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Old 08-29-2007, 07:05 PM   #1
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Subprime credit crunch...

Anyone else scared?
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Old 08-29-2007, 07:13 PM   #2
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I have reservations about central banks intervening by pumping funds into the money markets (using OUR money, I might add).

Economists call it 'moral hazard'.

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

"Financial bail-outs of lending institutions by governments, central banks or other institutions can encourage risky lending in the future, if those that take the risks come to believe that they will not have to carry the full burden of losses. Lending institutions need to take risks by making loans, and usually the most risky loans have the potential for making the highest return. A moral hazard arises if lending institutions believe that they can make risky loans that will pay handsomely if the investment turns out well but they will not have to fully pay for losses if the investment turns out badly. Taxpayers, depositors, other creditors have often had to shoulder at least part of the burden of risky financial decisions made by lending institutions."
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Old 08-29-2007, 08:25 PM   #3
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For years I watched as builders put up ridiculous McMansions, 30, 40, 50, 60 miles outside of a major city in "suburbs" and people flocking out there on a zero downpayment so they could live in a house twice the size they need and have the privilege of spending 2-3 hours a day in a car commuting. They could of course either not afford the furniture, or got into further debt to cover that. And more and more houses just popped up on the horizon with people buying up.

So it's no wonder what's happened.
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Old 08-29-2007, 08:48 PM   #4
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Quote:
Originally posted by anitram
For years I watched as builders put up ridiculous McMansions, 30, 40, 50, 60 miles outside of a major city in "suburbs" and people flocking out there on a zero downpayment so they could live in a house twice the size they need and have the privilege of spending 2-3 hours a day in a car commuting. They could of course either not afford the furniture, or got into further debt to cover that. And more and more houses just popped up on the horizon with people buying up.

So it's no wonder what's happened.
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Old 08-29-2007, 09:07 PM   #5
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The bubble is finally bursting. Has been for awhile. Too bad Average Joe homebuyer could suffer as much as the creditors, who knew better. Who's going to bail them out? All us taxpayers.
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Old 08-30-2007, 07:11 AM   #6
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I'm a little worried that we're not just talking speculators, stock market investors, or crazy people buying homes they can't afford.

We're talking banks -- banks that you bank at, having people in line 40 deep trying to withdraw their money because of fears the bank is collapsing.

You scoff do you?

Even etrade had scary things happen to it 2 weeks ago concerning this. Scared me to death. First time in my life, I'm going to spread $$ around to different banks. I never thought I'd have to diversify like that... but maybe I'll get some free toasters or something.
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Old 08-30-2007, 09:28 AM   #7
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What banks are having trouble? Are you expecting a panic? Accounts are federally insured to $100,000 anyway.
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Old 08-30-2007, 11:47 AM   #8
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Countrywide was the first. People running to pull their cash.

http://newsblogs.chicagotribune.com/...s-to-your.html

eTrade's stock dropped 50% in 2 weeks, causing a panic and people to freak out and start rumors...

http://www.marketwatch.com/news/stor...6AAE70C14AB%7D

Panic mostly. Yeah, up to 100k.
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Old 08-30-2007, 01:06 PM   #9
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Even though there's FDIC insurance, I wonder how quickly the money would be available in event of a collapse. Even money market funds have some subprime CDO exposure, which is frightening (I switched to a Treasury Money Market fund). The problem is not contained to the subprime mortgage market (psychologically at least), and has an impact on all credit markets, and by extension equity markets as well.
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Old 09-01-2007, 10:18 AM   #10
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A perfect example of how greed has backfired. A lot of those lenders thought they could take advantage of people with bad credit and little or no money down (which is a lot of us!!) by offering those kinds of loans. The lenders used 'teasers' and knew all along that the rates and the monthly payments were going to skyrocket, but they thought it would be to their advantage because the homeowners would either 'suck it up' and pay the higher amount, or lose their home to foreclosure where it could be sold again to someone else possibly at a higher price. What they did NOT count on was the sheer numbers of people who were unable to pay the higher price and houses all going into foreclosure at relatively the same time, leading us to this collapse.

Another way greed has backfired is all the recalls from China. All those greedy American manufacturing companies thought they could save millions by sending the work overseas where they could get off paying the workers much much less. But now they're facing huge losses in recalls and possible lawsuits due to the Chinese not being up to standard (poison pet food and toothpaste, lead painted toys, etc.) If they had their stuff made in the US under tighter regulations and paid the workers more which was the right thing to do, none of this would have happened. I hope they will all think twice about trusting China again.
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Old 09-01-2007, 03:59 PM   #11
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Greed existed on both sides of the issue. The lenders were greedy because they thought they can lend all that money at such high interest rates and expected that the borrowers (who had bad credit) would pay them back since the housing market had kept on rising. The borrowers were also greedy because even though they knew that they wouldn't be able to pay all those monthly mortgage payments, they thought they would be able to sell their house for a higher price tag very soon anyway.

I'm glad the housing/mortgage market crashed. I've been buying some good stocks at such bargain prices.
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Old 09-01-2007, 07:57 PM   #12
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Quote:
Originally posted by AnnRKeyintheUSA
Another way greed has backfired is all the recalls from China. All those greedy American manufacturing companies thought they could save millions by sending the work overseas where they could get off paying the workers much much less. But now they're facing huge losses in recalls and possible lawsuits due to the Chinese not being up to standard (poison pet food and toothpaste, lead painted toys, etc.) If they had their stuff made in the US under tighter regulations and paid the workers more which was the right thing to do, none of this would have happened. I hope they will all think twice about trusting China again.
China also has dangerous domestic goods. They are still years behind the US in terms of product safety, and I don't entirely trust the American food inspection system either. I don't think it's related to lower wages paid, but rather to systems and inspections not being in place to prevent these incidents. We've had domestic scares here as well - e.g. the e. coli in bagged spinach. I believe Japan has a ban on U.S. beef, and recently China had a ban on U.S. chicken due to safety concerns.
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Old 09-01-2007, 08:04 PM   #13
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Originally posted by ntalwar
I don't think it's related to lower wages paid, but rather to systems and inspections not being in place to prevent these incidents.
But many of these companies import products from China because of the low production costs, which are directly related to the low wages.
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Old 09-01-2007, 09:37 PM   #14
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Originally posted by martha


But many of these companies import products from China because of the low production costs, which are directly related to the low wages.
Correct - I was saying that I don't see a strong link between low wages and inspection systems/quality control. The Chinese government needs to do more.
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Old 09-04-2007, 10:33 AM   #15
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The borrowers were also greedy because even though they knew that they wouldn't be able to pay all those monthly mortgage payments, they thought they would be able to sell their house for a higher price tag very soon anyway.


That's not greedy, they were doing it to survive because they couldn't afford a home any other way. They didn't plan to not be able to pay the house payments, they didn't know they were going to go up the way they did. That would be very stupid, no one did that. The companies took advantage of poor people hoping for home ownership. It's terrible to not be able to afford a home and only be able to rent dives.

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I'm glad the housing/mortgage market crashed. I've been buying some good stocks at such bargain prices.
Then you're greedy, and even worse taking pleasure in the pain of others. And if you're into stocks, you are well off enough you couldn't possibly understand the desperation of the poor when they were taken advantage of with those tricky loans so don't judge them unfairly.
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