How to survive; 2008 - 2009 (company, investing, banks, currency)

[70Ford]

Think I'm about to eat some serious crow....
Oil Prices - Crude Oil Plunges to Settle Below $37 as Demand Slows - Futures Commodities Overview * News * Story - CNBC.com

[58robbo]

Originally Posted by HappyTexan

Over the years home values have gone up and down and back up. I don't recall so many people just walking away when their values went down. They stuck it out. Eventually values went back up.

It certainly says something about the state of America when someone just walks away from a debt they willing entered and pass the blame to someone else.

happy, i disagree with you here. when someone entered the contract they didn't swear on the holy bible and the souls of their forefathers that they'd pay the debt. they entered a contract knowing what their obligation was and what the consequences would be if they defaulted. in days gone by, the bank made sure that when they stuck their necks out the borrower did the same. if the banks were stupid enough not to ask for a deposit then they have themselves to blame.....

.....that is unless the govt guaranteed the debt in order to stimulate the economy and strongarmed the banks into lending (CRA)

[Thatguywho]

Originally Posted by HappyTexan

Over the years home values have gone up and down and back up. I don't recall so many people just walking away when their values went down. They stuck it out. Eventually values went back up.

It certainly says something about the state of America when someone just walks away from a debt they willing entered and pass the blame to someone else.

yea, someone should speak to those lenders about borrowing money, taking on that debt, and then gambling it on a 3x priced home with someone who had to furnish no documents to buy it at 100% or higher of the over priced value.

Dang it

[HappyTexan]

Originally Posted by Thatguywho

yea, someone should speak to those lenders about borrowing money, taking on that debt, and then gambling it on a 3x priced home with someone who had to furnish no documents to buy it at 100% or higher of the over priced value.

Dang it

I certainly don't disagree with you that the lenders had little to no ethics.
What a mess it created..it seems that no one had any skin in the game and passed the buck til the last one left standing had a bad loan backed up by a house losing its value with no one living in it or paying the mortgage.

[Thatguywho]

Originally Posted by HappyTexan

I certainly don't disagree with you that the lenders had little to no ethics.
What a mess it created..it seems that no one had any skin in the game and passed the buck til the last one left standing had a bad loan backed up by a house losing its value with no one living in it or paying the mortgage.

I do not think any of us know how exactly banks get those loans and the specifics. But I do know some things about it.

A bank borrows x amount of dollars and then lends x-10% or some number like that out. That 10%, maybe less or more, goes to the lender and along the pipeline for 'kickbacks/referrals/commisiions/etc' to loan originators, brokers, etc.

And then the loan is usually sold on a secondary market as part of a package or a security.

So, as a lender, I am looking at a long term drop in the Fed lending rate, which is an average rate, to borrow and lend out at a much higher rate.
So when the rates finally got to one percent, I probably could get it at less than .50, maybe a 1/4 if I had a lot of loans. Since I am taking 5 to 10% off the top of the loans, it means the more money I can borrow and lend out, the more I make.

So, at 1/4% I can offer teaser rates of 2% or 3% and drive a housing boom. If I can borrow 500 billion that means I may make around 10% of that, 50 billion in just a few years of loans.

Lets say I keep those loans and service them. 500 billion at 3% for the first year while I pay interest only 1/4% to the fed. I am making a ton. Then the second year, even more. And the best part is, even though I am rolling in money coming in, it is all interest, so on the books I am still owed 100% by the borrower.

Now the third year in an ARM is the decider. It jumps a lot. Doubles payment or more depending on the way the loan was structured. A teaser also means it was lower than the actual rate to start. So that 2 or 3% loan in the third year now adjusts to a normal ARM rate PLUS adjusts as an ARM wound. Now it is 5% + 3% =8%.

Normal lending practices say that a borrower can usually make that third year in payments and will either walk away or refi.

So for two years I make 2 to 3% interest on 500 billion. Then a third year I make 8% on 500 billion. Plus my initial 50 billion. Then everyone defaults.

My loss on the books is 500 billion even though a huge percentage of that was realized, it was all profit and nothing towards principal. Tax write off is great. I get a bail out which covers my loans. The three years covers almost 30 years of interest payments on the 500 billion.
I also get to keep houses which I can resell and make more money.

And now that I have 500 billion in play and the boom is a bust, I can reloan that to prime borrowers who cannot and will not walk away at a nice good 5 to 7% knowing they will be stuck in it for at least 7 years.

While I am paying 1/4% on money I basicallly got back already.

OR...

I over did it and went belly up. However, I get to keep my 50 billion + all the interest I made and spread that through my partners.


Something like 5 trillion bucks was thrown out there by lenders who made a fortune. If the bank fails, only the shareholders, depositors, and employees are hurt. The owners walk away with billions and billions and billions.

So, I am sure they said, 'to heck with it'.

And all you hear in the media is the attack on the sub-prime borrower who is actually a small percentage of loans out there. Most are people who bought 5 or 10 properties.

No..this was pure profit grab by the big guys. It was not their money, so they used other peoples money and made a fortune.

Our congress had a private session with those guys and the only thing they have done is given money to the banks. More money for them.

If you voted for anyone in office now or the last 8 years, you made a mistake. Maybe we should not listen to the media when they endorse someone.

I can hear the lenders talking to congress in that private meeting. 'we gave you billions in contributions to the rep and dem party. Many to you individually. We have all the records. If we go down, you go down. Now give up 7 trillion dollars. Thank you, nice doing business"

When you elect people who are bought, they will sell you out everytime to cover their booty.

[Thatguywho]

Was doing some numbers, just to look at the anatomy of a loan...some of it anyway.


300,000 loan, 6% fixed for two years, ARM after that with an assumed cap of 3% (which usually always goes up the first year the full cap)

The first two years you will pay down 7,600 in principal while paying 43,167.60 in total payments to the lender. Still owing 292,400 from your 300,000.

The third year you will be at 9%. You will pay approximately $4,000 in principal and total payments of 28,966.44. Still owing 288k in principal.

So, the 300k loan you took out after three years goes this way.
72,134 was paid to the lender. You still own 288k. That means the lender got back about 25% already in by the beginning of 4th year.

Now, lets do sub prime..
That rate will start at 9% and then go to 12 in year 3

first two years: 57932.88 in payments, 4,100 in principal paid down.
third year: 37030.08 in payments, 1,100 in principal paid down

total payments: 94,962.96
total principal paid down: 5,200.

So now the lender has about 30% paid down and almost all is still owed.


Now, the way the loans really operate are different with these fixed/adjust/option arms and such in how the interest is really amortized. The fact is, it is all about keeping the high principal owed while making profit with every payment. Knowing the loan will have to be refied or walked away after the year it starts adjusting will mean the lender gets paid back by a refi, bailout, mortgage insurance, etc, while walking away with either the home to resell and 30% profit on the total, or just the 30%. Plus the initial 'extra' they got which usually would cover their cost of borrowing that amount for 3 years.

A foreclosure sold at 70% value is still a huge gain for the lender.

Makes you want to be a lender huh?

[texdav]

At some point with production cuts and the dollar losing value as the feds prints more and lowers interest rates to zero;crude will go up.Inflation will be a bi-product of these moves to get people that are holding cash forced back into the markets as very other haven is loosing value.

[70Ford]

$33.87

Bloomberg.com: Australia & New Zealand



/It's delicious.

[Briolat21]

$34 a barrel - like the OP's linked article discussed would be fantastic (in the short term).

I am really loving the $1.51/gallon at the pump!

[Thatguywho]

okay, since it is the only claim to fame, lets round out the 12 month predictions from april 2008 til april 2009 and see what happened.

Home prices will flip around but continue down. Drastic drop when the Dem president takes over in January (you will almost think it was timed).

Home Prices Drop Record 19% In January
Home prices in the U.S. plummeted a record 19% in January from a year earlier, as demand plunged and foreclosures continued their relentless rise, according to an industry report released today (Tuesday).
The January S&P/Case-Shiller index fell more than forecast and topped the 18.6% decrease in December. The gauge of 20 U.S. real estate markets has fallen every month since January 2007, indicative of a U.S. housing market in the throes of a deep recession.

After the Dems take the whitehouse the supports trying to hold up the economy will finally buckle. It's not personal, its politics. Perfect planning to ensure a Republican ticket win in 2012. Look for 2009 to be a bad year financially. Gotta love top level political strategy.

By September It was evident Obama would be a landslide victory. The last quarter of 2008 began with the october crash, 30 days before the election and kept going.

Worst quarter for the economy since the 1930s
In terms of lost wealth, lost jobs, falling output, the fourth quarter stands out

Worst January for the markets in 113 years.
Worst Febuary since 1933
March saw worst dollar drop in 25 years
Worst Dow drop for any new president
Worst first quarter since 1939
Look em up on google.

2009 is a very bad year so far and getting worse.

Prices on condos will drop and be close to 2002/3 levels on their way down to 2001 levels. Many small condo complexes will be bought as apartments or most likely timeshares.

Condo market is crashing hard. Although some complexes have been bought out, most are still staying alive although barely. Many condo complexes are facing an inability to pay their bills as huge percentages of the buildings are in foreclosure or default.

The pricing is about right, but the condos have held on to being solvent in most cases. Timeshares have not happened and only a few buildings are being reconverted so far. I guess this is a half right prediction that may take a while longer to come true, if ever. I think if you are in a condo right now, life is not so great.

Home prices will fall and keep falling, then stagnate for at least 4 years. Bargain hunting time (in about 2 years). Loans will suck as 7% will be the new ‘good fixed rate.’ But your total debt will be a few hundred thousand less if you buy during the stagnate period.

Home prices falling? Check
7% new good fixed rate? It is the standard for the new sub prime lenders called "soft money lenders". Check
The rest will take some time to see.

All those bankrupt sub prime lenders? Wow, hey, they all started new companies. Wow, amazing how that worked out. Look for that beginning next year.

They are called 'soft' hard equity/money lenders. They are just sub prime lenders with bank backing. A hard equity lender bases the loan on the equity in the home, the 'soft' ones do a regular loan process all the way through along with an equity check.

There are 1,000s of them, all over the place, everywhere.

A whole bunch of fake baloney will happen on capitol hill regarding the lending industry but nothing will happen, other than your taxpayer money making sure the lenders did not lose a penny.

Do I get a kewpie doll for this prediction?

Wall street and major news outlets will continue to talk about ‘downturns’ and other things to make you feel rosey. That is mostly to suck the money out of those people who can still be gullible enough to fall for it. Remember who they work for. It ain't you.

This is the bottom...no this is the bottom. Big rally. Real estate rebounding, etc, etc, etc..... they are still doing it now. Even Jon Stewart had to go after Cramer to try to shake some sense into people.

Gold, silver, and Oil will bankrupt many as it drops to the floor, bringing dumb investors to their knees. Oh yea, oil is gonna go to two hundred you say. Hey, it is your money, go ahead and gamble it like a moron. It will start dropping back down on its way to 34 bucks a barrel by year's end (it will eventually get to 34, not at years end, but heading towards it on its way down.) As for gold and silver, if you buy it now you are really stupid.

Oil was 33.87 on Dec 19th, the end of the january contracts. So technically this was for january 2009. We can agree to disagree, but it was 32 bucks near the end of the Feb contracts too. It has stayed between 32 and 49, mostly around 40 until the last half of march where it finally got into the low 50s.

Gold was around 940 at this prediction. It was supposed to go to 1200, 1400, 2000 and beyond. It got to 1000 and dropped to 700. Then back up to 1000 and now back to the high 800s. Gold costs money to buy, sell, and store. Gold has not dropped yet, but it has not surged either, so the drop was wrong (though there is still time this month) but buying it still would cost you money as a loss is incurred.
Not a matter of if it will drop, but when.


so, how did the predictions go? Pretty well.