A Sequel to the Subprime Mess?

The danger is another wave of large financial losses and a chain reaction of fear that paralyzes investors and banks.

By Robert J. Samuelson | NEWSWEEK

Dec 24, 2007 Issue

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Posted By: James_Smith @ 02/08/2008 4:36:24 AM

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Posted By: steve_808 @ 02/03/2008 11:04:34 AM

Comment: Samuelson is another inflationist in love with the central bank that constantly robs us with its constant monetary / credit expansion. Inflation is and will always be the growth of money and credit in excess of the production of goods. Samuelson should know this! His comment that the Fed is "trying to avoid recession while cutting inflation" is a ridiculous statement. The Fed is increasing the growth of credit and money to avoid a recession by trying to paper over its previous errors. The Fed can do ONLY two things, it can control the quality of money or the quantity, these two items are mutually exclusive. Obviously, to help its banking brothers and Wall Street it only works on the quantity, so there goes the quality (Purchasing Power) of our savings. Thank you Bennie, you Wall Street slave.
Posted By: Roy Hobbs @ 01/05/2008 8:25:50 AM

Comment: Gee, when a thief can remove a credit card offer from my trash, apply for credit at a different address and receive the card with no questions asked and I'm responsible for the charges is it any wonder why we have a mess on our hands
Posted By: kensab @ 01/04/2008 2:22:17 PM

Comment: Robert Samuelson's claim that the defaults and rating downgrades were "unexpected", and that they were "unpleasant surprises" is astonishing. How could anyone with an IQ above the level of idiot believe that the easing (if not total collapse) of normal lending standards would not, eventually, lead to exactly the mess we are in right now? The answer, of course, is that knowledgeable people in the industry did know this, but were driven by their greed to ride the bandwagon as long as they could, believing that someone else would be left holding the bag. This is akin to the game of Musical Chairs, only we can call it Musical Mortgages.
Like the game of Musical Chairs
Posted By: angelface @ 12/22/2007 9:59:09 PM

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Posted By: zekeput1@msn.com @ 12/21/2007 11:36:58 AM

Comment: For decades, the US economy has been based on a steady flow of easier and easier credit. When people reached the limit of their credit cards, home loans, etc, loosen the lending standards. Do away with regulatory controls and keep the good times rolling. This time we scraped the bottom of the barrel. Free loans to the indigent, the con artist criminal, etc. I don't know of any sort of person left to loan to. If we had stopped it in the beginning or never let it get started, there would have been severe financial consequences. So here's what we'll do, we'll let it go on until it threatens the entire system and we'll lie to everyone we can sell our junk to. We'll all get in a huddle and develop a get rich scheme ( for us) and sell it everywhere. Who cares if it only lasts 2-3 years, we'll be rich by then. Then the gullible Americans will call for another level of economic loosening (just give money away). Americans are so child like in their belief in what ANYONE who looks like an authority tells them, that they will fall for it. We'll create new schemes to save the system we have just destroyed. We'll tell them a new bunch of lies. We'll whine and cry to the Federal Reserve, who will just print a whole new batch of money to solve our problem and it all rolls on. Can't go on forever but, who cares, I got mine. The problem is everyone is attempting to talk about this in a rational, logical manner. These type of activites are purely criminal in nature and have to be understood as such.
Posted By: Elie Elhadj @ 12/18/2007 5:36:45 AM

Comment: Credit 101 to bankers

In December 1863, Hugh McCulloch, then Comptroller of the Currency of the United States and later Secretary of the Treasury, addressed a letter to all national banks. Here are some of the paragraphs.

???Let no loans be made that are not secured beyond a reasonable contingency. Do nothing to foster and encourage speculation. Give facilities only to legitimate and prudent transactions. Never renew a note or bill merely because you may not know where to place the money with equal advantage if the paper is paid.
???Distribute your loans rather than concentrate them in a few hands. Large loans to a single individual or firm, although sometimes proper and necessary, are generally injudicious, and frequently unsafe. Large borrowers are apt to control the bank; and when this is the relation between a bank and its customers, it is not difficult to decide which in the end will suffer.
???If you doubt the propriety of discounting an offering, give the bank the benefit of the doubt and decline it; never make a discount if you doubt the propriety of doing so. If you have reasons to distrust the integrity of a customer, close his account. Never deal with a rascal under the impression that you can prevent him from cheating you. The risk in such cases is greater than the profit.
???Pay your officers such salaries as will enable them to live comfortably and respectably without stealing; and require of them their entire services. If an officer lives beyond his income, dismiss him; even if his excess of expenditures can be explained consistently with his integrity, still dismiss him. Extravagance, if not a crime, very naturally leads to crime.
???The capital of a bank should be reality, not a fiction; and it should be owned by those who have money to lend, and not by borrowers.
???Pursue a straightforward, upright, legitimate banking business. ???Splendid financing??? is not legitimate banking, and ???splendid financiers??? in banking are generally either humbugs or rascals.???
Gamblers should not be entrusted with society???s saving. Banks must not be led by gamblers. Banks should rid themselves of any officer with the slightest hint of gambling tendency. Central banks ought to institute a qualifying psychological test to bar bank leaders with gambling propensity from wheeling and dealing in customers??? deposits and shareholders equity.
http://journals.aol.com/eeh100/daring-opinion/
Posted By: cramerp @ 12/17/2007 5:02:11 PM

Comment: The bank???s solutions for fixing the subprime meltdown are the same as what contributed to the problem. When lenders make loans they want some insurance in case of default, but their insurance should have been to get greater down payments or not to make loans in the first place. Instead they offer initial teaser interest rates or higher rates based on poor credit or work history. By penalizing the people who have the hardest problem of making payments, they increase the likelihood of a loan default. Don???t wait for President Bush to help the only good choice is to freeze the interest payments for all and wait for the real estate market to improve. There will still be some pain, but the plan should be to reduce rather increase bankruptcies.

PAUL CRAMER
2700 CABRILLO WAY
OXNARD CA 93030-8408
(805) 485-5671
cramer_paul@hotmail.com
Posted By: cramerp @ 12/17/2007 5:00:31 PM

Comment: The bank???s solutions for fixing the subprime meltdown are the same as what contributed to the problem. When lenders make loans they want some insurance in case of default, but their insurance should have been to get greater down payments or not to make loans in the first place. Instead they offer initial teaser interest rates or higher rates based on poor credit or work history. By penalizing the people who have the hardest problem of making payments, they increase the likelihood of a loan default. Don???t wait for President Bush to help the only good choice is to freeze the interest payments for all and wait for the real estate market to improve. There will still be some pain, but the plan should be to reduce rather increase bankruptcies.

PAUL CRAMER
2700 CABRILLO WAY
OXNARD CA 93030-8408
(805) 485-5671

cramer_paul@hotmail.com
Posted By: nawawimohamad @ 12/16/2007 5:02:44 AM

Comment: The Fed can bail out businesses, but who will bail America if it cannot pay back its lenders.

What is the total budget deficit now? The latest count is that for the next 3 generations, the people will be living on borrowed money and soon enough the 4th generation will face the same predicament.

Economically the US is depedent on China, militarily on its allies and foreign labours for its workforce. For that matter the US is also dependent on the "terrorists/dictators and the like" for its interference with the various countries.(Simply no terrorist/dictators - no need for US presence).

The US has never been more fragile. However Bush (and Olmert) still have the urge to contemplate on a Third World War without having any serious thoughts on the current deficit.
There are external factors which can cause a much greater mess than the subprime (which is domestic) and there are several scenarios which can trigger this to happen.

The economic wizards and think-tanks have blindly overlooked the subprime mess (they should have taken heed of the "economic bubble" , remember?) and were caught by surprise such that they have no real solution to this problem ( since there are conflicting opinion on what to do). The subprime mess could have been prevented. Similarly the bailing out of the US can be prevented.

Unfortunately the US will not take heed, it will go on taking things for granted.

Similarly
- Posted By: Fazsha @ 02/04/2008 09:59:28
  
  Comment: Who cares if your grandchildren end up in poverty while China goes rich. China earned it, they worked their butts off while we shopped and spent away our prosperity. This is capitalism. If you're smart, you buy inverse ETF's (such as SKF) and buy gold, and let everyone else go broke around you. We all know what's going to happen, but only some will act to protect themselves before it does.