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Credit risk pollution Superfund is born, market soars

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  • nathanhulick
    replied
    Re: Credit risk pollution Superfund is born, market soars

    Originally posted by GRG55 View Post
    And when the price is lowered to zero, and there is still no bid, then what??
    The seller needs to continue to lower his price. In other words, pay someone to take them. Its no different than someone who owns a piece of land that has hazardous waste on it. The land may have a negative value because the cost of cleaning the waste is greater than the value of the land once its cleaned.

    Leave a comment:


  • marvenger
    replied
    Re: Credit risk pollution Superfund is born, market soars

    Originally posted by Forrest View Post
    I'm only paying 5.5%
    But if there's a RE bubble chances are your mortgage is a few times your income and your paying a lot more than 5.5%. Here in Sydney, median house price is 7 times median income....ouch! And we've high income taxes gst etc


    Originally posted by Forrest View Post
    unless a really large gun is held to their head
    people have to demand congress do their job and use the mighty pen to get rid of the FED


    Originally posted by Forrest View Post
    more like the Mob, really.
    agree!


    Originally posted by Forrest View Post
    so it's a bit hard to tell who really is dominent...in banking, or in politics. .
    my belief is its whoever is behind the private organisation the FED. Ron Paul said he's been trying his whole life to uncover who is behind it and how they benefit from it, but its so secret no one knows except those in control. After hearing ron say that i didn't even really try myself, maybe a mistake but if anyone on iTulip knows please let Ron and I know. Creating money out of thin air and lending it to the government of the most powerful nation in the world at interest is about as powerful as it gets really.

    Originally posted by Forrest View Post
    The world is still a very uncertain place with a lot of unpleasant people who have uncivilized ideas of how to keep order, and collect debts. No matter who you think is running things, keep your options open, and watch your back.
    Agree!

    Leave a comment:


  • Forrest
    replied
    Re: Credit risk pollution Superfund is born, market soars

    Originally posted by marvenger View Post
    if the principal obligations of the debt was reduced in line with ability to pay then the securities would have value, and people would carry on working to pay off their mortgage.
    The question becomes who is holding the securities...and who are we paying the mortgages to? I would be delighted if my mortgage was reduced, but I rather doubt that any banker is likely to do so, much less the Fed, or the current regime in Washington.

    But, since I like living at my house, I'll keep paying the note so long as the government keeps paying me the retirement I paid into. True, they receive interest on the fiat currency they send me monthly, and that I return to them on the mortgage they are now holding, but it's just another type of taxation...minimal, particularly since I'm only paying 5.5% on the mortgage, which is a lot less than a lot of people's taxes. (Tax free retirements have a few benefits.) Then, the passive income from my real estate provides a bit of income, and I have that nice metal lump under my pillow to comfort me against disaster...like the Dollar being worth less all the time.

    Originally posted by marvenger View Post
    I think the banking industry sees this as a dangerous precedent to set for their own power and seeing as they have the real power in washington they will get their way even though a reduction in principle would be the best way to protect the economy.
    Having worked in banking and lending, particularly mortgages, I am quite sure that no one holding real estate of any kind will reduce the principle unless a really large gun is held to their head...unlikely, but nice to dream of. And were I the lender on any notes (an investment I will take up in less volitile real estate markets) I wouldn't take less than I was owed...especially if I lent the money in good faith, which most Banks do. Not the Fed, of course, but then, I don't consider them a bank...more like the Mob, really.

    Originally posted by marvenger View Post
    I see iTulip's point about the political rammifications of defaulting on debt and hence certainty of bailouts for political reasons, but for some reason I chose to stick with financiers power explanations...they're the dominant power to me.
    Politicians are financed by a lot of different sources of money, and tussles between varying powers also affect the necessity to repay debt. We are not quite yet a unified Global entity, politically, or financially, so it's a bit hard to tell who really is dominent...in banking, or in politics.

    The world is still a very uncertain place with a lot of unpleasant people who have uncivilized ideas of how to keep order, and collect debts. No matter who you think is running things, keep your options open, and watch your back.

    Leave a comment:


  • marvenger
    replied
    Re: Credit risk pollution Superfund is born, market soars

    if the principal obligations of the debt was reduced in line with ability to pay then the securities would have value, and people would carry on working to pay off their mortgage. I think the banking industry sees this as a dangerous precedent to set for their own power and seeing as they have the real power in washington they will get their way even though a reduction in principle would be the best way to protect the economy. I see iTulip's point about the political rammifications of defaulting on debt and hence certainty of bailouts for political reasons, but for some reason I chose to stick with financiers power explanations...they're the dominant power to me.

    Leave a comment:


  • Forrest
    replied
    Re: Credit risk pollution Superfund is born, market soars

    Originally posted by GRG55 View Post
    And when the price is lowered to zero, and there is still no bid, then what??

    The government swallows it's pride, and defaults...governments have been doing it for eons, and the US is an old hand at it. Then we go onto a gold standard, pull home our military where they are not wanted, and hence charge the going rate for protection in future directly, instead of indirectly.

    The world will still sell to us, and buy from us, if they have need to do so, and, of course, if we have actually have something to sell other than bad paper.

    Or, we can absorb the losses as usual, and then take part in the transportation/infrastructure/green energy bubble coming next.

    Either way, things will get tense for a while, but I plan to enjoy the ride!

    Leave a comment:


  • GRG55
    replied
    Re: Credit risk pollution Superfund is born, market soars

    Originally posted by nathanhulick View Post
    When paper (or anything else for that matter) is not trading, it means the seller needs to lower his price. Just as when there is a "job Americans won't do", the employer needs to raise the wages he is offering to pay.
    And when the price is lowered to zero, and there is still no bid, then what??

    Leave a comment:


  • c1ue
    replied
    Re: Credit risk pollution Superfund is born, market soars

    Don't forget - paper credit instruments in large enough piles have some similarities to gold: the sheer size itself means they'll always be worth SOMETHING.

    The key is still will these piles get bigger?

    The currency account deficit is ongoing, as are the government deficits. The latter are increasing daily in no small part to these bailouts.

    The process of bringing $1T or $2T of total remaining losses in MBS/CDO/AIG crap/etc onto the US balance sheet is not pretty, but is still only an increase of overall debt by 10% or 20%.

    Of course, the $1T/$2T are numbers I just pulled out of my a**. No idea what the real amount is.

    But the end game process has absolutely begun as EJ has noted.

    Leave a comment:


  • phirang
    replied
    Re: Credit risk pollution Superfund is born, market soars

    Originally posted by Brooks Gracie View Post
    Why aren't Sovereign Wealth Funds, the Chinese government, the oil producing countries and other bond holders initiating a massive currency run on the $? Many have worried most about the day when no longer will foreign interests fund the Treasury--wouldn't today be the start of such conditions?
    they need to sell dollars to the US in exchange for hard assets first, then the dollar can become worthless.

    ...but they wont get them: they'll get student debt instead! yay!
    Last edited by phirang; 09-20-08, 08:50 AM.

    Leave a comment:


  • Brooks Gracie
    replied
    Re: Credit risk pollution Superfund is born, market soars

    Why aren't Sovereign Wealth Funds, the Chinese government, the oil producing countries and other bond holders initiating a massive currency run on the $? Many have worried most about the day when no longer will foreign interests fund the Treasury--wouldn't today be the start of such conditions?

    Leave a comment:


  • magicvent
    replied
    Re: Credit risk pollution Superfund is born, market soars

    Several analysts are saying that after this artificially induced run-up ends, a crash will occur. Do you agree?

    Leave a comment:


  • marvenger
    replied
    Re: Credit risk pollution Superfund is born, market soars

    i think what happens is the banks get liquid assets and the tax payer gets toxic stink pile. The banks can then then lend at a price the market is willing to pay and get the housing market going again and the tax payer will get paid back the lower sale price, and the bankers can carry on their game as usual....that's their plan anyway. The dollar is diluted by the difference between what the taxpayer lends out and what they get back.

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  • Chris Coles
    replied
    Re: Credit risk pollution Superfund is born, market soars

    So how do they pay for this? You have toxic bonds created by the investment banks representing, (to quote Institutional Investor Magazine), leverage of 15 to 20 times, IN ADDITION to the normal borrowing ratio of 6 to 8 times deposit. So there is something like as much as 160 times the number of dollars printed in toxic bonds that have been printed as normal currency, real actual Greenbacks, by the US government. So if my amateur arithmetic is correct, (please correct me if not), the dollar will depreciate to match the Credit Risk Pollution Super Fund (CRPSF).

    And the second question must be:

    What do they think they are going to do with the fund when it is stuffed full of toxic bonds? Set FIRE to it? (Please excuse the pun).

    The only way they can get away with this is to deliver 1/160th of each dollar delivered as a toxic bond to the CRPSF back to the present holders of the toxic bonds. Am I nuts? surely the banks will not play ball?

    Either that or the mighty $ is about to be diluted accordingly.
    Last edited by Chris Coles; 09-19-08, 06:41 AM.

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  • nathanhulick
    replied
    Re: Credit risk pollution Superfund is born, market soars

    - First, by buying paper that otherwise is effectively not trading, it would help restore liquidity to the marketplace and help markets to function more fluidly again.
    When paper (or anything else for that matter) is not trading, it means the seller needs to lower his price. Just as when there is a "job Americans won't do", the employer needs to raise the wages he is offering to pay.

    Leave a comment:


  • Spartacus
    replied
    Re: Credit risk pollution Superfund is born, market soars

    Originally posted by we_are_toast View Post
    How in the world would this work?

    Surely, the gov wouldn't and can't simply take the toxic stuff off the banks hands. The banks are going to have to pay a price, what will it be? So far, the gov bail outs have been either buy-outs, or arrangements for controlled implosion. My guess is wall street is going to face reality tomorrow and it's not going to be pretty.
    I can't even guess at practical implementation.

    I suppose the theory is that if one can just HOLD ON to assets until the storm is over the assets' prices will recover - become "normal" or "sane".

    Remember that in several high profile blowups the portfolio "eventually" sold for a profit - the San Diego blowup comes to mind - I don't know if this applies to the LTCM portfolio as well.

    Leave a comment:


  • D-Mack
    replied
    Re: Credit risk pollution Superfund is born, market soars

    An opinion piece by Volcker & Brady in the WSJ from 9/17
    Resurrect the Resolution Trust Corp.
    By NICHOLAS F. BRADY, EUGENE A. LUDWIG and PAUL A. VOLCKER


    ...

    The fact is that the financial system needs basic, long-term reform, but right now the system is clogged with enormous amounts of toxic real-estate paper that will not repay according to its terms. This paper, in turn, is unable to support huge quantities of structured financial instruments, levered as much as 30 times.

    Until there is a new mechanism in place to remove this decaying tissue from the system, the infection will spread, confidence will deteriorate further, and we will have to live through the mother of all credit contractions. This contraction will undercut the financial system, and with it, the broader economy that so far has held up reasonably well.


    ....

    Such a stabilizing mechanism would accomplish four much-needed tasks:

    - First, by buying paper that otherwise is effectively not trading, it would help restore liquidity to the marketplace and help markets to function more fluidly again.

    - Second, by warehousing the troubled paper for a longer period than, for instance, the Fed's discount window typically should or could, it would allow for a more orderly liquidation of this paper, and the chance for much of it to recover a portion of its value.

    - Third, by giving the agency the ability to manage mortgages with flexibility to keep people in their homes and businesses running, it should lessen the number of foreclosures. This, in turn, would help moderate the decline in real estate values and the deterioration of neighborhoods, thus supporting house prices that in fact lie at the heart of the crisis.

    - Fourth, where necessary, like the RTC of the 1980s, this new mechanism can assist the Federal Deposit Insurance Corporation in resolving sick institutions that are so clogged with the troubled paper they cannot continue as independent entities. However, we would hope that purchasing the mortgage-related paper will minimize the need to provide emergency, short-term assistance to solvent banking institutions.

    ...

    http://online.wsj.com/article/SB122161086005145779.html

    Leave a comment:

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