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Is the Credit Bubble Bursting?

Discussion in 'BBS Hangout' started by pgabriel, Aug 9, 2007.

  1. jo mama

    jo mama Member

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    in the end, the loaner shouldnt be giving loans to people they know they cant afford it, but they have been. it is immoral, imo, although not illegal.

    they prey on people's ignorance regarding loans. its typically lower income, minority, less educated and/or first time buyers that are getting hit the hardest right now. unfortunately, alot of those people are not fully educated on the ins and outs of homebuying and they are taken advantage of. they were convinced by sales agents and or lenders that they could afford what they shouldnt have been approving.

    its all a #'s game for lenders/sales agents. they will look a person in the eye, smile, shake their hand and congratulate them and their family on their new home, knowing fully well that they wont be in it in 1.5 years. they dont care.
     
  2. GladiatoRowdy

    GladiatoRowdy Member

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    Unfortunately, they probably will not be lowering valuations.
     
  3. Invisible Fan

    Invisible Fan Member

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    I think the big joke among our society is the intense apathy for choosing our politicians to the point where we shut our ears and cross our fingers. Libertarians would like to think that with less regulation, we'd ideally have more responsibility to think for ourselves. But then something major like this, such as the power to own your own home, comes along and shatters the myth that people are willing to shoulder responsibility if it's large enough.

    As for the thread, it wasn't only the poor and less diligent who were suckered into the subprime mess, but speculators (who could've also fit other mentioned criterias) who assumed that real estate would boom forever (rather than taking time to google cyclical peaks) and bought more homes through using risky financing strategies and hoping to flip it for profit. I would also say late night commercials from novices like Robert Kiyosaki helped contribute the mess, but they're more of a symptom of the easy money times than the cause.

    This recent credit crunch is a continuation of a wake up call from various investors who have been lulled by the "easy money" governments have been enticing through their low interest rates. Despite corporations being sheltered because they have good reserves and numbers, the stock market will feel a bite because there's less cash to flow around for private equity to munch on and that will cause investors to panic or shift attention. Also hit could be third world countries as uncertainty becomes magnified and cash flows will be diverted to hedge against the risks that usually follows those investments.

    So like TJ mentioned, I think this is more of a correction than a bubble burst. Though eventually the outcome could become the same, it's very unlikely at the moment.
     
    #63 Invisible Fan, Aug 9, 2007
    Last edited: Aug 9, 2007
  4. SamFisher

    SamFisher Member

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    This thread is totally all over the map and I'll finally wade in a bit. I am now a self appointed expert in all financial markets since a few months ago I took a job at a large financial media firm.

    First, the "credit crunch" that is in the news today is not really the same thing as a consumer credit crunch - it refers to an institutional lending credit crunch, meaning that the market for debt is not very good right now - too much risky debt and not enough willng buyers, due to a lot of people being hurt by the subprime meltdown. That's why LIBOR, the london interbank rate, hit a five year high this am, it's why the LBO market is coming to grinding halt - nobody wants to lend money cheaply on an instutional scale unlike in the past few quarters. THat has a ripple effect and sends general pessimism throughout all sorts of industries all around the globe, given how interlinked everything is now and how much american consumer spending drives other countries economies now.

    So a lot of focus on individual homebuyers and personal responsibility in this thread is very misplaced. Yes, the subprime mortgage crisis originated with a lot of bad loans to the people who defaulted. But to the extent that there is blame for that, the mortgage lenders, their bank underwriters, and the people who package and buy the CDO's that their loans get packaged into, like Hedge Funds re in a far, far better position to understand default risks than individual borrowers who are known to be risky.

    Fortunately for those higher up on the chain, things like Chapter 11 and fund bailouts will be around to ameliorate the risks and prevent a total collapse. THere will be losers and they will feel pain for their recklesness. (if you work for bear sterns your bonus check probably shrunk 7 figures within the past few months - and if you were the head of bear sterns you just got fired). A lot of HEdge fund guys will get hteir 2, though probably not their 20 this year. But in the long run probably a minor hiccup. Unfortunately for the buyers at the bottom, aside from a greatly weakened form of personal bankruptcy (thank you, republican congress and GWB) there's not a lot of light at the end of their tunnel.
     
  5. rimrocker

    rimrocker Member

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    Wow. So you work for Murdoch now?
     
  6. robbie380

    robbie380 ლ(▀̿Ĺ̯▀̿ ̿ლ)
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    not sure who you mean by they. remember it is the market (people) that sets the prices. home prices are already projected to fall another 5% in the coming months. home sales are still in the crapper and all this publicity for the "credit crunch" isn't going to make people going to want to rush out and buy a house.
     
  7. Deckard

    Deckard Blade Runner
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    Can't overemphasize how incredibly damaging this has been to average Americans and the Middle Class. That any sane person could vote for the GOP in '08 after this legislation was rammed through is beyond my understanding. They must be mad.


    D&D. Impeach Dildo and His Battery.
     
  8. robbie380

    robbie380 ლ(▀̿Ĺ̯▀̿ ̿ლ)
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    it is sad but many do not. that is precisely why this crunch is occurring. they did not understand the default risk. these guys didn't even know what crap was packaged into a lot of these CDOs. moody's and s&p screwed it up too by rating a lot of that garbage as AAA. so these morons in the hedge funds super leveraged themselves into these "AAA" rated debt without knowing exactly what they were buying. the number one thing with trading and investing is trying to quantify risk and losses and these fools did not. they jumped in head first into illiquid high yield debt and then leveraged it out of their minds because of their models telling them it was safe to do.

    the stupidity of some people with money never ceases to amaze me.
     
  9. SamFisher

    SamFisher Member

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    Well there is always a greater fool, given that something like 80-90% of hedge funds, don't, after fees, generate returns in excess of what you could get with an index fund anyway.
     
  10. waran007

    waran007 Member

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    The irony is that the leveraged loans in question are still good credits. HY corporate debt is still at an all-time low for defaults. The problem is that the guys who have an appetite for this kind of stuff (CLO's, Hedge Funds, etc) are, as has been stated, in a massive crunch w/ all their ABS trades going down the toilet. If the credit markets survive a few more months w/o some major defaults on the corporate side, the leveraged finance market might be able to dodge a knockout blow. That's a pretty big if though.
     
  11. robbie380

    robbie380 ლ(▀̿Ĺ̯▀̿ ̿ლ)
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    yeah that's been the whole thing with this problem. people in the markets never realized how explosive this problem could become. i am a professional STOCK trader and all i did was read barrons, realmoney.com, watch cnbc, and soak up any info on it i saw and i realized how bad the debt market could get. people seemed to repeatedly deny and push it aside as if it was nothing, but man it's getting ugly now. even though i don't think congress will ever investigate this stuff (unless it gets really really bad) i am curious if debt rating agencies like s&p and moodys were getting paid to grease the wheels and rate this crap AAA. i just don't understand how they were this careless. maybe fixed income guys who follow how those 2 rate stuff closer know if moodys and s&p botch ratings frequently. myself being a stock trader i haven't ever noticed them screwing up this bad until now as the sh.t is hitting the fan.
     
  12. Invisible Fan

    Invisible Fan Member

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    Can anyone explain to me how these CDOs were working in principle? How can you split up debt obligations through risk? Why were the junk debts rated on the highest tier...is it only because they paid out first? I've read that the worst rated debt packaged with a AAA rating was like a prostitute wearing fine clothes...

    Wouldn't that be similar to the junk bond mania in the 80s?

    Separate but on topic question, why were banks overlending at ridiculous rates and incentives? What's the gain in that other than overzealous competition?
     
  13. deepblue

    deepblue Member

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    CDOs repackage existing bonds and loans and sell them as new securities. They are carved up into different tranches, goes from AAA and down. What the rating agencies figured was since CDOs have built in protections, the AAAs are relatively safe from defaults. Of course we now know if you package a bunch of crap together, you will still get a bunch crap.

    Banks are lending because they can securitize the loans and sell it to investors (like China). So the loans are off their balance book, as long as you can sell these off, there is incentive to move as much as possible. This does provide liquidity to the market, of course the downside is the mess we have now.
     
  14. rhadamanthus

    rhadamanthus Member

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    Free advice if you please?

    For those of us less "in tune" with world finances, would it be prudent of me to move a hefty chunk of my 401k balance into an international fund?
     
  15. mc mark

    mc mark Member

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    I have had 30% of my 401K in International funds for the last 4 years and have had an annual average return of 23% (but last year was the lowest @ 17% so I'm keeping an eye on them this year)
     
  16. robbie380

    robbie380 ლ(▀̿Ĺ̯▀̿ ̿ლ)
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    well it looks like more guys are getting squeezed by margin calls in the market today. this time it is merger arbitrage guys. yesterday it was some quantitative funds getting squeezed due to the growing extreme nature of this situation. i really think there are going to be some excellent bargains and massive returns once more guys get squeezed by margin calls. the annualized returns of some of these plays is getting kind of ridiculous.

    hopefully this stuff doesn't spread too much into the real world because in the market world it is getting pretty bloody. i love it!
     
  17. robbie380

    robbie380 ლ(▀̿Ĺ̯▀̿ ̿ლ)
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    what are you in right now?
     
  18. weslinder

    weslinder Member

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    I've had about half of 401K invested in three different international funds. Two of them are diversified across the world, one invests in corporations that do business primarily in Eastern Europe. Those have well outperformed my domestic investments. If the dollar continues to weaken, that trend will probably continue.
     
  19. Phillyrocket

    Phillyrocket Member

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    More free advice requested:

    Given that several homebuilders (BZH) and many lenders (CFC), are showing losses and thus plummeting stock prices when is the bottom expected? I myself would like to invest in the survivors but am having difficulty figuring when would be the right time to buy. Anyone else planning to speculate?
     
  20. rhadamanthus

    rhadamanthus Member

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    I have quite a bit of money in Dodge and Cox and Longleaf. Some International, but not a lot.

    I just moved some coin. we'll see...
     

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