Skip to main content

Below is a compilation of posts from my blog.  It's been a crazy week with lots of news and confusion.  While I don't know what is going to happen, I can explain what happened.

OK -- the week is over.  Let's take a quick look at what happened.

Today, the main news was the Fed's announcement that they would add liquidity to the market if needed.  This gave the market a floor.  We opened lower and rallied twice.

Here's the 5-day chart.  Remember that for Monday through Wednesday the subprime problems were behind us.  Then came more news of serious issues in the debt/credit markets and the market tanked.

Here's where the rubber meets the road.  Once again we're clinging to the 200-day SMA.  This is a very important technical indicator.  If prices close below the 200 day SMA for an extended period of time, we're looking at a bear market.

From a technical perspective, notice the 20 and 50 day SMAs are moving lower.  Because the SPYs are below both of these numbers, these averages will continue to move lower.  They will also provide upside resistance in a rally.  The only good thing about these SMAs is they are about a point and a half below where they were when the market started first started dropping to the 200 day SMA.  That means the market will have to move a smaller amount of points to test upward resistance.

Here are two more charts of the SPYs.  These are year-long daily charts that use both Fibonacci fans and retracements.  Notice the SPYs are near crucial levels for both the fans and retracements.

The bottom line is the markets are still in bad shape.  They are are still clinging to support at areas where the psychology could change from bullish to bearish very quickly.  While the Fed's move today will help ease some tension, the market really didn't rally that hard after the announcement and still closed down for the day.  That means bulls are still on the sidelines.  And the announcements from Countrywide and Washington Mutual and the negative reactions to these announcements indicates there are still a lot of people out there willing to pull the trigger at a moments notice.

According to S&P the largest market areas in order are: financials, technology, healthcare, industrials, and energy.  These comprise about 65% of the average.  Here are the charts in order of size.


This sector is technically in terrible shape.  They broke a two and a half year uptrend in late June/early July.  They have been droppinig on heavy volume ever since.  The average is below the 20 and 50 day Simple Moving Average (SMA).  They have another point to go before hitting the 200 day SMA (roughly 3%).  In addition to the technical problems, this sector has some serious fundamental problems.  In other words, this sector isn't going to recover anytime soon.


This is one of the favorite market areas of the blog Between the Hedges.  This market is currently at the trendline of a year long rally.  The average is also at the 20 day SMA, adding further support.  Despite the volatility in the market, this sector has held up pretty well -- it dropped hard three weeks ago, but the drop has lessened over the last two weeks.  All three moving averages are still moving up.  Despite the heavy volume, the average is still holding to the trend line.  The average has support right around 24.  

Health Care

Health care is in a mini-rally that started late last year.  The average took a big hit earlier this month but is now hugging the trend line.  All three moving averages are still trending up, although the average is below the 20 and 50 SMA which will pull the SMAs down a bit.  The sector has support at $33 and a little below.  


Industrials are the beneficiaries of global infrastructure investment and a weak US dollar.  We have two upward slanting trend lines: one that started in late 2005 and a steeper one that started in mid-2006.  All three moving averages are still moving up and prices are trading right at the 20 day SMA. Despite heavy volume on the sell-off of the last three weeks, prices are still at the trend line.  The average has support at the 20 day SMA and right around the $37 level.  


Energy had a mini-rally that started in March 2007.  It has broken the trend but is now at the 20 day SMA.  The sell-off over the last three weeks has occurred on heavy volume, but the average is still right at the 20 SMA.  While there is about 3%-5% downside, there is a ton of support in the $57 to $62 area.

OK -- the week is over and it's time to

1.) Look back on what happened,
2.) Try and figure out what might happen.

What happened

Bottom line: there are a ton of problems in the credit market that aren't going away anytime soon.  The main reason for that comment comes from Countrywide Financial's report on Thursday. Countrywide is the largest mortgage lender by volume.   That means they have a ton of stature and clout in the market.  The problem is simple: they can't find liquidity for their mortgages right now.  They had to place $1.8 billion of loans into their investment portfolio and devalue both investments by between 14% and 20% when the transferred those assets.  The devaluation tells me that buyers are pretty scared about the whole mortgage mess right now.

Add to this the news that BNP stopped withdrawals from some of its funds a Goldman Sachs fund lost over 20% since the beginning of the year, Washington Mutual agreeing with Countrywide's assessment of the credit markets, and the central banks pumping liquidity into the market, and you have a recipe for increased volatility and concern.

And in case you thought that wasn't enough:

But, he adds, the full weight of resets on adjustable-rate mortgages have yet to been felt. From the beginning of 2007 through the middle of 2008, over $1 trillion ARMs will reset, many from low "teaser" rates. Then the extent of the declines in home prices and the financial fallout will be apparent, Magnus observes.

The news has continued to come out in a very negative vein.  And it's the big players who are making the announcements.  That is all the more concerning.  When the mortgage mess first started in last 2006/early 2007 it was the smaller players making the announcements.  While this was disconcerting, it wasn't earth shattering.  Now the big boys are saying, "boy is it rough out there".  That should concern everybody.

What's going to happen

Expect more of last week for the foreseeable future, especially with this news:

From the AP:

Mortgage finance giants Fannie Mae and Freddie Mac will not be allowed to take on more debt, the government said Friday, denying requests to relax the companies' investment caps as a way to pump cash into the struggling mortgage market.

The decision by the Office of Federal Housing Enterprise Oversight capped a week of speculation that buoyed the stock prices of the government-sponsored companies. Investors drove Fannie's share price 17 percent above last Friday's close, and pushed up Freddie's stock by 11 percent.

Volatility will be around for some time.  More funds are going to announce problems, deals will get shuttered, and blow-ups are possible.  It's going to get nasty.

Originally posted to bonddad on Sat Aug 11, 2007 at 08:10 AM PDT.

Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags


More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

  •  Not a pretty picture. Many more ARMs (38+ / 0-)

    will re-set in the next 18 months, and I expect to see a lot more foreclosures. There may not be buyers for these properties, since credit has tightened. Certainly house prices will fall in many overpriced markets, and folks who used their homes as ATMs will find that they owe more than their houses are now worth. Not a pretty picture at all.

    •  Dean Baker has been predicting this . . . (50+ / 0-)

      precise scenerio for years.

      He is incredibly brilliant. I suggest everyone read his report. Here's some of it.

      Bad, bad, bad.

      Isn't severe recession a polite word for depression??!!

      Center for Economic and Policy Analysis

      The correction of the housing bubble is likely to throw the economy into a recession and quite possibly a very severe recession. Residential construction directly accounts for almost 5.0 percent of GDP presently. Based on past patterns, this can be reduced by between 0.9 and 1.7 percentage points of GDP (between $120 and $230 billion in 2007) as the market corrects. The end of the bubble will eliminate between $4 and $8 trillion of housing bubble wealth. Given conventional estimates of the housing wealth effect, this will lead to a reduction in annual consumption of between $160 and $540 billion. Finally, the end of the housing bubble is likely to put an end to the recent wave of speculation that drove the stock market above trend levels. The loss of $4.5 trillion in stock bubble wealth will lead to a reduction in annual consumption of $135 to $180 billion, due to the wealth effect.

      The total effect from the end of the housing and stock bubbles will be to reduce annual demand by between $415 and $950 billion. If this correction happens quickly, it is virtually certain to lead to a recession and quite possibly a very severe recession. The end of these bubbles is also likely to impose serious hardships on state and local governments that lose property tax revenue. It may also lead to larger shortfalls in pension funds and public employee retiree health care funds.

      The decision by policy makers to ignore the growth of the stock and housing bubbles will have very serious consequences both for the economy and the financial decisions of tens of millions of families. Tens of millions of homeowners have made financial decisions and retirement plans based on the assumption that their house would hold its value and quite likely appreciate even more. For the vast majority of families, a home is by far its most valuable asset. These homeowners are poorly prepared for a sharp drop in house sale prices. As a result of the inevitable correction, they will enjoy a much less comfortable retirement than they had anticipated.

      And this.

      Like Japan in the eighties, the United States has experienced a stock and real estate bubble developing side by side. While the bubbles in Japan collapsed simultaneously at the end of the decades, the collapse of the U.S. stock bubble likely helped to feed the growth in the housing bubble. Its continued expansion over the last seven years has led to accumulation of more than $8 trillion of housing bubble wealth.

      However, bubbles always create the conditions for their unraveling. In the case of the housing bubble, the main condition is an enormous oversupply of housing which has led to record inventories of unsold homes and record high vacancy rates in both rental and ownership units. This oversupply is already leading to falling prices in many areas. These price declines are likely to lead to a downward spiral as more and more homeowners find themselves with negative equity, which will lead millions to default. At the same time, the growing wave of bad mortgages will lead to a further tightening of credit that will choke off demand, putting even more downward pressure on prices.

      The housing bubble was recognizable, as some economists did warn of the potential problem several years ago based on an analysis of the fundamentals in the housing market. However, as was the case with the stock bubble, those who focused their analysis on fundamentals were largely ignored in the media and in policy circles. Instead, many of the most visible voices were explicit bulls on the housing market, and often people with a vested interest in sustaining the bubble. The economy and the country are likely to pay a very large price for this policy failure.

      •  Eve, your question evokes a memory of (12+ / 0-)

        that Reagan stump speech riff from his 1980 campaign vs. then-President Carter:

        A recession is when your neighbor loses his job. A depression is when you lose yours. A recovery is when Jimmy Carter loses his.

        Feel free to substitute " when every Republican inside of Earth's atmosphere loses his or hers" in that last line, of course.

        •  Make that "Republican OFFICEHOLDER" (1+ / 0-)
          Recommended by:

          because, otherwise, you'd definitely have a depression. (Even if a lot of them deserved it, for supporting the anti-populist twits.)

          •  I don't know what it means to daily life (9+ / 0-)

            in America, but I was very happy to read that this mess has caused a huge problem for the Carlyle Group.  Hopefully Daddy Bush and his pals are going to get the full loss of the billions they stole or killed innocents for as this plays out.  I can't say I'm sorry to hear that.  

            •  have a link to that story? (1+ / 0-)
              Recommended by:

              I am quite sure now that often, very often, in matters concerning religion and politics a man's reasoning powers are not above the monkey's. - Mark Twain

              by route66 on Sat Aug 11, 2007 at 11:11:54 AM PDT

              [ Parent ]

              •  Here's one... (3+ / 0-)
                Recommended by:
                bwintx, Pam from Calif, Cliss

                From the WaPo:

                Even Carlyle felt the jitters, as financing worries surfaced over one of its biggest deals.
                Some of Wall Street's biggest banks are committed to financing more than $20 billion in Carlyle deals, according to private-equity insiders, but the current market has scared away potential buyers of that debt.

                So if the banks can't sell that Carlyle financing, they can hold the loans themselves and hope to sell them later. Or the banks could walk away from a deal, for which they would pay a company like Home Depot a huge breakup fee. The most likely outcome is for Carlyle, which is known to have a good relationship with banks, to accept stiffer terms from its lenders. The stricter language would help make banks' customers more comfortable that the loan would be repaid, thereby allowing the deals to proceed.

                Carlyle has several large deals pending, including its $6.3 billion acquisition of nursing-home giant Manor Care and a $2.7 billion agreement to buy Sequa, a conglomerate that makes products as varied as After Six tuxedos and metal coatings. The value of those deals, which are slated to close by year-end, could be reduced, and further deals are likely to come more slowly.

                There are three kinds of lies: lies, damned lies, and statistics. --Benjamin Disraeli, cited by Mark Twain

                by sheba on Sat Aug 11, 2007 at 02:14:24 PM PDT

                [ Parent ]

      •  Here's the missing piece: (17+ / 0-)

        Thanks to the link.  I read the article.  Baker states that

        The weakness in the housing market will feed back into weakness in the economy through three channels:

        1. the direct effect of reduced employment in housing-related sectors;
        1. the reduction in consumption as a result of lost housing wealth; and
        1. increases in interest rates, as creditors become more cautious following losses in mortgage lending.  

        1 has happened (although not as much yet as predicted by some;
        3 is certainly happening, at least in the immediate term (last week's need for liquidity injections as the LIBOR rate briefly went to 6%).

        But 2 hasn't happened yet (and least not in the aggregate).  And BTW, gas prices are decreasing again.  And weekly jobless claims are still only a little over 300,000.


        "When the going gets tough, the tough get 'too big to fail'."

        by New Deal democrat on Sat Aug 11, 2007 at 09:12:13 AM PDT

        [ Parent ]

        •  jobs data (7+ / 0-)

          I did a little superficial piece on bad bosses earlier but I put a series of economic pictures and the job participation in the high end jobs is still negative.

          I haven't done the latest yet.  I should also note that guest worker Visa holders are counted in those stats, so figuring out what's really going on the aggregate number of jobs is probably more important.

          I have no idea how to really count the underemployed either from BLS stats (if it can be done).

          by BobOak on Sat Aug 11, 2007 at 09:55:04 AM PDT

          [ Parent ]

        •  I would argue that #2 has started. (10+ / 0-)

          If you are in a retail sales related business, as we are, in New England, you would probably be aware that sales are lower this year than last, after 4 years of incremental growth in sales (women's shoes) this year has shown about 20% decrease in sales most noticeably since about April. It has been a very difficult year.  

        •  Re. reduced employment in housing-related jobs (14+ / 0-)

          I believe we may not know the true reduction in housing-related jobs because so many workers in the home construction industry work off the books and never show up as employees.  More often than not they're treated as independent contractors to avoid payment of payroll taxes and workers compensation insurance even though the practice is supposedly illegal.  Additionally, illegal aliens are ubiquitous in the construction trades and by virtue of their status are never going to show up in the employment numbers.

          When construction jobs are plentiful native-born workers don't mind sharing the job site with foreign workers; however, all that changes when construction jobs dry up.  The presence of large numbers of illegal aliens in the workforce only serves to further depress construction wages as the number of jobs continues to decline.  I think it is no coincidence that immigration, both legal and illegal, is now such a hot-button topic among blue-collar voters.

        •  I would also add (2+ / 0-)
          Recommended by:
          seaprog, Jerome a Paris

          that exports remain very strong, inventories are lean and non-residential construction is strong. All of which will give some bounce to the economy even as housing and consumer spending deteriorate.

          •  asdf (2+ / 0-)

            Non-residential construction increased 22% last quarter.  That pace won't continue.  While I don't think it's going away, I do expect it to slow down.

            Just-in-time inventory management has made inventories less important over the last 10-15 years.

            Imports are strong and they remain one of the only bright spots in the economy

            "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

            by bonddad on Sat Aug 11, 2007 at 12:37:23 PM PDT

            [ Parent ]

        •  All 3 already happening in CA (8+ / 0-)

          Construction companies and workers are having to scrap for work. Local stores (i.e. paint, hardware and home improvement businesses) are like ghost towns. People are receiving interest rate increase letters from their credit card companies.

          Other businesses are slowing down as well.  My husband works for a car dealership, which has been tightening the belt for a couple of months now.  First they eliminated overtime (he clocks out on time, but stays to finish the cars he's working on). Last week all the employees received a letter with their paychecks informing them that the company would be contributing less to their health insurance premiums (effective 5 days before the letter was even sent out). He could only shake his head when they took away the water dispenser last week.  Stay tuned....

      •  And so have we... (24+ / 0-)
        •  I wish Galbraith was still around now... (16+ / 0-)

          although I greatly respect and admire your work.  Based upon what I've read by you here, from Galbraith in past works, and upon Kevin Phillips's masterwork, American Theocracy, I'm really starting to get worried.

          The anecdotal information scares me, too.  The S. Fla. condo market is wildly overbuilt, yet people are still building.  I have a number of architect clients who are still designing new condo projects.  

          I've studied the FL land bubble of the 1920's.  While we're not close to that point yet in the single family market, the condo market appears to be headed in that direction.  I'm not sure where the ultimate end purchasers are to buy from the flippers--there's only so much flight capital from S. America to invest here.

          On the macro level, we have a prez who thinks that more tax cuts for the wealthy will solve everything.  We have a VP who is hell bent on attacking Iran.  If the WH turf battle heavyweight champion defeats Condi on this battle, all bets are off.

          A halfway sane WH would realize that, from a financial perspective alone, continued occupation of Iraq was foolhardy.  A halfway sane WH would realize that even considering an attack on Iran was beyond foolhardy.  A halfway sane WH would realize that a hard landing on housing would likely put the GOP in minority status for decades.

          Unfortunately, the sanity glass does not appear to be even half full at the WH.  We can basically assume that whatever steps this WH takes in response to this crisis will be exactly the wrong one.  That's the greatest fear of all.

          Some men see things as they are and ask why. I see things that never were and ask why not?

          by RFK Lives on Sat Aug 11, 2007 at 10:04:41 AM PDT

          [ Parent ]

          •  RFK, the vulture capitalists are on the way . . . (4+ / 0-)

            to South Florida and everywhere else the market is collapsing. They'll pick thing ups for 40 or 50 cents (maybe less) on the dollar.

          •  Glub, glub (2+ / 0-)
            Recommended by:
            Cliss, Involuntary Exile

            The S. Fla. condo market is wildly overbuilt, yet people are still building.

            They had better be building vertically, given these most recent reports of radically accelerated Arctic sea ice melt.

            We could well see ten meters of sea level rise in the short term rather than in the long term which had previously been forecast. And under that scenario? Most of the coastal urban areas of the state of Florida simply go away.

            Given the dubious gift which Florida made to the nation in the Presidential election of November 2000, I am managing to contain my sorrows over this.


            •  My family and I appreciate your concern... (1+ / 0-)
              Recommended by:
              Miss Jones

              do you want to see Manhattan and SF under water, too?  I might also point out that a clear plurality of voters who went to the polls here intended to vote for Gore.  In fact, the initial tallies before the count was unlawfully stayed by 5 Supremes on the afternoon of 12/9/00 indicated that he would've pulled ahead had the count been allowed to proceed.

              What was really disturbing about B v. G was not the opinion that was ultimately entered on 12/12/00.  What was most disturbing was that, as Scalia tacitly admitted in his opinion justifying the stay, it was entered b/c the Bushies were afraid of the poltical implications of Gore pulling ahead in the tallies running on the bottom of the CNN screen.  Legally, W had nothing to lose by not entering a stay, while Gore had everything to lose b/c the stay was granted.

              Some men see things as they are and ask why. I see things that never were and ask why not?

              by RFK Lives on Sat Aug 11, 2007 at 02:04:03 PM PDT

              [ Parent ]

        •  An interesting look (3+ / 0-)
          Starting in 2005

          At 2004.

          <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

          by superscalar on Sat Aug 11, 2007 at 10:21:35 AM PDT

          [ Parent ]

      •  Which means that (3+ / 0-)
        Recommended by:
        Odysseus, Marshall Collins, Cliss

        Dean Baker has been wrong.... for years.

        The US economy today is dramatically different from Japan in 1990.

        Japan had multiple bubbles, art work, golf course memberships, commercial real estate, stocks, housing. The US had a limited stock bubble in the late-1990s and an equally limited housing bubble today.

        Japan's economy was export based, the US is consumer based. The US can stimulate its economy, the Japanese could not do the same for theirs.

        Japan's central bank did very little to stop to rise in asset values. The US central bank, while slow to stop the current housing bubble, did start to act 2 years ago.

        Japan had a rapidly aging population with no immigration and little popultation growth. US has both immigration and domestic population growth.

        The Japanese culture did not allow for the bad debt to be written off and for the banking system to recapitalize. US regulatory system will make this happen very quickly.

        I know there is a great desire to hope for the worse here, but the worse that is going to happen to the US economy is a mild recession and even that may not happen, which would make Mr. Baker wrong yet again.

        •  How exactly do you see this transpiring (3+ / 0-)
          Recommended by:
          Jerome a Paris, farleftcoast, Cliss

          I still don't see a housing bubble

          If there is a severe debt crisis, the 'easy' way out is for the Fed to inflate the economy, much as they did in the 1970s to get out of the debt trap.

          In other words how does the Fed go about 'inflating the economy', beyond pumping more easy money into the system, and isn't the cure (easy money) in the end just more of what is causing the symptoms to begin with.

          <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

          by superscalar on Sat Aug 11, 2007 at 11:39:40 AM PDT

          [ Parent ]

          •  Thanks for the memories (2+ / 0-)
            Recommended by:
            New Deal democrat, Cliss

            of that two year old comment. Since the pace of housing prices has only come down since then, it only goes to reinforce the notion that we really haven't experienced much of a national housing bubble.

            Sometimes the Fed gets into a position where there are no good choices, only bad ones and worse ones. We are in such a position now.

            I don't think the Fed needs to worry about inflation at this point. Credit cruches are always deflationary and this one will be no different.

            That said, the last thing the Fed needs to do is what was done in 1998, which was to bail out LTCM. It temporarily prevented a recession but created a longer term problem of moral hazard which we are dealing with today. Let the speculators fail, allow more prudent investors to benefit from their bad judgment. In other words, let the market work these problems out so as to discourage future speculators.

            We probably aren't going to get out of this without experiencing at least a mild recession.

            •  You don't answer the question (0+ / 0-)

              Sometimes the Fed gets into a position where there are no good choices, only bad ones and worse ones. We are in such a position now.

              If I am not misreading you, you are saying the Fed will lower rates.

              isn't the cure (easy money) in the end just more of what is causing the symptoms to begin with.

              In still other words, isn't blowing even more air into the balloon a little silly at this point?

              <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

              by superscalar on Sat Aug 11, 2007 at 12:56:01 PM PDT

              [ Parent ]

              •  No I am not (2+ / 0-)

                saying the Fed should lower rates, just the opposite. They should stand pat and let the speculators take their losses. It very well may create a recession (a bad choice) but the alternative would extend the Greenspan put and make the problem even worse in a few years.

                •  Yes, thank you (2+ / 0-)

                  I misunderstood you. I still however disagree that if this is the choice, a mild recession will be the outcome.

                  I think the Fed is damned if they do and damned if they don't, and as I wrote elsewhere here in reply, I don't see anything coming along to replace housing anytime soon.

                  <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

                  by superscalar on Sat Aug 11, 2007 at 01:07:05 PM PDT

                  [ Parent ]

                •  I'm glad to hear this (1+ / 0-)
                  Recommended by:
                  Involuntary Exile

                  There are so few commentators that are able to be consistent on this point. I'm happy to see you are. As superscalar, I disagree with you on what the likely consequences will be, but I agree that this is what's needed.

                •  That's the real cycle here. (0+ / 0-)

                  The real cycle here is one of speculative excess followed by a bailout.  It's what all the people who are supposed to be smarter about economics than people like me call a "moral hazard."

                  By now, this bailout cycle has to be built into the ris premium people demand (by lowering it).

                  No offense to Mr. Stewart, but I have never seen any convincing proof that technical indicators are other than a self-referential phenomenon that only matter because people think they matter.  

                  I tend to agree that the doom and gloom about the markets is often overstated on this site.  The capital class always seems to come out ok.  What happens is that the bad trickles down, and that's what's making it bad on the middle class.

      •  Yes, "recession" is the new "depression," . . . (1+ / 0-)
        Recommended by:

        . . . in Washington- and MSM-speak, and has been for years.  And "volatility" is now the polite word for "selloff" or "collapse."  Nobody ever admits that the market ever goes down any more.  It either goes up, or . . . it shows "volatility."

        "Do not forget that every people deserves the regime it is willing to endure." -- White Rose letter no. 1

        by keikekaze on Sat Aug 11, 2007 at 01:44:43 PM PDT

        [ Parent ]

        •  Actually (0+ / 0-)

          depression was the new recession back in 1930. Hoover didn't want to use the word recession and claimed that the economy had only hit a small depression in the road to greater prosperity.

          And as for volitility, we really haven't seen much so far compared to past crises. In October 1987, the market dropped nearly 25% on a single day. Now that was volatility.

          •  Keep on chirping, daisy. (0+ / 0-)

            The more relentless your cheerleading, the more I know the air is poisoned.

            "Do not forget that every people deserves the regime it is willing to endure." -- White Rose letter no. 1

            by keikekaze on Sat Aug 11, 2007 at 03:08:09 PM PDT

            [ Parent ]

            •  Maybe you missed it (0+ / 0-)

              but somewhere up thread I said I thought we were going to have a recession out of this current credit crunch.  Hardly cheerleading....

              and as for the past 3 years being here to debunk constant gloom, I would have to say that I have with few exceptions been right all along.

  •  Excellent analysis. (25+ / 0-)

    Bubbles burst.  Then there is pain.  We need to make sure that working people do not bear the brunt of this.

    "The greatest anti-poverty movement in American history is the organized labor movement." John Edwards

    by TomP on Sat Aug 11, 2007 at 08:18:11 AM PDT

    •  Problem is: Who is the "we"??? (4+ / 0-)
      Recommended by:
      BobOak, CCSDem, marykk, kyril

      Is the Bush admin going to do anything; or will it be left to Bernacke, who seemed slow to move on this credit crunch?

      •  We are Democratic Party (11+ / 0-)

        activists, kossaks.

        That means pressuring politicians to make sure that workers are protected as much as possible in the coming hard times.  

        "The greatest anti-poverty movement in American history is the organized labor movement." John Edwards

        by TomP on Sat Aug 11, 2007 at 08:59:54 AM PDT

        [ Parent ]

        •  We activists (11+ / 0-)

          Need to start writing a lot more on what is happening to the American people economically.

          I don't know about anyone else, and I hesitate to write a diary on it because I fear another "anyone but Bush" Presidential campaign, but we have hardly any legislation, agenda, policy that is in the pipe that would really revamp the U.S. towards a true strong economy, a regulated capitalism and the bills we do have are fairly minor really and of course they get no support, press.

          We need real change here.

          by BobOak on Sat Aug 11, 2007 at 10:03:22 AM PDT

          [ Parent ]

          •  Couldn't agree more. (4+ / 0-)
            Recommended by:
            mftalbot, farleftcoast, 3goldens, BobOak

            We must address the economy. The trouble is making our voice heard when the MSM is determined to drown us out and paper over any real discussion of the current class war--a situation happily aided and abetted by the RWNM and Republican officials.

            IMHO, if we really want people to vote for Dems, we have to start putting economic problems to the fore. Ending the Iraq war isn't only moral, it's economic, too. By emphasizing the economy, we can also emphasize ending the Iraq war. A sort of two-pronged approach that appeals to all.

            The media are only as liberal as the conservative businesses that own them.

            by MTgirl on Sat Aug 11, 2007 at 10:24:58 AM PDT

            [ Parent ]

        •  You mean we shouldn't nominate a candidate... (13+ / 0-)

          who was featured on the cover of "Fortune" as the favored corportate candidate?  We shouldn't nominate a candidate who'll reinstall Rubinomics and McAuliffeism as the party's defining economic and political creeds?  

          Maybe she's really not "our girl" after all.

          Some men see things as they are and ask why. I see things that never were and ask why not?

          by RFK Lives on Sat Aug 11, 2007 at 10:08:09 AM PDT

          [ Parent ]

          •  Who is our girl? (4+ / 0-)

            Honestly, beyond Kucinich and he better write up some extreme details on his policy plans beyond saying "let's pull out of the WTO".....

            do we have anyone, anyone anywhere really putting forth a new economic agenda that is in the national interest and for the American people?

            I feel not, we need more change, the specifics, an entirely revamped tax code, a trade research branch like the CBO to make recommendations based on the national interest, that cannot be influenced or bought by special interests...and this free for all in private equity has to got stop (reversing the Bush tax cuts will help on this one)...

            but I plain don't see anybody out there putting forth what really needs to be done to change the direction of the U.S.  frankly.

            I desperately want to see such stuff, I'm looking, I'm hoping, but....well, no.


            by BobOak on Sat Aug 11, 2007 at 10:27:34 AM PDT

            [ Parent ]

            •  After Kucinich, Edwards is as good as it gets... (6+ / 0-)

              on economic policy.  Unlike Kucinich, Edwards at least has a chance of getting nominated.  

              There's still this massive disconnect between reality in the country and "reality" in the MSM.  The LTV steelworker's question came as a total revelation to Tweety and his ilk.  They were all impressed by HRC's "I'm your girl" non-answer to the question of how someone on the "Fortune" cover could relate to the concerns of ordinary Americans.

              Some men see things as they are and ask why. I see things that never were and ask why not?

              by RFK Lives on Sat Aug 11, 2007 at 10:47:53 AM PDT

              [ Parent ]

              •  H-1B (8+ / 0-)

                There is no way we can support Edwards because he's down in Silicon valley selling out professional workers to Silicon valley executives.  He's promising more guest worker Visas, which have decimated professionals, particularly STEM professionals.

                I actually went directly to the campaign to ask about this.

                One of the biggest lobbyist groups (also paid by Bill Gates, ITAA, Compete American, Oracle Hoffman) is the AILA, which is an attorney group.

                So while he claims to not accept lobbyist donations, I'd like to see the AILA donations here for he is selling us down the river as badly as Hillary is.

                This is actually a "1 issue" vote by many people, particularly STEM people and guest worker Visas, displacement, discarding of workers, especially people who have invested their entire lives in their careers with Masters degrees and experience..
                there is no way they will vote for him.

                Sad, but true I'm sorry, I wish it wasn't so and I have been behind the scenes trying to make it not so to no avail to date.


                by BobOak on Sat Aug 11, 2007 at 10:59:10 AM PDT

                [ Parent ]

  •  Please explain "pumping liquidity"? (13+ / 0-)

    Does this mean the federal gov't is giving out low interest loans to big players?

    •  Yes (8+ / 0-)
      But these are very short term loans designed to prop up the 'cash' flow of these corporates. I think I read that the term on these loans are only fourteen days.

      There still is a credit crunch, and it is much more widespread than just the mortgage industry.

      Chris Dodd is our man to stop the Huckabee stampede!!

      by GW Chimpzilla on Sat Aug 11, 2007 at 10:06:09 AM PDT

      [ Parent ]

    •  Liquidity (3+ / 0-)
      Recommended by:
      Temmoku, Cliss, Involuntary Exile

      Is the amount of capital available for investment.  So, the Fed is dumping cash available for mortgages to  (I think) calm the credit crunch  It's reserve credit and they make it available for loans, to whom, I'm not so sure.

      Maybe one of these people who are professional traders will answer you better than I.

      by BobOak on Sat Aug 11, 2007 at 10:13:29 AM PDT

      [ Parent ]

    •  Fed adds liquidity (15+ / 0-)

      When the Federal Open Market Committee announced last week that they were leaving rates unchanged, what they really said is that they would leave their policy target for the Fed Funds rate unchanged at 5.25%.  Here's what that means:

      Regulations require banks to maintain reserves (usually in the form of deposits with the Federal Reserve Bank) equal to a fixed percentage (I'm pretty sure it's 15%) of their deposits.  They're free to loan out the rest.  In the normal ebb and flow of daily banking, at the end of each day some banks end up with a little extra, and some end up a little short.  The banks that are short typically borrow overnight from the banks that have extra.  The funds transfer over the Federal Reserve wire transfer system, hence the name "Fed Funds."

      The rate at which banks borrow from one another is a market-clearing rate.  The Fed can't mandate it, but they can manage the liquidity in the banking system to keep the rate near where they want it.  If the rate starts to drift lower than the target, the Fed can withdraw liquidity, making money a little more scarce and causing the rate to rise.  If the rate drifts above the target, the Fed injects liquidity, making cash more plentiful and generally causing the rate to fall.

      The Fed adjusts liquidity through its "open market" operations.  Basically, to supply liquidity the Fed goes into the market to buy US Government securities, mostly Treasury bills.  So no, they aren't giving out low interest loans to big players.  But they are printing money to buy Government debt.

      What made yesterday's injection so notable is that it occurred relatively late in the day, the Fed announced they were doing it (and announced the quantity), and they did it in response to a spike in the Fed Funds rate -- I've read that Fed Funds traded as high as 6% yesterday, well above the target of 5.25%.

  •  Thanks for keeping us informed, bondad. (21+ / 0-)

    Please keep posting your updates. I'm sure Cheney's new belligerence about Iran is, at least in part, an effort to distract us from the latest mess created by sloppy lending practices and other financial swindles.

    Big boss ain't so big, just tall, that's all.

    by TheFatLadySings on Sat Aug 11, 2007 at 08:24:06 AM PDT

  •  Thanks for the update (3+ / 0-)
    Recommended by:
    CCSDem, TomP, kyril

    Sorry I missed you this year at YK.

    Recommendations for us smaller fry?

  •  banks (7+ / 0-)

    As a non financial person, I have trouble following a lot of this. I poked around the other day and saw that my bank has a 2 rating with 1 the best. Don't know if that means anything though. Hard to know if your bank is in trouble.

    They've had an interest rate for one of their savings account plans that has been between 4.74 and 4.8 something for awhile. They based their rate on Imoneynet's money market fund rate average. We got a notice that beginning Sept. 19 they are not going to base the interest rate on that anymore, but rather will determine it at the bank's discretion. I am anxious to see what they will do, and if they are going to lower it substantially.

    Or, maybe they are expecting the imoneynet money market fund to drop so low, they want to keep their rate higher!! LOL!

    Support Thom Hartmann and migratory song birds! Buy shade grown coffee from a sponsor.

    by OLinda on Sat Aug 11, 2007 at 08:30:20 AM PDT

  •  Why it isn't 1929 (but it rhymes) (38+ / 0-)

      People on these threads sometime write about how OMG it's gonna crash!  Well, everything is possible, and there are some similarities, but probably not.


    • dramatic increase in Fed rates:  check (same happened in the late 20s and mid 80s)
    • housing debacle (Florida in the mid 20s): check
    • big run-up in stock prices (50%/yr in 1928-9; 50% in 1986-7): sorta (about 30% in 2006-7)


    • In order to generate a crash, you need lots of enthusiasm at the top (remember Nasdaq 5000?): not at all.  There has been a lot of worry to the rally.
    • rising bond interest rates:  not at all.  Long term rates, although creeping upward since 2003, are still in the 4.5% - 5% range.

    Okay, but I keep saying this is a slow motion you-know-what.  Why slow motion?

    • house prices are sticky.  50% or more of homeowners still think their houses will appreciate in value over the next year.  It's going to take a long time for reality to take hold.
    •  The Greenspan Put.  Wall Street is absolutely sure the Fed will ride to their rescue.  Per my sig line, "When the going gets tough, the tough get 'too big to fail'".  The Street is sure that Bernancke will follow up on Fed liquidity injections by cutting rates by September.
    •  foreigners still hold a ton of $$$$$.  They couldn't dump them all at once if they wanted to.

    Why it rhymes:  Remember that 1929 wasn't actually a one-year event!  It was a 4 year event lasting into 1933.  We have similar credit/leverage/debt issues as in the late 20s.  We have (1) a trade deficit; (2) budget deficits; and (3) no aggregare personal savings.  All of these birds are beginning to come home to roost.

    First of all Foreign Central Banks are now having a substantial impact on our own domestic interest rates:
    Here's what Brad Setzer had to say:

    One of the most intriguing passages in the magisterial Ip/Hilsenrath account of the origins of easy credit in Tuesday's soon-to-be Murdoch Journal comes when Ip and Hilsenrath quote Alan Greenspan discussing how long-term rates stayed far lower than the Fed expected once the Fed started to raise short-term rates:

    Looking back, he [Alan Greenspan] says today: "We tried in 2004 to move long-term rates higher in order to get mortgage interest rates up and take some of the fizz out of the housing market. But we failed." Something besides Fed policy was at work. Both Mr. Greenspan and his successor, Ben Bernanke, point to an unanticipated surge in capital pouring into the U.S. from overseas.

    That seems -- at least to me -- to be a rather remarkable admission.  After all, the Fed controls at least short-term US interest rates, the expected path of short-term rates should have an impact on long-term rates and the housing market is rather interest rate sensitive. We are only now -- after the most recent Treasury survey and the subsequent revisions to the BEA's data on official purchases of Treasuries and Agency bonds getting a real sense of just how big a role foreign central banks played in that "anticipated surge in capital" from abroad....

    And here is an opinion piece by a former Reagan cabinet official (note: the guy has some other credibility issues, but he appears spot on here):

    Paul Craig Roberts

    Early this morning China let the idiots in Washington, and on Wall Street, know that it has them by the short hairs. Two senior spokesmen for the Chinese government observed that China’s considerable holdings of US dollars and Treasury bonds “contributes a great deal to maintaining the position of the dollar as a reserve currency.”

    Should the US proceed with sanctions intended to cause the Chinese currency to appreciate, “the Chinese central bank will be forced to sell dollars, which might lead to a mass depreciation of the dollar.”

    If Western financial markets are sufficiently intelligent to comprehend the message, US interest rates will rise regardless of any further action by
    China. At this point, China does not need to sell a single bond. In an instant, China has made it clear that US interest rates depend on China, not on the Federal Reserve.

    The precarious position of the US dollar as reserve currency has been thoroughly ignored and denied. The delusion that the US is “the world’s sole superpower,” whose currency is desirable regardless of its excess supply, reflects American hubris, not reality. This hubris is so extreme that only 6 weeks ago McKinsey Global Institute published a study that concluded that even a doubling of the US current account deficit to $1.6 trillion would pose no problem.

    Strategic thinkers, if any remain who have not been purged by neocons, will quickly conclude that China’s power over the value of the dollar and US interest rates also gives China power over US foreign policy.
    Moreover, other governments would likely follow the Chinese lead, as the main support for the US dollar has been China’s willingness to accumulate them.

    The value and purchasing power of the US dollar would fall....
    This is a grim outlook.

    And Prof. Mark Thoma notes that this week has been called a 21st century run on the banks (in this case, the banks being hedge funds):

    The problem is that entities outside the traditional banking sector have been engaged in bank-like functions and are hence subject to bank-like problems such as bank-runs. Here's how it works.

    Hedge funds can be hit with withdrawals even if they are not in trouble themselves, at least initially, due to uncertainties about the future state of the market.

    But like a bank who lends out most of the deposit it receives, a hedge fund uses the deposits it receives to purchase securities and other assets for its portfolio. Thus, unless it has substantial cash reserves on-hand (part of the scramble now is to build cash reserves), when investors make withdrawals the fund must begin to liquidate its portfolio to pay them off.

    But if nobody will purchase mortgage-backed securities, who do you sell to? With nobody buying the assets the fund is trying to sell, they are forced to try to raise cash in other ways, and problems mount.

    And it can feed on itself, just like a bank run. If investors hear that people are having trouble getting their money out of a particular fund, or from funds generally, they will rush to get their money out before the fund fails, and the problems get worse as funds try to sell assets to raise the needed cash.

    So it's sort of like a bank run, but without a standing lending facility (i.e. the equivalent of a discount window) available to meet the demand for liquidity, though such institutions could be created.

    It will take a good 5 years for the debt issues to settle out, and that's why I expect that this last week was just a little foretaste.

    "When the going gets tough, the tough get 'too big to fail'."

    by New Deal democrat on Sat Aug 11, 2007 at 08:33:25 AM PDT

    •  why ignore leveraged M&A activity (5+ / 0-)

      1915-1929, 1998-present, industry consolidation as opposed to liquidation? i'm not entirely persuaded that sub-primes are drive the credit crunch, if firms looking for liquidity to sell were blowing up the mortgage securities bubble.

      Diversity is the key to economic and political evolution.

      by MarketTrustee on Sat Aug 11, 2007 at 09:10:29 AM PDT

      [ Parent ]

    •  1920s housing market (4+ / 0-)
      Recommended by:
      onemadson, MarketTrustee, FMArouet, kyril

      housing debacle (Florida in the mid 20s): check

      As I understand it the Florida land boom began deflating in 1925 and collapsed completely after the hurricane of Sept. 1926. So an attempted tie-in with events on Wall Street 3-4 years later seems debatable.

      A better case could be made for the flattening out of the housing market nationwide, which apparently started in 1927--one of the casualties BTW was Sam Insull's heavily leveraged utility holding companies.

      I'm wondering where to find figures on the 1920s housing market. Anyone have any ideas?

      That's funny, that plane's dustin' crops where there ain't no crops.

      by angry blue planet on Sat Aug 11, 2007 at 09:17:58 AM PDT

      [ Parent ]

    •  Hey... Paul Craig Roberts has it (2+ / 0-)
      Recommended by:
      farleftcoast, bluewolverine

      absolutely right on impeachment.  Did you hear his interview w/Thom Hartman?  He said with no hesitation that Bush/Cheney would not hesitate to carry out another 911 event if it becomes the only way to save the Republican Party.  Being who he is and knowing what I know about those criminals, I think we have some reason to worry.

      Last night before I went to sleep I heard some news on AP radio that they were setting up blockades around Manhattan because there was a posting on some website about a dirty bomb.  I was worried but went to sleep and nothing this morning.  Was I dreaming?  How could the MSM miss that?  

    •  Question: Can anyone paint a picture (0+ / 0-)

      about what would happen if, as Roberts said, China cashes in?

      Strategic thinkers, if any remain who have not been purged by neocons, will quickly conclude that China’s power over the value of the dollar and US interest rates also gives China power over US foreign policy.

      Moreover, other governments would likely follow the Chinese lead, as the main support for the US dollar has been China’s willingness to accumulate them.

      Also, what would that look like for the daily lives of Americans with below average incomes?  What happens to Social Security and Railroad Retirement benefits?  Do they continue since it's the government?  

      •  Bad time to be on a fixed income (1+ / 0-)
        Recommended by:

        What happens to Social Security and Railroad Retirement benefits?  Do they continue since it's the government?  

        Sure, they'll continue to pay out. In increasingly eroded and worthless dollars.

        And there will, for political purposes, be occasional COLAs, cost of living adjustments, to SS benefits. Which will inevitably be found in the long term to have lagged behind the actual real rate of inflation.


    •  Several other differences (1+ / 0-)
      Recommended by:

      Hoover raised taxes and cut government salaries to balance the budget.

      Smoot-Hawley passed in 1930 raised tariffs and killed international trade.

      The Fed stood by and watch the banking system collapse around them and did nothing.

      We are a far far distance from 1929.

      1998 made the Greenspan put a fixture in the market. Bernake now has to lift that put and avoid the moral hazard that has pushed market players to take on greater and greater risk.

      •  Bernanke can't lower rates. (3+ / 0-)
        Recommended by:
        Odysseus, Pam from Calif, Cliss

        "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

        by bonddad on Sat Aug 11, 2007 at 12:39:57 PM PDT

        [ Parent ]

        •  Which is why daisycolorado (1+ / 0-)
          Recommended by:

          Can't answer the question.

          In other words how does the Fed go about 'inflating the economy', beyond pumping more easy money into the system?

          <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

          by superscalar on Sat Aug 11, 2007 at 12:47:40 PM PDT

          [ Parent ]

          •  You misunderstood what I wrote (2+ / 0-)
            Recommended by:
            RainyDay, New Deal democrat

            the Fed can always inflate the economy by pumping more money into the system. It simply a matter of buying up the mortgage debt and pushing more cash out into the banking system.

            But this won't solve the current problem and in the longer run will only make matters worse. Not because it will create inflation, but because it perpectuate the Greenspan put, speculators will learn once again that they can take huge risks and the Fed will bail them out. That was how we got out of the 1990-1 recession, the S&L operators we're punished by the markets, and some of them went to jail. The RTC came in and repackaged the remaining assets and sold them off at bargain prices. That didn't happen in 1998 and barely happened post-internet bubble.

            •  I still don't understand (0+ / 0-)

              On rereading this and your other quote, it seems as if you are saying that the Fed should not, and will not, lower rates.

              That then, at least from where I sit, runs headlong into your prediction that the result will be, or could be only, a 'mild recession'.

              I understand that you believe that the housing bubble will be replaced by something else, I just don't see it happening, layperson that I am in these matters.

              <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

              by superscalar on Sat Aug 11, 2007 at 01:04:18 PM PDT

              [ Parent ]

        •  Even worse (1+ / 0-)
          Recommended by:

          it won't solve the problem.

          Interest rates are not that high. Real rates are still very low. Cramer can scream all he wants, the worse thing Bernanke could do now would be to lower rates.

          Let the speculators take their losses. Its what markets and capitalism is all about. Bailing them out with a rate cut now would be the wrong thing to do.

          •  This doesn't speak (0+ / 0-)

            Let the speculators take their losses.

            To the homeowners who will 'take their losses' in the bargain, and additionally doesn't speak to what happens when millions more of those homeowners start to walk away from their mortgages.

            <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

            by superscalar on Sat Aug 11, 2007 at 01:14:59 PM PDT

            [ Parent ]

        •  EU central bank (1+ / 0-)
          Recommended by:

          I think the next US interest rate cut is what was behind the EU central bank issuing 85B? euros last friday, to boost the dollar.

          If the dollar can rally first, the $80 level
          may be able to hold during the next interest rate

          Markets say 275% change of a cut in Sept.

      •  Why we are "rhyming" (1+ / 0-)
        Recommended by:

        First of all, glad to see you back.

        Agree with everything you say except that "we are a far far distance from 1929."

        I hope I was clear that I'm not calling for a market crash.  Quite the contrary, I think the market, via importing dollars, has disconnected from the larger domestic economy. (and as of today, insiders are buying, the measures of fear in the market are way too high, and bonds have not tanked, so I am inclined to believe that this coming week we will see a rebound).  
            Nevertheless, longer term,  I do believe we are at the beginning of the end of the great interest rate disinflation that began in 1980 or so.   This will entail the punishing of reckless debt.  Precisely because of the (real or perceived) resiliency of the economy, it will take years.  It's as if a boa constrictor has just looped its first coil around the credit-and-debt American economy.  The gradual crushing of the breath out of it will be a long process.  And as your comment points out, there is really no good move to be made on the part of the Fed.
            If we are at the beginning of the first full-fledged (but slow-motion) "bust" the economy has seen in 70 years, then we are "rhyming" with 1929.


        "When the going gets tough, the tough get 'too big to fail'."

        by New Deal democrat on Sat Aug 11, 2007 at 01:56:47 PM PDT

        [ Parent ]

    •  what are your predictions... (0+ / 0-)

      in terms for those of us who are not financial professionals?

      •  Hey, I'm not a financial pro either! (2+ / 0-)
        Recommended by:
        Cliss, SeaTurtle

        Just a layperson who has paid a lot of attention for almost two decades.

        I think a recession is likely by the end of this year.

        There is a tug-of-war between the credit bust deflation, and the global liquidity inflation, and it will be long and drawn out.  I believe interest rates will never be significantly lower in our lifetimes, and they will probably start heading higher soon. (google "Kondratieff" cycles, and note that the interest rate high point of 20%, was almost 30 years ago).

        The markets will frustrate the maximum number of people.  There will be alternate up and down moves, convincing people that the worst is upon us/is already over ... and both sides will be wrong.  Ultimately, though, within about 5 years or so, as most of the reckless debt is wrung out of the system, asset prices will be lower in real terms than they are now.  But it will be a slow, painful process.


        "When the going gets tough, the tough get 'too big to fail'."

        by New Deal democrat on Sat Aug 11, 2007 at 03:05:57 PM PDT

        [ Parent ]

  •  fill me in here (12+ / 0-)

    What are the advantages/disadvantages of the Fed pumping all those billions into the market the last couple days? Is it just for a softer landing, delaying the inevitable? Are they actually going to solve the underlying problems by throwing money at it in that manner? And where does that money come from that they issue? Is that now part of our national debt (which is what I assume)?

    Sorry if some of these are dumb questions :)  

  •  signs of decency on the hill (5+ / 0-)

    the fannies are the free rate in this cycle, this industry. that price movement up against T-bills, anticipating bernanke's next move, is a gift.

    Combined, Fannie and Freddie hold or guarantee two-thirds of all U.S. home mortgages. "Their safety and soundness is of paramount importance," said Lockhart, adding that he could reconsider the decision later on.
    Sachdeva called it "almost incomprehensibly ironic" that Fannie and Freddie, criticized for years by many officials and lawmakers as posing risk to the financial system, were being viewed as the "solution" for the mortgage markets.

    The mortgage markets in which Fannie and Freddie operate, marked by less risk, have not been as severely hit by the credit squeeze racking much of Wall Street.

    if lockhart hadn't put a foot down on fannie bail outs, there'd be no underlying value to, no basis for, "injecting" FRB credibility into the capital market.

    Diversity is the key to economic and political evolution.

    by MarketTrustee on Sat Aug 11, 2007 at 08:39:25 AM PDT

  •  Magic Wands, Video Games, and Liquidity (31+ / 0-)

    (Posted earlier in edrie's thread.)

    What do a magic wand, a video game, and liquidity have in common? Here is more or less how it works:

    Fed Chairman Ben Bernanke: “Whoosh. Whoosh. Whoosh. I hereby wave my Magic Monetary Wand three times and create $38 billion in liquidity to bail out big investors in volatile markets.”

    Big Boys (Hedge Fund Managers, Derivatives Speculators, Risk-loving Banks, Highly-leveraged Investment Firms, and High-yield-seeking Pension Funds): “Thanks, Ben. Now we can continue with the looting for a little while longer.”

    Reality: “But, but, but...isn't that $38 billion just a digital signal of intent, sort of like a move in a multi-player video game? I mean, there isn't anything real about that $38 billion, is there? It's just bits on the Fed's central file server, digital money created by fiat out of thin air. And doesn't creating digital money out of thin air threaten to increase already rising 'headline' inflation and to accelerate the ongoing decline of the dollar against other currencies? What's that vague memory I have about Gresham's Law?”

    Bernanke: “Shhhh. This isn't about reality. It's about confidence. As long as the Big Boys consider the pyramid to be sustainable, it will be sustained. My job is to sustain it for as long possible so that the looting may continue. Now just shut up, so that the Big Boys can continue to make their speculative millions and billions unimpeded, while they avoid ever paying more than 15 percent of the net in capital gains taxes. My job is not to deal with reality. My job is to create reality. The White House told me so. And we'll blame the Democrats if the bubble bursts.”

    Reality: “What about addressing the underlying structural problems, like low savings, deindustrialization, the current account deficit, the federal budget deficit, decaying infrastructure, inadequate health care, faltering public education, and the increasing disparities of income and wealth?”

    Bernanke: “Nah. Solving those problems would require ingenuity and sacrifice. All that we know how to do is wave the Magic Monetary Wand. We pump out digital repurchase agreement bits today, and we hope for them to get pumped back to our file server on the next business day. It has worked up until now, hasn't it? Besides, Dick Cheney said that 'deficits don't matter.'”

    Big Boys: “Yes indeedie. Let the good times roll! All is for the best in this best of all possible markets. Pass around the cigars. Another cognac, perhaps?”

    Reality: “Thanks, Ben. Thanks, Big Boys. Just askin'. But could you explain once again how the subprime securities market and the various kinds of derivatives markets are different from an old-fashioned Ponzi scheme?”

    Bernanke and Big Boys: (in unison) “Shhhh.”

    •  Great visual (2+ / 0-)
      Recommended by:
      Odysseus, Cliss

      for the imaginary money theory :)

      By the way, at risk of sounding silly, how long do you think we have until large numbers of people start to lose confidence in the electronic system of money? The Depression survivors I know who had been flirting with banking have already gone back to trusting gold and their mattress; how long until that spreads? It's eventually inevitable, of course, because electronic money requires cheap power and cheap electronics, both of which require fossil fuels. But that gives us another few decades if we enact sensible energy policy. Do you think the loss of confidence could be accelerated by the en-masse realization that a good part of our money amounts to a mass hallucination of a bunch of investors and the Fed?

      During times of universal deceit, telling the truth becomes a revolutionary act. - George Orwell

      by kyril on Sat Aug 11, 2007 at 09:47:09 AM PDT

      [ Parent ]

  •  market not so bad, but are terrorists coming? (4+ / 0-)
    Recommended by:
    splashy, Cliss, kyril, Blogvirgin

    anyone who looks at that chart has to be dumbfounded at the statement about the markets. please roll it back to 2003 so we can get an idea how far this market has come in a short time.
    the MSM explains the reasons for the markets behavior on CNBC everyday, ten times a day, the bulls sold because this stock or that stock reported earnings.
    its just post rational prattle. the credit bubble is obviously overinflated, and no one knows the extent of the exposure. can the Fed throw up a few firewalls? by throwing this one up, so early in the stock markets decline, their action raises some interesting questions.
    is our collective tolerance for what they formerly called the business cycle, economic slowdowns, which are used to clean up balance sheets, gotten so short that even a 5% pullback is greated with hysteria, (jim cramer booyah hysteria) or is the system so overextended that a small pullback really is a threat, or is there something out there that the Fed fears, but the rest of us don't know about. i believe there is some evidence they were pumping liquidity into the market BEFORE the Madrid bombings, not to sound like a Tarpley tinfoil hat nut, but if there are serious security problems do you think the Bushies might notify the Fed, but not you and me?

    "Everything is chrome in the future..." Sponge Bob Square Pants

    by agent double o soul on Sat Aug 11, 2007 at 08:40:55 AM PDT

    •  or is the system so overextended ... (7+ / 0-)

      that a small pullback is a threat ?

      I think, yes.

    •  psychology (2+ / 0-)
      Recommended by:
      billlaurelMD, kyril

      i believe there is some evidence they were pumping liquidity into the market BEFORE the Madrid bombings

      Perhaps it is better to look at such things not as "the government knows about what terrorists are going to do," but "the terrorists are watching the markets too and can figure out when there's signs of trouble."

      Why do you assume terrorist groups don't pay attention to turmoil on the market?

      •  they dont pay attention because they dont want to (0+ / 0-)

        the terrorists are really not well understood, but thank bush for that.

        i am 99% certain that Treasury has access to high level intelligence alerts, and therefore the Federal Reserve has it, although I would be interested just how the security clearances work there, and especially on the Feds trading floor. information about that is probably secret, (once secret keeps another) but if you asked the question does Bernanke have a security clearance, you might not get an answer, or a truthful answer certainly. that would be enough to set off a few alarms.

        gee than makes me wonder if there is some way we could have that question posed to Tony Snow. or sneak the question into the lunch pail of a few school kids who are going to meet the President, that worked once anyway.

        for much the same reasons the number of journalists required to hold security clearances is never fully revealed.

        "Everything is chrome in the future..." Sponge Bob Square Pants

        by agent double o soul on Sat Aug 11, 2007 at 01:06:31 PM PDT

        [ Parent ]

  •  Heard you last night on Air America (15+ / 0-)

    David Bender played Sam Seder's interview with you at Y2K.  You were great.  Not only smart but a voice made for tv and radio.  Hope you do more in that vein.

  •  Definitions for SPY and SMA? (7+ / 0-)

    Hi Bonddad!

    Please forgive the ignorance, but can you define SPY and SMA?  Obviously they are indices, but how do you financial types make use of them (i.e., what do they mean and/or indicate)?

    "You underestimate Bush at your peril: it takes a brilliant man to feign utter and complete globe-spanning stupidity." Hunter of DailyKos

    by mrclean on Sat Aug 11, 2007 at 08:48:16 AM PDT

    •  asdf (10+ / 0-)

      SPY: An ETF that mirrors the S&P 500.

      SMA: Simple moving average

      "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

      by bonddad on Sat Aug 11, 2007 at 08:53:19 AM PDT

      [ Parent ]

      •  any chance you could do a once-over (0+ / 0-)

        ... on the foreign equity markets' activities?

        near as i can tell, they've pretty much been tied-at-the-hip, but i'd be interested in whether current TA suggests that they're at serious risk under the current pressures

        it's about biconceptualism ... Obama08

        by wystler on Sat Aug 11, 2007 at 11:20:19 AM PDT

        [ Parent ]

      •  Don't use... (4+ / 0-) acronym to define other acronyms.  It's confusing.  :)

        To further elucidate:

        The SPY is just a ticker abbreviation for the ETF--Exchange-traded fund--that mirrors the performance of the Standard & Poor's top 500 stocks.  You can invest in this fund as if you were investing in the general market index itself.

        An SMA is, as Bonddad says, a Simple Moving Average.  This is calculated by taking the closing price of a security over a period of time (in days), adding the closing prices, then dividing by the number of days covered.  It's a simple elementary school level average of the closing price.

        The use of SMAs over varying periods of times allows the construction of trend lines that can be used to predict future performance.  Most of the graphs above include multiple trend lines over several different lengths of time for exactly that reason.

  •  thanks bonddad (3+ / 0-)
    Recommended by:
    randallt, CCSDem, kyril


    Patriotism means to stand by the country. It does not mean to stand by the president or any other public official... ~Theodore Roosevelt

    by Pam from Calif on Sat Aug 11, 2007 at 08:50:59 AM PDT

  •  Is it the Feds jobs to (11+ / 0-)

    prop up the stock market during a correction from speculative investments.  By adding liquidity aren't they using tax payers money to bail out these sub prime lenders and hedge funds that have profitted greatly from making speculative deals. Won't this be a signal that they can continue with these type of investments?

  •  Home equity loan market may be drying up (7+ / 0-)

    National City Corp has stopped taking home equity loan applications. A few others have also. It's gonna be a lot harder to run up the credit cards and buy that SUV if people can't roll the loans into their mortgages.

    The first person to ever brew beer was probably naked.

    by bobinson on Sat Aug 11, 2007 at 08:56:59 AM PDT

  •  a big story overlooked (10+ / 0-)

    that China was being allowed to buy into Bear-Stearns, in effect, positioning itself to buy up American real-estate on the cheap--just like the US super-rich plan to do.

    This news comes as China and bush trade threats about currency values and trade.  To me it is simply more evidence that we are being played for fools.

    History is a comedy to those who think, and a tragedy for those who feel. --Henry Walpole

    by Zacapoet on Sat Aug 11, 2007 at 09:14:21 AM PDT

    •  ouch (2+ / 0-)
      Recommended by:
      Cliss, Involuntary Exile

      I think more what foreign entity has not bought out either a US corporation or it's infrastructure.

      That's actually huge, gotta link?

      by BobOak on Sat Aug 11, 2007 at 10:17:15 AM PDT

      [ Parent ]

      •  Here's one... (2+ / 0-)
        Recommended by:
        BobOak, Involuntary Exile

        ...from Reuters (Via Yahoo):

        NEW YORK (Reuters) - Beijing-backed CITIC Group is negotiating for a minority stake in Bear Stearns Cos. Inc. (BSC.N) as investors worry about a sharp downturn in the U.S. investment bank's fixed-income and mortgage-related revenue, Forbes magazine reported on Thursday.

        The story in Forbes follows other reports about negotiations between Bear Stearns and the Chinese financial conglomerate. CITIC and Bear Stearns were not immediately available for comment.

        A strategic partner would give Bear Stearns added liquidity as Wall Street investment banks weather a credit crunch and the prospect of sharply lower fixed-income revenue during the second half of the year. Turmoil at Bear Stearns would allow CITIC to get a stake at a big discount because Bear shares are down 26 percent this year.

        There are three kinds of lies: lies, damned lies, and statistics. --Benjamin Disraeli, cited by Mark Twain

        by sheba on Sat Aug 11, 2007 at 02:25:26 PM PDT

        [ Parent ]

    •  In times like these Cash is King (1+ / 0-)
      Recommended by:

      We have mountians of debt and China has mountains of cash (as do the very rich).

      Chris Dodd is our man to stop the Huckabee stampede!!

      by GW Chimpzilla on Sat Aug 11, 2007 at 10:31:04 AM PDT

      [ Parent ]

    •  Bush vs. China (0+ / 0-)

      They're jousting, and we're on the tip of the lance!

      It is amazing how much can be accomplished when you don't care who gets the credit - Harry Truman
      PoliticalCompass Scale: -2.13, -2.97

      by floundericiousMI on Mon Aug 13, 2007 at 11:27:21 AM PDT

      [ Parent ]

  •  Bondad (18+ / 0-)

    Bondad here is a question maybe you can help me with. Is the credit crunch really spilling over into other sectors? I fear over the last 5 or so years americans have chnaged their habit in how they buy big ticket items.
    In my father days, they saved up money for a frig, or washer and dryer and when the basically had enough money saved they would then go buy it.  Now days that has all changed, we all go buy big ticket item whenever we want and look for those "free financing for 18 month deals", etc, or the really desperate just toss it on a credit card.

    Now I am seeing credit cards interest already going up, are the days of "free financing for 18 months etc" going to go away to, because I fear this will have an incredibly bad effect on consumer purchasing ( the engine that makes this economy go).

    With no finaancing avaible means putting off purchases, emergency big ticket items will be put on credit cards with higher interest which in itself saps discreational spending.  

    I fear that this "free" money ovr the last 5 or so years have changed the habits of how the american consumer spends and buys, if all of a sudden the carpet is pulled out from under the consumer, the americans consumer with no savings to fall back on, will just go and hide.

    Generals gathered in their masses Just like witches at black masses.. Evil minds that plot destruction Sorcerers of deaths construction..........

    by pissedpatriot on Sat Aug 11, 2007 at 09:14:34 AM PDT

    •  That's a good observation (8+ / 0-)

      The increased use of credit has changed the way people deal with consumer purchases.  I don't know how people will react.

      "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

      by bonddad on Sat Aug 11, 2007 at 09:19:33 AM PDT

      [ Parent ]

      •  wow (8+ / 0-)

        It seems to me that pissedpatriot's observations almost go without saying.

        In other words... most Americans are going to start living like my family and I always HAVE... (except, I try to think in advance about the big ticket things that need doing/replacing -- this year it'll be resurfacing the driveway, next year it'll be repainting the house, next year the fridge is going to need replacing... etc)

        With planning, you don't need to use the credit card so much.  Case in point:  I had painting and crucial repairs done to the exterior of my house this summer... was ready for it... paid cash.

        It's really not a bad life, people... Get used to it.

        •  Yes that is how we do it (6+ / 0-)

          If we can't pay, then we do without. The idea is to try to think ahead enough to stash some back for things that will need to be done, or fixed, or replaced that you feel are necessities. Having spares or replacement parts around really helps for many items. (Then again, we live out in the woods and only go to town once or twice a month most times, so we prefer to be prepared so we don't have to leave home.)

          I hate paying interest. Cash is so much better, and cheaper. In fact, since we only pay cash, and have no credit cards, we don't have much credit available. It actually saves a person to not have any credit, because then you aren't tempted.

          Of preposterous...assumptions...nothing exceeds most of the criticisms made on the habits of the poor by the well-housed...and well fed.-Herman Melville

          by splashy on Sat Aug 11, 2007 at 09:44:23 AM PDT

          [ Parent ]

          •  Credit is good (7+ / 0-)

            Credit is a good thing to have (and use), but it's supposed to be just one thing in your financial arsenal (along with cash, equity, etc).

            Somewhere along the way, credit turned into a way of life for Americans.  And now our markets are heavily dependent on credit.  WTF?

            Before it started to become apparent that "credit as a way of life" is insane (due to the problems in the market recently, for one) -- listening to conversations about money was like listening to gossip from another planet.

            What's considered "normal" -- the lifestyle that overreliance on credit brings (the investing in properties you really can't afford, the refinancing of your home to pay for a VACATION, the big ticket items you can't afford) -- is really abnormal.

            I remember joining in a conversation here about mortgages, months ago, and there were dozens and dozens of people posting, and I asked "How many of you own your home free and clear?" and there was the sound of CRICKETS.  Nobody actually OWNED these homes that they were contemplating trading back and forth and flipping and all that crap.

            Then you wonder why there's no sense of "community" in America, blah blah.  Could it possibly be because Americans don't, in fact, actually own anything rooted down to the ground?  

            It will be really interesting to see how America changes when more and more people cannot just move from place to place so easily, and have to stay in their communities and fight for them, get politically involved, confront racism, deal with rotting cities, etc.

            REALLY interesting.

            •  Singing from the same page in the hymnal (1+ / 0-)
              Recommended by:
              Pam from Calif

              Wow, NYCO, you and I not only see eye-to-eye on paying cash, having credit, using credit wisely, postponing gratification, and saving for a rainy day, but we're on the same home maintenance schedule.  As I type, the painters are working on the exterior of our lovely 85-year-old home, and the roofers are busy relaying clay tiles on the porch roof.  Two windows have been replaced with energy efficient double-glazed, aluminum-clad solid wood casements, three more will be replaced within the next two weeks, and four new storm doors will arrive in a few days.  Total cost will be just north of $30k, and it's all being paid cash from a CD that matured last week (with a good chunk left over to sit in the money market account while we determine if addition repairs or improvements are needed).  Are we going anywhere on vacation this year?  Nope.  Have we bought a new car this year?  Nope.  Better to fix the roof over our head without using OPM (other people's money) than splurge on a luxury right now.

            •  The problem with credit (0+ / 0-)

              Is that too many don't understand the concept that you pay so much more when you use credit. If you are not very disciplined and lucky, credit will bury you and take everything you own.

              People lose their homes because of credit. If they would pay off their loans, and never take out any credit on their homes, they wouldn't lose them, for instance. When you hear about people losing their homes, it's because the homes have debt against them. People used to understand this.

              I would never borrow against my home. No matter what. You can still get assistance and own a home outright, without borrowing against it. That is the mistake people make. They borrow to pay medical bills, or whatever, and then if they can't pay the loan they lose their homes. Better to just default on the bills, or seek help, than to borrow on your home.

              Of preposterous...assumptions...nothing exceeds most of the criticisms made on the habits of the poor by the well-housed...and well fed.-Herman Melville

              by splashy on Sun Aug 12, 2007 at 08:02:28 PM PDT

              [ Parent ]

        •  I had never heard of (1+ / 0-)
          Recommended by:

          Nickolai Kondratieff before a couple days ago, when someone here posted a link to a K-wave.

          Interesting stuff in that it speaks to both financial and cultural issues.

          It's also interesting that Kondratieff would predict (based upon what I read) deflation.

          <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

          by superscalar on Sat Aug 11, 2007 at 09:50:55 AM PDT

          [ Parent ]

        •  There's always a length of rope and a bucket.. (1+ / 0-)
          Recommended by:

          No, not what your thinking. I mean instead of the washing machine.

          "I count him braver who overcomes his desires than him who conquers his enemies; for the hardest victory is over self." --Aristotle

          by java4every1 on Sat Aug 11, 2007 at 10:11:27 AM PDT

          [ Parent ]

        •  Well, that's nice if you don't have unexpected (0+ / 0-)

          medical bills.....

    •  Debt Bubble Collapse (2+ / 0-)
      Recommended by:
      farleftcoast, Cliss

      is what we're seeing, rather than just a housing bubble collapse. We haven't had a credit-crunch recession since 1973. THe Great Depression was a credit crunch. If the Fed lowers interest rates to accomodate the debt junkies on Wall Street, then we may move into hyper inflation. If they keep the rate the same, then I believe we surely are headed for a recession.

      Chris Dodd is our man to stop the Huckabee stampede!!

      by GW Chimpzilla on Sat Aug 11, 2007 at 10:39:57 AM PDT

      [ Parent ]

    •  Keeping Up with the Joneses will take on a new (1+ / 0-)
      Recommended by:

      meaning as it will describe the mutual economic self-destruction of families.

      Don't assume anything...Verify! It's as easy as 3.14159265

      by Mr SeeMore on Sat Aug 11, 2007 at 10:59:14 AM PDT

      [ Parent ]

  •  Thanks (10+ / 0-)

    Good info.

    I must add that I am going to be one pissed off American if the Federal Government BAILS out the damn Corporations for lending money to people who truly did not qualify instead of helping out the people who were snookered into these subprime loans.

    Bush touts a great economy.  It has been a somewhat false economy to most people (except the top .01% of Americans (NOW had a great program last night on income equality in America today).  Why?  Because they could claim their house was worth more than it really will be when things settle down.  They do not have more money in savings (in fact we have a negative savings rate in America).

    The rich pay about 17% of their total income in taxes while the rest of us are closer to the 30% mark.  Why?  CEO's don't take salaries that are taxed at high rates.  No they get stock options which after a year are only taxed at 15% (and no social security or medicare taxes are paid either).

    I hope this correction WAKES up what was once Middle Class America (which now requires 2 people working in a family to stay in the Middle Class).

    I feel better getting this off my chest......  Oh no, there goes my chest......

    -6.13 -4.4 Where are you? Take the Test!!!

    by MarciaJ720 on Sat Aug 11, 2007 at 09:36:48 AM PDT

    •  Good Comment (3+ / 0-)
      Recommended by:
      farleftcoast, SeaTurtle, zenobia

      I cannot agree more with this:

      I must add that I am going to be one pissed off American if the Federal Government BAILS out the damn Corporations for lending money to people who truly did not qualify instead of helping out the people who were snookered into these subprime loans.

      This needs to be repeatedly articulated by us and our representatives.  No more 'Get Out Of Jail Free' cards for the corporations.  What is good for the average American is good for the big money boys also.  So what happens when the mortgage companies file bankruptcy?  Do their executives have their salaries garnished like all us other slobs or do they get $45M buyouts like the CEO from Dell.

      All men want to be rich. Rich men want to be king. And the king ain't satisfied till he rules everything. Springsteen

      by howd on Sat Aug 11, 2007 at 10:08:59 AM PDT

      [ Parent ]

    •  Forgot to Ask (2+ / 0-)
      Recommended by:
      farleftcoast, BobOak

      Do you have a link for the 17% tax rate for the rich and 30% tax rate for average Americans?  The winger friends I have discussion with always pull out the "The top 1% pay half the income taxes" BS and I would love to have some documentation for the 17/30% split.

      All men want to be rich. Rich men want to be king. And the king ain't satisfied till he rules everything. Springsteen

      by howd on Sat Aug 11, 2007 at 10:11:05 AM PDT

      [ Parent ]

      •  here ya go (3+ / 0-)
        Recommended by:
        coral, howd, BobOak

        tax policy center, general reference, historical tables, easy to navigate. have fun.

        (corp rate, adjusted income, always pay as much as the poorest individual)

        Diversity is the key to economic and political evolution.

        by MarketTrustee on Sat Aug 11, 2007 at 10:22:02 AM PDT

        [ Parent ]

      •  page pimp (1+ / 0-)
        Recommended by:

        tax page.  I try to keep the big references there and cover the smaller ones in the forum or blog.

        Frontline's "Tax Me if You Can" is a strong recommend as is anything by David Kay Johnston.

        by BobOak on Sat Aug 11, 2007 at 10:29:33 AM PDT

        [ Parent ]

        •  Why not actually look at what (0+ / 0-)

          people pay.

          The Congressional Budget Office publishes this data and contrary to the conventional wisdom here, the rich actually do pay more than the poor.

          Here are the actual tax rates paid in 2004 by income segment:

          Lowest Quintile 4.5
          Second Quintile 10.0
          Middle Quintile 13.9
          Fourth Quintile 17.2
          Highest Quintile 25.1

          All 20.0

          Top 10% 26.9
          Top 5% 28.5
          Top 1% 31.1

          The data can be found here on Page 5 of this document:

      •  Gotta look at every word (4+ / 0-)

        in their talking points.  

        The top 1% pay half the income taxes

        Rich people just don't pay that much in "income" eg "working wage" tax.  They get their money two ways, and can structure their compensation to minimize their taxes now that W has done their bidding.  Making it simple to help those who need help....

        Both of these are taxed (after W's tax cuts deferrals) at MAXIMUM 15%.

        Dividends: Money paid out on investments by a company.  Usually a portion of corporation profits paid to shareholders.  I think (but am not sure) that interest paid to bondholders also falls in here, especially in the case of preferred stock (which is really debt borrowed by the company).  Example: I buy a share of Toyota stock for $100.  The directors decide how to allocate the money made by the corporation from selling cars.  They decide to pull money out of the business entity and give some to the shareholders.  I don't have to sell the stock or do anything else to get that money, just bear the risk that the money may be lost one day.

        Capital Gains: Also 15% Max taxation.  That's the difference between buy and sell prices less any costs of buying and selling (broker fees, interest paid when I borrow to buy the stock).  Say I buy 10 of those shares for $99 each and pay $10 to my broker to buy them (total cost $1000).  Later, I sell for $151, and have to pay my broker again $10 to sell out of the cash (total money back $1500).   The difference what I sold for (1500) and what I paid (1000) is my Capital Gain ($500).  Depending on how long I held the stock, I still pay only a maximum 15% rate on that $500.

        Numbers work the same way with houses (but bigger), and there's an exemption for long term gains on your homestead.

        Wages:  If you work for that $500, that same $500 can be taxed at higher or lower rates depending on how much money you make working and how many kids you have, among other things.  Those rates go up to 33%.

        The problem comes in when you have executives or business owners making in the 6-7 figures.  If they choose to pay themselves a salary, they pay the wage rate, but if they forego a salary in lieu of options, deferred compensation, stock, etc., they can get taxed at a much lower rate.

        That's the reason for the tax gap, and the fact that they're playing games with the numbers and talking points.

        (-7.25, -5.85) "Talk amongst yourselves. The Christian Right: neither Christian nor right. Discuss." --Linda Richman

        by Slartibartfast on Sat Aug 11, 2007 at 11:09:45 AM PDT

        [ Parent ]

  •  Dead Cat On The Rise? (12+ / 0-)

    found this on Calculated Risk As sung to bad moon on the rise:

    I see a dead cat a risin'
    I see trouble on the way
    I see copper thieves obligin'
    I see more flat screens on Ebay

    Don't go long tonight
    Cause you'll grab a fallin' knife
    there's a dead cat on the rise

    I hear pension funds implodin'
    I know the end is coming soon
    I'll see my short funds overflowin'
    Bloomberg proclaiming rage & ruin

    Don't go long tonight
    Cause you'll grab a fallin' knife
    there's a dead cat on the rise ... oh yeah

    Hope you got your cash together
    Hope you are quite prepared to die
    Kudlow will soon be tarred and feathered
    One eye is taken for an eye

    Don't go long tonight
    Cause you'll grab a fallin' knife
    There's a dead cat on the rise

    •  I am still trying to figure out (2+ / 0-)
      Recommended by:
      BobOak, MarketTrustee

      but what the Fed did on Friday just screams INSECURITY

      What the message was Friday, and was it in fact a scream.

      <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

      by superscalar on Sat Aug 11, 2007 at 09:55:07 AM PDT

      [ Parent ]

  •  Question (9+ / 0-)

    Is there a "bailout" lurking in my future?  I don't know jack about any of this, but certainly appreciate the attempt to explain...what I wonder about is this anything like the S&L bullshit?  Congress knew that was coming and put off doing anything about it until it was so far gone, it was bailout time, and we all got stuck with the bill.

    Is there even the slightest chance that something similar is on the horizon, or is this something that I'm not going to end up paying for?

    "I believe that ignorance is the root of all evil. And that no one knows the truth." - Molly Ivins

    by littlesky on Sat Aug 11, 2007 at 09:42:21 AM PDT

    •  Pretty fair assumption. (3+ / 0-)
      Recommended by:
      littlesky, farleftcoast, Cliss

      Bush has stated that he does not think the Fed should support banks that made risky mortgage loans based on speculative buying. The "liquidity" that the Fed pumped into the banks was a 4% loan, as I understand it. But I think you're right. Whenever there is any kind of economic meltdown, the general public ends up footing the bill, one way or another. Either there will be a taxpayer bailout, as was the case in the S&L debacle of the late 80s, or, what is more likely this time around, the money that people have invested in their homes will not be earning for them anymore. It will be like money stashed under a mattress, growing moldy, and banks will turn around and start making money the old fashioned way again, by charging high rates of interest on loans of all kinds. Home sales will remain stagnant for years, but don't be surprised if rents on apartments go through the roof. (This will be the only saving grace for homeowners in the coming years.)

      The bottom line is, we will end up paying for the bubble that earned so many people so much money for the last 15 years. Think of it as a game of "musical chairs"...

    •  asdf (1+ / 0-)
      Recommended by:

      I don't know.  From what I am reading, there's a possibility of a small bail-out, but there are still some hurdles to jump.

      "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

      by bonddad on Sat Aug 11, 2007 at 10:27:32 AM PDT

      [ Parent ]

  •  Renegotiating a Subprime Loan? (9+ / 0-)

    Let's say I have an ARM (Adjustable Rate Mortgage) on my house, but not a subprime mortgage. And let's say that the lender, because they're holding so many subprime mortgages on other people, is going to go bankrupt soon, perhaps any day.

    The lender is going to get bought by some other bank that will pay pennies on the dollar for the original lender's loans. Say (for the sake of argument and easy math) that the new bank will pay only 80% of the value of the loans. The original lender will have to sell a $100K loan to the new bank for $80K.

    What if I offer to pay up my loan early, for less than its original value, but more than the lower purchase price? If I offer the original lender say, $90K, before they have to sell to the new bank, won't they prefer to take my $90K than to wait for only $80K from the new bank?

    Assuming I know the original lender is in fact in this position, how can I figure out how much the new bank will offer, so I can beat its price, but only a little more?

    And will this strategy work with subprime loans, too?

    As to how to repay the loan early, what if I sell my house that was too big for me to afford without that ARM or subprime mortgage, and move somewhere I can afford? Especially if I can get a discount on the money I owe on the mortgage. Of course, this strategy depends on selling my house in the collapsing market, which is exactly why the mortgage lenders are going out of business.

    But why can't I compete directly with the lenders in selling my house to refinance my mortgage, before they do it and take whatever profits can be worked out of it?

    And if this is a workable strategy, isn't there just a huge opportunity here for individuals to beat all these banks, all across the nation? Not that the naive, math-illiterate people who bought subprimes are well positioned to do it, but perhaps some of them are, and there is a silver lining for some.

    "When the going gets weird, the weird turn pro." - HST

    by DocGonzo on Sat Aug 11, 2007 at 09:44:55 AM PDT

    •  You've (5+ / 0-)

      got an excellent point. Corporations are getting deals that the rest of us wouldn't get. Should I call my mortage broker and promise to pay them cents on the dollar like countrywide did for homebanc? Of course, they wouldn't take the money! According to conservatives, the little guy is always to blame.

      I'm too disgusted right now to think of a sig.

      by Ga6thDem on Sat Aug 11, 2007 at 10:15:17 AM PDT

      [ Parent ]

    •  You can try..make an offer! (4+ / 0-)

      But I suspect the bankers will just be hardasses on it. Moral hazard. They don't want to set up a precedent for homeowners to offer their own price.

      But what is really happening is a down-valuing of your home anyway by the market so you don't really have 100% of the previous value any more, if that makes sense.

    •  Hey, DG (4+ / 0-)

      A couple points.  It is highly likely your lender does not hold the paper on your loan.  Your lender may still service it, but chances are the right to your principal and interest payments is owned by an investor.  When lenders go under, even those who service loans, another bank may purchase the rights to service your loan (collect payments on behalf of the investor) but there's usually no need or even ability to sell your loan.

      If your loan is still held by your lender, however, and they take a dive, there will be many buyers lined up for your loan, assuming it is not in default, and they will not need to sell it at a material discount -- at least not a discount that results from risk.  Any discount would have to do with the discount rate imputed to calculate the present value of your loan, which fluctuates with the cost of money.

      A little technical, but the point is your idea would not likely work.

      "Don't you dare speak to us like we work for you." - Ben Harper

      by The Termite on Sat Aug 11, 2007 at 10:40:33 AM PDT

      [ Parent ]

      •  Excellent explanation, TT (2+ / 0-)
        Recommended by:
        The Termite, Cliss

        I wonder how many people realize the holder of their mortgage is usually not the original lender, that their mortgage was likely sold to an investor just days after closing or is the underlying asset for a readily traded security instrument?  How many homeowners even realize that their mortgage is a marketable instrument?

  •  Bubble brains (6+ / 0-)

    When are we going to completely revamp, demand it be done, an economic strategy that adds real value and is in the national interest?

    by BobOak on Sat Aug 11, 2007 at 09:45:04 AM PDT

  •  Catch 22 (13+ / 0-)

    The way it works is that only little guys are allowed to fail because only they and their families get hurt. The big guys can't be allowed to fail because then too many little guys would get hurt (and then they might get mad enough to elect somebody that would do something, like FDR). So the little guys have to bail out the big guys with their tax money. Makes perfect sense, no?

    Live unity, celebrate diversity.

    by tjfxh on Sat Aug 11, 2007 at 09:48:12 AM PDT

    •  more like our legislation and policy (3+ / 0-)
      Recommended by:
      sockpuppet, farleftcoast, zenobia

      Everything has been shifted to the little guy...the little guy pays the majority of the taxes, shifted away from corporations and businesses while those very businesses offshore outsource their job, declare bankruptcy to get out of pension obligations and we have the super rich doing mergers, acquisitions, private equity which adds no value.

      by BobOak on Sat Aug 11, 2007 at 10:22:00 AM PDT

      [ Parent ]

  •  No More Mortgages? (3+ / 0-)
    Recommended by:
    onemadson, Cliss, kyril

    Mortgage finance giants Fannie Mae and Freddie Mac will not be allowed to take on more debt, the government said Friday, denying requests to relax the companies' investment caps as a way to pump cash into the struggling mortgage market.

    Doesn't that mean that people can't get mortgages anymore? How is this country supposed to function in any way without anyone getting mortgages? Even if only 66%, 50%, 30%, or 10% of the mortgage granting rate is now shut down, that would cripple the country's essential housing industry. And take everything else out with it.

    "When the going gets weird, the weird turn pro." - HST

    by DocGonzo on Sat Aug 11, 2007 at 09:54:49 AM PDT

    •  backstory (3+ / 0-)
      Recommended by:
      Odysseus, farleftcoast, DocGonzo

      "more debt" in the AP article refers to $20B  offer to bail out of commercial originators (who didn't qualify for FHA guarantee in the first place), undercutting the fannies already shakey, risk-free rating. historically, FHA-backed 15/30 lending to "underserved" (HUD, USDA sponsored) borrowers was above reproach. then 911 changed everything. any squeeze on HUD/FHA affirmative action is politically motivated.  

      Diversity is the key to economic and political evolution.

      by MarketTrustee on Sat Aug 11, 2007 at 10:12:34 AM PDT

      [ Parent ]

    •  My sense is that there will be mortgage money... (5+ / 0-)

      but only to high credit-worthy customers. Low risk. It will shut out many new borrowers or those with marks on their credit records or insufficient incomes. That isn't entirely a bad thing. It just might err on the side of too much caution. Pendulum swings.

    •  Not quite (2+ / 0-)
      Recommended by:
      farleftcoast, DocGonzo

      By saying the GSEs can't take on more debt, they're effectively damming leverage at a critical failpoint.  This whole collapse owes to leverage on leverage on leverage -- the CDOs that the hedge funds issued being a prime example.  And what they're saying, if I'm reading this correctly, is that the entities who back the least risky mortgage instruments must shore up their balance sheets and not contribute further to the mess.  Fannie and Freddie will still guarantee MBS.

      "Don't you dare speak to us like we work for you." - Ben Harper

      by The Termite on Sat Aug 11, 2007 at 10:44:08 AM PDT

      [ Parent ]

  •  This has (3+ / 0-)
    Recommended by:
    3goldens, Cliss, kyril

    been big news locally with Homebanc filing for bankruptcy protection.

    A friend in real estate told me that Countrywide has bought the Homebanc mortgages and that they are foreclosing on the homes. Apparently, the rumor is that Homebanc was letting people stay in their homes and trying to work with them. I guess since Countrywide probably bought the mortgages for cents on the dollar, they are only going to make money if they forclose. It's getting nasty and I have a sneaking suspicion that it's only going to get worse. Like Blue Jersey mom above says, there's still lots of subprime mortgages out there that haven't started the interest rate climb yet.

    What happens to people who try to refinance but can't get financing now? Are they in the current mortgage until they can no longer afford the payments? If the payments go up, they can't make the payments and they can't get refinancing then foreclosure would be the only option here imo.

    I feel like the whole thing is a train wreck that you feel absolutely horrible about, can't really do anything about but at the same time can't stop watching.

    I'm too disgusted right now to think of a sig.

    by Ga6thDem on Sat Aug 11, 2007 at 09:55:31 AM PDT

  •  Should the FED be bailing out the excesses of.... (5+ / 0-)

    greed that always fuels speculative bubbles? I don't think so...using taxpayer funds to bail out the bad decisions of the mortgage holders leads to moral hazard. It is NOT our price to pay. The investor class, especially those wealthy enough to invest in hedge funds and sub-prime mortgage funds should pay for their irrational decisions.

    •  If taxpayer funds were used, then... (0+ / 0-)

      ...this is a question of values.

      Why is this government bailing out investors while letting New Orleans drown and forcing people made homeless by the breached levees to live in trailers glued together with formaldehyde that makes puppies and kittens and babies and old people and anyone with allergies ill?

      Bonddad, where did the money come from to bail out the stock market?

      What do taxpayers get for the bail-out (if taxpayers supplied the funds)?

      Will the Cheney/Bush regime run out the clock? Or will Democrats stop being afraid, and do what is moral: impeach?

      by skywriter on Sat Aug 11, 2007 at 10:25:16 AM PDT

      [ Parent ]

      •  I'm speaking of what's to come which is a call to (0+ / 0-)

        rescue some of these firms/funds. They will be trying to save their ass and will be coming to raid our pockets for their greed.

        The recent FED action is to provide FED funds (not taxpayer funds) at low interest rates to feed cash (liquidity) into the system.

        •  I am not a Wall Street analyst (0+ / 0-)

          and not an economist -- so I may be wrong here.

          But didn't Cramer know when he was screaming to open the Discount Window, and didn't the Fed know when they exactly that, that in the long run they couldn't keep it open until November, and in the long run it would only make things worse anyway?

          <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

          by superscalar on Sat Aug 11, 2007 at 10:43:17 AM PDT

          [ Parent ]

          •  Well, the window provides liquidity (cash) for (3+ / 0-)

            the current "crisis". The hope is that once things stabilize, they won't need to keep the window open. They'll probably open and close it as necessary for the near future.

            Watch out when they (the banks) start clamoring for a Federal bailout. That's when you should guard your pockets! Remember the 1980's oil crash and S & L bailout? same thing; different crisis. Mortgage asset crash instead of oil.

            •  The reference to November meaning (2+ / 0-)
              Recommended by:
              farleftcoast, Cliss

              Well, the window provides liquidity (cash) for the current "crisis".

              That this is just the tip of the iceberg, and they won't be able to so easily cover the bets come October.

              Watch out when they (the banks) start clamoring for a Federal bailout

              This is what I was thinking in another comment here.

              <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

              by superscalar on Sat Aug 11, 2007 at 11:01:46 AM PDT

              [ Parent ]

          •  Cramer is nuts (0+ / 0-)

            the discount window is always open. Banks don't like to use it because it is a sign of extreme weakness and says to the market that no one but the lender of last resort will lend them money.

        •  What's the source of Fed funds? (0+ / 0-)

          Will the Cheney/Bush regime run out the clock? Or will Democrats stop being afraid, and do what is moral: impeach?

          by skywriter on Sat Aug 11, 2007 at 10:49:12 AM PDT

          [ Parent ]

  •  Question for bonddad (2+ / 0-)
    Recommended by:
    3goldens, kyril

    There's an old saw, I think, that says when stocks do down, bonds go up.

    What's going on with the bond market?

    and is there any truth to that saw?


    Will the Cheney/Bush regime run out the clock? Or will Democrats stop being afraid, and do what is moral: impeach?

    by skywriter on Sat Aug 11, 2007 at 09:57:40 AM PDT

  •  It's ironic that this financial crisis (9+ / 0-)

    is a direct result of Bush's war on the poor.  If the poor had the cash they had before Bush got in office, they wouldn't be defaulting in numbers that created a crisis in subprime.

    So, if Bush's fat cat cronies lose their shirt over this, I say what goes around comes around.  It couldn't happen to a more deserving bunch of greedy crackpots.

    Unfortunately, the rest of us will suffer right along with them.

    I have no doubt, however, that Bush's hate filled pals are still operating under the delusion that screwing over the poor and middle class could never impact THEM.  They're clueless.  And probably planning how they can scoop up all those houses in foreclosure for pennies on the dollar - no doubt by using tax dollars.

  •  More questions for bonddad (2+ / 0-)
    Recommended by:
    joanneleon, MarketTrustee
    1.  Did the Fed use public funds to bail out the stock market this week?
    1.  Where exactly did all those billions come from?
    1.  Did they crank up the printing presses and print billions more to bail out the stock market?
    1.  If the answer to the third question is yes, then isn't that a prescription for inflation?

    'splain it in simple terms, please, for the vast masses of non-economists out here.


    Will the Cheney/Bush regime run out the clock? Or will Democrats stop being afraid, and do what is moral: impeach?

    by skywriter on Sat Aug 11, 2007 at 10:01:13 AM PDT

    •  asdf (5+ / 0-)

      "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

      by bonddad on Sat Aug 11, 2007 at 10:24:28 AM PDT

      [ Parent ]

    •  Answers below.... (6+ / 0-)

      but keep in mind the FED didn't bail out the stock market. They just opened their window to borrowing cash from the FED's reserves which must be repaid with interest at some point. It is like you getting a low-interest loan to cover your expenses to get over a rough period.

      That calmed the markets down somewhat. Liquidity is cash in the banking system and the FED just pumped some in. It isn't taxpayer money --- yet.

      But that's possibly coming in a huge bailout of the banks/lenders caught up in greed. Guard your pockets (although it'll just be borrowed against the future like the war)

      •  Good answer, Steve, but... (0+ / 0-)

        where did the Fed get the reserves?

        What constitutes the reserves?

        Thanks for making this a little more clear.

        Will the Cheney/Bush regime run out the clock? Or will Democrats stop being afraid, and do what is moral: impeach?

        by skywriter on Sat Aug 11, 2007 at 10:48:11 AM PDT

        [ Parent ]

        •  It's more complex but basically... (2+ / 0-)
          Recommended by:
          3goldens, skywriter

          banks are required to keep a percentage of deposits in reserve at the FED. They can't loan these out. IT's set by the reserve requirement of the FED. The FED can make these funds available to loan at the FED funds rate or the discount rate (that is the only interest rate the FED controls).

          So basically, they can make these funds which are held in reserve outside the banking system, available thus injecting cash into the system that ordinarily wouldn't be there.

          It could be inflationary but won't be if it's short-term and the it prevents the economy from toppling into recession.

          •  So, it is money owned by people who save? (1+ / 0-)
            Recommended by:

            People who put money into FDIC-insured savings accounts?

            That's the money the Fed is using to add liquidity to the stock market?

            Will the Cheney/Bush regime run out the clock? Or will Democrats stop being afraid, and do what is moral: impeach?

            by skywriter on Sat Aug 11, 2007 at 11:11:15 AM PDT

            [ Parent ]

            •  Basically, yes. All the money you deposited in (1+ / 0-)
              Recommended by:

              your bank is either loaned out or in deposit at the FED. Only a small % is kept on hand for daily withdrawals. That's how it works, and how a bank makes money. So the FED can inject or withdraw liquidity (cash) into the system through the discount loan window. The money isn't printed and it isn't taxpayer money --- yet.

              That will come later when the banks/funds want to be bailed out for all these bad loans based upon greed.

    •  buying a bucket load of bad paper (6+ / 0-)

      with one hand in FR bank reserves,
      other hand selling T-bill issues,
      one foot selling US munis, foreign CB bonds,
      and one foot cranking the mimeograph.

      probably. lemmesee...

      serious version

      This was the case on Friday, on which the fed funds market opened with some trades at 6%, some 75 basis points above the rate that the Fed has declared it will defend. So, the Fed used open market operations in the form of repurchase agreements to create new reserves, evidently in the amount of $38 billion. One can put this number in perspective with the following graph of what Federal Reserve deposits usually turn out to be over a two-week period. This was a huge intervention, on a par with the remarkable measures taken September 11, 2001, when the interbank loan market faced severe disruption from the physical destruction of a large number of the key institutions that make these markets. Again this week it seems that banks suddenly desired a huge volume of reserves in excess of the amounts they are required to maintain.

      watchacall a classic month-end scramble M-TH to make rent F.

      Diversity is the key to economic and political evolution.

      by MarketTrustee on Sat Aug 11, 2007 at 10:54:33 AM PDT

      [ Parent ]

  •  When the Fed adds liquidity? (5+ / 0-)

    Where does that money come from?

  •  Hey But the fundamentals are strong (2+ / 0-)
    Recommended by:
    farleftcoast, 3goldens

     cuz that is what the Prez said and we are only 9 trillion bucks in debt - so we got lots of flexibility on borrowing;

     and our infrastructure is in great shape - sturdy mines, wonderful bridges, air control system in tip top shape and

     most important - we got tort reform - so if there is fraud, sloth and negligence throughout the system - we can't do anything about it to make things better.

     So quit worrying - be happy - heck - we may even get Herbert Hoover back.

  •  ok, correct me if I'm wrong, but the liquidity is (0+ / 0-)

    just the fed printing more money, correct?
    is that the same for the other central banks?
    why is this not inflationary, and if it is, how does it compare with lowering the prime?
    Since they've stopped printing the M3 (?) amount of money they're printing, do we have a  handle on how much we're dumping dollars?
    I worry these short term patches are more get past jan 20, 2009...

    The Nation Guard: They're in firefights over there, so they can't fight fires over here

    by askyron on Sat Aug 11, 2007 at 10:53:36 AM PDT

    •  Sort of (3+ / 0-)

      The reason there is a "liquidity" crisis is that those owning the sub-prime mortgages can't sell them without taking a loss.  Most have the financial wherewithal to hold the properties until they get their book value back.  In FL last time, it took five years.

      While they are holding their liquidity is lower but only in the sense of not being willing to take a loss. They could unload them at discount but choose not to take the loss unless they have to.

      They can go liquid if they are willing to take the loss.

      If they hold the mortgages, then they don't have money to lend for new properties but because most of the sub-prime mortgages were by "pop up" mortgage companies it doesn't really affect the conventional, 20% down mortgage market.

      •  Right. and expect them to turn to the Federal (1+ / 0-)
        Recommended by:

        government to "buy" all these subprime mortgages as they did in the S&L crisis in the 80's. They want the gains but don't want to absorb the risk.

        I sure hope Dems are strong enough to oppose a taxpayer bailout. The pressure will be on.

        •  Not like S&L crisis. S&L were gov't backed (0+ / 0-)

          to the amount of $100K per investor so it's very different than the S&L debacle.  Also the S&L involved outright fraud by people like Neal Bush so it was finding a way to making good on $100K govt guarantee to protect average citizen from fraud that the govt should have been preventing.

          In this case there's no govt guarantee or lack of govt oversight, so the Fed looks to be letting the river boat gamblers take the hit and just ensuring stability short term as the sub-prime debt finds its true home.

          For example, American Home Mortgage goes down and defaults on loans to its banks for collateral. So those banks take the hit. But are the bank's loans such they are backed by the collateral of the sub prime mortgages that AMH owns, if so the bank's loss is very low as it now owns the mortgages and the property attached which it can and will sit on vs. taking a loss. These are not liquid as property value has dropped below book value so the bank needs the Fed to provide cash so bank can operate since so much cash is now tied up on slow moving real estate.

    •  See above....they don't have to print the money (0+ / 0-)

      it exists in the FED accounts OUTSIDE of the private banking system. The FED makes this available for loans thus increasing the money supply. It would be inflationary IF we are at full employment and it continues for the long-term. In the short-run as a way to get over the liquidity crisis, it isn't inflationary.

  •  Financial Question (0+ / 0-)

    So when the Fed injects money to provide liquidity does that mean it is essentially buying worthless debt that no one else would touch?  What happens when this debt goes bad?  Are we left holding the bag?  Seems like another great use of our tax dollars.

    •  Look at answers by IndySteve upthread (5+ / 0-)

      He speaks to this-- I don't completely understand it but it sounds as if the reserves the Fed is using is not yet taxpayer funds but will be if the market begs Congress for a bail-out.

      The reserves, I think, are taken from a percentage of savings that banks are not allowed to loaning. The rules are they have to hold a certain percentage of savings deposits in escrow, and somehow those dollars are at the Federal Reserve Banks, and it is those funds that are being dumped to "liquify" the markets.

      How much of those reserves are FDIC-insured is one question.

      Whether the Fed could lose those funds is another.

      IndySteve said the money dumped into the market has to be repaid with some sort of interest.

      But don't accept my summary-- go look at how IndySteve 'splains it. He seems to have a better understanding.

      Will the Cheney/Bush regime run out the clock? Or will Democrats stop being afraid, and do what is moral: impeach?

      by skywriter on Sat Aug 11, 2007 at 11:37:50 AM PDT

      [ Parent ]

  •  Memo to headless chickens:Market at 3 month "low" (3+ / 0-)
    Recommended by:
    Odysseus, RainyDay, Involuntary Exile

    If you look at the market even short term, it is a 3 month "low".

    Parsing hourly market fluctuations is meaningless for any investor with more than a three month investment horizon.

    Look at "way back" to six months, market is up 5%. That is discounting the recent decline.

    One year, up 20%.

    The market could "crash" 20% and most folks would be even to where they were a year ago.

    On top of that, the securities in the current correction are mortgages backed by the hard collateral of real property vs. the completely worthless junk tech stocks of the 2002.

    •  Thanks for pointing that out. (0+ / 0-)

      It needed to be said.  Some of us -- particularly those of us who live in the heartland and never experienced the real estate bubble -- aren't in the-sky-is-falling camp yet.  If mortgages dry up alltogther, then I'll be worried.  Until then, those who were prudent will be able to weather a bit of a rough ride without completely tossing their cookies.

      •  FL and CA go throught these real estate bubbles (0+ / 0-)

        every 5 years or so and drag the rest of the country with them.

        Key stat to keep in mind is that market could go down 20% and most folks would be where they were a year ago.

        Not exactly the end of the world.

        Chance of the market dropping 20% are slim to none.

  •  For what it's worth (0+ / 0-)

    Here's two things happening in my little corner of Oregon.

    First, thanks to the diminishing new home market and the strong Canadian dollar, Pope & Talbot, the company that owns the local pulp mill is about to go under.  Their facilities are mostly in Canada and so the combined effects of decreasing demand, changes in raw material availability and strong Canadian $ have pushed them into putting their mills on the block to be sold.   Their stock plunged to a point where they face being delisted.  If our local mill closes rather than being sold, our area faces the loss of some of the few remaining family wage jobs in the area.  It very well may close because wood suitable for pulping is in very short supply here.  So much so that it's almost impossible to get firewood even after a winter where we lost a large number of big trees in the county during a heavy windstorm.  And the price of firewood, when you can get it, is up 50%.

    Second, I received a solicitation from Countrywide Home Loans today in the mail.  We're being invited to REFINANCE our house with a 40 year mortgage and the more we borrow, the larger the rate discount we "might" be eligible for.  And one of the reasons for refinancing??  Why to "get cash to do the things you want" according to this mailing.  So they're still out there trying to drum up business.  A 40 YEAR MORTGAGE????  Yeah, right.  We're retiring in seven.

    I think we're all in for a bumpy ride.

    •  and I thought Oregon was the place to move to... (1+ / 0-)
      Recommended by:
      farleftcoast being toughted as the best place to "live off the land" and get ready for the big crash (peak oil and all that).

      Republican't Leadership is a dangerous combination of cut-backs and incompetence.

      by casamurphy on Sat Aug 11, 2007 at 11:50:17 AM PDT

      [ Parent ]

      •  It may be all that (2+ / 0-)
        Recommended by:
        Odysseus, farleftcoast

        but until you're living only off what you can produce on your land, you need to make a living.  While tech jobs were touted as being great to replace the timber industry jobs lost in the early 90's, that hasn't worked out very well.  Many of those jobs have already flown away.  And the tourist industry jobs that pay low wages will dry up slowly as gas gets more expensive and the tourists stay home.  BTW - productive land in the southern Willamette Valley is going for $30,000 or more an acre for the small plots still available for development.  And that's the key - PRODUCTIVE land.  You can still buy 5 acres of bug killed timber on the east side of the Cascades for pretty cheap, but good luck making it into a viable homestead.

  •  Irony in my personal situation (5+ / 0-)

    Due to events too complicated to explain here, I was never required to set up an escrow account with my ARM.  At this point my $25,000 of outstanding county property taxes (which are a lien superior to the mortgage company's) together with the outstanding mortgage balance are quickly exceeding the value of the property.  The mortgage company sent me a letter saying that they would go to court to force me to set up an escrow account and increase my montlhy payment to quickly cure their poor standing in terms of security on the loan.  I kindly explained to them that if they did, I would purposely go into foreclosure and walk away.  They haven't responded in over 3 months.  I suspect that when my current 7.75% rate renews this fall it will push my monthly payment beyond what I am willing to pay and that I'll just walk away anyway. (Please don't waste your time condemning my "irresponsibility" -- I became disabled with adequate cash reserves and the "best" disability income insurance on the market which claim was unjustly denied and has gone to suit.  Few people in my shoes would be able to keep a house which is taxed at $9000 per year, has a $200,000 mortgage and only a $250,000 market value of which is dropping like a lead ballon.)

    This whole mess has me thinking about how States (like my Texas)without income taxes -- who heavily rely upon real property taxation to fund local government -- will deal with their budget "cruch" as their tax base takes a dive.

    Republican't Leadership is a dangerous combination of cut-backs and incompetence.

    by casamurphy on Sat Aug 11, 2007 at 11:47:25 AM PDT

    • taxes in lieu of income taxes (1+ / 0-)
      Recommended by:
      Involuntary Exile

      is just about as regressive as it gets. And now with Federal and states refusing to raise revenues, the local property tax is going up wherever it can. Income taxes without many deductions and with progressive rates are much better than property taxes.

      •  I'd like to see property taxes abolished and (0+ / 0-)

        replaced by income taxes at the state, county and local levels, but there's absolutely no chance of that ever happening.  It would be impossible to get local school boards to give up their taxing authority and force them to live within the restrictions of current revenue.

  •  It Can't Happen Here (2+ / 0-)
    Recommended by:
    farleftcoast, pissedpatriot

    It can't happen here
    I'm telling you my dear
    That it can't happen here


    Chris Dodd is our man to stop the Huckabee stampede!!

    by GW Chimpzilla on Sat Aug 11, 2007 at 11:48:37 AM PDT

  •  We got this report for free? (3+ / 0-)

    I would expect to pay about $300-$400 for that. Thank you.

  •  Weekend update from your roving reporter, (2+ / 0-)
    Recommended by:
    brjzn, Involuntary Exile

    first of all, there were some very peculiar things happening on Friday afternoon, which lead me to believe there are bigger bombs about to drop on Monday.

    1. On Friday, the SEC suddenly decided to audit the books of mortgage lenders, banks, and other financial institutions.  Why?  Oh, just routine was the reply from the SEC.  One wonders, are there any big surprises like hiding losses which are about to splash on the front page?
    1.  I just read that Wells Fargo Bank could be in big trouble.  Any truth to the rumour?
    1.  The Fed / White House made a very big deal about "injecting" money into the system in the hopes that it will fix everything.  Love the word 'inject'; any connection with drug use there???  The White House made it very clear it's an issue of LIQUIDITY, or lack of cash.  So if we just throw money at the problem it will fix it.  The problem is, it's not a liquidity crisis; it's a confidence crisis.  The french bank Paribas had no confidence in its portfolio, and banks don't trust each other.  There is no amount of cash that can fix that.

    At work - all weekend.
    You just know the people from the Fed / bankers / stock market people / anyone connected with the banking system is at the office, while everybody else is by the Barbeque.  These guys will be trying to save their collective asses because the dam is about to break.
    You can see them, as they sit at the table in the board room.  Weighing the options.  Very, very few options this time. You can clearly see beads of sweat on their upper lips.  Their blue oxford shirts have sweat stains under the arms.  They've resorted to pulling out the Absolut Vodka.  

    They're trying to figure out where the weakest link is.  And how big the losses will be.  That's the problem with the world economy: it's so interconnected, it's like one big giant spider web which has tentacles everywhere.  They don't know how the storm could affect weaker economies, like maybe the Philippines.  

    Or even a much stronger country like Sweden which is nonetheless leveraged to the hilt.  Anyone of these countries could get hit hard.  Then when that happens, is that country starts imploding and the tsunami comes back to the US.  THAT's what they're afraid of. It could become similar to the Thai Baht meltdown which almost brought down the US currency back in the 90's.  

    The system is incredibly weak and vulnerable right now.   Pumping more money into the system will not help it.  It's a crisis of confidence, not cash.  

    They are reciting their most fervent prayers right at this moment, thanking God for at least Saturday & Sunday before the storm builds up again.

    •  "Injecting" some plain English maybe: (0+ / 0-)

      IF the injection is coming from reserve funds, that is a wild guess by the central bank that the reserves won't be needed soon, which sounds exactly like a BAD idea.

      The reserves are for bank runs, right? To make sure the bank that's forced to have a reserve can cover its liquidity problems?

      What happens when some loudmouth on TV says "Get your cash before the banks close!!!!!" and there's no money to ship because it's already AT the banks?

      So, hiding behind verbal bushes, the central banks are backing the BETS of the working banks that there will be no runs. Despite looming (January -->) ARM credit crunches on house mortgages that will have people cashing in their bank accounts to pay double or more mortgage rates.

      Sounds like 1929
      to me. But what do I know, except that the USA has been running on hopes and confidence games for ten years now.

      Think we'll make it out the door of the casino before the world market breaks our legs?

      Where you gonna run TO?

      Accountability: the ultimate Progressive Value...

      by ormondotvos on Sat Aug 11, 2007 at 02:05:54 PM PDT

      [ Parent ]

      •  That's what I want to know.... (1+ / 0-)
        Recommended by:

        Where you gonna run TO?

      •  Well, I think you just figured out (1+ / 0-)
        Recommended by:

        what the REAL problem is.  Of course.  It's a bank run that they're afraid of.  That is probably the underlying issue.  My blood ran cold after I read your post, and I realized that bad loans, foreclosures, subprime banking issues are actually a side issue.  

        It's the confidence issue.  This past week, I couldn't figure out why they made such a big deal of the Fed "injecting" money into the system, SUPPORTING the banks, the dollar.  All of that was CURRENCY issues, but what did it have to do with the subprime lending market.

        It confused me because it's kinda like you have 4 flat tires on your car.  You decide to change the oil, and you make a really big show that now your car is fixed.  You brag to the neighbors, and they are just looking at your tires.

        It completely confused me, and you can see from the posts above a lot of other people are wondering the same thing.  
        Kudos for figuring it out.

  •  As Concerning as all this is... (4+ / 0-)

    .... what really chilled me today were these paragraphs about Long Term Capital Management's difficulties a few years ago:

    "What matters is who owns what, who is under pressure to sell, and what else do they own," he said. People with mortgage securities found they could not sell them, and so they sold other things. "If you can’t sell what you want to sell," he said, "you sell what you can sell."

    He recalled that the crisis that brought down the Long-Term Capital Management hedge fund in 1998 started with Russia’s default on some of its debt. Long-Term Capital had not invested in Russia’s bonds, but some of those who owned such bonds, and needed to raise cash, sold instruments that Long-Term Capital also owned, and on which it had borrowed a lot of money.

    It appears that in this case, securities backed by subprime mortgages were owned by people who also owned securities backed by leveraged corporate loans. With the market for mortgage paper drying up, and a need to raise cash, they sold the corporate securities and that market began to suffer.

    So, it doesn't matter so much, how much the loans lose.  It matters who owns those loans, and how leveraged they are against them; and, then, what else those people will try to sell, since they can no longer sell those loans.

    I suppose that's what's called the problem "working itself through the market".

  •  Link to $600k+ home foreclosures (0+ / 0-)

    Following is a link to homes valued at $600,000+ in the (prosperous?) suburb of Eden Prairie, MN. Note the recent date many of the listings were first listed for sale. Link to Agony   Oh by the way, within 2-3 miles of these homes the old lier in chief will be holding a fund raiser for Senator Norm Coleman, later in September.

  •  What if the FED stops? (1+ / 0-)
    Recommended by:

    The Diary states:

    Today, the main news was the Fed's announcement that they would add liquidity to the market if needed.  This gave the market a floor.  We opened lower and rallied twice

    Ok, what if the Fed did not step in, and will someone please explain whose money the Fed is handing/lending out, and when will it/we get it back. Lack of liquidity in my world means a couple things (1) No cash in the bank and no one willing to lend me money; (2) No money in the bank and a number of assets I erroneously think are of value, but of which no one shares my opinion, which in my world means only one thing, I am SOL.

    All of this talk/analysis means only one thing, the powers that be are attempting to fashion a bullshit story passing the buck on someone else.

  •  Madison Avenue Bullshit (0+ / 0-)

    Why is bush and cronies always out saying the
    US economy is good?

    If it were good, the people know they have a
    living wage and they know they have savings
    not debt.

    We don't need these aholes to sell us this bullshit
    we live.

  •  "Hey, we're losing all our damn money" (1+ / 0-)
    Recommended by:
    Pam from Calif

    Randolph Duke: Exactly why do you think the price of pork bellies is going to keep going down, William?

    Billy Ray Valentine: Okay, pork belly prices have been dropping all morning, which means that everybody is waiting for it to hit rock bottom, so they can buy low. Which means that the people who own the pork belly contracts are saying, "Hey, we're losing all our damn money, and Christmas is around the corner, and I ain't gonna have no money to buy my son the G.I. Joe with the kung-fu grip! And my wife ain't gonna f... my wife ain't gonna make love to me if I got no money!" So they're panicking right now, they're screaming "SELL! SELL!" to get out before the price keeps dropping. They're panicking out there right now, I can feel it.

    [on the ticker machine, the price keeps dropping]

    Randolph Duke: He's right, Mortimer! My God, look at it!

    <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

    by superscalar on Sat Aug 11, 2007 at 03:34:48 PM PDT

  •  Problem with the SMAs? (0+ / 0-)

    I believe there is a problem with the way the moving averages on the charts are being interpreted.

    Consider the first of those charts, listing a year of weekly data from the financials sector. On August 10, the 200 "day" moving average has a value of approximately 46. Yet, 200 days prior to August 10 is January 29. Or, if the 200 days only refers to trading days, then it would be approximately November 1, 2006. (I'm not sure what holidays the market takes.)

    Anyway, for either of these time periods, there is not a single day of data which even comes CLOSE to being as low as this so-called average.

    Looking at the data, I suspect that what you have been referring to as the 200 day moving average in these charts is actually the 200 WEEK moving average.

    For the 200 DAY moving average, the financials have already dropped around four points below that value. (Assuming I'm interpreting the charts correctly.)

    Anyway, you might need to redo some of your analysis, unless there's something about the term "200 day moving average" which I'm misunderstanding.

    congratulations on your foreskin -- osteriser

    by bartman on Sun Aug 12, 2007 at 10:21:54 AM PDT

  •  "Sky is falling" with ARMs (0+ / 0-)

    So we are going to have a total nightmare from ARMs re-setting in 2007 and 2008? OK, then, what about when the one-year ARMs re-set in 2005? 2004? 2003? Where was the nightmare scenario there?  How about 2000? 1998? 1994?  

    ARMs have been in use for a long time (Freddie Mac has info on 1yr ARMs back to 1984), and have gotten quite popular in the past decade and especially since 2000-2001 when the current "gold rush" of home prices started to bubble then kept on bubbling for a few years.  Most definately they were abused, teaser rates with negative amortization appeared, standards were loosened and out-right fraud existed, but ARMs IN AND OF THEMSELVES are a very valid form of financing.  

    The whole problem with rising defaults in bubble states is only in SUBPRIME loans, not ARMs in an of themselves.  Not even "no doc" Alt-A loans are having issues, contrary to financial media reporting, nor prime loans, jumbo loans, etc.  

    I've seen estimates of banks reporting as much as 85% of prime ARM loans are refinanced before re-set.

    Easy money lead many to make horrible decisions, like using interest only loans to "afford more house". Little surprise they get bitten in the ass when they realize after the fact they've been having negative amortization and now owe more on their house than they paid.  If you had read the fine print, taken time to understand your options, you won't be having these issues.  

    Subprime is the problem and until ACTUAL signs appear of other types of mortgages having rapid increases of defaults, this is all smoke.

  •  I don't understand (1+ / 0-)
    Recommended by:

    So couldn't the companies that made the loans, say, decide not to charge people the extremely higher rate, and instead offer to accept a lower and more reasonable interest rate that people could afford?  Or is the higher rate locked in when people sign up for the loan?  Or is it too much to expect lenders not to take complete advantage of people in order to stop a recession?  

    I guess these are dumb questions from someone who would have a hard time feeling sorry if lenders were suddenly getting paid less for doing nothing other than having money than they originally made people agree to pay them.

    "Loyalty to country: always. Loyalty to government: when it deserves it." -Mark Twain

    by quackard on Sun Aug 12, 2007 at 08:58:19 PM PDT

mickey, Alumbrados, JWC, buffalo soldier, vicki, coral, Bill in Portland Maine, Mogolori, alyosha, teacherken, roonie, Detlef, Downriver Gal, daninoah, Gooserock, Unstable Isotope, tiponeill, JTML, Wintermute, bramish, eeff, Mnemosyne, WI Deadhead, marjo, SallyCat, Newsie8200, bumblebums, RepubAnon, exNYinTX, wonkydonkey, nyceve, ScrewySquirrel, DaleA, highacidity, boadicea, PBnJ, roses, oceanspray, itsmitch, mrclean, ctsteve, antirove, Alna Dem, DemocracyLover in NYC, sockpuppet, Chicago Lulu, superscalar, BmoreMD, MTgirl, GW Chimpzilla, Andrea inOregon, On The Bus, Catte Nappe, inclusiveheart, bwintx, randallt, Eckhart1234, sfluke, daisycolorado, DominoDude, rickeagle, kd texan, eigenman, environmentalist, kevsterwj, MichDeb, ddp, joanneleon, cantwait08, farleftcoast, 3goldens, Alexander G Rubio, panicbean, YucatanMan, Bouwerie Boy, Pam from Calif, EconAtheist, jimstaro, cassidy3, Phil S 33, brenda, BobOak, blue jersey mom, bmaples, Marcus Junius Brutus, wiscmass, SignalSuzie, Ekaterin, murasaki, RainyDay, fhcec, CCSDem, alrdouglas, Coherent Viewpoint, danmac, Keone Michaels, vigilant meerkat, BlueInARedState, emeraldmaiden, 4thepeople, Marcus Tullius, Marshall Collins, lao hong han, Bush Bites, Data Pimp, JVolvo, JeffinQC, va dare, Peter Laesch, Dreaming of Better Days, respectisthehub, Temmoku, Noor B, marykk, california keefer, NCDem Amy, terabytes, java4every1, Unbozo, Strabo, I am Me, mcc777c2, tcdup, mudslide, JML9999, Snakes on a White House, keikekaze, willb48, TomP, Red no more, TheFatLadySings, Peperpatch, Involuntary Exile, Residentcynic, Tam in CA, Tropical Depression, allie123, caps lock on

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site