SuperEconomics

[Blicero]

^yeah this morning. negotiated down my student loans this month too. 40k to 33k.

Exactly how did you get your student loans reduced?

Change the interest rate? Payment schedule? Deets please.

[kunk75]

they simply forgave about 7k cause i stated that i'd never be able to catch up as i was 8 months late paying. they didn't erase principal but killed off a big load of interest.

[geekbonchic]

My problem is that we're indiscriminately buying junk loans with taxpayer money, with no objective method of measuring the value of these worthless loans. Also, these securities are going to get written up at a greater value than they're worth, meaning we're paying more for less. Why aren't we just ordering banks to suspend dividends or issue new equity? It no longer becomes an issue of signaling weak performance if all banks are required to do so by law. I'm sure this isn't the best solution out there, but it's better than basically giving our money to foreign governments (who are the majority holders of most of these securities anyway).

[kunk75]

they need to make some investment in this mess but 3/4 of a trillion dollars is a bit hard to swallow. we're getting all the shitty parts of socialism. i don't even see how this plan would help trad banks.

also, most of america has no idea how wall street affects day to day life. we have had it far too goo for too long. we're at fucking war and unless you have a relative serving, your life is not affected in any way. until we start losing our cars and lcd tvs, no one will wake the fuck up.

greenspan spent 25 years deregulating wall street; not gonna regulate it in 3 days. we're fucked.

[Farris]

from my understanding, its not that people are against a bailout plan, its just that they are not for that particular one. they want more assurance, eg more govt oversight, that the banks not give out as many "risky" loans.

i dont think that you can find many experts in the field, sry but ron paul doesnt count, that oppose the idea of a bailout plan, whatever magnitude that may be.

[Quik]

For those that are having a hard time understanding all this crap, or just want a good laugh.

http://www.businesspundit.com/sub-prime/

[geekbonchic]

Basically the bailout works like this:

-Government asks banks how much a loan is worth

-Bank looks it up, adds on a shitload of $$$

-Government pays

-Bank gives money to whoever is holding the securities (UBS, Deutsche Bank, etc.)

-Financial system remains fucked

I'm glad that Goldman has changed its operations, though, it's got enough money in its books to keep itself afloat, even if it doesn't exactly turn a profit. Honestly, what's missing is capital. If we could remove the arbitrary FDIC cap of $100,000 and throw in a shitload of government money to bank those deposits, it'd probably encourage more savings, which would add a lot of assets to help banks keep their gears turning.

[kunk75]

i got a no down mortgage but had the income to support it. there were people who made 50k but put down 100k because they assumed/hoped they'd be making that when the rate adjusted in 3-5 years. no different than investment speculation really, just more dangerous for the individual.

[geekbonchic]

For those that are having a hard time understanding all this crap, or just want a good laugh.

http://www.businesspundit.com/sub-prime/

The sub-prime meltdown is not the sole reason why the economy is suffering. You have the housing market, a shortage of credit, high oil prices (leading to high commodity prices) are all major factors.

[maxlin]

im scared.....honestly though, can someone explain how all of this will affect the average consumer?

[mrip]

go to alberta. we need you there. tim horton's pays $25/hr.

fuck son

im down with this free health care and high canadian dollar

canada here i come

[jl3969]

sadly i dont have any money, but my friend made a lotta money today thanks to the failed bailout. ultrashort proshare funds did him a lotta good.

[dizzhizz]

too bad the FSS (SEC equivalent) just banned short selling here in korea until the end of the year!!!

[Thorns]

Wow... lot of junk in this thread.

I've been fielding calls now for the past week from clients and former students asking questions. I almost don't wanna waste the time posting here because I'm sure the next post will be something like, "see this is what you get with 8 years of republicans in the white house" and think they've made a valid point. I'll throw out a quick laymen’s terms answer for my five most FAQ and if anybody has any further questions feel free to PM and I’ll tack on answers to the list:

Isn't this why FDR created the federal reserve to combat the great depression? No. FDR did not create the federal reserve, it was around long before him. Please slap your elementary school social studies teacher. However those circumstances do bear some similarities to today's situation. In the 1920's america experienced a huge boom. It was due to a huge number of causes (economics is frequently compared to meteorology) and one of them was the new found easy loan policies from banks. All of a sudden in 1929 it dawned on people that these loans weren't all going to be paid back. The fed jacked interest rates to try and stop the loans... bad move. Liquidity ground to a screeching halt, loans were defaulted on, banks went under.

-Today we are looking at the same root cause, but the fed doesn't want to make the same reactionary mistake twice. In other words decades of banks (and investment banks, and mortgage companies) thinking that the fed and the treasury would back them up led to the institutions making loans they would not normally have made had the risk fallen squarely on their own shoulders. This doesn't necessarily make them evil, just business savvy. If the government tells you they'd like to subsidize your business you'd be an idiot not to take them up on it! Now unfortunately people have realized that the inadvertent gov’t sponsoring of risk, has backfired and everything spiraled down from there.

Where does the money (700bill) come from? Unfortunately it comes from the same place the rest of the money the gov’t spends comes from. (Prepare for gross over simplification.) I’d like everyone to think of the United States as a corporation, perhaps an inefficient one, but a corporation none the less. It finances itself (besides its income stream… taxes) through debt and equity. The equity is held by the share holders, in this case its citizens. We receive the benefits of the corporation’s existence. We get bridges and military defense and medicare/Medicaid/social security and PBS. The debt, just like in any other corporation, is held by the bond holders. In this case any number of open market government bonds be they treasury or what have you. So… the whole point of that ramble: Debt. The gov’t will fall further into debt. Debt to whoever will buy the bonds. Its been like this for years upon years and ‘theoretically’ is possible forever.

How do we fix this/prevent it from happening again? That’s a tough question to answer because there are many solutions of varying validity. I’ll give you the answer I can both quantitatively and philosophically argue the best. My answer is: change the incentive structure. The only reasons these loans were made was because the loaners didn’t bear the full risk of the loan. That’s it. Finance is a game of numbers. Its an educated gamble. Its the same reason why if you buy life insurance as a healthy non-smoker 22 year old it’ll be less expensive than as a chronically ill pack-a-day 65 year old. It all boils down to the risk. Fannie and Freddie and the whole banking structure were told that not only did federal insurance protect them, but they were given billion+ lines of credit directly with the treasury. The burden of risk became minimal. Bad loans were given out. So to fix that… eliminate the subsidies. Eliminate the federal lines of credit. Although it would be a bitter pill to swallow, I believe failure should be permitted.

Are there any successful precedents? Actually yes, though I hate to admit it. We bailed out Chrysler and the American tax payer made out well. We kept the jobs and income. And Chrysler paid the whole thing back PLUS interest in a year. Mind you they were being run by Lee Iacocca who was kind of a genius. That whole minivan idea turned out pretty well for him.

Who’s to blame? I believe too much freedom is NEVER the problem, but too little. That includes the freedom to succeed and the freedom to fail. People would like to blame deregulation, but that’s simply not true. People would like to blame lack of oversight, but that won’t do it either. It was not lack of government that got us into this mess. It was too much. We’re mixing up correlation and causation. To be clear: It was the gov’t incentives over time that caused this. If the gov’t caused the problem that does not mean that the gov’t is also the solution. It would be lovely to blame Bush, but he DID NOT cause this and further government spending and oversight and market manipulation WILL NOT fix it. Sorry.

[transactionfee]

Wow... lot of junk in this thread.

I've been fielding calls now for the past week from clients and former students asking questions. I almost don't wanna waste the time posting here because I'm sure the next post will be something like, "see this is what you get with 8 years of republicans in the white house" and think they've made a valid point. I'll throw out a quick laymen’s terms answer for my five most FAQ and if anybody has any further questions feel free to PM and I’ll tack on answers to the list:

Isn't this why FDR created the federal reserve to combat the great depression? No. FDR did not create the federal reserve, it was around long before him. Please slap your elementary school social studies teacher. However those circumstances do bear some similarities to today's situation. In the 1920's america experienced a huge boom. It was due to a huge number of causes (economics is frequently compared to meteorology) and one of them was the new found easy loan policies from banks. All of a sudden in 1929 it dawned on people that these loans weren't all going to be paid back. The fed jacked interest rates to try and stop the loans... bad move. Liquidity ground to a screeching halt, loans were defaulted on, banks went under.

-Today we are looking at the same root cause, but the fed doesn't want to make the same reactionary mistake twice. In other words decades of banks (and investment banks, and mortgage companies) thinking that the fed and the treasury would back them up led to the institutions making loans they would not normally have made had the risk fallen squarely on their own shoulders. This doesn't necessarily make them evil, just business savvy. If the government tells you they'd like to subsidize your business you'd be an idiot not to take them up on it! Now unfortunately people have realized that the inadvertent gov’t sponsoring of risk, has backfired and everything spiraled down from there.

Where does the money (700bill) come from? Unfortunately it comes from the same place the rest of the money the gov’t spends comes from. (Prepare for gross over simplification.) I’d like everyone to think of the United States as a corporation, perhaps an inefficient one, but a corporation none the less. It finances itself (besides its income stream… taxes) through debt and equity. The equity is held by the share holders, in this case its citizens. We receive the benefits of the corporation’s existence. We get bridges and military defense and medicare/Medicaid/social security and PBS. The debt, just like in any other corporation, is held by the bond holders. In this case any number of open market government bonds be they treasury or what have you. So… the whole point of that ramble: Debt. The gov’t will fall further into debt. Debt to whoever will buy the bonds. Its been like this for years upon years and ‘theoretically’ is possible forever.

How do we fix this/prevent it from happening again? That’s a tough question to answer because there are many solutions of varying validity. I’ll give you the answer I can both quantitatively and philosophically argue the best. My answer is: change the incentive structure. The only reasons these loans were made was because the loaners didn’t bear the full risk of the loan. That’s it. Finance is a game of numbers. Its an educated gamble. Its the same reason why if you buy life insurance as a healthy non-smoker 22 year old it’ll be less expensive than as a chronically ill pack-a-day 65 year old. It all boils down to the risk. Fannie and Freddie and the whole banking structure were told that not only did federal insurance protect them, but they were given billion+ lines of credit directly with the treasury. The burden of risk became minimal. Bad loans were given out. So to fix that… eliminate the subsidies. Eliminate the federal lines of credit. Although it would be a bitter pill to swallow, I believe failure should be permitted.

Are there any successful precedents? Actually yes, though I hate to admit it. We bailed out Chrysler and the American tax payer made out well. We kept the jobs and income. And Chrysler paid the whole thing back PLUS interest in a year. Mind you they were being run by Lee Iacocca who was kind of a genius. That whole minivan idea turned out pretty well for him.

Who’s to blame? I believe too much freedom is NEVER the problem, but too little. That includes the freedom to succeed and the freedom to fail. People would like to blame deregulation, but that’s simply not true. People would like to blame lack of oversight, but that won’t do it either. It was not lack of government that got us into this mess. It was too much. We’re mixing up correlation and causation. To be clear: It was the gov’t incentives over time that caused this. If the gov’t caused the problem that does not mean that the gov’t is also the solution. It would be lovely to blame Bush, but he DID NOT cause this and further government spending and oversight and market manipulation WILL NOT fix it. Sorry.

So....what are you trying to say?

[Thorns]

So....what are you trying to say?

KOP DEM LANVINZ?!?!

[nicotine]

cigarettes will become more expensive and unaffordable and my tuition will keep going up.

[Appleseed]

If you went 6 months late on student loans, then you don't have the income to support a no-down mortgage.

[selaviso]

cigarettes will become more expensive and unaffordable and my tuition will keep going up.

start rolling your own half the price double the amount.

[sunshkine]

Def. seeing the effects of the moral hazard caused by the lender of last resort, but everything will be alright in the end. Some people have made mistakes, and they will pay the price. People on the sideline, should keep an eye on the market and get ready pounce looking as some good companies are obviously on the cheap side for now. I guess it all goes back to educated gambling... and I also think they will soon vote and accept a modified bailout plan.

[salaryman]

Are there any successful precedents? Actually yes, though I hate to admit it. We bailed out Chrysler and the American tax payer made out well. We kept the jobs and income. And Chrysler paid the whole thing back PLUS interest in a year.

Bad example.

Sure the Chrysler deal paid off for taxpayers in the short run, problem is, it didn't help the U.S. auto industry, or arguably the overall economy in the long term. The government set a precedent or sent the message that it would bail out failures, this stifles innovation, it allows companies to be complacement or become dependent on subsidies.

Detroit has not adapted to the market and had a shit business plan. They responded to high short term interest in gas guzzlers and pumped them out like their life depended on it. Now that gas costs so much and their U.S. made cars are falling apart, everyone is knocking on Toyota's door again. Then here come the American companies looking for a handout. Fuck that.

If we insist on a capitalist society we have to let the free market work. This means letting big companies fail and or letting investors buy them out and change them to make them more productive.

Economist Barry Ritholtz writes a pretty good blog http://bigpicture.typepad.com/ and he argues that if we had let Chysler fail, maybe Ford and GM might have stepped up their game.

I'm not saying we shouldn't have any regulation, by all means Wall Street needs supervision (especially with the kind of shell game finance world of derivatives) but intervention to help companies that dug their own grave has to stop if we want to the free market to work properly.

[homi29]

maybe geller will go on sale now

[sidneylo]

I love that I clicked this thread thinking homi would drop some of that banking knowledge, but he's only got one thing on his mind: ROBOKOPPING.

[please underestimate]

i stocked up on a big pile of canned foods and beef jerkies just in case.

[Agent Orange]

i am by no means an expert on this, but if nothing is done against the missing liquidity, shit is gonna get messy, and wealth will be destroyed. i am no fan of bailing out people who fucked up on their own fault, but alot more people will suffer when suddenly banks banks go bust and none of the others can back them up anymore.

also, as with any crisis of this sort, theres also psychological aspects, the bailout assures people that their assets are safe and gets the credit flow moving again. still better than bank runs.

[kunk75]

i had it, just felt raf simons stuff was more important than repaying for an education that shouldn't cost so much. fuck sallie mae.

If you went 6 months late on student loans, then you don't have the income to support a no-down mortgage.

[Thorns]

Bad example.

I agree with you in essence here, but the arguement is a lot of conjecture. We don't know what Ford and GM would have done with one fewer competitors. BUT that wasn't what I meant, I should've been more specific in the question. The question should've been worded have there been any precedents for the gov't successfully bailing out a company. I guess my measure of success was the company's further existence, innovation, and ability to pay back the tax payer.

You're on point with the freedom to fail though.

[Scais]

Its survival of the fittest at its best. Id like to think of this time like when the meteor came and wiped out all the dinosaurs, forcing the rest of the animals to adapt. All in all the companies that make it through this will be stronger than before.

[constant struggle]

I want massive deflation

that way my debt free ass has major spending power.

I"LL KOP SO MANY JAWNS

Also THE EURO is going DOWN vs the DOLLAR

EURO JAWNS ARE GOING DOWN I HOPE

[jl3969]

i still feel some sort of bailout plan will pass this week and the markets will rally for a bit.

not that any sort of bailout plan is a real solution to the problems.