And a belated one to my Canadian friends as well :)
Margin Call on America
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@Cmdr:
Well, for one, I think the public promises need to be realized for what they are: false promises. If they were terminated immediately, many of the budget problems would also terminate. Perhaps the fire sale of American financial institutions would also stop.
What false promises?
However, that said, I have to say that for over a decade now I have been lamenting the fact that American realestate was way over priced. I believe it is the unrealistic pricing of American realestate that is the culprit of the fire sale, not the deficit or any of the other factors being listed.
A decade ago, it was a buyer’s market. In 2000, I bought my house in Southern California for $86 a square foot- a steal. Homes have always been expensive in New York, San Francisco, Monteray, Santa Barbra, etc.
In 1998, the Median Price for a San Diego home was $195,000. That’s doable on $50,000 a year (close to median income back then), with a 10% down payment. In 2003, the median price had jumped to $420,000. In 2004, it was $525,000. The bubble didn’t start until around 2001.
http://www.signonsandiego.com/sdhomes/area_homesales/pastyears-2000.php
Another method of reducing the deficit would be to retail our energy reserves. The United States of America (and Canada) holds almost a third of the world’s coal reserves and almost 15% of the world’s oil reserves (Colorado alone has more oil than all of Saudi Arabia) and, adding Canada to the mix, that number is even higher.
If we were to cash in on the unrealistic prices of oil right now, I wager the United States could easily see a negative deficit in a matter of a few short years.
We should definitely become an oil exporting nation again. But it would mean putting a floor tax on gasoline ($3 or $4 a gallon) to create demand. Nobody wanted an electric, CNG, or fuel cell car when gas was $1.50.
As for the value of the American currency, it will remain strong. It may not be uber right now, but it is strong. That’s because the value of American holdings, resources and institutions back up the currency. People know that the US Dollar is worth one US Dollar and that it will be worth one US Dollar tomorrow and the day after and the day after that for as long as one can speculate life will exist barring any serious acts of god(s).
The dollar is worth whatever investors think its worth. If America starts to look like a bad investment, investors start cashing in their dollars for other currencies or hard commodities. It’s our luck that Britain, Germany, and Japan are having their own tough times, so the dollar looks relatively good stacked up against those currencies.
I must admit that the current financial buyout packages (both passed and proposed) worry me greatly. I, for one, would have been much happier had AIG, Fannie Mae and Freddie Mac gone out of business, liquidated their assets and let smarter men and women take control of those assets and fix the problems.
Fannie and Freddie hold over five TRILLION in mortgage securities. Letting them go under was unthinkable. They had reached TBTF status (too big to fail). But I would love to read an economist’s paper suggesting they should have gone under…
What has the solution been recently? Give them their golden parachutes and bail the company out with public money. What’s my idea of a solution? Put them in bankruptcy, sell all their assets to other companies, let their stocks dry up and cinch your belt for a while until you can recover. Why won’t it happen? Americans are cry babies. They gambled, they lost, now they want “Mommy and Daddy” to come bail them out.
That’s true to some extent, but another problem is a failure of the market itself to fix a price on all these bundles of mortgage securities. When the govt. approves the bailout (which they will), there’s a chance (probably small) that some of these mortgage securities are seriously UNDERvalued, and we could actually make a profit on them if housing goes up.
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So this is pretty much reflective of what i am talking about.
With inflation rising and currency value dropping, combined with decreasing property values, then America’s real GDP is dropping - particularly relative to its major trading partners (Canada, Europe, etc.). This would work in favor of yor trade imbalance short term as it is becoming cheaper for me to buy American goods/services/properties (particularly given NAFTA), which should help to maintain or even increase production and therefore exports.
However with interest rates bound to rise to correct for inflation, decreasing credit and cash availability due to the massive banking and financial company screw-ups, increased debt (and deficit) with concurrent increasing cash outflow to pay the interest to foreign debtors, there becomes less money (and less valuable money to boot) available for capital projects, for needed imports, for new buildings, or even to support current infrastructure.
Say what you like about the lack of necessity for gov’t funded social services and health care - allowing for the aging population, aside from turning everyone into soylent green as they get older, there will be a massive crush on gov’t resources, requiring more tax dollars from a population less able to draw from.
Is this sustainable? How will America deal with this? Will America default on its loans?
Supposedly if the foreign aid, and military money dries up and is poured back into realistic expenditures, there may be a way to maintain some sense of financial order, but to what avail? -
I think that is a bit misleading, CC. Real Estate does not factor into GDP.
As for the government making a profit on the land, I would have slightly less problems with the government offering a prime +2% mortgage to anyone who can muster 30% down on a home and if they want better terms (and those terms kinda suck if you have even moderately good credit) you can go to a private bank. This way at least there is a safety net for people who screwed up when they were younger, but it’s also a halfway safe bet for the taxpayers.
ST, I’m glad you made insane profits on your home. I did too (purchased in 2001, currently worth 125% what I paid for it.) But that does not mean it is right. The housing market CORRECTION bringing prices back in line with reality of their actual worth, not their speculative worth, can only be a good thing for people. As housing prices return to normal, more families will be able to afford them, more families living in owned homes mean they will slowly build up equity instead of “pissing into the wind” their income on rents.
This is especially important because of the false promises of the New Deal which, in essence, was a statement from the old government that government will be your mommy and your daddy and take care of you in your old age and this will pay you back dollars for the pennies you put into the system. (ie Social Security, Medicare, Medicaid, etc.) Unfortunately, we are liable for them now, we promised, and the fools actually think they are collecting THEIR OWN money back, not pilfering the pockets of their grandchildren.
As these programs go into bankruptcy (latest estimate was 2042 according to Money Magazine last June, before then it was 2015 but some legislation was changed extending the time) and with Switch’s very good point about boomers (who won’t get what they thought they were going to get in Social Security) plundering their 401k plans, and other mutual funds and stocks driving the stock market down, homes will be the only form of retirement savings.
I, for one, plan to pull my assets out of the market in Jan 2013 (I need them for the end of the world party debts I’ll have when the world does not end in 2012!). FDIC savings accounts, even at a mere 0.0005% savings return, will pay better than the market at that time and we’ll have a REAL depression on our hands. (Maybe I’ll invest in pawned gold instead….)
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I have to agree with Cmdr Jennifer on multiple points here. Companies that gambled need to go under and their assets divided among those that haven’t. The government is bailing out too many companies here. The LAST thing we need is our taxes wasted on bailing out corporate idiots that deserve the grave they dug. That goes to back up our currency value and national debt as she mentioned.
After a couple major recessions, the government is quick to react soely out of fear when they think another one may be coming. This countries economy has an incredible ability to bounce back into the stratoshpere from the depths of hell. Being a former Senior Loan Officer, I’m all too familiar with these trends and how they affect the market. I can’t believe AIG is going under, (if I’m correct there). I’ve worked with them so many times. Fanny Mae deserves the slow death along with any other company that has relied on gambling and greed above client retention for so many years.
I don’t know how to explain this countries buoyancy. I could guess that in a nation where consumerism is SO powerful, money pours like rain and then dries up. When it rains, it pours though. I’m beginning to think we are digging a grave we cannot fully come out of. That’s my fear at least.
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Ober:
I believe AIG’s bailout is already a done deal. However, as an INSURANCE group, you would think that would be one industry that COULD go under without significant impact on the daily lives of people. (emphasizing, not yelling. Maybe I need to use italics in the future.)
Here’s how I see the fall out of AIG going under, if it had been allowed too:
Insurance policies are still in effect for 90 days, backed by the US Government and only to give the customers time to find replacement insurance somewhere else.
The myriad of other insurance companies quickly gobble up the lucrative insurance contracts.
Status quo is restored.
Who is harmed? AIG executives who made bad decisions. I believe, could be wrong, but I believe that AIG got into trouble because they invested in Mortgage Backed Equities (ie, they bought up sub-prime mortgages off other banks and mortgage brokers) because the interest rates were high (but so was the risk, which people fail to remember.)
Fannie and Freddie should have gone under decades ago, in my most humble of opinions. There is just something fundamentally wrong with a semi-private, semi-public company (government/citizens own it.) I just don’t see how that could work - and I seem to be supported by its failure. I know that the Clinton and Bush administrations both attempted to put regulatory control over Fannie and Freddie (1997, 1999, 2003 and 2005 for each respective executive) and legislators blocked it each time. So it appears that even those who would know, knew something was wrong with those companies, and knew before the housing bubble.
How should we protect people from Fannie/Freddie collapsing?
As for the government making a profit on the land, I would have slightly less problems with the government offering a prime +2% mortgage to anyone who can muster 30% down on a home and if they want better terms (and those terms kinda suck if you have even moderately good credit) you can go to a private bank. This way at least there is a safety net for people who screwed up when they were younger, but it’s also a halfway safe bet for the taxpayers.
And let Fannie/Freddie go under.
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@Cmdr:
I think that is a bit misleading, CC. Real Estate does not factor into GDP.
As for the government making a profit on the land, I would have slightly less problems with the government offering a prime +2% mortgage to anyone who can muster 30% down on a home and if they want better terms (and those terms kinda suck if you have even moderately good credit) you can go to a private bank. This way at least there is a safety net for people who screwed up when they were younger, but it’s also a halfway safe bet for the taxpayers.
ST, I’m glad you made insane profits on your home. I did too (purchased in 2001, currently worth 125% what I paid for it.) But that does not mean it is right. The housing market CORRECTION bringing prices back in line with reality of their actual worth, not their speculative worth, can only be a good thing for people. As housing prices return to normal, more families will be able to afford them, more families living in owned homes mean they will slowly build up equity instead of “pissing into the wind” their income on rents.
This is especially important because of the false promises of the New Deal which, in essence, was a statement from the old government that government will be your mommy and your daddy and take care of you in your old age and this will pay you back dollars for the pennies you put into the system. (ie Social Security, Medicare, Medicaid, etc.) Unfortunately, we are liable for them now, we promised, and the fools actually think they are collecting THEIR OWN money back, not pilfering the pockets of their grandchildren.
As these programs go into bankruptcy (latest estimate was 2042 according to Money Magazine last June, before then it was 2015 but some legislation was changed extending the time) and with Switch’s very good point about boomers (who won’t get what they thought they were going to get in Social Security) plundering their 401k plans, and other mutual funds and stocks driving the stock market down, homes will be the only form of retirement savings.
I, for one, plan to pull my assets out of the market in Jan 2013 (I need them for the end of the world party debts I’ll have when the world does not end in 2012!). FDIC savings accounts, even at a mere 0.0005% savings return, will pay better than the market at that time and we’ll have a REAL depression on our hands. (Maybe I’ll invest in pawned gold instead….)
I could have sworn I loathed seeing your posts at one time. Not anymore. Especially after reading your quote. But I won’t even use the “P” word in this forum.
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@Cmdr:
And let Fannie/Freddie go under.
I fought with those companies for 2 years doing mortgages. For larger mortgage companies, they were involved in some of the shadiest paper work and most hidden fees I’ve ever seen. It took our President 3 days to finally get an explanation from them for a 7000 fee they were trying to hide from a homeowner I was trying to bail out. Let their ships sink at last. They should have been done SO long ago it’s revolting.
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The worst was countrywide. no question. Crook company. They had no shame and no problem with throwing out old ladies who were a day late or an hour late paying what could have saved their homes. And that company was run like a Jim Jones Cool-Ade stand. Thank god it went under and got its just reward.
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Yea, I really dodged a bullet when I used the Soldier’s and Sailor’s Relief Act to force Countrywide to let me refinance early with Harris Bank. (All you have to do as an enlisted soldier is prove that you could save as little as a penny or more in the deal and they are obligated to let you move!)
I don’t know. I’m sure there are some on the boards who will hate me for this statement, but I just don’t care. If you run a company and you make poor decisions and people chose to invest in your company anyway, then - assuming you did not LIE to them, which is a criminal offense - then perhaps when the company goes under it is justice?
Is it not the tenement of capitalism that when one company goes bankrupt, there are five companies in the wings ready to gobble up the market share no longer being serviced by that company?
For instance, let us pretend that United Airlines declared bankruptcy and was forced to liquidate their assets. Now, this would be horrible for stock holders, but then United Airlines has been flirting with outright liquidation for decades so it is no secret it could happen at a moment’s notice.
Now, do you think all those customers would no longer be serviced? Of course not! Southwest Airlines, American Airlines, British Airways, Lufthansa, etc will pick up the slack, and with the increased customer base, they would probably purchase many of the planes at used prices meaning the debt owed by United to Boeing for the planes they are leasing would also be repaid.
Why cannot we use the same feature for the mortgage industry? I would, of course, agree that families living in homes be given the option to lock in their interest rate where it is now (and the banks would agree, because 5% is still higher than foreclosing and selling the home at a 40% loss).
BTW, as for Countrywide, I picked up some of it’s stock cheap and took a bath when it converted to Bank of America. So I’m not infallible in my picks. I will mention, however, that so far I’ve profited every quarter (my gains > my losses) except when it came to that stock.
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@Imperious:
The worst was countrywide. no question. Crook company. They had no shame and no problem with throwing out old ladies who were a day late or an hour late paying what could have saved their homes. And that company was run like a Jim Jones Cool-Ade stand. Thank god it went under and got its just reward.
Countrywide is the EXACT company I battled for 2 years doing loans and trying to help old and middle age people save their homes from foreclosure and get them out of debt. The 30/60/90 day late hits on their credit report Countrywide would do for being even a day late. They did that so they could pin them up against a wall by harming their credit. Countrywide would stall on giving us paper work they were required to provide by law, then call my clients up and use scare tactics to try and keep them in their awful situation. I literally was at war with those people for 2 years. I’m so glad I don’t do that anymore. (I’m broke) but who cares. I don’t have an ulsur. Peace of mind was something all the money I was making never gave me. People were so screwed over by that company, they’d call me at every hour on my cell, even during Christmas to see how their refinance was going. I felt so strongly for them I never took a day off from work really. I’d go to their houses at any hour with coffee to talk to them about a plan to help save their homes. It was SO stressful.
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Yes of course that’s because Countrywide is the Anti-Christ… a modern day Bank of America robbing from the poor to steal money for its plutocratic clique interests.
AS they say in used cars: the movie… “you gotta nickle and dime them”.
One of my friends was telling me they forces the employees to maintain Pom Poms at their desk, so they can do what they call Raw Raw events, like that Hideki Tojo inspired raise your hands after they announce some drummed up propaganda about passing # 5 or whatever in the mortgage business, when the reality is they just gave crazy loans to people who cant even buy a banana, knowing it would default… they didn’t even need a social security card to buy a house. They sent people to canvass uber poor neighborhoods to find people willing to borrow money.
They used to have this company that’s is an outright fraud called Prime America It was staffed by the biggest losers imaginable and the company basically took in people as insurance salesman as long as they had two legs. I remember taking the series 6 and the room had only like 2 people each from Prudential and Metlife, and like the other 96 people were Primeamerica rejects. I eventually worked for Metlife when i was real young and it just seems they ( Prime America ) just took anybody to work for them because the flood of people leaving was greater than flowing in. Its the same thing in Countrywide. People are basically holding that job while the entire time they are looking for a real job somewhere else.
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Oh god imperious, those company names you mentioned make me shudder. BAD memories of fighting those devils off the poor.
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Is that not kind of the reason we need government oversight on private companies? That way the same people policing the organization do not also own, run and manage the organization?
That’s what really scares me about the buyout of the semi-federally run Freddie and Fannie. It just seems wrong on so many levels to have the police and the criminals be in the same family, you know? How many times has someone let a detective who is the brother of the accused murderer be the lead investigator?
As for “Bank of America” I have a few issues with them as well. They don’t require proof of citizenship or residency before opening credit cards for members. I don’t mind them opening savings and checking accounts, but credit cards are valid forms of ID for US Government business. (it is a second ID, but it is still a valid form of ID!)
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They don’t care as long as they get the account, national security and whether the citizen is American or not be dammed.
B of A should be called “Bank of foreigners who just showed up unexpectedly”
They are always the first to invent a new fee, first to charge more for the same service, first to raise loan rates, first to lower yield rates, first to change the rules midstream, first to make banking as less personal and automated, first to impose all sorts of “were holding your check for X days”, first to basically deny anybody who has a check from another party made out to the branch your cashing the check, but deny you access to funds because you don’t have an account with B of A, then actually have the trepidation to ask you to open an account so you can access the funds. Anything possible to shaft anybody.
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This is a good little support group. ::Raising hand:: I …um. HATE …Wells Fargo. There I said it. I hate them. :-)
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What did they do? examples…
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So just curious, but WorldCom resulted in Perp Walks, Enron resulted in Perp Walks, Martha Stewart Gate resulted in perp walks. Where are the perp walks for fannie mae and freddie mac now that they’ve bilked the American people out of 700 billion dollars and collecting 100 million in personal income while cooking the books???
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im not american but how good is your health care o offense is it cheaper sicne you dotn pay with taxes?
id liek to know this from an american view because me and many fellow canadians think you gus pay $50 000 on a broken leg $500 on a box of pills
so please set this straight for me -
I pay $4,320 a year for full health, dental and vision coverage for my two children, husband and myself. It covers everything. 100% generic prescriptions, 1 visit a year for vision check up, 100% dental (includes all crowns, bridges, orthodontics, cleanings etc) and it covers all but $5/copay on name brand prescriptions.
Honestly, any program offered is worse than the one I have currently. There’s no way any government could do better, IMHO. Especially since my $4,320 a year is tax deductible (meaning my taxes are lower and my EITC - earned income tax credit - usually offsets this amount by a lot, especially when my mortgage shield is in place.)
BTW, that plan is Blue Cross/Blue Shield (huge name brand, recognized in every state of the union at least, I think internationally too) and is NOT EMPLOYER PROVIDED! This is just a private citizen calling the insurance companies and working out a deal all by herself, just like any schmuck could do.
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OH! I still like are way better sorry :-o.
i think that if you are american thats good but if your canadian we would say it sucks so im gonna say ntohing no comment
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