The Great Recession - post mortem
 

Some news in the past week indicates some major players believe we are in a recession now.

The official definition (ex. 2 qtrs of negative growth) would seem to indicate we cannot be in an official recession now (ex. 4Q 2007 did not have negative growth, or at least not until it has been revised).

Other than for my 401K/IRA and gas prices, I don't personally feel the "recession" as my house value has not declined much if at all and think I am in pretty good shape with my employer (ex. won't be the first to be let go).

Wanted to setup a poll and see how you vote. Regardless of an official recession, do you think we are close to bottoming out and then rebounding, or do you think there will be worse to come.

How long does a recession last?

Just looking at projections for mortgage and other loan defaults says we're not close to the bottom.

from economy.com

No disrespect but anyone inculding Bush who says we aren't in a recession or heading into one are fucking idiots. Believe me I felt it firsthand, being that I got laid off and it was because of the slow down in the economy effecting are clients budgets for 08.

gonna get worse before it gets better. For sure

oh I think you should say it with disrespect intended. It's pretty much clear-as-day right now, regardless of what the NBER indicators say at the moment.

I was hoping all of that was known and factored into our "efficent markets" and that the banks revealed all their losses.

It varies according to the below. 1981 was <1 year.

http://www.economicshelp.org/blog/re...cessions-last/

Thank You Sir.

Spent sometime reading articles.

Here's a comparison to the 1990-91 recession


http://money.cnn.com/2008/02/08/pf/r...ion=2008022709

For anyone interested, the article was more on survival strategies for a recession.

Maybe a sign of it bottoming out sooner rather than later. Bear Stearns bites the dust.



http://www.nytimes.com/2008/03/16/bu...l?ref=business

Not sure I understand how this can go through at such a steep discount. Reminds of of post USSR when the robber barons got some Soviet assets at a steal.

Dude, why would that be a sign of it bottoming out sooner, given that BS is being forced into sale to stave off a panic in the Asian markets?

Under the assumption you agree the market is a 'leading indicator' of the economy ...

The uncertainty and volatility in the market is because it does not know of the full extent of the housing/subprime mess. This is the first (?) big bank to fail, more may come but until the shakeout occurs, I don't think the public/market will regain its footing.

When the market recovers stability and growth, the recession/downturn will also end. You can't have the latter without the former.

It will probably go through because $2/share is better than nothing. BS essentially can no longer operate. If BS becomes insolvent, then the shareholders would get nothing.

After closing at around $30 a share, BS was trading at $.09 in after hours trading since then. The $2 a share actually marks a significant premium, although the holders of the stock aren't getting a haircut, they're getting a completely shave.

You'll get the usual nonsense blaming subprime lending, but this collapse was due to complete systemic poor investments, decisions and actions throughout the company's entire portfolio and business model.

I get that but what I don't get is this.

I am sure there are other financial institutions (domestic and/or overseas) that would have paid more for the $1B NY building alone?

This looks as if the Government basically handed BS to JP without allowing a competitive bid. From a layman, it would have been better for the Government to take it over (ala S & L in the early 90s) and then sell it at a better price?

I wonder if this means BS stock price will go down to approx $2 Monday?

But by buying the company you are also acquiring the exposure to their overextended positions. Which I've heard figures of $250 to $400 billion bandied about for BS.

And yes, BSC will trade right around $2 (and in line with JPM's) until the deal closes.

Nothing has changed for JP since the 19th century. :)

Okay, I get this. The severe discount factors in the "risk" of $250-$400B which is something the government (or other banks) would not want to incur.

Deep down, I still think there were some nod-and-wink-wink between JP and the Government that were not offerred to other domestic or overseas institutions that may have been interested.

BTW. Wiki says the S&L bailout totalled $160B in 90s dollars.

http://en.wikipedia.org/wiki/Savings_and_Loan_crisis

The government hasn't had a chance to weigh in on this yet. The Fed has guaranteed to help cover some of the exposure, but that was before the talk of this buyout happened. The only people to agree on this so far are the boards of JP Morgan Chase and Bear Stearns.

wow. That's crazy (Bear Stearns)

Per the NY article quoted above.


Interestingly I know the article has been updated with this. This passage was NOT there when I first referred to it. People working late at NY times.

watch CNBC this week and you could see Fireworks IMO

I say it gets worse. I have been saying for a good year now that transportation costs are going to start jacking up prices eventually. Companys are going to be 1)paying higher transportation fees to move product or 2)paying a higher fuel surcharge to have their product moved. Basically the same thing, an increase in what is being paid.

The price of fuel keeps going up and up, and it really doesn't look like it will stop sometime soon. It is going to make it's impact felt with all this other stuff going on around it IMO. It is also going to force another round of small trucking companies to shut down just when the survivors may have been finding away to survive with the fuel prices.

Just my 2 cents.

I read the other thread ... you said up +1000 pts?

My best friend's father was a long-time Lehman employee...he survived the first two big rounds of layoffs before falling on Wednesday. Thankfully, since he was pretty close to retirement, they did right by him, giving him enough severance that would allow for him to reach his retirement date so he'd get his full benefits.

I have two other good friends, one being my roommate, who just got massive promotions within Lehman. With the talk that they could be next to go bust, they're both literally shaking.

well i said down 1000 is what I expect by the end of the week but becuase the stock market usually does the opposite of what I expect it will probably go up a ton. its the contra-flasch theorem.

Sorry to hear about your friend's dad. Good to hear it worked out for him.

I have not heard anything about Lehman? If they work at the Lehman office in NY by Times Square, I remember walking by there after 9pm and there were a couple Lehman guy's waiting to get into Limos ... thought to myself, what a lifestyle.

Good luck to them, it looks as if the auto and financials industry are the 2 most precarious industries ... following textile which went south (ex. sucking sound) in the 90s.

Okay, lets do a post mortem next weekend. If this checks out we will have to start the "contra-flasch theorem" thread.

This should help them out "for now."

http://www.bloomberg.com/apps/news?p...v.k&refer=home

The news didn't seem to settle the Asian markets too much, as the Nikkei is down 3% at the start.

Isn't this their first real shot at reacting to Bear Stearns at all? (not counting after hours trading)

Markets that haven't opened since then will likely trend downward at the start. I will be more interested to see where they end up.

At the end of the morning trading session, the Nikkei ended up down 4.23%. The afternoon session starts up in an hour and a half.

Can you send me your link where you can see international markets?

I see the reports via cnn but they don't seem to be realtime updates.

Bloomberg.com does international markets.

On Bear Sterns, I've read that the Fed took on 30 billion in "less liquid assets." Was that essentially a 30 billion handout or will it be paid back?

CNN was where I was getting them. You are correct that they aren't realtime updates, they are usually updated every 30 minutes or so. This is the link I was using:

http://money.cnn.com/data/world_markets/

And looking at the link, the Hang Seng is down 4.98%. All signs are pointing to a Black Monday. :(

I believe it was a 30 billion dollar foreclosure

/rimshot

it's gonna be an ugly Monday...

I know its unfair, but the only thought I have tonight is

"damn Bernanke"

Is there some point where we can stop with the Saint Greenspanning and show that he set up a lot of what is coming to fruition right now? Or has that already started and I've just missed it?

SI

It will be interesting to see what happens this week. You have to expect some decline tomorrow, I'm betting in the 2-4% range. I would be surprised to see another selloff Tuesday after the Fed meeting if they drop rates as low as some rumors have been going around -- one rumor has a full point drop. If that's the case, it's going to panick investory even more since it will be a sign that the Fed thinks things are going to get worse and they won't have much more room to cut rates further.

But I wouldn't be surprised either to see a quick rebound later in the week. There are a some big earnings reports out this week that could impact the market. But if we see a 5% decline by close Tuesday, there will be some bargain shoppers jumping into the market later this week.

I think it's a case of Greenspan getting way too much credit for the market when it was booming and way too much blame now. I really don't think there was anything Greenspan did that got this going.

The only complaint you could lodge against Greenspan is that he kept rates too low for too long. I don't necessarily agree with that.

From my experiences and observations, the problem has been that there has been too much investment money chasing loans. Banks were lending money across the board to people who shouldn't have been getting the loans because they had plenty of money. There was a reason BS was buying so much mortgage debt. There was a demand from investors. This applies to other types of lending as well. There were too many investors looking to buy debt.

I'm not sure economic policy would have addressed that. I do know there is a perception among some people even now that the Fed, the Administration and Congress have been slow to react to the problems in housing because they want money out of housing and bonds and into the stock market. Not sure I agree with that either, but I'm surrounded by people who believe that.

hxxp://www.gregpalast.com/elliot-spitzer-gets-nailed/

Thought this was interesting. Surreal, but somehow believable, and that amazes me.

I wasn't even thinking about Greenspan, my statement was directed towards Bernanke only.

Hindsight is 20-20 etc. and the final act has yet to play out but I strongly suspect that Bernanke will take a hit in the economic history books for not acting quickly or aggressively enough 3Q-4Q 2007 when the signs started.

I don't think Greenspan can possibly get enough blame. Having said that, I'm still essentially optimistic. The market is in a weird state right now, but I think in a year or less things will good again.

Oops, Cramer was wrong on this one last week. :)

http://www.wjno.com/cc-common/news/s...rticle=3413726

Going to get worse before it gets better. I dont think enough emphasis can be placed on the consumer being more inclined to spend when their living arrangements feel secure.

The fact that we have a relatively large number of defaulted loans already means that (A) many who overbought, will be renting for a few years and (B) House values have and will continue to drop.

The problem with that is those who did not overbuy, and have & will continue to pay on their homes for the next few years means that by the time the first/second round of "defaultees" are ready to buy, they will be buying from the "responsible" parties that have just lost their a$$, just by paying on time. I would expect this to result in a third round of defaultees who will see this as unfair and not within their interests to continue to pay on a debt that many others have long since recovered from.

I dont think this means everybody...just a reasonably large precentage who bought at or near peak values...and subsequently cannot afford to sell without losing 20-30% at least. I think it would take quite a while for these people to just break even...barring some sort of legislation or assistance.

Dola,

I cant blame the lending institutions enough for this mess. Investors are also culpable...but the lendors in many cases were not even thinking about keeping most of these ridiculous loans.

Just a mess all the way around...but somebody gave these loans out...and it wasnt Greenspan. I'd agree he could have "possibly" done some things to help lessen the mess, but I dont see him as the problem in it.

For the original question - other than high gas prices, I haven't seen anything on a personal level to indicate a recession.

The price of food has gone up considerably in the last months. When you buy for a family of five, it's more than noticeable. I have to imagine anything that is imported must be more expensive due to the falling dollar too.

This is what makes me think we're in for a lot of trouble. We're already seeing signs of inflation and yet we're still lowering interest rates. Depending on how long the lag time is on these things it might get really ugly.

It still feels regional - no sign of trouble in Idaho (and from what I hear, most of the mountain time zone states).

I was upset at something that happened at work a few weeks ago and sent out one resume. Today I'm giving notice and then starting at the new job in two weeks, with a 15% pay raise. I don't know anyone having trouble finding a job out here.

Real Estate is still growing, but more modestly compared to the population growth here.

74% nationally believes its a recession. Our FOF board is higher than that.

http://money.cnn.com/2008/03/17/news...ion=2008031712


Listening to the TV pundits on the Enron mess, I wonder who the Auditors were for Bear Stearns?

Here's the amazing thing -- the definition of a recession is at least two quarters of negative growth. So far, we haven't even posted one. It's entirely possible 08Q1 could be a negative growth but it's not a guarantee.

My point is that we have a very distorted and twisted version of what a recession is because things have been so good for so long. Hardly anyone under age 30 really knows what a recession is because we've only really had one real recession and one borderline recession since the mid '80s. Good grief, in the '80s we would have killed for 5% unemployment and 6% mortgage rates.

I'm borderline annoyed that people are so spoiled that they see a momentary correction as a recession. Don't take that the wrong way -- I feel for anyone who is losing their job, is having trouble with their mortgage, etc. It's tough all over. I know friends of mine will lose their jobs. But given the mindset of the public, I can't imagine the reaction if we actually have a recession -- and you don't need to look any further than people on this board who use words like "depression." Unreal.

I thought so too, but see Grammaticus post #4.

I'm completely bemused at the constant over-reaction to any little snippet of information by the stock market, indeed one of my amusements recently has been watching the experts on bloomberg trying to explain why the market is heading in one direction or another (yes I'm sad).

The problem is that recessions can be self-fulfilling, people are told continually there will be a recession, they start getting cagey and not spending money - companies generate less revenue from this so start laying people off - repeat cycle until recession.

A similar thing can be seen in the stock market by and large with the market expecting bad things so running away from the financial stocks, meaning they fall - cue market experts talking about bank failures, cue withdrawal of major investments and hey presto bank failures ..

The sad thing is that the bears will undoubtably help ensure that at least one more major financial institution falls because this is over - I personally believe Bear Sterns when they indicated that they were liquid until fairly recently.

It almost seems as though people are rooting for a recession. Everyone jumps over every little negative tidbit yelling, "see! see! we're all going down!". I think there's some element of people hoping that Bush's presidency will be remembered even worse.

The reasoning is IMO there is *no way* the market will stabilize and grow until the psychology of the market is satisfied.

Right or wrong, the market believes we are in a recession.

Right or wrong, the market will not stabilize and grow until it believes we have "hit bottom".

The quicker this happens, the quicker we get through this mess.

Therefore, I guess I am guilty of this thought process ... but it is not Bush related.

Good point - recessions in the era of instant media are an interesting thing. Because of all the info, the market and economy is correcting before we even reach the recession. What I wonder is whether that softens the overall blow, or does it just make things worse?

1. i don't know why the gov't gifted Bear Stearns to JP Morgan. wouldn't it have been better to basically have a "one day sale! hurry hurry, come with your best offers for Bear Stearns, highest bid wins!" type auction. that was unnecessary and i think putting Bear Stearns on the open market would've yielded a higher price.

2. there is a lot of doom and gloom on these financial shows, i have CNBC on over my cube cuz i work in the mutual fund industry. basically this is good for ratings, and its very hard to discern how much of what is being reported is accurately a big deal and what is being fluffed up just to have something to report. obviously we're in a bad way with the economy, but people don't tune in to CNBC when things are going good, if you get what i'm saying. point being there's certain entities that have a vested interest if things are reported a certain way. you can see them reporting with this look of glee.

the only people who got fucked were Bear's employees who owned stock and options and investors. This was a huge "fuck you" to them.

For everyone in the other thread chanting morality when it comes to individuals deciding that foreclosure is a viable option I point you in the direction of, well, everywhere else. Until the banks heed Bernanke's advice to negotiate down principle on loans which actually helps the individual INSTEAD of choosing to simply write debt down which doesn't help the individual, morality is standing on a very small soapbox.

Did you miss this excerpt in one of Ed's posts?

This is something I really really don't understand - there is no reason to lower the principle on the mortgages, just to renegotiate the terms so people can afford them surely?

The mortgages which are so problematic for the financial industry at the moment have largely been paid on the lower rates which they were first set at - rather than go "oh god no they're all going to default" why don't the banks just talk to the people involved.

Allow them to extend their 'cheap' rates for another 5-10 years at the cost of them being charged a bulk sum into the price of their mortgage up front (say 3% of their mortgage total).

I'd expect most people would accept because it allows them to retain their house and keep their payments very close to their current levels.

This would mean the mortgages don't default, thus over time the value of said mortgages would rise back up to a more sensible value and trade normally givinig liquidity back to the market.

(and yes I realise that the mortgages in many cases exceed the present value of the house in question - but surely if the mortgage rate is cheaper than renting the equivalent property most people would choose to stay in their house and wait for the prices to recover than flush money away on rent?)

The problems in the economy aren't being caused by pessimsts. There is a very real credit problem that's driving this. Financial institutions are still holding hundreds of billions of dollars of what will likely be worthless mortgages, commercial loans, credit card debt, etc. The problem, however, is these things have been packaged and sold so many times that it's unclear what has value and what doesn't. Because of the inability to verify assets/debts financial institutions aren't willing to loan money to anyone but solid credit risks and even then the downturn in the economy and the gloomy prospects for the future make them hesitant.

There's simply no way out of hundreds of billions in bad loans that isn't painful. My problem is that it appears the pain will be centered on the individual borrower while institutions and large shareholders will be bailed out by the government. Privatize the profits and socialize the losses.

Here's a fairly understandable primer on what the Fed is doing.

http://www.rgemonitor.com/blog/roubini/249924

oh, whether its the only option wasnt my point, i apologize I only used it as Bernanke's suggested idea, however my point is that right now, as mentioned in the thread about my parents looking at foreclosure, the banks are "writing off debt" which hurts themselves and shareholders while not helping the people who need it most AND helping themselves. If theyre going to write it down anyways, they may as well do it on the front end instead of the backend.

oof. I guess Drew Rosenhaus was 100% correct when he wrote one of my favorite books "A Shark Never Sleeps".

But thats what I don't understand - these mortgages aren't 'worthless' ... if you look at them as a whole only a fairly percentage of them have defaulted so far and of those a reasonable number wouldn't have done so if the banks had met them halfway by renegotiating terms.

As such they're largely involvent by their own devices - if they'd talk to the people who owe on the mortgages then surely those 'worthless mortgages' would be worth a bit more.

The system appears to be setup presently with the banks only looking at immediate gains/losses instead of planning to take a lower profit immediately but maximise gains over the long run (ie. renegotiated the terms of the mortgages at lower rates to prevent defaults and keep value in the mortgage itself rather than leaving the banks as property owners).

The other thing I've been surprised not to hear about is simply one of the more stable banks buying up vasts amounts of mortgages which are in default at a huge price down and setting up a property arm - surely if the mortgages are selling for as little ($ for $) as indicated then buying them up and renting them out would be a viable concern?

(serious questions - I haven't studied American economics at all so apologies if these are silly questions)

At face value, they aren't worthless, just "underwater". But it's the whole derivatives market that sprung up around them that is causing the pain. That $300K subprime mortgage was wrapped up with a bunch of other subprime mortgages and then repackaged as "prime" and sold as such. Then they were leveraged multiple times, meaning that the exposure created by the single $300K mortgage loan could be multiplied to as high as $3 million. It's almost the same situation that caused the 1929 panic, when margin calls caused the market to crash.

A default on a $300K mortgage where the house value is $250K doesn't just cause a $50K loss, there is the ripple effect dependent on the number of derivatives it was a member of. Based on the 10X example above, the true loss could be as high as $500K, more than the full value of the original mortgage.

The problem I have with this crisis is how the Fed is responding to things. The fact that the Fed has been trying to stave off a recession is ridiculous. The key to any free market economy is risk. You can take a low risk investment and make modest gains. Or, you can take a high risk investment and make huge gains, but a good chance to lose it all.

With the actions of the Fed, they are trying to take the risk out of risky investments. Those that make bad decisions will continue to make the bad decisions because they get bailed out.

It might be painful for some of the worst offenders of this crisis to get nailed in the pocketbook, but that is what is necessary for things to work themselves out. It would be painful in the short term, but beneficial in the long term. What has happened instead is the Fed elected to print more money (and has been doing so for quite some time). The result is that inflation has been rising and the dollar has fallen to lows against many global currencies. Sure oil is over $100 per barrel, but what if the dollar was not so weak. We could be looking at $80 per barrel which would not be nearly so daunting. Also, since the Fed is printing more money, that means that the dollars that are in ciculation are worth less, so investors are going to try and move into something less volatile, which means they are also going to sell their securities, driving the dollar down even more.

Basically, I think the Fed should focus on maintaining the value of the dollar and let the economy take care of itself. Sure, things would be painful in the short-term, but once the kinks were worked out of the system, we would be in a much better situation.

I think the sky is falling. We are all dead. If some of us survive we will be slaves to Costa Ricans. Good luck to the survivors.

What a day. From morning futures indicating -250 to ending at +21 for the DOW. Small victory for the contra-flasch theorem.

Lehman mentioned in the news as possibly the next one to go.

Fed comes out with a lending-facility to allow wall street companies access short-term funding. I wonder if this could have saved Bear Stearns if it was implemented a week ago?

Per my earlier post, don't wish bad on any company but sooner the better if/when we bottom out.

I don't know but I think there was a good chance for a domino effect on some wall street banks if the Fed had not acted.

I get your analysis of removing risk but I think that was too high-level.

The Fed was trying to prevent a panic (probably worldwide and albeit "short term") that would have had severe reprucussions on the "risk-takers" and "non-risk takers".

I don't know I think the wiping out of 80%+ of Bears value should dissuade a fair few bad decisions in future ;)

If the fed hadn't stepped in and the bank had filed for bankruptcy I'd expect there would have been more of a domino effect as people fled the sector (even more so than ha been seen since) ... if that happened in a big way it'd take a LONG time for things to recover.

The only thing I'd add to Cartman is that the loss on a 300k mortgage would be greater. If the house is appraised at 250k the bank will get lower offers due to the fact that everyone knows the bank is losing money every day they hold the property. There are also fees, man hours, home clean up and or/repairs etc. In the end the bank would be lucky to get back 50% even if there was no other exposure through derivatives.

Ill say one thing, if my neighborhood is any sign of things to come perhaps things are picking up. We've sold 5 new homes in 16 days :)

I assume at lower than the original price. Do you know if it was much lower?

There are hardly any for-sale signs in mine anymore, I think most people have decided to wait it out.

My neighbor across the street has been trying to sell his since Halloween with no success (don't know if he got interest but did not want to lower his price). Another neighbor tried to sell his house 4Q 07 but pulled it off the market in Jan.

We still have about a quarter of the houses in my development for sale, along with about 30 undeveloped lots. Partly because of the current financial environment, and partly because of the current HOA lawsuit that is still going on here.

certainly at lower prices but the loans are lowered and fully doc'd.

the number of resales have dropped too, so all in all it seems that the pace through this bottom, while being different from region to region, may be accelerating through this bottom.

plus, what does "original" price mean anyways when it was all jumbled up by appraisals, speculation, etc.

I think time will tell how much of an auction there was, but it is almost certain that the bidders outside of JPM were limited. There was an extraordinary time crunch and a need for either a mammoth balance sheet to take on Bear's obligations or the ability to get viable financing to do the same.

Thought #1: It's hard to tell if we're in a recession or just if there's a lot of pain out there due to mortgages and the credit crunch. I'm kind of leaning towards the latter. Recession-wise, I think we're kind of "lucky" that this has coincided with the weak dollar, which is propping up a bunch of industries who have (now) rising exports.

Thought #2: Bernanke > Greenspan. Greenspan's great accomplishment was allowing the economy to grow relatively unfettered. A lack of adult supervision of the economy (and, specifically the financial sector) was obviously great for the 90s, but has clearly set up some of the problems we've had in the 00s.

I think we can blame Bernanke somewhat for not stepping in sooner, but the fact of the matter is that he was operating in a huge non-interference wake left by Greenspan. It's only when the shit has really hit the fan (i.e. financial institutions are about to fail) that the financial sector has let him do some real meddling.

Bernanke's modus operandi, however, appears to be to bail out the financial sector at any cost, reasoning that the failure of the market is the worst possible outcome. Worse than pain spread throughout great numbers of borrowers, for instance. Presumably they (i.e. we) can recover eventually, but if enough Bear Stearns go under, the market comes to a grinding halt. And then what do you do?

Much as it pains me to do so, I suppose I agree with this philosophy (which has also been clearly articulated by Treas. Sec. Paulson). However, as a commentator on NPR last night put it, I kind of wish Bernanke would use this opportunity to wring some concessions out of the financial industry regarding self-regulation & general regulation. Let's be clear, these institutions, with their idiotic loans and their extraordinarily complex investment vehicles (which, to this day, the vast majority of them don't understand) are squarely responsible for the position in which the country is today.

Their "self-regulation" completely failed and now to bail them out Bernanke is letting them borrow huge amounts of money with only these very same convoluted (and probably worthless) investment vehicles being used as collateral. What happens if they can't pay back the loans? The American taxpayer pays. Which is, of course, richly ironic in light of the thread about Flasch's parents. :)

As I've said before (on this topic) the proper role of government (and the Federal Reserve, by extension) is to allow the market to be free enough to prosper without hindrance, but no so free so that elements within that market do things that are detrimental to the overall health of the system. The sub-prime mortgage mess is a direct result of the latter, and as the financial industry seems, currently, very uninterested in cleaning up their ways, the Fed should be stepping in to make sure they do so in the future.

Otherwise we're going to go through the same thing (with another type of investment) in about 10-15 years.

true, which is why if the banks would simply work on the front end, with people like my parents, perhaps we can stave some of this off but, contrary to what makes the news, the banks will only work with you if you're already 3 months late or so, in les pendins, and suffered the credit hit. Im sure those that only blame the banks will say, "see" and those who blame people like my parents will say "see."

If this were just a case of bad loans, then we could have equal blame. Blame the people who took out loans they couldn't afford. Blame the banks for lending to people who could afford to pay the loans back. Done.

However, the banks took an already dicey situation and made it exponentially worse by bundling all of these loans into ridiculously complicated investment vehicles that they then sold worldwide. How complex? So complex that Goldman Sachs, of all institutions, decided in late 2006/early 2007 to divest itself of as many of these as possible because a) they didn't trust them and b) they didn't fully understand them.


Anyway, I have a point here. I don't think this feeling of panic, or concern, or whatever you might want to call it amongst Americans about the economy these days, is going to go away until most of the financial sector can say "Yep, we've finally now found all of these and sorted out all the bad loans/investment vehicles/whatever. Some we just wrote off, some we've otherwise subsumed. So there's now 0% uncertainty."

The problem is, I think we're still a long way off from that.

so you say short the market :)

As far as I'm concerned, the stock market is mostly a work of fiction, especially when viewed in the short term. The majority of my investments are in either emerging markets or in holding companies that are run well and are invested in industries that are either a) emerging or b) will have good demand for decades.

Investing in the stock market for the short term is exactly the type of game guys like Jim Cramer make it out to be, and bears little, if any, resemblance to the actual nuts-and-bolts performance of good companies out there.

But, if you have the spare cash, and wish to dabble, it can be a fun way to spend your time (especially if you invoke the counter-flasch theorem). :)

This thread/poll is useless without a trout option.

guaranteed to make you money

My neighborhood had 2 foreclosures auctioned this weekend. I am told that one definitely sold, but the second may not have hit the reserve price.

I agree 100% with this.

Crazy. Bear Stearns shares are trading around $7 per share. Evidently there are quite a few bond holders out there that are willing to take a loss on the stock, in order to have a say in approving the merger. This way, JP Morgan Chase assumes the bond debt, and they'll get full value, instead of having to fight with everyone else in bankruptcy proceedings.

Damn, the Contra-Flasch theorem at work this week

27 + 420 = almost halfway to the +1000 that it predicted.

Certainly that is part of the story, but the other huge gorilla in the room is Bear's derivatives exposure. They have like $13T in OTC derivatives exposure (credit default swaps, for example) on their books (this is not all one way, some will net out). Trust me when I say the folks facing Bear would MUCH rather be facing JPM on those trades.

Not to mention that people own CDS on Bear that would cause a huge ripple effect throughout the market if Bear filed.

I thought this was a pretty interesting read where the bottom may be predicted via 'technical indicators'. According to most of the indicators we are not at the bottom yet.

http://www.kiplinger.com/columns/pic...8/pick0317.htm


Well at least the stock market is up 400+ this week.

He may be right, but I'm a little skeptical when the Chief Strategist at S&P tells me it's time to buy.

I think one of the problems with "the bottom" is most people are looking for "the bottom".

I think we HAVE hit a bottom in the housing crisis and will stay on it for a while. The economy as a whole may not be on the bottom nor with the equities markets. We may see the credit cancer spread into things like auto, credit cards, student loans, etc. whihc could also carry on the "housing" effect. Strictly with housing with variances for regionality I believe we've hit a bottom.

I'm not super educated on this stuff, but aren't there a ton of foreclosures looming and don't values continue to go "down" (some will say return to real value, but lower than what they were the previous month)? I know I have seen values in my area go down from the previous month (although by relatively small amounts) and there doesn't seem to be a sign of it stopping.

Not sure how that is bottom? Or is my area different than the rest of the US?

I actually don't think we've hit the bottom on the housing markets. There is still a large $ amount of future readjusting rates that may/will put alot of people in the hole and make the housing market worse.

From what I've read, this uncertainty will last at least through 2008.

Regarding the equity markets, I am hoping we are close to the bottom. My logic is that investors have (hopefully) accounted for the uncertainty about how much banks are exposed etc. and believe equities are now significantly undervalued.

I foresee many of these loans ending up being refinanced through the new fannie and freddie terms and in some cases I assume FHa will be assuming some of the bad debt so that lenders loosen their reigns on refinancing. My thoughts on the bottom assume that the momentum towards "bailout" and FHA, Fannie, and Freddie involvement in refinancing will keep the number of foreclosures lower than the apocolyptic number being thrown about. I also see people taking their homes OFF the market which is another step in the right direction in that people who initially thought that they wanted to sell their existing home to take advantage of the buyer's market when they dont have to are "giving up". that's good too.