The US Economy and Current Financial Crisis

[CanadianChris 0]

So it'll be better for our economy that the only people able to buy houses are those that can save several hundred thousand dollars first? How does that make any sense?

 

What's wrong with renting or living within your means? People don't NEED gigantic houses. Well, unless you have 6 or 7 kids.

Who's going to buy the houses for everyone to rent?

[Guest]

Apartments. Townhouses. Basically what people used to do prior to the beginning of my lifetime. A lot of people will be abandoning the suburbs and heading back to urban life.

 

But we are going to have a lot of empty houses and there's nothing anyone can do to change it. Unless we socialize the housing industry.

[Cheech Tremendous 0]

Apartments. Townhouses.

 

But we are going to have a lot of empty houses and there's nothing anyone can do to change it. Unless we socialize the housing industry.

 

But 909, someone has to own the apartments. Someone has to build the townhouses. Money has to come from somewhere; it doesn't appear out of thin air. The people who invest in the commercial sector require credit as well. That's the point I'm trying to push here.

[The Niggardly King 0]

Money has to come from somewhere. It doesn't appear out of thin air.

 

Sure it does, just pull a Nixon and keep printing it out... even though it means nothing.

[Guest]

I fully understand your point. I don't really have any answers, I just have my opinion on what got us into this problem in the first place. We're looking at hard times for a few years. One more thing.

 

Money has to come from somewhere; it doesn't appear out of thin air.

It has been appearing out of thin air. For years!

[CanadianChris 0]

The concept of available credit has been taken to silly extremes, but credit is essential for the economy to function. Lending institutions just need to tighten their requirements for extending credit. Make people save up $40K or $50K as a down payment on a house. Don't lend to obvious credit risks. Stop sending out credit invitations to people who have more than enough available credit. My wife and I, for instance, have nearly $60,000 in available credit, in addition to two mortgages, and we still get invitations in the mail.

[At Home 0]

[sarcasm]Yes, everything is fine guys.[/sarcasm]

 

No one will be able to get credit ever again, you will all lose your homes, jobs, families, and pets, the United States will be reduced to a third-world country, and we will enter into a second Dark Ages.

[Cheech Tremendous 0]

[sarcasm]Yes, everything is fine guys.[/sarcasm]

 

No one will be able to get credit ever again, you will all lose your homes, jobs, families, and pets, the United States will be reduced to a third-world country, and we will enter into a second Dark Ages.

 

Yes, Parker, that is exactly what we are saying. Fire and brimstone, cats and dogs living together, all that jazz.

 

Jeez. Have a little perspective. The problem won't go away by pretending it doesn't exist. Perhaps there is a degree of hyperbole being employed here, but that is a reflection of some us trying to show that we are mired in a dire financial situation.

[Guest Vitamin X]

[sarcasm]Yes, everything is fine guys.[/sarcasm]

 

No one will be able to get credit ever again, you will all lose your homes, jobs, families, and pets, the United States will be reduced to a third-world country, and we will enter into a second Dark Ages.

 

Yes, Parker, that is exactly what we are saying. Fire and brimstone, cats and dogs living together, all that jazz.

 

OH NO ITS BEGUN

 

On the flipside to this, while I like the guy, pbone's parents make like half a million a year or something like that, so I imagine it might be a bit difficult for him to understand how badly middle to lower class families are really going to be affected harshly at this point, but that's just my guess.

[Cheech Tremendous 0]

On the flipside to this, while I like the guy, pbone's parents make like half a million a year or something like that, so I imagine it might be a bit difficult for him to understand how badly middle to lower class families are really going to be affected harshly at this point, but that's just my guess.

 

Parker's a bright kid (I mean who drops references to the Hawley-Smoot Tariff Act?), but he's still only 17 years old. I hate to use that as a negative against him, but this might be one of those cases where a college education and real world experiences might be necessary. If I didn't have a degree in Economics and a job in finance, I don't know I'd make sense out of any of this. I can't imagine how the general public feels.

[MarvinisaLunatic 0]

The concept of available credit has been taken to silly extremes, but credit is essential for the economy to function. Lending institutions just need to tighten their requirements for extending credit. Make people save up $40K or $50K as a down payment on a house. Don't lend to obvious credit risks. Stop sending out credit invitations to people who have more than enough available credit. My wife and I, for instance, have nearly $60,000 in available credit, in addition to two mortgages, and we still get invitations in the mail.

 

This has nothing to do with the family side of credit and all to do with the business side of credit in which major companies require frequent loans or "revolving credit" to have money for daily operating expenses. IF banks freeze their money and make no credit available to these companies, then those companies will be forced to shut down and cease operating until as such time as they can acquire money from the banks to operate again.

 

Now just imagine if you work for a company that has to shut down due to the banks freezing their money..guess what..you wont have any money either, and if you do have money in the bank, your first instinct will probably be to go get it out so you can maybe scrape by while you're out of work, but that only exacerbates the problem by creating a run on banks.

 

And I've heard that as soon as the end of October, if some sort of solution isn't worked out for the problem that the banks may be forced to freeze their money.

[Dandy 0]

I don't think there are a lot of people on here thinking it is just personal credit, Marv, but what you are saying is true for the commercial side. However, it goes way deeper than that.

 

For example, I am a salaried manager at Walker Machinery, a Caterpillar dealership, and my job is assumed safe in most circumstances from layoffs and such. However, we have countless contractors, mining companies, etc. set up on 28 day billing cycles, or credit accounts. If they can't get the necessary credit they need, they rent or buy less and less from us, causing the company to make less money, and needing to cut expenses and possibly jobs. But let's say those companies can continue to get the credit they need. There is still a huge likelihood that they will be building less and developing less land due to people not having the credit available to pay them to do the job. Every industry will be effected in varying ways if there is no money to be loaned. If you are in an industry that is not directly related to finance, you will still feel the trickle down effect.

[EricMM 0]

I don't really have any answers, I just have my opinion

 

909, you are well aware that Americans have been using mortgages to buy houses for a LOOOOOOOOOONG time without fucking up the economy? That its practically impossible to buy a house, now, without a very very very long term loan with a whole shitload of collateral. The house. If we can't even get that, then no one can buy houses.

 

I guess that would lower, drastically, the amount houses are worth. Which might sound good to you if you're looking to buy one. But no one's gonna sell a house to you for nothing while they're still paying off their mortgages.

[PUT THAT DICK IN MY MOUTH! 0]

(I mean who drops references to the Hawley-Smoot Tariff Act?)

 

Someone who recently took AP US History and is trying to sound smart???

[bob_barron 0]

Someone who saw Ferris Bueller?

[Cheech Tremendous 0]

Senate to vote Wednesday on bailout package

 

Senate leaders scheduled a Wednesday vote on a $700 billion financial bailout package after agreeing to add tax breaks and a higher limit for insured bank deposits in a bid to attract enough votes to reverse a shocking defeat in the House and send legislation to President Bush by the end of the week.

 

...

 

Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Senate banking committee, said the Senate decided to move quickly, citing signs from some House members that they regretted their initial vote after the markets plunged in response.

 

...

 

On the morning after the sell-off on Wall Street, Congressional offices reported a shift in angry calls from constituents, with some now demanding that lawmakers take some corrective action — a distinct change from the outpouring of public opposition that contributed to the defeat of the plan.

 

FDIC insurance may increase to $250,000

 

The chairwoman of the Federal Deposit Insurance Corporation, Sheila C. Bair, gave a ringing endorsement for the concept of increasing the limit on insured deposits to $250,000 from $100,000, at least temporarily.

 

...

 

Democrats said they had no recollection of that provision being proffered in the chaotic talks, but top Democratic Congressional aides said the leadership was willing to add it to the bill and knew of no opposition.

 

Increasing the cap on deposit insurance, proponents say, would bolster confidence in the banking system and would help small-business owners, who often keep more than $100,000 to meet payroll or for daily operations.

[At Home 0]

(I mean who drops references to the Hawley-Smoot Tariff Act?)

 

Someone who recently took AP US History and is trying to sound smart???

 

I'm glad someone saw through that

 

 

Ironically, the Hawley-Smoot Tariff Act isn't in the AP US History curriculum (or at least says the Princeton review last time I read it); the first time I ever was taught this was in my IB 20th Century History class, and it wasn't in the curriculum for that class either.

 

 

No, look, here's my opinion. First of all, my parents don't make half-a-mil a year. They make less than that, and they struggle with taxes just like everyone else. They both were born and raised in utter poverty in Michigan, and they made a good name for themselves with my dad's business and their timeshares they rent out. Besides the point. Cheech, I'm trying to look at this at a pragmatic standpoint. I know what's going on, I spent the last week reading all about it, whatever. When I come in here, there's some discussion, and there's some people throwing up their arms crying the end of the world. Here's my view on it: it's a bad crisis. But it's a classic recession coupled with a lending and credit crisis. A lot of money is going to have to go into this one way or another, and it's not going to be a prosperous next few years. But with that, I'm not going to put my money on this really truly affecting people in dramatic ways. It's not another Great Depression. It's a shitty recession.

[SuperJerk 0]

I'll repeat my question...

 

Given that I've heard this proposal from a few critics of the bailout now, I've been wondering all day how exactly a capital gains tax cut would help the economy. Usually, cutting the capital gains tax (a tax on the profits from the sale of stocks, land, or other property and commodities) would be an incentive to sell stocks and property...but in our current economic climate, there's already too much selling and not enough buying. That's what's driven both real estate and stock prices way down. So why encourage even more selling with a cut in the capital gains tax? I just don't get it.

 

Any ideas?

 

Anyone? Anyone? Bueller?

[Cheech Tremendous 0]

I'll repeat my question...

 

Given that I've heard this proposal from a few critics of the bailout now, I've been wondering all day how exactly a capital gains tax cut would help the economy. Usually, cutting the capital gains tax (a tax on the profits from the sale of stocks, land, or other property and commodities) would be an incentive to sell stocks and property...but in our current economic climate, there's already too much selling and not enough buying. That's what's driven both real estate and stock prices way down. So why encourage even more selling with a cut in the capital gains tax? I just don't get it.

 

Any ideas?

 

Anyone? Anyone? Bueller?

 

I can't think of one reason why a capital gains tax cut would help anything at all. You're on your own with that one.

[SuperJerk 0]

I was hoping Marvin might step up, since the last person I heard put the idea forward was Glen Beck.

[Guest Vitamin X]

(I mean who drops references to the Hawley-Smoot Tariff Act?)

 

Someone who recently took AP US History and is trying to sound smart???

 

I'm glad someone saw through that

 

 

 

No, look, here's my opinion. First of all, my parents don't make half-a-mil a year.

Sorry, I was under that impression from this post made in the Campaign Thread:

Thought this chart about the 2 candidates' tax plans was cool:

 

 

from Washington Post

 

Wow, that fucking sucks for my parents. Wonder how they're going to take having to pay the government an extra $115,000.

 

I guess that's more than half a mil, though.

[Jobber of the Week 0]

This is a much better picture, since it actually shows you some perspective of the population we're talking about.:

 

 

We are literally talking about one in three million.

[Guest]

I don't really have any answers, I just have my opinion

 

909, you are well aware that Americans have been using mortgages to buy houses for a LOOOOOOOOOONG time without fucking up the economy? That its practically impossible to buy a house, now, without a very very very long term loan with a whole shitload of collateral. The house. If we can't even get that, then no one can buy houses.

Why is that, pray tell.

 

I guess that would lower, drastically, the amount houses are worth. Which might sound good to you if you're looking to buy one. But no one's gonna sell a house to you for nothing while they're still paying off their mortgages.

I'd like you to tell me how any injection of taxpayer dollars is going to prevent this exact thing from happening. Specifically, please. The Fed just threw 650 billion into the market on the 29th. What has that done for our situation?

[EricMM 0]

............

 

Because houses cost hundreds of thousands of dollars.

[Guest]

Boy, you sure told me.

[Cheech Tremendous 0]

But with that, I'm not going to put my money on this really truly affecting people in dramatic ways. It's not another Great Depression. It's a shitty recession.

 

You may or may not be right, but that doesn't mean we should ignore what's going on and pretend that it will go away. A depression is the worst case scenario right now. I don't know if it has a 1% chance or a 50% chance, but the threat is real.

 

I hate to post long articles that people skip over, but here's a simple answer as to how we end up in a depression. It's probably more concise than I could be.

 

... there is good reason for the public’s skepticism. The experts and policy makers who so desperately want to take action have failed to tell a compelling story about why they’re so afraid.

 

It’s not enough to say that markets could freeze up, loans could become impossible to get and the economy could slide into its worst downturn since the Great Depression. For now, the crisis has had little effect on most Americans, beyond their 401(k) statements. So to them, the specter of a depression can sound alarmist, and the $700 billion bill that Congress voted down this week can seem like a bailout for rich scoundrels.

 

Mr. Bernanke and his fellow worriers need to connect the dots. They need to use their bully pulpits to teach a little lesson on the economics of a credit crisis — how A can lead to B, B to C and C to Depression.

 

...

 

Why are we talking about the Depression, anyway?

 

... a Depression-like contraction — a 30 percent drop in economic activity — is highly unlikely. The country is also far richer today, which means that a much smaller portion of the population is living on the edge of despair. No matter what happens, you’re not likely to see shantytowns.

 

But the Depression is still relevant, because the basic mechanics of how the economy might fall into a severe recession look quite similar to those that caused the Depression. In both cases, a credit crisis is at the center of the story.

 

...

 

The same thing is happening now. Financial markets are global, not local, today, so the problem isn’t that the failure of any single bank locks individuals or businesses out of the credit markets. Instead, the nasty surprises of the last 13 months — the sort of turmoil that once would have been unthinkable — have caused an effective breakdown in informational capital. Bankers now look at longtime customers and think of that old refrain from a failed marriage: I feel like I don’t even know you.

 

...

 

The current, more serious stage of the crisis began two weeks ago today, after the collapse of Lehman Brothers and the Fed’s takeover of the American International Group. Those events created a new level of fear. Banks cut back on making loans and instead poured money into Treasury bills, which paid almost no interest but also came with almost no risk. On the loans they did make, banks demanded higher interest rates. Over the past two weeks, rates have generally continued to rise — and these rates, not the stock market, are really what you should be watching.

 

The current fears can certainly seem irrational. Most households and businesses are still in fine shape, after all. So why aren’t some banks stepping into the void and taking advantage of the newly high interest rates to earn some profit?

 

There are two chief reasons. One is fairly basic: bankers are nervous that borrowers who look solid today may not turn out to be so solid. Think back to 1930, when the American economy seemed to be weathering the storm.

 

The second reason is a bit more complex. Banks own a lot of long-term assets (like your mortgage) and hold a lot of short-term debt (which is cheaper than long-term debt). To pay off this debt, they need to take out short-term loans.

 

In the current environment, bankers are nervous that other banks might shut them out, out of fear, and stop extending that short-term credit. This, in a nutshell, brought about Monday’s collapse of Wachovia and Glitnir Bank in Iceland. To avoid their fate, other banks are hoarding capital, instead of making seemingly profitable loans. And when capital is hoarded, further bank failures become all the more likely.

 

The crucial point is that a modern economy can’t function when people can’t easily get credit. It takes a while for this to become obvious, since most companies and households don’t take out big new loans every day. But it will eventually become obvious, and painfully so. Already, a lack of car loans has caused vehicle sales to fall further.

 

...

 

But in the end, this really isn’t about Wall Street. It’s about reducing the risk that something really bad happens. It’s about limiting the damage from the past decade’s financial excesses. Unfortunately, there is no way to accomplish that without also extending a helping hand to Wall Street. That is where our credit markets are, and we need them to start working again.

 

“We are facing a major national crisis,” as Meyer Mishkin’s grandson says. “To do nothing right now is to do what was done during the Great Depression.”

 

[MarvinisaLunatic 0]

I was hoping Marvin might step up, since the last person I heard put the idea forward was Glen Beck.

 

The Capital Gains tax keeps some people from investing their money in the stock market and in real estate knowing if they turn a profit on their investment they would have to pay the tax (long term is 15%, less than that is your income tax rate) . More money invested into both of these areas would equal more liquidity which is a major problem with both areas right now. The fact is, I dont believe that a short term elimination in the Capital Gains tax would work because people aren't stupid into believing that the elimination of the tax would last very long considering Obama has said numerous times during his campaign that he wants to increase the long term Capital Gains tax from 15% to 28% unless there was some sort of provision saying if you buy now you wont be taxed even if the capital gains tax comes back and goes up, which I dont see in the proposals. This is precisely why people are flocking towards treasury bonds right now instead of stocks and real estate even though the rate of return on the treasury bond is less than the rate of inflation.

[MrRant 0]

909, you have to remember one of the benefits to owning a house is that if you do it correctly (Let's say the FHA loan with 2%) and you are responsible with your budget you can get a mortage that is less than or equal to your rent for a fixed 30 years.

 

Compare that to renting for 30 years and the if the rent goes up 5% per year and your income only goes up annually 3%.

[EricMM 0]

Boy, you sure told me.

Whats your point, then?

 

That everyone should buy houses straight cash?

 

That everyone, everywhere should rent?

[Guest]

I asked you to explain it to me. You threw in a little comment, but that didn't explain anything.

Whats your point, then?

 

That everyone should buy houses straight cash?

 

That everyone, everywhere should rent?

 

My point is that borrowers and lenders should have thoroughly examined the finances of the borrower and made sure they were able to make good on their mortgages. Moreover, borrowers should have made sure that the lenders weren't putting a bad mortgage on them.

 

In addition to that, people should have had to put some sort of down payment on their house. 5-10 percent. Is that too much to ask? Nobody's going to be able to borrow now, even if they're able to put money down. That isn't fair. These institutions and the American people who made these mistakes screwed everyone else.

 

Right now, if people are moving, those people are going to have to buy houses with hard cash or they'll have to rent. This is all, of course, a bad thing, but there is good in that these banks will learn from their mistakes (because they won't be around!) and not be able to put us in this situation again. Unless, of course, the government bails them out. If they know a bailout will come to correct their mistakes, what's keeping them from doing the same shit to us all over again. That's been my point all along.

 

909, you have to remember one of the benefits to owning a house is that if you do it correctly (Let's say the FHA loan with 2%) and you are responsible with your budget you can get a mortage that is less than or equal to your rent for a fixed 30 years.

 

Compare that to renting for 30 years and the if the rent goes up 5% per year and your income only goes up annually 3%.

 

I've got no problem with those who did what they were supposed to do in owning their house. Those people should be commended for doing the right thing with their budget. Those that haven't...well, I don't know what to tell them. I guess it's just too bad. Those who lose their jobs as a result of this should have the people who screwed up to thank. Those who will become unemployed are the ones really getting the shaft. The people who were irresponsible, fuck them.

 

It's fairly clear by now that nobody should have ever pushed for the housing market to be deregulated.