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How did we get here? US financial crisis - Page 3

post #61 of 74
http://answers.yahoo.com/question/in...4184051AA5zgNo

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Why did Obama sue CitiBank to make them give loan to unqualified mortgage applicants resulting in the meltdown?
post #62 of 74
Quote from the lawsuit explanation in the link - "Plaintiffs alleged that the Defendant-bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with similar financial characteristics and credit histories"

It looks like it was a discrimination suit. If the white applicants were acceptable, why were the minorities not?

Are you saying that it is ok that the banks to only provide opportunities to whites?
post #63 of 74
Quote:
Originally Posted by katachtig View Post
Quote from the lawsuit explanation in the link - "Plaintiffs alleged that the Defendant-bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with similar financial characteristics and credit histories"

It looks like it was a discrimination suit. If the white applicants were acceptable, why were the minorities not?

Are you saying that it is ok that the banks to only provide opportunities to whites?
Did you notice the word "alleged" in that quote?

What that statement is is "lawerly" talk. It doesn't prove that the bank discriminated; the lawyers made the allegation, and then it's up to the bank to prove otherwise. "Similar" does not mean "the same," either.

In other words, this is a lawsuit which, as usual, makes the strongest possible allegations in order to get in court, whether those allegations are ever proved or not. Usually the effect is to make the bank overly willing to approve questionable loans, which, in this case, I think someone could make the case they did.
post #64 of 74
Quote:
Originally Posted by mrblanche View Post
Did you notice the word "alleged" in that quote?

What that statement is is "lawerly" talk. It doesn't prove that the bank discriminated; they lawyers made the allegation, and then it's up to the bank to prove otherwise. "Similar" does not mean "the same," either.

In other words, this is a lawsuit which, as usual, makes the strongest possible allegations in order to get in court, whether those allegations are ever proved or not. Usually the effect is to make the bank overly willing to approve questionable loans, which, in this case, I think someone could make the case they did.
There was not enough information other than the listing of the lawsuit. We do not know the results. The intention of the lawsuit was to see Citibank treat all people fairly, not to force them to make loans unwisely.
post #65 of 74
Quote:
Originally Posted by katachtig View Post
There was not enough information other than the listing of the lawsuit. We do not know the results. The intention of the lawsuit was to see Citibank treat all people fairly, not to force them to make loans unwisely.
But other lawyers are currently alleging (that word again!) that the constant, unfounded lawsuits had exactly that effect.

I may have mentioned it here, but it might bear repeating. I knew some of this trouble was coming when I met a woman who told me she worked for CountryWide, getting illegal aliens approved for loans. She said they would do anything to get enough approved to meet a certain percentage, in order to stay out of trouble with Fannie Mae and the discrimination lawyers.

It should not be news to any American that lawsuits are often filed to put pressure on a company, and not to necessarily solve any real problems.
post #66 of 74
There is so much here that is at fault. It did start with the Clinton Democrats. But they aren't the only ones at fault. George Bush had no economic advisors except for Greenspan. The people he chose were only to pitch his policies, not advise him.

Again, the pressure on Fannie Mae and Freddie Mac also came from other banks who saw a lucrative bonanza. That is how we ended up exporting it to the rest of the world. The congress and the president allowed the banks to continue to deregulate to the point where we had underfunding of the risks and they were allowed assets off the books. The credit crisis is occurring because no one knows where these bad loans are. The banks sliced and diced them so they are embedded in everything. In order to renegotiate a loan, dozens of parties must be involved.

The bad loans were started with the Clinton Democrats, but had these loans not been scattered to the four corners of the world, they would have been properly assessed for risk and it would have been easier to identify and be written off.
post #67 of 74
So I was watching 60 Minutes tonight, and I finally got a firm grasp on what a Credit Default Swap is. To put it simply it's unregulated insurance that was sold along with these risky investments. The problem with this: it was unregulated. Why does this make me angry? AIG, the largest insurance company in the world, sold them.

I work for an insurance company. We are regulated down to the words we can say to customers. Why the would AIG sell these things with out coming up with some sort of guidelines that would make them work?

Sorry, it just burned me a bit.
post #68 of 74
Thread Starter 
Heather, I know you watched the 60 minutes episode, but for those who missed it, here is a great explanation of the CDO market.

BTW - when the article was written in March, the CDO market was estimated to be $44 trillion and the U.S. stock markets were roughly $22 trillion.

Credit Default Swaps: The Next Crisis?

FYI, Ambac and MBIA also insure municipal securities. This is "just" a $2.6 trillion market, but since the Sep 15 bankruptcy of Lehman Brothers, that basically caused the credit markets to seize up, $12 billion of muni sales have been cancelled. And these are projects for roads, schools, hospitals, power, etc. I think I already posted this somewhere, but California had to ask the Fed for $7 billion so they can make payroll in October! http://biz.yahoo.com/cnnm/081003/100...ia_crisis.html

Interestingly, consumer debt numbers were released today, and U.S. families paid off debt at the "fastest pace in more than 10 years in August." It was the first month since January 1998 that consumers paid off more debt than they took on (this does not include mortgage numbers, just credit cards, auto loans and other "unsecured" debt). "Seasonally adjusted consumer debt fell by a record $7.5 billion...to $2.58 trillion in August."

Remember - consumer spending accounts for about 72% of U.S. GDP.

Laurie
post #69 of 74
Hey Laurie, I have a question from the "uneducated" side...

I noticed in the USAToday Markets section they break down the "most active" stocks daily. I noticed that there were some strange ones like a Polish potash company among them, but for the most part it was people selling off shares in banks and mutual funds.

Now that we've got a big jump today, I see more of the baseline stocks going up: Coca Cola, PG, HP. But there's upward movement in the financial sector as well: Goldman/Sachs, Merrill Lynch.

What does that mean for us regular people? I have no clue.
post #70 of 74
Thread Starter 
Quote:
Originally Posted by neetanddave View Post
Hey Laurie, I have a question from the "uneducated" side...

I noticed in the USAToday Markets section they break down the "most active" stocks daily. I noticed that there were some strange ones like a Polish potash company among them, but for the most part it was people selling off shares in banks and mutual funds.

Now that we've got a big jump today, I see more of the baseline stocks going up: Coca Cola, PG, HP. But there's upward movement in the financial sector as well: Goldman/Sachs, Merrill Lynch.

What does that mean for us regular people? I have no clue.
I don't really understand what you're asking. However, I doubt I have the answer as I'm not a technical analyst. Technical analysts pay attention to volume, moving averages (over differing periods of time), measures of volatility, various measures of momentum, etc. Gary does some long term technical analyses of market indices, not individual stocks. But I'm a fundamental analyst, and I look at stuff like the companies' earnings, returns on equity and assets, operating margins, stuff like that.

But if your question is - is the rally sustainable, my answer is - not long term. We put out a note last night that given the news out of Europe (very aggressive actions to "restart" the credit markets, notably, guaranteeing interbank lending) that we could see a "melt-up" today given the rapidity of the recent decimation. Unfortunately, on a value basis using long-term measures, the recent market melt-down merely brought us back to long term valuation averages. When bubbles burst, they tend to cause "over-corrections" - when the tech bubble burst, the sector was down 78% before it hit bottom.

While things are VERY different now than in 1929 - 1932, the markets then fell 91%, but it was over a 3-year period. The dissemination of news is much faster now, and the governments are far more proactive.

But basically, from they way we look at things, the market corrected - it didn't over-correct. And we're still dealing with being in a recession - and come next April, there's another pile of subprime, Alt-A and prime mortgages that reset. Consumers are holed up right now, and they account for 2/3 of our GDP.

If you're close to retirement or count on your equity investments for current income, our advice would be different than if you're 10 - 20 - 30+ years from retirement.

While it is conceivable that the market may rally (trend-wise) for 3 - 6 months, we don't expect it to last that long (though depending upon news that develops that opinion may change) - and while the Wall Street Journal reported that the "Ben Graham P/E" of the market as of Friday's close was the lowest it's been since 1989 - that was actually only a little lower than the 100-year average. And when markets bust, (on average), they bust down to a P/E below 10, often bottoming out at 6 (both pre- and post-war). And if we're in a recession, the denominator, earnings, will fall, so Friday's 10-year market P/E of 14 would have to fall just to stay at 14.

To bring the market (on current earnings) down to a P/E of 10 (the S&P 500), the S&P 500 would have to bottom out around 600 - a 30% drop from Friday's close (and the market was up 11% today). An equivalent drop would take the Dow down to below 6,000.

In order for the "Graham P/E" to get as bad as it did in 1982, the S&P 500 would have to fall to roughly 400 (more than a 50% drop from Friday's close). Again, a similar drop in the Dow would be Dow around 4,000.

Interestingly, from a technical perspective, depending upon the method used - but a common one comes up with Dow 7,000 - and using longer-term outlooks, comes up with Dow 4,300.

Laurie
post #71 of 74
Thread Starter 
Oh - I'm sure there are ways to see the market up bucket-loads too. We're just not seeing them (longer term).

Laurie
post #72 of 74
Thanks Laurie, I wasn't really sure how to ask the question, but that's what I was after.

I couldn't see a "trend" when financials and "regular" companies, so I was wondering if that amounted to "nothing" really changing.
post #73 of 74
Thread Starter 
I know everyone wants to talk politics, but just some more economic news.

Retail sales were down 1.2% in September. That's a big drop, and way more than anyone expected. My initial reaction to the number was - how much of that was autos? But excluding autos, retail sales were STILL down 0.6%, and it was widespread weakness. The bummer is that September included at least two weeks before the massive bad news about the credit crisis and basically the whole month before the markets fell apart.

To put this into perspective, retail sales have now fallen for three consecutive months. This is the first time that's happened since they started keeping the records in 1992. These kind of numbers indicate that we are already in a recession.

Laurie
post #74 of 74
I'm not that good at talking about economics but I do work for a retail sportsmans outfitter in the call center. This normally is a very busy time of year because they cater to the hunters. It was really busy in Sept. and then boom it went dead. This is very bad. I was asked if I wanted to leave early monday because of no business and to many people staffed. I don't go back till next Monday. I see they are stepping up marketing ploys to get people to shop by offering free shipping. Were coming on the Christmas season and hopefully the business will pick up. There isn't many places to work where I am because I live in rural Nebraska. My husbands company just changed their work schedules so they are not working every other weekend on 12 hour shifts which means there is no more over time for the weekend shifts. They are going to Mon-fri 8 hour shifts. They all took a pay cut. I don't know how were going to keep up with the heating bills this year. We are the little guy who is just trying to survive our bills and it really feels like they are trying to make us fail.
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