The Cellar - View Single Post - Sub-prime Bail Out

tw · 11-06-2007, 08:20 PM

[continued from previous post]
Does this all sound drastic? That is jumping to conclusions. All these things are happening or will happen. Just will not happen catastrophically. For example, whereas the dollar once bought one Euro, it may soon require $1.50 to buy a Euro. $100 per barrel oil? That is all but inevitable. $3+ gallon gasoline is no longer the worry. When gas was under $2, most never imagines $3 gasoline. Currently realistic is $4 gasoline due to many reasons including the quickly falling dollar. The government has been playing money games with debts. China has all but been financing "Mission Accomplished". Reducing taxes while spending wildly will come back years later when debts come due. And when those debts do not result in profits, also expect higher inflation.

So what can we expect? Clearly many organizations starting with major financial institutions must fire employees or sell off parts of America to foreign investors. Bear Stearns has already accepted massive Chinese investment. That is followed in the next decade by lower living standards. After all, when those profits start going to new overseas owners, well, who has less income?

Whereas government numbers mysteriously claim near zero inflation, well, the average lunch that once cost $5 when George Jr took office is now closing in on $10. Inflation, that must result from spending today without yet paying the bills, is coming. Taylor says interest rates should have been rising in 2003 to keep inflation in check. Instead we dropped interest rates - made easy money - keep the economy out of recession. We did the equivalent of ''ripping up the front lawn and reseeding it'. That created economic activity; makes higher GDP numbers. But when the profits do not appear years later and the debts come due - starting about now - four years later. If Taylor is correct, then expect the economy to punish for living too easy.

Has the sub-prime loan mess started the downfall? Was it just another example of money games to make the economy appear temporarily better? Something like 70% of the CA home loans were sub-prime. Using the housing market to make the economy appear healthier, does economics start taking revenge four years later?

This is not even a primer. More like snap shots of the many valleys and mountains in a country called ‘Sub-prime Crisis’. Appreciate how widespread a problem well beyond homeowners. Will it create a recession? No. Is it a precursor to recession? We will only know how much damage to the economy has occurred during George Jr’s tenure too many years from now. Has a major economic catastrophe been averted? I believe so. Apparently the majority of bad loans have conjugated in some badly managed institutions where bean counters only saw profits and completely ignored all risks.

One final note. Equifax claim they are not as risk. Equifax says they have something unique - risk analysis programs that do more than just measure default. It also measures liquidity risks. S&P, Moody’s, et al are said to have started creating similar products. These bond rating firms claim their ratings ignore time factors (sounds almost like admitting crime without being guilty). IOW a few defaults every year in an instrument is expected – still gets a high rating. But many defaults simultaneously is possible with higher rated bonds. That is a completely different risk problem.

11-06-2007, 08:20 PM	#22
tw Read? I only know how to write. Join Date: Jan 2001 Posts: 11,933	[continued from previous post] Does this all sound drastic? That is jumping to conclusions. All these things are happening or will happen. Just will not happen catastrophically. For example, whereas the dollar once bought one Euro, it may soon require $1.50 to buy a Euro. $100 per barrel oil? That is all but inevitable. $3+ gallon gasoline is no longer the worry. When gas was under $2, most never imagines $3 gasoline. Currently realistic is $4 gasoline due to many reasons including the quickly falling dollar. The government has been playing money games with debts. China has all but been financing "Mission Accomplished". Reducing taxes while spending wildly will come back years later when debts come due. And when those debts do not result in profits, also expect higher inflation. So what can we expect? Clearly many organizations starting with major financial institutions must fire employees or sell off parts of America to foreign investors. Bear Stearns has already accepted massive Chinese investment. That is followed in the next decade by lower living standards. After all, when those profits start going to new overseas owners, well, who has less income? Whereas government numbers mysteriously claim near zero inflation, well, the average lunch that once cost $5 when George Jr took office is now closing in on $10. Inflation, that must result from spending today without yet paying the bills, is coming. Taylor says interest rates should have been rising in 2003 to keep inflation in check. Instead we dropped interest rates - made easy money - keep the economy out of recession. We did the equivalent of ''ripping up the front lawn and reseeding it'. That created economic activity; makes higher GDP numbers. But when the profits do not appear years later and the debts come due - starting about now - four years later. If Taylor is correct, then expect the economy to punish for living too easy. Has the sub-prime loan mess started the downfall? Was it just another example of money games to make the economy appear temporarily better? Something like 70% of the CA home loans were sub-prime. Using the housing market to make the economy appear healthier, does economics start taking revenge four years later? This is not even a primer. More like snap shots of the many valleys and mountains in a country called ‘Sub-prime Crisis’. Appreciate how widespread a problem well beyond homeowners. Will it create a recession? No. Is it a precursor to recession? We will only know how much damage to the economy has occurred during George Jr’s tenure too many years from now. Has a major economic catastrophe been averted? I believe so. Apparently the majority of bad loans have conjugated in some badly managed institutions where bean counters only saw profits and completely ignored all risks. One final note. Equifax claim they are not as risk. Equifax says they have something unique - risk analysis programs that do more than just measure default. It also measures liquidity risks. S&P, Moody’s, et al are said to have started creating similar products. These bond rating firms claim their ratings ignore time factors (sounds almost like admitting crime without being guilty). IOW a few defaults every year in an instrument is expected – still gets a high rating. But many defaults simultaneously is possible with higher rated bonds. That is a completely different risk problem.