Posted on 09/15/2008 1:16:57 PM PDT by illiac
Bad day for Wall Street
(Excerpt) Read more at finance.google.com ...
So you are not following the possibility of AIG declaring bankruptcy in 48 hours if they can’t raise $75 billion on the private market, taking their $1 Trillion balance sheet down with them, and setting off a chain reaction of counterparty defaults that will make the Lehman collapse look like a garden party?
Yes, I’d prefer to see the kind of history composed of puppies and rainbows as well. But that’s not the kind of history we get...
Best.
Single.
Financial.
Post.
I’ve.
Read.
On.
FreeRepublic.
In.
A.
Long.
Time.
OK, that was too artsy. Best single financial post I’ve read on FreeRepublic in a long time and maybe ever. A “must read” post if I ever saw one. You could post it as it’s own thread...
My answer to your question, “What does it tell you when the Federal Reserve makes two such unprecedented moves?” is...
The are completely panicking and they have very good reason to panic. I hate to look extremist, but what is happening right now is the things that global Depressions are made of. If AIG declares bankruptcy on Wednesday, that horrible possibility is going to get much more likely.
Terrifying watching the melt down of the world financial system right before my eyes, and right on the heels of watching the suicidal death throes of Western culture.
What’s next? Little green men from Mars?
Basically it is a slow collapse vs say, a fast crash.
Stocks are liquid. If people panic, they can sell their stocks very quickly, leading to a stock market crash.
Houses are very illiquid. It takes weeks or even months for a seller to finally accept a buyers bid, if a buyer ever does bid. If not, the seller must keep dropping his asking price until he finally sells. Because houses are illiquid, housing markets don’t so much “crash” like stock markets, as they unwind. They just spiral down over time.
The liquidity crisis we are in has the same effect on bank losses and bankruptcies. Banks don’t fail all at once. They are hiding their losses and trying to keep those debts from being called, keep from having to pay them all at once. They are raising capital and selling stock. So bank collapses, like housing, tends not to crash but to unwind.
There are way better financial people here at FR than me, so maybe this explanation misstates the term “unwind”. But that is the rough meaning of the term as I understand it. Hopefully you will get a more clear, more comprehensive definition from one of our exceptional financially trained Freepers. I thought I would take a shot at it, though... I don’t think I’ve missed the mark by too far.
“The cut was from AA- to A- on senior debt; the A-2 is the counterparty risk rating.
“This downgrade triggers the requirement that AIG post more collateral. I am looking for confirmation, but this is what I saw in terms of consequences. From Bloomberg:
“A ratings cut may have ``a material adverse effect on AIG’s liquidity’’ and trigger more than $13 billion in collateral calls from debt investors who bought the swaps, the insurer said in an Aug. 6 filing. AIG has already posted $16.5 billion in collateral through July 31. A downgrade could also set off early termination of swaps that may cause $4.6 billion in payments, AIG said.
“The is going to lead to massive counterparty defaults in the credit default swaps market, an event we and others had warned about for some time. The CDS market was the most likely culprit to cause a systemic unwind. God help us if the authorities are not prepared.”
http://www.nakedcapitalism.com/2008/09/brace-for-tsunami-fitch-s-downgrade-aig.html
In addition to the above vicious cycle triggered by their lowered rating, AIG stock is down some 79% or more in value year-to-date, so they have lost a hell of a lot of investment capital this year. That doewn’t help their liquidity one little bit.
It sounds like you are assigning zero responsibility to the borrowers in these cases. Do you really think that personal responsibility should only be invoked by lenders and not borrowers? Are lenders to treat borrowers as helpless, dumb little children in the future? Are lenders to now steer you into certain loans for your own good, because you are too stupid to know what you need?
I won’t pretend there wasn’t a lot of fraud on the part of lenders, in light of the fact that many people who rated prime mortgages were steered and badgered into accepting sub-prime loans. So I don’t want to prepare this is nothing but Caveat Emptor.
But you are taking the opposite tack. Evil lenders are 100% responsible and innocent lamb borrowers have zero responsiblity.
Are you sure that you want to live in a future where the person signing a contract takes no responsibility whatsoever for what they sign? Is that what you want? Seems to be what you are saying.
Blame is useless at this stage of the game. Besides, there’s more than enough to go around.
I’m sorry for your financial loss. Honestly. It is why I and others were screaming here over the past year to move your money into safe investments like cash and Treasuries.
We were laughed at by a lot of people who were buying every dip. Every time the market went down they were screaming “buying opportunity.” Now I’m looking to re-enter around S&P 1000.
I wish I could have been more successful in getting my message out. I posted early and often and I have no clue what more I could have done to get the message out to more people to move your money to safety. And all the while I was accused — and still am proclaimed — as a “doom and gloomer”, a willing stool of the MSM trying to get Obama elected and not a true Conservative.
What more could we do in warning people to get safe with their money?
People selling now essentially bought high and sold low.
What more could we do? I wish more Freepers had moved to safety for this downturn. Some are savvy enough to trade the market and make some money on options. I”m not. I’m just long or out. People like me only had one defense, and that was — flight to safety.
I’m really sorry for your financial loss and your mothers. I think by getting out now you at least have saved a little money for the final drop.
What tears my heart out is that Hydroshock and McGee and a whole slew of people were taking a beating trying to warn people here to move their money to safety, with little effect. I wish we all could have been more effective in shielding those losses.
It’s not too late now, but going all cash after losing 30% of your portfolio is not good timing.
I never thought the unbridled avarice of my generation would lead us into another global Depression. I wasn’t sure it was possible, economically, with all the bright minds out there. And I wasn’t sure that it was possible, with all of the regulations based on the hard lessons from the Great Depression.
I was surprised to find that our politicians sold us out by eliminating historic barriers to systemic risk and letting the pigmen leverage themselves to the moon. Naive fool that I am.
So yes, while I didn’t expect a bed of roses, I thought a Depression was only something I had to live through the tortured stories of my father and not something I would ever live to see.
I pray we avoid a depression, but nobody knows how this massive deflation will play out. It has “depression” written all over it. God willing, that won’t happen and the economy of the USA and the world will be strong enough to squeak by with just a long, deep, painful recession.
Oh so the plan by the “free traders” all along was to repeal all common sense and allow our stated enemy China to invest in our domestic economy. Then in a fit of genius, the “free traders” destroy the domestic economy so China will lose its investment.
Thank you, “free traders”. You always said someone was going to suffer so globalization could be accomplished, you judy left out the part where you acknowledge that individual Americans and the American culture was the planned victim.
Its quite normal for “free traders” to trash an economy. Just look at what they did to Ireland, and the Southern United States, when they were asked to give up their slaves in America. It has been acknowledged by some Union generals that the “free traders” incited the Civil War.
I only hear crickets. Maybe the power went out in Panama.
Rush Limbaugh doesn’t have a $400 million contract for nothing. He’s got the biggest audience a government propagandist could buy. He’ll stay asleep until the money runs out.
Ben Bernanke said himself that the federal reserve caused the great depression, not tariffs and not smoot-hawley. Now the fox is in the henhouse, and Bernanke is the new head of the fed. He probably was warning us of a plan when he made those remarks.
More like the G8 and those meetings where our government officials meet with the internationalists in an unconstitutional political forum and no records are made public of the discussions.
If your a lending institution, and Fred the freeloader walks in, tells ya he makes 9 bucks an hour, and has 4k for a down payment for a 300k home...You going to lend him money? Of course not.
The greedy bankers and lenders lost all sight of their professional lending ethics and standards. It was a free for all, and these lending idiots are directly responsible for lending people money, that they KNEW could not pay it back.
This is no secret friend. It was all about getting those loan commissions.
You can blame the poor slobs for wanting money, but that blame is misdirected. The greedy financial professionals were in charge, and it was those lenders that had the AUTHORITY to approve the loans.
The lenders screwed themselves and everyone else.
Just like lenders that had the authority to approve loans. They held that authority, not the guy wanting the money.
You seem to assume I am not blaming the greedy lenders drooling gleeful for their next commission, or the fraudulent ratings agencies that gave AAA ratings to risky securities or the government regulators who were completely derelict in their duty.
All are to blame.
That said, you still assign ZERO responsibility to the borrowers? Zero? None. Complete innocent little lambs who signed the liar loans even knowing the lender was lying about their incomes?
Zero? No personal responsibility assigned to the greedy borrower at all after living years in cheap rental apartments and suddenly living lavish like a king in a brand new house on the same burger-flipper salary that barely rented his two-room apartment?
Really? Zero responsiblity? None?
Incredible. You would hold a man who signed a legal contract absolutely and entirely harmless from the contract he signed. Just unbelievable. I’m floored. I’m absolutely flabberghasted.
“But Mr. car seller, I didn’t really know I was buying that $80,000 Jaguar...”
“But Mr. Cruise Director, I didn’t really know I had to pay for this vacation...”
“But Mr. pawn shop owner, I didn’t realize you could keep my motorcycle if I didn’t pay you back on time...”
“But Mr. military recruiter, I thought I was just signing up for boy scout camp...”
I’m baffled by your attitude. Completely boggled. Completely.
Where does personal responsibility begin? Nobody is responsible for the contracts they sign because the big bad wolf gave them enough rope to hang themselves.
Who was it coined the phrase, “stupid hurts.” How far do you want to pad the cells of the world to save stupid people from themselves?
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