The Financial Times has some scary ass shit to share re: the American mortgage meltdown. Scribe Nouriel Roubini reckons there will be another wave of bad news, as the so-called “shadow banking system” unravels. (And that’s no Bolero.) We’re talking broker-dealers, hedge funds, private equity groups, structured investment vehicles and conduits, money market funds and non-bank mortgage lenders. These guys face the final stage of collapse: “a run on thousands of highly leveraged hedge funds. After a brief lock-up period, investors in such funds can redeem their investments on a quarterly basis; thus a bank-like run on hedge funds is highly possible. Hundreds of smaller, younger funds that have taken excessive risks with high leverage and are poorly managed may collapse. A massive shake-out of the bloated hedge fund industry is likely in the next two years.” And then… “The private equity bubble led to more than $1,000bn of LBOs [Leveraged Buy Outs] that should never have occurred. The run on these LBOs is slowed by the existence of ‘convenant-lite’ clauses, which do not include traditional default triggers, and ‘payment-in-kind toggles’, which allow borrowers to defer cash interest payments and accrue more debt, but these only delay the eventual refinancing crisis and will make uglier the bankruptcy that will follow. Even the largest LBOs, such as GMAC and Chrysler, are now at risk.” Bottom line for the U.S.: recession. Bottom line for GMAC (and thus GM) and Chrysler? C11.
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There’s enough money in the government to bail out everyone, right?? I mean, its just free money, right? We don’t actually pay, right?
Haha. I just bought a new GTI. Got myself 0% on the 08’s. First new car in my lifetime. Its gonna suck if I end up losing my job. So yeah, count me as more freaked today than I was a week ago, driving in my paid-for 11 year old Miata…
But, Jerome10, the important question is: Which car is more fun to drive?
Hahahaha. GTI, surprisingly.
Fun to drive could easily take a back seat to making-the-payments in this economic environment though…
Wow, a newspaper writes that the sky is falling or soon will. What a shock.
I rent, my car is paid for, and a majority of my savings are in, well, savings, in several countries and currencies. Count me not freaked out.
Oh, and worse come to worse, my brother-in-law lives in the woods of PA and owns enough guns to hunt his own meat…and he invited us to stay over.
Whoa!
Looks like I may be holding off on that MazdaSpeed3 purchase for a bit. Luckily, I’ve heard of no planned-layoffs (yet) but nothing is guaranteed. Looks like my trusty (paid-for) Elantra may have to suffice for a while longer.
I agree, the buyout and hedge fund catastrophe is waiting just behind the curtain. Everyone is focused on mortgages right now, but they are hardly the only example of speculative foolishness out there. I think that the US government is focusing the public on mortgages because it is something a majority of the people can relate to and may even have had a hand in. How many folks borrowed money against their house to funds cars (SUVs!), vacations and big screen televisions? So, keep people’s eyes on that ball because they have some common ground with it. But the other set of disasters are the fund which have been buying up ailing businesses, borrowing massive amounts of money, and using that borrowed money to pay the new owners big cash windfalls whilst leaving the acquired business even more messed up than it was in the first place. Then there is the wild west of derivatives trading markets, which is nothing but the world’s largest legal casino.
Note, the legislation the US Treasury is pushing for right now enables them to buy distressed securities of almost any kind, not just mortgages. The magician’s primary tool is misdirection.
Well our financial industry has been playing loosely for the past 8 years and it has finally come to roost. Why these institutions and loose money lending / laundering, / hedging / etc. practices were allowed in the first place is quite the ‘Merican way .
The ‘run’ on hedge funds has begun, but it’s throttled by the fund manager’s willingness to give it up. Several years ago the Long Term Capital Management fiasco was minimized by various banks chipping in keep things floating. They oh-so-smart guy behind that was John Merriwether. Greenspan was directly involved in this fix, but did not a thing to change course. Merriwehter has his ass in a crack again with another hedge fund of his creation that’s in trouble. His first claim to fame was being an big wheel in Salomon Brothers when it was caught playing games with treasury bonds in the late ’70s, although Merriwether was not implicated directly in this scam. Why should these guys change their behavior? They rake in billions, get caught, and then set up shop again without penalty. We read all the time of somebody being nailed in some fraud scheme and they get off by promising not to be do it again, or at least not get caught at it.
More Roubini here:
http://www.rgemonitor.com/index.php
So jerome 10 Its gonna suck if you lose your job?
Really? and you own a couple of imports?
Ain’t life a fucken bitch?
Do like Zimbabwe and just print unlimited amounts of money.
The problem is not solved unless the real estate market corrects. If the price of real estate keeps dropping the economy will continue to deteriorate. Simple as that.
Likely this trillion bucks just slows the snowball down or stops it temporarily.
I always thought the big 2.8 should just sit down and agree to go chapter 11 at the same time. lets face it they all need to to get to the stage they really need to be at to survive these current times. However i’m now thinking the whole country needs chapter 11. The American dream is over, the nightmare is about to begin.
BostonTeaParty:
Wait..you aren’t referring to.. the big One are you?
This could be the first of the,
“United States of America Death Watch”
series.
re: “I rent, my car is paid for, and a majority of my savings are in, well, savings, in several countries and currencies. Count me not freaked out.”
AKM / September 23rd, 2008 at 11:31 am
even you are at real risk. we are all at real risk. if the entire system implodes, there will not be very many who escape the consequences.
quoting david faber, cnbc, reporting on this morning’s ‘squawk-on-the-street’ broadcast at about 6:25 am pdst: just last sunday morning, paulson testified that on the previous thursday, we were only “…fifty trades away from the end of the financial world as we know it.”
there is an old saying that, with an appropriate modification, deserves to be restated here: ‘if you are able to keep your head while all those around you are losing theirs, perhaps you don’t clearly understand the seriousness of the situation.’
“So jerome 10 Its gonna suck if you lose your job?”
Yeah, and if he was an autoworker he’d be crying nonstop and telling us how much we owed him. Of course, he probably has skills and a “fucken” education.
quoting david faber, cnbc, reporting on this morning’s ’squawk-on-the-street’ broadcast at about 6:25 am pdst: just last sunday morning, paulson testified that on the previous thursday, we were only “…fifty trades away from the end of the financial world as we know it.”
People have been crying wolf wince the first Tulip bubble in the 15th century. I’m not saying it’s nice, but the more we panic, the worse off we are. And excuse me if I don’t cry for people who had the chance of safeguarding their future by investing prudently instead of over-consuming. I prefer to reserve my sympathy for those who really need it, such as people in parts of the world where food prices mean the difference between life and death, as opposed to having to buy smaller cars.
A very good idea would be to stop listening to cable news, all of them. They’re just there for sensationalism, not news.
Freaky indeed.
Whatever the Fed is proposing is designed first and foremost to keep Paulson’s $500M (yep, not a typo, half a billion friggin dollars) in Goldman Sachs stock safe.
After that, all I see is the play-out of the Republican scorched-earth end game. Knowing he can’t be re-elected, Bush & Co have engineered the mother of all land grabs – almost a trillion dollars to be doled out ASAP. Whaddaya bet at least 80% of that is spent before January 20th? And Bush becomes a “consultant” a firm skimming the most off the top? Leave the country crippled in debt, mired in stupid unwinnable wars, broke, unemployed, the dollar in the toilet.
This country will look so bad in 4 years the Republicans will win the White House in a landslide in 2012 on a platform of “Change.”
Kudos to everyone who’s posted on this subject so far. I just KNEW someone (no matter what site you’re on there’s always going to be someone) was going to advocate a thinly-veiled socialist solution to our current financial problems, but no one has. It speaks volumes about the intelligence of this site’s posters.
The bailout won’t work. They need to start bringing american expenses in line with revenue. We can no longer live above our means. They are not doing that. Instead they are trying to fix the credit system so we can continue to spend more than we make, or maybe more accurately they re trying to fix the credit system so foreigners will continue to lend us money and keep the dollar afloat.
If they were serious then they would do what they could to assure those we rely on to lend us money that we “get it.” First up, stop the Iraq war. Draw down 10,000 troops a week until there are none left. Start planning for a military that is 1.5% of GDP, and that means we will no longer have more than 700 military bases in foreign lands. The money is better spent internally on infrastructure that will produce faster economic growth. Ultimately it is the size of our economy that determines our security, not how many aircraft carriers we have.
Second up, assure people that their money won’t be stolen by thieves who will never face consequences. There needs to be a war on white collar crime. Mortgage fraudsters, naked short sellers, those who violated their fiduciary responsibility need to be sent to cheap tent prisons in Arizona. I should not have to watch male enhancement ads every other commercial break on cable TV. The way to get rich in America needs to be making a product or providing a legitimate service, not figuring out ways to bamboozle your fellow citizens.
The profits need to be taken out of activity on Wall Street. That should be a highly competitive and cutthroat business that survives on the thinnest of profit margins. It should not be so lucrative that it causes a brain drain from areas of “real” production in the economy. Math and sciences grads should be designing better widgets, not more complex derivatives.
Q: Whats the difference between a financial journalist and a sack of shit?
A: When you find out, let me know.
I just spent the morning frantically moving a relative’s money out of a money market fund that invests only in US gov’t backed paper and into FDIC insured CDs. What put her over the edge was an newspaper article that money market funds were in peril. Somewhere buried deep in the article they acknowledged that US Gov’t securities MM funds were safe, but I don’t know if she read that or if it mattered.
I await the upcoming large point headline:
FDIC Teetering On Brink – Only One or Two Bank Failures Away From Insolvency!!!!! Where to go then?
I just KNEW someone (no matter what site you’re on there’s always going to be someone) was going to advocate a thinly-veiled socialist solution to our current financial problems, but no one has.
Well, I’ve been a bit busy today, but if you can wait…
Oh, and by the way, if a $1000 billion bailout is the end of life as we know it, then what does that say about year after year of $700 billion oil payments to people who hate us? (Except the Canadians. Maybe.)
Oh, and by the way, if a $1000 billion bailout is the end of life as we know it, then what does that say about year after year of $700 billion oil payments to people who hate us? (Except the Canadians. Maybe.)
It says we should stop antagonizing people by spending our money propping up oppressive dictatorships and monarchies. We can no longer afford it.
re: “I just KNEW someone..was going to advocate a thinly-veiled socialist solution to our current financial problems, but no one has.”
reclusive_in_nature / September 23rd, 2008 at 2:46 pm
no need. that someone you reference would be comrade paulson and his billion-dollar bailout scheme, complete with it’s section 8 bullshit, to wit: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
paulson’s plan is socialistic, in the extreme – it privatizes the profits and socializes the costs.
quoting ‘deluge07’ posted at 02:43 pm, 09/23/2008 and linked below: “…i decide to turn on CNBC and just as i do i see they are showing paulson at the hearing…then chris dodd takes the mic… [and] says, ‘i want to talk about the section 8 portion of your bill,’ IMMEDIATELY, as if scripted that way, the CNBC anchorwoman cuts in and says were gonna have to cut to a commercial.”
the fix is in. the con is on. section 8 provisions have absolutely nothing to do with democracy. this is socialistic crapitalism, pure and simple.
the crooks want one more crack at the cash. the universally-discredited, irredeemably corrupt bush administration has already proven, beyond all doubt, that they are not to be trusted – never, never, ever – under any set of circumstances whatsoever.
http://www.huffingtonpost.com/2008/09/22/dirty-secret-of-the-bailo_n_128294.html
Qwerty – Great Post!!
You pretty much said what I was going to say but better..
Heaven forfend! The thought of well-heeled speculators who can no longer afford leveraged buy-outs is absolutely mortifying. How long can our economy remain intact if it’s not fueled by the ever-present spectre of savvy investors swooping in and picking the meat off the bones of a perenially solvent enterprise? Glad we’ve dispensed with the old, traditional, out-dated notions that good product, good service, innovation, and reasonable prices are the foundation of a healthy company & pillars of a robust economy! What in the world were we thinking???
“paulson’s plan is socialistic, in the extreme – it privatizes the profits and socializes the costs.”
Sorry, Paulson’s plan is fascist, not socialist. Even the European socialist parties are deriding the bailout plan.
Why these institutions and loose money lending / laundering, / hedging / etc. practices were allowed in the first place is quite the ‘Merican way .
They were not only allowed, but encouraged (if not forced) to make risky loans in the name of diversity and equality. You can thank the “Community Reinvestment Act” passed in 1977.
In 1995, that act was strengthened.
It’s not the entire reason for the problem, but we probably wouldn’t be where we are today if not for that act.
“Sorry, Paulson’s plan is fascist, not socialist. Even the European socialist parties are deriding the bailout plan.”
GEMorris / September 24th, 2008 at 12:33 pm
i do value and strive for accuracy, especially regarding my own statements. and i do honor your effort at correction and/or clarification, however, in Marxist theory, socialism is…
“the stage following capitalism in the transition of a society to communism, characterized by the imperfect implementation of collectivist principles.”
Dictionary.com Unabridged (v 1.1)
socialism “was first applied…The word, however, is used with a great variety of meaning…even by economists and learned critics. The general tendency is to regard as socialistic any interference undertaken by society on behalf of the poor… radical social reform which disturbs the present system of private property…The tendency of the present socialism is more and more to ally itself with the most advanced democracy.”
Encyclopedia Brittanica
“…As a rule, fascist governments are dominated by a dictator, who usually possesses a magnetic personality, wears a showy uniform, and rallies his followers by mass parades; appeals to strident nationalism; and promotes suspicion or hatred of both foreigners and ‘impure’ people within his own nation…Although both communism and fascism are forms of totalitarianism, fascism does not demand state ownership of the means of production…In theory, communism opposes the identification of government with a single charismatic leader…which is the cornerstone of fascism…Today, the term fascist is used loosely to refer to military dictatorships, as well as governments or individuals that profess racism and that act in an arbitrary, high-handed manner.”
American Heritage New Dictionary of Cultural Literacy, Third Edition