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Heading for the Rocks is the title of a new report from the Economist on the US economy.  The title is a somewhat sensationalist.  However, it is important that people understand there is tremendous risk in the markets right now.  Below I will go though the basic problems as the Economist outlines them.

Here is a link to the download.  While the material is somewhat dry, I highly recommend it because it is one of the most lucid explanations about the current economy.

Here is the general conclusion.

• Scenario 1. The Economist Intelligence Unit’s central forecast, to which we attach a probability of 60%, sees the impact being contained by timely monetary policy action, with only a modest effect on the global economy.
Click here to find out more!

• Scenario 2. Our main risk scenario, with a 30% probability, envisages the US falling into recession, with substantial fallout in the rest of the world.

• Scenario 3. Should the US enter recession, another, darker scenario arises: that corrective action fails, and severe economic repercussions cascade from the US into the world economy with devastating effect. We attach only a 10% probability to this outcome, but the potential impact is so severe that it warrants careful consideration.

Since scenario 1 informs our regular output and Scenario 3 has a low probability, the bulk of the report focuses on scenario 2.

The economist outlines three areas of problems that the economy must work through.

1.) An effect on the direct holders of subprime mortgage debt.  According to the Federal Reserve's Flow of Funds report, total US mortgage debt outstanding was $9.854 trillion in the first quarter of 2007.  Estimates about the total value of outstanding subprime debt vary.  According to the economist article, the Fed is estimating $50 - $100 billion in total losses.  Just off the cuff, that number looks a bit low.  However, we won't know until all of this is over.  

Anyone who holds subprime debt is in danger of losing money right now.  One of the biggest problems is there are a ton of holders spread all over the globe.  That means the fallout from this mess will hit money managers in all of the big financial centers.  In fact, we have already seen reports from the US, Australia, London, France and Germany about hedge funds/investment banks etc... who have already lost money.

The point here is simple.  Anyone who holds subprime debt stands to lose.  And the holders of subprime debt are all over the globe.

2.) The liquidity issue.  There are several problems in the credit markets right now.  The Economist points out that banks have stopped lending to each other -- or driven the price of short-term loans higher because of problem number 1.  No one wants to make loans to other financial players right now because of the fear the borrower has large subprime exposure on their respective balance sheets.  

The second problem is commercial paper issuance, which decreased again last week:

The U.S. commercial paper market shrank for a third week, extending the biggest slump in at least seven years and signaling that the Federal Reserve's attempts to lower borrowing costs have had a limited impact so far.

Asset-backed commercial paper, which accounted for half the market, tumbled $59.4 billion to $998 billion in the week ended yesterday, the lowest since December, according to the Federal Reserve. Total short-term debt maturing in 270 days or less fell $62.8 billion to a seasonally adjusted $1.98 trillion. The yield on the highest rated asset-backed paper due tomorrow rose today 0.11 percentage point to a six-year high of 6.15 percent.

Commercial paper outstanding has fallen $244.1 billion, or 11 percent, in the past three weeks, as the Fed's Aug. 17 reduction in the discount rate has yet to entice buyers back into the market. Yields of asset-backed commercial paper due tomorrow rose to the highest in six years as investors fled to the safety of Treasury bills.

As a result, investors have flocked into government bonds:

Treasury three-month bill yields fell in August by the most in almost six years as subprime mortgage losses weakened credit markets, encouraging investors to take refuge in the shortest-term government debt.

Investors bought bills this week as the commercial paper market extended its biggest slump in at least seven years. President George W. Bush yesterday announced a plan to contain mortgage defaults, and Federal Reserve Chairman Ben S. Bernanke said he would ``act as needed'' to contain the housing recession. A government report next week forecast by economists to show job growth accelerated in August may reduce the likelihood of a cut in interest rates by the central bank.

 

I have argued that the run-up in short-term government debt is actually a correctly functioning credit market.  Investors are looking for safe assets right now.  But as more and more investors flock to these investments, the yield on these investments drops which will eventually force investors to look for higher yielding assets.  While we don't know when investors will move out of the T-Bill market, rest assured low yielding investments are usually the best motivator to encourage more risk taking.

However, there is no guarantee that this movement into higher-yielding assets will occur withing a time frame that is acceptable to market participants.  As a result, the credit markets may remain frozen for a time that is unacceptable and force the Fed to act.

3.) Repricing Risk.  As a former bond broker, I am use to the idea of always being able to value assets.  At the end of every month, clients would call and ask for a bid or price on various bonds.  This is called "mark to market" and it is something portfolio managers have to do every month.

However, some assets have not been priced this way because of a lack of an active secondary market.  As a result, managers have developed models to price various CDOs and CLOs.  This is an extremely troubling development because it is doubtful that managers have always used the best pricing method around.  Instead, it is probable that some have been cooking the books (as it were) and reporting unrealistically high prices on some assets.  

As the correct price of assets start to come to light, there could be a wide-ranging fall-out.  It is possible (though in no way guaranteed) that a ton of financial institutions could see their balance sheets drop in value by very uncomfortable amounts.  Put another way, the amount of the price drop could be significant.  Until this process starts and is reported, we simply won't know.  

The Economist states this is the most troubling aspect the markets much face, and I agree.  

Conclusion

The markets have a lot of problems to work through right now.  The process won't be easy -- and in fact is very dangerous.  While I have faith we will get through this, it will be a difficult time for all.

Originally posted to bonddad on Sun Sep 02, 2007 at 04:08 PM PDT.

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Comment Preferences

  •  Thanks, bonddad. I have a question (30+ / 0-)

    about point 3 (repricing risk). If all these portfolios are repriced, and many financial institutins see their balance sheets drop in value, how will this affect those of us who have 401k-style pensions that include stocks, bonds, and a range of other investments? As one of the older boomers, the recession scenario has me worried.

  •  Lost trust on Bush economy (6+ / 0-)

    As long as people cannot see how anybody can pay "subrpime" in Bush economy era.  The whole thing will keep stuck in a rut.

    And since we know how fubar Bush can be, expect big implosion. (it can be anything from another war in middle east all the way to random natural disaster mishandling.)

    That's a given.

    Use Tor and PGP on the net. (google it)

    by fugue on Sun Sep 02, 2007 at 04:23:22 PM PDT

  •  "As a former bond broker, I am use to the idea of (2+ / 0-)
    Recommended by:
    Winnie, stonemason

    always being able to value assets."

    Years ago, during the mid 80s, I became involved with zero coupon bonds. As you are, by your own admission, a former bond broker with the ability to value assets, what do you think of zero coupon bonds?

     

    Single purpose usage belittles the search for true value.

    by 0hio on Sun Sep 02, 2007 at 04:26:48 PM PDT

  •  Subprime losses (11+ / 0-)

    Several months ago, a real estate analyst at Credit Suisse put the total subprime debt at $900 billion.

    Assume that half of it defaults.

    Assume the average borrower put 10% down

    Assume home prices fall 20%.

    The equity loss is still only

    (900 X .5 = 450 X (20%-10%) = $45 billion

    Make your own assumptions and you can come up with your own losses.

    $45 billion seems like a large number but in the context of $50 trillion in global financial net worth, its chump change. A problem for those who hold the bad debt, but not a systemic problem.

    •  asdf (21+ / 0-)

      The problem has already spread to the psychological underpinnings of the market.  Trading has all but stopped because of concern over what the other guy might have on his balance sheet.

      Bill Gross had an essay over the last few weeks where he used a "Where's Waldo" analogy.  That is the biggest problems the market faces.  We don't know who is exposed to what percentage of the market right now.

      Three months ago, who would have thought that Bear Stearns would have two hedge funds valued at $6 billion come out and say, "these funds have lost 85% of their value."  That has really impacted confidence.

      Now, confidence can be regained.  And I think Bernanke is doing a pretty good job right now.  

      But there is a great deal of concern in the markets right now -- understandably so.

      "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

      by bonddad on Sun Sep 02, 2007 at 04:32:09 PM PDT

      [ Parent ]

    •  "Assume the average borrower put 10% down" (18+ / 0-)

      I think a problem with a lot of the sub-prime mortgages is that they allowed people to buy with 0% down.

      So, I would say that assumption is unfounded.

      "Assume home prices fall 20%" - I could be wrong, but shouldn't this only be taken into the affect with the assumption that banks and lenders can actually sell the glut of forclosed homes they have?  I think that is part of the problem at this time isn't it?

      As I am often wont to say, Assumption is the root of all error.  these estimates should have best case, worst case scenarios attached to them.

      •  Some loans were (4+ / 0-)

        0% down, but they represented a small share. The average downpayment on ALL loans in June according the the Federal Housing Finance Board was 27%, so 10% downpayment on subprimes loans may be low.

        Banks don't hold real estate after foreclosing, if they have to they hold an auction and sell it off to the highest bidder. There is always some value in these foreclosed homes.

        But take the worse case, nothing down, 100% defaults, 50% price fall, the net loss is $450 billion, still less than 5% of global financial net worth. And that is the worst case, chances are we are a far cry from the worst case.

        •  Any idea what the median downpayment was? n/t (0+ / 0-)
          •  No (3+ / 0-)
            Recommended by:
            Asak, RainyDay, Fallon

            the Federal Housing Finance Board has been tracking this since 1973 and they just give averages.

            But the number has been pretty  stable over the past 35 years fluctuating between 20% and 30%.

            We should also keep in mind that home prices in many area of the country are still going up and that the price decline in places like California and Florida are relative recent, which means that some of the defaultees may have some equity built up in the homes from price appreciation and past mortgage payments.

        •  At first I saw that and thought... (5+ / 0-)

          ..."dang, who the heck puts 27% down on a house? who the heck HAS 27% to put down on a house?"  Then I thought maybe people who were rolling over the windfall from the sale of a previous house would probably have that much.

          Then I wondered how many sub-prime mortages were given to people who actually sold their previous house.  I guess I figured that the sub-prime borrowers would include a higher than average rate of first time home buyers.

          I don't know.  But I guess we'll find out soon enough.  Next year will shake a goodly percentage of those adjustable rate mortages (not even just sub-prime either).

        •  Since the S&L crisis in the 1980's, most banks (7+ / 0-)

          sell mortgages including subprime in the secondary market and do not hold the paper or at least that is my understanding.  Hedgefund holders, investment banks, and REIT's who purchased mortage backed secutities, including subprime in the portfolio, stand to take a significant bath on these.

          Across this Country, however, the glut of REO properties will certainly cause their values to plummet as will much of the low and middle priced real estate in many markets.  During the S&L crisis, real estate in many markets dropped fifty-percent (50%) in value.

          Those greatly affected today will similarly be, builders with significant unsold portfolio's, lenders who provided construction or temporary financing, homeowners facing foreclosure due to escalating mortage payments or loss of employment, and homeowners who for whatever reason need to sell their homes in the short term as in many cases their mortgage balances will exceed their property's value hopefully in the not too long term.  Many existing home sellers will have to come to the closing table with significant cash to pay off their mortgages or just walk away.

          The rippling effect of all of this is hard to measure but will necessarily cause layoffs in the construction, building materials, and lending industries and others to be sure.

          "All of you can read the signs of the earth and sky.  How is it you can't read the signs of the times?"

        •  Do the numbers from the Federal Housing Finance (6+ / 0-)

          Board clarify that most 100% financing is reflected as two separate loans, one for 20% and the other for 80% of loan value?  If they are counting these loans in the 27% down payment group, their info is seriously flawed.

          Lets bring democracy, freedom, the right to vote for all citizens and peace to America too!

          by Blogvirgin on Sun Sep 02, 2007 at 08:09:50 PM PDT

          [ Parent ]

        •  link (0+ / 0-)

          the MIRS survey excludes FHA-insured and VA-guaranteed loans, multifamily loans, mobile home loans, and loans created by refinancing another mortgage.

          federal housing finance board

          The Finance Board ensures that the FHLBanks, which are privately capitalized, government-sponsored enterprises, operate in a safe and sound manner, carry out their housing and community development finance mission, and remain adequately capitalized and able to raise funds in the capital markets.

          The Finance Board is an independent regulatory agency of the executive branch of the U.S. Government, with a five-member board. Four board members are appointed by the President for seven-year terms, and the fifth member is the Secretary of the Department of Housing and Urban Development, or the secretary's designee.

          FLBanks are were the backbone of FHA-insured lending as well as AHP and CMA marketing programs.

          The FHLBanks provide long- and short-term advances (loans) to their members.  Advances are primarily collateralized by residential mortgage loans, and government and agency securities.   Community financial institutions may pledge small business, small farm, and small agri-business loans as collateral for advances.  Advances are priced at a small spread over comparable U.S. Department of the Treasury obligations.

          FHLBs' consolidated obligations', bond issues, "return on capital follows short-term rates such as the Federal funds or 3-month LIBOR rates, while certain FHLBanks average asset yields and corresponding returns on capital have been driven by longer-term assets, such as mortgage loans purchased through the mortgage purchas programs and MBS and CMO-related investment holdngs" [52:July 2007]. access the AHP database and CRS (Call Report System) is limited to approved users only. for FHLB system report go here, excerpt from FHL07q2end.pdf, "Business Overview"

          The mortgage market continues to undergo a number of changes. Mortgage loan delinquencies have increased over the past year, particularly in the subprime sector, reflecting the combination of a softening residential real estate market in many areas of the nation, the effect of loosened underwriting standards applied by lenders and interest rate resets on variable-rate loans. As a result, several high profile orignators have either exited subprime lending or have filed for bankruptcy as foreclosures have mounted. The FHLBanks have not experienced material losses from their holdings of mortgage loans of MBS, due primarily to conservative underwring and investing policies. [55:July 2007]

          that's why the unitary asshole wants to loot their reserves through HUD "rescue".

          Diversity is the key to economic and political evolution.

          by MarketTrustee on Mon Sep 03, 2007 at 11:01:14 AM PDT

          [ Parent ]

      •  i bought 2 houses (10+ / 0-)

        with 0% down...my kid just bought her first house with 0% down.

        its not 0% down thats the problem...its low wages that dont keep up with costs plus really bad spending decisions by individuals that we should be focusing on.

        •  I'm not saying 0down is bad. (1+ / 0-)
          Recommended by:
          greenearth

          I'm just saying for the purpose of assuming averages wouldn't that skew it a bit?

          My father told me that if you put 20% down on a house you don't have to carry mortgage insurance, is that true?

          what the hell is mortage insurance and do I want it anyway?

          •  yes its true (6+ / 0-)
            Recommended by:
            Odysseus, DawnG, RainyDay, greenearth, ilex, Fallon

            mortgage insurance is for higher risk loans (less than 20% down) and it benefits the morgage lender....so if you default and they have to go to foreclosure they wont take a complete bath fixing your mess.

            •  why would I want to pay to insure someone else? (2+ / 0-)
              Recommended by:
              dnn, greenearth

              Screw that.  I had already got it in my head it would be good to have 20% so I"ll just keep on track for that. :)

              •  Not your choice to pay PMI if ... (3+ / 0-)
                Recommended by:
                Odysseus, greenearth, AnnCetera

                if your ltv (Loan to value) percentage is too high, the lender will require you to have it... and people trying to remove it once they have built up adequate equity reportedly run into hassles.

                •  asdf (2+ / 0-)
                  Recommended by:
                  3goldens, relentless

                  That's why, when I checked my details, I made sure that the lender is supposed to automatically cancel the PMI once the repayment has hit 20% of principal.  But I have to watch my lender like a hawk; they made a serious error regarding escrow (taxes) earlier in my loan, and I'm still dealing with that issue.

                  Call me cynical, but anymore I figure any large lender is going to get away with whatever they can, gambling that most people reading their documentation won't understand what they're signing.

                  •  That is why I don't fault the borrower (0+ / 0-)

                    We took a mortgage 15 years ago and even then they did everything to keep us from knowing what we would deal with the day of closing and what was in our mortgage and the closing costs.

                    And I really tried to stay on top of it.  They were supposed to send us a copy before closing, according to our state law, but they didn't.  Closing costs were 5%, wiping out our savings for emergencies and a new couch.  Now they are 6%.  

          •  Zero percent down (2+ / 0-)
            Recommended by:
            dnn, greenearth

            is totally bad.

            Some consumers would end up okay in this arrangement, but many would get screwed. This is not something most people should be doing.

            Typically, with 20% down, you don't have to take on PMI insurance. That's the ideal situation.

            •  the ideal situation (4+ / 0-)
              Recommended by:
              Odysseus, mmacdDE, Bensdad, AnnCetera

              is to pay for your house in cash...your cash...so no one else is at risk...like in the old days.

              how many people can do that?

              0% down allows more people to own their own home and build equity....0% down programs help rebuild neighborhoods that are wastelands.....neighborhoods that used to be redlined so no one could get a mortgage at all.

              its a tool...its not a cure or a risk free situation.

            •  Really? (2+ / 0-)
              Recommended by:
              3goldens, AnnCetera

              Tell that to the many, many, many vets who bought houses with VA mortgages, typically 0% down, AND the closing costs folded into the loan.

              There are a bunch of conditions on the loan - you have to verify income, you have to have relatively low debt, you have to be able to afford the payments on your current salary, you must live in the house, etc.

              And then there are the state/federal programs for first time buyers that guarantee low/no down payments, and help with fees, and even classes on home ownership.

              It's not 0% down - it's buying a house that you cannot POSSIBLY afford on your salary.

              Frankly, I think the biggest problem is the flippers - I would love to see some figures on how much of the subprime market is people who are NOT planning on actually living in the house, but doing a quick fix and selling it. And how many of them have been stuck and/or walked away when it didn't work out as they planned.

              •  My blanket statement (0+ / 0-)

                that zero percent down is "totally bad" doesn't quite capture the truth of it, and doesn't account for the full financial picture in any one buyer's situation.

                Having said that, though, I do believe that the proliferation of zero-percent down mortgages is indicative of a reckless lending culture in our country over the past 5 years, at least, which has set up hundreds of thousands if not millions of people for failure. It's a symptom of the greater problem.

                Can some people handle zero-percent down just fine? Sure. Does that mean that zero-percent down should be a typical arrangement? Not at all.

                For one thing, what happens if the house declines in value? Can the buyer accept negative equity? (Even if the value of the home stays the same, the buyer could be in the hole for the amount of the commissions and fees.)

          •  Mortgage Insurance (4+ / 0-)
            Recommended by:
            barbwires, 3goldens, MarketTrustee, Fallon

            It's not insuring you, it's basically insuring the mortgagor against default.  and yes, it is true that if you put 20% down you don't have to have PMI (mortgage insurance), the rational being that you won't walk away from your equity.

          •  Here- (1+ / 0-)
            Recommended by:
            3goldens

            -- We are just regular people informed on issues

            by mike101 on Sun Sep 02, 2007 at 05:47:59 PM PDT

            [ Parent ]

        •  One house wasn't enough? (0+ / 0-)

          So you needed TWO with 0% down?  And how can you use the word "bought" wrt the houses--all you bought was a debt.  

          I'm afraid you may find out that the 0% down IS the problem.  

          "I can't believe men like you were once running a country." from "The Lives of Others"

          by Shappy on Mon Sep 03, 2007 at 12:39:41 AM PDT

          [ Parent ]

          •  I'd tend to disagree... (1+ / 0-)
            Recommended by:
            3goldens

            Primarily because I think the larger issues are that wages are not keeping pace with inflation of housing values, and that lenders are being paid per closing and then turning around and immediately reselling the debt.

            How are people supposed to afford houses that are more than 2-3 times their family's annual gross income?  I'm old enough that I remember when a house was purchased for about one year's annual income; this was a skilled blue collar worker in a nice neighborhood, supporting a wife and 4 children on his income alone.

            Lenders have absolutely no incentive to be cautious about who they lend to, and likelihood of repayment.  When they're paid per number of loans closed, paid proportional to the size loan granted, immediately resell the debt, lather, rinse, repeat; where's the incentive?  Why should they care if the person defaults in 5 or 10 years?  They got theirs.  The firm that purchased the debt is hosed, not them.  So lending standards get more and more lax, more exotic loans are invented, and more and more people are foolishly persuaded to buy more expensive houses.

            People buying more house than they can realistically afford are being foolish.

            Lenders that are lending more money than they can realistically afford are being foolish.

            •  You need to look at the bigger picture (0+ / 0-)

              The reason that no one can afford a house based on wages is because they are ridiculously priced.  And why is that?

              There are tons of stats to show that the price increase was not fueled by shortages or real demand, but rather this insane financing (thanks to easy Al.) No one forced anybody to buy at these prices.  Just because someone is willing to lend you money doesn't mean you have to take it.   I could get any credit card on the planet, instead I chose to have two that are paid off every month. You don't have to "own" a house, you can rent just fine until you have money for a down payment and payments (and repairs, taxes and insurance, DUH!!)

              So people who "bought" at these crazy prices screwed everyone else really (esp first time buyers) since they drove up the price of homes to unrealistic levels.  What part of houses doubling every few years don't you understand is NOT sustainable.

              "I can't believe men like you were once running a country." from "The Lives of Others"

              by Shappy on Mon Sep 03, 2007 at 08:56:31 AM PDT

              [ Parent ]

        •  I Got a Zero Down 80/20 mortage (0+ / 0-)

          80% is fixed rate 30 y, 20% is like an adjustable rate 15 y.

          But if you only make the minimum payments on the 20% you get smacked with a balloon payment in year 15. So it's almost interest only.

          So I double the 20% payment every month and it'll be paid off in 10 years.

      •  I am with you, (3+ / 0-)
        Recommended by:
        mrblifil, 3goldens, AnnCetera

        very unlikely I be thinking. Especially assuming only a twenty percent drop in values. Why? Well, an additional 4 to 5% of the population obtained a mortgage for the first time and thus the housing boom was born. Result? After those folks get tossed out into the street there will be an oversupply of housing units for a long long time. The law of supply and demand leads me to think that overall values will drop below what they were prior to the "boom", because of a continuing housing glut.

    •  But aren't the subprime defaults (2+ / 0-)
      Recommended by:
      rovertheoctopus, Blogvirgin

      just the tip of the iceberg?? Wouldn'y the loss in equity in the subprime market spill over into the larger real estate market (by affecting prices) and set in motion a series of related effects thoughout the real estate market (price collapses, etc.) and ultimately the rest of the economy that wold be much greater in impact than $45B??

    •  chump change (0+ / 0-)

      $45B? that's it?  That's how big Bush Iraq supplemental is.

      Use Tor and PGP on the net. (google it)

      by fugue on Sun Sep 02, 2007 at 09:09:07 PM PDT

      [ Parent ]

      •  45B is a lot (0+ / 0-)

        But by the same token, the Iraq war will not singlehandedly bankrupt the country.  It is obviously not a good thing, just like it isn't a good thing to charge up an extra $100 on your credit card, but it in itself is not a major liability.  If it were, maybe we would be more careful about running off to war and flushing away a bunch of money.  

        At the same time, a bunch of little things can add up, and eventually one last straw is the one that breaks the camel's back.  

        Don't like XOM and OPEC? What have YOU done to reduce your oil consumption? Hot air does NOT constitute a renewable resource!

        by Asak on Mon Sep 03, 2007 at 12:22:04 AM PDT

        [ Parent ]

      •  Context is everything (0+ / 0-)

        to a man who makes $100 a year, $5 seems like a lot of money, to you I suspect $5 is chump change.

        To the global financial markets, $45 billion is chump change

    •  Daisy, you'll probably never read this, but... (2+ / 0-)
      Recommended by:
      akeitz, rovertheoctopus

      ... I wish you would "stick around" more often.  Usually you just kind of drive by at the end of diaries and there's no good chance for dialogue.

      Anyway, the problem I see with your statement above is not accounting for leverage and opacity.

      On leverage: assume that the subprime mortages were bought by hedge funds at an average of 10% down and the 90% leveraged.
      Assume that the average hedge fund investor put 50% down, and borrowed the other 50% to invest.
      Now, I know I am simplifying and exaggerating in some degree, but the point is that leverage can turn that $45 billion into over $1 trillion pretty quickly.  I don't see how potential losses like that can't be a systemic problem.

      On opacity:  if I am concerned about subprime, and concerned about leverage, and there is a lack of transparency, I'm going to do the Wall Street equivalent of hiding my mony under a mattress.  Hence, let's just say "substantial" liquidity problems.

      Cheers.

      "When the going gets tough, the tough get 'too big to fail'."

      by New Deal democrat on Mon Sep 03, 2007 at 05:43:38 AM PDT

      [ Parent ]

      •  I would like to spend more time here (1+ / 0-)
        Recommended by:
        New Deal democrat

        but time has not been something I have had a lot of lately.

        Leverage is an issue, but unlike the mortgage losses, losses from derivatives are a zero sum game. It certainly results is a rearranging of wealth and is certainly a problem to the financial institutions on the losing side of the trade, but its not a net loss to the system.

        Transparency is also a problem, but a temporary one. Eventually banks, mutual funds and hedge funds have to report what their position is.

        The other problem you have not mentioned which could remain a problem is that many of these sub prime issues don't trade frequently, hence there is no real market price for them. Their value is marked to model. Well, for the moment that model is broken so many mutual funds do not know what they are worth and do not know what to pay to investors who want their money back.

  •  Hey Bonddad, (5+ / 0-)
    Recommended by:
    Alumbrados, greenearth, Granny Doc, ilex, Issek

    I was thinking the other day, if I win the lottery, will you be my financial advisor?  Do you take clients?

    Not that it'll happen but you never know, some kossack some day may come into a position where they are the benefactor of a few or many millions of dollars and be paralyzed with fear at the prospect and want a person they can trust to advise.

    Just curious.

  •  yawn (1+ / 0-)
    Recommended by:
    Tuba Les

    This will take years to sort out, it's already been a major issue for more than a year and the smart banks have been adjusting since last year.  Yes, some investors will be hit hard, but they enjoyed high returns on their money so why shouldn't they have high risk?  For others it will be a buying opportunity, for heavily discounted paper and the houses that have to be sold.

    The busting of the housing bubble is more like a slow leak than a big bang once you spread the effect across the country.  That will give the markets plenty of time to sort out their assets.  Though some seem to still be in denial.

  •  DJIA has been red hot since Jan 2006 (2+ / 0-)
    Recommended by:
    danger durden, PhilW

    and now is not a time of great optimism.  Therefore the DJIA must cool off.  I think it's that simple. Ultimately it's all about psychology.  

  •  Whoo (2+ / 0-)
    Recommended by:
    greenearth, arcana

    Luckilly, I sold out all my domestic 401/IRA assets a month ago. Just Europe and Asia still invested. I figure on riding cash for a while, and then buying in on the financial and real estate related companies in a couple of months.

  •  I bought a new car yesterday (9+ / 0-)

    The salesman said 60% of people trade in a car when buying a new one. And of that 60%, 80% owe more than what the vehicle is worth. The salesman said he hates coming back to the new car buyers that they are $5,000 upside down on their previous vehicle. I wonder how this cycle will play out on new car sales.

    •  cars (2+ / 0-)
      Recommended by:
      kkjohnson, greenearth

      Usually you see a lot of high priced toys being sold off after a housing or stock bust.  With fewer people trying to get into the housing scam, it should open up more disposable income, so auto sales for the low and mid ranges may go up by next year.

      •  I bought my used 91 Celica in the 1st Gulf War (3+ / 0-)
        Recommended by:
        Asak, InsultComicDog, greenearth

        And I'm still driving it. Ohmygod I love my Celica GT-S -- a hatchback, standard shift and a powerful A/C and heating system to get me through the weather in NOVA. Alas though it doesn't have a usable cup holder (you cannot shift into 1st, 3rd or 5th if you are using the cupholder....), nor does it have keyless entry.

        I'm going to be heartbroken when I need to let her go but I've gotten my money's worth out of a car I only paid $15,000 for!

        •  Why ever let it go? (0+ / 0-)

          If the chassis is still structurally fine, just get the engine rebuilt and everything replaced good as new.  It will still cost you much less than a new car.  You can be driving that Celica for another 10-20 years.  

          Don't like XOM and OPEC? What have YOU done to reduce your oil consumption? Hot air does NOT constitute a renewable resource!

          by Asak on Mon Sep 03, 2007 at 12:56:25 AM PDT

          [ Parent ]

          •  The finish is starting to go (0+ / 0-)

            There's a buncha little things that are telling me the end will be in the next few years.  While the car does have anti-lock breaks, it doesn't have side or passenger air bags either.

    •  the first new car I ever bought... (5+ / 0-)

      ...was like that.  I had a 10 year old POS and still owed a thousand on it, but the dealership would only give me 500 because the odometer was broken.

      almost 7 years later I still have that "first new car" and I'm thinking of giving it to my husband and buying my "second new car".  But if I did trade it in I'd realize the entire value of the trade in because it's paid off and has been for a while.

      I think a lot of people get into that problem when they feel the need to get new cars frequently.  They don't understand the value of having something that you own free and clear.  A car is not an investment obviously, but it should be an asset and I don't think a lot of people realize that it takes a few years for a car to reach that state.  For the first few years you will owe more on it than it's worth.

      •  Don't buy new cars. (8+ / 0-)

        Seriously.  It cost you at least $5000 to drive a new car off the lot. Think of it as lighting a match to fifty $100 bills - OUCH

        Your best bet ( I hear from my automotive genius Brother in law) is to buy a one or two year old factory-certified used car - one with the 100k warranty in case anything goes wrong - I know Toyota offers them, maybe Dodge as well.

        Then put the 5K you saved away in some nice 6% safe investment - and in 10 years or so, when your new used car runs out - you'll have a nice chunk for a down payment.

        •  there are some benefits to buying a new car. (5+ / 0-)

          This week I am aiming to buy a Honda Fit and they've only been out since 2007 so there aren't really many used ones around (and I don't want to wait another year).  Any "used" ones that I have found so far are actually priced more expensive (by a little bit) than if you bought it new.  How the hell does that happen?

          The thing about saying you gain 5k if you buy used, it only goes under the assumption that you would actually save that extra money which is not a foregone conclusion.  Plus if I'm not mistaken that "you lose 5thousand right off the bat" is reflective of the trade in value.  It is possible to sell a car privately for more than a dealership is willing to give you so that's not a universal truth.

          when I buy a car I buy it new, I do my homework and get a good brand/model with a great reputation, and I keep it til long after I've paid it off (which I do at an accelerated rate).

          So, thank you very much but if I find "my car" this week I'm going to buy it (and I will be putting 5 thousand down, so there!).

          And I"m not saying people should always buy new cars, but I am doing so for a very specific reason and I'd like to think I'm doing it smartly.

          •  Love my Fit! (1+ / 0-)
            Recommended by:
            OLinda

            Hope you love yours too. :)  I got the 4 door Sport model.

          •  What's wrong with your old car? (1+ / 0-)
            Recommended by:
            AnnCetera

            Just keep your old car for a couple more years and then buy a used Fit.  It will be the same car you could buy today, but with maybe 30,000 on the odometer (on a car that will last 200,000) and with a price that is half that of a new car.  

            The $5000 you lose right off the bat is the extra money you pay compared to what you would if you got a lightly used car that is essentially in the same condition.  

            In general the older a car is, the better value it is.  You can buy an old clunker and get it totally rebuilt for much less than it costs to buy a new car.  You pay a lot for the novelty of the car being new.  

            If you absolutely cannot wait to buy a Fit, then that's fine, but you should be honest with yourself that it is a waste of money.  When plug-in hybrids or EVs start coming out, I might buy one new, but I will be fully willing to admit that it does not make financial sense to do so.  

            Don't like XOM and OPEC? What have YOU done to reduce your oil consumption? Hot air does NOT constitute a renewable resource!

            by Asak on Mon Sep 03, 2007 at 01:01:25 AM PDT

            [ Parent ]

        •  All depends (1+ / 0-)
          Recommended by:
          Odysseus

          If you plan on financing, and can qualify for 0% incentive financing, you are better off with the new car. I did that w/my Miata. A used car would have run about a 5.5% loan, while the Miata was 0% new. Once I ran the interest, it actually was wash or better to buy new.

          •  Ah but one shouldn't finance a car purchase (2+ / 0-)
            Recommended by:
            AnnCetera, Mr SeeMore

            In that mythical perfect world one should only buy enough car as they can afford to put cash down to buy.

            Yeah we don't live in that world do we? I purchased my used Celica in late 1991 (repoded 1991 model) and financed 10,000 of the 15,0000 purchase price as I was not long out of college and money was tight.  But I'm still driving the car and have saved up enough money besides the house downpayment to be able to buy a great used car (civic or corolla I think) for all cash.

          •  If you buy new, take the big discount and drive (0+ / 0-)

            until it dies - say 10+ years/100,000 + years - non-highway driving here)

            THEN it's not too bad a deal.

            Having owned used cars for most of my life, it IS cheaper but often more of a hassle - you need to deal with more problems (in MY experience).  OK if you can deal with smaller problems yoursel.  A bigger deal if you can't - or don't want to do so.

        •  Never bought a new car in my life (1+ / 0-)
          Recommended by:
          AnnCetera

          And I never will. I don't understand why people waste so much money on cars.
          2 years ago I paid 2500 dollars for a Toyota Camry wagon with 35,000 miles. Now it has 60k.
          Do the math. I know I can get 120k more miles or more out of it. Maybe 150.
          Per mile it's peanuts. Plus I only have to carry liability insurance, which is a HUGE savings.
          People are stupid to buy a new car. Save up 5k and buy a low mileage car for that, it will last at least 100k miles more. Then sell it for a thousand and buy another one  in your price range. You can get a very reliable car for 5k.

          We hang the petty thieves and appoint the great ones to public office. Aesop (620 - 560 BC) -8.13, -7.74

          by AWhitneyBrown on Mon Sep 03, 2007 at 12:32:48 AM PDT

          [ Parent ]

          •  Absolutely (1+ / 0-)
            Recommended by:
            AnnCetera

            I have never bought a new car either, and may never do so.  I make a possible exception for when EVs and plug-in hybrids become available, but that would be splurging only to support the concept, even thought I know I would be losing money on the deal.  

            The older a car is, the better deal it can be, although you have to be savvy about it.  Even a car that costs $1K can be maintained and serviced to run pretty much forever.  Eventually you'll spend "more than the car is worth", but it will still be operational, and also much cheaper than buying a new(er) one.  

            If you are less extreme about it, you're absolutely correct that you can get a very reliable car for $5000.  

            Don't like XOM and OPEC? What have YOU done to reduce your oil consumption? Hot air does NOT constitute a renewable resource!

            by Asak on Mon Sep 03, 2007 at 01:05:43 AM PDT

            [ Parent ]

    •  I gave my son an old Honda.. (11+ / 0-)

      that had a ton of miles on it. The plan was that his wife would sell her newer car that had a car payment, they would drive the Honda and an old truck that was paid for, and put the car payment money each month on paying down their credit cars.... Well, it turns out they were upside down on their car loan... I guess they are going to try and sell the truck.  I hope (fingers crossed) they will take all of that money and put it on the credit cards but am not so sure about that.

      Son and wife are in their early 40's, both have jobs and work hard.  No savings, no retirement planning, too many credit cards.  They got farther behind the eight ball when she was off work for surgery, (with very limited sick leave and high deductibles).. and then had an emergency with there house requiring several thousand dollars to fix.  
      They refinanced the house last year (to pay down bills) but at least they have a fixed rate traditional mortage.

      They are classic for what is happening with a lot of middle class families.  

      •  Yes. That's the truth. My daughter and son-in (3+ / 0-)

        law have three kids and she doesn't work. He makes a very good salary but they live in a tiny house and are always in debt. I think it's really hard for young people now. My cousin's son and daughter in law and their two kids are living with her. They can't afford to buy or rent in Los Angeles, even with both of them working.

        •  Maybe she doesn't earn money (2+ / 0-)
          Recommended by:
          mmacdDE, trueblueliberal

          But I would venture to guess that with a husband, 3 kids of her own, your cousin's son and daughter-in-law and their two kids living with her, your daughter does plenty of work.

        •  I have a cousin who makes like $100K and in debt (1+ / 0-)
          Recommended by:
          NeeshRN

          It's not because he has it "hard", it's because he spends too much.  He doesn't even have any kids.  

          Some people get into financial trouble because of hard times and others do it just because they are idiots.  Most people, if you give them enough rope (credit cards) they will hang themselves.  

          I probably sound like a Republican when I say stuff like this, but I've seen many situations where people can't "afford" things.  Often times if you look beneath the surface, they are mostly at fault for their troubles.  Like they buy a new gadget whenever they feel like it, even though they already are carrying a balance on their credit card.  

          Some people do have it hard, but I would not be so quick to assume that is the case for everyone who is in trouble.  A lot of people are also very irresponsible when you get right down to it, and focus on the wrong things (materialism, new and expensive car, etc).  

          Don't like XOM and OPEC? What have YOU done to reduce your oil consumption? Hot air does NOT constitute a renewable resource!

          by Asak on Mon Sep 03, 2007 at 01:12:08 AM PDT

          [ Parent ]

  •  Plain English diaries on important subjects like (14+ / 0-)

    this are so helpful to "lay" people.  Thanks for spelling it out in such an understandable way.

    Health care for people, not for profit.

    by bloomer 101 on Sun Sep 02, 2007 at 04:38:04 PM PDT

  •  How's the LLM going? n/t (2+ / 0-)
    Recommended by:
    3goldens, jfdunphy
  •  Excellent, Transparency Needed for Investing (3+ / 0-)

    The collapse of the commercial paper market is very concerning. There are too many hidden factors today such as the unknown degree of leverage of hedge funds.

    I disagreed with your previous analysis that the flight to quality was an indication of well-functioning markets, but this analysis is spot on. We don't know how the commercial paper market is going to be corrected.

    "It's the planet, stupid."

    by FishOutofWater on Sun Sep 02, 2007 at 04:41:25 PM PDT

  •  Here's a Dirty Little Secret (10+ / 0-)

    The Fed, and other central banks have no fiduciary responsibility to keep the economy out of a recession.

    Their fiduciary responsibility - the group to whom they're accountable - are their owners.

    The banks.

    They have always acted that way and they always will act that way.

    If they happen to keep the country /world out of a recession, it's only because it's in the business interest of the owner banks to do so.

    Look out below.

    "It's better to realize you're a swan than to live life as a disgruntled duck."

    by Mumon on Sun Sep 02, 2007 at 04:43:16 PM PDT

    •  Umm.. (0+ / 0-)

      It's pretty much always in the interests of the banks/business owners for the economy not to be in recession, so your conspiracy theory is a little flawed.  

      Don't like XOM and OPEC? What have YOU done to reduce your oil consumption? Hot air does NOT constitute a renewable resource!

      by Asak on Mon Sep 03, 2007 at 01:14:11 AM PDT

      [ Parent ]

  •  Scenario one still seems most likely (4+ / 0-)
    Recommended by:
    Asak, Winnie, JML9999, junta0201

    While I am sure we will hit recession again at some point, it sure doesn't look like it will be this year.  I am still betting that the global growth happening elsewhere will keep our economy in decent shape and our stocks in positive territory when all is said and done.  

    •  Government Metrics (1+ / 0-)
      Recommended by:
      greenearth

      The numbers described in the Article seem to be Private Sector Generated. If this administration will try to alter reports on conditions in Iraq is it not at all possible that some alteration of the Government Economic Metrics "under the covers"

      Be careful what you shoot at, most things in here don't react well to bullets-Sean Connery .... Captain Marko Ramius -Hunt For Red October

      by JML9999 on Sun Sep 02, 2007 at 04:59:38 PM PDT

      [ Parent ]

      •  NO (4+ / 0-)

        there are too many people in the statistical gathering loop to game the data. Such efforts would be exposed.

        •  Then how can their be a discrepancy (0+ / 0-)

          Between the Private sector numbers and the Government ones as to the Health of the Economy?

          Be careful what you shoot at, most things in here don't react well to bullets-Sean Connery .... Captain Marko Ramius -Hunt For Red October

          by JML9999 on Sun Sep 02, 2007 at 06:22:35 PM PDT

          [ Parent ]

          •  The bureaucrats honestly report the #s, but.. (2+ / 0-)
            Recommended by:
            yellowdog, JML9999

            ... the definitions that go into making the numbers get changed in ways that "game" the numbers (e.g., "owner's equivalent rent" instead of price of purchasing a house).

            The bureaucrats have accurately reported CPI as defined, but if you simply replaced o.e.r. with house prices, the CPI would have been runnning at 8% in 2004-5, and would be at 0% or even in deflation now.

            Cheers.

            "When the going gets tough, the tough get 'too big to fail'."

            by New Deal democrat on Mon Sep 03, 2007 at 05:13:41 AM PDT

            [ Parent ]

            •  Thank you that's exactly the point I (1+ / 0-)
              Recommended by:
              New Deal democrat

              ham handedly tried to make when I said

              alteration of the Government Economic Metrics "under the covers"

              Be careful what you shoot at, most things in here don't react well to bullets-Sean Connery .... Captain Marko Ramius -Hunt For Red October

              by JML9999 on Mon Sep 03, 2007 at 08:56:23 AM PDT

              [ Parent ]

    •  I agree (5+ / 0-)
      Recommended by:
      Asak, Odysseus, 3goldens, RainyDay, SilverOz

      Bernanke has impressed me with his response.  What is most impressive is the way he has kept his powder dry.  If he had lowered rates like everyone wanted, there wouldn't be anything else.  But buy holding back, I think he is trying to get maximum mileage out of limited effort.

      "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

      by bonddad on Sun Sep 02, 2007 at 05:01:27 PM PDT

      [ Parent ]

      •  This is important (0+ / 0-)

        a fed funds rate of 5.25 does not give him much room to maneuver if he does have to take rates down in case of recession, thus the fed needs to be very careful and not overreact, in which case they could lose their #1 tool.  My guess is that they will cut the discount rate again at the September meeting and then wait for more data before any potential cut in October.  It is simply too soon to cut, as not enough data has come out.

        •  asdf (5+ / 0-)
          Recommended by:
          Odysseus, barbwires, 3goldens, RainyDay, ilex

          Everyone that is yammering for a rate cut is missing a big point.  Interest rates just aren't that high right now.  Whenn I look at a chart of all the rates over at the St. Louis Fed, rates are actually pretty damn cheap right now by historical standards.

          "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

          by bonddad on Sun Sep 02, 2007 at 05:17:24 PM PDT

          [ Parent ]

          •  I completely concur (0+ / 0-)

            although I still put the chance of one at about 50-50, there is no real need to do so at this point.  And, as I stated above, the fed will need all that room to cut when we do have another recession.

          •  They were saying the Fed should stop at 3% (2+ / 0-)
            Recommended by:
            SingleVoter, 3goldens

            The problem was that moron, Alan Greenspan, lowered interest rates to 40 year lows.  His 1% interest rate policy, and terribly slow tightening, is largely responsible for the mess we have to day.  

            3% is historically at the low end of the range, but thanks to Greenspan lowering so far, on the way back up everyone was thinking 3% was "high".  Alan "Bubbles" Greenspan was literally one of the worst, if not the worst, Fed Chairmen this country has ever had.  He built up multiple bubbles on his watch, greatly as a result of his incompetence and the "Greenspan Put".  

            Don't like XOM and OPEC? What have YOU done to reduce your oil consumption? Hot air does NOT constitute a renewable resource!

            by Asak on Mon Sep 03, 2007 at 01:19:53 AM PDT

            [ Parent ]

    •  Hint: It's An Election Year (0+ / 0-)

      I'm an utter economic layman, I'm guessing if there's any year they'll borrow against the future and against reason to keep the economy stumbling along, it'll be this one coming.

      We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

      by Gooserock on Mon Sep 03, 2007 at 01:11:28 AM PDT

      [ Parent ]

  •  Thanks for this... not that it's a revelation (4+ / 0-)

    One look at my bank statement kind of tells the same story. But... as they say... misery loves company. Whoopie, we're all in economic purgatory together!

    The crazy thing is - in the midst of all this wages down, productivity up, record number of millionaires, widening gap between rich and poor, etc - my own field is absolutely thriving and the wages are through the roof. If only I could get a job! In the meantime, um, I sell T-shirts.

    •  There are two language schools (1+ / 0-)
      Recommended by:
      OrangeClouds115

      in San Diego and there is a company near one [~4th Street?&?] that does legal firm support software.

      There is a defense contracting firm Science Applications International(SAI) that I believe is San Diego based that might need a person with technical and writing skills.

  •  You were wrong about Fed, subprimes..slow down eh (1+ / 0-)
    Recommended by:
    Odysseus

    Having been somewhat spectacularly wrong about sub-primes and the Fed, whipsawing from Darwin economics to Creationist economics in the space of two weeks...kind of hoped you'd be a bit more modest and circumspect in posting more "End of the World" pronouncements.

    Consider that last housing boom adjustment ran from 1989 to 1996 and real estate lost roughly 20%.  And that was without Fed intervention (Bush Sr blamed Greenspan's lack of action for his '92 election defeat) and without Congressional intervention (Congress plans to make FHA loans available to many who will face ARM adjustments over the next two years).

    Clinton years were excellent economic times while all that was going on.

    Since Fed is wisely ignoring your original request and will be matching liquidity and rates to suit the facts on the ground and Congress is going to provide an out for substantial number of those trapped in ARM's, US should do even better through this real estate decline than it did through the last one.

    Key, as it was in the 90's, is electing a fiscally responsible Democrat such as Clinton or Obama in 2008.

    •  It remains to be seen (8+ / 0-)

      whether this downturn in housing will be like the early 1990s experience. The overbuilding is greater, the tightening of mortgage credit for the moment is much greater, and the demographics are not nearly as favorable.

    •  I think there's a 'lifeboat' effect to consider (4+ / 0-)
      Recommended by:
      barbwires, ilex, arcana, pickandshovel

      When there are too many people in the tank(water) the lifeboats fill too quickly and get swamped.
      We're seeing the effects of a slowdown in the once strong areas like Home Depot and many trades and merchants that service the housing industry. That leads to fewer jobs which puts more people at risk, the liquidity of lenders is drying up so that it becomes tougher to qualify and pretty soon those lifeboats are swirling around a sinking vortex.
      I'm not saying that this is or isn't going to happen, but we need to see the connections here.
      I hope that Democrats can make simple arguements to show the ill effects of endless war and tax breaks for ultra wealthy and the cost of putting off investment in infrastructure, all things that would help put our gov't on the positive side of the ledger. Otherwise the SS that I would like to collect someday will be paid with those IOU's that Barney's dad said were in the safe.

      •  I hear echoes (0+ / 0-)

        of populism in the heartland, perhaps.

      •  Analogies are poor substitutes for facts, reality (1+ / 0-)
        Recommended by:
        New Deal democrat

        US economy is experiencing a not uncommon phenomenon of the bursting of a real estate bubble.

        The most recent experience of this was 1989-1996 when real estate values declined 20%.

        This caused an 8 month recession from July 1990 to March 1991.  Similar to current real estate bubble collapse, that also had a Republican inspired financial debacle, the S&L collapse with the S&L's providing the financing that the hedge funds and sub-prime mortgage companies provided for this bubble.

        In the 1990 recession the Fed was less reactive (as this diarist recommended the current Fed be) while current Fed is more reactive so the chances of a recession are less likely now though still a possibility as housing is major economic component.

        Different than the S&L problem, in this case we can let the sub-prime lenders suffer the consequences of their action but we should provide help to home owners by going with the Democrats plan of letting borrowers convert loans to 30 year conventional. They still may owe more than the house is currently worth but they will be able to afford to keep paying the mortgage, have a home and wait for payments and appreciation to cross paths in the future.

        •  There are many loans that (0+ / 0-)

          carry a ten percent plus interest rate that could be refinanced at a lower rate.

          The people that are upside down might have relatives with houses that are willing to accept a Federal FHA lien needed to secure a loan with more than 95% of the value of the primary property.

  •  You'd be amazed at what you can live through... (4+ / 0-)
    Recommended by:
    3goldens, greenearth, AnnCetera, alba
     I don't think it matters if people call what's happening or will happen a 'recession' or not.  Most working people don't have savings, period. Many middle class people have debt, but no savings.
     When people live at the margins the way the US has been, it doesn't take much to turn over the turnip truck.

     Federal Reservee is conferencing in Jackson Hole this weekend.  There's a couple of interesting stories, and a lot of good commentary on calculatedrisk.blogspot.com

     Also, Scenario #1 is wishful thinking, IMHO.  Big firms are already trying to gauge whether our economy will follow scenario #2, or #3.  

     Check my links page for some interesting lay-oriented financial blogs.

    "If the Nuremberg laws were applied, every post WWII US President would have been hanged." =Chomsky

    by abenjaminc on Sun Sep 02, 2007 at 05:00:35 PM PDT

    •  Actually (2+ / 0-)
      Recommended by:
      Asak, Odysseus

      as someone who works for a big firm, we are looking at all three scenarios and like the Economist have the highest probability of occurance on #1.

      •  Should have said 'some big firms' (1+ / 0-)
        Recommended by:
        AnnCetera
         But this isn't your father's recession. So to speak.

        Here's a note from Citigroup Foreign Exchange, wondering about the probabilities of a Dow crash, and a very suspicious similarity to 1987, and 1929.  Big enough firm for you?

        http://buttonwood1792.blogspot.com/...

        And here's a note from this weekend's Fed conference in Jackson Hole.  Apparently, economists of all stripes have been ignoring, or somehow playing down the huge importance of real estate in their models.  No word about derivatives, the effects of which are an almost complete unknown.

        http://blog.inman.com/...

        Of course, if I had a reputation to protect, I'd go with the safe scenario, too.  Otherwise, in corporate America, one would look a bit like a 'permabear'.  An oddball.

        To me, this is mostly academic.  I'm not a short-seller, and the thought of playing the market gives me hives.  I'm a fan of economic history..... and I think the numbers are just too big, the psychology of a boom-bust cycle too scary, and the effects of small changes, too unknown.

        Scenario 2 or 3, in my opinion.  Check back at the end of September.

        "If the Nuremberg laws were applied, every post WWII US President would have been hanged." =Chomsky

        by abenjaminc on Sun Sep 02, 2007 at 08:53:04 PM PDT

        [ Parent ]

        •  Oops.. compares " 1987, 1990, and 1998" (0+ / 0-)

          Should have said the Citi report covered the above years.  Had too many windows open... Didn't compare 1929 in this article.

          "If the Nuremberg laws were applied, every post WWII US President would have been hanged." =Chomsky

          by abenjaminc on Sun Sep 02, 2007 at 09:18:34 PM PDT

          [ Parent ]

  •  what flips me (6+ / 0-)

    Is I got out (my meager pennies) on the uptick, yet off they go buying stocks.  I cannot help to think of the dot con bust when they just kept buying stocks even though the warning signs were everywhere.

    I just cannot fathom how the US will not go into a recession from this and see no way that the chickens will not come home to roost.

    http://blog.noslaves.com

    by BobOak on Sun Sep 02, 2007 at 05:01:55 PM PDT

    •  I tend to agree (6+ / 0-)

      As I've said before, it's extremely hard to imagine how this can possibly be coaxed into a soft landing. What we see, if you simply look at the economic indicators, is an economy sandwiched between soft landing and recessionary, and the direction it is generally headed in is recessionary, not improvement. OK, the GDP was 4.0% last quarter. So what? It was also 5% just four months before a recession in 1990, and 6% in 2000 just before receding. This says very little about the future. Also, consumer spending was growing at a sharply lower pace last quarter, which is pretty worrying.

      It may not become an armaggedon that lasts for years, but a recession is very likely. Too often I've been hearing how we've "hit bottom." Every few weeks it was "we hit a bottom", only to fall even further, increment by increment. If I may say so with clarity, if I were to decide at this very moment whether the economy is expanding or contracting as we speak, I would say contracting. But that's just my opinion.

      "To be a poor man is hard, but to be a poor race in a land of dollars is the very bottom of hardships." ~W.E.B. DuBois [-6.63, -5.44]

      by rovertheoctopus on Sun Sep 02, 2007 at 05:17:45 PM PDT

      [ Parent ]

      •  I agree (5+ / 0-)

        Our economy is based about 70% on consumer spending.

        Consumers have been spending more than they make for how many years in a row?

        Now credit is tightening.  People will cut back, or they'll go even deeper into debt (and possible insolvency).

        I also believe there are other factors to take into account.  I have no proof, but I believe the unemployment rate is significantly higher than reported.  I also believe that real inflation (including food, fuel, health insurance, etc.) is significantly higher than the official figures.

        I suspect a lot of people will be hurting, before too long, if current trends continue and credit continues to tighten.

        •  Worse than the last time. (2+ / 0-)
          Recommended by:
          greenearth, AnnCetera

          That's my take, anyway.  Regardless of how the financial markets play out I see the end of the real estate bubble leading to a world of hurt.

          Job losses seem unavoidable in building materials, construction, realty, title companies, and mortgage origination.  What will those people do for new jobs?  Wal-Mart? 7-Eleven?  And how will they tide themselves over, especially if they have put a lot of money into a house that they now can not sell for what they owe? As another poster mentioned there will be tax effects.  How will cities replace those property tax dollars?  Some cities here have voted for a "tax freeze" for seniors, or in one case for everybody.

          If we have a bailout I vote for a government works program for renewable energy.  Think the Chinese will float us another loan?

          •  Can Mal*Wart Employees Afford Mal*Wart Goods? (1+ / 0-)
            Recommended by:
            AnnCetera

            Ford's could. Herreshoff yacht makers' couldn't.

            We're looking more like the Herreshoff gilded age yacht era than the New Deal.

            We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

            by Gooserock on Mon Sep 03, 2007 at 01:14:30 AM PDT

            [ Parent ]

    •  You can't sell your stocks every recession (1+ / 0-)
      Recommended by:
      New Deal democrat

      This is why, as an individual investor, you need to choose a few good mutual funds, either with reliable longterm management, or index funds, and just DCA into them.  The similarities between the market today and the dot com market are very low.  

      The key to successful investing is focusing on the longterm and not obsessing over short term market fluctuations, or even short term economic problems.  The stock market always comes back eventually, and the average "know nothing investor" is not going to be successful timing the market.  

      Don't like XOM and OPEC? What have YOU done to reduce your oil consumption? Hot air does NOT constitute a renewable resource!

      by Asak on Mon Sep 03, 2007 at 01:31:12 AM PDT

      [ Parent ]

      •  True to an extent (0+ / 0-)

        I'm nearing retirement age and in a few years will have to start taking money out, regardless of the state of the market. I'm putting all my 'new' money into bond funds and CDs now in the hopes of being able to ride out the coming downturn by using dividend/interest income instead of having to sell stuff, but we'll see if that works out.

        Incidentally, we are fortunate in having pensions and health insurance in retirement (thanks to being in unions!) and a goodly amount of savings. Yet, I ran a Monte Carlo projection and, assuming a 4% rate of inflation, we have a 50% chance of running out of money in retirement if we want to maintain our current lifestyle (which is somewhere north of frugal, but we have no debt beyond our mortgage and our mortgage payment is about half of what the classic metrics say we can 'afford').

        You fell victim to one of the classic blunders, the most famous of which is "Never get involved in a land war in Asia".

        by yellowdog on Mon Sep 03, 2007 at 06:12:43 AM PDT

        [ Parent ]

  •  Thanks for all your diaries (4+ / 0-)
    Recommended by:
    OLinda, 3goldens, Tuba Les, greenearth

    Bonddad.  I've learned more about how our financial systems work by reading your diaries than from any other source.  Please, keep the education coming.

  •  sometimes i think this site (0+ / 0-)

    should be called www.theskyisfallingdailykos.com

    i dont think this constant panic barrage motivates people either...i think it numbs them.

    and thats all we need....ameircans....numb and dumber.

  •  With the housing market sinking; and consumer (2+ / 0-)
    Recommended by:
    greenearth, drmah

    confidence down again in August; the US economy is going to be sluggish for the next couple of months, minimum.  Could this slowdown bring us to a mini-recession affecting the big holiday sales period-causing even further problems come the new year?  

  •  and, oh yes, there's a war going on. (1+ / 0-)
    Recommended by:
    AnnCetera

    for the last five years.  I forgot to mention that.

  •  Economist article: Whistling Past the Graveyard (6+ / 0-)

    Look, the idea that there's a 60% chance of getting out with only a small bruising to growth is frankly, bullshit.

    Two reasons strongly militate in favor of the Apocalypse scenario:

    1. The central banks can't control the "run on non-banks."  Lots of institutions, hedge funds, etc., have functioned effectively as banks, with loans being made for sub-primes. They. Are. Not. Under. Central. Bank. Control. And therefore they are immune from attempts to pump liquidity into them. And they are ground zero of the crisis. Also: see the contiuing commercial paper problem.
    1. "China and India are Bubbles, Stupid." The Economist article blithely (or wrongly) omits this fact.

    Sooner or later that bubble will burst.

    Sorry to be so bearish, but this has all happned before in slightly different dress.

    And at the end of the day, like J. Pierpont Morgan, the Central Bankers will say, "they stand for their clients."

    "It's better to realize you're a swan than to live life as a disgruntled duck."

    by Mumon on Sun Sep 02, 2007 at 05:44:02 PM PDT

    •  I read in bear land (4+ / 0-)

      that the Fed is allowing the banks to use more funds from their retail branches to help prop up their investment branches in defiance of Glass Steagall.  If so that would be an indirect way that they are dealing with it.  Unfortunately that won't help institutions that don't have retail banking arms.

      Also read that the central banks can lend money to non-bank entities if they so choose.  This is strictly hearsay on my part, but you can check it out on Professor Roubini's blog on the RGE Monitor.  That is if you aren't already a regular. :)

      •  I'm impressed with Roubini (3+ / 0-)
        Recommended by:
        3goldens, greenearth, AnnCetera

        I've been following him since late last summer and I think he has been absolutely spot on for the most part. He's one reason I don't like to follow the consensus, because the consensus can be dead wrong a lot of the time! A year ago, people thought he was out of his mind calling a recession. Now it seems recession is en vogue, though I don't say that as a good thing, but more just that people are realizing the real issues that are out there and can move ahead to prepare for the incoming storm.

        "To be a poor man is hard, but to be a poor race in a land of dollars is the very bottom of hardships." ~W.E.B. DuBois [-6.63, -5.44]

        by rovertheoctopus on Sun Sep 02, 2007 at 07:53:49 PM PDT

        [ Parent ]

        •  Roubini has been too bearish (1+ / 0-)
          Recommended by:
          3goldens

          He correctly called the housing slowdown, and for it to spread.  But he called for a recession by the first quarter of 2007.  He failed to see that lower interest rates late last year would give the economy a breather.

          The most important thing to watch in the economy is interest rates.  Are they rising or falling across the board?  Are they above or below the rate of inflation?  Are they inverted or not?  Just watch those things and you have 80% of everything you need to know, and since they are objective, you won't get carried away with your emotions.

          "When the going gets tough, the tough get 'too big to fail'."

          by New Deal democrat on Mon Sep 03, 2007 at 05:35:52 AM PDT

          [ Parent ]

          •  I agree about his calling a slowdown in early '07 (2+ / 0-)
            Recommended by:
            3goldens, New Deal democrat

            being too early. I thought 0% GDP in the last quarter of 2006 was too much as well. Though I take less issue with timing and am more interested in whether the bulk of a prediction, i.e. Roubini's prediction for a recession because of housing, will happen at all and for the reasons sighted by that forecaster. So far, I think his overall prediction is holding. Evidently, I think that a recession didn't begin then may actually worsen a more eventual one (I think now the signs strongly point to a recession by the end of this year), because while the economy has had time to breathe, so too has the ability of the mortgage crisis to drag out and claim more victims along the way. The aggregate losses would be much larger now than they would have been had we seen this even just a year ago. As usual, the most massive crises take years to develop, not months, not weeks, not days. Whether what we see now is a crisis that dates back to the start of the housing boom or all the way back to 1981 with the run-up of debt and wealth gaps, that is not yet fully known. If the former, the damage may still be very, very large, especially since real estate is slow moving and was the engine of the Bush Economy.

            "To be a poor man is hard, but to be a poor race in a land of dollars is the very bottom of hardships." ~W.E.B. DuBois [-6.63, -5.44]

            by rovertheoctopus on Mon Sep 03, 2007 at 10:47:12 AM PDT

            [ Parent ]

    •  China,India will survive this but (5+ / 0-)

      the fallout of a Chinese  retrenchement,of disengaging  in significant amounts from the US market will be severe here.  I see them as buying assets rather than dollars as payment on loans. At some point they are not going to be happy with a trillion dollars of US paper money that is fading thanks to the subprime market,the mortgage implosion coupled with real estate declines, and the big recession.  They will want to preserve as much as they can even as it wilts under the meltdown.

       Does anybody have the valuation (depreciation of the dollar) in the face of a 10% across the board real estate drop? in the face of a 20 or 25% one?

       That is the worst case scenario people should be doing their financial modelling about. Worst case design: about a year to 18 months away.

      America has been stolen, your citizenship is a hollow fraud, and you have no power. What will YOU do to reverse these hurts, crimes, outrages?

      by Pete Rock on Sun Sep 02, 2007 at 08:32:52 PM PDT

      [ Parent ]

    •  Notice how by splitting up the downside.. (1+ / 0-)
      Recommended by:
      3goldens

      ... to 30% and 10%, it makes their 60% "good scenario" look better.

      Suppose they'd said, there's 60% chance of a soft landing slowdown and a 40% chance of a recession or worse.  It would convey a different impression, wouldn't it?

      Cheers.

      "When the going gets tough, the tough get 'too big to fail'."

      by New Deal democrat on Mon Sep 03, 2007 at 05:32:25 AM PDT

      [ Parent ]

  •  Panic (7+ / 0-)

    I think we are in a bit of a panic. Good quality bonds are selling at a discount that is not related to the probability of default or failure to pay the interest. Does anyone really think something is going to happen to GE?

    When things like this happen there are those who sense a bargain and move in. Warren Buffet expressed this opinion a couple of weeks ago. I think he was talking of stocks, but the same is true of bonds.

    The real danger has to do with inflation. We have been paying for the wars on borrowed money with no sign of how we expect to pay back the loans. This is what LBJ did and it led to a long period of stagflation. I don't see why the bad policies from that period should produce different results this time.

    By the way, I think we are already seeing the first signs of a recession. I don't care what the economic indicators say. When the CEO of Walmart says sales are down because "people are running out of money before the end of the month" you know things are not right.

    It will be interesting to see if a downturn will cause the pols to put in more progressive legislation. The country had to endure a lot before FDR got public opinion behind him. Under the stagflation of the 1970's there never was any progressive legislation, just Volcker throwing people out of work so that the rentiers wouldn't suffer too much of a loss of value in their fixed assets.

    •  "When the CEO of Walmart says sales (6+ / 0-)

      are down because 'people are running out of money before the end of the month'."

      That sums it up.

      Referring the comment above by enthusiast, the rich get richer, then spend overseas rather than here. They are take from the middle class, give back only what they have to and then wonder why domestic sales are down.  In the meantime, some folks are still figuring out that a Bush tax break at best brings momentary relief to your personal financial problems.

      •  Or Wal-Mart's CEO is lying through his teeth. (1+ / 0-)
        Recommended by:
        AnnCetera

        It's also possible that their sales are down because people are going to Target (whose sales rose last quarter).  Being the most prominent retailer of goods from China is not good when every week brings another product recall of Chinese imports.  The drumbeat of bad publicity for Wal-Mart, combined with the boycotts cannot help.  Neither can the superior quality and efficiency that  Costco obtains from its relatively well-paid employees help Sam's Club any.  

        Dems in 2008: An embarassment of riches. Repubs in 2008: Embarassments.

        by Yamaneko2 on Mon Sep 03, 2007 at 12:19:31 AM PDT

        [ Parent ]

        •  Target Sells American Made Goods? (3+ / 0-)
          Recommended by:
          3goldens, AnnCetera, Bronx59

          ANYBODY sells American made goods?

          We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

          by Gooserock on Mon Sep 03, 2007 at 01:16:29 AM PDT

          [ Parent ]

          •  Get this -- I found American goods at Wal-Mart (0+ / 0-)

            Strange but true, I managed to spend money at a Wal-Mart last week and bought some American-made socks and Gold Bond.  

            I'm sure that Target sells at least some American goods -- my point was that Wal-Mart's sales may not have gone down because of a crappy economy;  they may have gone down because Wal-Mart's management does a bad job.

            Dems in 2008: An embarassment of riches. Repubs in 2008: Embarassments.

            by Yamaneko2 on Mon Sep 03, 2007 at 05:30:29 PM PDT

            [ Parent ]

    •  Hedge funds selling GOOD holdings because (6+ / 0-)

      they need to free up cash and can't sell their mortgage backed debt.  

      THAT is why so many good blue chips tanked in the past few weeks - those sales made NO sense except for the fact that they were the ONLY holdings some of these funds COULD sell at the time.

      THAT is the type of unpredictable fall-out occurring.  Hedge funds that are highly leveraged are affecting markets in unpredictable ways, Quant fund models are unable to account for the behavior that's occurring because it IS "irrational" - so things get even more bizzare.

      When you have so many things going on, you end up with "irrational" market behavior driven by computer trading that only makes things WORSE.

  •  Who votes for a "rescue" (2+ / 0-)
    Recommended by:
    SecondComing, MarketTrustee

    of the economy by a renewed push to privatize social security?  I fully expect this to come up next year like a bad turnip.

    Democrats give you the Bill of Rights; Republicans sell you a bill of goods!

    by barbwires on Sun Sep 02, 2007 at 05:51:08 PM PDT

  •  These scenarnios + w's war on Iran = CF (3+ / 0-)
    Recommended by:
    AnnCetera, alba, NeeshRN

    beyond compare. People of America, you heard it here first, for the past 3+ months, maybe longer, bonddad has been giving us a heads-up to what one can only define as impending hard/bad times ahead.  You put w's attack on Iran before he leaves office or is impeached, into this equation, you have one hell of a CF.  I suggest most financial advisers are running more afraid than the man/woman on main street. My observation is to significantly (i.e., 60%-70%) liquidate to cash before it is too late. If you are 50+ years of age and still working, beware, failure to proctect your retirement investments may result in death on the job, i.e., you will work until you drop dead.

    •  Ok, so I am (0+ / 0-)

      new to this site, a late 20 something, married, with 3 kids that has become very politically aware since the beginning of 2007 and I found out about dKos through the Colbert Report. I have been trying to tell my friends to start socking money away (although I can't tell them exacly why), but I have been following these bondad threads like crazy.

      My observation is to significantly (i.e., 60%-70%) liquidate to cash before it is too late.

      Do you mean like savings acct liquidate; pull out of the stock market, or like out of the bank, into a shoe box, mattress, planters, kid's backpack, garage storage type liquidation.

      Would a money markey acct do it?

      •  You read him right. (1+ / 0-)
        Recommended by:
        AnnCetera

        Whether it's really what you want to do is up to you.  Savings account non stock market would be somewhat less drastic than the mattress.

        You should always live within your means.  "Socking money away" has many different levels of savvy too.  Pay the bills, put some in retirement savings, and then have fun.

        -7.75 -4.67

        "Freedom's just another word for nothing left to lose."

        by Odysseus on Sun Sep 02, 2007 at 11:24:11 PM PDT

        [ Parent ]

  •  Large subprime exposure (0+ / 0-)

    Sounds like something you find listed in a real estate ad.

    So the banks are "fearful" that their fellows may have gotten too hot and bothered too fast and filled up on subprime futures? If the result of such "exposure" is potentially catastrophic, why the fuck is it legal?

    Don't answer that, I think I already know.

  •  IOW: a match in a dry forest... (2+ / 0-)
    Recommended by:
    Odysseus, AnnCetera

    is all that is needed to bring the global economy on it's knees.  And we are indeed in a very dry forest.  The world obviously can't sustain the US levels of growth; now with China and other growing economies.  

    So the sumprime mess may be the match that spreads the fire (Scenario #2 or 3) or we manage to put this one out (scenario #1).  No matter.  We still have a very dry forest.    

    I really appreciate Bondad's diaries and I read his blog daily.  But I disagree in his optimism about our economy and implicit assumptions in our monetary system.  It's completely unsustainable; the earth can't support it.  No system that wastes as much resources as ours can survive.  Period.  

    Enjoy it while it lasts.  

  •  Problem with three-way predictions (3+ / 0-)
    Recommended by:
    Asak, Odysseus, AnnCetera

    Since the Economist has spelled out three widely different scenarios, from little effect to moderate effect to Armageddon, with substantial probability for each (10% in the Armageddon case), they basically can't be wrong regardless of what happens. The 60-30-10 probability split is meaningless as it can't be tested--something approaching one of the listed scenarios will happen and that will be that--just one data point. Thus, it's kind of a chickenshit economic analysis.

    The US consumer economy is huge--something like several trillions of dollars of spending per year, so whether it's $100 billion or $200 billion of imploded hedge funds wouldn't seem to be that huge of a deal in the global picture. Even the vaunted mortgage equity withdrawals (the "home equity ATM") represent a small fraction of total consumer spending over the last several years. While in the worst case scenario consumer spending is hit by maybe 5%, how can this be a doomsday scenario for the economy at large? More like a return to fiscal sanity.

  •  You can look at the details or the big picture (2+ / 0-)
    Recommended by:
    New Deal democrat, AnnCetera

    The details say how the process has worked itself out, but the big picture gives us lots more information towards understanding cause and effect.

    The way I look at it, enormous wealth has accumulated over the last 15 years. It's looking for investments. The problem with wealth is that it has virtual future value, that is, you may have a million dollars now, but what will you have in 10 years? For it to grow, someone has to be willing to pay you more than you invested, relative to inflation. In fact, there are really very few fundamentally sound ways to invest wealth that inherantly produce a gain in productivity, those being in technology or in business infrastruture. In the stock market you are depending on discounting future growth or the next fool theory. In the mortgage market you are depending on home owners to pay you some multiple of the selling price of the house over the years. The mortgagee is motivated because he will lose his house if he doesn't pay. The root of the word mortgage is death in Latin.

    Low interest rates fueled housing speculation up to and beyond the payments reasonably possible by a new house owner. In the end, the wealth is ultimately at risk when the owner can't afford the payments and the security is worth less than the loan. When the housing market crashes it will pay the owner to default on his current overpriced home and go buy a new one at market prices or even rent.

    One might ultimately ask if there are any set of investments that the current total accumulated wealth can turn to for a positive gain over the years? My guess is no and that for the economy to function it has to discount the current level of wealth. That can happen with inflation or a depression. Given the current thinking in economic cicles I think that we are headed for a depression, or if you prefer a deep recession. On the flip side, debt needs to be discounted and that also will happen with inflation or default due to a collapsing economy. The Draconian credit card default law may come back to bite us in the ass and keep the economy in a depression for a long time, as consumers will have no cash, just debt to MasterCard.

    In the end destroying wealth and debt is a good thing for the economy, as long as new capital is available for the next expansion.

  •  If you don't immediately (2+ / 0-)
    Recommended by:
    greenearth, greatwhitebuffalo

    go shopping, the terrists win.

  •  I Have a Question (2+ / 0-)
    Recommended by:
    AnnCetera, Bronx59

    Are they basing these probabilities on official gov't statistics? If they are, the odds they quote of recession are actually much worse.

    Here's why.

    See also

  •  No active secondary market? (1+ / 0-)
    Recommended by:
    Odysseus

    ... some assets have not been priced this way because of a lack of an active secondary market.

    Forgive my ignorance, but of what use is an asset that  has no active secondary market? Are investors supposed to buy and hold until the assets (say, mortgages) have been paid off to the extent that a pool of cash is expected to be available?

    I will glumly pass on participating in any such investment, thank you. But don't let my pitiful caution hold you back, managers! In due time I will have the pleasure of offering pennies (yen?) in exchange for the dollars you have used to buy into the (maturely) catastrophic market you are helping to guarantee.

    "This document is totally non-redactable and non-segregable and cannot even be meaningfully described." *

    by dratman on Sun Sep 02, 2007 at 09:02:09 PM PDT

  •  Winners and Losers (6+ / 0-)

    Let's say that $100B in subprime mortgages will not be repaid to the banks. That money isn't really "lost". The borrowers spent that money (or, even if they scammed and hoarded it, will spend it) in the rest of the economy. I'd like to see stats on what percentage of the defaulted debt had paid for new construction, vs buying used houses. The first category transferred money from the banks to the construction industry, a big pump in a centralized direction. The other category pumped money across the economy generally. While about $7B was paid to brokers, who now have to find other work as the consumption collapses.

    The main problem with this cycle is that it's a false economy. It didn't guide money through people who actually created much utility value, but rather the supply of credit increased prices, a purely monetary manipulation. Which mainly boosted bank profits and some people's incomes for long enough to make Bush's GDP numbers look at worst "anemic", rather than showing the production decreasing seriously while the population continued to grow. Every dollar of fake "growth" was purchased for much more, especially also considering the costs of administering the fake growth as well as the interest, all postponed until after the Bush years, so keeping the Bush numbers high at much higher cost later.

    It's the "Enron Economy", and no one has any legitimate reason to be surprised in any way.

    The other problem is material. How many thousands of new people will become homeless? Not just those getting foreclosed, but just those people nearly homeless already, who get pushed down over the edge once the economy contracts again. Right at the time when the government has exhausted most of its money, power and confidence to bail people out. Right as Americans become so fatigued with government sabotaged by Republicans that they can't be convinced that government is the solution to anything, if they just invest some more faith and work in people (not necessarily Democrats, but certainly not Republicans) who will actually govern, not just rip them off.

    So the losses are real. But they're different from the superficial story. The money "lost" by banks and house traders isn't really "lost", and those people already got a lot more than they deserved getting us into this mess. The real losers are people who depend on the economy to grow, but who got handed an empty, shiny balloon. Now that it's worn out after a few years, it's going to sink.

    The party's over. And everyone has to have the hangover.

    "When the going gets weird, the weird turn pro." - HST

    by DocGonzo on Sun Sep 02, 2007 at 09:48:28 PM PDT

    •  Look to New Orleans (3+ / 0-)
      Recommended by:
      DocGonzo, AnnCetera, MarketTrustee

      Hundreds of thousands disposessed? A region the size of Great Brittain trashed? Clearly, stability was able to afford that.

      We haven't yet got a clue how big a collapse we can suffer without management being seriously threatened.

      We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

      by Gooserock on Mon Sep 03, 2007 at 01:22:03 AM PDT

      [ Parent ]

      •  Probably... (2+ / 0-)
        Recommended by:
        DocGonzo, Bronx59

        Anything right up to pitching tents in various cities in the US, and the Mall in Washington, and calling them Bushyvilles.

        •  A couple of tents already pitched (1+ / 0-)
          Recommended by:
          DocGonzo

          I see them every day in the narrow median strip of I-395 in Southwest Washington DC about a mile from the White House. I think the residents run down an on-ramp and climb over the side to get to their campsite.

          The Republican Party is a criminal enterprise.

          by Bronx59 on Mon Sep 03, 2007 at 06:59:42 AM PDT

          [ Parent ]

        •  Including the Tents (0+ / 0-)

          Tent cities won't budge this generation of aristocrats. With mass media propaganda atop the legacy of punctuated fear, it won't move most active Americans any way but against the victims. On that line, we're headed from "gated communities" into "walled cities".

          The other alternative is action like the Business Plot against FDR. But with the fascists loving the shacklands, Americans haven't practiced that kind of insurrection. Though we have plenty of practice putting them down, most recently with Blackwater mercenaries reimported from Iraq to New Orleans.

          We have to switch tracks before we rumble closer to this scenario. Because the endgame is a barbaric civilization that probably goes out with a long scream.

          "When the going gets weird, the weird turn pro." - HST

          by DocGonzo on Mon Sep 03, 2007 at 07:25:00 AM PDT

          [ Parent ]

          •  I watched part of a show on Cspan (1+ / 0-)
            Recommended by:
            DocGonzo

            and saw the locals trying to reason with 'those who think they need CHANGE.  They said they wanted their own law enforcement, not strangers.

            There are stories we aren't being informed of, happening in some of the Katrina states.

  •  How much danger are regular mortgages in? (3+ / 0-)
    Recommended by:
    3goldens, relentless, Pete Rock

    My uninformed gut reaction is that framing this situation as a "subprime mortgage crisis" diminishes the seriousness of the problem, and that the same underwriting weaknesses that plagued the subprime mortgage market probably plagued the market for conventional mortgages, credit cards, student loans and many other types of debt, and that subprime mortgages are just the canaries in the coal mine.

    Anyhow, would anyone out there have a genuinely well-informed opinion about whether this situation might amount to more than a subprime mortgage crisis?

    •  Difficulty in getting a traditional mortgage (1+ / 0-)
      Recommended by:
      3goldens

      To get a traditional mortgage, you need good credit and sufficient income to pay the mortgage without excessive difficulty.  A 20% downpayment is required, so property values need to drop 20% for the bank to lose money.  Barring the 20% downpayment, purchasers need to buy mortgage insurance which protects against default.  

      Dems in 2008: An embarassment of riches. Repubs in 2008: Embarassments.

      by Yamaneko2 on Mon Sep 03, 2007 at 12:28:22 AM PDT

      [ Parent ]

    •  That is what a lot of people are worried about, (0+ / 0-)

      'What will happen to the 'good loans' as the nightmare unfolds?'

  •  And at the very bottom (2+ / 0-)
    Recommended by:
    Odysseus, AnnCetera

    according to the US Census Bureau statistics on poverty, are children (about 35 percent of the poor) and single moms, especially Black and Hispanic single moms.
    A quick tour through poverty statistics would make you vote Democratic every single time.
    In the 1950's (read Eisenhower and Republicans) the poverty rate was 22.4 percent, hurting 39.5 million Americans. In the 1960's (JFK, Camelot, LBJ Great Society) poverty levels went down by a dramatic 42 percent--almost in half-- to 11.1 percent of the US population, lifting 16.6 million out of poverty but unfortunately leaving 22.9 million still looking for upward mobility.
     Poverty zigzaged up (Nixon and Ford) and down (Jimmy Carter) until 1980, when Voodoo Economics purveyor Ronald Reagan sailed the ship of state back toward much higher poverty levels, and George HW "vision thing" Bush continued the economic policies he once mocked, leaving Clinton (1993-2001) to clean up the mess, but when Bush 43 stole into office, the poverty rate rebounded by 2004 to 12.7 percent, on the order of 42 million Americans--or 2.5 million Americans worse off than even under the lousy record under Republican Eisenhower.

  •  thank you again bonddad but where is the BIG (2+ / 0-)
    Recommended by:
    relentless, quantumspin

    money actually going?

    I read not only your entire post but also all of the comments.  I am in awe of the lack of knowledge displayed, as well as the vast amount of knowledge of the middle market.

    How in the very middle of the comments on your well thought out and well executed post, there are a number of people talking about buying foreign cars.  

    Amazing, We did this the American Consumer, not some outsider, or someone in charge, we did this.

    We bought Hondas and toyotas, we buy made in china everyday.  We hedge our bets in our investments with global markets.  Why?  Because we are so self centered that we don't look past our own noses, to see if what we are doing hurts our neighbor.

    Back to my question,  the big money where is it going? the UK German and Japanese markets are dependent and closely tied to the US Market, so where is the next double digit profit coming from?

    the last board meeting I was in suggested Vietnam and south east Asia.  thoughts?

    •  We should NOT take the blame for this Mess (1+ / 0-)
      Recommended by:
      one pissed off democrat

      except maybe where the Clintons had their hand in it and I don't take the blame for them. Many of us have complained as it unfolded.

      It is almost impossible to 'buy American'.  Everyone that blamed Wal-Mart for bringing in China crap has learned that that is where Mattel and the other higher cost stores get their toys and goods.

      You want to buy toys for your kids now, not when they grow up, so we buy what we find.

      Our American car companies conveniently dumped their pension obligations to those who had worked for them. They have been outsourcing most of their car production for a long time.  We don't owe them loyality when they do that.  Kind of a 'what is good for the goose is good for the gander' kind of thingy.

      Many companies have made huge profits, but have not raised the wages of their workers to even cover stated inflation, let alone the real unstated inflation.

      The profits overseas would be made whether we had our money invested over there or not.

      Bushites have pushed the value of the dollar down so that "we" could be more competitive overseas. They say  'we' but it is really 'big business'.

      Others blame the consumer for being broke on buying a big screen, a once in a 20 year old purchase that adds value to their home living experience.

      Put the blame where it lays and that is on a lot of republican greed and avarice.

  •  Creating A Perfect Storm (0+ / 0-)

    for our Republican friends come next November.

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