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Financial Meltdown?


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Forget the housing meltdown in the US. I think a bigger event is the coming financial meltdown which has already started in many quarters there and elsewhere in the world.

 

The signs are still relatively small but, to me, ominous. Here in Canada the $35billion non-bank money market froze in August when it was discovered that some of the sub-prime loans had been securitized and included in these securities. As a result a rescue effort was launched but to date the only agreement has been that a moratorium was imposed (effectively freezing everyones' deposits) but no exit strategy has been agreed and the clock is ticking loudly.

 

In the UK we witnessed a major mortgage bank almost go down the tubes and depositers withdraw more than 2billion pounds of deposits when they didn't believe the Bank of England and other autorities that their money was safe.

 

The Fed has started lowering interest rates but much more may be necessary. Millions of mortages are set to increase the interest rates over the next 2 years in the US, pushing many households into foreclosure. Here in Canada, the central bank is injecting billions into the banking system to maintain market interest rates.

 

Today the New York Times reported that UBS, Switzerland's largest bank and one of the largest investment banks in the world has lost over $3billion in the last quarter. 1500 investment bankers have been shown the door, undoubtedly many hundreds in New York alone. Who is going to buy all those over-priced $5 to 10 million apartments these guys have been buying up in droves the last 3 or 4 years?

 

If Manhattan has been immune to the housing meltdown so far, maybe by spring the unfolding disaster elsewhere in America will wash up on its shores. Who knows? Maybe I'm being a Casandra here. Time will tell!

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Guest zipperzone

>Todaythe New York Times reported that UBS, Switzerland's

>largest bank and one of the largest investment banks in the

>world has lost over $3billion in the last quarter.

 

That sounds like a lot of money but in banker's terms it may be just a drop in the bucket. No one reports it when they MAKE that much - just when they loose it.

 

>Who is going to buy all those

>over-priced $5 to 10 million apartments these guys have been

>buying up in droves the last 3 or 4 years?

 

 

NYC as the financial capital of the world will always be able to command prices that seem to be indefensible to us lesser mortals.

Even if it was to slow down and cause them to sell for less, eventually (and I'd bet sooner than later) they would be right back up there.

 

>If Manhattan has been immune to the housing meltdown so far,

>maybe by spring the unfolding disaster elsewhere in America

>will wash up on its shores. Who knows? Maybe I'm being a

>Casandra here. Time will tell!

 

I think you wrong here. Possibly a little bit too much "doom & gloom" but if it all comes to be, we'll give you the right to say "I told you so"

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$3 Billion may be a drop in the bucket but in the five days since then other banks have come forward announcing write-offs of even bigger sums, $5 Billion or so for Citicorp and Merrill Lynch each and somewhat lesser sums but still in the billions for other investment banks. Even Washington Mutual, the largest US savings bank, is losing money. As someone once said "A billion here, a billion there, pretty soon you're talking real money"!

 

What has been the market reaction so far? Giddy exhuberance. With each loss announcement, bank stocks have gone up. Will this last? In my opinion, not. Wait till the next quarter, when these systemic problems have not been fixed and these companies continue to hemorage money. Investors are going to start to head for the exits en mass. Then watch out.

 

October has a history of bad surprises in the stock market. This year could be another such time. We'll see. :o

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There are always doomsayers in the financial marketplace, partly because one person's doom is another's gain, so there's a definite market for downside predictions. They sometimes create opportunities as well as foreclose. But things are happening. Here in NYC, Bear Stearns is fighting just to stay alive. Morgan Stanley is laying off 600. October is the time to do it, so that it is far enough away from Christmas to avoid any question of the traditional Christmas bonuses that drive a major chunk of NYC real estate sales. You know, young masters of the universe plunking down $3 mill cash for that great loft to impress the babes. That market may cool.

 

But -- both of the banks I use most have changed ownership -- NetBank acquired for a song by ING (because of mortgage exposure) and Commerce Bank, acquired by the Canadian TD Bank, which I guess used to be Toronto Dominion. When both of your banks change hands in the same week, more or less, there's something going on.

 

Real estate is a different matter, especially in NYC. If there's a dip in prices, it will only lure more foreign money into NYC, especially into Manhattan. And if prices in the Boroughs go down, there's a huge pool of people already qualified for lower priced homes waiting to afford to buy here in NYC. So those lower prices will attract buyers as well. So IMHO, real estate in NYC is reasonably secure. But the rest of the country? Hardly. Real estate generally is driven by the intrinsic value of its location. During this real estate boom, and for the last 15 years or so, price has detached from location value. Now it is reattaching, and of course, those who really can't afford their mortgages will be burned, while those who were counting on madly inflating values to fund their retirements or lifestyles will have to recalculate.

 

My guess is that the poster above is right. It will be in 2 years or so that the shit really hits the fan in real estate, and that will be Hillary's great crisis, assuming she is elected. I don't see much analysis of her probable fiscal and economic policies. Perhaps we should ask.

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That was now deceased Senator Goldwater who made the billion here comment.

 

I agree with the statement that it is difficult to tell how the various entities are doing without specialized knowledge. We have switched from M to B to T and soon Q during my life time. Talk about shock and awe.

 

Best regards,

KMEM

 

M=millions

B=billions

T=trillions

Q=quadrillions

 

Lots of money or lots of paper but surely lots of zeros.

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Guest john1927

I always attributed the billion here,... there comment to the late Everett Dirkson the often wrong headed, conservative Senator with the million dollar bass voice.:-)

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RE Dirksen / Goldwater Quotes

 

>I always attributed the billion here,... there comment to the

>late Everett Dirkson the often wrong headed, conservative

>Senator with the million dollar bass voice.:-)

 

The quote is attributed to Dirksen but there's no real proof that he actually made the satement. Here's a link from the Dirksen Center that explains the story.

 

http://www.dirksencenter.org/print_emd_billionhere.htm

 

Goldwater's popular quote is: "I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue."

 

It's the second part of this qoute that gets left off because by leaving it out makes Goldwater look like a bad guy. My favorite AUH2O quote is this one: "A government that is big enough to give you all you want is big enough to take it all away."

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While no one can accurately predict the impact of the sub-prime mortgage fiasco now going on in the economy, there have been many "crisis" before and I'm sure this is just another one of those.

 

I worked for a long time at a major multi-national NY banking institution. I remember back in the 80's when the "loans" we made to South American countries came due and they defaulted on the obligations. Billions were written off the books without the bat of an eye. "Charitable contributions" was the name the Controller gave to the crisis!

 

Remember the REIT crisis in the 70's? The bank I worked for suddenlly owned thousands of properties across the US. The properties were held and managed by the bank until the time came when it could sell them off.

 

This crisis will pass, too. Yes, there should be some intervention from the government and perhaps that's why it started in the first place. Many know that the government will not let the financial markets fail.

 

My question is this, how did this mortgage crisis get so far? Didn't anyone in the government raise a red flag that it was getting out of hand? Didn't these mortgage lenders know that most of the people they were lending too would default? And what is the penalty for these lenders? Nothing! They will never be prosecuted for their actions and most will walk away with "golden parachutes" in their back pockets.

 

Yes, the real estate market in places like NYC will be supported by foreign investment. We've seen some recent real estate transactions involving Middle Eastern investors and the Europeans and Canadians will soon be moving in to take their share, too.

 

And as a final note. The poor "flippers!" I wonder how many got caught in this debacle? Whatever happened to that horrid reality show on Bravo called "Flipping Out" where a gay "flipper" in LA who specialized in upscale housing was flipping everyone out because he was an anal-retentive obnoxious idiot? I watched it a few times and I had to laugh out loud at his antics.

 

ED

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RE: RE Dirksen / Goldwater Quotes

 

>The quote is attributed to Dirksen but there's no real proof

>that he actually made the satement. Here's a link from the

>Dirksen Center that explains the story.

>

>http://www.dirksencenter.org/print_emd_billionhere.htm

 

The quote was revived by Lloyd Bentsen:

 

"In the Senate Bentsen soon became a power, above all via the tax-writing Finance Committee, of which he became chairman in 1986. Naturally he looked after his own, in this case the Texas oil and gas industry - and so successfully that he became known as 'Loophole Lloyd'. Those years produced another classic Bentsen line, apropos of tax breaks and the runaway Reagan-era budget deficits: 'A billion here and a billion there,' he mused, 'and pretty soon you're talking real money.'"

 

http://findarticles.com/p/articles/mi_qn4158/is_20060524/ai_n16410424

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RE: RE Dirksen / Goldwater Quotes

 

Thank you John and AVG. I voted for Goldwater and Miller and have attributed that quote to BG all these years. I should know better. Howard Baker, the TN senator, married Dirksen's daughter. The Republicans were very incestuous in those days. :-)

 

Best regards,

KMEM

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Guest zipperzone

>Didn't these mortgage lenders know that

>most of the people they were lending too would default?

 

They couldn't have cared less as they planned to sell the "paper" to third parties.

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>Forget the housing meltdown in the US. I think a bigger event

>is the coming financial meltdown which has already started in

>many quarters there and elsewhere in the world.

>

 

I share the fear. I feel that lowering interest rates to keep the loans from becoming "non performing" only forstalls the problem and worsens the value of our currency throughout the world.

 

Let's face facts; a person with a low interest ARM earning 100K a year could not afford their Million Dollar home at 4% let alone 6%. They should not have purchased the home in the first place. I would rather deal with the problem now as opposed to wondering when the axe will fall.

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At least the interest rate is going down. I remember the late 70's early 80's when it was up around 18% or 19%, and many people lost or almost lost their homes during that time. If the interest rates were to go higher, then there would be more defaults. Things do not look good for the future though, in more ways than one. There are very few people learning a trade when they graduate highschool, and all the students are encouraged to go to university. That may sound great but, where are the truck drivers going to come from? There are no young electricians for example in the town where I live. So not only is there the potential for a finacial crisis, but also a crisis within the infastructure too.

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Guest zipperzone

There are very few people learning a

>trade when they graduate highschool, and all the students are

>encouraged to go to university. That may sound great but,

>where are the truck drivers going to come from?

 

They are going to come from the ranks of the MBAs, MAs & PHDs who can't find a job in the field they are educated in. That's been happening for quite some time and will probably get worse.

 

>There are no

>young electricians for example in the town where I live.

 

Can't find a bright young spark eh?

:-)

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  • 2 months later...

It's almost three months since I made the OP and the financial meltdown continues apace. Today Morgan Stanley announced a huge multi-billion dollar loss and the sale of equity in itself to the Chinese Government! Who would have guessed that a few months ago the second largest investment bank in the US would sell out to the Communists! Maybe this is the way capitalism will be buried. Not the way the Russians predicted but by a takeover by Communist China.

 

All kidding aside though, this is starting to look serious. The Bank of China apparently is accumulating $1 billion a day to prevent their currency from rising. That means they will have the cash to buy all the failing US banks in the future. Citigroup and UBS have already sold shares to Eastern and Middle Eastern investors. Who will be next?

 

Here in Canada, we have not been immune to the financial crisis gripping the US. Our banks have mostly avoided the sub-prime mess except for one, CIBC, which may have to have a white knight like its US sisters. But the credit market has been rocked by the seizing up of $36billion in asset backed paper. Three months later there is still no way out of the impasse despite the intervention of the Bank of Canada.

 

Our real estate market is relatively healthy, though, with increases in values continuing through 2007 and expected to continue in 2008. But then we never were affected by the madness that gripped US markets starting in 2003.

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Guest ncm2169

< That was now deceased Senator Goldwater who made the billion here comment.

 

Everett Dirksen fans may disagree with you (or maybe not):

 

http://www.dirksencenter.org/print_emd_billionhere.htm

 

As someone who has been a politics junkie for 50 ... umm, a long time ... }( , Dirksen was one of my alltime fave politicians. It's a credit to Illinois voters that they kept him around for a long time. .:*

 

Oops, I just saw the other posts re: Dirksen. DUH. x(

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  • 4 weeks later...

The financial meltdown on Wall Street continues apace with reports that Merrill Lynch and Citigroup are selling even larger stakes in theri faltering enterprises to foreigners and wiping billions off their asset bases. Where will it end? The contagion appears to have touched many foreign banks and even if the evidence is not there, the rumours have been enough to damage their stocks and public confidence. At their core, banking institutions are all about confidence.

 

You know things are getting bad when the Presidential candidates are promising relief measures and they haven't even been elected yet. Today's New York Times reported that the bonuses paid to workers in the financial sector in NYC were paid more in stock than cash this year. That has an important implication for other businesses, especially real estate. While Manhattan has been immune from the downturn in prices seen everywhere else across the US, the time may be coming in 2008 when the declines start to take hold there. If true, the mess could be truly staggering, given the heights which that market has achieved. Time will tell.

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L2P, unfortunately, methinks you right on target. Friends that have good financial experience all have vision of a severe recession ahead. All have adjusted spending!

I have been barking about the decline of the U$D on the War, Politics and Religion fourm for some time. The dollar is going to take another hit later this month when the Fed lowers interest rates.

And if you want more economic worries, check-out this Guardian article:

 

http://film.guardian.co.uk/news/story/0,,2240090,00.html

 

At least we have a Ivy League MBA as President to steward our economy through...

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I no longer supported the WGA, right up until I read this:

 

'It feels like the nerdiest, ugliest, meanest kids in the high school are trying to cancel the prom,' said Ben Silverman, entertainment chief of NBC.

 

Especially recently it hasn't felt like the WGA was serious, the pickets seem weaker all the time and that's after they wouldn't picket in the rain and took 3 weeks off for the holidays...

 

But the studio execs are clearly the bigger assholes here. They left the table after an insulting token offer ( best explained in this video:

) and haven't been back.

 

And what's with the Guardian article's obvious slant, is it a Murdock paper? No mention of an NBC exec recently saying they expect to make ONE BILLION off the internet this year...

 

Thank god we've got a Governor of this state actively using his considerable influence in the industry to do something about this massive danger to the economy of the whole region. Oh, wait... he hasn't done a damn thing? I guess it's more important he spend his time kissing Indian gaming's ass than offer more than useless platitudes as the people that got him where he is are all put out of work... Now THIS is something WORTHY OF A RECALL ELECTION, damn it!

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I lived through the Asian "currency crisis" in the mid 90s, and it was much the same thing. Too much credit (often originating from overseas investors) infused into the economy, with a lot of property/development speculation. The commercial sector was hit harder in some Asian countries than the residential sector, although urban condos took hits everywhere. A lot of hits were taken in unregulated financial sectors that functioned like banks, somewhat analogous to problems with mortgage lenders and hedge funds. It took nearly a decade for the crisis to resolve (less time in Malaysia, which avoided the IMF-led conventional wisdom) and there are still financial institutions looking for ways to get rid of old, bad debt and fully recapitalize. The crisis led people in some countries like Thailand to worry about the role of foreign investors in their financial institutions. I'm surprised, we haven't seen more of that here, as Citibank and others seek capital from foreign institutions, including some that are basically instruments of foreign governments.

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  • 4 months later...

Imagine taking a $45,000 viatical

>settlement on your $250,000 life insurance policy.

 

Actually, if you read the article, it becomes clear that this wasn't such a bad deal for the lady holding the policy. She only acquired the policy a little over ten years ago and it was a term policy. From her perspective, she had only paid about $12,000 in premiums and at some point, the policy would terminate if she outlived it. Then she would be left with nothing. And she would be continuing her monthly payments of over $100 until it lapsed.

 

From the acquiring company's viewpoint, she is an older person and could well die before the policy expires. You can bet they are counting on that. But it is not a sure thing. So while they are paying her 18 cents on the dollar, they may get nothing in return and they have to continue making the premium payments the rest of her life.

 

To me, the deal seems fair to both parties given the circumstances. As in all these cases, you have to read the details to make a balanced evaluation of the deal. Simply reading the headlines can be misleading.

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  • 9 months later...

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