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Apparently you don't know that the tax payers give nothing to the FED, why would they after all? The FED can create money! The FED has been doing a variety of things during this crisis. For example to increase liquidity they have essentially given secured loans to financial institutions, the collateral being hard to price assets (often mortgage related securities). The tax payer is not on the hook for anything. The only thing that keeps the FED's actions in check is the possibility of inflation.
So yes, I believe you and many others on this forum don't understand how the FED works.
Figures on what exactly? I'm talking about future! If you were not aware that some of the money has already paid back then please get your head out of the sand.
The point of the comment is that these are LOANS as a result the loss to tax payers is unknown until all the loans mature. Get it? I think there will be a loss, but it will be no where near the amount loaned. The amount borrowed is the maximum loss. But its possible there is a profit.
Yeah you are not addressing the absurdity in your comment. Again, you are suggesting that another crisis is "already baked in"....yet currently there is no panic. So I can conclude that 1.) traders/investors are all stupid, 2.) jimhcom has a time machine, 3.) jimhcom has no idea what he is talking about.
Gee, I wonder which I'll pick. By the way isn't the CDC busy with H1N1?
CDS is short for Credit Default Swap; I would not expect you to know that, as you know nothing about how the financial system works to begin with. When I say the problems are baked in it means that derivative failures are a given, some were designed to fail, and to take the investors money. The only thing postponing that is the money being supplied by government to attempt to inflate another bubble. Why should people panic now? There is still some money to be made, and greed will always win out over caution, but fear, when the time comes, will always win out over greed. There will be another derivative driven crises on the horizon and when it happens I will be sure to remind you of this debate.
Meanwhile the housing market is still hurting badly (What caused the recession) millions and millions of people are jobless, others have taken substantial pay cuts or are on the cusp of losing their jobs, credit card defaults are through the roof, and we keep hearing this "Jobless recovery" line.
They are trying their hardest to have people buy homes to keep the housing market propped up, but all they are doing is spending more money and delaying the inevitable. The government is completely clueless and has no idea what to do to turn this economy around. Focusing their efforts instead on healthcare reform which they will certainly mess up.
If you are seeing a turn around right now in the economy, you are not paying attention to the underlying issues that caused the recession in the first place.
This has been a worthwhile debate, thanks to all who have participated.
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Originally Posted by ufcrules1
1) Meanwhile the housing market is still hurting badly (What caused the recession) ...
2) They are trying their hardest to have people buy homes to keep the housing market propped up, but all they are doing is spending more money and delaying the inevitable ...
3) The government is completely clueless and has no idea what to do to turn this economy around ...
4) millions and millions of people are jobless, others have taken substantial pay cuts or are on the cusp of losing their jobs, credit card defaults are through the roof, and we keep hearing this "Jobless recovery" line.
5) Focusing their efforts instead on health care reform which they will certainly mess up.
6) If you are seeing a turn around right now in the economy, you are not paying attention to the underlying issues that caused the recession in the first place.
The housing market did not cause the recession, it is a symptom of the ruling class's botched attempt at socio-political illusion. The underlying cause of the recession is the relative loss of competitiveness of the US economy and what should have been a visible relative decline in the standard of living and expectations thereof going forward. You clearly and insightfully acknowledge this in points 2), 3), and 4).
As for the original question, housing prices may indeed drop further or at the least will stagnate in 2010. Its effect on the overall economy may be mitigated by the fact that wholesale interest rates will probably remain near zero, therefore mortgage rate resettings may not add a further devastating impact.
Within 30 years time, most likely nominal housing prices will be higher than what they are now, probably even than what they were at the peak of the 2003-2007 bubble.
Whether on inflation-adjusted terms housing will prove to be a good investment depends on a myriad of factors, both case-by-case and macro, among which the general relative competitiveness of the US economy.
Worth repeating ...
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3) The government is completely clueless and has no idea what to do to turn this economy around ...
To the health care debacle, add industrial policy, transportation policy, and, perhaps most importantly, energy policy.
Whether ignorance or willful neglect on the part of the US ruling classes, the real question, then, is to what extent does one have confidence in the country going forward.
I doubt that the US economy will collapse in the sense of widespread food, transportation, and utility interruptions, I don't believe that the ruling classes are that irresponsible (though history, most boldly in the last century, certainly shows that this is possible).
My view is that the US, after around 200 years of exceptionalism, is increasingly becoming like any other body politic in history, with its vicissitudes and follies, but total collapse is not, at least for the moment, the most likely outcome, though relative mediocrity is.
In such an environment, certain common individuals, even acting in concert with one another, can use their comparative advantages, both domestically and internationally, to survive, maybe even prosper, with some sort of cultural and spiritual dignity.
Your questions are irrelevant to what I posted. Like the post I quoted, you are addressing points with red herring fallacies.
This is gibberish. You spoke about the obligation to the tax payers, in what way is what I posted irrelevant to that? The "obligation" at this point is completely unknown, you have to wait until all the loans mature to know that.
Anyhow, the issue at hand is "tax payer bailouts" and everything I've said is relevant to that matter. Its ironic that you even mention red herrings....
CDS is short for Credit Default Swap; I would not expect you to know that, as you know nothing about how the financial system works to begin with.
Yes its clearly me that does not know how the financial system, not the guy that refers to "derivatives and CDC". Even excusing the use of "CDC" to refer to credit default swaps, well credit default swaps are derivatives! So....saying "derivatives and CDS" is like saying "Cars and fords".
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Originally Posted by jimhcom
When I say the problems are baked in it means that derivative failures are a given, some were designed to fail, and to take the investors money. The only thing postponing that is the money being supplied by government to attempt to inflate another bubble. Why should people panic now?
Gee, if the financial system is going to collapse that would indeed be a reason to panic. But look, its clear you are just repeatedly using the word "derivative" without actually knowing much about them. The majority of the problems in the derivative markets have been priced in, if anything there was an over correction. There are still some systemic problems though (and these are the only sorts of problems that will hurt the financial system), but they are more tractable than the issues that existed 1-2 years ago. The FED/treasury are not going to remove support for these markets until they create new regulation.
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Originally Posted by jimhcom
There will be another derivative driven crises on the horizon and when it happens I will be sure to remind you of this debate.
All sorts of things could happen in the future, but its very unlikely that there will be another derivative driven crisis any time soon. The next major financial years down the road will likely be based on something totally different.
But feel free in greater detail to outline how there is going to be another systemic collapse in some derivative market (which one, by the way?).
Yes its clearly me that does not know how the financial system, not the guy that refers to "derivatives and CDC". Even excusing the use of "CDC" to refer to credit default swaps, well credit default swaps are derivatives! So....saying "derivatives and CDS" is like saying "Cars and fords".
It must be frustrating trying to defend positions that even you probably do not believe yourself. It requires you to resort to tactics like harping on mistakes in sentence structure, or spelling, instead of making substantive points. But then when you adopt the position that there is nothing wrong with the banking system, the economy is on a sound footing, and that the FED is all powerful and can just print its way out of any problem, I suppose it is easier to use underhanded tactics.
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Gee, if the financial system is going to collapse that would indeed be a reason to panic. But look, its clear you are just repeatedly using the word "derivative" without actually knowing much about them. The majority of the problems in the derivative markets have been priced in, if anything there was an over correction. There are still some systemic problems though (and these are the only sorts of problems that will hurt the financial system), but they are more tractable than the issues that existed 1-2 years ago. The FED/treasury are not going to remove support for these markets until they create new regulation.
There are more that $560 TRILLION worth of these unregulated time bombs floating around financial institutions world wide at present. Since you profess to be the foremost authority on business and derivatives, perhaps you could enlighten the rest of us how much of that $560 TRILLION the FED is capable of covering? 1% ? 5%? How Much? With the dollar flirting with all time lows, the Chinese demanding Bernanke to stop printing and devaluing their dollar holdings, and the oil producing countries running away from the dollar like it was terminally diseased, I would say the FED's ability to run the presses is just about exhausted. That is unless they want foreign governments to begin to use the dollar for toilet paper.
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All sorts of things could happen in the future, but its very unlikely that there will be another derivative driven crisis any time soon. The next major financial years down the road will likely be based on something totally different.But feel free in greater detail to outline how there is going to be another systemic collapse in some derivative market (which one, by the way?).
Hey ck it out, I found a grammatical error! This must mean (by your own reasoning) that you know absolutely nothing about the subject! LOL
As far as your assumption that there will not be any more derivative driven corporate or financial system bankruptcies, that is laughable. It is comparable to saying there will not be any more deaths from H1N1. None of us know when or who will be the next victim, because no one knows who or what is written into these contracts, they are UNREGULATED. They were allowed to written without rules. The people in the government, who were supposed to be regulating them, did not think fraud should be regulated! Those same people are still setting policy. It may be possible to mask the problems in the financial sector for a short time by injecting a few trillion dollars into the problem, but sooner or later, just like in the home mortgage market, the debts either have to be paid, or written off. If they have to be paid, the taxpayers are broke. If they have to be written off, corporations collapse.
But then when you adopt the position that there is nothing wrong with the banking system, the economy is on a sound footing, and that the FED is all powerful and can just print its way out of any problem, I suppose it is easier to use underhanded tactics.
Your thinking is black and white. I have never once suggested there is nothing wrong with the banking system, that the economy is on "sound footing", or that the fed is all powerful.
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Originally Posted by jimhcom
Since you profess to be the foremost authority on business and derivatives, perhaps you could enlighten the rest of us how much of that $560 TRILLION the FED is capable of covering? 1% ? 5%? How Much?
Just as before, the way you talk about this shows you don't understand the derivative markets. Why even yap about it? Just read about it. What you are talking about is the notional value of all derivative markets. The FED would have to spend no where near that amount to support the derivative markets. You do realize that the FED supported derivatives with multiple trillions in national value when Lehman Brothers collapsed right? The FED did a lot by simply getting the institutions to work together, for example say the default of Lehman caused contracts to come due such that Company A owes Company B, Company B owes Company C, and Company C owes Company A. Here you can avoid the actual exchange of money since there is a loop.
The main problem with derivatives during the crisis is/was counter-party risk. Some institutions wrote far too many contracts against mortgage related derivatives and when those markets blew up they were not able to pay out, which meant that the company that purchased the contract was no longer hedged against the event, etc. Clearly, these markets need to be better regulated.
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Originally Posted by jimhcom
As far as your assumption that there will not be any more derivative driven corporate or financial system bankruptcies, that is laughable.
Huh? I have no idea what a "financial system bankruptcy" is... But I never stated that no more companies will fail due to derivative related problems. Rather, its unlikely there will be another financial crisis any time soon related to derivatives. The problems in these markets are pretty well understood at this point and regulations will be put in place. Whatever causes the next financial crisis will be of a completely different nature.
Not going to happen, the government and FED has made it clear they are going to support the housing market. They can't keep prices inflated forever, but they can drag out the correction for many years Japanese style.
The rapid collapse seen in 2008 was actually atypical, real estate is usually pretty sticky. Nobody wants to buy when prices are declining 2~3% a month, but most don't notice if prices decline .3~.5% a month.
You may think that there is some government salvation in the works for all that bad debt, but, what you are obviously overlooking is the fact that the rest of the world will no longer buy up that crap in hopes of appeasing the US financial circus that had brought unprecedented wealth to the likes of China and India. This mortgage fraud has a much wider path of destruction than the one we have seen in the US.
This is not about real estate, nor is it about housing, those are just the ingredients in the pie that was concocted to transfer the wealth of a nation to it's newest class of rogue investors. When we speak of real estate and housing we are directly addressing a basic human need, to those on Wall street it's always about the money, they have shown that they are not above sinking the boat of the average American, and why would they, when the government bails their excess and rights their ship?
You may think that there is some government salvation in the works for all that bad debt, but, what you are obviously overlooking is the fact that the rest of the world will no longer buy up that crap in hopes of appeasing the US financial circus that had brought unprecedented wealth to the likes of China and India.
The rest of the world already dramatically reduced their purchase of agency debt 1-2 years ago, the mortgage markets are now largely supported domestically (by the FED, investors, etc). The FED/treasury will continue to support the mortgage markets until they are healthy enough to support themselves.
In terms of government debt, China, etc can only stop purchasing US debt if they stop manipulating their currency. China, the US, and other countries all have an interest in slowly re-aligning the global financial system.
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Originally Posted by jertheber
they have shown that they are not above sinking the boat of the average American, and why would they, when the government bails their excess and rights their ship?
It takes two to tango. None of this would have happened if the "average American" was prudent and lived within their means. But the "average American" is lazy, greedy and gluttonous.
But of course blaming wall-street is a lot easier than addressing the systematic problems in American culture.
The rest of the world already dramatically reduced their purchase of agency debt 1-2 years ago, the mortgage markets are now largely supported domestically (by the FED, investors, etc). The FED/treasury will continue to support the mortgage markets until they are healthy enough to support themselves.
In terms of government debt, China, etc can only stop purchasing US debt if they stop manipulating their currency. China, the US, and other countries all have an interest in slowly re-aligning the global financial system.
It takes two to tango. None of this would have happened if the "average American" was prudent and lived within their means. But the "average American" is lazy, greedy and gluttonous.
But of course blaming wall-street is a lot easier than addressing the systematic problems in American culture.
Well, the bizz cheerleaders are out in force on this one. You don't seem to understand that the scammy mortgage originators, real estate sales folk's, and most of all those who "packaged" those bad mortgages for sale all over the planet ARE businessmen. The "gluttonous", "lazy", "greedy" American's in fact WERE living within their means, did you think that all those mortgages were drawn up for the more well off folk's? Your thinking is of the type that brought on those scams, after all, according to you, Wall Street is really just a bunch of sweet old men who are greatly misunderstood.
Without the ARM and option loans the recession would have arrived a lot earlier for the home builders. Who could have bought those overpriced homes on 12 dollars an hour had it not been for the easy financing that facilitated the collapse?
Lastly, the Chinese investor class has been buying US generated securites for a long time, India also owns a fair amount of that bad paper that was made up of bogus mortgages. Yes Wall Street is the Mecca of scammers, they became accustomed to the cash flow being generated by all that dubious debt, and remained silent even after they knew the securities ratings were bogus.
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