The problem is its not just a few speculators, the whole market was speculating. Its not just limited to hedge funds, a lot of banks are trying to hide the problems. The Fed needs to do something, they are the Feb for that reason so we don't repeat 1929. This could get much much worse. And I don't get the "tax cuts for the richest Americans only." I am not even close to be one of the richest Americans, but did get some good tax cuts.
It's not over yet I've been watching this one for awhile. Should be interesting when it's all said and done.
nah...it's over. lend doesn't really have anything to stand on since their financials are so terrible now. man it would be really funny if less than 50% of LEND shareholders tendered their shares. the deadline is tomorrow for the extension of the tender offer.
pretty good editoral on possible bail out link Loren Steffy: Rescuing the guilty to save the innocent By LOREN STEFFY Copyright 2007 Houston Chronicle TOOLS Cue the Greenspan put. The Federal Reserve doesn't want to do it, but it may have to because the market unrest spawned by the mortgage meltdown continues. The Greenspan put is economists' shorthand for the Fed's decision, under former Chairman Alan Greenspan, to cut rates in 1998 following the collapse of Long-Term Capital Management. (A put is a contract that guarantees a future sales price.) Then, as now, the credit markets faced a liquidity crisis. By cutting rates, the Fed made borrowing cheaper, thereby encouraging investors to pump in capital and stabilize the markets. But Greenspan is no longer chairman, and his successor, Ben Bernanke, doesn't seem one to prop up skittish markets. "Bernanke doesn't want there to be a Bernanke put," said Robert McTeer, the former president of the Federal Reserve Bank of Dallas and now a distinguished fellow at the National Center for Policy Analysis. Repeating bad habits Such quick fixes encourage bad investing habits that keep repeating. "We're conditioning the financial markets and telling them, 'Don't worry, take as much risk as you want, we'll bail you out,' " said Andrew Gardener, president of Houston-based Tanglewood Legacy Advisors. Bubble begets bubble. After the Greenspan put of '98, investors loaded up on tech stocks. After a similar rate cut amid the '02 recession, they started buying real estate. "People are going to do what is smart over the short term," Gardener said. "They recognize if they can borrow money at 3.9, they'll do it all day long." Threat of inflation At last week's meeting, the Fed's Open Market Committee left rates unchanged at 5.25 percent, insisting that inflation, not the current market turmoil, was the biggest threat. In light of what's going on in the markets, McTeer said the FOMC should have hedged its bets, saying the risk of inflation accelerating is about equal to that of a recession. "They don't like to be caught leaning one way and having to jump the other," he said. Here's the Fed's problem: If it cuts rates, it bails out the lenders who took on a bunch of high-risk loans. The lower interest rates and lack of consequences makes it more likely they'll start making risky loans all over again. But if it leaves rates unchanged, millions may lose their homes or default on mortgages because they're unable to refinance. That will have consequences for other parts of the economy, from employment to consumer spending, that have helped to mute the impact of the mortgage meltdown. "There are villains and innocents all mixed up in the problem," McTeer said. "By refusing to bail out the guilty, it's making it harder on the innocent as well." The innocents are those who signed for loans without understanding the risks or who were misled by teaser rates, balloon payments or other lender come-ons. No easy solution One solution would be for banks to meet with troubled borrowers and determine whether they can work out a repayment plan. But it's not that simple. No one knows where the loans are until they go bad. Banks take mortgages, package them with others, then sell interests in the packages to investors. In some cases, loans with low credit risk are packaged with high-risk ones. That helped fuel the recent lending boom because it spread the banks' risk, but it makes it more difficult to unwind in times of crisis. The Fed has attempted to calm the roiling markets by injecting additional capital — $62 billion in two days last week alone — into the money supply. Central banks around the world did the same. That may not be enough. "It may take years to unwind all the excess debt," Gardener said. As an academic, Bernanke seems inclined to stick to his policy, hold rates firm and allow lenders and borrowers to suffer the consequences of their bad judgments. Factoring in election year The Fed is independent, but it doesn't operate in a vacuum. It still reports to Congress, and with an election year looming, it's hard to imagine even the most stringent Fed policy wonk standing firm while default rates surge, personal bankruptcies rise and the fallout ripples through the economy. Faced with the consequences, Bernanke may have little choice but to rescue the guilty to save the innocent. Federal funds futures already show investors are betting the Fed's Open Market Committee will cut rates at its Sept. 18 meeting, according to Bloomberg News. Maybe, in the interest of Fed tradition, we can still call it a Greenspan put. Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy@chron.com.
"The innocents are those who signed for loans without understanding the risks or who were misled by teaser rates, balloon payments or other lender come-ons." I don't think those are the innocents. The innocents are the ones who took responsible loans and have good credit, or those who just saved instead of taking on a large mortgage, and are now being hurt by the lack of credit and the declining stock market.
The Fed is independent, but it doesn't operate in a vacuum. It still reports to Congress, and with an election year looming, it's hard to imagine even the most stringent Fed policy wonk standing firm while default rates surge, personal bankruptcies rise and the fallout ripples through the economy. Bullsh*t. This is not an election year. Next year is. Every other year is an election year and every other year not an election year is obviously not an election year. Using this specious logic, the FED would have to behave differently in an election year 2008 and in the "looming election" year 2007. Thus, the FED would always behave differently.
Saw this on kos... It's sourced to a big long Fed report which I didn't bother to read. If this is true, it is an astounding number... mortgage debt in this country has doubled in 6 years? Man, there's no way we can sustain that...
Yep, take a look at this link. http://www.prudentbear.com/bc_chart_library.html What happened in 2001-2002? Greenspan lowered rates way down to 1%.
That is funny. The Fed is not accountable to the Congress, they own the Congress and the Oval office. The Fed is nothing more than a private banking cartel that has its appointed chairman confirmed by the Congress. The chairman is not the real power anyways, it is the owners of the larger member banks.
bernanke is all about inflation. he won't cut the rates. and frankly i dont know if we should bail out these banks for their irresponsibilities. lets make bankruptcy easier instead.
Question: Say your mortgage company goes under but you are a current "loanee" in good standing. Does your loan transfer to the bank that lent the money? If so, can they force you to refinance? Can they repossess to cover losses? How does that all work?
Except its not just the banks you are hurting, the average Americans will get hammered when their ARM resets and there is no place to refi.
and if you lower the interest rate what happens to all bonds? how low does the dollar plunge? that being said your right. i dont know where the balance is.
If your mortgage company goes down, the servicing department will most likely be kept intact, or will be taken over by someone else. You will keep paying the same mortgage as before. So no, you won't have to refi, no worries at least on that front.
I love the Economist because they make everything sound so damn explainable and easy even if it isn't...wow... I wonder if I should ride the storm or cut my losses in my stock to a regional Houston bank. I'm in it for the long term, so a few temporary knocks won't phase me, but for them to say the worse is yet to come...yikes.
It is an American tradition to let markets decide. It creates a moral hazard when government interferes with this mechanism. Reason is these people who took ARM loans were living beyond their means. Basically they were cheating for a little while, and like most cheaters you get caught. You must pay the consequences if you take an unwise action. Its the same thing with stock speculators looking for a interest rate cut and an eventual boost in the market. These speculators were making unheard of returns for the past few years, and now have to pay the price. ARM holders and leveraged speculators must pay the consequences of their grandiose living of the past few years. If you just let the Fed cut rates, then no one has learned a lesson. The speculators will continue their leveraging and people who can't afford homes will continue cheating their way toward homes. Its time to pay the piper.
