Posted on 03/22/2007 12:15:53 PM PDT by 2ndDivisionVet
When it comes to economic news, the press tends to be biased toward exaggeration and sensationalism. If some event isn't a "scandal," then it must be a "crisis."
The latest example of crisis journalism turned the phrase "mortgage meltdown" into an overnight cliche. It began with the effort to blame a worldwide dip in stock prices on local U.S. problems with subprime mortgage loans. According to The Associated Press, "Anxiety that a blowup of subprime mortgage lenders could spill over into the broader economy has roiled the finance markets in recent weeks and played a major role in the swoon on Wall Street that pushed the Dow Jones Industrial Average to its lowest levels in more than four years."
Facts never interfere with such an exciting story. The Dow was 12,226.17 on the day that story appeared. A year ago, the Dow was 11,109.32. Four years ago, in March 2003, it was 7,992.13. Besides, Shanghai was the first stock market to "swoon," and not because of defaults on subprime mortgage loans in Detroit or New Orleans.
(Excerpt) Read more at townhall.com ...
ha!
What is the price of thirty stocks got to do with the debt burdens of millions of average shmoes with no investment in the DJIA?
Most people have pensions.
That's where their pension money is.
A lot of people's pension money was put into hedgefunds that contained mortgage backed securities filled with these toxic subprime loans.
Probably, but if the pensions are diversified (as required by law), then it will pose little problem. The reason being that the hedge funds likely don't have all their eggs in the sub-prime basket, and the Pensions don't have all their eggs in the hedge funds (pension HF allocations are actually not that large as a % of their assets for regulatory reasons I believe). Hedge funds are very diverse in their views and bets, so some would be betting for sub-prime mortgages, some against.
As for this guy's claim that HFs are volatile, it depends heavily on the strategy used. Arbitrage strategies would be less volatile than, for instance, the US stock market. Global macro would be more volatile.
The problem here, that this guy doesn't understand, is what happens when the credit markets quit wanting to fund the gorging by the US consumer. The trend for the past several years was for the consumer to leverage himself heavily to buy big screen TVs and over-valued real-estate. Money flowed from the capital markets to the goods markets and created economic growth. But eventually, that money has to be repaid. And if the markets grow reticent to keep lending to a heavily leveraged consumer, then the engine of growth stalls.
AS for this story's impact on the markets, this guy obviously doesn't know jack. The markets are indeed concerned. I work on a trading desk, and it has been a major topic of conversation amongst people in my firm and people we talk to outside the firm.
His comment that 13.3% sub-prime delinqency isn't a big deal is ignorant. This average since 1998 for this number is slightly over 12%. So 13.3% is above average. Overall deliquencies are above average as well.
People are learning why they shouldn't buy expensive things on credit when they can't reasonably expect to afford the financing.
And the relative size of the sub-prime market compared to the overall market is much larger than it was in 1998.
Now see here all, this guy Thane makes a good simple language analysis of the whole mess. To much lent, at to high a rate, for to long, and now the french hens are coming home to roost. I'm just another anonymous schmo working for another GigantiCorp that reads this and gets it.
--and a lot wasn't.
On balance, average home equities are at record highs and total bankruptcies are down. The doom'n'gloom dim dem's in the press are liars.
Well, it is Lent, but I could use more since I've lapsed rather seriously :-).
Well, here's to much more Lent. Cheers!
Life is too short to drink bad wine!
It is fascinating to hear subprime lenders being accused of "exploitation" [and being predators] while they are losing millions of dollars and some of them are going bankrupt.
Has anyone run numbers on a potential demographic liquidity bomb as boomers start to withdraw their money in pension years?
well - you reap....
But they may to abort their baby (the dollar).
BUMP
There was much to-do about that a few years ago, but it turns out that the boomers aren't likely to cash in en mass.
The simple fact is that there really isn't any place else to put your money. Real estate is risky because of the booms and busts. Banks pay as little interest as they can get away with. If you have a lump some of money, the only practical place to park it is stocks or bonds.
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