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If you're not nervous about the economy, you will be after you read this

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Phoebe Loosinhouse Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-17-07 10:23 AM
Original message
If you're not nervous about the economy, you will be after you read this
Yesterday I sat slackjawed and slumped at my desk after reading these 2 articles on the CNN Business page. Extremely unnerving.


http://money.cnn.com/2007/11/16/news/economy/mortgage_l...

$2 trillion lending crunch seen

Goldman Sachs economist says mounting credit losses could force banks to significantly scale back their lending.

By Grace Wong, CNNMoney.com staff writer
November 16 2007: 10:21 AM EST

LONDON (CNNMoney.com) -- The mortgage wipeout could result in a $2 trillion cutback in lending and have dramatic implications for the U.S. economy, according to Wall Street investment bank Goldman Sachs.

The housing slump is expected to end up costing banks, hedge funds and other lenders an estimated $400 billion as defaults on home loans rise, according to Goldman economist Jan Hatzius.

skip

But most stock investors don't react aggressively to capital losses the way banks and other lenders do. A bank that aims to maintain a capital ratio of 10 percent would need to shrink its balance sheet by $10 for every $1 in credit losses, the note said.

That means that if lenders end up suffering just half of the $400 billion in potential credit losses, they could be forced to reduce the amount they loan by $2 trillion. Such a drastic credit crunch could have dire consequences for the economy.



Next, read about the ABX Index, (something I had never heard of) and become scared, very scared. This is some of the best damn finance reporting I have ever seen. Grace Wong is an excellent writer - makes a complex topic very understandable.


http://money.cnn.com/galleries/2007/news/0711/gallery.a... /

Behind Wall Street's Subprime Fear Index
By Grace Wong/CNNMoney.com Staff writer



This really seems like banks are in deep doo-doo, deeper and broader than anything I had imagined. I would be very interested in hearing any comments from those brighter than me if this is as bad as these 2 articles make it appear.






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Angela Shelley Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-17-07 10:33 AM
Response to Original message
1. Worrying about the economy
is worrying about your job.

The majority of the households in the United States live over their means, and have been doing so for the longest time.

There has to be a "period of adjustment" for the "artificial economic boom".
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fenriswolf Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-17-07 10:41 AM
Response to Reply #1
2. wonder if people who don't rely on
credit will be hit as hard. As someone who doesn't own a credit card maybe ill just have to sinch up the belt a bit.
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AlCzervik Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-17-07 10:44 AM
Response to Original message
3. I just found out yesterday that my neighbor's house has gone into foreclosure.
i was actually getting a little worried about because i've not seen or heard them for about 3 weeks until last night, she pulled up and opened the garage and was loading things when i talked to her and she told me they were just in over their heads. I live on a smallish cul de sac, in the past year 4 houses have been foreclosed on, the previous 6 years i've lived here---none.
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RainDog Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-17-07 11:04 AM
Response to Original message
4. tighter money supply=inflation, right?
since the pols don't want inflation, I wonder if we're heading toward an S&L bailout, ala Poppy Bush? Is Neil involved in this one, too?

how long before people tell those who created this pyramid scheme to pay for it themselves? I'm sure Poppy and Neil, etc. did just fine after the S&L bailout. If repukes complain about govt. taxes, ask them why we keep having to pay for the "screw ups" of the rich?
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Phoebe Loosinhouse Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-17-07 11:15 AM
Response to Reply #4
5. Credit really does make the world go round.
Businesses basically run on credit. That's how they build, grow, improve and employ people.

To me, this whole debacle was caused by the lack of oversight and regulation and maybe people will learn that there IS a place of government oversight and regulation.

If some guy in a back room somewhere wants to loan money to someone with no credit, no money, no savings, no income and not require a down payment, fine, that's their choice. But when practices like that spill over into banks and mortgage companies its just wrong. I heard it described as a race to the bottom that was fuled by greed, pure and simple, because the people who wrote and sold the loans and also converted them into the bonds bought by the brokerages were paid HUGE commissions.

These scammy bond products have been bought and purchased by pension accounts, mutual fund brokerages, foreign countries, you name it. They're basically funny money that has polluted and corrupted the entire world monetary system.

People keep thinking this is just about 10 or so million people losing homes, but it goes so much deeper than that.
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brokensymmetry Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-17-07 12:01 PM
Response to Original message
6. Actually, it's even worse.
Yes, the existing mess is bad. Keep in mind that there is
some large amount (no one knows exactly how large) of complex
financial derivatives out there. By the way, those derivative
securities are largely unregulated and to a great extent not
fully understood...not understood by those who created them,
nor those who sold them, nor those who bought them.

What happens if the underlying financial system is damaged
by the current mess? What happens to the value of the aforementioned
derivatives? By the way - derivatives are owned by your pension fund,
your mutual fund, your bank, and your insurance company.

Can you explain a CDO4? Do you know the risks involved? Can
you explain them? No? Well neither can I or anyone else. But they're
out there in the portfolios of every teacher, police officer, fireman,
and everyone else who owns financial products.

Add in Peak Oil, happening as we speak. Factor in some climate
change. Stir in some inflation. Crank up the possibility of
global resource wars (Iraq, anyone?). Then consider China and
India as they enter the world stage as powers to be reckoned with,
as players who want all the good things we have.

Oh, yes...and then there is consumer debt. What happens to those
who owe the debt in a financial retraction? What happens to those who
own that debt when it defaults?

The feast of consequences lies before us - and we have, so far, only
nibbled at the edges of the first hors d'oeuvre.
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kineneb Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-17-07 12:51 PM
Response to Original message
7. also recommend articles by Mike Whitney
over at www.informationclearinghouse.info

...his articles predicted the meltdown long ago (some are not great writing, but he make economics understandable even to the math impaired)

...another good read is Henry Liu at Asia Times Online (wordy, intellectual writing, but very accurate)

And now off to read the full articles in the OP...

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Blackhatjack Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Nov-17-07 01:05 PM
Response to Original message
8. Link to another thread on topic and comments ....
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