Granberry's Parlor

The debt is not technically bad -- the Fed never really puts the tax payers on the hook for stuff in a direct way like RSTC did with S&Ls . The mortgage backed securities/CDSs/CDOs and all the other doo doo voodoo is being corralled into a manageable heap. They've hire a firm to oversee the pile. The Fed is going to "resell" the mortgage backed derviatives as they sees fit (meaning when there is some confidence that it is not all a Peter Pan fairy tale (which could be soon)) If things go very very well the Fed could even turn a profit on the portfolio.

Its all about doing things in an "orderly way"...

Bankruptcies are never a desirable outcome, all the people who get a bag full of shit tend to smear it around, with this "debt takeover" the Fed has a new tool to keep shit from hitting the fan.



Edited 1 time(s). Last edit at 03/26/2008 06:15PM by stan adams.

>and at least have not let it get run down

Oops.

Stan, I know you honestly believe things are going to get alright very soon and you know my position on this. I'm curious to know what your basis of thinking is? We all know that mortgages used to be pretty safe, but no-one really knows how bad the sub prime mortgage crisis has become. Ever since about a year ago, it turned out to be worse than the last quarter.

Let's assume it's pretty common knowledge that the US economy is depending heavily on consumer spending, more than any other economy in the world. While you pointed out that the debt people have accumulated in the last 6 or 7 years is still serviceable by them because money is still cheap, their paychecks haven't been rising so much in the last couple of years. But getting new credit is a different matter, house prices won't start to increase overnight with what is basically a deflationary market.

So, that means that extra credit is probably harder to get, I'd say some families will be lucky for not getting a margin call from their financing company because the value of their home decreased. But consumer spending increases are probably over for quite a while. Unless of course you turn the credit tap wide open again, while doing that will 'solve' the problem for a while (see Greenspan) it will come back to haunt you (see now).

WIth pay rising only for upper management and senior execs in most places, and the price of gasoline and groceries setting records I wonder when it'll break. Seriously, my grocery bill was super high. It wasn't a big week of stuff and it was about 40.00 more than I expected considering the bill for the same goods in the past.

I'm shooting for the 7-9 cents an ounce frozen dinners. :) (store brand, On-cor, etc)

Gasoline I can't 'go cheap' on. But food I can.



What a journey.



Edited 1 time(s). Last edit at 03/27/2008 04:23AM by El Jeffe.

There are definitely inexpensive ways to eat healthy and fresh using simple ingredients.

Fiddleheads will be in season real soon, I can harvest them myself! All sorts of greens are a boost to your body and they are inexpensive. Meat can go a long way if boosted by a starch and vegetables. Most fruit is expensive up here in NE but not terribly. Apples, cranberries, blueberries and more are local so creative storage can make it last. I just bought fresh Maine apples the other day. Apparently a local grower knows how to make them last -- they still had some crisp and were deliciously sweet.

never heard of fiddleheads



They look appetizing! :)

What a journey.

Well, what have we here...

Invented profits and the resulting bonuses, yes sir...

yes, I saw the same report tliet. It is definitely further evidence that bad mortgage firms (like New Century) were exceedingly bold/deceptive in many ways. Should KPMG have been more critical? Probably, but even in the Sarbanes/Oxley post Enron world accountants don't see themselves as having to "root out" nefarious dealing of the firms that have hired them.

Even so, a fake profit of $63M vs a loss is in no way to blame for the scale of the credit crunch.

It does hurt to have more of your flattish pay going to things like energy & food, but overall food prices have been remarkably stable for a shockingly long time. My personal theory on this is that now that Whole Foods has swallowed up Wild Oats and we have out first coast-to-coast "organicish supermarket chain" the various producers and competing supermarkets are giving a more serious look at how high the "average per customer spend" is at Whole Foods are jealous -- GEEZUS those bastards get $5 for a dozen brown eggs -- we GOTTA raise our prices!!!

As to gasoline prices I read a review of the Accord V6 Coupe in today's Sun Times -- the reviewer lives in the city and has about a 4 mile commute. She admits that she "put her foot into hard" with the car and despite the fact that it hs cylinder deactivation to deliver 28MPG Hwy that deactivation indicator was lit for precious little time as she averaged 14mpg. Lets look at some interesting numbers: 4 miles each way X 2 trips X 5 days = 40 regular commuting miles. On the weekend we'll say she visited friend in the burbs and shopped for maybe an additional 60 miles. 100 miles for the week. / 14 mpg = 7.14 gallons X $3.50 =$25 for her (admitedly low mileage) commuting/shopping -- let's do the math on putting that girl into "feather footed fuel sipper" and by doubling mpg to 28 it cuts fuel use to 3.57 gal and $12.49 -- so what is this gal likely to spend a extra $12.49 a week on? One CD? Three more Starbucks? Lunch for two at McD's? My point is that gas prices would have to MORE THAN DOUBLE and/or similar changes in fuel economy and EVEN then people are probably just not going to 'suffer' too badly.

Of course if there is wide spread, long term unemployment (which is just not in the cards so far as I can tell...) then the whole economic landscape changes. But you have to remember the VAST swath of 'disemployment' that came with the loss of factory jobs is largely contained. We don't have that kind of an economy anymore.

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Bankruptcies are never a desirable outcome, all the people who get a bag full of shit tend to smear it around, with this "debt takeover" the Fed has a new tool to keep shit from hitting the fan

That's the sort of assertion that I've seen made a lot - yet there's been remarkably little in the way of justification. What proof is there that Bad Things(tm) would happen if BSC were simply allowed to go bankrupt?

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I'd say some families will be lucky for not getting a margin call from their financing company because the value of their home decreased

I've never heard of margin calls on mortgages (at least for a primary residence). You might not be able to sell the house without stumping up extra cash (aka negative equity), but once the bank has made the loan, I believe that it can only keep collecting payments. So long as those keep rolling in, the bank can do nothing.

Hmm ok, so that can't happen in the US, it could theoretically happen over here. We've got mortgage constructions that ensure the buyer that he has 100% interest deduction for the full 30 years (you also pay interest for the full 30 years, but that don't matter, imagine that!). The money that you pay to the bank or lender goes into an account, this could be a savings account or an investment account. If the mortgage ends upside down the bank can do a margin call.

There is never really "proof" in the "mathematical certainty" sort of way -- there is only probability. A good deal of this comes from looking at the movement of whole bunch of different market indicators and even the movement of options against BSC itself. In most of the newspaper accounts I've read the scenario was that there virtually no positve market reaction to BSC getting an sort of "liquidity guarantee" of 28 days. The Fed intrepreted this as "we have to do more" the more they choose was to get BSC married off to JPM. Things are not blissfully rosy, but there is a lot better liquidity in the market. That is a good thing.

On the mortgage issue, in the US there are really no such thing as a "callable mortgage" -- the last thing any financial firm wants is to have the home, so what if the 'homeowner' is horribly upside down. The finacial firms need cash flow. I don't even think there is really a mechanism to impose PMI if the low-to-value ratio falls -- mortgages are stacked for home owners that way.
About the worst that can happen is that an ARM adjusts so high so fast that the payments can't be met. I would argue that this is likely the cause of most foreclosures right now. Sadly too many people clearly should not have ARMs...

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There is never really "proof" in the "mathematical certainty" sort of way

In other words (outside the circle of economists) "vague waffle."

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In most of the newspaper accounts I've read the scenario was that there virtually no positve market reaction to BSC getting an sort of "liquidity guarantee" of 28 days

And this proves what? That those on Wall Street didn't think they could make money out of BSC going bankrupt? This matters how?

now I'm hungry.

What a journey.

If you want to believe that there are "dark forces" at work I won't try to dissuade you of that, but I prefer to think that this is an example of the systems that were put in place after the "Great Depression" working pretty well -- they acted to keep the banking system liquid. When there are signs that the system is becoming illiquid they take action. Sometimes they have to take extraordinary action.

I can fully support the notion that sometimes those actions are misguided. My barometer of "misguided" is simple: do things get better or worse. I think the reaction of the markets suggest things are getting better, how long that lasts is any body's guess (and that is ALWAYS the case....)

The notion that only people on Wall Street make money from such actions is patently false -- and similarly the whole philosophy/reason why there are regulators/supervisory governmental bodies is to ensure that the BURDEN of such failures does not unduly impact the populace broadly.

In the hypothetical case of forcing BSC into bankruptcy (and btw it is pretty much always the aggrieved creditors that would force such a firm into bankruptcy NOT the government/regulators...) it would be the intention of creditors to get as much of worth as possible and for BSC to default on as much as feasible and either reorganize or completely liquidate. The very predictable effect of any sort of a liquidation is to bring out the vultures. The less tangible/useful the assets the more likely it is that these vultures would exert burdensome terms upon the the "counter party" creditors. In simple terms the vultures who'd buy stuff from a BSC would be nasty bastards -- they'd pay a few fractions for positions that BSC had created and then they'd use every trick in the book to get blood out of a turnip... To be clear, BSC undoubtedly had a portfolio of bonds and other generally understandable assests -- once the vultures got those they'd go after the debtors to wring out payments on a far accelerated schedule. What do you think that would do to the liquidity of the overall market? In all likelihood firms like JPM might have done MUCH BETTER if BSC went tits up -- votility means money, less fish in the pool, flight to safety, yadda yadda yadda. I truly believe that MOST people who work on Wall Street, from a very high level to the bottom, generally prefer the "fair fight" and pretty are patriotic in the GOOD sense that they went don't like to have anybody get an unfair advantage or get beaten up by overseas interests.

I can certainly understand how one might think bankruptcy is a harsher "punishment" for the corporation of BSC, but none of the PEOPLE that made huge salaries & bonuses while pursuing a reckless strategy would really not be subjected to any more targeted retribution in such a scenario -- the thousand dollar bottles of champagne they drank won't be refilled with their sweat or any such thing. Bankruptcy of such an influential institution in such a case is a "cut off one's nose to spite one's face" scenario. Or at least that is what explains the actions of the regulators...

I love waffles, we make them out of the Betty Crocker binder cook book about twice a month. mmmmm....

Average commute times are 20ish - 30 minutes (I'm 25 miles and about 35 minutes... in Maine!).
For me I see an increase of about 14 dollars each week which is not insignificant. I have to agree with you though Stan, gas prices may be at their highest but they aren't high enough to cause a serious drag on the economy. Afterall, they've been taxed into much higher per gallon prices for decades in Europe and their economy has always been great ... oh wait. (i know, better lately, just couldn't resist a stupid jab)



Edited 1 time(s). Last edit at 03/27/2008 03:55PM by rino.

I love waffle too.

And I think you point(s) is/(are) valid -- you can't really say that the percentage outlays for most US households on fuel are "crushing". In Europe that crush point probably happened so long ago that the people supported the massively expensive (and damn good) public transportation infrastructure that they have and/or have bicycle/mopeds/diesels and a very different way of life. One that, btw, still has a LONG WAY TO GO until it matchers ours in productivity -- unless Baha moves over there :^)

I for one do think that fuel prices are getting bad. But they are only enabling the adoption of options. It won't happen instantly, but it will most certainly marginalize oil for auto fuel. For other things, not so much.

What a journey.

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If you want to believe that there are "dark forces" at work I won't try to dissuade you of that

Belief in "Dark Forces" usually founders on Hanlon's Razor.

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To be clear, BSC undoubtedly had a portfolio of bonds and other generally understandable assests -- once the vultures got those they'd go after the debtors to wring out payments on a far accelerated schedule

And the debtors would reply that they signed this particular contract, and that their new creditors can go observe the instructions on Sirius Tau. Of course, if those agreements are subject to that sort of change, then the people who took out the debt just got a lesson in reading contracts before you sign.

Why is Al Gore so afraid of the press?

http://blog.wired.com/27bstroke6/2008/03/al-gore-says-no.html