This Global Money Problem

[gennisis]

I just cannot understand all this financial mayhem!. I think I understand that it all started with American morgage lenders being stretched.

OK,I can understand that that if a bank lends money for a purchase and does not have enough equity in the value of the property,if that value falls,then their asset value is depressed and possibly the assets value is now lower than the loan.....so the bank loses out,if the lender defaults.

If,for many reasons the property market continues to go down ,then surely a responsible bank would not offer loans being based on previous values....and would ,to protect its position,stop offering loans and use the incoming loan payments to bolster its cash position.

I understand that there are regulations that require a bank to hold a certain debt v assets ratio....OK...so their assets have decreased,but by not making any further loans,their cash in hand increases with the receipts of morgage payments,and eventualy the ratio becomes within the regulations.

I am sure some of you out there can correct my thinking .

Also...if property has been sold at over the norm prices,then the sellers have made extra high profits.This money presumably has been banked..thus increasing someones cash and that bank uses it in its attempts to remain within regulations.

The money that is used for these transactions doesnt disapear does it? I remains in the system..not everyone has bought gold or hidden it under the bed.Some one has gained and is equaly balanced by a loss elsewhere

So,as I've said.I dont understand whats going on.... somebody explain to me why a morgage lender in America making unwise loans ,causes a sovereign country like Iceland to be near bankcrupt

And please,dont bother with smart alec replies,I know I'm ignorant of these big financial matters.so enlighten me.

Edited October 8, 2008 by gennisis

[H2oDunc]

Gennisis do a google search on " fractional reserve banking " and it might give you a clue. We are in this mess because of this practice. You will have heard the term " a run on the bank " this is when lot sof people who have accounts with the bank go and TRY to take out their money. This causes a big problem as the banks dont have the money ! Like most people up to a few years ago I presumed that if you put money in the bank it was 100% safe. Not so. If you had 300,000 pounds in the bank and it goes bust all you were guarenteed to get back was 25,000 pounds. They are now running round like headless chickens raising this limit but its still really a con. In any other form of business this practice would be illegal. Once you start digging the things you find out will open your so much it will hurt.

[bonobo]

The initial crisis did affect financial institutions and investors who were over-exposed to sub-prime loans. However, this has moved beyond those institutions and is now affecting the public at large. Banks with money to lend are holding on to it for fear of getting exposed to losses which have yet to be uncovered.  So credit is drying up.  Students can't get car loans, people can't get loans to buy cars, mortgages are hard to get so houses can't sell so prices are depressed further, businesses can't get loans to expand or even buy their raw materials--it is a constantly growing spiral of economic misery.

At thsi stage of the game, a small percentage of people inthe world have taken huge losses.  So be it. That is not going to change, and they took the risks. However, the monetary flow needs to be opened back up so ther economy can resume chugging along. But until teh banks which have funds feel comfortable that the worst is over, then they won't do this. The world governments are now trying to inject funds so that banks on shaky ground can get back in the game and banks with solid footings will feel safe in resuming business.

[PhilHarries]

The world governments are now trying to inject funds so that banks on shaky ground can get back in the game and banks with solid footings will feel safe in resuming business.

Except for the Icelandic government who are all but bankrupt themselves.

This problem is exacerbated to an extent by ordinary investors panicing and trying to withdraw their funds but in the overall scheme of things they are small fry. Okay I can understand if you have all your money in one bank but even so if you get the funds out where are you going to put them? Another bank? You could try moving to a bank that guarantees 100% deposit security but I have my doubts just how secure that is unless the host country's government is backing it.

Yes there is a problem and likely as not there will be a recession of some kind and things will not be the same again. But to my mind there's not much point worrying too much. As long as you have diversified your investments as much as practicable you've done all you can. It's too early to be booking space on 14th floor Pattaya condo balconies. Calm down, go have a beer and quit reading the newspapers (or stick to the comics section ).

[bonobo]

The world governments are now trying to inject funds so that banks on shaky ground can get back in the game and banks with solid footings will feel safe in resuming business.

Except for the Icelandic government who are all but bankrupt themselves.

This problem is exacerbated to an extent by ordinary investors panicing and trying to withdraw their funds but in the overall scheme of things they are small fry. Okay I can understand if you have all your money in one bank but even so if you get the funds out where are you going to put them? Another bank? You could try moving to a bank that guarantees 100% deposit security but I have my doubts just how secure that is unless the host country's government is backing it.

Yes there is a problem and likely as not there will be a recession of some kind and things will not be the same again. But to my mind there's not much point worrying too much. As long as you have diversified your investments as much as practicable you've done all you can. It's too early to be booking space on 14th floor Pattaya condo balconies. Calm down, go have a beer and quit reading the newspapers (or stick to the comics section ).

Valid observations and good advice.

[benjamat]

Heres the thing that worries me.

This crisis can be simplified down to basic home economics. For the past ten years everyone has been spending more than they have been earning. How can this be, well its all been based around the fed reserve keeping extraordinarily low interest rates and encouraging people at all levels to borrow money. Money was so relatively cheap that the institutions got greedy and lazy, and especially in the housing market ended up giving large home loans to almost anyone who asked with very few if any checks.

This easy money meant that millions of people saw this as opportunity to get wealthy (without earning) and the scramble for houses kept house values rising to ioncredible levels. These house value rises made people feel rich and prompted further borrowing based on the equity they thought they had in their houses or simple greed.

So the banks were almost giving away money but they actually realised that many of the mortgages were very dodgy so they wanted to get them off their books and pass on the risk to others. The way they did this was to package up the loans in such a way as to make them not look risky, in fact these packages were triple A listed which is the same as companies like Shell or Exxon. Thgese packages of what were actually very dodgy debts passed into the global marketplace and became bought and sold in huge numbers ending up on the books of large numbers of financial institutions, and valued way beyond their real value.

The institutions then used these pakages as part of their balance sheets to borrow money themselves from each other to finance further lending. When it became known that these debt packages were not triple A but in fact triple D, the institutions began to panic and stopped lending to each other in so doing choking the global credit market.

Now the banks dont trust each other and much of the previous value of the mortgage base has been seen to be grossly inflated so the amount of liquidity in the system is downgraded massively.

Bottom line is what many of us have been saying for years, If you borrow then some day you must repay. If you borrow more than you can repay then disaster.

The problem is that now we all have to pay for the excesses of the financial institutions and the mentality of the consumer who saw buying houses as a get rich quick opportunity. In the third world this will mean death to many.

[Kf6vci]

http://video.google.com/videoplay?docid=-9050474362583451279

[Kf6vci]

I just cannot understand all this financial mayhem!. I think I understand that it all started with American morgage lenders being stretched. This affects all types of debt. Auto, credit card, Prime and Subprime.

OK,I can understand that that if a bank lends money for a purchase and does not have enough equity in the value of the property the equity is the money the borrower spent on the house. The bank is concerned with the collateral, the value of the property and getting the loan serviced monthly. ,if that value falls,then their asset value is depressed and possibly the assets value is now lower than the loan.....so the bank loses out,if the lender defaults. You mean the borrower. // One major cause of the problems is that banks were planning to sell the mortgage. They were chasing fees and quick profits, not thinking they would have to deal with this borrower for the next 30 years.

If,for many reasons the property market continues to go down ,then surely a responsible bank would not offer loans being based on previous values. The market works just fine. At some point, supply and demand will reach a stable equilibrium. Much less new homes are being built, of course, for years to come. This will lead to higher prices at some point in future...and would ,to protect its position,stop offering loans and use the incoming loan payments to bolster its cash position. Well, it happened very quickly. And now there is a lot of uncertainty involved as these mortgages have been sliced and diced and bundled and packaged...

I understand that there are regulations that require a bank to hold a certain debt v assets ratio....OK...so their assets have decreased Q: You know that the bank's assets are the liabilities of the bank's customers? ,but by not making any further loans,their cash in hand increases with the receipts of morgage payments,and eventualy the ratio becomes within the regulations.

I am sure some of you out there can correct my thinking .

Also...if property has been sold at over the norm prices,then the sellers have made extra high profits.This money presumably has been banked..thus increasing someones cash and that bank uses it in its attempts to remain within regulations.

The money that is used for these transactions doesnt disapear does it? I like your refreshing reasoning. I remains in the system..not everyone has bought gold or hidden it under the bed.Some one has gained and is equaly balanced by a loss elsewhere

So,as I've said.I dont understand whats going on.... somebody explain to me why a morgage lender in America making unwise loans ,causes a sovereign country like Iceland to be near bankcrupt. Well, take a country's top bank and you will find out that this bank's liabilities exceeds the GDP of that country. Deutsche Bank for Germany etc.

And please,dont bother with smart alec replies,I know I'm ignorant of these big financial matters.so enlighten me.

[Merlin]

to put things in a little bit of a personal perspective, my sister is one of those caught up in the problems in America. 2 years ago before any of this was viewed as any kind of problem at all, she bought an apartment in Manhattan. 80% on a normal mortgage, 15% on a "sub prime" mortgage, and 5% on a credit card. She had brokers and banks and all sorts making all kinds of offers to her to sign up - free holidays, AMEX cards, extra cash for refurbishments etc etc etc. Now, she owes about US$120K more than the place is worth. For her, it's not an immediate problem, her payments have not gone up and her wage is still the same so she intends to keep on paying and ride it out till it comes good. She blames all the problems on those who have defaulted on the loans, and then the banks are stuck with a property that's not worth the outstanding.

[benjamat]

The problem is that this particular financial crisis is unlikely to resolve itself in a time frame that will bail out the ordinary people. With governments now taking huge stakes in the institutions and tighter regulation people will have to really tighten their belts and hope nothing goes wrong for at least five years. In the UK we saw this in the early nineties, it took a long time to recover and it was much less severe than now.

In addition, the present situation with governments pumping money in to restart the markets is very worrying because of one simple fact. The present situation was caused by the ease at which money was available.

If the markets are forced to restart before their is a levelling of real values then we are only starting another boom and bust cycle. THis is short term political thinking and will lead to another crash.

Of course their is plenty of money in the system but now the majority of it is in the hands of hedge funds and private equity firms whose whole purpose in life is to make quick profits for wealthy investors and not invest in the future. In fact most of their operating principles rely on dpressing values initially to create profits later.

Edited October 8, 2008 by benjamat

[teatree]

The best introduction to the banking scam is to watch 'Money As Debt' on youtube or google video. If you watch it you will get some kind of understanding as to why the world economy is on the verge of total collapse.

Edited October 8, 2008 by teatree

[JetsetBkk]

Heres the thing that worries me.

This crisis can be simplified down to basic home economics. For the past ten years everyone has been spending more than they have been earning...

Include me out of that statement.

[thaicurious]

http://video.google.com/videoplay?docid=-9050474362583451279

just the vid i was considering posting as reading the thread. ya beat me to it.

here's another one which i think explains clearly (not a vid but npr's take) how we got here. click "listen now" under global pool of money got too hungry.

http://www.npr.org/templates/story/story.p...toryId=90327686

and here's a short vid explaining the system which rated the patsies of this ponzi scheme:

http://www.publicradio.org/columns/marketp...lainer_unc.html

[desertrat]

Sure to be called ignorant and obtuse but here goes.

If X loses money, does Y not gain it ?

Companies assets, (land buildings, equipment have a value) can/ how could their share price fall below this.

Cause of all this GREED, from bankers to consumers.

The fact that thw world looks like it's going to take a cold shower should be good for the environment.

mmmm should have read previous posts.

2 economics students asked their lecturer for old exam papers.

When they started on a set they saw they were for this years coming exam.

Honest Guys went and told the guy of his mistake, no problem he said the questions are always the same, it's the answers

that are different.

With all the hysteria of people on telly now, who have lost their money, I am wondering about the farang in the checkout line at Lotus who dropped a satang ?? is it ?, he held up all the queue while he assiduously searched, he never found it, it was safely under my foot.

Edited October 8, 2008 by desertrat

[Maizefarmer]

To cut a long story short:

One way banks make money is by lending money e.g. mortagages.

Depending on your financial status yoru mortagage will come with some or other interest payment: the more secure you are the lower your interest rate will be, the more risky you are the higher your interest will be.

The latter is known in the industry as a "sub - prime" mortgage.

Another way banks make money is by parcelling up all the sub-prime mortagages they have and selling them on the financial market to someone else - somone who is willing to buy a "parcel" of debt at a discoutned rate in the anticipation that they will be able to make some money out of it.

Associated with this parcel of debt will be an insurance policy: e.g. the bulk buyer of these parcels of debt will take out insurance, just in case they can;t get there money back (meaning: just in case the subprime mortgage holders start to defualt on their monthly payments) - and it's guys like Leahman Brothers who invested billions in buying up parcels of sub-prime mortgages sold on the open market by retail/high-street banks - and is guys like AIG who sold Leahman Brothers the insurance policies.

But how did it all go pearshaped?

Heres the second part of the equation - it consists of a number of components, which came to gether and changed the nature of the market:

- banks were lending to much money to many people on a sub-prime basis.

- the supply/demand equation started to reverse about 18months ago i..e the the value of property on the open market started to to drop.

- homeowners found themselves sitting on "negative equity" i.e. their mortgage was costing them more than their house was worth.

Homeowners starte to default and investment Banks like Leahman Brothers found themselves sitting on billions of dollars of real estate that was worth less than they paid for it - and was becoming worth less and less by the day. The result was mortgage defaults increased day on day and Leahman Brothers's income (from mortgage payments) started to drop.

What did Leahman do? - they went off to AIG to cash in the insurance policies they had in place for just such an eventuality.

The problem was, Leahman was just one of many banks in the same position - and with more and more claimants at its front door each morning to cash in insurance policies, AIG started to run out of cash.

The nett result was:

- seeing the impending doom, highstreet/retail banks started to cut back on approving applications for loans to businesses and Mr& Mrs Average (because most loans are secured against real estate the banks became nervous that they would not be able to recover the loan against an asset whose value was falling by the day).

And that is the "credit - crunch" part of it - credit (lending) started to fall off, and with banks not lending their income plummeted.

There are a bunch of other factors that come into play (credit swaps for example) and some of the financial instruments involved are very complicated e.g. so large are some of these parceled up packets sold on to guys like Leahman brothers, that many of the other investment type banks who have them on their portfolio's don;t even know eactly what is in the parcel or what it's value is. That may be hard to believe, but thats the situation.

And not knowing what the value of your debt is means that no one is goign to ledn you money.

Thge result of this is that another side to banking came to a stand stiLL; interbank lending - banks stopped lending to each other.

The ball is now firmly in the court of central banks (i.e. Federal Reserve and Bank of England) - the lender of lasdt resort: and its is the central banks who are now going to have to inject capaital in the market to get things moving again. Ultimatel that means public money - the taxpayer.

Lets hope like hel_l that eventually the assets the central banks are given by the banks as security ultimatelt come good, and that the central banks get thir money back (meaning that tax payer gets their money back).

[elkangorito]

http://video.google.com/videoplay?docid=-9050474362583451279

I watched this video & it made sense to me. Mind you, I am not an economics whiz...I simply applied "common sense", which is "You can't get something from nothing & you can't get something for nothing".

I even alluded to this in the following post/thread but comments were not forthcoming. I guess people were too busy going into the minutiae of "economics" to even notice.

http://www.thaivisa.com/forum/index.php?s=...t&p=2249599

As a previous Facilities Manager in Sydney (2002), I recall the time when a member of the company "management team" came to visit me. This person arrived to tell me that my fax machine would be removed due to "cost cutting". My question to this person was, "How can I communicate without this machine?"

The answer: "Do your best." Nothing else was said & nothing else would be said regarding this matter.

After this "cost cutting" measure, my colleagues & I discussed & questioned when this "cost cutting" would stop. Basically, we all asked some simple questions..."How many tools that created actual products ("physical" end results) will be removed in order to improve the profits of "sitting on their arse" shareholders before actual productivity suffered? (This previous comment is an oxymoron, isn't it.) If one person is now required to do the job of five people, when will one person be required to do the job of ten people? Can any single "productive" human physically tolerate such a thing? Is this not a form of slavery?"

I am disgusted that "gambling" with peoples lives (ie the stock market) is allowed to exist when in many cases, governments either ban gambling or embark upon the rehabilitation of gamblers (casinos etc). Are stock market gamblers different? Are they not considered to be gamblers?

This is hypocrisy of the highest order.

Why are some people never happy with a fixed profit? Why must they always want bigger & better profits? Why must they have total power? Is it because they are lazy & want to lounge around while slaves do things like wipe their bums? Why, why why?

Answer: GREED & complete & utter laziness!!!!!

We all need to "productively" contribute to our wellbeing. We all need to produce an actual physical thing in order to survive. The never ending production of money (profit) is not going to sustain the human race.

[seyenne]

Why are some people never happy with a fixed profit? Why must they always want bigger & better profits? Why must they have total power? Is it because they are lazy & want to lounge around while slaves do things like wipe their bums? Why, why why?

.

I think the reason why you always have to increase your profit from year to year is because if you don't, you're simply out of business. Others will, standing still without profit maximization you'll slowly die out (for the most branches in a competitive market). If you don't have money to invest into new machineries, people etc. you cant compete on the market. There will always one who produces cheaper. Thats the whole point. Inflation plays a role, if you don't inrease your income, you'll have less purchasing power from year to year.

I don't know if this is a professional explanaition but this is, what i've learned in my first year at a thai university

[elkangorito]

In that case, we are doomed....OR we will endure a never ending (& unnecessary) cycle of "boom & bust".

[Brigante7]

Makes me glad that I've no stocks & shares, about £1,000 in savings, no debts and am mortgage free although I am paying for other peoples greed through higher utility, fuel and food prices.

[elkangorito]

Same as me except I have no bank savings. I do not wish to put any money in into any bank account ever again. I have had this belief for about 3 years. I keep my money in a much safer place.

[benjamat]

I think we all know why this has happened, greed. But the fact is that nobody knows how it will all pan out. At the moment the various governments are sinking enormous sums of money into these institutions but nothing is happening. Iceland cannot even cover the situation so in theory could go bust, Italy looks very dodgy and the uk has already commited a third of gross national product which is actually more pro rata than the USA.

If you have any money get it into a safe haven quickly.

The hedge funds and private equity firms are sitting back and watching with glee, just waiting for the opportunity to make more killings at the expence of the rest of us. No one can predict what the result will be when this happens.

[elkangorito]

I tried to bring up the current financial crisis at work yesterday. I was given one reply & then the replier very quickly distracted herself & proceeded to talk to one of her Thai friends in Thai language. My current impression is that many Thai people aren't concerned with this financial crisis & prefer not to discuss it. Actually, my Thai colleagues seem to not want to discuss any problems that occur outside of Thailand. The word Ostrich comes to mind.

[Naam]

Heres the thing that worries me.

This crisis can be simplified down to basic home economics. For the past ten years everyone has been spending more than they have been earning...

Include me out of that statement.

exclude me in

[Martian]

Heres the thing that worries me.

This crisis can be simplified down to basic home economics. For the past ten years everyone has been spending more than they have been earning...

Include me out of that statement.

exclude me in

Oh my...that made me laugh!

Martian

[Ricardo]

Except for the Icelandic government who are all but bankrupt themselves.

Given the fairly-volcanic nature, of their homeland, might it not be easier for Iceland to get into 'hot water', than most other countries ?

[Gary A]

You can only blow so much air into a balloon. Eventually the balloon pops. Yes it is greed. People who had no ability to repay a mortgage were permitted to buy property. That property increased in value (?) and was eventually resold at a profit because the owner could not meet his payments. No one lost anything, most made money and the balloon got bigger. Finally the balloon popped and what was owed on these properties was much more than the property could be sold for. The greedy mortgage brokers, loan shills, crooked appraisers AND the banks should have been put out of business because of their greed rather than the government bailing them out. The socialists are now attempting to allow people to keep homes that they could not afford to buy in the first place. Working people are now being forced to pay for these follies.

YES, I was greedy too. As of today I have lost 55 percent of my life savings. My money is gone but the people who created this situation are not losing anything. I was stupid enough to invest in ETF's that were paying very good dividends. I used to laugh at my good friend who kept his money in bank CD's. He didn't trust the stock market. He still has his money and I'm not laughing anymore.

[desertrat]

I invested in the plots of land at Heathrow (Telly Ads ESPN ) promising 250 % in 3 years so I'm laughing.

[Murgatroyd]

You're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Your money's in Joe's house...right next to yours. And in the Kennedy house, and Mrs. Macklin's house, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?...Now wait...now listen...now listen to me. I beg of you not to do this thing.

: George Bailey "It's a Wonderful Life"

The banking system has been a flim flam for years... as are all other "Financial Services"... City types are amoungst the highest paid earners in the world... and they produce nothing... they dont manufacture anything, they don't grow anything, all they have ever done is to move other peoples money around, and take a slice of everything that has ever passed through their hands... It's always been a shell game... as long as everyone had confidence in the system, it continued to work, and provide massive incomes for as big a collection of parasites as can be seen outside of a dead water buffalo.

Now the confidence is gone, and depositors will soon try and get their "Safe and guaranteed" money back... they can't. It's not there... it never has been.

Many of us ex-pats will be ruined, as a large proportion of us depend on interest payments and private pensions for our retirement incomes.

I fear for my new family...

[desertrat]

"Ruined"...The Luftwaffe bombed us and my family and we survived and prospered, what's money ?

[Murgatroyd]

After the last world war, we worked to rebuild our countries, our finances, and our lifestyles... we all worked very hard, for many years.

After the housing market crash of the early ninety's we did the same... when negative equity and failing businesses wiped out our capital, we went back to work to rebuild.

Here in Thailand my visa prohibits me from working.

Thus my ability to look after my family is not the same as it would be at home... This is what worries me.