Dow Sinks 387 on Renewed Credit Concerns

[unhappycamper]

Source: Huffington Post

Dow Sinks 387 on Renewed Credit Concerns
TIM PARADIS | August 9, 2007 10:02 PM EST


NEW YORK — Wall Street's deepening fears about a spreading credit crunch sent stocks plunging again Thursday, with the Dow Jones industrials extending their series of triple-digit swings and falling more than 380 points. The catalyst for the market's latest skid: a French bank's announcement that it was freezing three funds that invested in U.S. subprime mortgages.

The announcement by BNP Paribas raised the specter of a widening impact of U.S. credit market problems. The idea that anyone _ institutions, investors, companies, individuals _ can't get money when they need it unnerved a stock market that has suffered through weeks of volatility triggered by concerns about tight credit and bad subprime mortgages.

A move by the European Central Bank to provide more cash to money markets intensified Wall Street's angst. Although the bank's loan of more than $130 billion in overnight funds to banks at a low rate of 4 percent was intended to calm investors, Wall Street saw it as confirmation of the credit markets' problems. It was the ECB's biggest injection ever.

The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.

Read more: http://www.huffingtonpost.com/huff-wires/20070809/wall-street/

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"The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system." :wtf:

Oh, that's right. The good ole USA no longer reports M3. :sarcasm:

[babylonsister]

1. My b-i-l got laid off last week after 24 years of faithful service. He

had no pension, only his 401K. MAkes me wonder if they knew something. I feel sick for him/them. :(

[unhappycamper]

3. Add us.

I feel sick for him/them/us. I'm sorry to hear about your b-i-l.

[Jimbo S]

15. My wife was laid off in March.

Twelve years in the mortgage industry, the last five in sub-prime.

Unemployment runs out in ten weeks. The last resort will be take whatever the temp agencies have to offer. Will probably mean a significant cut in pay.

We feel your pain.

[Deja Q]

18. Long term employees typically get paid more.

Dunno how much he knew.

I wonder if he had to document everything before being given the push?

[BOSSHOG]

2. Sub-prime mortgage rates are a result of conservative values

Please share this from coast to coast because its the truth.

[Tansy_Gold]

17. Absolutely true

In 2001-2002, I worked in an office complex shared by a mortgage broker. The manager was paid a percentage of loans closed and he made no secret of the fact that he would do anything, including encourage an applicant to lie, to close a loan. He estimated his income for 2002 to hit $1.5 million; he did not care if the people getting the loans could pay them off.

In 2002, I worked for an administrative department of a suburban Phoenix municipality that was struggling to deal with predatory lenders and developers who were targeting the low-income population. When my department head addressed the town council about adopting some kind of policy to help prevent people getting into 99%-sure-foreclosure-down-the-road situations, she was shut up by town officials who only cared about the increased tax base. They said it was up to the individuals to get themselves educated about lending practices and that she had no right to provide educational materials or information to them. Understand -- it wasn't that she had no obligation, thus suggesting she could do it if she wanted but wasn't required to, but rather that she had no right even to make the information available.

In 2003, I worked for another suburban Phoenix municipality that faced similar problems during a period of rampant residential development. Because they had endured several commercial development bankruptcies, they wanted to avoid similar problems with residential developers. They also were faced with a town council eager to get tax revenues and less concerned about lower-income families losing their life savings. The solution -- if you can call it that -- was to push developers into building higher-end residences to keep the po' folks out.

In 2005, after my husband died and I was looking to move to another community, I found a property I very much wanted to buy. Because I did not want to take on any more mortgage debt than I absolutely had to, and preferably none at all, I wanted to bring the price of this property down. The sellers had jacked it up to the very top end of the scale, which was way more than it was worth, considering the condition it was in. The real estate agent I was dealing with tried to sucker me into a mortgage in order to close the sale. Even though I had nothing even close to an income to qualify for -OR- make payments on $120K indebtedness, the agent located a lender who was willing to extend me the mortgage. I looked the agent right in the eye and said, "Do you really think I'm stupid enough to sink what is my entire life savings into this property KNOWING it's over-priced and I can't pay the mortgage, thus guaranteeing that I would lose EVERYTHING to the 'bank' within a year?" He had no answer.

I listened to NPR's Diane Rehm talking yesterday morning to someone about the winners and losers in the current mortgage crisis, and it was very clear that the higher-the-end, the better off the people were, both buyers and sellers, and especially those who had so much money they didn't need mortgages! Duh! But when people started saying that the banks were "losing" in this crisis and should be considered "victims," I just about gagged.

They had money to burn and gambled with it. They watched the real estate market climb and climb and climb and they got greedy. The developers who put up cheap houses eight and ten and twelve to to the acre sucked their money out of the market and when things got tough, they just declared bankruptcy and changed their name and kept right on going. I don't know of too many real estate agents who put their life savings on the line and risked every dime they had coming in; I do know several who were taking home $10K a week and more.

So, who got burned and who's getting burned now? The working people, of course, and there's no pity in the media for them. There's plenty of whining and weeping about the collapse of a couple of Bear Stearns hedge funds, but what about the families who saw their lives collapse when they could no longer meet the mortgage and the groceries and the electric bill and the kids' school clothes and the aging car that needed a new transmission or tires?

That house I almost got suckered into taking out a mortgage on was a lot nicer than the one I eventually bought, but I don't have the burden of that indebtedness. I had the advantage of personal experience with a mortgage and other indebtedness and the struggle to deal on a month to month basis with that reality. For a low-income family whose background doesn't include that kind of experience, who is encouraged by advertising and their own personal dreams to want that nice new house in the pretty development with the landscaped yards and new school the kids can walk to, don't you think that temptation is pretty hard to resist, especially when there's a slick salesperson showing them how they really can afford it?

Few things make me as angry as those who routinely blame the homeowners when they can no longer afford the mortgage. And it's especially irritating to me when the blamers are here on DU. Many of us come from the working-class families who came out of the Depression with an appreciation for indebtedness and wealth. But there are just as many families today who don't have the advantage of that background. Most of them are families of color, and we ought to have some kind of appreciation for the situation they now find themselves in.

I feel no sympathy whatsoever for the mortgage brokers, the real estate agents, the developers, the investors, the speculators. I do feel sorry for the working families who are losing everything, including their hopes and dreams.


Tansy Gold, who is herself still a dreamer

[Tyler Durden]

4. BOY those 401k's were a GREAT FUCKIN' IDEA, WEREN'T THEY?

This is what was PREDICTED DECADES AGO when the rich and powerful sank pensions for most Americans, and made it possible for sales of companies, bankruptcies to torpedo the pensions that still existed.

STILL think playing the market is a good idea?

[slackmaster]

5. In the long run, yes it is a good idea to invest in stocks

When the market takes a dip, I smile because that means I purchase more shares with my next paycheck.

You have to diversify, and choose investments based on your willingness to accept risk and volatility. Pick safe index funds and you'll see 10-10.5% over the long haul.

[Tyler Durden]

6. If you have MONEY, you buy stocks.

The last 401k I was in lost 10% of its value over the time I was in it.

This is not a speech you need to be giving to us folks down near the bottom of the food chain. I'm going have to sell my house and take another loss: I don't have DICK to invest in ANYTHING.

Besides, I'm a Socialist. I view what you're doing as exploiting workers. I'm SO glad you smile when the market takes a dump. Not something I'd brag about around a crew of largely Humanist Progressives if I were you.

[slackmaster]

8. You don't have to be poor to be a humanist progressive

Sorry about your situation, Tyler Durden. I'm 49, and it's only in the last few years I've been able to make any real headway financially. Here are a few of my historic lowlights:

- Born dead broke (like most of us).

- Paid my own way through college by working - No student loans, grants, waivers, gifts, etc.

- Lost most of my savings in 1989-1990 in Savings and Loan debacle, much of it in stock options that tanked. Also lost a long-term career job.

- Spent next several years in debt and renting a home. Rose to dead broke status again about age 36 while married.

- Fell back to deep in debt status at 40 when I got divorced.

- Reached point where retirement savings exceeds debt owed on house about two years ago.

I've worked hard for what I have now, and I think your view that I am somehow "exploiting" anyone is a bit childish. All I've ever tried to do is take care of myself and (back when I had one) my family, within a set of conditions and constraints I really don't have any control over.

Early in life I could have chosen an entrepreneurial path, started my own business, invented something. But then I'd have probably had to hire people or contract out some of the work, and people of your mind-set would be even more inclined to label me as an exploiter of those less capable of earning a decent living. Hey, maybe there's still time for that. But at this point it doesn't seem worth the risk to me.

BTW Tyler Durden, regarding that 401k that lost 10% of its value during the time you had it: It's likely that mine did too. I have to wonder why you didn't roll it over into a self-directed IRA or something; and why you had the 401k invested in stocks if you weren't able to accept the downside risk. Every plan I've seen has the option of investing in a money market fund (i.e. cash), or bond funds.

[Tyler Durden]

9. No offense was intended, but to clarify:

In the opinion of the vast majority of the Socialist Community "I've worked hard for what I have now..." is every capitalist's excuse for making his pile while there are others just as worthy drowning and will spend the rest of their lives drowning.

I am not drowning, but I'm not exactly winning the freestyle event in the Olympics.

I say this while I have (on Paper) good equity in the house I'm in. Our situations do have some similarities, and while we all have our "stories" of woe, I will not go into mine: suffice it to say, I've got you beat.

The point is, some of us are on the down side of 55, NEVER owned an expensive car, NEVER lost it all in Vegas, NEVER taken a risk where we could have lost it all but we lost it all anyway. There ain't nothing coming in that ain't going back out: I live in MICHIGAN and I work in MANUFACTURING: this should say much.

It is far past time that we looked at people struggling in their 50's and say "WELL. If you'd just rolled over a ...and then invested..." IF you have enough in your account to retire (or WILL have enough if we don't hit a recession: a likely scenario in my book) then you are indeed an object of envy as you are in the top 15-20 percentile of the non-rich working force. The average content of a 401k in this country 2 years ago was $20,000 (I can look that up if you want, but trust me: it's nicer) which will pay less than 2 years of Blue Cross if you're a SICK retiree.

My point? If you're doing fine, GREAT: but rubbing the rest of our noses in it is not exactly "how to win friends and influence people." I applaud your LUCK and your investment acumen: I just don't want to hear about it.


And how is your health and the weather where you are?

[slackmaster]

10. My health is decent, and I live in San Diego

Where the weather is always "nice".



Thanks for asking. I really didn't mean to rub anyone's nose in anything. Sorry if I offended anyone.

[Tyler Durden]

12. Finance is a touchy subject where I live (near FLINT).

Mike had it right: the middle of Michigan is in the last round, PRAYING for the bell so they can just get out of the round.

We all forget how GREAT we have it. HELL, I'm going home to air conditioning, my SO and kids, my dogs, my DVD's...so what if there's some home repair? I should REMEMBER that I once lived IN A TENT IN A CEMETERY in Ann Arbor for three months in Winter.

It can always be worse.

I liked being in San Diego. Balboa Hospital was a great place to be a Navy Corpsman. Did they ever rebuild that Museum in the park that burned? I haven't been there since 1980.

[Odin2005]

14. I bet most of that increase is inflation

[yellowcanine]

16. Me too - little secret of "dollar cost averaging" - long term investors buying stocks make money

when stocks prices go down as long as they don't panic and stick to the plan because eventually the prices go back up and then they own more stock than if the stock prices had never dropped.

[Javaman]

7. They keep trying to ralley, but it's not working so well...

[htuttle]

11. I used to have an old Chevy that did that

Hitting the starter motor with a hammer used to fix it right up...

[TheLastMohican]

13. I am not a specialist

but to me the chain looks like this:

massive FRS intervention with printed money to keep the liquidity afloat - inflation - FRS rate increase - growth of the real estate crisis.
It looks like a huge dive.
Somebody tell me I am wrong....

[zehnkatzen]

19. My awareness of the 1929 crash isn't too clear...

...but, I seem to recall that, about a week before the big crash, didn't the Federal Government attempt an infusion to make things go right...or was that the banks?

[CountAllVotes]

20. info. here:

>> WHAT ROLE DID THE FED PLAY IN CAUSING THE GREAT DEPRESSION?

A favorite conservative argument is that the Federal Reserve Board caused the Great Depression by contracting the money supply.

This is a complete myth. According to the Federal Reserve's own records, at no time did the Fed pull money out of the system. Although it's true that the money supply contracted 31 percent between 1929 and 1933, this was not because of the Fed. Rather, the contraction was caused by three dramatic runs on banks, which would close 10,000 banks by 1933. So many failures were significant, because bank deposits formed 92 percent of all the money in circulation.

The Fed's Actions in the Great Depression

To see why the Federal Reserve did not cause this contraction, recall that the Fed has at least two methods of increasing the money supply. By far the most common and important method is buying U.S. debt from commercial banks, in the form of U.S. securities. The lesser way is to cut the prime interest rate that the Fed charges commercial banks.

Between October 1929 and February 1930, the Fed actually pumped significant money into the economy. It made major purchases of U.S. securities, and cut interest rates from 6 to 4 percent.

After this sudden infusion of money, however, the Fed made only very modest purchases of securities. It cut the discount rate only twice between March 1930 and September 1931. In the final months of 1931 it briefly raised the rate twice, but then cut it again in 1932. The modest security purchases counterbalanced the brief raises in rates and resulted in no significant change in the amount of money available to the public. However, this period of inaction by the Fed is the target of much criticism, as we shall see.

more: http://www.huppi.com/kangaroo/Timeline.htm