Are we in the middle of a financial meltdown?

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I have panned the neo-liberal government policy becasue it was shite: Encourgaing people who couldn't really afford it to get mortgages in a house price bubble.

It truly was a house built on sand.

That doesn't mean that government has no role to play in getting things right in the future, just the fucked up ideology and greed that got use in this mess.

 

Taxation to reduce speculation in houses as a source of pure profit rather than a place for people to live in?

Tax on owning more than one home, tax on an increased price if the home was owned less than five years say.

Divert the money into social housing.

 

I think tougher restrictions on the banks were needed and are needed.

Like deposit requirements for mortgages, better consumer protection etc.

 

If the banks lent someone on a low income a 120% mortgage and they default, tough shit on the banks I'd say. Or I'd like to.

The few ran off with the loot while the going was good and no expect us all to pick up the bill when the times are hard.

But a lot of people rely on those banks as employers too... me too indirectly.

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That is 100% false. Fannie and Freddie are hardly the root cause of the economic collapse we're seeing. The root cause of the credit crisis is precicely due to the relaxation of mortgage lending standards caused by the unregulated free market that found new ways to package risky assets and sell them as low risk investment vehicles.

 

Banks were freed from traditional risk associated with granting loans, and they went crazy. The free market also played a cozy factor when credit rating agencies could be shopped around for. Who ever gave your crappy loan package the safest rating got your business. It was 100% the free unregulated market at work.

The truth is an easy story...

 

Politicians wanted poor people (voters) to buy homes. The banks agreed as long as the banks wouldn't get stuck holding the paper. The politicians promised the banks Freddie and Fannie would buy the paper. The paper was sold as CDS/CDO, and not just to Freddie and Fannie. Economy coughs, home values decline, CDOs lose value and upside for investors, banks end up holding the worthless paper (in a round about way, even if they don't hold the actual mortgages), politicians promise the banks they won't get stuck (again), $700 billion package is offered to buy worthless CDOs, poor people lose their homes, banks fail on their own high-risk investments, life goes on.

 

The rest of the "meltdown" is a lack of trust between lenders. Equities tank on economic uncertainty. Smart people with liquid capital start buying equities at rock-bottom prices, the Dow returns to 13K in 12-18 months (some people feel this might be 60 months), life goes on.

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I have panned the neo-liberal government policy becasue it was shite: Encourgaing people who couldn't really afford it to get mortgages in a house price bubble.

It truly was a house built on sand.

That doesn't mean that government has no role to play in getting things right in the future, just the fucked up ideology and greed that got use in this mess.

 

Taxation to reduce speculation in houses as a source of pure profit rather than a place for people to live in?

Tax on owning more than one home, tax on an increased price if the home was owned less than five years say.

Divert the money into social housing.

 

I think tougher restrictions on the banks were needed and are needed.

Like deposit requirements for mortgages, better consumer protection etc.

 

If the banks lent someone on a low income a 120% mortgage and they default, tough shit on the banks I'd say. Or I'd like to.

The few ran off with the loot while the going was good and no expect us all to pick up the bill when the times are hard.

But a lot of people rely on those banks as employers too... me too indirectly.

I do not know about the UK, but in the US you do not generally get the same capital gain tax break for a home that is not your primary home, so there is no need for an additional tax. As for an additional tax on more than one home, that makes little sense either- what is so had about owning multiple properties- only the primary gets the preferential tax treatment? There are already property taxes being paid, after all.

 

Not really interested in seeing more projects, MT. Maybe your view of council housing in the UK is more benign, but projects in the US have been a disaster.

 

Sorry to disappoint you, but the government actions you pan are not "neo-liberal" at all.

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1) Unregulated packaging of debt into increasingly complex vehicles.

2) Rating agencies willing to rubber stamp a safe rating onto risky debt.

these were certainly contributing factors, but not the only ones. Politicians, for establishing a useless framework of rules for an assortment of greedy pigs of all persuasions, greedy rating agencies for not doing their duty for which they got paid for,greedy brokers,greedy bankers, greedy insurance companies, greedy pension funds ,greedy house buyers AND greedy investors. The whole litany of greedy people who took advantage of each other and the more gullible. They all take a step back now and are wondering now who it was that was smarter than them. Such is free enterprise that never was nor ever can be. At best we had an economic twitter, at least as long as I can remember and that was in the 50's when I started to dabble in shares. Free enterprise when it fits the ruling class and control economics when they saw an advantage in that.

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1) was in large part a result of the origination of risky loans that if a bank had to keep on its balance sheet would almost certainly not have issued.

Exactly, my point being the ability for banks to sell off this bad debt was the 'innovation' that allowed this to happen. That had nothing to do with government involvement

 

TFL, you really cannot credibly claim that government encouragement had nothing to do with it. Subprime loans in such large volumes would never have been made without government prodding.

Indeed that is my point. Government prodding had very little to do with it. It was the ability of banks to sell off debt of any quality to eager buyers which allowed this to happen. I think the strongest evidence for this, is the fact that a simple bailout of Fannie and Freddie didn't solve the crisis. The current credit crisis is far more pervasive than a couple of government agencies relaxing standards.

 

It's not in your rational self-interest to lie about your income and to borrow way too much money, including doing so without having a job.

Of course it is, what exactly does an applicant for a NINA loan have to lose? The upside is huge, and if you lose you basically go right back to where you started... it was a no-brainer

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Guy is full of shit , there are a ton of bargain stocks out there , this market has hit bottom and you heard it here first.

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It's not "talking the market up" - it's that the share price of many stocks is now at 50% or below what a discounted expected profit model would yield... if you want to believe that the stock prices are dependent on nothing more than human emotions then fine , I choose to believe that there is the odd smart lad/lady out there who stands to make a killing - I prefer to count myself amongst that bunch.

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so are those who have consigned Gordon Brown to the bin for eg handling of Northern Rock going to call for the heads of most European heads of government now too to be consistent? Or is it just that UK voters are fickle in their nature and overly-harsh in their criticism?

 

As the Guardian points out, it isnt just an Anglo- Saxon problem, and maybe accounting differences have accounted for the slightly later onset of bank probs in Europe

Guardian

The German comments seem more foolish than anything Brown may have come up with

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It's not bottom if govts such as Britain are still thinking of injecting emergency capital into banks. If that happens the ordinary shareholding gets diluted overnight, and their stocks take another tumble, bringing down large segments of the market with them.

 

Having said that, I am actively looking for bargains (as long term holds) as we speak.

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Hmm, Have to say thjat Brown has actually not been that bad through this crisis and Germany would do well to heed his calls.

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My tuppence worth? Also not convinced this is the bottom. I think we may see some dead cat bounces, but I think the next 6-12 months will be grim (for the UK anyway) based on the following:

 

1. Banks no longer trust each other, so all borrowing is gonna be hard work - both interbank and to business and retail customers.

 

2. Any business that is/was dependant on bank lending, or needed further lending, or has cashflow issues, or is just a bit flakey, or is exposed to anything directly linked to financial markets or housing markets will be fucked.

 

So at this stage we are not actually seeing any of the EFFECTS of the recession that is sweeping along. What I think is happening is that the stock markets are building this into their prices - so the big drops are predictions of recessionary numbers.

 

But...

 

When the REAL figures start filtering through, we will see more selling.

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We're yet to see the follow on as well.

 

Anybody got friends in the car industry? Talk to them about the complete crash in car sales.

 

Nobody is buying houses either.

 

I don't have friends in the white goods markets but I'd be surprised if people were buying TV's and computers. The economy is on stop. Why would the stock exchange go up?

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Some snippets from today's FT: Asian shipmakers close to bankruptcy because many orders are being cancelled. Global steelmakers sharply cutting production because buyers are "on strike". Opel stopping production in two German plants for several weeks. Russian construction projects cancelled, 1 million job losses in construction industry expected. And on and on.

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Why would the stock exchange go up?

because all the stuff you mentioned should theoretically have been priced into the market already and if it has been "overpriced" into the market then stocks could go up (in the same (opposite) way that a company can come with record good figures but the stock still sinks because an even better report had already been priced in).

 

But I agree that its not a cert that bottom has been reached

 

oh and I just bought a house...

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