Posted on 07/11/2008 4:18:12 PM PDT by politicket
IndyMac Bank, a prolific mortgage specialist that helped fuel the housing boom, was seized Friday by federal regulators in one of the largest bank failures in U.S. history.
The Pasadena, Calif., thrift was one of the largest savings and loans in the country with about $32 billion in assets. It now joins an infamous list of collapsed banks, topped by Continental Illinois National Bank and Trust Co., which failed in 1984 with $40 billion of assets.
IndyMac specialized in Alt-A loans, a type of mortgage that can often be offered to borrowers who don't fully document their incomes or assets. ...
(Excerpt) Read more at online.wsj.com ...
Ask the employees of General Motors how confident they feel about their retirement now. Ask the employees of various local and state government agencies, in about another year, how they feel about that. Ask the recipients of Social Security, Medicare and Medicaid how they fell about that, in a few more years.
With Defined Contribution Plans, I own the asset, and can move it to safer ground, or bequeath it to my children, or do as I will with it. I am not all that worried that my employer will probably go toes up before I do.
Governance past the local is not something humans usually do well.
Most truly in “ill health”.
But, probably like you, I have never left a loved one when they were down. :)
btt
It's called the exchange rate. Say you bought $10,000 worth of RMB on January 1, 2008. Dropped it in the bank. Let it sit there - even at 0% bank interest - for the first 6 months of this year. Today you would have $10,720. A 7.2% return already this year.
The RMB will continue to gain strength against the dollar for the next 12 months. My unofficial sources within the Chinese banking industry tell me that Beijing will let the RMB drop down to 6 to the USD over the next 12 months, then stop the fall. Two years ago, it was at 8 RMB to the USD. Now it is at 6.83 RMB to the USD. So there's another 14% left to fall over the next year (down to 6 RMB to the USD).
So put your money in an overseas account, buy some RMB, let it sit there, then cash out when you want. The interest rate the bank pays is irrelevant; it's the rising strength of the RMB relative to the dollar that matters.
Your last post made sense - sleep well.
Your last line would not be correct. I’m not wondering if Bernanke will try to inflate. I KNOW he will try to inflate to stave off deflation. What I am left wondering is if his attempts to inflate will even work.
Even if we have 10% inflation for two years, but then the US economy completely collapses and we have a decade of brutal deflation, I would say that the credit crisis ended in deflation, not inflation. I’m absolutely NOT saying that I know this crisis will end in deflation. I do not know. I’m struggling to see whether it will end in years of massive, painful inflation or in years of economy destroying, business destroying, bank destroying, job destroying DEFLATION.
I just don’t know. Nobody does of course, but I don’t even have a foggy clue or have a ghost of a chance to lay odds. I’m am lost on the question of whether this liquidity crisis will end in inflation or deflation.
So as I’ve said at least 4 times now, I’m simply bringing up the possibility that it could end in deflation, and I think it is worth repeating because it is VERY OBVIOUS to me that a lot of people in public and on this forum are assuming it MUST END IN HIGH INFLATION, and are completely ignoring or ignorant to the POTENTIAL FOR DEFLATION.
I’m getting frustrated now because too many people are parroting the “hyper-inflation” only scenario and REALLY NEED to learn that inflation is not the only possible outcome. This is ESPECIALLY important, since the entire reason Ben Bernanke wants to push inflation is because he is terrified of deflation and considers that the cause of the Great Depression.
Bernanke wants to inflate to insure against a repeat of the Great Depression. That is my point. I guess too many people here think we can’t fall back into a deflationary Depression and think the ONLY possible negative outcome of this is inflation.
Learn what deflation is and why Weimar is preferable.
You are welcome.
This is the best financial advice I can offer to anyone. I have lived it and it is true.
“I know what it is to be in need, and I know what it is to have plenty. I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want. I can do everything through him (Christ) who gives me strength.”
Philippians 4:12-13
I appreciate your detailed and informative post. Great points.
I don’t think the question of deflation is invalid. Your points are relatively sound but it seems that you’ve framed all your points from the reference point of the consumer or investor.
What I am asking is: Will we or won’t we repeat Japan in the 1990s. Will we experience deflation so severe that the economy slows to a crawl and economic stimulus doesn’t work. You can say lower your asset class, but that means nothing to broke, credit strapped Joe6pack.
My question is, is inflation going to strain Joe6pack’s budget, or is net deflation going to cost Joe6pack his job. Inflation is painful, but as long as you are working, you just cut back on part of the budget to accommodate your basic needs that are inflating.
But if we have deflation, your company goes belly up and you can’t find a job for 2 years. Not it is not a matter of saying, “damn everything is getting super expensive”, but of saying “wow, I’m draining my life savings just to live and if I run out I have no clue how I’m going to survive!”
So while your post is more thorough and realistically predicts future financial pain, I’m still left wonder if most folks will be working but slipping in quality of life as their dollar doesn’t go as far, or are we going to see extensive bank failures, business failures, and the related massive layoffs that would go with that.
That is my question. I don’t think it is an invalid one.
>>>>>But my understanding of God’s Word and the current environment of the United States shows that God has lifted His hand of protection from our country.
The United States has suffered bank failures, depressions, recessions, downturns, wars, and other major disruptions and problems since its founding.
---IndyMac came under fire last month from Schumer, the Democrat from New York, who said lax lending standards and deposits purchased from third parties left it on the brink of failure. During the 11 business days after Schumer explained his concerns in a June 26 letter, depositors withdrew more than $1.3 billion, the OTS said. ``This institution failed due to a liquidity crisis,'' OTS Director John Reich said in the statement. ``Although this institution was already in distress, I am troubled by any interference in the regulatory process.''
Before you chime in on something that doesn't concern you, shouldn't you at least get a clue what's being said?
No? I didn't think so.
Have a nice day.
He conquered fear, and he conquered hate. He turned our night into day.
The messiah is a near!
I wonder if perhaps you are using the word 'deflation' where I would say 'depression'?
What you describe, where Joe6pack's life sucks big time, not just a little, is what I'd call a depression.
The canonical example of a depression in our background is the depression of the 1930's. That was different, from what I can tell, from the deflation of Japan in the 1990's. I don't recall seeing pictures of long soup lines and dust bowls from Japan in the 1990's. Rather, it has just been flat for them: no economic growth, no increased wealth, no population growth, ... just flat, after the initial collapse of real estate prices. But I've not paid close attention to Japan, so could be way off base here.
Whether Joe6pack will lose his job depends on where he works. If he works for an American car company, I'd guess he has a 50% odds of losing his job. If he's a roughneck in the oil fields in North Dakota, he's exhausted from the overtime he's been putting in.
Some state and local governments will have to lay off workers as well, depending on how well they've been managed, and how much their tax base has been hit with the falling real estate prices.
A few truckers have already gone off the road, as the economy slows, and fuel prices rise. More truckers will go down over the next year. Low level retail employees in shopping malls, upper end stores and places like Starbucks will see some layoffs. Construction workers are seeing some long layoffs. A couple of real estate offices down the street from me have closed. A big strip mall near me is half boarded up.
I'm guessing 10% to 20% unemployment, overall, and lower wage jobs for many others.
If, God forbid, Obama is elected, I expect that many in the military will not re-up, and will have trouble finding jobs when they get out.
Investment managers on Wall Street will see bigger pay cuts, and higher rates of unemployment ... some of them will end up buying beer by the 6-pack ;).
I anticipate 100's of bank failures, though most ordinary folks will be covered by the $100,000 FDIC insurance. People's retirement funds, if they left it in the stock market, will lose perhaps half its value. Their house may lose half its value, in the more over priced markets, which can easily be all the equity. Layoffs will be substantial, and companies will go out of business. Some, I expect to be amongst them, will end up working for half what we make now, if we're lucky.
People with chronic medical conditions will be hurting; our medical and drug "industry" is ailing. People with money, such as Mark Levin or Rush Limbaugh, will defend our medical services as the best in the world. Others such as myself (less wealthy, but thankfully healthier) are agreeing more with folks such as Mike Adams, over at Natural News.
Our major media and political institutions and government bureaucracies have become seriously corrupt and will use this time to increase their power and further destroy this nation.
I don't expect anarchy and lawlessness. I do expect hard times, quite a bit more unemployment, failed banks and companies, rationed medical care, lowered standards of living, and more Detroit like slums, which aren't safe to walk at night.
My advice - cut back on the spending, pay off the credit cards, don't buy the big screen TV, and stay healthy.
Be willing to change location and job, if need be.
That's what I've done. I've moved from Silicon Valley (California) to North Texas, paid off all my debt, sold my California real estate, and modified my life style so that I can live comfortably on half the money I lived on last year. I've become a serious health nut, completely revising my diet so as to minimize the risks of the usual chronic problems of heart disease or cancer.
The details of who gets hit, how much, will vary a lot by where you live, where you work, and how well you've managed to stay out of debt.
Japan is much more homogenious than America, from what little I know of it. There will be much variety across America in how this affects us, as well as much variety depending on what kind of work you do, and who you work for.
Over the past few weeks many notable analysts have made the case that the economy is in the process of recovery. The market has celebrated the wonder of the “resilient consumer.” Given the still fragile state of the economy we think that this is a bit overblown. A cold-eyed, hard-nosed analysis of the true condition of all things financial provides us with a very different assessment of the economy. But, with a major week of fundamental data and the onset of earnings season for financials upon us we thought it pertinent to put a few ideas to rest.
First, the credit crisis has yet to run its course. A genuine credit crisis is comprised of two components: a liquidity crisis and insolvency crises. With already $400.00 billion in global write offs within the financial sector alone one might be tempted to declare the credit crises over.
Yet, the problems on the balance sheets of financials will continue. Write-downs and the process of de-leveraging have yet to be finalized. We believe that there are $75-$100 billion in write downs left in the US alone before we reach a conclusion to the liquidity portion of the crises. This will continue to depress whatever appetite for risk taking in equity and credit markets remains. The Fed did not extend its primary dealer credit facility well into 2009 by accident.
Moreover, we have only begun to embark on the insolvency portion of the economic tragedy unfolding before our eyes. Too many market players are operating on the unspoken assumption that the fall of Bear Stearns and the near miss at Lehman have signaled that the end of the troubles are at hand.
Unfortunately, this is not the case. The crisis that has primarily engulfed Wall Street is beginning to spillover onto Main Street. Ford and GM will both be candidates for mergers, bankruptcies or bailouts in 2009. It is quite clear to anyone that care to look that Fannie Mae and Freddie Mac will have to be bailed out by the Federal Government. Pending legislation in Congress regarding the end of private fee for service, if it is enacted, will put at least one major player in the healthcare sector and one minor actor at serious risk of insolvency early next year. And do not forget the 200-250 small and regional banks that the Fed has warned us will eventually fail. Even such stalwarts as the gaming sector, which has been traditionally impervious to systemic economic slowdowns is going to see a spree of consolidations and perhaps a few insolvencies on the back of too much debt and a sharp reduction in demand from consumers who have seen their discretionary income evaporate.
Second, the consumer is no longer resilient but in fairly significant trouble. A well -timed and quickly implemented fiscal stimulus program is masking the true condition of the consumer. Pre-fiscal stimulus, the trend in real personal consumption was absolutely flat. Once the positive aspects of the stimulus withers away the prevailing trend in real consumption will reassert itself and we shall be back to where we were in the first quarter of the year.
The market has observed six consecutive months of contraction in non-farm payrolls. Growth in the once vibrant service sector has collapsed to near zero growth over the past three months. The major factors keeping the labor sector from collapsing appears to be the very questionable birth-death model at the Bureau of Labor Statistics and the aforementioned healthcare and hospitality sectors. Over the next few months the modeling at the BLS will catch up with reality and the healthcare/leisure sector will experience outsized contraction based on current economic conditions and trends. The decline in real income will put additional pressure on an already stressed consumer and set the stage for the final capitulation.
Finally, we will see a series of revisions to recent economic data, including GDP that may change current perceptions of the economy. We expect that the downward revisions will confirm that we are in a mild recession. More importantly, we anticipate that when we get to the final quarter of 2008 will see another downturn in economic activity.
Since 2007 my forecast for the economy has been “W” (no pun intended) shaped recession. We saw the first trough in late February and early March of 2008. We are currently at the middle apex of the “W” and expect to see growth begin to decline during the early portion of Q4’08. The final trough in our double dip scenario should occur in the second quarter of next year.
The sub trend 2.1% rate of growth that we expect to see in Q2’08 is a function of Washington priming the pump and the a vibrant external sector. Once the stimulus from the Federal government begins to fade and the impact of the searing increase in the cost of energy and commodities can be assessed on a domestic and global basis, the last vestige of support for the economy, net exports will fade to away and the US economy will see its first major recession since the early 1980’s.
I may be a month early, but the beauty of an ETF, instead of futures or options, is they don't expire, so if takes some time to get Shangai down to where it should be, that's fine.
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