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Author Topic: Financial Meltdown  (Read 9329 times)

Colin Bishop

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Financial Meltdown
« on: September 29, 2008, 08:44:22 PM »

Anybody else been following today's events with horrified fascination?

I'm not sure who deserves the most blame, the greedy and incompetent bankers who precipitated the situation or the ineffectual and incompetent politicans who allowed it to happen and appear to be unable to sort the mess out.

One thing's for certain, we are all of us going to suffer one way or another.  >:(

Colin
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Martin [Admin]

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Re: Financial Meltdown
« Reply #1 on: September 29, 2008, 08:55:38 PM »


I find it simply amazing that the 'government' can magic up or have that much money on hand so quickly... or are they doing lots of overtime at the mint!?!  :(
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omra85

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Re: Financial Meltdown
« Reply #2 on: September 29, 2008, 09:01:59 PM »

Colin, I can understand the USA where they have more houses than are required for the population, so a slump has taken place, which has led to the collapse fo the "mortgage" companies, but why are we following them into the mire?  Where has all the money gone? Are the "billions" being wiped off the Stock Exchange real, or is it "monopoly" money?
I'm (un)happily paying my mortgage as, I assume, everyone else still is ..... so who's took it all?
I wish they could explain (in the usual "dumbing-down" they do for everything else), exactly what is happening with the economy.
I don't suppose it's anything to do with the fact that we, as a nation, don't really produce anything any more?  Or am I just naive?
Crikey - what if I'm the only one still paying my mortgage??  Have you lot been lying about it  :o :o
Danny
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Proteus

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Re: Financial Meltdown
« Reply #3 on: September 29, 2008, 09:53:54 PM »

I wonder what happend to Browns bit on the side  " Prudance" I heard he had heir shipped of to Guantanamo bay as a terrorist.. {-) 

Proteus


 :'(  :'(  :'(
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Peter Fitness

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Re: Financial Meltdown
« Reply #4 on: September 29, 2008, 11:34:58 PM »

America, as the self appointed "Leader of the Free World", has a lot to answer for. Any country whose two bigger financial institutions were called Freddy Mac and Fanny Mae would have to be regarded with some incredulity. Financial institutions in the USA have been lending money to anyone who wanted it without any guarantee that the money could be repaid, so-called Prime mortgages, known as Low Doc(umentation) loans here in Australia. These institutions are now paying the price of their stupidity, and are dragging the rest of us down with them, as can be seen with the situation in the UK. Fortunately, so we are told, Australia seems to be in a somewhat better position to weather the crisis, as there is no indication of any weakness in our banking system. Time will tell.

Peter.
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toesupwa

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Re: Financial Meltdown
« Reply #5 on: September 29, 2008, 11:40:44 PM »

I still have monies in a (big) UK bank.... but live in the USA....

Perhaps i am better off... or not... possibly...

One thing is for sure, we will all end up paying for someone else's mistakes... sounds kinda familiar eh?..  >>:-(
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BlazingPenguin

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Re: Financial Meltdown
« Reply #6 on: September 29, 2008, 11:54:53 PM »

Its nothing new...they did it already back in the 20's or so, some research ont'internet will wake you up!

The USA are looking to the 'Federal Reserve' to get things on track...LOL...what a laugh, its the fed what dug the 'ole! ROFL Dont believe me?...look it up!
Did you know theres nothing actually 'Federal' about the FED? Its about as 'Fed' as Federal express, dont believe me? Look it up!

This is in a country where the payment of income tax by the common working man is illegal, that was also snuck through in dead of night and was never legally ratified.
You are not required to pay tax on the efforts of your labours, company profits and income from share dealing etc, YES, but anyhting else no!

Dont believe me?...look it up!

All these big fancy names...LOL, like JP Morgan, crooks & swindlers since the kick-off, Morgans own words ' if our firiends in the press knew what we had just done, there'd be hell to pay' circa 1919.

Funny how there falling over themselves to prop up allling banks for fear of us all going blind and dying of the dreaded lurgy....but why didnt they act as almost every single heavy industry was shut down, most of the technical support industry and support services, not to mention banking and call centres were shipped off to where they dont need to pay them that much?

My view? Serves em bl**dy right! They made the mess, let them sweep that into their 'golden parachute and jump!

For some light entertainment, may I suggest a squint at http://www.brasschecktv.com/ in the finance bit, enough to make my terrrier laugh, if it wasnt all so deadly serious.
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Ghost in the shell

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Re: Financial Meltdown
« Reply #7 on: September 30, 2008, 12:51:41 AM »

over here the housing market has stalled because houses are so expensive, the average joe on the street earns a little over minimum wage, tie that in with running a car and everything that entails, (fuel, tax insurance etc), weekly shop, things like income tax, council tax, and ever rising itility bills (to pay for fat cat's holidays and a hefty 200k pa payrise)  a mortgage for a two bedroom terrace nowadays costs 90,000 to anywhere over 120,000 depending on where you live, and for a first time buyer trying to get onto the property market it is simply too much, so they are simply not bothering to even look for homes to buy, result a stall in the housing market.



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David_S

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Re: Financial Meltdown
« Reply #8 on: September 30, 2008, 05:39:59 AM »

Not sure if I should be cheered by all this or shaking in my boots. Sold our current house yesterday and are off to the bank to sign & pay for our new one today. We'll be  moved in by tomorrow evening.
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Umi_Ryuzuki

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Re: Financial Meltdown
« Reply #9 on: September 30, 2008, 08:15:09 AM »

Mortgage brokers loaned money to everyone that would sign.
They then sold the contracts to banks.
The banks ganged up bunches of mortgages and sold them as lots...(grade A guarantee payback)
The banks that bought them, on the promise of good return, were domestic and foreign.
The insurance companies that insured them bet they would be paid in full...

All companies and banks that are holding are now in trouble as the people
that over borrowed using interest only payments and variable rate loans suddenly
are faced with full payments they can not afford, and high interest rates they
could not refinance away from.

Greed is good,... but there should have been smarter decisions at each and every step.
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bigfella

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Re: Financial Meltdown
« Reply #10 on: September 30, 2008, 10:00:53 AM »

Hi All

Part of the problem with banks (at least in Australia) is that they are self regulated. This is like letting the prisoners in jail look after the keys. The banks, as Umi stated above, lend money to people who can only just afford the repayments and have no buffer against rate rises or any other foreseen problems. The banks win if there is a default as the mortgage is insured and then the house is repossessed and sold. The banks win no matter what, unless they over lend.

They way I see the share market is that all this money that people say they have lost can only be monopoly money as discussed in an earlier post. For example if I purchased and payed for 1000 shares at $1 each 12 months ago (Value $1000) and these shares went up to $1.50 per share six months ago (Value $1500)  but I did not sell and now I find that the sell price is only 50 cents a share (Value $500). I have not lost that money have I???? I still own the shares they have just been devalued. The initial cost is similar to buying a car and a new model comes out, my car is less of value until it becomes a collectors item. If you stick with the long term on those shares they will eventually go up.

Those that speculate with shares but do not pay for them until the final deal is done are the ones who loose their money as they have to pay for the shares even if they end up being worthless. It is a risky business and they know the risks and should wear it.

The moral of the story is slow and steady wins the race.

By the way I don't own shares as I don't think I could handle the stress.

Regards David
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dougal99

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Re: Financial Meltdown
« Reply #11 on: September 30, 2008, 11:34:02 AM »


Part of the problem with banks (at least in Australia) is that they are self regulated. This is like letting the prisoners in jail look after the keys. The banks, as Umi stated above, lend money to people who can only just afford the repayments and have no buffer against rate rises or any other foreseen problems. The banks win if there is a default as the mortgage is insured and then the house is repossessed and sold. The banks win no matter what, unless they over lend.


As I understand it that is precisely the problem that started this whole debacle. Repossessions rose to a rate where the market was flooded with property, in some cases whole streets were repossessed, so that the resale value was virtually nil. Thus the debts were never going to be repaid.


Simple soul that I am, I have never understood why the banks didn't renegotiate the loans over a longer period. Yes, a lower return but you do eventually get your money back.  Funny old thing who was proposing that on Tuesday ex president Clinton.

Doug
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RipSlider

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Re: Financial Meltdown
« Reply #12 on: September 30, 2008, 12:06:42 PM »

The situation has the potential to get a lot worse.

Umi is correct in what she put, but it goes further. - although the banks provided the packages to the mortgage and loan dealers in the first place.

The big issue now is one of trust, and that is why the market is collapsing.

"Big finance" needs vast amounts of cash available for very short periods in order for it to work. So a FTSE 100 company might borrow hundreds of millions of pounds, but pay it back within hours or days as it juggles the numbers on it's books. This is called the "Commercial Paper market - CP "

banks do the same, but with a lot more "things" than just commercial paper. Over the last 10 years, one of the things they have used a lot is these "packages" of loans or the shares that are sold from them. This isn't new though. These packages of mortgages have been around for 100 years, it's the new ways of splitting them up into stocks and shares that is fairly new.

The whole system is based on the assumption that about 1:100 mortgages will fall into debt. Over the last 20-odd years, it's been better than that - about 0.3%.

Now, with rises in interest rates and a slump starting in the economy - the general 7 year slump which no government can ever fix - it's built into the system - those mortgages are defaulting. The issue is that becuase of lax controls about WHO could be given a mortgage or a loan - which I think is fairly difficult to regulate - the figure of 1% default is now in question.

The big question that the banks are dealing with is "What is the actual level of deafult going to be?". And, becuase of all these new fancy ways of splitting up the packages of loans and mortgages, that is now very hard to work out. When you have a share which is a derivative of a put call on an index which tracks a variable set of these packages, it is virtually impossible to work out.

So a given bank MIGHT be technically bankrupt. Or it could be exposed to only an exceptionally safe set of of these loans and mortgages. but as it's almost impossible to know, and no one knows which specific mortgage will default - the banks have lost trust in each other.

This means that they are no longer as willing to lend each other money for short periods, which the whole financial system is based on, as they can no longer trust that the bank they lent to will be still there tomorrow morning.


It's all about confidence, and the sudden lack of it.

Without the ability to loan cash short term, banks get into difficultys. Which is why Northern rock went pop, becuase it had to borrow from the bank of england. The EU forced the BoE to make that public, the media spun it, and there was a run on the bank.

A similar situation with HBOS and B+B, but HBOS was ( for now, but now lloyds is looking shaky ) was rescued.

Up until this point - it's scary but to the man in the street, not a real issue - as long as you don't have more than 35,000 of savings in a single bank, as it's all insured.

The tim it gets bad is when this shakiness, and lack of confidence, starts to affect the Commercial Paper - CP - market, that non banking companies use. This started to happen a  couple of days ago, but went away within a few hours. But if i happens for a long period, then the "normal" businesses can no longer finance themselves, and even healthy businesses will crash. This is what happened in 1929, and why it was so bad.

As long as the panic stays in the banking sector, we'll get away with just a recession. If the madness hits the CP market, then it's a depression or worse.


What does this mean to the "man in the street"

Short term - not a lot. Your savings are safe. And if you have an OK credit rating, then your very valuable right now, and so no on will dare tamper with your fixed intrest mortgages or loans.

Variable rate mortgages are controlled by something called the LIBOR rate. This is rising, so there may be small rises in variable rate mortgages.

Medium term - inflation
The government didn't have the money it payed for B+B and Northern Rock "at the back of the sofa" - it just printed more money, which it;s perfectly entitled to do. However, all that money is now whizzing around the economy. Well, at the moment it's not whizzing anywhere, but when the short term crisis is over, it will start to move.

Inflation is caused by having too much money in the system, or the money moving around too quickly. The government has had to pump billions into the system, and that will force inflation up a fair bit.

That will be countered by the bank of england pushing up interest rates to try and halt it. And at this point, people with mortgages and loans will feel the pinch.

If you have big mortgages or big loans, now is probably an excellent time to see a financial advisor. They will probably try to get you onto fixed rate deals while it is still cheap.

<<Qualification here - this is NOT financial advice. It's personal opinion. But it never hurts to see an IFA >>


Hope this is vaugely interesting

Steve

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RipSlider

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Re: Financial Meltdown
« Reply #13 on: September 30, 2008, 12:17:35 PM »

This is a very good article indeed and gives a good background to some of the issues.


http://www.theregister.co.uk/2008/09/29/destroying_banks/


Steve
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bigfella

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Re: Financial Meltdown
« Reply #14 on: September 30, 2008, 12:55:50 PM »

In Australia the situation regarding property seems to be the reverse of what it is in the UK. There is a shortage of properties mainly because so many have bought more than one house in fact some I have heard have up to 100 investment properties all financially stacked like a house of cards. The upshot of this is that the house prices are artificially inflated. The rental market is also short of properties and there are cases for an auction for the highest bidder to rent.

The reason for so many defaults on mortgages in Australia is because so many want to get into the propriety market that they end up borrowing 100% of the mortgage and the repayments are up to in some reported cases 70% of their income. When something happens like interest rates go up they just cant afford it. Most have maxed credit cards on top of a mortgage as well as those "Buy now and pay later" schemes for big plasma TVs. It is all a result of irresponsible lending practices and self regulating of the financial market.

Regards David
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grandad

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Re: Financial Meltdown
« Reply #15 on: September 30, 2008, 01:16:37 PM »

for years I have been telling anyone who would listen to me that this, or something simular was going to happen here in the good old USA
 e are supose to be a country where the people had a choice as to the development of the government! WHAT A JOKE!!
by the people for the people! Just who are we kidding??
My conjecture is thus~~ If our forefathers (The guys who wrote the Constitution and our Bill of Rights) could return to today and see what our wise? government bodies have done to our country they would declare war!
Think about it! the poor are getting poorer and the rich are getting richer at the expense of the working class!
my family cannot even purchase foodstuffs or gasoline
yet I ontinue to watch in horror as some people purchase groceries with food stamps (Something our family cannot aquire) then leave the store and climb in the back of a limo or get behind the wheel of a high dollar vehicle!
got that off my chest anyway

Larry
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toesupwa

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Re: Financial Meltdown
« Reply #16 on: September 30, 2008, 02:58:58 PM »

If you stick with the long term on those shares they will eventually go up.


.. or not...  :-\
http://www.iconocast.com/B000000000000025/Q0/News7.htm
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Bryan Young

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Re: Financial Meltdown
« Reply #17 on: September 30, 2008, 06:18:18 PM »

Whoa! Lets back up a bit here. Reading through all the posts on this subject I notice one glaring omission....the "buy to let" market.
Many people used the collateral on their own houses to buy more to rent out and make a profit. I personally know a guy who had between 15 and 25 properties and never stopped crowing and rubbing his hands. He totally dismissed the notion that markets can go down as well as up. Now he knows. Tough. The bank only loaned him the money to buy because of the "value" of his (the banks, really) properties. Not sub-prime or anywhere close to it. But this guy was exposed....and now he is both whinging and bust. So much for chasing the quick money. Human nature I guess, but a bit of "common-dog" could have prevented all this bedlam.
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Colin H

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Re: Financial Meltdown
« Reply #18 on: September 30, 2008, 10:47:12 PM »

For many years I have worked in the rented property market for letting agents and the owners of rented property fall into 3 basic classes.

The person with money who has invested over a period of time and who takes a long term view of the market. These people will be virtually unaffected by the fall in prices as a large part of their portfolio will have been purchased some years ago and even now has a greater value than when bought.

The person who has moved house, buying a second property either here or abroad and renting out the first house as a source of income, possibly for retirement. Providing the first house is paid for a drop in value should not be a problem.

AND like a man I know, who had two rented properties 3 years ago and now with `buy to let` mortgages has 21. This person is very exposed as the rent is used to pay the mortgage and if the property is unlet for some time and the mortgage unpaid the property will be repossessed and will fetch far less than he paid for it. He will of course still owe the outstanding balance to the credit company.

Yours Colin H.
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Shipmate60

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Re: Financial Meltdown
« Reply #19 on: September 30, 2008, 10:58:03 PM »

The reasons for the failures is quite simple.
The Financial Market was completely deregulated.
To ensure that the "Financial Wizards" got their huge bonus which was tied to turnover and share price.
As the chased more and more loans eventually the "safe" loans dried up, so more riskier loans were offered.
Even in UK some mortgages were offered at 8 times salary on 110%.
The buy-to-let market just substituted the first time buyers and fueled the excessive rise in house prices.
The so called Toxic Sub Prime loans were then packaged up as "securities" and sold around the globe as "safe investments".
As the mortgagees (who should never have been granted a mortgage) started to fail, the scale of the problem started to dawn.
Who is to blame, imprudent, greedy bankers (yes I did say Bankers).
Capitalism at its best!!!

Bob
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Peter Fitness

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Re: Financial Meltdown
« Reply #20 on: October 01, 2008, 12:24:28 AM »


If you stick with the long term on those shares they will eventually go up.



David is right, history shows us that the trend over a longer period (10 years or more) is upward. He is also correct in his assertion that you only lose "real" money if you sell when prices are low, if you stay with it, then losses are only on paper. When my wife and I retired almost 7 years ago, our super etc was invested, by our financial advisers, in a range of products. At that time, the Australian Stock Exchange (ASX) All Ordinaries Index stood at just over 2000. It rose steadily to a peak of over 6800, but has now gone down to about 4600. However, over the period, it has still gained well over 100%. We are not panicking (well, not too much), and will just wait it out. Hopefully the financial world will come to its senses soon.

Peter.
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dougal99

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Re: Financial Meltdown
« Reply #21 on: October 01, 2008, 08:49:05 PM »

This just in from Reuters:



Following the problems with Lehmann Bros and in the sub-prime lending
market in America and the run on Northern Rock, HBOS and Bradford &
Bingley in the UK , uncertainty has now hit Japan .

In the last 7 days Origami Bank has folded, Sumo Bank has gone belly up
and Bonsai Bank announced plans to cut some of its branches.

Yesterday, it was announced that Karaoke Bank is up for sale and will
likely go for a song, while today shares in Kamikaze Bank were suspended
after they nose-dived.

While Samurai Bank is soldiering on following sharp cutbacks, Ninja Bank
is reported to have taken a hit, but they remain in the black.

Furthermore, 500 staff at Karate Bank got the chop and analysts report
that there is something fishy going on at Sushi Bank where it is feared
that staff may get a raw deal
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kiwimodeller

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Re: Financial Meltdown
« Reply #22 on: October 01, 2008, 09:36:46 PM »

Sounds like the whole thing has turned to SHITAKE! {-)
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Bee

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Re: Financial Meltdown
« Reply #23 on: October 02, 2008, 08:57:39 PM »

I recall that in the early eighties in UK you could only get 2.5x salary for which you had to beg so house prices were held down as that meant only people 30+ could afford anything. Then 2.5x +1 was allowed so couples could buy though singles were still screwed. This increased the number of buyers resulting in strong inflation in that decade until in '88 the +1 was stopped. I think tax relief changed too. So after a rush to get in before deadline  the market hung in '89 lasting for 5 or more years. Progressively building societies became banks and banks gave mortgages and they alls started giving 3x then more and second houses so booooom.
So amongst other things I blame couples whether 'mating pairs' and 'dinkies'.
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malcolmfrary

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Re: Financial Meltdown
« Reply #24 on: October 02, 2008, 10:09:10 PM »

Way back there was a large council house rental market.  This helped keep private landlords fairly honest and at least paid lip service to worker mobility, as somebody renting could move.  The virtual removal of this option was the real start of the ridiculous price inflation.
I note that the BBC is still filling its mornings in with "Isnt property development wonderful" programs made about three years ago telling all and sundry how wonderful it was to "buy to rent out".  It would be interesting for the programs to re-visit the scene of the crime.
I did hear of a fracas in a park between two bowler hatted gents, one of whom was yelling, between blows, "ITS ALL YOUR FAULT BINGLEY!!"
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