dollars does not really matter it is just the fact they have been royally screwed through no fault of their own.

I still feel sorry for them even if you think I am ignorant for doing so.

By the way I find you post 203 on this thread very informative and interesting.The question is, is $700billion just putting a band-aid on a severed artery?

By the way I looked up some of the statistics on Sedona and it sounds like a very nice place to live. I wouldn't want to try it on $500,000 though.

[VegasVic]

The reason Goldman is still around is that they saw this coming a while back and sold off a most of their CDO's and CDS's (nice bunch of fellows hunh!). The reason for the $700 billion bailout, is so the U.S. government can buy these bundles and thereby create a market for them and a value on them, and give the banks the liquidity they need so that they can make commercial loans and keep the economy going. If this is not done then the situation becomes a self fulfilling prophecy and a unstopable downward spiral. This will of course not just happen in the U.S. , so for any of you Bush haters or U.S. bashers out there be very careful what you wish for There are many variables in this whole mess but what I have posted here is kind of the basics of what occured.

I am not American but I can't understand why the American taxpayer is being asked to carry the risk ?

It is obvious these very big Wall Street companies intend to be around for many more years to come

so why shouldn't they like Goldman agree to " indemnify " the taxpayer for any potential losses now in the future.

This is where it looks like the bankers are getting away with it

Its a matter of necessity at this point in time, the commercial credit market is nearly frozen so Congreses hand is forced. "These" very big Wall Street firms is not an accurate description anymore, as the only ones left standing are basically Goldman and Morgan! The bailout plan will likely include some sort of indemnification or warrants in the selling organization! Many of these "bankers" (crooks) have already gotten away with it i.e. freddie, fannie,lehman,Bear, Meril exiting executives! Hopefully the FBI will uncover some criminal activity and go after these slugs. In the long run if the U.S. goverment sets up something like the RTC and actually takes possesion of these portfolios and disposes of the foreclosed homes and manages or sells the bulk of the portfolio of mortgages then the U.S. taxpayer could actually wind up making $50-$150 billion. The Chysler bailout loan in the early 80's was paid back with full interest a year early and the RTC situation the early 90,s actually made $25 billion (of course it took 5 years).

[PeaceBlondie]

The last page or two of this thread has centered on foreclosed first mortgages of homes, most of them owner-occupied. If it were that simple, we would only be looking at a repeat of what happened in Massachusetts and Texas in the 1980's, on a larger scale. But those mortgages had no leveraging in the past. Yes, there are more subprime notes out there, and more resetting ARM's with unpayable rates, but is it the leveraging that really provides worthless paper?

Also: months ago, there was a court case in the US that created a stir. The holder of the note, who actually owned the mortgage, was unknown, because of the way the notes had been bundled up, sold and resold, perhaps in fractions. Perhaps many first mortgages that are being foreclosed have no easily known holders who can sue for foreclosure.

[lannarebirth]

It's not the leveraging that creates the worthless paper PB, it's the leveraging that allows a small percent of worthless paper create a situation whereby it's holder can go bankrupt. Very few of these notes are worthless, and if there was any transparency in this market, who knows, I might even buy one, but there isn't and that's why everyone is taking a hands off approach and looking to the government to make it all better.

[VegasVic]

So Wall Street, with its multi-millionaire brokers and investors, will get rescued from bankruptcy because they are too rich to fail, while Ma and Pa Sixpack's home is foreclosed. Ma and Pa can live under the bridge and be ThaiVisa trolls.

PB, let me act as advocatus diaboli and present the other side of the coin with fiction and facts.

fiction (but highly likely):

Ma and Pa Sixpack had most probably already a home which they could afford. then they decided to buy a bigger one or refinance the old one to withdraw the surplus because Pa wanted to replace his big ol' truck with a shiny new Cadillac, Ma the latest model of plasma big screen TV (amongst other things they bought) and then they spent two weeks holidaying in Cancun. now they don't have a home because they could not afford what they bought.

facts:

the lion part of the money did not flow into the pockets of greedy bankers but into the pockets of those who sold their home to suckers because it appreciated 100% in a couple of years!

real money (besides the usual fancy commissions connected to mortgages) flowed into the bankers' pockets only after they repackaged shitty mortgages, sold them to each other and of course to investors who were tricked by AAA ratings of the meanwhile infamous triplets Poor Standards, Moody Blues and Bitch&Co!

But what about the ones that have lived in the same house for 15 or 20 years and have been putting $ into there 401K so they could retire with a reasonable lifestyle. Now the house value has dropped and the 401K is in the mud. They did nothing wrong and they get shafted right along with everyone else. Now they have to put off retirement for a few years or skrimp and save rather than living a comfortable lifestyle. Those are the people I really feel for and there are a hel_l of a lot of them out there.

BTDT, I have to say that you have really outdone yourself showing your ignorance on this post! Lets take a look at that couple that have been paying on the same house for 20 years and have been contributing (with employer matching funds) to their 401K for the past 20 years. They bought their house for $100,000 (lets say they put nothing down just to try and help your argument) back in 1988 , by 1998 their home was worth $172,000 and in late 2003 (just before the realestate run up) their home was worth $210,000. In early 2006 at the height of the relestate runup their house had a market value of $385,000. Today that house has dropped nearly 35% off its high and is currently valued at $255,000. These hard working folks have dutifully made their payments for 20 years and have a balance of approximately $45,000 remaining, lets see now that gives them $210,000 in equity currently. In the spirit of brevity and further embarrasment to you, I will not get into the couples 20 year consevative retirement investments in their 401K, because after 20years of both their contributions and employer matching contributions and the reinvesting of dividends and the compounding of interest not to mention capital gains the ammount they have after the 20% drop from recent U.S. market highs is well in excess of the equity they have in their home. This poor American couple consevatively has a net worth of over $500,000! I can verify the house price in 1988, 1998, 2006 and currently ,the 2003 number is a very close estimate of value at that time. The reason that I can verify the house price is because it was my home in Las Vegas Nevada and the 1998 price was the price that I sold it for then. The $385,000 price is the price that a former neighbor of mine sold his identical house ( except we had a much larger lot and nicer yard) for in January 2006, and the $255,000 current value is actually a bank repo of the same model of home about a block over that sold at auction last month. The $255,000 number was a bank repo and if I were still in my home I am certain I could hacve gotten $275,000-$280,000 in the current market. All of this also assumes that the only investments this couple had was their 401K and their home! QED

Not sure I understand your point here vic. Are you saying $500,000 is adequate to retire on? After you replace that house you sold for something smaller you still don't have much $ left over. But even assuming you don't have to buy a house, $500,000 is IMHO not near enough to retire on. But then your living requirements might be considerable different than mine. I prefer to spend my retirement years in reasonable comfort and not have to worry about my electric bill etc. But then some people might be perfectly happy on that amount. To each his own. I have to admit I'm not familiar with the cost of living in Arizona.

Very funny BTDT The point that I was obviously making was that the poor "generic" hard working American family that you were feeling so sad for is still quite well off and has considerable equity, the fact that I used one of the houses I use to own as an example was for the purpose of lending some reality to the situation with actual numbers. My wife and I have had multiple rental properties since the late 80's and have done quite well thank you. As far as $500,000 being enough to retire on, I guess it depends on at what age one wants to retire, and what comforts one wants in retirement? The generic couple in the aforementioned description is in their mid 40's and both still working, contributing to their respective 401K's, and living very comfortably because they have a very reasonable house payment on that original $100,000 loan As far as the cost of living in Arizona goes it can range from some of the most reasonable in the U.S. to some of the most expensive in the U.S., where my wife and I reside in Sedona, $500,000 might get you a decent condo but you wouldn't be able to get a house for that price, of course we are older than the generic couple in the description and we have owned multiple pieces of real estate for many years so we are much more comfortable in our financial situation than the generic couple I am quite surprised that you were initially in such a quandry about the meaning of my post, as it was simply a rebuff to your proposterous postion that the "average American" who has been making house payments and 401K contributions for 20 years is "in the mud" as you so deftly put it. On a final note, I have to say that I would be very surprised to find out that the average expat in Thailand has more than $500,000 U.S. dollars in "liquid assets"

Naam thank you always appreciate the support of a good friend.

Vegas Vic I was talking about a couple that were about ready to retire and now they have to postpone it for x years because of the economic conditions which they had no control over that dropped their retirement income substantially. The amount of dollars does not really matter it is just the fact they have been royally screwed through no fault of their own.

I still feel sorry for them even if you think I am ignorant for doing so.

By the way I find you post 203 on this thread very informative and interesting.The question is, is $700billion just putting a band-aid on a severed artery?

By the way I looked up some of the statistics on Sedona and it sounds like a very nice place to live. I wouldn't want to try it on $500,000 though.

BTDT, In rereading my original post I guess I can see why my wording could be misconstrued as belicose and hence Namms' reply to me . With that said your post really had no relavance to any U.S. couple that has been hard working and responsible and paying on a home and contributing to a 401K for 20 years. Even if they were at retirement age the couple would still have $500,000 cash minimum (after selling the house and liquidating the 401K) and of course both of their Social security checks coming in every month. This couple could buy a very nice Condo, patio home or townhome in a gated retirement golf community here in Arizona for $125,000-$150,000 cash and so they would have $360,000 minimum to invest safely and their SS checks. If they got a 5% yeild on their $360,000 it would give them $1500/mo and the social secirtity check would be about $1500 for each of them so they would have $4,500/mo in income without lifting a finger and since they have no house or payment then they could live quite well on that $4,500/mo. As a matter of fact they could probably live quite well on about $3,000/mo and invest the rest or just save it and take a couple of cruises each year and perhaps a trip to Thailand! You are quite right about trying to retire in Sedona with just $500,000, I suppose it might be possible if you bought the cheapest condo in town and lived very frugally, it is certainly one of the more unique and beautiful places on the planet! The $700 billion should be more than adequete to buy up these bundles and create a price and market for them and in turn give the banks the liquidity to unfreeze the commercial paper market.

[brahmburgers]

I think there is only one way not to be affected by a system & that is to not take part in it.

true. have no debt. I suggest focusing on the things that are most meaningful for you.

fresh air, walks in the park / along the beach, vege garden, joy of friendship, pets, etc. Now could be a good time to do some artsy craft project you've been putting off. ....or do some unsolicited nice things for strangers. ....or give some unused possessions away to a needy family.