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

[flying]

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.

Very interseting that you mention that..........Because one big one that left a bunch of homes standing empty here went to do a 400 unit tract in Mexico from what I hear. Also his other units that did not sell are now rented I notice. I am betting he will suck up the rent for awhile but not pass it on to the bank.

[VegasVic]

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.

Wouldn't it be nice if we could get our hands on some of these bundles at 30 or 40 cents on the dollar, because in most cases the vast majortity of the notes inside are in good stead and paying every month. As I have stated before if the U.S. government creates something like the RTC of the early 90's and attacks it that way then not only will the U.S. taxpayer get back their $700 billion, but they will likely be $50-$150 billion in the green when all is said and done, of course that would take many years to unwind You are right about the lack of transparency, even if we could buy a bundle we might wind up getting one that has all foreclosures! Only the U.S. government has the money to buy the whole damm lot and basically garuntee a good ROI.

[Naam]

Wouldn't it be nice if we could get our hands on some of these bundles at 30 or 40 cents on the dollar, because in most cases the vast majortity of the notes inside are in good stead and paying every month. As I have stated before if the U.S. government creates something like the RTC of the early 90's and attacks it that way then not only will the U.S. taxpayer get back their $700 billion, but they will likely be $50-$150 billion in the green when all is said and done, of course that would take many years to unwind You are right about the lack of transparency, even if we could buy a bundle we might wind up getting one that has all foreclosures! Only the U.S. government has the money to buy the whole damm lot and basically garuntee a good ROI.

the U.S. government does NOT have the money Vic! the U.S. government will have to borrow that money and the U.S. government, i.e. the U.S. taxpayer will have to pay the interest on that borrowed money. time has finally come for you too to take off the rosy glasses and face reality

[Naam]

QUOTE (VegasVic @ 2008-09-27 15:15:10) *

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.

yeah right Vic! you are slowly but surely getting as ridiculous as your doom and gloom counterpart

[siamamerican]

Wouldn't it be nice if we could get our hands on some of these bundles at 30 or 40 cents on the dollar, because in most cases the vast majortity of the notes inside are in good stead and paying every month. As I have stated before if the U.S. government creates something like the RTC of the early 90's and attacks it that way then not only will the U.S. taxpayer get back their $700 billion, but they will likely be $50-$150 billion in the green when all is said and done, of course that would take many years to unwind You are right about the lack of transparency, even if we could buy a bundle we might wind up getting one that has all foreclosures! Only the U.S. government has the money to buy the whole damm lot and basically garuntee a good ROI.

the U.S. government does NOT have the money Vic! the U.S. government will have to borrow that money and the U.S. government, i.e. the U.S. taxpayer will have to pay the interest on that borrowed money. time has finally come for you too to take off the rosy glasses and face reality

With the yield on ten year treasury notes at 3.83%, we are talking 28 bil in interest the first year. The interest should decrease as the assets are sold. Not an expert on government borrowing, but I think the above numbers make sense.

I don't know how the bailout is going to be implemented. Let's say the government purchases the toxic debt at 60 cents on the dollar and disposes the assets over a 4 year period at 80% of their original value. The government would receive 33% more for the assets than their purchase price.

At this point we don't have the plan details and IMO the tax payer/government won't profit, but the price tag is going to be far less than 700 bil.

Edited September 28, 2008 by siamamerican

[Big Guy]

Wish the US economy so stuffed why is the US$ still so high,

[BEENTHEREDONETHAT]

Wouldn't it be nice if we could get our hands on some of these bundles at 30 or 40 cents on the dollar, because in most cases the vast majortity of the notes inside are in good stead and paying every month. As I have stated before if the U.S. government creates something like the RTC of the early 90's and attacks it that way then not only will the U.S. taxpayer get back their $700 billion, but they will likely be $50-$150 billion in the green when all is said and done, of course that would take many years to unwind You are right about the lack of transparency, even if we could buy a bundle we might wind up getting one that has all foreclosures! Only the U.S. government has the money to buy the whole damm lot and basically garuntee a good ROI.

the U.S. government does NOT have the money Vic! the U.S. government will have to borrow that money and the U.S. government, i.e. the U.S. taxpayer will have to pay the interest on that borrowed money. time has finally come for you too to take off the rosy glasses and face reality

With the yield on ten year treasury notes at 3.83%, we are talking 28 bil in interest the first year. The interest should decrease as the assets are sold. Not an expert on government borrowing, but I think the above numbers make sense.

I don't know how the bailout is going to be implemented. Let's say the government purchases the toxic debt at 60 cents on the dollar and disposes the assets over a 4 year period at 80% of their original value. The government would receive 33% more for the assets than their purchase price.

At this point we don't have the plan details and IMO the tax payer/government won't profit, but the price tag is going to be far less than 700 bil.

Hasd everyone already forgotten the rest of the bailout?

Here's a list of some of the more recent Federal Reserve actions in the financial markets published by Reuters:

Bailout type Cost to taxpayers

$ 700 billion+ - Proposed Treasury Department legislation

$ 29 billion - Bear Stearns financing

$ 200 bilion - Fannie Mae and Freddie Mac nationalization

$ 85 billion - AIG loan and nationalization

$ 300 billion - Federal Housing Administration housing rescue bill

$4 billion - Mortgage community grants

$87 billion - JPMorgan Chase repayments

$200 billion+ - Loans to banks via Fed's Term Auction Facility

$ 50 billion - Loans from Depression-era Exchange Stabilization Fund

$144 billion - Purchases of mortgage securities by Fannie Mae and Freddie Mac

TOTAL: $1.8 trillion+

COST PER US HOUSHOLD: $17,064+

That is going to take a bit more than 28 billion a year.

[Groongthep]

QUOTE (VegasVic @ 2008-09-27 15:15:10) *

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.

yeah right Vic! you are slowly but surely getting as ridiculous as your doom and gloom counterpart

Sorry Naam but Vic is right. Foreigners have been speculating in the US real estate market for years. Perfectly legal.

[siamamerican]

Hasd everyone already forgotten the rest of the bailout?

Here's a list of some of the more recent Federal Reserve actions in the financial markets published by Reuters:

Bailout type Cost to taxpayers

$ 700 billion+ - Proposed Treasury Department legislation

$ 29 billion - Bear Stearns financing

$ 200 bilion - Fannie Mae and Freddie Mac nationalization

$ 85 billion - AIG loan and nationalization

$ 300 billion - Federal Housing Administration housing rescue bill

$4 billion - Mortgage community grants

$87 billion - JPMorgan Chase repayments

$200 billion+ - Loans to banks via Fed's Term Auction Facility

$ 50 billion - Loans from Depression-era Exchange Stabilization Fund

$144 billion - Purchases of mortgage securities by Fannie Mae and Freddie Mac

TOTAL: $1.8 trillion+

COST PER US HOUSHOLD: $17,064+

That is going to take a bit more than 28 billion a year.

Many of these bailouts or investments ( ironic, the government is investing in private sector assets) aren't accruing an interest expense. AIG is paying paying 10% which is 2.5 time the governments cost of funds. Too many numbers above to go over each one, but there is much more to the story than total dollars spent.

Edited September 28, 2008 by siamamerican

[Naam]

QUOTE (VegasVic @ 2008-09-27 15:15:10) *

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.

yeah right Vic! you are slowly but surely getting as ridiculous as your doom and gloom counterpart

Sorry Naam but Vic is right. Foreigners have been speculating in the US real estate market for years. Perfectly legal.

sorry Groongthep, i know what my former immediate neighbours in Florida (three of them) and the chap who bought my Florida home has done. none of them is a foreigner

[Groongthep]

QUOTE (VegasVic @ 2008-09-27 15:15:10) *

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.

yeah right Vic! you are slowly but surely getting as ridiculous as your doom and gloom counterpart

Sorry Naam but Vic is right. Foreigners have been speculating in the US real estate market for years. Perfectly legal.

sorry Groongthep, i know what my former immediate neighbours in Florida (three of them) and the chap who bought my Florida home has done. none of them is a foreigner

You yourself claim to be German so there's 25% of the 4 houses you mentioned in Florida being foreign owned. All one has to do is check the records at the county court house to see who owns what property. Not only European and Latin American companies buy US residential real estate develpoments but so do Japanese, Chinese, Singaporean and just about any other nationality that feels like doing so. Before this crisis they were touted as good investments and many developments where sold to or built outright by foreign investors. It's both common knowledge and public record.

[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.

Bold: didn't they learn anything ? I am amazed that there is still a market out there supplying the weak with money who were late with payments....unbelievable.

I'm even more surprised with your 20% down payment quote...

In most countries in Europe it's obligatory that one ALWAYS pay at least 20, 30 or more % as a down payment BEFORE you get a loan/mortgage. I some EU countries they also have 90 or 100, even 110% mortgages but in those cases the mortgages are supplied with a so called government guarantee and are for newly built houses in certain areas OR the income from (mostly) the couple is so high with such good guaranteed jobs that the banks see no problems, supplying those high mortgages.

BUT....nowadays, since the banks don't trust each other anymore, it's very very hard to get a proper mortgage whilsts the percentages are rising.

LaoPo

[siamamerican]

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.

Bold: didn't they learn anything ? I am amazed that there is still a market out there supplying the weak with money who were late with payments....unbelievable.

I'm even more surprised with your 20% down payment quote...

In most countries in Europe it's obligatory that one ALWAYS pay at least 20, 30 or more % as a down payment BEFORE you get a loan/mortgage. I some EU countries they also have 90 or 100, even 110% mortgages but in those cases the mortgages are supplied with a so called government guarantee and are for newly built houses in certain areas OR the income from (mostly) the couple is so high with such good guaranteed jobs that the banks see no problems, supplying those high mortgages.

BUT....nowadays, since the banks don't trust each other anymore, it's very very hard to get a proper mortgage whilsts the percentages are rising.

LaoPo

Bolder than it seems. The loans that are performing poorly are the high loan to value loans. Not to say people with a lot of equity are immune from foreclosure, but it is a rarity. Low fico and loan to value borrowers will almost without a doubt, make the loan current before foreclosure proceeding are even started. The banks make a little additional money in late payment service charges and the cycle continues.

I didn't know 80%+ loans weren't an option in Europe. Well, maybe Europe will avoid many of the problems we are facing. It's is difficult for a borrower to walk away from 20%+ equity.

It's is still quite easy to get a mortgage if you can document income and have a high fico or 20% downpayment. If you have an average FICO (680+) you can most likely qualify for a 95% loan to value loan. Personally, I think the equity is king and FICO can be missleading.

Edited September 28, 2008 by siamamerican

[LaoPo]

QUOTE (VegasVic @ 2008-09-27 15:15:10) *

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.

yeah right Vic! you are slowly but surely getting as ridiculous as your doom and gloom counterpart

Sorry Naam but Vic is right. Foreigners have been speculating in the US real estate market for years. Perfectly legal.

sorry Groongthep, i know what my former immediate neighbours in Florida (three of them) and the chap who bought my Florida home has done. none of them is a foreigner

You yourself claim to be German so there's 25% of the 4 houses you mentioned in Florida being foreign owned. All one has to do is check the records at the county court house to see who owns what property. Not only European and Latin American companies buy US residential real estate develpoments but so do Japanese, Chinese, Singaporean and just about any other nationality that feels like doing so. Before this crisis they were touted as good investments and many developments where sold to or built outright by foreign investors. It's both common knowledge and public record.

This is where all these discussions go wrong. Vegasvic mentioned 'many of these speculators were not Americans' without giving percentages or numbers.

How many is 'MANY' ? 10%, 20% 50%.....you see ? A fact is not given, just an insinuation that there are many speculators from foreign countries.

I would like to see numbers or percentages...before mentioning: many of these speculators were not Americans

Apart from that, 99% of the Americans and their forefathers are descent from another country than the USA unless there would be people, denying their roots

LaoPo

[BEENTHEREDONETHAT]

Changing the subject just a bit and getting closer to home. Do any of you have any thoughts on what the US economy is going to do to the Thai economy. By impression is the Thai banks haven't bought in to the US mortgage problem. interested in everyones thoughts.

[LaoPo]

I didn't know 80%+ loans weren't an option in Europe. Well, maybe Europe will avoid many of the problems we are facing. It's is difficult for a borrower to walk away from 20%+ equity.

It's is still quite easy to get a mortgage if you can document income and have a high fico or 20% downpayment. If you have an average FICO (680+) you can most likely qualify for a 95% loan to value loan. Personally, I think the equity is king and FICO can be missleading.

That's the difference between EU and US and I think the mortgage industry in the EU (apart from a country like Spain; but that's another story with another cause) is in a much better shape than the US.

Mortgages are now hard to get in EU and one has to come up with a real GOOD story and income papers with long job contracts or otherwise....NO mortgage

Another -long forgotten to talk about issue- are CREDIT CARDS (and DEBIT cards) causing debts problems in the US.

Credit Cards in the US, but also in Australia are in common use, unlike in Europe where the man-in-the-street NEVER uses a credit card. He pays either cash but also mostly with a debit card, knowing he has a FIXED credit amount which is not very much in most cases. It wouldn't be more than 1 or max 2 months salary, depending how high his salary would be of course.

I read in a report that the average American has 7 Credit Cards Unheard of in Europe.

Personally, I NEVER use a credit card, unless for payments abroad for airline tickets (but also mostly done online, payment per bank) and hotels or meals in more expensive restaurants. Staying in my own country I seldom use a credit card; just sometimes for buying Vitamines......in the US

My payment behavior is the same for about 95% of the population, probably more.

LaoPo

[ray23]

Timing, I have not been in the states for seven years. filed no taxes. own nothing there and have no job. I just got offered a guranteed credit card for $7500.

Folks this is the insanity.

[BEENTHEREDONETHAT]

Went into our Thai bank a couple of days ago and they offered us a platinum card. Was rather surprised as I didn't think they gave them to farangs. It is the Bank of Ayudhya and we accepted the offer. The card is in the mail.

[cclub75]

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.

Sure, that's for the textbook. As for "much more than zero", is "20 cents on the dollar" really that good ?

But how "rotten assets" based on bad housing mortages can be valued more tomorrow than today ?

I just want to remind you that the real estate market continues to sink. No bottom. Foreclosures increase. Walkaways too. Prices too. Unemployment is going up. GPD was revised down.

I mean... hello we are in recession !

Therefore by what magical trick people insolvent today would become solvent tomorrow ?

And it's only the beginning : with a housing mortgages you can assume that there is some kind of colateral, some value (the value of the bricks of the house ).

But what about... loans for cars (car depreciate very quickly in the US) ? Credit cards debts ?

You have only : wind.

And those are coming.

So again the idea that things are going to get better tomorrow is... very bold.

[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.

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?

i have read similar explanations (with a few variations though) Vic and i am convinced that hedge funds jumped in with a high leverage. what i still don't believe is that the "big boys" (those you have mentioned plus the other known suspects) leveraged with a multiple. they couldn't have taken loans from each other for the leverage, so my question is "were did the money come from?"

[lannarebirth]

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?

i have read similar explanations (with a few variations though) Vic and i am convinced that hedge funds jumped in with a high leverage. what i still don't believe is that the "big boys" (those you have mentioned plus the other known suspects) leveraged with a multiple. they couldn't have taken loans from each other for the leverage, so my question is "were did the money come from?"

I think they borrowed it at the Fed window then got some sort of credit derivative to "guarantee repayment", which of course it can't.

[lannarebirth]

Lots of questions still, but some answers:

http://www.iht.com/articles/2008/09/27/bus...s/28bailout.php

The great thing about a credit crunch is, it can't help but send savings rates higher.

Edited September 28, 2008 by lannarebirth

[Naam]

QUOTE (VegasVic @ 2008-09-27 15:15:10) *

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.

yeah right Vic! you are slowly but surely getting as ridiculous as your doom and gloom counterpart

Sorry Naam but Vic is right. Foreigners have been speculating in the US real estate market for years. Perfectly legal.

sorry Groongthep, i know what my former immediate neighbours in Florida (three of them) and the chap who bought my Florida home has done. none of them is a foreigner

You yourself claim to be German so there's 25% of the 4 houses you mentioned in Florida being foreign owned. All one has to do is check the records at the county court house to see who owns what property. Not only European and Latin American companies buy US residential real estate develpoments but so do Japanese, Chinese, Singaporean and just about any other nationality that feels like doing so. Before this crisis they were touted as good investments and many developments where sold to or built outright by foreign investors. It's both common knowledge and public record.

wrong assumption! i did not mention 4 houses but 4 american speculators. one of the speculators bought my home which was -that is correct- foreign owned. he also bought 2 more homes in the same homeowners association, one is under foreclosure, the other one is empty with a sign for sale/rent and my former home in which the buyer/speculator lived till end 2007 is rented out for the paltry sum of $1,800 a month. the buyer himself has moved to mobile home park. don't know whether he could afford to buy a trailer or just rent one. how do i know all that? i helped out a former neighbour and good friend who is handling whatever business i still have in the U.S. of A.

"Not only European and Latin American companies buy US residential real estate develpoments but so do Japanese, Chinese, Singaporean and just about any other nationality that feels like doing so."

where's the proof? the japanese got burned already in the 1980s, potential foreign buyers were and still p*ssed off by IRS and immigration officials after tightening the rules because of sept 11. i sold my home and the home i built for a german friend because my wife was told in 2003 when arriving from Europe "owning a house is no valid reason to enter the United States!"

[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.

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?

i have read similar explanations (with a few variations though) Vic and i am convinced that hedge funds jumped in with a high leverage. what i still don't believe is that the "big boys" (those you have mentioned plus the other known suspects) leveraged with a multiple. they couldn't have taken loans from each other for the leverage, so my question is "were did the money come from?"

I think they borrowed it at the Fed window then got some sort of credit derivative to "guarantee repayment", which of course it can't.

they were not able to borrow at the FED window without handing over something tangible. the "free for all FED" started in March with the collapse of Bear Sterns.

[lannarebirth]

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?

i have read similar explanations (with a few variations though) Vic and i am convinced that hedge funds jumped in with a high leverage. what i still don't believe is that the "big boys" (those you have mentioned plus the other known suspects) leveraged with a multiple. they couldn't have taken loans from each other for the leverage, so my question is "were did the money come from?"

I think they borrowed it at the Fed window then got some sort of credit derivative to "guarantee repayment", which of course it can't.

they were not able to borrow at the FED window without handing over something tangible. the "free for all FED" started in March with the collapse of Bear Sterns.

Yes they can:

http://www.newyorkfed.org/aboutthefed/fedpoint/fed15.html

The problem (among many) is they're borrowing short term (to garner fees) for long term obligations (tomorrow never comes).

[OriginalPoster]

QUOTE (VegasVic @ 2008-09-27 15:15:10) *

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.

yeah right Vic! you are slowly but surely getting as ridiculous as your doom and gloom counterpart

Sorry Naam but Vic is right. Foreigners have been speculating in the US real estate market for years. Perfectly legal.

sorry Groongthep, i know what my former immediate neighbours in Florida (three of them) and the chap who bought my Florida home has done. none of them is a foreigner

You yourself claim to be German so there's 25% of the 4 houses you mentioned in Florida being foreign owned. All one has to do is check the records at the county court house to see who owns what property. Not only European and Latin American companies buy US residential real estate develpoments but so do Japanese, Chinese, Singaporean and just about any other nationality that feels like doing so. Before this crisis they were touted as good investments and many developments where sold to or built outright by foreign investors. It's both common knowledge and public record.

wrong assumption! i did not mention 4 houses but 4 american speculators. one of the speculators bought my home which was -that is correct- foreign owned. he also bought 2 more homes in the same homeowners association, one is under foreclosure, the other one is empty with a sign for sale/rent and my former home in which the buyer/speculator lived till end 2007 is rented out for the paltry sum of $1,800 a month. the buyer himself has moved to mobile home park. don't know whether he could afford to buy a trailer or just rent one. how do i know all that? i helped out a former neighbour and good friend who is handling whatever business i still have in the U.S. of A.

"Not only European and Latin American companies buy US residential real estate develpoments but so do Japanese, Chinese, Singaporean and just about any other nationality that feels like doing so."

where's the proof? the japanese got burned already in the 1980s, potential foreign buyers were and still p*ssed off by IRS and immigration officials after tightening the rules because of sept 11. i sold my home and the home i built for a german friend because my wife was told in 2003 when arriving from Europe "owning a house is no valid reason to enter the United States!"

That's odd, was it easier to move to another country than to straighten out the situation, or did you move as a matter of principle? Was your wife actually denied entry even though she was in compliance with all immigration rules or was some rule changed after 911 that had the effect of denying her entry? There must be more to that story.

[ray23]

My understanding they actually hammered out an agreement to presented next week. Anyone seen any info of the modified plan?

[Naam]

where's the proof? the japanese got burned already in the 1980s, potential foreign buyers were and still p*ssed off by IRS and immigration officials after tightening the rules because of sept 11. i sold my home and the home i built for a german friend because my wife was told in 2003 when arriving from Europe "owning a house is no valid reason to enter the United States!"

*****

1. That's odd, was it easier to move to another country than to straighten out the situation, or did you move as a matter of principle?

2. Was your wife actually denied entry even though she was in compliance with all immigration rules or was some rule changed after 911 that had the effect of denying her entry? There must be more to that story.

1. OP, there was a way to "straighten out the situation", namely by investing 2 million U.S. dollars in a newly formed company to be run by the investor (in that case my[not so] humble self) and provide x number of employment for U.S. citizens. now, i admit that i am mad. my close friends call me "mad dog Wally" and in a way they are right. but i am not mad/crazy enough to invest 2mm in a country who's politics i abhor, pay a multiple of taxes and that all for some shÍtty VISA which might or not might have led to a green card after a certain number of years. both, my wife and me, liked living in America and there was a short period during which my wife tried to convince me it is worth to invest that kind of dough. however, she agreed that it's not worth it when i pointed out the shortcomings and risk we would take.

both of us are german citizens. we held for a second time a 10-year visa which enabled us to stay for 6 months at a stretch in the U.S. this limitation was no problem for us as we own residential property in two other countries and used that property.

2. my wife was not denied entry. but the procedure "stand here, wait, do not make any calls on your mobile phone, so what if you miss your connecting flight to Orlando? put these papers away! we are the INS not the IRS and not interested in your tax returns" was enough for us to say "enough is enough".

any other questions?

[lannarebirth]

but the procedure "stand here, wait, do not make any calls on your mobile phone, so what if you miss your connecting flight to Orlando? put these papers away! we are the INS not the IRS and not interested in your tax returns" was enough for us to say "enough is enough".

Same here. Now imagine how it feels when your paying that guys salary too.

[BEENTHEREDONETHAT]

but the procedure "stand here, wait, do not make any calls on your mobile phone, so what if you miss your connecting flight to Orlando? put these papers away! we are the INS not the IRS and not interested in your tax returns" was enough for us to say "enough is enough".

Same here. Now imagine how it feels when your paying that guys salary too.

I am an american citizen but over 25 years ago I decided there were better places to live for me and my wife. While I do visit there on rare occasions, I wouldn't want to live there again. I guess when you live in a place and it changes day by day you don't notice the change. Once you have been gone for a few years the change can be quite shocking when you go back.

I've been through a fair number of customs and immagrations but there is none I dislike going through as much as the US.