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Don't Call it a Bailout or a Depression: Details of what is happening *Please Ping
MarketWatch.com ^ | 9/28/2008 | Irwin Kellner

Posted on 09/30/2008 5:32:05 AM PDT by politicalmerc

Spiro Agnew's words of the Nixon era ring true today. The politicians, pundits and, yes, the press, are nattering nabobs of negativism. For example, in recent weeks, the broadcast and the print media have filed stories replete with scare words. You don't even have to look at the tabloids to see what I mean. The front page of the New York Times recently described what it called "chaos" in the financial markets. Not to be outdone, most of the first section of The Wall Street Journal one day last week was devoted to articles describing the "spreading crisis" in our economy. And both newspapers have run stories using the word "depression" more times than I care to count. Now, don't get me wrong, I am not saying things aren't serious out there, but another Great Depression? I don't think so. If you look at the data, you will see more differences than similarities between the 1930s and today:

* In the crash of 1929 the Dow Jones industrials ($INDU: Dow Jones Industrial Average $INDU 10,365.45, -777.68, -7.0%) plunged 40% in two months; this time around it has taken a year to fall 22%. * The jobless rate jumped to 25% by 1933; it is little more than 6% today. * The gross domestic product shrank by 25% during the early 1930s; it is up over 3% during the past year. * Consumer prices fell by about 30% from 1929 to 1933; and the last time I looked they were still rising. * Home prices dropped more than 30% during the Depression vs. about 16% today. * Some 40% of all mortgages were delinquent by 1934 compared with 4% today. * In the 1930s, more than 9,000 banks failed compared with fewer than 20 over the past couple of years.

(Excerpt) Read more at marketwatch.com ...


TOPICS: Business/Economy; Editorial; Government; Politics/Elections
KEYWORDS: bailout; banks; congress; corporatewelfare; mortgages
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In another thread I got numerous questions about the mortgage industry, the economy, and what is happening to us right now. I was going to do a vanity thread, but I like this article so I posted it first. I'm going to do a series of responses to my own post to cover these questions:

What is causing the mortgage crisis? What is the role of PMI, Interest Only Loans, 80/20 loans, and how wide spread is it?

What is causing the bank failures and the credit crisis? Though this is related there is a completely different answer.

Why will this misnamed "Bailout" help the market?

I hope these mini-articles will help your understanding of what is a very complex problem.

Just briefly, you might want to know why I think I can talk about this intelligently. I have been a mortgage broker and real estate investor for 15 years. I have also been an attorney, and I have worked in the financial sector that we call "secondary" (where subprime capital was raised.) I have an MBA and I have funded more than 250 million dollars in mortgage loans in my life. At very least I feel qualified to answer some questions. If you think I did a good job please ping this post so everyone will see it. I didn't want to do it as a pure vanity post.

1 posted on 09/30/2008 5:32:15 AM PDT by politicalmerc
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To: politicalmerc
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2 posted on 09/30/2008 5:40:42 AM PDT by divine_moment_of_facts ( "The carnage of the free love generation has come home to roost.")
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To: politicalmerc

I have one. When I bought my house I put down 20% to avoid mortgage insurance. So were all the defaultees paying mortgage insurance or did the government waive it to make it more ‘affordable.’ Who insures these?


3 posted on 09/30/2008 5:41:11 AM PDT by sickoflibs (Pelosi :"Vote for my 'trickle down' bailout bill you greedy corrupt republican slimballs."." ,)
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To: politicalmerc

ping


4 posted on 09/30/2008 5:42:04 AM PDT by GOPPachyderm
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To: politicalmerc

There is a lack of time perspective in some of the article. The abysmal lows you reference are 1933-4, or 4 to 5 years after the first inklings of a crash. I’m not sure we won’t look similar in 4-5 years. I certainly hope the article is right.


5 posted on 09/30/2008 5:42:22 AM PDT by Chaguito
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To: politicalmerc
Don't Call it a Bailout or a Depression

I don't. I call it an Elect Øbama To Be President. I don't think this is any big RICO conspiracy, but a Soros kinda a guy with lots of money, over many years, setting up all sorts of areas for crisis to knock the US down to 3rd world status. I don't know how... but like a physicist knows what's going on from looking at traces of quarks and muons, I'm looking at the traces of morons and bozons against the film of our politics, economy and media.

6 posted on 09/30/2008 5:48:18 AM PDT by C210N (The television has mounted the most serious assault on Republicanism since Das Kapital.)
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To: divine_moment_of_facts

You should look at Cuba or North Korea. They don’t risk money the way we do here.


7 posted on 09/30/2008 5:51:17 AM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: politicalmerc

Is this really a “crisis”? Is this something the market will correct with a little time?


8 posted on 09/30/2008 5:52:18 AM PDT by YellowRoseofTx (Evil is not the opposite of God; it's the absence of God)
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To: sickoflibs

Perhaps that’s what the credit default swaps were for. I do know that Primary lenders were allowing people to take second mortgages to cover the 20%.


9 posted on 09/30/2008 5:53:12 AM PDT by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: C210N; Beckwith; F15Eagle; Fred Nerks; george76; LucyT; Calpernia; SatinDoll; forkinsocket
AGREED. ITS A NATIONALIST SOCIALIST, F'N FASCIST PUTSCH.

And the American people have managed to "get it!"

NO BAILOUT, NO OBAMA!!!!!!!!

God BLESS America!

Ping to this thread article.

The SKY is NOT falling.

10 posted on 09/30/2008 5:54:52 AM PDT by Candor7 (Fascism? All it takes is for good men to say nothing, (http://www.theobamafile.com/))
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To: politicalmerc

Thanks for this thread. I have to tell you that I had to jump thru hoops to get my loan. I had to produce months of receipts for bills paid ON TIME and bank statements. The bank still said NO cause my hubby is SELF EMPLOYED...(HUGE RISK, they said)

My MIL ended up buying the house and we pay the note every month (on time)...

We put 10% down and are proud of our home and we pay our house payment on time every month. How in the hell did all these people get loans and default on them? I don’t understand.


11 posted on 09/30/2008 5:56:31 AM PDT by meanie monster
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To: politicalmerc

FROM THE ARTICLE: “Folks, this is not a bailout of anyone, not Wall Street, not Main Street, and certainly not the so-called “fat cats.” It’s an infusion of liquidity, designed to unclog the financial markets. In doing so, it will benefit everyone, business and consumers alike.”

We don’t need an infusion of liquidity. People have ENOUGH debt, that is the original problem.

Let the 95% of good mortgage and loan payers continue to pay back their loans, and let lending institutions take in this money, and loan it out CAREFULLY from now one.

Honestly, I don’t know what the “problem is,” here.

If some banks and businesses in the financial sector have losses, well — that is WHY the market is dropping. Profitable businesses become more valuable, loss ridden ones LOSE value.

We should not borrow a Trillion dollars — and bail out these banks & lenders. That is kicking the can down the road, to our children.

We & our policy makers made mistakes, and WE should take the hit, and clean up the mess by absorbing losses. Let’s not make this a problem for the next generation.

If the market has to FALL several hundred more points (doubtful, but...) and property values have to fall a bit, LET IT HAPPEN.

Ideally, those responsible for bad liar loans, Democrats in Congress and any CEOs & financial lobbyists, will eventually be held accountable, and go to jail or pay fines. That would REDUCE our taxes, and allow us to again buy homes, driving prices back up....

In the mean time — STOP THIS BAILOUT,
LET PRICES ADJUST TO REFLECT LOSSES, BAD DECISIONS, BAD LOANS.


12 posted on 09/30/2008 6:00:43 AM PDT by 4Liberty (discount window + moral hazard = bank corporate welfare + inflation tax)
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To: politicalmerc

All I can say is, thank goodness we got Martha Stewart.


13 posted on 09/30/2008 6:02:07 AM PDT by mom.mom
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To: politicalmerc

We do ourselves no favors by rejecting a “rescue,” “bailout”, “plan” out of hand without first examining it, just because someone named it as such. To reject it is this manner is unwise and reckless.

There is no doubt something must be done, but can they (Dems and Republicans alike) just once leave out the d*** add-ons for themselves and their cronies?


14 posted on 09/30/2008 6:02:07 AM PDT by madison10
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To: meanie monster

You didn’t have a “Community Organizer” on your side.


15 posted on 09/30/2008 6:02:15 AM PDT by Conservative_Rob
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To: Candor7

The timing of this entire charade is priceless - it’s meant simply to get Obama in the White House. An October surprise in September if you will.

However, the socialists and their MSM co-conspirators underestimated the will of the people that can make a big difference on election day.

John McCain needs to put on his POW uniform and start taking on his wimp captors - Barney Frank et. al. well before election day.

He needs to show some grit and take on and reveal the Dimocraps for what they really are - gutless bobble-heads with functioning a$$holes.


16 posted on 09/30/2008 6:06:50 AM PDT by chambley1
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To: 4Liberty

“Let the 95% of good mortgage and loan payers continue to pay back their loans, and let lending institutions take in this money, and loan it out CAREFULLY from now one.”

This has been my thought. Maybe the lending companies cut a break to those with subprimes that went awry. Convert them to a fixed rate.


17 posted on 09/30/2008 6:07:36 AM PDT by EQAndyBuzz (McCain/Palin 2008)
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To: sickoflibs

I am surprised we haven’t heard any discussion of “private mortgage insurance”.

Where does PMI fit in to all this? Why are the mortgages not being covered by the existing private mortgage insurance?

Like you say, lenders may have eliminated the PMI requirement. If not, why the heck are these mortgages nearly worthless?

PMI may not cover interest, but it at least covers principal. Lenders should be made whole in that regard.


18 posted on 09/30/2008 6:07:41 AM PDT by Principled (Vaporize the "Divide and Conquer" taxes - Have everyone pay the same marginal rate!. NRST!)
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To: politicalmerc
Let's keep this "crises" simple:

Retail bankers lent too much money to NINJA's (no income, no job, no assets).

30% of those loans are in default. They are the only real problem, take care of them only, but not with amnesty, warrants, rebates, whatever... Extend their loans to 30-year, fixed interest, reduced interest, whatever... The borrowers that still go into default lose their houses to the retail lender.

If the mortgage industry's real estate equity portfolio is less than market value, so what. If the borrowers on those loans are making their payments, we taxpayers have no problem.

The banks holding under-equity loans will not be able to borrow money as they have no equity on paper. Too bad. Stop being a lending institution until your earnings on deposits improve or just go out of business like all bad businesses should. The FDIC protects deposits. ADIOS!!!

The banks that hold on will see their equity return when real estate goes up in value.

New banks will start up, businesses will find other lines of credit, or maybe just minimize their borrowings and keep more cash flow in reserve.

This is more about greed and expansion of government......hogs at the trough....

We need corrections like this to weed out the excessively greedy and get national lending policies back to rational levels.

This all happened when our government gave drunk-sailer loan guarantees to Fannie Mae and Freddie Mac. Federal tampering caused this problem and more tampering will not help.

19 posted on 09/30/2008 6:08:17 AM PDT by gandalftb (America's highest office.....Patriot)
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To: politicalmerc
The Mother Of All Bailouts failed. The markets and country survived. They work like they always do. Our government and MSM's attempts to scare the living daylights out of the American people is unforgivable.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus

20 posted on 09/30/2008 6:11:32 AM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives In My Heart Forever)
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